Q1 2024 JetBlue Airways Corp Earnings Call (2024)

Participants

Koosh Patel; Director of Investor Relations; JetBlue Airways Corp

Joanna Geraghty; Chief Executive Officer, Director; JetBlue Airways Corp

Martin St. George; President; JetBlue Airways Corp

Ursula Hurley; Chief Financial Officer; JetBlue Airways Corp

Dave Clark; Head of Revenue and Planning; JetBlue Airways Corp

Dan McKenzie; Analyst; Seaport Global Securities LLC

Jamie Baker; Analyst; JPMorgan

Mike Linenberg; Analyst; Deutsche Bank

Duane Pfennigwerth; Analyst; EVERCORE ISI

Savi Syth; Analyst; Raymond James

Helane Becker; Analyst; TD Cowen

Scott Group; Analyst; Wolfe Research

Chris Stathoulopoulos; Analyst; Susquehanna Financial Group LLLP

Conor Cunningham; Analyst; Melius Research

Stephen Trent; Analyst; CITI

Presentation

Operator

Good morning. My name is James. I'd like to welcome everyone to the JetBlue Airways First Quarter 2024 earnings conference call. As a reminder, today's call is being recorded at this time, all participants are on a listen only mode. I'd now like to turn the call over to JetBlue's Director of Investor Relations, Krish Patel. Please go ahead, sir.

Koosh Patel

Thanks, James. Good morning, everyone, and thanks for joining us for our first quarter 2024 earnings call. This morning, we issued our earnings release and a presentation that we will reference during this call. All of those documents are available on our website at investor dot jetblue.com and on the SEC's website at www.SEC.gov.
In New York to discuss our results are Joanna Garrity, our Chief Executive Officer, Marty St. George, our President, and Ursula Hurley, our Chief Financial Officer. Also joining us for Q&A is Dave Clark, our former Head of Revenue and Planning and newly appointed Head of Finance, Financial Planning and Analysis, Investor Relations and Strategy.
During today's call, we will make forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, without limitation, statements regarding our second quarter and full year 2024 financial outlook and our future results of operations and financial position, industry market trends expectations with respect with respect to tailwinds and headwinds, our ability to achieve operational and financial targets our business strategy and plans for future operations and the associated impacts on our business. All such forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from these expressed or implied in these statements, please refer to our most recent earnings release as well as our fiscal year 2023, 10 K and other filings for a more detailed discussion of the risks and uncertainties that could cause actual results to differ materially from those contained within our forward-looking statements or the statements made during today's call, it are made only as of the date of the call and other than as may be required by law, we undertake no obligation to update information. Investors should not place undue reliance on these forward looking statements.
Also, during the course of our call, we may discuss certain non-GAAP financial measures for an explanation of these non-GAAP measures and a reconciliation to the corresponding GAAP measures please refer to our earnings release, a copy of which is available on our website and at SEC.gov.
And now I'd like to turn the call over to Joanna Garrity JetBlue, CEO.

