MONEY Travel

The Most Loved (and Hated) Airlines in America

Southwest Airlines airplane
courtesy Southwest Airlines—Wieck

Ranked by number of passenger complaints

According to a March 2015 report from the U.S. Department of Transportation, American flyers really, really like Southwest.

The popular low-cost airline had the fewest complaints for March 2015 overall, at just 0.46 complaints for every 100,000 passengers. Flyers were similarly happy with JetBlue (who only received about 1.20 complaints per 100,000 passengers).

That’s no surprise: Both Southwest and JetBlue ranked high in recent lists of the best airlines in the United States. Southwest flyers love the free checked bags (where two come standard). And while JetBlue will soon be instituting bag fees, their weekly sales and popular routes still entice flyers. It seems that, on these two carriers, low fares don’t necessarily come at the cost of flyer comfort or on-time flights.

The DOT noted that airline complaints are on the rise, with more flyers complaining to the feds than in previous months or in March 2014. As passengers feel squeezed by high prices, additional fees, and overfilled flights, they are reporting their discontent to the government. But interestingly, with Southwest and JetBlue ranking high, it’s not all low-cost airlines catching heat for their practices (boding well for budget-conscious travelers!).

However, the DOT reported that another budget carrier, Frontier, received the most complaints from U.S. passengers: about 15.84 complaints for every 100,000 flyers. This is a sharp increase for Frontier, for whom the DOT received only 22 total complaints, or about 2.52 for every 100,000 flyers, in March 2014.

What’s the cause of the sudden uptick? According to the report, a combination of delays, cancellations, and customer service sank Frontier’s approval ratings.

Hot on Frontier’s heels is Spirit Airlines. With 10.27 for every 100,000 flyers, this other low-cost carrier was the second most complained about airline. An oft-cited complaint for the budget-friendly carrier? “Incorrect or incomplete information about fares, discount fare conditions and availability, overcharges, fare increases and level of fares in general.”

Promisingly, Frontier has noted that consumer complaints for May are already decreasing. So while the DOT isn’t required to penalize airlines based on the results of their reports, the airlines appear to be listening anyway.

Here are the airlines, ranked in order from the fewest number of complaints to the most. Any surprises?

The U.S. Airlines with the Fewest Complaints

  1. Southwest Airlines (0.46)*
  2. Alaska Airlines (0.56)
  3. SkyWest Airlines (0.56)
  4. ExpressJet Airlines (0.63)
  5. Delta Air Lines (0.68)
  6. Virgin America (1.05)
  7. JetBlue Airlines (1.20)
  8. Hawaiian Airlines (1.50)
  9. Envoy Air (1.95)
  10. United Airlines (2.36)
  11. US/American Airlines (3.72)
  12. Spirit Airlines (10.27)
  13. Frontier Airlines (15.84)

* Number of complaints per 100,000 passengers

This article originally appeared on Hopper.com. Hopper is a travel app that tracks and predicts airfare prices.

More From Hopper:

MONEY fees

These Are the Most Hated Fees in America

150520_EM_HatedFees
Ryan J. Lane—iStock

They've managed to narrow the list down to "only" 31 fees.

The website GoBankingRates.com has compiled a rogue’s gallery of the “most expensive, egregious, unexpected and just downright unreasonable charges” confronting American consumers today.

No fewer than 11 of the worst fees named on the list are related to banking. That’s not surprising considering each year we drop $7 billion on basic bank charges for things like failing to meet minimum balance requirements and monthly account maintenance. That figure is tiny compared to the roughly $32 billion consumers pay annually for overdrafts—which, of course, is another hated fee featured on the list.

Behind banking, travel is the category with the second-most hated fees—a total of 10 in all. Common fees for things like changing airline tickets, checking or carrying baggage on flights, renting a car, and flying with your pet are named on the list. Arguably worse are the fees travelers incur through no choice of their own, without any extra service provided, such as the vague “resort fees” added to bills at some hotels and resorts, and the mandatory gratuities charged by many resorts and cruise lines.

On the other hand, some of the fees in the roundup seem easier to accept because there’s clearly some service and value provided. What’s more, while the price of these fees may not be entirely reasonable, it’s easy enough for people to be well aware of them before signing on board. We’re talking about things like homeowner’s association fees and charges for belonging to sororities and fraternities in college.

