JetBlue to impose fee for first checked bag

[DALLAS] JetBlue Airways is positioning itself to boost revenue with a fee to check a passenger's first bag, a break with the airline's history, and by squeezing more seats onto its planes.

In promoting president Robin Hayes to be the airline's next chief executive officer last Thursday, JetBlue's board signalled its readiness to focus on those investor-friendly changes, according to analysts including Stifel Nicolaus & Co's Joseph Denardi in Baltimore.

Mr Hayes will succeed CEO Dave Barger on Feb 16, the day after Mr Barger's contract ends. With the stock lagging behind the industry average, New York-based JetBlue has come under fire during Mr Barger's seven-year tenure for not moving swiftly enough to increase revenue and pare debt, and for failing to reach goals for return on invested capital.

"I think the market wanted JetBlue to be more aggressive in their fee structure and adding seats to their planes as a means of increasing their financial performance," Mr Denardi said. "There was a view that Dave wasn't necessarily willing to take the steps to get there."

JetBlue had telegraphed a possible CEO transition in May, when director Ann Rhoades said that Mr Barger was considering departing when his contract expires. Two months later, JetBlue said it was considering a first checked-bag fee, which would leave Southwest Airlines alone among major US carriers without such a charge.

"What I want to stress is continuity," Mr Hayes said. "We built an airline very different to any other model. Customers are at the heart of what we do and that's not going to change."

Mr Barger, 56, has defended JetBlue's strategy, saying the airline is in a "sweet spot" between ultra-low fare carriers such as Spirit Airlines, which levies extra costs for carry-on luggage, and giants such as American Airlines Group with international route systems.

Since succeeding founding CEO David Neeleman in 2007, Mr Barger has made changes that include JetBlue's first premium cabin, which debuted this year on cross-country flights. He also has emphasised retaining a customer-friendly identity. Airlines that shoehorn more seats onto each plane typically do so by shaving space between rows or removing lavatories.

Mr Hayes, who joined JetBlue in 2008 from British Airways, probably will ask employees to "do things outside of their comfort zones" to improve a poor return on invested capital, Hunter Keay, a Wolfe Research LLC analyst in New York, told investors in a report. Last year's 4.88 per cent return on invested capital was up from 4.48 per cent in 2012, short of JetBlue's goal of a one percentage-point average annual increase.

"This is a longer-term positive for JetBlue," wrote Mr Keay, chiding the airline for being an outlier in an industry that seeks incremental revenue by adding fees wherever possible for discretionary services, such as checking luggage. "One can only fight gravity for so long."

Even while dodging bankruptcy when many peers reorganised in court last decade, JetBlue has missed an industry rally. An 8.9 per cent advance during Mr Barger's tenure trails gains of 49 per cent for the Bloomberg US Airlines Index and 33 per cent for the Standard & Poor's 500 Index.

Change at JetBlue under Mr Hayes will probably be gradual, not a series of sudden shifts, wrote Mr Keay, whose peer perform rating on the stock is the equivalent of Mr Denardi's hold.

Mr Hayes was named president in 2013, with oversight for activities including airport and flight operations. He was executive vice-president and chief commercial officer for five years.

Mr Barger said that "the timing is just perfect" to leave after almost 17 years at JetBlue.

"With the sunsetting of a contract and the honour of following David for a like period of time, it's a really nice opportunity," Mr Barger said in an interview.

Chairman Joel Peterson said that Mr Barger initiated a discussion of not renewing his contract as much as 18 months ago.

"We have every confidence Dave could have led the next phase of the company, too," Mr Peterson said. "The average tenure for a CEO is 3 1/2 years. Dave has been in this role for seven. This is just the right time."

Mr Barger was also part of the founding leadership at JetBlue, which started flying in 2000. He was named CEO in May 2007 amid an upheaval in executive ranks three months after an ice storm snarled operations and forced cancellation of 1,191 flights and stranded passengers on planes.

JetBlue struggled through more winter trials this year, when the airline suspended operations for 17 hours at four airports after snow blanketed the US north-east. - Bloomberg