JetBlue Airways Corporation (JBLU) Earnings Call Transcript & Summary

All right. Good morning, everyone. Welcome again to day 2 of Barclays 43rd Annual Industrial Select Conference. I'm Brandon Oglenski, airline and transport analyst. And next up, we have JetBlue Airways. Joining us is Marty St. George, President of the company; and Ursula Hurley, Chief Financial Officer. I know, Ursula, you have a couple of things you want to maybe talk about first, but can we just queue up the audience response questions and then we'll get right into it. And for those that have been through the firesides, you already know what this is. So do you currently own JetBlue? Yes, overweight; 2, marketweight; 3, underweight; or 4, no. We appreciate everyone participating in this.

Can we vote?

Everyone asks and every year, we still don't get them up here. Okay. Question #2, please? What's your general bias towards JetBlue right now? Positive, negative or neutral. All right. And then question #3 -- technical difficulties. Well, Ursula, sorry about -- okay, here we go. In your opinion, through-cycle EPS growth for JetBlue will be above peers, in line with peers or below peers? We can vote. Thank you...

It looks like rapid fire, Brandon. Wow.

Anyways. We'll get to those results. Ursula, Marty, but both of you, thank you for coming down and being in Miami, and I think you did want to open with a few...

Sure. Yes. Well, thank you to Barclays and for you, Brandon, for having us. It's always nice to be in Florida and Miami in February. So we are really proud of the momentum that JetBlue has. We launched our JetForward plan about 1.5 years ago. And last year, we definitely focused on the things we can control, and we made good progress. So we've been steadfast focused on operational reliability. And last year, we exceeded or met all of our on-time performance metrics that we have. And that has resulted in a 17-point improvement in our NPS over a 2-year period. And we all acknowledge that NPS is one of the top customer choice drivers. And so we've been proud of the improvements that we've seen there. On the product side, we've rolled out enhancements to EvenMore, preferred seatings performing really well. We rolled out our first lounge at JFK called the BlueHouse. And the network is evolving and definitely maturing given we changed 20% of it upwards of 18 months ago. So -- and then on the -- we are also excited about our Blue Sky agreement. We actually started selling flights on each other's websites about a week ago. So the progress there has been nice. And so all in all, pleased we -- in our JetForward plan, we delivered $305 million of EBIT last year. As we look forward to 2026, we're going to deliver a breakeven or better operating margin. JetForward is going to deliver upwards of $310 million of value this year. We've got a really strong RASM guide and a set of initiatives underlying that at 3.5%. And that's in conjunction with a unit cost guide of 2%. And so we have a strong track record of delivering on the unit cost performance over time. And so all in all, like super pleased with the momentum. Demand in the first quarter is really strong, which Marty will talk about, and so hitting that breakeven or better operating margin is our #1 goal. And that's really going to set us up in 2027 to deliver positive free cash flow. So all in all, like good momentum, excited to be here and happy to go deeper on any of those topics, Brandon.

That was a pretty bullish intro there, Ursula. Marty, do you want to comment maybe on the demand environment right now?

Yes. I think if you look at demand right now, it's -- we'll use a word we have not heard in the industry for a year, which is strong. The demand is strong. we obviously saw that starting in the fourth quarter. We beat our fourth quarter RASM guide by a pretty good number, and that momentum carried into the first quarter and beyond. And I think if you look at our overall number for 2026 as far as our RASM guide, I think it shows the underlying strength of the business; the strength of the macroeconomic environment, that things seem to be picking up; I think most importantly, the strength of JetForward and the initiatives that we're following to get us back to the pre-COVID margins.

And just remind me, did you guys quantify, too, the impact from the storms that we saw, Fern, I guess, that was up and down the East Coast?

We have not quantified it, but frankly, we've done the math, and it's been de minimis. And it's certainly not going to impact our annual guide in any way whatsoever. It was -- some of the weather we've had has actually come during trough period, which has been helpful for us as far as recapturing revenue. And we do save some expense, but it had no impact on our annual numbers.

Okay. Appreciate that. And I guess if we were to unpack last year because the target was again to breakeven then. And obviously, you were not the only airline to miss guidance as well. So can you just unpack what you feel went wrong maybe in 2025 outside of, obviously, the market pulling back about this time?