What fee is the worst of the worst? GoBankingRates doesn’t rank them. Besides, it’s a matter of personal opinion. Obviously, the fees you hate the most are the ones you pay, without much in the way of choice, while getting little to nothing in return.

For what it’s worth, the checked baggage fee was named by our readers as the Most Hated Fee in a vote-off conducted a few years back.

MONEY Travel

The Absolute Worst Practice of Airlines Today

Getty Images

Change fees are just plain punitive

Americans love to hate the airlines. As airlines have transformed themselves over the past decade to become sustainably profitable, they have added bag fees, dropped meal service, reduced legroom, and adopted a litany of other fees.

All of these practices have made airline customers unhappy. Yet for the most part, these have been necessary changes to ensure that airlines are consistently profitable. While airfares have risen significantly in the past few years, they are still relatively low by historical standards, and would be higher without these changes.

Southwest Airlines is a rarity in that it doesn’t charge change fees.

But one innovation is particularly hard to swallow. The single worst practice of the airlines today is the imposition of punitive change fees. Change fees are often exorbitant compared to the actual costs they impose on airlines and create a massive amount of customer anger. This drives customers to Southwest Airlines SOUTHWEST AIRLINES CO. LUV -2.33% , which doesn’t charge change fees.

The purpose of change fees
Most of the fees imposed by airlines in recent years have been directly tied to services that some (but not all) passengers need that are costly to provide. For example, handling checked luggage or supervising an unaccompanied minor clearly imposes costs on an airline that it wouldn’t incur for an adult with no checked luggage. Thus, it’s reasonable that airlines charge some level of bag fees and unaccompanied minor fees.

The basic justification for change fees is also relatively straightforward. When a passenger changes or cancels a ticket, it may no longer be feasible to resell that seat, especially if it is close to the day of travel.

This is a very real cost of doing business. Airline revenue management systems are carefully calibrated to sell just the right number of tickets at just the right time for just the right price. A sudden influx of canceled or changed tickets at the last minute will lead to lower revenue for that flight (and won’t significantly reduce costs for the flight).

But change fees are excessive
That said, change fees tend to be excessive at U.S. airlines. The top three carriers, American Airlines AMERICAN AIRLINES GROUP AAL -2.48% , Delta Air Lines DELTA AIR LINES INC. DAL -3.08% , and United Continental UNITED CONTINENTAL HLDG. UAL -3.3% , all charge a $200 fee for changes to nonrefundable domestic tickets. Change fees can be more than twice that amount for international flights.

The biggest U.S. airlines charge change fees of $200 for domestic flights.

Most low-cost carriers have lower change fees, but these are still frequently $100 or more. Only Southwest Airlines has maintained a generous no-change-fee policy.

What makes these change fees the single worst practice of the airlines is that the fees bear no relationship to the actual cost to the airline. A fee as high as $200 might be reasonable for changing a long-haul transcontinental itinerary less than a week in advance. By that point, there isn’t much time for the revenue management system to adjust in order to resell that seat.

On the other hand, a $200 fee is clearly excessive for changing a ticket months in advance — particularly if the ticket was fairly cheap to begin with. Most airline tickets are sold within the last two months before the flight, so that leaves plenty of time for the airline to find another customer to fill the empty seat.

There’s a middle ground
While almost all airlines (except Southwest) have clung to — and even increased — their high change fees, one jumped off the bandwagon less than two years ago.

In late 2013, Alaska Air ALASKA AIR GROUP ALK -3.15% increased its change fee from $75 (or $100 if made through a call center) to $125. But at the same time, it eliminated fees for flight changes made at least 60 days in advance, even for the cheapest tickets.

Alaska Airlines has stopped charging for ticket changes made at least two months in advance. It’s obviously not as good as Southwest Airlines’ no-change-fee policy, but it’s definitely a big improvement compared to the status quo. Customers can book tickets far in advance without being 100% sure of their plans. Since it doesn’t cost Alaska Airlines much to change a ticket when it still has two months or more to fill the plane, it’s a nice gesture to make the change for free. Meanwhile, the airline is still compensated for more-disruptive changes closer to the travel date.

