JetBlue Airways Corporation (JBLU) Earnings Call Transcript & Summary

Everyone, welcome to day-2 of our Transportation, Airlines and Industrials Conference here in New York. Our next panel, I'm glad to have JetBlue, the team from JetBlue here. We have their new President, Marty St. George with us; their Chief Financial Officer, Ursula Hurley; and their Head of Finance and Strategy, Dave Clark. So thank you for joining us today.

Thank you.

Thanks for having us.

So Marty, welcome back to JetBlue after a few year hiatus, how have the first few months been?

It's fantastic. And actually, it's been a great reminder of why I came back. I mean, at the core, we have an outstanding franchise. We have 24,000 crew members who are very focused on a differentiated customer experience. And having gone almost actually just about 5 years and a lot of things have changed, but I think some of the core things are the same.

Got it. How to spend a lot of time today focused on some of your network changes, your product strategy going forward, but certainly I just want to start off with one near-term question. Just there are a lot of consumer concerns out there in the market and the economy right now. I know they're not U.S. airlines, but last week, we heard RyanAir citing some softer summer fares, Canadian Leisure Airline, Transat talked about some weaker unit revenues of late, took down margin guidance for the year because of that. So just want to get your sense just in terms of where are you seeing demand, particularly as we head into kind of the peak summer travel season?

Well, I think if you go back to our first quarter earnings call, when we talked about what we're seeing for first and second quarter, nothing has changed to make me feel differently about that. I mean, I can't speak to Canada or Europe. But from our perspective, things that are progressing similar to what we had said in our call. Obviously, there are sort of ebbs and flows depending on different points of network, but frankly, I think it's been much more supply focused than -- supply driven than demand driven.

Any sense you can give us just in terms of how April track versus your expectations, kind of what you're seeing here in May and maybe just kind of initial thoughts into how kind of June is progressing from a bookings perspective? And how -- I guess, how booked are you for June at this point in time?

We tend to not release that type of data at this type of conference, we have no -- I have no news to make as far as that goes. But from our perspective, we've laid out a list of initiatives for 2024 and beyond which we're on track for accomplishing what we promised to our investors.

I would just add, like in April, the operation performed very, very well. I mean, that was the theme in the first quarter. And so our revenue results ended up on the better end to then cost actually beat. So I think that's a continued theme in terms of the investments that we're making in the operation and the performance that we're seeing. And then we did highlight in the second quarter, we envisioned a certain acceleration in terms of revenue as we navigated through the year, and we're just seeing a significant amount of capacity in Latin America. We have over 30% to 35% of our exposure is to Latin America. And so capacity in that market is about 60% across the sector since 2019. And so that was kind of the essence of the short-term setback that we communicated in terms of the second quarter. But we're pleased with -- I'll reiterate what Marty said, pleased with what we're seeing thus far here in the second quarter. We're definitely within the expectations that we originally thought.

Great. I guess the backdrop from a capacity perspective, as you move past the second quarter, certainly improves into the back half of this year and certainly into 2025, you have -- you're not immune to whole lot of these GTF -- engine overhaul issues. Obviously, OEMs are having trouble delivering aircraft on time. Many other airlines are trying to get back to more consistent profitability, how do you view kind of the capacity backdrop in your markets? And what do you think can derail that?

Yes. I think I'll start and Marty or Dave can add. First and foremost, I mean, this is a unique year for us in terms of we're not growing. So in the second quarter we're projected to be down like 3%. And that mainly is driven by the GTF challenges. I mean, I'm a big believer that the GTF challenges are here for the next couple of years. I think we've said on average, we'll have 11 aircraft out of service in 2024, and that will definitely increase in 2025. So I do think, at a macro level, the constraints across the sector are helpful in terms of rationalizing capacity. And as I mentioned, there's some pockets in the network that see more overcapacity at the moment, like Latin America. But we do believe that the constraints are here to stay over the next few years. And it will be a headwind for JetBlue specifically. It's a different dynamic when historically, we've grown mid- to high-single digits. And now we're not growing, and that will be a challenge that we're going to have to continue to work through over the next few years.

I think it's worth reiterating that really outside of Latin, we are showing exactly the progression we had expected. It's really a Latin issue that I think the industry is struggling with. And I think if you look at the commentary we heard on other calls from our key competitors, this is a secular issue as far as capacity. And just like we saw with Florida in 2023 rationalizing, our expectation is, especially in a capacity-constrained environment like we're in right now, that things will sort of regress to the mean and airplanes will be moved to the places where they're going to make the most return. So from that perspective, I don't think we see anything that makes us concerned about this being anything other than a blip.

