JetBlue derives additional revenue benefits from its customer service system

JetBlue Airways posted a net loss of $1 million in the first quarter, compared to a net profit of $12 million in the year-earlier quarter as its operating costs soared 15 percent.

Published: 29 Apr 2010

JetBlue Airways posted a net loss of $1 million in the first quarter, compared to a net profit of $12 million in the year-earlier quarter as its operating costs soared 15 percent.

Revenue rose nearly 10 percent to $870 million.

The first quarter presented many challenges including rising fuel prices and several winter storms in the Northeast. In addition, the airline also implemented a new customer service and reservations system. Despite record first quarter revenues, these factors contributed to a net loss of $1 million.

David Barger, CEO, JetBlue Airways mentioned that the revenue environment has certainly been improving.

“Passenger unit revenues for the quarter were up approximately five percent versus last year, driven by a four percent increase in yield. We had an average one way fare of $142, our second highest quarterly average fare ever,” said Barger, during the airline’s Q1 2010 Earnings Call (transcript on SeekingAlpha).

New investment

“During the quarter, we successfully transitioned to a new customer service and reservations system, Sabre, a company wide effort that we began working on in early 2009,” said Barger.

The airline also integrated new revenue management, revenue accounting, and customer loyalty systems, said Barger, who also added that “these large scale transitions typically don’t go smoothly”.

“While customers have experienced a longer than usual call hold times for certain transactions, we’re working diligently to complete the key remaining customer touching phases of Sabre, including the enhancements to our website made last week. We’re excited about the revenue opportunities Sabre presents, both in the near and long-term,” Barger said.

“We’re also starting to see the benefits of real-time, GDS connectivity, resulting in higher yielding traffic. We plan to add more functionality to the Sabre platform as we move into the second half of this year. When fully implemented, the Sabre system will provide an important engine for JetBlue’s future revenue growth. It will provide pricing flexibility that we believe will enable us to attract more business customers and broaden ancillary revenue and partnership opportunities, all core JetBlue initiatives.”

According to CFO Edward Barnes, “one time Sabre related expenses during the quarter were approximately $15 million”.

“Further, we estimate approximately $8 million in lost revenue related to flight load caps, fee waivers and schedule adjustments made to insure a successful cutover. These factors, along with rising fuel prices, drove a $31 million year-over-year decline in operating income. Total revenue for the quarter increased 9.7% year-over-year to a record $870 million,” added Barnes.

Ancillary Revenues

“We believe Sabre will also help us maximise ancillary revenues. For example, we recently began testing our variable pricing approach to even more leg room offering. The new Sabre functionality allows us to set unique EML prices for different markets, regardless of length of haul, to better match price with demand, similar to the way we set fares,” said Barnes.

The airline is currently testing various pricing changes in select markets. JetBlue believes this change to EML pricing could increase revenue by nearly $20 million on an annual basis.

Total ancillary revenue for the first quarter was about $18 per passenger.

Related Reads

comments powered by Disqus