Alaska’s larger rivals should consider adopting this type of model, as they would likely gain some customer goodwill without giving up much revenue. In fact, waiving the fees for ticket changes made far in advance could help them gain market share, as some travelers fly Southwest because they can book flights “worry-free” without being sure of their plans.

Ideally, airlines would go beyond this and dramatically reduce (if not eliminate) fees for changes and cancellations made one to two months in advance. During that window, the airline still has a very high probability of reselling the seat. A relatively nominal fee of $25 to $50 would compensate the airline for the small risk of having the seat go empty. However, it’s unrealistic to expect change fees to disappear entirely.

The single worst practice of the airlines isn’t the mere act of charging change fees, but rather the excessive level of these fees and the complete disconnect to the airlines’ actual costs. Alaska Airlines’ compromise shows a way forward that could be good for both airlines and their customers.

More From Motley Fool:

Americans love to hate the airlines. As airlines have transformed themselves over the past decade to become sustainably profitable, they have added bag fees, dropped meal service, reduced legroom, and adopted a litany of other fees.

All of these practices have made airline customers unhappy. Yet for the most part, these have been necessary changes to ensure that airlines are consistently profitable. While airfares have risen significantly in the past few years, they are still relatively low by historical standards, and would be higher without these changes.

Southwest Airlines is a rarity in that it doesn’t charge change fees.

But one innovation is particularly hard to swallow. The single worst practice of the airlines today is the imposition of punitive change fees. Change fees are often exorbitant compared to the actual costs they impose on airlines and create a massive amount of customer anger. This drives customers to Southwest Airlines(ALASKA AIR GROUP ALK -3.15% NYSE: LUV ) , which doesn’t charge change fees.

The purpose of change fees
Most of the fees imposed by airlines in recent years have been directly tied to services that some (but not all) passengers need that are costly to provide. For example, handling checked luggage or supervising an unaccompanied minor clearly imposes costs on an airline that it wouldn’t incur for an adult with no checked luggage. Thus, it’s reasonable that airlines charge some level of bag fees and unaccompanied minor fees.

The basic justification for change fees is also relatively straightforward. When a passenger changes or cancels a ticket, it may no longer be feasible to resell that seat, especially if it is close to the day of travel.

This is a very real cost of doing business. Airline revenue management systems are carefully calibrated to sell just the right number of tickets at just the right time for just the right price. A sudden influx of canceled or changed tickets at the last minute will lead to lower revenue for that flight (and won’t significantly reduce costs for the flight).

But change fees are excessive
That said, change fees tend to be excessive at U.S. airlines. The top three carriers, American Airlines AMERICAN AIRLINES GROUP AAL -2.48% , Delta Air Lines DELTA AIR LINES INC. DAL -3.08% , and United Continental UNITED CONTINENTAL HLDG. UAL -3.3% , all charge a $200 fee for changes to nonrefundable domestic tickets. Change fees can be more than twice that amount for international flights.

The biggest U.S. airlines charge change fees of $200 for domestic flights.

Most low-cost carriers have lower change fees, but these are still frequently $100 or more. Only Southwest Airlines has maintained a generous no-change-fee policy.

What makes these change fees the single worst practice of the airlines is that the fees bear no relationship to the actual cost to the airline. A fee as high as $200 might be reasonable for changing a long-haul transcontinental itinerary less than a week in advance. By that point, there isn’t much time for the revenue management system to adjust in order to resell that seat.

On the other hand, a $200 fee is clearly excessive for changing a ticket months in advance — particularly if the ticket was fairly cheap to begin with. Most airline tickets are sold within the last two months before the flight, so that leaves plenty of time for the airline to find another customer to fill the empty seat.

There’s a middle ground
While almost all airlines (except Southwest) have clung to — and even increased — their high change fees, one jumped off the bandwagon less than two years ago.

In late 2013, Alaska Air ALASKA AIR GROUP ALK -3.15% increased its change fee from $75 (or $100 if made through a call center) to $125. But at the same time, it eliminated fees for flight changes made at least 60 days in advance, even for the cheapest tickets.

Alaska Airlines has stopped charging for ticket changes made at least two months in advance.

It’s obviously not as good as Southwest Airlines’ no-change-fee policy, but it’s definitely a big improvement compared to the status quo. Customers can book tickets far in advance without being 100% sure of their plans. Since it doesn’t cost Alaska Airlines much to change a ticket when it still has two months or more to fill the plane, it’s a nice gesture to make the change for free. Meanwhile, the airline is still compensated for more-disruptive changes closer to the travel date.