Yes. So we exceeded our JetForward EBIT goal last year. And so that just really speaks to -- our JetForward program has over 200 initiatives that are built up from the bottoms up. And the team is pretty relentless in tracking those. And so execution of the team continues to be really, really strong, which is what gives us confidence to be able to deliver the breakeven or better operating margin in 2026. Taking a step back, we've said if it weren't for the macro step-back last year, we actually would have hit our breakeven target last year, which I think, is a pretty powerful statement, right, because that speaks to -- we're executing on the things we can control, and we're progressing these initiatives at the highest level. 80% of these initiatives are top line revenue focused and 20% of them are costs. And as we look forward to 2026, the progression throughout the year in terms of the RASM step-change really speaks to the ramp-up of the initiatives that we're rolling out. Capacity is actually growing as we navigate throughout 2026. And so that is driving unit cost efficiencies throughout the year as well. And so that's really the combination of what is going to deliver breakeven or better op margin next year. I don't know if you have anything else to add, Marty.

Yes. The only thing I'd say is our over-performance in 2025 actually came with a pretty significant reduction in our ASM growth year-over-year, and there were a good chunk of things in JetForward that were passenger count related, bag fee increases, premium seating, things like that. And even with all that, we exceeded JetForward. So I'm really happy with the resiliency of the team as far as adjusting. We have 200-plus initiatives in JetForward. We track them every other week. And the team is relentlessly focused on making sure that we achieve all these things that really were part of catching up from the sort of the last 2 years between the Spirit transaction and between the NEA with American, and we have a lot of catching up to do, and I think we're nailing it.

Marty, as well, it looks like industry capacity growth is more subdued, tamed this year, especially one of your direct low-cost competitors out of Fort Lauderdale. How is that helping the environment for you or creating opportunities?

It's certainly having an impact on the macro environment. I think it's actually having relatively less impact for us because as you look at that competitor, the one place that they're hanging on to most feverishly has been Fort Lauderdale. That being the case, they have still done some pulling. And frankly, the facilities that they've freed up at Lauderdale, mostly for international arrivals, has been funding a lot of our growth because the whole for us has been the lack of ability to fly more international in and out of Fort Lauderdale. So that's been very helpful for us. And frankly, if you look at the competitive environment and look at what Spirit has announced, I think they'll end up being flat second quarter -- excuse me, third quarter and beyond. So I think if you look at where the Spirit pulls have been, it's benefited our competitors a lot more that's benefited us. But frankly, I cannot stress enough how much Fort Lauderdale has overperformed versus our expectations. We -- I think at the right at the time of their second bankruptcy filing, we put a significant amount of capacity in for November and beyond for Fort Lauderdale, knowing our traditional results as far as ramping and the fact that we're announcing stuff on 90-days anticipation versus 120, 150, we had expected a pretty significant headwind. We called out our fourth quarter RASM performance would have a 1-point headwind just based on Fort Lauderdale growth, and it was less than half of that. So the response from customers has been fantastic. And we're -- we continue to grow Lauderdale past that. And we're still on a trajectory as international gates become available, we will absolutely continue to grow in Fort Lauderdale.

And is there any differentiation across the network right now with the better performance that you're seeing? Is it domestic or...

Yes. It's funny. It's -- I will say -- I'm going to break one of my rules. And generally, we don't give a lot of color on that. But in this specific case, I will give color that there's no color. And we're really seeing it universally everywhere. We spent a lot of time trying to dissect what the source is of the current overperformance. The competitive capacity environment is better than it was in '25, but not dramatically better. But I think if you look at the overall results, certainly, Lauderdale has been a very good thing for us. I do think there's just a macroeconomic good guy right now as far as people flying more. And frankly, I would love to blame it on very cold weather in the Northeast, and we've got month-old snow banks up there that haven't really moved, and it's still very cold. But frankly, it's not just the Florida and Caribbean outperformance. We're seeing outperformance in transcontinental as well, and that's 90-something percent of our capacity between those three regions. So it's really been spread broad across the system.

