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Wall Street’s Formula Will Ruin the Best Airlines

“JetBlue must reduce legroom and add baggage fees.” “Virgin America must increase its fees.” “Southwest has to start charging baggage fees.” Both the financial and the aviation media are full of stories highlighting Wall Street’s dicta for these airlines. And Wall Street apparently doesn’t care if its formula will effectively destroy these three lines as you know them. As one respected airlines writer put it, “That nice-guy approach to air travel wins awards and attracts a cult following, but it may not fly with Wall Street.”

By customer standards, those three lines—along with Alaska—are among the very few “good guys” in today’s airline business:

  • JetBlue, as I have often noted, provides “measurably the best coach product in North America.” That conclusion is based on objective fact, not personal opinion or surveys: JetBlue’s coach cabins have 1–3 inches more legroom than other U.S. airlines, it includes one checked bag in the fare, its extra-legroom option provides 3–5 inches more legroom than other lines’ extra-legroom options, its seats are an inch wider than those on airlines that fly mainly 737s, and its change fees are reasonable.
  • Although I don’t get exactly why, Virgin America consistently enjoys outstanding ratings from travelers. Maybe it’s the Branson pizzazz, but for whatever reason, people really like it.
  • Southwest, with its two-checked-bag policy and reasonable change fees, also rises near the top of just about any customer-preference survey you can find.

Wall Street currently has Virgin America in its crosshairs, because Virgin is working on an initial public stock offering. Clearly, its financial record is not encouraging: Virgin America lost $395 million during its first four years, and after finally posting a profitable year in 2013, it lost another $9.4 million in the first half of 2014. The only way to make an acceptable profit is to debase your product, say the financial types. Be more like Spirit.

But those analysts are also pushing on JetBlue and Southwest to downgrade their products, too, at a minimum by adding baggage fees and increasing ticket-change fees. The conventional wisdom on Wall Street, as one securities analyst stated, is the conviction that the financial benefits would “significantly outweigh the potential customer backlash.”

And that’s the crux of the issue. If they abandoned the policies and services that earn them top rankings and strong consumer preferences, would JetBlue still be JetBlue? Would Southwest still be “Southwest?” Would Virgin America still be “Virgin America?” My answer is, “Don’t be so sure.” As far as I can tell, Southwest has studied the issue very closely and has concluded that its generous baggage and fee policies do attract enough customers to offset the potential revenue loss. The travelers I know who now prefer JetBlue and Virgin America would drop those lines immediately if they started acting like Spirit. Yes, we need lines like Spirit—and maybe Frontier can succeed by going that route—but we also need offsetting lines that give us a choice of a better than average product.

Over the years, I’ve observed several cases where a fundamental product downgrading has resulted in the ultimate disappearance of an airline. One of the most notable was PSA, which was totally ruined in the acquisition by US Airways.

JetBlue, Southwest, and Virgin America are the nation’s most consumer-friendly airlines, and specifically the most senior-friendly airlines. So the question arises: What can you, as a consumer, do to offset the Wall Street pressure? You already know that the realistic answer is “not much.” The current Wall Street measuring stick is “beating the estimates” for each quarter, not sustained growth.

What you can do, however, is fly these superior lines whenever you have the chance, even when they cost a few dollars more than the less-friendly competition. At least think about it on your next trip.

Ed Perkins Seniors on the Go is copyright (c) 2014 Tribune Media Services, Inc.

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