Last week, JetBlue Airways (NASDAQ:JBLU) launched its long-awaited high-speed in-flight Wi-Fi. For more than a year, JetBlue has talked about how its new satellite-based system uses unique technology that will offer vastly more bandwidth than other airlines' in-flight Wi-Fi offerings.
As JetBlue rolls out Wi-Fi across its fleet in 2014 and 2015, it will jump from being a laggard on in-flight connectivity to the industry leader. By offering true high-speed Internet, JetBlue will further bolster its value proposition for business travelers. This could help the company grow its profit margin significantly in the next two years and beyond.
A different kind of Wi-Fi
JetBlue's new Wi-Fi offering -- which it calls "Fly Fi" -- is expected to be eight times faster than the ground-based systems used by most airlines today. The increase in total bandwidth is even more significant, allowing more users to access the Internet at once. JetBlue is encouraging fliers to use a third-party Internet speed testing service to compare the speed of its in-flight Wi-Fi with competitors' offerings and then to post the speed test results online.
In fact, JetBlue expects to have so much bandwidth available that for $9 per hour that it will allow customers to access a high-bandwidth connection suitable for streaming video. Meanwhile, it will offer a lower-bandwidth connection (which is still likely to be faster than most airline Wi-Fi connections) for free through June 2014. JetBlue has not announced its long-term pricing plans.
Competing with the big boys
JetBlue's new Wi-Fi offering fills one major hole in its product offering that has put it at a disadvantage in competing for business travelers with Delta Air Lines (NYSE:DAL), United Continental (NYSE:UAL), and American Airlines (NASDAQ:AAL). This is very important because winning business travel has been a key priority for JetBlue recently.
In Boston, JetBlue is already the largest carrier by far, and it has been rapidly filling in the few remaining gaps in its domestic route network at Logan Airport. This has allowed it to grab a solid share of business traffic there. By contrast, JetBlue is in a dogfight with Delta, United, and American for market share in New York.
From a "network" perspective, JetBlue is competitive with the legacy carriers in New York. It is about half the size of Delta and United and somewhat smaller than American in terms of weekly seat departures from New York. However, JetBlue is much closer to its larger rivals in terms of domestic service and it has interline and code-share partnerships with more than two dozen international carriers. This allows it to offer itineraries to many global business destinations despite having only limited international service on its own.
Productivity is important for business travelers, so offering in-flight Wi-Fi is crucial for these passengers. Soon, instead of being a Wi-Fi laggard, JetBlue will offer the best product for business travelers looking to do work on the plane. This will help it gain corporate share.
JetBlue's "Fly Fi" service will be particularly important for competing in the transcontinental market. Next spring, JetBlue will roll out its "Mint" service on the routes from JFK Airport to Los Angeles and San Francisco. Both routes are frequented by business travelers, and JetBlue is upping its game by offering a premium cabin with 16 flat-bed seats including four semi-private "suites". Fast Wi-Fi will help fill those seats with high-paying business travelers, boosting JetBlue's profit margin.
JetBlue's new "Fly Fi" onboard Internet will be available on most of the company's planes by the end of 2014. This fast Wi-Fi offering will help differentiate JetBlue from competitors, including Delta, United, and American. In combination with other new initiatives like "Mint" premium service, it will give JetBlue an opportunity to steal high-margin business traffic from the legacy carriers. If JetBlue succeeds, shareholders will benefit from significant profit growth by 2015.
Adam Levine-Weinberg is short shares of United Continental Holdings. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
More from The Motley Fool
JetBlue Delays Decision on the Future of Its Embraer E190 Fleet
For the past year, JetBlue Airways has been studying the possibility of replacing its Embraer E190 jets on an accelerated timeline. However, it has now indefinitely postponed making a final decision.
2 More Airlines Just Raised Their Revenue Guidance
American Airlines and JetBlue Airways just offered more evidence that the revenue environment has improved dramatically for airlines over the past few months.
Here's My Top Stock to Buy for 2018
This Fool's top stock pick for 2018 is well positioned to deliver double-digit EPS growth for years to come, but it trades for just 12 times earnings.