No Bumps on JetBlue (JBLU)

A few years back, I waited with two colleagues to board a Continental Express commuter jet from Newark, New Jersey to Halifax, Nova Scotia.

It was the last flight of the day. We had appointments the next morning in the southwestern part of the province, three hours’ drive from the airport. But we had not received seat assignments when we booked our tickets or at check in. As we waited at the gate, the airline staff boarded the entire line of passengers and told us to wait.

I was livid at the prospect that one or all of us might be bumped off the flight. The airfare to Halifax had not been cheap, but the cost of missing the following day’s business would have been much greater.

I can forgive airlines a lot of things that are outside their control, such as weather or unpredictable mechanical failures. I can put up with cost-shaving policies like forgoing free snacks or meals. I can understand nickel-and-dime fees for “extras” that used to be standard, such as checked bags, even if I don’t like them.

But I really can’t forgive airlines – or hotels, in some cases – for not honoring a paid, advance reservation.

Sure, airlines can provide another flight, sooner or later. But they can’t give back time and opportunities lost, whether those are for family vacations, job interviews, crucial business meetings or just seeing an old friend for a long-scheduled dinner.

Unfortunately, overbooking flights is standard industry practice these days. Analysts at various airlines work to predict as accurately as they can how many passengers will miss a flight due to factors ranging from a delayed first leg of travel to simply oversleeping; the airlines then apply this knowledge to try and sell as many extra tickets as they deem worthwhile. As long as the revenue from the extra tickets comes out ahead of the value in cash or vouchers the airline must pay to passengers who get bumped, the airline still comes out ahead – especially considering that a substantial number of those vouchers go unused.

Commuter airlines are statistically far likelier to bump passengers than mainline airlines, and most mainline airlines are far likelier (though not likely) to bump a passenger than JetBlue, which makes a policy of selling each seat on its aircraft only once.

Bloomberg Businessweek reported that JetBlue (JBLU) (JB to its friends – B6 in airline industry lingo) boasts the lowest rate of involuntary denied boarding in the industry: 18 people out of 21.3 million passengers through the first three quarters of 2013. JetBlue passengers have reason to trust that, nearly 100 percent of the time, the seat they paid for will be waiting for them when they arrive at the gate, assuming there are no problems with the flight itself.

Some analysts, however, believe that JetBlue is maintaining this record to no real purpose. The airline does not widely advertise its policy, though it makes no secret of it either. And skeptics suggest that, in business terms, the airline isn’t reaping any real rewards by foregoing industry practice in this area.

Seth Kaplan, the managing director of the industry journal Airline Weekly, told Businessweek, “I’ve just never seen any evidence that people choose an airline because they don’t overbook flights.”

Allow me to introduce myself. I nearly always fly JetBlue on routes where it is practical to do so, even though it is often not the cheapest way to fly. One of the main reasons is that I know I’ll always get my seat. I have long been vocal about my preferences and my reasons for them.

I am not alone, either. On FlyerTalk, a travel forum, discussion of the Businessweek coverage of JetBlue’s policy prompted observations that some commenters would now favor the airline because of the “no bump” policy. Similar comments turned up on the article itself. A number of Twitter users also mention preferring JetBlue because of its policy not to overbook – some of those in direct response to passengers bemoaning getting booted from their flights on other airlines.

I don’t particularly object to mainline carriers’ overselling policies, especially since they have gotten so good at predicting no-shows and inducing leisure travelers to voluntarily give up their seats. But on more infrequent routes, running even a moderate risk that you won’t be on the flight you paid for can be frustrating at best and a disaster at worst.

Fortunately for me, JetBlue has many routes in which its no-bump policy is the only one that makes sense. Virgin America is in a similar position. If an airline only offers one or two daily flights between a pair of cities, the out-of-pocket cost of bumping people involuntarily or booking them on other airlines would likely outweigh the revenue gained by overselling those flights. And JetBlue does, indeed, win the loyalty of customers like me, who want to keep travel as stress-free as possible, even if the cost is merely reasonable rather than rock-bottom.

JetBlue apparently can see what observers like Kaplan have missed: that JetBlue’s policy does come with real benefits in customer loyalty and goodwill. Whether those benefits are worth leaving some money on the table is a decision for JetBlue’s managers, but I hope they continue to act on the principle that travelers should get what they paid for, to the extent it is within the airline’s control. JetBlue’s brand has been deliberately tied to good customer service, and that may make the opportunity cost of an involuntarily bumped passenger higher than it would be for a legacy carrier, whose brand is more about its size and longevity.

If JetBlue starts overbooking its flights, I suppose I’ll live with it. But I won’t like it. And the first time B6 involuntarily bumps me will be the last time it gets the opportunity for a long while.

About Larry M. Elkin 549 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

Visit: Palisades Hudson

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