JetBlue has launched a new program to reduce costs by $250 million in 2024 by introducing operational and planning efficiencies. The plan follows a review of its long-term cost structure, which has been tweaked before in recent years. High costs were JetBlue’s Achilles Heel in Q2 and contributed to the airline’s $-188 million net loss, of $-443 million for HY1. JetBlue targets $250 million in cost reductions with new plan.
The $-188 million compares to a $64 million profit in Q2 last year. The loss before tax was $-151 million. JetBlue reported a $-113 million operating loss for the quarter compared to a $147 million profit in 2021. Total revenues were up by 63.1 percent from $1.499 billion to $2.445 billion, or up sixteen percent over Q2 2019. Of this, $2.302 billion is from the 10.4 million passengers it flew in the quarter, up 31 percent from last year, at a load factor of 85.1 percent. Ancillary revenues did well and grew 65 percent to $50 per passenger.
For HY1, JetBlue recorded a $-443 million net loss thanks to the $-255 million loss in Q1. This compares to $-183 million in HY 2021. The operating loss was $-480 million versus $-147 million, revenues were $4.181 billion versus $2.232 billion. In the six months period, the airline carried 18.6 million passengers at a 78.3 percent load factor.
Total expenses up by 89.2 percent
While other US carriers also suffered from higher expenses, they were able to offset these with higher revenues better than JetBlue. At JetBlue, the ratio between revenues and expenses pushed it into the reported operating and net loss. Total expenses were up $2.558 billion, 89.2 percent higher than in Q1 2021. This compares to American Airlines’ 76.3 percent, United’s and Delta’s 51 percent, and Southwest’s 62 percent.
In Q2, JetBlue’s fuel costs went up 170.7 percent to $910 million, or plus 179 percent in HY1 to $1.481 billion. Salaries were also up: by 25.9 percent in HY1 to $1.383 billion. Other operating expenses increased by 45 percent to $683 million. Costs per available seat miles (CASM) was up 34.7 percent, CASM excluding fuel by 14.5 percent. JetBlue blames the negative Q2 result on the serious operational issues it experienced, notably in April, and the subsequent investments to address these, plus on one-item expenses. Without that, the pre-tax loss would have been $-102 million instead of $-151 million. June produced an adjusted pre-tax profit, which bodes well for the third quarter.
Although capacity in available seat miles grew by 2.3 percent in the quarter compared to 2019, following the serious problems in April, JetBlue slammed on the brakes and moderated capacity for the rest of the year. By reducing capacity, JetBlue stabilized its operations and got back to a 98 percent completion rate in June compared to ninety percent in the first three weeks of April.
Q3 capacity at -3 to 0 percent
Chief Operating Officer Joanna Geraghty said that no airline has been immune to operational challenges but that “it just hit us earlier, given our network footprint. Therefore, we were able to reset earlier. In our last call, we announced we were to reduce our capacity plans by ten points to build greater resiliency into the operation. Today, we are tightening that capacity range.” Measures include an additional reserve crew to respond to operational issues caused by weather or air traffic control delays. Q3 will see -3 to 0 percent capacity, the full year should end between zero and +3 percent growth versus 2019.
Despite the capacity reduction, JetBlue and its Northeast partner American added fifty new routes to the combined network and upped frequencies to 130 destinations. It launched services to Vancouver and plans to increase its services to London Heathrow and Gatwick to five per day from this fall. Leisure demand is looking strong, with good bookings for September, while corporate bookings are also up. Based on that, JetBlue expects unit revenues (RASM) to grow to 19-23 percent in Q3. CASM is projected to be up by 15-17 percent and reflects a step-down in capacity, maintenance, and continued operational investments. Full-year CASM ex-fuel should be up 11-14 fourteen percent and includes the effects of the capacity reductions, operational issues in April, and inflation.
Embraer E190-fleet to be retired a year earlier in 2025
To improve its long-term costs, Chief Financial Officer Ursula Hurley presented a new plan for the optimal cost structure. This builds on the 2019 initiative that slashed $300 million from JetBlue’s fixed costs. The new plan targets $250 million in 2024, of which $175 million ($150-$200 million) should come from operations: $40-50 million from better network efficiencies, $35-$50 million from improved crew planning, $45-$60 million from automation that optimizes end-of-life maintenance of engines, and $30-$40 million through higher productivity. Already next year, JetBlue expects to generate $60-$80 million in first one-rate cost savings, which should keep CASM ‘flatish’ and prepare it for headwinds over a multi-year period.
A one-off cost reduction is coming from the accelerated retirement of its Embraer E190s, which was first announced in February. Then, the plan was to keep thirty E190s flying until 2026 while returning another thirty to lessors. Hurley announced that the retirement of the Embraers has now been put forward by over a year to mid-2025. Three have already been parked, with another nine to follow this year. Retiring the E190s will have a one-off benefit on costs of $45 million in 2023, increasing to $75 million in maintenance cost savings in 2024. Replacing them with Airbus A220s will reduce costs and improve JetBlue’s carbon footprint. Ten A220s will join the airline this year and 21 in 2023 out of 100 on order.
JetBlue ended the June quarter with $2.6 billion in liquidity, plus $550 million as an undrawn credit facility. It paid $106 million in debt, so net debt stood at $3.8 billion. The airline had nothing new to say on the merger agreement with Spirit Airlines that it announced last week. It will finance the $3.8 billion transaction through a $3.5 billion dollar bridge facility, that will stay in place until JetBlue receives regulatory approval which is not expected until mid-2024. It will then take out the bridge facility and investigate other financing options on the market if these are more attractive. CEO Robin Hayes says there is no exact date when Spirit’s stockholders will vote on the merger proposal.
