JetBlue is significantly reducing its planned capacity for this year in order to de-risk operations and offer reliable operations, taking out ten percent from its previous guidance. Instead of the projected eleven to fifteen percent capacity growth announced in January, the carrier now says full-year capacity will increase by just zero to five percent compared to 2019 levels, it said on April 26. JetBlue de-risks operations with ten percent capacity cut.
Like most US airlines, JetBlue has seen strong pent-up demand in the second half of the first quarter. CEO Robin Hayes referred to “tremendous revenue momentum driven by very strong underlying travel demand across all our core segments.”
But JetBlue suffered huge operational issues to cope with this high demand, which it attributes to labor shortages, pilot training delays stemming from Omicron in January, bad weather, and ATC delays in Florida. This resulted in cancelations that seriously harmed JetBlue’s reputation. In a statement on Monday, the Air Line Pilot’s Association voted unanimously against the airline’s Head of Airport and System Operations, Alex Battaglia, as he is blamed in part for the shortcomings. The first three weeks of April saw a ninety percent completion factor of its operations, nine percentage points down on historical results.
During the earnings call, Hayes said the continued pilot attrition and other staff shortages have forced the airline to de-risk the capacity plan, which already had been updated following the rise of fuel prices in the past months. JetBlue says it will invest significantly in operational reliability by creating operational resiliency (notably at New York JFK) with reduced capacity based on more conservative crew planning assumptions. However, the airline intends to grow the number of flights out of New York to 300 a day this summer.
Slide showing how JetBlue has amended its capacity for Q2 and FY2022. (JetBlue)
Despite operating at lower levels this summer, JetBlue plans to maintain the hiring pace of staff and make infrastructure investments. “These actions will create more resiliency in the operation, and set us up for a better May, an even better June, and a strong summer peak. As we strive to provide the high quality of service that our customers have come to expect from us, we’re taking proactive measures to invest in and improve our operational performance”, Hayes said in the earnings release. During the call, he said: “we could be accused of overinvesting and being too cautious for the summer but it is a deliberate approach that we are taking.”
This Q2, capacity will be up just zero to three percent compared to -0.3 percent in Q1, making it the first quarter that exceeds 2019 levels. Even at this lower level, the carrier expects to produce strong revenues of between eleven and sixteen percent up from 2019. Business travel is back to 75 percent of pre-Covid. The opening of new routes is planned while the expansion of the Northeast Alliance (NEA) with American Airlines continues.
Overall, April will be loss-making and has impacted the pre-tax margin by six percent and has delayed the return to solid pre-tax profitability to the second half of the year, said CFO Ursula Hurley, but June should be “solidly profitable” thanks to extremely strong demand. However, full-year costs per available seat miles (CASM) excluding fuel will also suffer from the April setback and reduced capacity: instead of the one to five percent increase guided in January, CASM will be up by fifteen to seventeen percent versus 2019. This is also affected by incentive pay to support the operation, ramp-up costs for hiring new staff this summer, and a recently signed agreement with Air Line Pilots Association. JetBlue hasn’t hedged its fuel costs, but Hurley said that almost all of the cost increases have been captured as it calculates with a price of $3.79 per gallon.
Q1 produced a $255 million net loss
For Q1, JetBlue produced a $255 million net loss compared to $-247 million in 2021. The operating loss was $367 million versus $-294 million. Total expenses doubled to $2.1 billion from $1.0 billion. Revenues were up to $1.736 billion from $733 million, of which $1.603 billion from passengers (2021: $607 million). Q1 revenues were six points ahead of guidance and turned from -20.3 percent in January to +4.5 percent in March, or $1.735 billion in total. Net debt was $3.9 billion, with unrestricted liquidity at $2.9 billion.
Despite the current issues, JetBlue says it continues to be well-prepared for further capacity growth in the coming years, although the reduction of ten percent in capacity this year will be felt into 2023 as well. It has great retention of pilots that come through the Gateway training program, but there is stiff competition from the legacy carriers that have retired many pilots during the pandemic. Geraghty said the industry could suffer from this for the foreseeable future, with a reduced growth rate for the industry as a whole not to be ruled out. “The access to pilots really becomes the governing factor in the next few years”, added Hayes.
When operating at lower capacity, more aircraft will be kept as spares and on standby, said Chief Operating Officer, Joanna Geraghty. The airline will review how these lower utilization rates could result in the rescheduling of planned maintenance but most likely incremental retirements of some older Airbus aircraft and Embraer E190s that are already scheduled for phasing out as more A220s come in. As it continues to fly record passengers numbers during the year and optimizes staffing levels, productivity and margins should improve by Q4. JetBlue expects ten A220-300s and three A321LRs this year with 32 deliveries in 2023, including 21 A220s, six A321neo’s, and five LRs. In February, the carrier ordered thirty additional A220s for delivery from 2022 through 2026 that will replace the Embraers.
No news on Spirit offer
JetBlue had little to say on the status of its $3.6 billion bid for Spirit Airlines. Hayes referred to Spirit for questions about when to expect more about this. He is pleased by the determination of the Spirit Board that the offer could lead to a superior proposal compared to that of Frontier Airlines, but “we will respect the confidential nature of the process as we engage with Spirit under the terms of their current merger agreement with Frontier and have nothing to add to this topic.”
Active as a journalist since 1987, with a background in newspapers, magazines, and a regional news station, Richard has been covering commercial aviation on a freelance basis since late 2016.
Richard is contributing to AirInsight since December 2018. He also writes for Airliner World, Aviation News, Piloot & Vliegtuig, and Luchtvaartnieuws Magazine. Twitter: @rschuur_aero.
