Last fall, JetBlue Airways (NASDAQ:JBLU) told investors that it planned to boost profitability by adding baggage fees for the cheapest economy tickets and putting more seats on its 130 A320 airplanes. Critics immediately panned the move, warning that it would permanently damage JetBlue's reputation.
However, JetBlue's strong brand will survive this transition period. In fact, the public relations hit may be very short-lived.
Laggard to leader
In the past few years, JetBlue has fallen far behind the airline industry leaders in terms of profitability. While other airlines have boosted their margins by cramming more seats on each plane, JetBlue has maintained by far the roomiest cabin layout.
Furthermore, with the exception of JetBlue and Southwest Airlines, U.S. airlines have added or increased a slew of fees since the Great Recession, covering everything from checked baggage to flight changes. There has been no mass exodus of travelers from fee-charging airlines to JetBlue and Southwest.
In essence, JetBlue has not been fully compensated by travelers (in the form of higher fares) for customer-friendly policies like having lots of extra legroom, offering a free checked bag to every customer, and not overselling its flights.
This spring, JetBlue will introduce a new "fare families" initiative that includes a first-bag fee for the cheapest tickets. This will give it access to an ancillary revenue source that has fueled the legacy carriers' recent profits. Meanwhile, JetBlue will add 15 seats to each of its A320s, while still maintaining the most legroom (on average) of any U.S. airline.
Killing the brand?
These changes will undoubtedly boost JetBlue's bottom line when they go into effect. (The cabin reconfigurations won't be completed until 2018, though.) However, plenty of customers were upset when they found out about JetBlue's plans.
Some pundits suggested that JetBlue's attempts to improve its profitability might backfire by alienating too many customers. They got some ammunition earlier this year, when the YouGov BrandIndex survey showed that customer perception of JetBlue dropped significantly between October and January.
On the flip side, JetBlue has tried to emphasize that it's also adding amenities -- not just taking them away. For example, it is in the midst of outfitting all of its planes with fast, free Wi-Fi. JetBlue will also add power outlets in each row and offer even more channels of free satellite TV when it reconfigures its A320s.
Considering that JetBlue will still have the most legroom of any U.S. airline even after adding seats to its planes, it would be surprising if its cabin reconfiguration hurts its brand in the long run. As for bag fees, Southwest is the only U.S. airline still offering free checked bags. As a result, most fliers now expect to pay for checking luggage, even if they'd prefer not to.
Still flying high
Indeed, a recent survey by Temkin Group demonstrated that the angst about JetBlue's reputation has been overblown. Its survey of 10,000 consumers found that JetBlue had the best customer experience of any airline. JetBlue posted the biggest year-over-year improvement of any airline, and leapfrogged Southwest and four other carriers to take the top spot.
Obviously, these surveys capture snapshots in time, and they also have a margin of error. But the bottom line is that the announced changes haven't hurt JetBlue's brand in a big way -- otherwise, there's no way it could have improved its customer experience score so much.
When JetBlue implements its bag fees later this year and as it reconfigures its planes over the next few years, there could be more short-term damage to its reputation. But customers need to remember that for JetBlue to stay in business -- let alone grow -- it needs to earn a good return on invested capital. The status quo of high growth and low profitability wasn't sustainable.
More important, JetBlue will remain one of the industry leaders in terms of offering high-quality service at an affordable price. That will ensure that any brand damage is quickly repaired.
Adam Levine-Weinberg owns shares of JetBlue Airways. 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.