Okay. Ursula, I think you mentioned even more space, the Blue Sky agreement. I don't know, what is most important on JetForward for 2026?

Yes. I would say I'm most proud of the improvement in the operational performance. I mean it goes without saying you run a good operation, your customers are happy, your crew members are happy and costs naturally come out of the business. So we've invested significantly in tools to better help the operation, whether it be in our system operations center or frontline labor or even to ensure that customers are able to self-serve when things go wrong. I'm most proud of the operational reliability improvements we've seen. What I'm most excited about as we look at 2026 is rolling out domestic first class. This is going to be a product that is going to allow us to better compete. So I'm very much looking forward to that. That initiative rolls out most likely in the third quarter. I am also looking forward to the continued ramp-up of our partnership with Blue Sky. Like I said, we started selling each other's flights on each other's websites about a week ago, and we're pleased with what we're seeing thus far. And then later this year, we're going to continue to roll out the ability for United customers to actually use our Paisly product to buy ancillary-type products. So those are probably the two initiatives that I'm looking forward to continuing ramp up and roll out later this year.

I want to come back to the Blue Sky partnership, but on operations and cost specifically, I think you're facing fewer aircraft on ground this year owing to the GTF. Is that right?

We are. So last year, we averaged about 9 aircraft on the ground due to the GTF engine issues, year-over-year, that is improving. So we'll have mid-single-digit number of aircraft on the ground this year. So we have hit the peak, and we are seeing improvement. And this is allowing us to grow again. So JetBlue hasn't been in a position to be able to grow over the last few years given the engine challenges. And so just being able to grow and drive some efficiency, quite frankly, in the cost structure is really, really helpful.

And just to be clear, you were staffed for a higher level of operations, is that right? To fly...

We have been, over the last few years, I mean, we've done things to help rightsize that. We did a pilot early retirement. We've done a lot of voluntary programs across a multitude of work groups. So yes, we were carrying some excess costs and we're basically working our way to rightsizing that given the growth profile this year.

It's worth saying we're hiring our first in-flight crew members in years. So in-flight has certainly been rationalized to a point we need to grow again. We're still not there on the pilot side, but having some of these airplanes come back will certainly help.

And I guess, Marty, from a network perspective, what's the priority for expansion this year?

Priority is absolutely Fort Lauderdale. And we started adding capacity in the middle of '25 with the first bankruptcy filing. We're adding more at near the end of '25 with the second bankruptcy filing, and we'll continue to add as facilities become available. At the same time, we are still in the mid-single-digit growth profile right now. Clearly, our #1 goal is to get back to get back to fully allocated profitability and start paying down the balance sheet. So as tempting as it may be to grow a little bit faster, we don't have the balance sheet to do that right now where we'd like to be. We're going to get there. And I feel very -- I mean, again, we're going to have positive free cash flow in '27, which is extremely important for us. And we will fund some of this growth from elsewhere in the system as we need. But obviously, the GTF airplanes coming back has been really, really helpful. So I feel like from a timing perspective, I'm very happy with the progress we're making with Pratt, not -- we'd like more progress. But that being the case, I feel very good about the trajectory that we're following as far as where the network growth has been and where it's going.

And I don't think you've finalized an agreement with Pratt for this year. Is that right?

We are still working through the compensation negotiations with Pratt & Whitney. We're going to settle when we think we've achieved, quite frankly, what we deserve, given the magnitude of the impact on the business. Our full year guide for 2026 does assume a small benefit associated with compensation. Just given we're such a big Pratt customer, so compensation can come in various ways. And then when you layer in the accounting treatment, the impact on a 2026 annual basis ends up being minimal.

[ John, ] do you have a question?

Just a quick question, 4Q premium unit revenues were 13 points above main cabin or the core. How is that developing with the current macro you're seeing? And then also, not that Fort Lauderdale is developing maybe a little quicker than a normal maturation curve, can you just kind of talk to that and maybe how that plays out through the year?