What's your strategy for Latin America? Obviously, you have your big focus city down in Puerto Rico. Obviously, a lot of growth, a lot of competition there. Does it make sense for you to take capacity out of that market or what's your strategy?

Well, I'd say 2 things. First of all, the Latin region in general is very important for JetBlue's results. And we do so look at it in 2 lights, first being the visiting friends and relatives and more of the [indiscernible] markets, the VFR markets and second would be, what you call, the leisure beach markets. I think both of them fit very cleanly within sort of the overall positioning of JetBlue on the East Coast of the U.S., which is as an airline more focused on leisure customers. So from that perspective, these markets fit in very, very well. If you look at our presence in Boston, New York, South Florida, very, very important markets for Latin America. So from that perspective, if you look at the results we've driven in the Latin region, I think that this has been a franchise, this has been very profitable for us, continues to be profitable, not as profitable, but continues to be profitable. And we're playing a long game here. This has been a very successful market for us, specifically for Puerto Rico, Again, I think the point-of-sale strength we have on both ends which is both in the Commonwealth and on the East Coast, I think, sets us up very well for success.

I'd maybe add to in Puerto Rico specifically, we have a very long history there. We actually celebrated our 22nd anniversary in Puerto Rico this month given that the company is like 24 years old. We are still, by far, the largest airline there. We have great coverage, not only the big sort of U.S. cities, whether it's New York, Boston, Florida, which are both origin and destination traffic for Puerto Rico. But also some of the ads we've had really focused on the island, places like [indiscernible], Cancún, St. Croix really helps the local traffic coming out of Puerto Rico where we're really in great community, we have about 700 crew members there with plans to very likely grow that as well as things like -- we have the local credit card, we're partners with Banco Popular. We do a lot of things specific. We're part of the community. We sponsor specific events there. So we're very deeply in engaged in Puerto Rico and feel very confident in our ability to win there, and we will fight extremely hard. It's a huge priority for us.

I would also venture that every person in this room probably knows at least one person who has moved to Puerto Rico since COVID, I know a couple for tax reasons or the ability to work remote. So we're very bullish on that market.

Got it. So Marty, maybe talking a little bit more longer term. Over the past 3, 6 months, you've announced some network changes, maybe spend some time there, talk about the product a little bit. But certainly, I want to kind of bucket how you think about the network in terms of changes you made on the West Coast, what you're seeing domestically here, what you plan for Europe? You spoke a little bit about LatAm, but maybe we can expand upon that a little bit. But maybe before we get into the regional stuff, just maybe first on the product, right? You rewind 5, 10 years ago, JetBlue's product was pretty differentiated, right? You had the live seat-back TV, you had good seats, you had WiFi. Your competitors, peers have caught up with you. There's live TV on a lot of flights right now. Everyone -- Delta is offering free WiFi to loyalty plan members. I guess how do you try to differentiate the product again?

Well, at the core, the advantage we already have, you mentioned, we still have. We have TV at every seat in every single plane. We have WiFi for free for everybody, every airplane we have. So we have differentiated from that perspective. The second thing, I think, is very much focused on the positioning that we have. And we've used this phrase over the last 20 years that I kind of want to bring back a little bit, which we used to call, serving the underserved. And my view of the world is, if you're a super duper secret platinum, diamond, whatever, we're probably not going to be a first choice airline. But if you are the silver or gold sort of a low-tier elite on any of the full-service airlines, you will all in all have a better experience in JetBlue and you will as the person who's scrambling for the upgrade when you're #82 on the upgrade list. So from that perspective, I think there actually is a very strong market there and this is something we'll be talking about more on our Investor Day actually with some more solid data about this. But I'm actually very, very excited about the position that we have because, yes, those superly customers are very, very valuable. I'm happy to have the big 3 flight for those customers. But there's actually a much larger base of customers that we think we're very well positioned for.

And obviously, you kind of mentioned it earlier, I think a big part of that is also running a good operation. So you have that kind of the reliability that your customers kind of want and deserve. I guess -- what has changed operationally that has improved those numbers so much? I know there's been some relief at JFK and things like that. But what would have been the key driving forces on just that improved operational performance over the past several quarters?

