JetBlue is exploring a more flexible stance toward corporate discounting, refundable tickets and preferred seating for high-yield and last-minute bookers, CEO David Neeleman said last month.
The explorations are designed to make JetBlue even more attractive to the corporate market, following its move last year to relist in all the major global distribution systems, buyers and industry watchers noted. Meanwhile, the moves—including a new corporate meetings product (see story)
—indicate a further blurring of the lines between legacy airlines and so-called low-cost carriers, at least domestically, while highlighting divergent approaches toward the corporate market among carriers in the latter category.
Like many low-cost carriers, JetBlue has earned a reputation among corporate travel managers for offering non-negotiable fares. Neeleman, however, told an audience of corporate travel buyers during an Association of Corporate Travel Executives lunch in New York that this is not a hard-and-fast rule at JetBlue. "I've never been a rule guy that much," he said. "To the extent that someone walked in and said, 'I got 100 people a day going here. If you give them this fare, I'll give you them all.' I'll say, 'All right, let's take a look at it.' I think we should be flexible in everything we do."
JetBlue also is working on a program that would amend the first-come, first-serve seating rule at the carrier. "We're in the process of rolling out a program, such that if you call the day before a flight and book a $399 ticket for transcon, I want that person sitting in the front of the airplane in an aisle seat," Neeleman said. He noted that the carrier has upgraded its seats, leaving about 45 percent with a pitch of 36 inches or more, particularly in the front of the plane. This has made some seats more desirable than others.
Neeleman said the carrier also is testing "with a couple of corporations" refundable fares. "If you want to pay us more money, we'll give you something that's refundable and changeable," Neeleman said. According to the carrier's Contract of Carriage, "fares are nonrefundable" and "a passenger is not entitled to a refund when the passenger cancels, changes or fails to use his or her reservation." Neeleman did not specify any timetable for making refundable fares more widespread. "We're testing it with a couple of corporations and it's amazing how much more people will pay" for refundable fares, Neeleman said.
During JetBlue's third-quarter earnings call last year, Neeleman noted the dividends from participating in Sabre, Galileo and Worldspan already were paying off. "We are getting a greater amount of business from those GDSs than we thought we were going to get." He noted that about two-thirds of GDS bookings represented new business to the carrier, saying it would add as much as $100 million in incremental revenue in 2007.
One New York-based travel buyer last week said that JetBlue bookings soared following the carrier's move to relist in the GDSs. The buyer noted that the company's lowest logical airfare policy has spurred more travelers to book with JetBlue now that it is listed alongside other carriers in the company's booking tool.
Despite JetBlue's distribution windfall, Southwest Airlines remains GDS-independent. The carrier maintains its stance on corporate negotiating—"fares already are discounted"—and limits its participation in GDSs, a spokesperson said last week. It serves the corporate market through its Swabiz corporate portal.
Despite Southwest's lack of GDS participation, Kevin Maguire, director of global travel for Austin, Texas-based Applied Materials, said travelers at his company frequent the airline, accessing Swabiz through the company's Cliqbook reservation tool. However, another travel buyer said usage of Southwest remains low due to nonparticipation in the GDSs.
Yet, Southwest has won favor with some corporate travel buyers without offering corporate discounts, an international network, a business class cabin or GDS participation. The carrier last year for the first time drew the highest marks in Business Travel News' annual survey of nearly 400 executives responsible for purchasing corporate airline services (BTN, Nov. 6, 2006).
TRX's Travel Analytics vice president Scott Gillespie said GDS participation is among the factors driving further usage of low-cost carriers in the corporate market. "Broadly said, the use of low-cost carriers is increasing, not decreasing. I'd point to a few factors. One is the emerging trend from low-cost carriers to publish more of their inventory in the GDSs. That is a major issue because it's operationally difficult and expensive for corporations to book through non-GDS channels. The fares are generally competitive—not always. Sometimes they're higher than network carriers, particularly if the discounts are aggressive on network carriers. Also, the quality of the service is pretty good when compared with the network carriers."
American Express Advisory Services senior practice leader for air Mitch Cwanger said that "there's little negotiating elasticity as airlines continue to price for profitability" and "more companies therefore are introducing or strengthening low-fare policies on domestic traffic to encourage cost containment." Cwanger noted that mainline carriers have decreased domestic capacity, leaving a larger portion of "the domestic pie" to low-cost carriers. "However, mainline carrier load factors are at an all-time high, so it is not a case of market share shift to LCCs," he noted.
Given varying strategies by "low-cost carriers," Ron Kuhlmann, vice president of Unisys R2A transportation and management consulting practice, said lumping domestic carriers into one or two categories does not reflect the true nature of a diverse bunch of airlines. Kuhlmann said designations like "low-cost carrier" and "full-service airline" have become outmoded.
"Ultimately, there will be no non-low-cost carriers," he said. "You simply can't operate in this market with high costs. We're seeing not only a blurring in the distinctions between the two, but even more important is the fact that the legacy carriers are still struggling to figure out how they operate in that space. They have the problem of having to deal with legacy systems and legacy infrastructure, which have been very hard to shed. That's probably the biggest thing that is defining the two at this point."
Kuhlmann noted that many of the traits associated with low-cost carriers are not shared by the domestic carriers lumped into that category: AirTran's business class offering defies the single-class model; JetBlue's and AirTran's GDS distribution does not fall into the direct-channel approach. Meanwhile, Kuhlmann contended that "for all their denials," Southwest is a hub-and-spoke carrier. "All you have to do is look at the Southwest Web site for availability and you'll see if you want to go from Manchester, N.H., to somewhere in Florida, it will be through Baltimore. Half of the flights will show BWI in there."
Legacy carriers reporting earnings in recent years have detailed efforts to reduce non-fuel expenses and get their cost structures further in line with the low-cost carriers. "All you need to be a low-cost carrier are low costs," Kuhlmann said.
Although the gap in cost structures between legacy carriers and the so-called low-cost carriers has been closing in recent years, Phillip Baggaley, Standard & Poor's managing director of ratings services, last week during the National Business Travel Association Financial Forum in New York noted that when side by side with legacies, low-cost carriers still fall at the low end of the scale in adjusted passenger revenue and non-fuel costs. However, legacy carriers are quick to note differentiators, including international networks, more premium services and participation in major multinational airline alliances, among others.
Amex's Cwanger last year, remarking on Southwest's first-place finish in the BTN travel buyer survey, said domestically the differences matter less. "The gap between the so-called legacy and the low-fare airlines has narrowed as far as pricing is concerned. What differentiates the legacy airlines from the low-fare airline? If you fly 99 percent domestic, there's very little differentiation as long as the airline can get you from point A to point B. With a few exceptions, they all have very similar service. The line is being blurred between what is a low-fare airline and what is a legacy airline."