For more than a decade, many airlines have offered international-style service -- complete with flat-bed first class or business class seats -- on flights from New York to Los Angeles and San Francisco. Yet American Airlines (NASDAQ:AAL), Delta Air Lines (NYSE:DAL), and United Continental (NYSE:UAL) never bothered to roll out a similar premium experience to other longer domestic routes.
However, in the past few years, JetBlue Airways (NASDAQ:JBLU) has disrupted the market for transcontinental business class travel. Most notably, it began to expand its Mint premium service beyond the traditional New York-Los Angeles and New York-San Francisco routes last year.
On Monday, Delta Air Lines announced that it will introduce its "Delta One" premium cabin (which features lie-flat seats) on half a dozen additional domestic routes next spring. This is a sign that Delta is starting to take the threat from JetBlue very seriously.
JetBlue is coming for the legacy carriers' most valuable customers
In 2014, JetBlue launched its upscale Mint service on its flights from New York to Los Angeles and San Francisco. The company had relatively modest expectations, but hoped that the move to cater to business travelers and wealthier leisure travelers would make it more competitive with American, Delta, and United on those two key routes.
In the end, Mint was successful beyond management's wildest dreams. Demand for premium seats has been much higher than expected. This encouraged JetBlue to add more flights on the New York-Los Angeles and New York-San Francisco routes. The increase in schedule options has in turn boosted unit revenue in the back of the plane.
Based on this stunning success, it was almost a no-brainer for JetBlue to introduce Mint service in its second-largest focus city, Boston. In 2016, it launched Mint on the Boston-San Francisco and Boston-Los Angeles routes. Earlier this year, JetBlue continued its Mint expansion, converting its Fort Lauderdale-Los Angeles and Fort Lauderdale-San Francisco routes to Mint service. The carrier is now bringing Mint to its routes from New York and Boston to San Diego, Las Vegas, and Seattle.
These new Mint routes may not be quite as popular with business travelers as the New York-Los Angeles and New York-San Francisco routes. Yet there is still plenty of premium demand. As JetBlue enters additional markets with the most luxurious product, it will be in position to steal more of the most lucrative airline customers from its larger rivals.
Delta is fighting back
Earlier this year, Delta Air Lines began flying between Boston and San Francisco as part of a broader expansion in Boston. Recognizing the need to keep up with JetBlue, Delta launched this route using a 757 equipped with lie-flat seats in the first class cabin. The carrier, however, is still using standard domestic aircraft in competition with Mint on many routes.
In 2018, Delta will expand its lie-flat seat offering to six additional domestic routes: Boston-Los Angeles, New York-San Diego, New York-Seattle, New York-Las Vegas, Atlanta-Honolulu, and Minneapolis-Honolulu. JetBlue operates Mint-equipped aircraft (or soon will) on all of these routes, except for the two Hawaii flights.
Delta doesn't plan to offer lie-flat seats on every single flight for the four routes where it is going head-to-head with JetBlue's Mint product. Instead, it will offer just one or two daily roundtrips with the international-style configuration, presumably focused on redeye flights. For the rest of its schedule, Delta believes that its existing domestic first class product is sufficient.
By expanding its domestic lie-flat seat offerings, Delta Air Lines will put pressure on United Airlines and American Airlines to follow suit. For example, back in June, United upgraded the business class section for its Boston-San Francisco flights to lie-flat seats just as Delta was entering the market.
JetBlue is setting the agenda
Delta's recent actions show that the legacy carriers can't afford to ignore JetBlue's moves in the premium travel space. The threat is real: JetBlue is offering a superior premium seating product at a lower price point, in many cases.
If history is a guide, JetBlue will start adding extra flights on its new Mint routes as soon as next year, and it could be ready to launch additional Mint routes by 2019. This would help JetBlue continue poaching deep-pocketed customers from American, Delta, and United.
Delta Air Lines is at least making an effort to hold on to its best customers. By contrast, it seems like the American Airlines and United Continental management teams may be asleep at the wheel. Both carriers have been aggressively matching budget carriers' fares in order to appeal to price-sensitive leisure travelers. But instead of competing for the least lucrative customers around, American and United should put more effort into retaining their best customers.
Adam Levine-Weinberg owns shares of Delta Air Lines and JetBlue Airways and is long January 2019 $10 calls on JetBlue Airways. The Motley Fool recommends JetBlue Airways. The Motley Fool has a disclosure policy.