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Contribution of ancillary products
Airlines use innovative product offerings to enhance passenger travel experience while improving their operating revenues—revenue not from ticket sales—and margins. JetBlue Airways’ (JBLU) high-margin ancillary, non-ticket, revenue increased by 13%, $670 million, in 2013. JetBlue expects the total ancillary revenue to grow by 10% to reach 15% in 2014.
JetBlue measures and monitors its customers’ experience and satisfaction through Net Promoter Score (or NPS). Developed by Satmetrix, Bain & Company, and Fred Reichheld, NPS is a worldwide standard for measuring and improving customer experience. Customers score companies on how likely they would recommend a company to their friends and relatives. The respondents are then categorized based on scores they provide:
NPS is calculated by subtracting the percentage of detractors from the percentage of promoters. High NPS indicates high levels of customer satisfaction. The chart above shows the NPS impact of JetBlue’s ancillary product offerings. Even More has the highest margin contribution and NPS score and is followed by TrueBlue.
JetBlue’s Even More
JetBlue’s largest ancillary product, Even More, contributed to 25% of the total ancillary revenue. Even More Space and Even More Speed are the two variations of the product. Even More Space offers extra spacious seats, and Even More Speed offers the quickest security screening. Both products are additional charges.
Revenue from Even More increased by 13% to $170 million in 2013. It’s expected to increase to $190 million in 2014. This growth will add to the company’s bottom line. Even More has the highest margin contribution as indicated on the chart by the size of the bubble.
TrueBlue, JetBlue’s frequent flyer program, awards points to customers based on customers’ flight costs. Additional features added to TrueBlue include:
Mosaic status is awarded to customers who fly with JetBlue a minimum of 30 times and get 12,000 base points in a calendar year or get 15,000 points in a calendar year. In 2013, there were more than 931,000 TrueBlue award miles flown, representing 3% of the total revenue passenger miles.
JetBlue and Southwest Airlines (LUV) have higher percentage of passenger revenue, more than 90%, compared to legacy carriers such as Delta Air Lines (DAL), United Continental Holdings (UAL), and American Airlines Group (AAL) with passenger revenue contributions of around 86% to 87%.
© 2013 Market Realist, Inc.