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JetBlue’s Hybrid Model Has Potential, Problems

The airline world used to be so, so simple.

The universe divided neatly between two types of airlines: the full-service carriers (hereafter FSCs) and the low-cost carriers (LCCs). Then along came JetBlue to turn that world on its head.

Full-service carriers: Service for a price

The FSCs are holdovers from the era when the Feds regulated air travel.

Before Alfred Kahn was brought in to oversee the dismantling of the Civil Aeronautics Board (CAB) in 1978, the airlines had to petition the CAB for every new route, every schedule alteration, and—most significantly—every ticket-price change. So prices tended to be set high and left alone until they were raised yet again by all airlines.

Since the airlines didn’t compete on price, and their profit margins were artificially high, they focused their marketing energies on (drum roll, sharp intake of breath…) service.

For those too young to remember, this was the period when airlines fitted out their B747s with piano bars; miniskirt-clad stewardesses strode the aisles, freely pouring premium-brand booze; and travelers dressed up to fly, as they might for church.

These were heady days for airline employees as well. Flight attendants were paid more like doctors than fast-food workers, and pilots were compensated like tycoons. They were happy, and that happiness was apparent in their dealings with passengers.

For those who could afford to travel, the days when the FSCs ruled will be remembered forever as the good old days. But, as noted, tickets were pricey.

Low-cost carriers: Low prices and all that implies

The LCCs are the product of deregulation.

Because they began life without the baggage encumbering the FSCs (militant labor unions, hub-and-spoke networks, mixed fleets of old, inefficient aircraft, etc.), their operating costs were significantly lower. By minimizing service and maximizing utilization of aircraft and personnel, they were able to increase their cost advantage even further. And they passed those cost savings on to consumers in the form of lower ticket prices.

Southwest, of course, is the poster child for the LCCs. At one time, their cost per available-seat-mile (the industry measure of efficiency) was half that of what Herb Kelleher, Southwest’s founder, liked to call the dinosaurs: American, Continental, Delta, United, and the rest of the FSCs.

In exchange for cheap tickets, Southwest customers put up with cramped seats, bare-bones snacks, free-for-all seating, and a notable absence of such frequent flyer amenities as first class cabins and airport lounges.

But the flights operated on time, and the plucky flight attendants kept the cabin atmosphere light with jokes, singing, and a generally engaging attitude.

Bottom line: You got what you paid for.

The emerging hybrid

By most measures—consumer buzz, stock price appreciation, media attention—Southwest’s mantle has now been stolen by upstart JetBlue. It’s easy to see why. Where Southwest is a low-priced cattle car with a folksy sense of humor, JetBlue is a low-priced limo with an edgy style and attitude.

JetBlue may be low cost, but it’s hardly in the same category as Southwest when it comes to passenger amenities. In fact, JetBlue not only makes other LCCs look like service tightwads, they put the so-called “full-service” carriers to shame as well.

Leather seats with 33 to 34 inches of pitch (a measure of legroom) for two-thirds of its customers. Seatback TVs. Free wireless Internet access in its New York and Long Beach terminals. And yes, prices so low that they could quite literally drive one or more of the FSCs into bankruptcy.

The promise of loyalty, denied

But there’s a chink in JetBlue’s armor: its TrueBlue loyalty program.

TrueBlue fails on two counts. First, it’s a go-it-alone program. Members earn points on JetBlue flights. Then they can redeem those points for JetBlue flights. That’s it—no affiliated credit cards or hotel, rental car, or other airline partners.

Second, and more egregiously, TrueBlue points expire after a paltry 12 months.

Let’s put that restriction into the program’s larger context. JetBlue awards points (based on the distance traveled on a one-way flight) as follows: two points for short flights, four for medium, and six for long. So a cross-country flight (long) would earn 12 points for a round-trip. Since 100 points are required for an award ticket, a TrueBlue member would have to make nine long-haul round-trips in 12 months to earn a free trip. For medium and short flights, you’d have to log 13 and 25 round-trips respectively.

Therefore, when it comes to loyalty, JetBlue’s formula effectively segregates its customers into two groups: those who travel infrequently (fewer than nine long-haul round-trips per year), and those who travel frequently (nine or more round-trips per year).

The former get nothing because their points will expire before they can be used, while the latter enjoy the dubious privilege of participating in a program that is even less robust than Southwest’s (which has a partner roster, albeit a limited one).

I raised these same concerns when I reviewed TrueBlue in June 2002, on the occasion of the program’s launch. After more than 18 months, the only sign of improvement is a temporary double-points promotion for tickets booked on JetBlue’s website through June 30.

The fix for JetBlue’s loyalty misstep

JetBlue will likely never have a first-class cabin or its on-the-ground equivalent, the airport lounge. And it will never have the network coverage of an American or a United, since its point-to-point route system requires the traffic volume only medium- to large-sized airports can provide.

Nevertheless, with a single policy change, and without straying from its core values, JetBlue could reinforce its position as the industry’s all-around value leader. How? Simply by matching the industry-standard policy for mileage expiration.

Then we’d have an airline hybrid truly worthy of consumer support and industry emulation.

And if the airline were to go one step further and build a small but attractive partner network, JetBlue would have a program as cool as its name, further consolidating its competitive advantage over both FSCs and other LCCs.

In the meantime, I’ll stick with the legacy airlines. As much as it pains their bottom lines, they are often forced to match JetBlue’s prices. But so far they have retained their more inclusive programs for rewarding loyalty. So I get the best of both worlds: low prices and miles that don’t expire after a year.

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