MIAMI — JetBlue launched its brand new Mint product earlier this week, offering a dedicated business class product with flatbed seats (and suites) on flights from its largest hub at New York JFK to Los Angeles and San Francisco. The new JetBlue product offering, which we judged to be extremely competitive with United BusinessFirst, Delta BusinessElite, and American Airlines Business Class, will initially be sold at $599 for a one-way flight.

Some in the industry have questioned the logic of offering the product at such a low fare, especially given the large investment required and the lost revenue potential of the reduced economy class seat capacity. However, we performed a closer analysis of the economics of the new offering, as well as its strategic role for JetBlue, and we believe that the Mint product offering does in fact make sense, even at the low initial price.

A JetBlue spokesperson issued the following comment on the economics of Mint:

It’s still early, but we’re are very happy with Mint and early bookings. As you know, the premium, transcontinental market tends to book pretty late. So, a lot of our early bookings are from enthusiasts eager to see the product first-hand. When we decided to launch Mint, we weren’t necessarily targeting the corporate market at all. We were aiming for small and medium-sized companies, entrepreneurs and leisure travelers. We’ve been pleasantly surprised by how much interest there has been from the corporate market.

 

Economic Analysis


 

 

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JetBlue’s Mint A321s are configured with 159 seats ( 16J / 41Y+ / 102Y ) as opposed to the 190-seat configuration for standard A321s ( 41Y+ / 149Y ). Thus, in the Mint configuration, 47 standard Economy Class seats are replaced with the 16 Mint seats, and the net loss of revenue potential is 31 Economy Class seats. Predicting with strong confidence the average economy class fare for JetBlue moving forward is perhaps beyond the scope of this analysis, however, last year, the average one-way fare for JetBlue on New York JFK – Los Angeles came in at around $250. Using that figure for this upcoming year means that the lost revenue potential of the 47 Economy Class seats is $11,750. Adding in an average revenue potential of $20 per seat for “Even More” products, yields a total net loss of revenue potential of $12,690.

At $599 per seat, the replacement revenue potential from the Mint seats works out to $9,584, or a net loss of $3106 in lost revenue potential. However, keep in mind that $599 is just the lowest fare option for Mint, whereas the fully flexible fare is currently pricing at $999 each way. Taking fare mix into account (fare mix is reflected in the average economy fares already), a better estimate for per-seat revenue potential is $700, which yields revenue potential of $11,200, or lost revenue potential of just $1,490. Furthermore, $599 is just an introductory fare to give JetBlue a toehold in the market. Once they’ve established themselves, the average fare paid is likely to rise, perhaps to $800 with a lowest one way fare of $749 (still lower than the legacy carriers on the route), which would yield $12,800, or a net increase in revenue potential of $110.

We estimate the total variable cost increase due to the Mint product to be less than $450, and thus largely negligible to the analysis.

Strategic Analysis


Even if JetBlue persists at the $599 lowest one way fare for some time, the Mint offering still makes a lot of sense. JetBlue is in a position of having to raise its revenues sharply. It faces rising costs thanks to an aging fleet and an aging (and newly unionized) workforce. Offsetting those costs is critical to JetBlue’s continued success as an enterprise, and the way to grow revenues for a former LCC like JetBlue with good service is to move upmarket and begin handling high-paying leisure and business customers.

In particular, JetBlue can make significant inroads with independent business travelers on major business routes like New York – LA, and that is where Mint comes into play. Even with some lost revenue potential, the Mint product would still be worth it to JetBlue overall if it wins them new frequent flyers and corporate customers that fly other JetBlue routes from either New York or LA. This type of network contribution from otherwise unprofitable routes or offerings is common amongst network and legacy carriers as evidenced by Delta’s Seattle expansion to Asia, which is likely to be initially unprofitable, but still important thanks to its contribution to Delta’s overall network. And of course, if JetBlue wants to use Mint as a product on flights from Fort Lauderdale to South America or Boston to Europe in the future with A321neos, doing a test run in the important New York JFK to LA/San Francisco market(s) certainly makes sense. JetBlue has made a bet on evolving its company for the future, and thus even at low initial prices, the economics of Mint do make sense for now.

As of press time, all fare data for JetBlue’s Mint product is up to date

 

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