Alaska’s larger rivals should consider adopting this type of model, as they would likely gain some customer goodwill without giving up much revenue. In fact, waiving the fees for ticket changes made far in advance could help them gain market share, as some travelers fly Southwest because they can book flights “worry-free” without being sure of their plans.

Ideally, airlines would go beyond this and dramatically reduce (if not eliminate) fees for changes and cancellations made one to two months in advance. During that window, the airline still has a very high probability of reselling the seat. A relatively nominal fee of $25 to $50 would compensate the airline for the small risk of having the seat go empty. However, it’s unrealistic to expect change fees to disappear entirely.

The single worst practice of the airlines isn’t the mere act of charging change fees, but rather the excessive level of these fees and the complete disconnect to the airlines’ actual costs. Alaska Airlines’ compromise shows a way forward that could be good for both airlines and their customers.

Adam Levine-Weinberg owns shares of United Continental Holdings, and is long January 2017 $40 calls on Delta Air Lines. 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 Motley Fool:

MONEY Rip-offs

Are Airlines Gouging Travelers in the Wake of the Amtrak Disaster?

Vetta/Getty Images

The airline industry might appear to be living up to its (horribly greedy and opportunistic) reputation. The reality is a little more ambiguous.

The deadly train crash in Philadelphia has created chaos for travelers with plans to use the train service in the Northeast this week. The latest announcement from Amtrak indicates that its direct service between New York City and Philadelphia will remain suspended through Monday, May 18. That means anyone with plans to ride the rails to or from those cities, or trying to connect from Baltimore or Washington to anywhere north of Philadelphia, has had to look for options outside of Amtrak’s main line.

For many business travelers, the only other speedy, convenient, and altogether viable alternative to Amtrak is flying. And recent reports indicating that airlines have been gouging travelers with exorbitant last-minute flight prices in the Northeast confirm the perspective that airlines are opportunistic and greedy.

The (NY) Daily News reported that round-trip flights from New York-JFK to Washington-Dulles have been running between $700 to $1,100 this weekend (Friday departure, Sunday return), with some tickets hitting upwards of $1,700. These are seats in coach, mind you, on one-hour flights that normally cost $100 when purchased in advance, and perhaps $600 at the last minute.

“It’s opportunism,” George Hobica, who runs the airfare deal monitoring site Airfare Watchdog, told the Daily News. “The airlines know it’s a big business route and they can charge what they want.”

As of Friday morning, the least expensive round trip from JFK to Dulles that departs Friday and returns Sunday was priced at just under $1,100 on Delta Airlines, according to flight search aggregator Kayak.com.

Yet while it may look like there’s some price gouging occurring on this specific route between the New York and Washington, D.C. areas, airfares remain reasonable on other routes. Another quick search showed, for instance, that round trips between Newark airport and Dulles from Friday to Sunday are available at the last minute for $449 on United.

What seems to have happened is that there is very little availability on what few flights there are between JFK and Dulles this weekend, and as always, when flights are nearly sold out, airfare prices skyrocket. But with a little flexibility, it looks possible to book a flight in the Northeast without getting completely gouged—even at the last minute, even after the deadly Amtrak crash.

TIME Airlines

JetBlue Announces Weekly Flights from New York to Havana

Deal shows growing ease of travel between the two countries

JetBlue will begin operating a weekly flight from New York to Havana, Cuba this summer following the lifting of several travel and trade restrictions on the country.

The new flight will travel between John F. Kennedy International Airport and Havana Jose Marti International Airport each Friday at noon, with a return flight from Havana to JFK every Friday at 4:30 p.m. This makes JetBlue the first carrier to announce additional flights to Cuba from New York since restrictions were lifted earlier this year.

Fliers will have to book flights through Cuba Travel Services, a company that organizes charter flights to Cuba, rather than JetBlue. But Americans are still not authorized to travel to Cuba as tourists and must instead visit for one of 12 specific purposes like visiting a close relative or participating in an academic program.