Yes. So coming out of COVID, in terms of customer choice, reliability is now like one of the top 3 items like customers like value. And so just given naturally our geography, we're going to be challenged with ATC and weather. And so we've got to focus on the things we can control, and we've been investing in reliability. And so what does that mean? That means ensuring on good weather days, we're making -- we're delivering on our operational metrics. We're also investing in tools and technology to recover the airline more effectively because we know that given our geography, we will have weather and disruption. And so what we're seeing is even though we're seeing more disruption days, we're recovering more effectively from a crew perspective and how we handle our customers. So there's been a significant amount of investment in terms of our technical operations and making sure that our techs have enough time with the aircraft to build reliability. We're also giving our frontline crew members and our system operations crew members better tools to make real-time decisions in order to assist with that recovery. So, it's a significant underpin of what we're trying to do here is reliability and just building more credibility for our crew members and our customers given that it's such a high customer value item at the moment.

I also cannot emphasize enough the value of the slot waiver that the FAA has given for New York because -- and this is like the [indiscernible] New York, but these airports are slotted for blue-sky days. And unfortunately, blue sky is very far from reality for a good chunk of the year. So we've been working very closely with the FAA for quite a long time trying to work on air traffic control relief. And obviously, with the exposure that we have to the Northeastern Florida, I think this is more important for us than anybody else. But in the interim, the slot waiver has been very, very helpful as far as sizing the operation a little bit more to reality as opposed to hope.

And when does the slot waiver expire?

In the fall time.

We're still talking about possible extensions.

Got it. Yes. I know in prior peak summers, there have been some airport projects, runway closures, things like that, that have impacted the operation. Is there anything we should be aware of as we go through August, September, just in your focus cities that could impact the operation?

Nothing major. I mean, there's small -- Puerto Rico actually has runway construction going on right now. You see San Francisco has runway construction going on right now. Nothing big that we anticipate will impact our performance this summer.

JFK runway closures or anything like that, that you have to deal with?

No. I mean, to Marty's point, the most material thing that's going to impact us is ATC staffing levels and them not being where they need to be given the congestion and the weather that we deal with here in New York.

Right. And Marty, maybe lastly on the product side, how does Mint fit into your whole vision for JetBlue? I think all the aircraft you have on order right now has Mint configurations. How important is that for you?

Okay. Mint has been a shining star of success for us. And I remember vividly, going to the Board, however many years -- 7, 8 years ago, and promising there would only be 13 airplanes. And now it's 52 or low 50s. And frankly, we just -- as part of our network announcements, we just made the announcement of pulling New York, L.A. in Mint, which was a tough pull. But frankly, the opportunity cost for Mint airplane is extremely high. So that's why you're seeing things like Getwork coming -- becoming a seasonal station for us because the net plans have been goal for us. I can't say enough for other things but how successful that has been. And I think what -- it's funny because I feel like it's -- if you look at the customer base that we have, Mint was extremely well timed for the change in customer demographics. And we are an airline that does extremely well anyways on high-end leisure. And we now have a product that is very much built for high-end leisure. So Mint has been an absolute home run. And frankly, it's -- in my view, it's funny, I think I will take solace and I've heard basically the same thing for Michael O'Lear, it is impossible to be successful across the Atlantic without a premium product. And it's been an important part of the ramp-up that we've had in the Atlantic as well.

I think this is also like a differentiator for us compared to some of our peers, is playing in this like high-value premium leisure space. I mean, when you look at our fleet of aircraft, I mean, 26-plus percent of the seats that we fly are "like premium." So think of Mint, think of even more space and I think that's really paid dividends for us coming out of COVID because people are valuing an elevated experience. And so Andrew, to your point, this year, we'll take seven A321 aircraft, they will all be in the Mint configuration. Next year, we have another five A321s coming and those will be in the Mint configuration as well. So this is an area that we're going to continue to invest in because to Marty's point, like from a pure margin perspective, it continues to perform exceptionally well.

And one small -- just a clarification to your point earlier, Andrew. So as Ursula just mentioned, on the 321 fleet, they're going to be Mint for the next year or 2, they've been all Mint in the last couple of years. We do have flexibility for that in the order book to decide which configuration and what. And then, of course, the 220s don't come with Mint. As Ursula mentioned, they have 30 even more seats, even more space seats. So they're in the low 20s in terms of premium seats from that perspective.