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JetBlue and Virgin America Go to War to Steal Each Other's Customers

By Adam Levine-Weinberg - May 2, 2016 at 1:20PM

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A month ago, JetBlue wanted to buy Virgin America. Now, it just wants Virgin America's customers.

Last month, Alaska Air (ALK 2.80%) agreed to buy trendy airline Virgin America (VA) for more than $2.5 billion, following an intense bidding war with JetBlue Airways (JBLU 1.91%).

Virgin America sold itself to Alaska Air last month. Image source: Virgin America.

While JetBlue didn't win the bidding for Virgin America, it still wants to win over Virgin America's customers. Not surprisingly, its attempts to lure loyal Virgin America fliers away have provoked a strong reaction. JetBlue and Virgin America now both seem intent on trying to steal each other's customers.

The Alaska-Virgin America merger's weak spot
On paper, the Alaska Airlines-Virgin America tie-up makes sense. Combining the two carriers will create a West Coast powerhouse with a strong presence in nearly every major West Coast market, including Los Angeles, San Francisco, Seattle, and Portland.

However, Virgin America's frequent flyer base is potentially the "soft underbelly" of the merger. Virgin America has attracted a loyal customer base in the Bay Area and Los Angeles due to its hip image, onboard amenities, and friendly service. Naturally, many of these customers are worried about how the experience will change when Alaska Air takes over.

Over the past month, Alaska has tried to reassure loyal Virgin America customers that nothing will change for now -- and that in the long run, it will try to incorporate the best aspects of the Virgin America experience into the Alaska Airlines brand. It won't be easy to maintain these customers' loyalty, though.

Some loyal Virgin America fliers are nervous about potential changes. Image source: Virgin America.

It's not that Alaska Airlines is a bad carrier. It's exceptionally well-run and has been ranked No. 1 among traditional carriers in customer satisfaction for eight straight years. However, it has a very different culture and "feel" than Virgin America and it will be hard to satisfy both customer bases with a unified product offering.

JetBlue makes its move(s)
This tension represents an opportunity for JetBlue. Soon after the Alaska-Virgin America merger was announced, JetBlue launched a "Calling All JetBlue Virgins" sweepstakes, giving away 50 free transcontinental roundtrip tickets to people who have never flown JetBlue.

The goal was primarily to increase awareness of JetBlue on the West Coast, especially among Virgin America's customer base. JetBlue's inflight experience is similar in many ways to what Virgin America offers -- with lots of legroom in coach, TVs at every seat, and fast Wi-Fi -- and it has the highest customer satisfaction rating of any airline measured by J.D. Power.

JetBlue also announced a broad expansion of its Mint premium service last month. Over the next two years, JetBlue will introduce Mint service -- including 16 lie-flat seats in the premium cabin -- on seven more transcontinental routes (not including Boston-Los Angeles, which had been previously announced).

JetBlue will roll out its Mint premium service to many more routes by 2018. Image source: JetBlue Airways.

On all of these new Mint routes except for New York-San Diego, JetBlue currently competes with either Virgin America or Alaska Airlines. With a true premium cabin for numerous transcontinental routes, JetBlue will be able to target fans of Virgin America's luxurious first class section: not just people who fly coach.

Virgin America strikes back
Not surprisingly, Virgin America isn't happy about JetBlue going after its best customers. Thus, it struck back last week with an offer targeting JetBlue's most loyal customers.

Virgin America has expanded its status match program to include JetBlue. Loyal JetBlue customers with Mosaic status now automatically qualify for Elevate Gold status at Virgin America, entitling them to a host of benefits (relatively similar to what Mosaic offers).

This offer might be attractive to some JetBlue elite-level frequent flyers in the Los Angeles area (JetBlue has a small focus city in Long Beach, California). However, most of JetBlue's customer base is on the East Coast, and Virgin America has less to offer those folks.

This is just the warm-up act
Of course, just as Virgin America's weakness on the East Coast limits its ability to poach loyal JetBlue customers, JetBlue's small West Coast footprint may prevent it from winning over too many Virgin America customers.

However, the two carriers do have significant overlap in the transcon market. Assuming the Virgin America-Alaska Air deal goes through, this overlap will increase. Furthermore, JetBlue has ambitions to grow its West Coast presence in the years ahead.

Thus, as Alaska starts to fold Virgin America into its own brand, JetBlue could make a concerted push to grow on the West Coast and poach more Virgin America customers. If JetBlue does so, it will ignite an even bigger war over customers between the two coastal airlines.

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Stocks Mentioned

Alaska Air Group, Inc. Stock Quote
Alaska Air Group, Inc.
$41.17 (2.80%) $1.12
JetBlue Airways Corporation Stock Quote
JetBlue Airways Corporation
$8.53 (1.91%) $0.16
Virgin America Inc. Stock Quote
Virgin America Inc.

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