Great question. So with respect to the relationship between the coach cabin and the premium cabins, that relationship has stayed more or less steady. But I think the good news is we're seeing actually relatively good results in the back of the airplane, which we've not seen for a couple of years. So I think overall, that's a testimony to the fact that we do have a much better operation than we've had historically. I mean we had a tough year in '22 and '23 as far as operational metrics, and we certainly saw it in NPS. We do subscribe to the Bain -- I can't -- Pulse, I think they call it, but they have an industry-wide NPS, and we are at the top of the industry in NPS, and we have not been at the top of the industry for a few years. So I think that does translate into strength in the back of the airplane. With respect to Fort Lauderdale, it's funny. We recognize that this is an incredible opportunity for us to diversify this network out of the Northeast. And frankly, we've had focus -- we still have focus cities in Orlando and in Fort Lauderdale. We did a good tranche of growth in San Juan in 2024. But again, it's not that big a market. We'll continue to grow in San Juan, but it doesn't have -- it doesn't have the capability to be 100 flights anytime soon. As you look at Orlando versus Fort Lauderdale, with respect to our focus on premium customers, South Florida is the premium market in Florida, no question. And frankly, I'm very excited about the results we're seeing so far. And as long as Lauderdale continues to perform, we'll continue to add growth in there. We mentioned a little bit earlier, our ASM growth there is in the double digits and RASM is basically flat. I mean we don't see that performance elsewhere. And frankly, I don't know what's happening with our competitor as far as what their bookings look like. They don't -- they're not in some of the databases that we use to measure things like that. But I know our numbers, and we're really happy with what we're seeing right now. And I think the long-term impact of diversifying the company more broadly away from New York and Boston will have great upside in the long term.

Marty, maybe along those lines and talking about Blue Sky, can you just give an update on where that sits today? Because I think you guys went live with selling each other's flights. Is that correct?

We did. 8 days ago, we started selling each other's flights. As you may remember, we did up-guide our JetForward numbers based on our expectations from our United relationship. And I think that this is a relationship that is very important to JetBlue in the long term, mostly because the challenge we've had over the last several years has been scale. And I think if you look at between the originally planned Spirit transaction and the relationship we have with American, they were both really focused on trying to get more scale for JetBlue. As I think we all know, reading the results of our competitors and some of their statements, the industry has recognized that the credit card programs are a really important part of a sort of a well-rounded revenue portfolio. Now frankly, we're in the middle of the pack right now as far as percentage of our revenues that come from our friends at Barclays, who's a great partner for us. And I'm not just saying that because we're on your stage. But we are ahead of a couple of our big competitors as far as percentage of total revenue, but we recognize that the TrueBlue currency is a little bit impaired. If you want -- before the United transaction, the relationship, there are a lot of parts of the world where you could not earn or burn TrueBlue points. And with this Blue Sky program, that has finally changed, and we are extremely excited about that. I will also say, and I know Mike was here a little bit earlier, we still remain competitors with United. And this is an industry standard interline agreement that we do with many, many airlines. This is not any sort of relationship like we have with American because the judge made it clear to us what relationship would work for JetBlue and work for our competitors. But we are really excited about what this is going to do for TrueBlue. And on top of that, the benefits of Paisly, which are going to start picking up in 2026 as we start taking over the sales of some of the United ancillaries. I think this is a really important part of JetForward and something I think is very good for long term for JetBlue. We remain competitors. They will be flying in JFK at some point in 2027. But the overall benefits for Blue Sky are still very accretive for us, and we're really excited about it. But more than anything, we're excited about it for customers. The metaphor I use all the time is if you were trying to decide what program to align with and you were in a place like Buffalo, where we fly to Florida, we fly to New York, we fly to Boston. But if you want to fly West, you can't fly JetBlue. Like now you can actually earn and burn TrueBlue points anywhere in the world from Buffalo. And I think in some of those secondary markets, the benefits we will get for selling more credit cards is really, really important to us.

Marty, you guys were in a unique position with Spirit and the Biden administration effectively rejecting that deal. And it's pretty amazing to see how that's played out now since. But I guess, looking forward, the scale issue doesn't go away. So does M&A play a larger part for the industry going forward?