The partnership follows a recent trade mission by New York Governor Andrew Cuomo to Cuba, where he and JetBlue CEO Robin Hayes hashed out a deal with Cuban officials. “By leading one of the first state trade missions to Cuba as the United States reestablishes diplomatic relations, we placed New York State businesses at the front of the line for new prospects in Cuba, that will in turn support jobs and economic activity here at home,” Cuomo said in a release.

The flights begin on July 3.

MONEY Airlines

There’s a New Reason to Subscribe to Amazon Prime—and Fly on JetBlue

JetBlue seats
JetBlue

Amazon Prime members will be able to stream video on JetBlue flights for no extra charge.

Airlines that offer wi-fi on flights typically charge $5 per hour, or $16 for a full day’s access, and customers aren’t able to stream video from the likes of Netflix, Amazon Prime, or HBO Go because the connection isn’t strong enough. On JetBlue Airways, however, a basic wi-fi service called Simply Surf has been free on equipped aircraft, while an enhanced Fly-Fi option that’s powerful enough to allow streaming runs $9 per hour.

Thanks to a freshly announced partnership between Amazon and JetBlue, passengers who are Amazon Prime members will be able to stream content on JetBlue flights via Fly-Fi for no additional fee. Starting this year on JetBlue Airbus A321 and A320 aircraft, and next year on the carrier’s Embraer E190 planes, Prime members can instantly stream tens of thousands of movies and TV shows from Amazon Prime Video on smartphones, Kindles, iPads, laptops, and other devices. They’ll also be able to listen to one million+ songs via Amazon Prime Music. All of this content on JetBlue flights costs nothing above the $99 annual price of an Amazon Prime subscription.

“We’re thrilled that Fly-Fi technology will give Prime members and customers unlimited, on-demand access to the full catalog of titles from Amazon’s digital video library while they’re in the sky—without the need to rush to download one more episode or movie before taking off, we’re helping make airline travel more enjoyable,” Michael Paull, Vice President of Digital Video at Amazon, said via press release.

The partnership provides some benefits for non-Prime members traveling via JetBlue as well. All passengers will now have the on-board option of renting or purchasing certain Amazon Instant Video content—including new release movies and TV shows that aren’t included in regular Prime—as well as the ability to buy and download songs, apps, and Kindle ebooks from Amazon.

Perhaps most importantly, the Amazon partnership is being credited as the “prime” reason JetBlue will be able to continue allowing all passengers to enjoy Simply Surf, the basic service that’ll suffice for browsing and checking email, at no charge on flights. All JetBlue passengers will continue getting free DirecTV via individual seatback screens too.

TIME Tablets

‘Several Dozen’ Flights Grounded Because of iPad Software Glitch

Shared Jet Sales Soar as Rich Fliers Avoid Airline Hassles
Scott Eells—Bloomberg/Getty Images A helicopter pilot looks at his flight plan on an Apple Inc. ipad over Weehawken, New Jersey, U.S., on Wednesday, Aug. 10, 2011.

Pilots announce delays after the iPads they use to access flight records simultaneously went blank

Dozens of American Airlines flights were delayed Tuesday evening after the iPad software its pilots use to access flight plans suddenly went blank.

American Airlines confirmed the software glitch on Twitter. An airline spokesperson later said the glitch had stalled “several dozen” flights, Quartz reports.

Stranded passengers in Chicago and Dallas also tweeted about the glitch.

American Airlines digitized its flight plans in 2013, replacing weighty paper-based tomes with Apple’s popular mobile tablet. The software in question is made by Jeppesen, a Boeing-owned company that specializes in aviation navigation and logistics products.

MONEY Airlines

The Pathetic State of Airline Travel Today Was Predicted Long Ago

crowded airplane seats
Jason Hetherington—Getty Images

No one should be remotely surprised that flights today are more crowded and more expensive, with more fees and worse service. As many critics warned, this is exactly what would happen with widespread airline consolidation.

The airline business is complicated. To some extent, however, making a profit is as simple as getting as many passengers on board your company’s airplanes as possible, and charging each customer as much as possible for the services provided.

Lately, airlines have been extremely good at being profitable. Airline profits soared in 2014 amid plummeting fuel prices, and the trend has continued in 2015. The first quarter of the year is generally a slow, lackluster period in travel, yet most domestic airlines reported record-high profits for the first three months of 2015. American Airlines reportedly took in a profit of $1.2 billion in the first quarter, according to the Dallas Morning News; previously, the carrier’s best first quarter was a haul of a mere $480 million.

