When JetBlue learned that passengers felt airline coffee was worse than their terrestrial brand of choice, the carrier decided to bet on a familiar strategy to draw passengers: Link up with a well-known name.
JetBlue Airways Corp., parent of the low-cost airline, said Tuesday it will begin serving 10-ounce cups of Dunkin' Donuts coffee on all its flights by the end of the month.
The deal is the airline's latest attempt to bring brand names on board its planes. JetBlue currently offers satellite television and radio with DirecTV and XM Radio and, for a $5 fee, FOX movies.
Financial terms of the agreement were not disclosed. Eric Brinker, JetBlue product development director, said the terms square with the airline's low-cost model, however.
"We're really able to justify having these partners in that, like we have leather seats and DirecTV, we make it part of the product," he said. "We think when you put all that stuff together, (fliers are) going to come back to our airline."
JetBlue, along with most major carriers other than low-cost rival Southwest, is expected to post a loss for the fourth quarter as it struggles with higher fuel costs and stiffer competition. Analysts at two brokerage houses cut their ratings on the company's stock in early January on concerns JetBlue has lost some of its cost advantage. Such conditions put a premium on building customer loyalty.
A recent survey of passengers by JetBlue found that roughly one-third considered the coffee served on airlines worse than their daily cup, and most named coffee as the drink they'd most like to improve, JetBlue said.
Some analysts believe that offering DirecTV, XM satellite radio - or a cup of name-brand coffee - can draw passengers.
Kent Grayson, an associate marketing professor at Northwestern University's Kellogg School of Management who has studied the airline industry, said a traveler's choice of airline centers on three things: schedule, price and brand.
"If JetBlue associates itself with well-known partners whose brand image has some redundancy with theirs, at the margin, a customer may choose JetBlue over another airline whose brand is not as strong," he said. "On an abstract level, it makes people think JetBlue is a better brand."
JetBlue and Dunkin' Donuts aren't the first to create such a partnership. United Airlines parent UAL Corp. has had a similar deal for years with Starbucks Corp., a relationship that was recently extended for another three years.
"Cross-branding that is done at the airlines is done at a very low price or even for free," said Stefan Lumiere, a research analyst with investment firm Oscar Gruss & Son. Although details of such contracts are rarely released, Lumiere said airlines may even charge advertising placement fees. "You're basically creating brand awareness."
For Dunkin' Donuts, the deal offers access to a captive consumer - who, at 30,000 feet, has nowhere to go but the aft lavatory - as well as to coffee drinkers often outside the geographical limits of its roughly 4,400 locations on the ground.
"We advertise on television and radio in markets where we have shops, but this is a way to put our brand in front of consumers in other markets," said Suzanne Agnello, Dunkin' Donuts director of marketing and business development. "On an airplane, you've got that cup of coffee in front of you for 20 minutes."
Dunkin' Donuts, headquartered in Canton, Mass., outside Boston, has its stronghold in New England. Its roughly 4,800 locations nationwide grow sparse west of the Mississippi; the company has no stores in California. Meanwhile, JetBlue flies to 34 cities in the U.S. and Caribbean, including to seven in California.
The doughnut-and-coffee chain has plans to triple its size to 15,000 stores by 2020, and although its name may suggest otherwise, about 70 percent of Dunkin' Donuts' sales come from the beverage and not the baked goods.
Last month, Dunkin' Donuts' former parent Pernod Ricard SA, a publicly held France-based wine and spirits company, sold the chain to private equity firms Bain Capital Partners LLC, Carlyle Group and Thomas H. Lee Partners LP.
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