I'll say predicting what happens in Washington is way above my pay grade. We are focused on JetForward and making sure we accomplish the goals of JetForward. I think that if you look at our network and what we're building as far as up and down the East Coast being the preeminent leisure airline, we are well on path to do that. I do think there's a parallel between us and Alaska. I mean no one's talking to Alaska about like what's your Midwestern hub going to be. People still ask this question, what's your Midwestern hub? I'm like I don't need a Midwestern hub because, frankly, they're all taken. I do think there's a very strong path for us going forward with the United relationship to sort of fill that hole for us. And there's no focus whatsoever as far as M&A here. I don't know if you want to add anything, but...

No, I totally agree. We're focused on owning our own destiny and executing JetForward, I mean our #1 priority is getting this business to consistent profitability again. And then clearly, we need to improve the balance sheet. And so we feel confident we're on the right trajectory right now, and we're super pleased with the momentum that we had coming out of 2025. And the demand environment is obviously like really, really strong.

And look, it's worth mentioning, these are not numbers that have been unseen before. If you look at the 2015, 2016 period, we did produce these margins. And our goal is to get back to where we were then. Yes, sadly, it's a decade of challenges between then. But a lot of the M&A in the industry had happened before then. So it's not like M&A has created this incredible threat for us from the big 3 or big 3.5 carriers who've gone through M&A. We can get there, and I think that's what JetForward is really focused on.

Okay. Can we queue up question #4 actually for the audience, please? In your opinion, what should JetBlue do with excess cash? First, do M&A, then share repurchases, dividends, debt paydown or internal investment. You go ahead and vote, please. Again, we thank everyone...

I can -- we can bets on what -- I know the answer to this one. Wow.

There we go.

Question #5. In your opinion, what multiple of 2026 earnings should JetBlue trade? You can go ahead and vote, please. And Ursula, I want to ask about CapEx and your plans this year, too.

Sure.

Okay. And then question #6. What do you see as the most significant share price headwind facing JetBlue? Core growth, margin performance, capital deployment or execution strategy? Okay. Ursula, I think you guys guided to about -- is it $900 million of net CapEx this year? And I think you said that maybe you need about $0.5 billion more of capital. Is that right?

Correct. Yes. So we -- your numbers are spot on. So through the end of the decade, our CapEx profile is going to be sub-$1 billion. So we've laid out the order book appropriately. The quantity of deliveries, once we get to 2027, steps down to a handful per year. I mean, we did that to ensure that we have the runway to deliver positive free cash flow in 2027. I will note the CapEx profile being at sub-$1 billion each year, we can still deliver low to mid-single-digit growth through the end of the decade. And we believe that, that's the optimal growth rate for us as we get this business back to consistent profitability. So that's a combination of the new deliveries, but also the GTF engine issue continuing to improve. On the balance sheet front, we believe that we've hit peak debt levels. So this year, we'll pay down about $800 million in debt, and we're raising $500 million. So we believe we've got a solid runway. I mean, priority #1 is breakeven or better op margin. Priority #2 is positive free cash flow in 2027. And then #3 is starting to pay down the debt profile. We need to get in a better position in terms of our leverage metrics, and that's going to be the #1 priority once we hit that free cash flow target.

And I guess what would you call your unencumbered assets today? What are options for...

Yes. We have -- this provides us a lot of flexibility. We have over $6.5 billion of unencumbered assets. About $2 billion of that is aircraft and engines. We have more we can do in terms of levering our loyalty program. And then we have slot, gates and routes and our brands. So it provides a nice cushion for us. So I feel good about the flexibility that we would have if we needed to raise more liquidity. Obviously, with the positive demand environment that we're seeing and the CapEx profile being sub-$1 billion, I feel good about the position we're in, in terms of liquidity balance and just the setup that we have to deliver free cash flow next year.

Also, one thing I'd add is we have hit our point of peak leverage. I mean it's -- if you look at paying off the convert, things like that, it's -- we're only going one direction. It's the right way as far as leverage right now. So I cannot stress enough how much that's a singular focus of this team is making sure we execute on results to make sure we can get the balance sheet back in good shape.

It sounds like JetForward is on track this year.

Yes. We feel good. We feel really good.

Marty and Ursula, thank you so much for coming down. We appreciate it.

Thank you. Thank you, all for coming.

Thank you for having us, Brandon, and thank you for everyone being here.