Historically, in a scenario like the one outlined above, airline executives could be relied upon to add flights and new routes, and/or cut airfares, with the goal of winning over new passengers and snagging market share. None of the above is happening, however. For an explanation of why this is so, look no further than the string of airline mergers that took place in recent years—and that effectively killed the robust competition that existed in the industry not long ago.

“The airline industry is increasingly looking like an uncompetitive oligopoly,” Andrew Ross Sorkin wrote in a recent New York Times analysis. Sorkin pointed to the insights of analyst Vinay Bhaskara, who in late 2014 wrote in Airway News, “We are unquestionably living in an air travel oligopoly,” in which virtually all power in the industry lies in the hands of very few players.

“I will go on record stating that I believe that 2015 will be yet another year of record profitability for US airlines,” Bhaskara wrote at the end of 2014. Based on the first quarter results, his predictions appear to be coming true. As for the idea that airlines would expand service to take advantage of low fuel prices and attempt to win over business from their competitors? Let’s just say no one should go holding their breath waiting for heated competition and price wars anytime soon. “The idea that US airlines would, once again, devolve into a war for market share is founded on a misunderstanding of the new structure of US airlines.”

This “new structure” is one in which airlines are rigorously maintaining “discipline,” as Bhaskara puts it. This highly profitable approach is one in which the airlines aren’t expanding service because they prefer to fly densely packed planes, and they aren’t cutting fares because, well, they just don’t have to as demand remains high.

The approach might come across as greedy and opportunistic. But it shouldn’t come as a surprise. After all, the marketplace we have today is one that was predicted years ago by airline merger critics. Back in 2010, when United Airlines was close to completing its acquisition of Continental, consumer advocate Bill McGee published a manifesto about the ramifications of such mergers. Among other things, his analysis showed:

When merger partners’ route maps overlap, certain cities will lose service, with fewer flight frequencies and loss of nonstops.

Airline mergers don’t improve customer service.

When one airline suddenly dominates a route where it previously competed with a merger partner, ticket prices are likely to rise—often considerably.

Likewise, over the years various consumer groups and business travel coalitions have urged regulators to stop mergers from taking place for largely the same reasons. And, based on the routinely oligopolistic tactics of airlines in the post-merger world, in which travelers based in cities like Cleveland, Pittsburgh, and St. Louis have seen dramatic reductions in flights, and in which average flights in the U.S. have pushed past $500 (not including fees), the critics sure do seem to have been on to something.

Most unfortunate of all, the average airline customer should only expect more of the same approach going forward. Instead of adding flights, “Almost all of our capacity growth domestically is about putting more seats on airplanes,” American Airlines president Scott Kirby explained in a recent investment conference. “We will absolutely not lose our capacity discipline,” or the practice of limiting expansion in order to keep airfares high, United CEO Jeff Sismek said earlier this year, while announcing the company had nearly doubled profits in 2014.

Thanks to seat design “innovations,” airlines are able to cram more and more tiny seats into economy sections. This obviously makes flying worse, but that’s not stopping airlines from going forward. “When it comes to passenger comfort, the airlines are saying that this isn’t something that’s very important to them,” Eric Gonzales, an engineering professor at UMass-Amherst specializing in transportation issues, said to the Los Angeles Times. “These changes are intended solely to improve the bottom line.”

If the airline space were more competitive, it would arguably be a lot more difficult for carriers to get away with this kind of stuff. Yet they get away with this and more, including all manner of fees for services that used to be covered in the price of a ticket, plus a range of cost-cutting steps that show through in the results of a new study indicating that customer complaints, lost bags, lateness, and overbooking were all up in 2014.

As if it isn’t already clear, Brent Bowen, dean of the College of Aviation at Embry-Riddle Aeronautical University and a co-author of the study, explained how we got to this point: “Airline mergers and consolidations are taking a systemic toll that is bad for consumers… Performance by the airlines is slipping while they claimed this would make them better.”

MONEY Airlines

Oh, Joy. Airline Seats Will Be Getting Smaller

Airbus is adding a seat to its A380 configuration. Guess what that means for you?

MONEY Airlines

JetBlue’s Surprising Upscale Gambit Is Working

JetBlue Mint suites
JetBlue

JetBlue's Mint premium seats are getting more expensive -- and they're still in high demand.

Last June, JetBlue JETBLUE AIRWAYS JBLU -4.35% began a new chapter of its history with the introduction of its Mint premium service. Instead of using its standard all-coach configuration, JetBlue added a 16-seat premium cabin with full flat-bed seats for some of its new A321s. (Four of the seats even come as private mini-suites!)

JetBlue opted to make this change in order to boost its profitability on the ultra-competitive New York-Los Angeles and New York-San Francisco routes. Less than a year in, it’s pretty clear that this move is paying off even more handsomely than originally expected.

Mint ramps up

The routes from New York’s JFK Airport to Los Angeles and San Francisco are highly contested — JetBlue competes with all three legacy carriers as well as Virgin America VIRGIN AMERICA INC VA -1.47% . Until last June, JetBlue had been the only one not offering a swanky premium section on these flights. Not surprisingly, this took it out of the running for attracting the most lucrative travelers.

JetBlue created Mint in order to narrow the revenue gap with its rivals. The idea was to offer a lie-flat seat at a much lower price than the prevailing fares in order to court the small/medium business and upscale leisure markets: i.e., people who were priced out of the premium cabin on other airlines.

JetBlue has been phasing in Mint flights since last June as the specially configured Airbus A321 planes have arrived. It is finally reaching a full schedule of eight daily round-trips to Los Angeles and five daily round-trips to San Francisco this spring.

Strong demand across the board

Ever since JetBlue launched its Mint service, company executives have noted that they were pleasantly surprised by the level of demand for its premium seats. As expected, Mint has been popular with small/medium businesses and well-to-do leisure travelers.

More surprisingly, Mint has also generated strong interest among large corporations. JetBlue had assumed that its rivals — mainly the legacy carriers, but also Virgin America to some extent — had that business locked up. Instead, JetBlue’s entry into the market has disrupted the status quo.

Virgin America CEO David Cush noted in February that JetBlue’s entry into the market had driven average premium fares down by 30%-40% on the Mint routes. This indicates competitors have had to at least meet JetBlue halfway in terms of pricing in order to prevent customers from bolting.

Fares strengthen

In the first few months of Mint’s existence, JetBlue was offering a starting non-refundable fare of $599 one-way. There were two higher fare “buckets”: $799 and $999. Depending on the level of demand for a particular flight, JetBlue’s revenue management system would determine how many seats to sell at each price point in order to maximize revenue.

Because of the strength of demand, JetBlue’s Mint cabin was frequently sold out last summer. As a result, in the fall, the company revised its Mint pricing tiers. In October, JetBlue’s then-president — and current CEO — Robin Hayes explained that JetBlue had moved the refundable fare up to $1,199 and then to $1,209. Meanwhile, it had made the $999 price point a third non-refundable fare.

More recently, JetBlue has apparently determined that the market can support even higher fares. There’s still an introductory fare of $599, but there seem to be fewer of these tickets available, especially on busy travel days.

Furthermore, on the San Francisco route, the refundable fare has moved up to $1,249, while the intermediate non-refundable fares have risen to $809 and $1,049. Fares are even higher for New York-Los Angeles flights. The refundable fare there is now set at $1,299, with the intermediate non-refundable fares at $899 and $1,149.

A big profit tailwind

JetBlue has been posting by far the best unit revenue growth in the industry recently. It would be naive to attribute this performance to a single factor, but the strong reception of its Mint premium offering is clearly having a big impact. JetBlue is regularly pulling in one-way fares of more than $800 — and, increasingly, more than $1,000 — on routes where just two years ago, its average one-way fares were less than $250.

Late last year, JetBlue told investors that for the month of September, its profit margin on the Mint route to Los Angeles had risen by 17 percentage points year over year. Given that it has raised prices several times since then, its Mint routes are surely even more profitable now.

For competitors like Virgin America, this is mixed news. In the short run, it’s better if JetBlue is commanding higher prices, because it limits the need for other airlines to discount their fares to match JetBlue. But in the long run, JetBlue’s massive success on the New York-Los Angeles and New York-San Francisco routes could encourage it to add flights, putting even more pressure on the competition.

Your browser is out of date. Please update your browser at http://update.microsoft.com