Joanna Geraghty

Thank you, Josh, and good morning, everyone, and thanks for joining us today. It's been a busy start to the year with the spirit transaction now resolved. We are moving quickly to execute on our refocused stand-alone plan. Our first quarter beat demonstrates our sense of urgency. And while we are adjusting our full year guidance to reflect headwinds in our Latin flying associated with continued elevated capacity in the region. Our early progress supports our confidence that we are building the right plan to create long-term sustainable value for our owners and all of our stakeholders. As always, the success of our efforts depends on our crewmembers and they are stepping up for JetBlue every day. I would like to thank each of them first and foremost for running a safe operation and ensuring a strong safety culture. I'd also like to thank them for supporting one another and our customers as they strive to deliver an outstanding experience every day. Their actions contributed to our better first quarter performance, which included generating an adjusted pretax profit for the month of March. In my first two months in this role, building the right senior leadership team has been a top priority. We've been able to appoint several seasoned leaders into key roles, including attracting great outside talent, giving us an ideal mix of expertise and skills at a pivotal time for JetBlue. In addition to Warren's promotion to Chief Operating Officer in January, we welcomed Marty St. George back to JetBlue in February as our new President. It's great to have Marty back here and on the call with us today. In addition, last week, we announced that Daniel Suros has joined JetBlue as our new Head of Revenue network and enterprise planning. Daniel has an impressive track record in the industry and is ready to hit the ground running. Dave Clark, who has demonstrated his capabilities over the past 15 years at JetBlue and is already familiar to many on this call transitioning to lead financial planning and analysis, Investor Relations and Strategy among our new leadership team. It's essential that we have alignment on our path forward. I want to ensure they have sufficient time to pressure test our strategy and frankly, begin executing on more of it before we communicate our long-term plans to investors. We also need to make additional progress with Pratt & Whitney for our team to feel confident in our multiyear growth plans with these things in mind, we are shifting our Investor Day from May 30th to the fall of this year. With that said, we remain bias toward action as reflected by the steps we are already taking, including resolving the Spirit transaction, deferring Airbus deliveries, announcing meaningful network changes, implementing new ancillary fee initiatives, implementing early pieces of our multiyear reliability initiative and announcing key members of the senior leadership team. As we work toward Investor Day, we will continue to implement early pieces of the strategy in the weeks and months ahead.
Now turning to Slide 3. During the first quarter of 2024, we began expeditiously implementing our strategic priorities. The investments we've made to build resiliency and recoverability into our schedule enabled us to complete more flights than planned despite facing weather events, which were more severe and in greater frequency than last year. These investments also benefited us financially setting the foundation to generate more revenue and better control our costs while positioning us to deliver a better experience for our customers. As a result, I'm pleased to share that our year over year revenue performed at the better end of our initial guidance metrics, while both capacity and unit costs exceeded the better end of their respective updated ranges, all of which was well ahead of our original guide as we look ahead, we are continuing to work with urgency to strengthen our competitive position. As we discussed last quarter, demand trends in our core geographies and from our core customers have changed considerably since before the pandemic. Many of these changes play to JetBlue's strengths. For instance, leisure travel remains an increasing priority for customers, and there is no longer the same divide between corporate and leisure travel as more people can take advantage of the ability to work from anywhere. However, that also means most of the industry has shifted a portion of their flying to meet this increasing demand for leisure travel, allocating capacity to many of JetBlue's bread and butter routes. Specifically, we continue to see elevated capacity in the Latin region, which represents 35% of our total ASMs. And as one of our most valuable and profitable geographies, the elevated capacity in this region is significantly pressuring the overall revenue acceleration. We expected to see from the first quarter into the second quarter. We've therefore revised our full year guidance and no longer expect to approach breakeven adjusted operating margin for the full year Marty and Ursula will share more on our outlook for the second quarter and full year. But before we get to the remarks, I want to stress the confidence I have in the near-term actions we are taking and our long-term plan to return to profitability. Again, we've made progress and we know we need to continue to do more since our last earnings call, we've taken significant steps to rebalance our network, and we expect to continue implementing additional tranches in the coming weeks and months, including trimming capacity in the fall trough to better match supply with demand. Given we are not yet profitable and not growing this year, we've increased the hurdle rate of underperforming markets and as a result, have announced the closure of seven blue cities. It is never an easy decision for us to close the station. And I want to extend a heartfelt thank you to the crewmembers in those blue cities for their dedication to JetBlue.
In addition to significant network changes, we're making solid progress on the $300 million of revenue initiatives we announced during our first fourth quarter call, which Marty will elaborate on further, our team is moving swiftly to continue to launch a number of these initiatives over the remainder of this year, and we remain on track to achieve the $300 million of cumulative top line benefit in the fourth quarter with additional ramp expected into 2025 as these initiatives achieve their full revenue potential as we advance these initiatives. And as we evaluate industry-wide changes, we are also rigorously assessing the evolving needs and preferences of our core customers, particularly in how we merchandise our product offering and the experience they receive onboard. We know there are still gaps in our product offering where our customers' needs may not be fully met, and our team is working swiftly to address them.
Finally, a key component of our work to return our business to profitability is ensuring we maintain a low cost base in a year where we are not growing. It is imperative that we rightsize our fixed cost base to the current operating environment. To that end, we actioned several initiatives in the first quarter, such as offering voluntary opt-out program, continuing to optimize our real estate footprint and leveraging technology to help us make decisions more efficiently across the board, we are acting quickly to take self-help measures and advance our refocused strategy to return to profitability. Again, I'm confident the benefits of this plan will help us to more effectively compete in our core geographies and coupled with our low cost base, strong brand and the industry's best crewmembers will distinguish us from the competition and set JetBlue up for long-term success.
I'd like to close by extending another Thank you to our crewmembers for their continued commitment to delivering a safe experience for our customers and for each other and one another each day. Safety of our crewmembers and customers has always been our top priority. And we as our number one value. We'll continue to stress the importance of it and everything that we do.
I will now pass it over to Marty, who I'm excited to welcome back to JetBlue although it is not your first earnings call with us, it has been awhile. And I know I speak for all of us when I say how happy we are to have you back in the room over to you, Marty.

Martin St. George

Thank you, Joanna. Let me start by saying how thrilled I am to be back at JetBlue at such a pivotal moment for our business. I see so much opportunity has JetBlue has an exceptional brand, incredibly high-value geographies and a strategy that I'm excited to execute on one. Most importantly, we have the industry's best crewmembers. It's been great to reconnect with so many of our talented crew members over the past several weeks. And I'd like to echo Joanna and adding my thanks for all that you do for our customers and for each other.
Turning to slide 5, for the first quarter, capacity contracted 2.7%, exceeding our guidance as the continued focus on operational reliability drove a strong completion factor of 98.7% exceeding plan. This reflects the strong execution by the team and the planning we have done to position our operation to respond more effectively to operational disruptions.
Looking ahead, we expect second quarter capacity to be down 2% to 5% year over year, driven primarily by the continued headwinds we face related to the GTF engine issues. First one will provide more detail on that front. And as you will hear, we are actively seeking opportunities to drive near term capacity growth including extending the life of our A3 20 fleets.
As Wendy mentioned, we remain focused on rebalancing our network to ensure we are allocating aircraft support both our operational and financial goals. We are making margin-accretive network changes, changes targeted at our core customers and geographies, redeploying capacity from underperforming markets and doubling down on proven leisure and VFR markets. As part of this work. We have closed a handful of Blue cities, and we're also scaling back our flying in Los Angeles, ending a number of underperforming intra West Coast international markets as we prioritize our focus in L.A. on a transcon and net routes. We also continue the planned margin accretive unwinding of Alexandria, fine. Starting this month, we will operate under 30 daily flights down from 50 at this time last year with another plan reduction anticipated at the end of October. This reduction is driven or a 15 point improvement to margin that was wider and its benefit of the trailing 12 month margin performance of New York City versus where it was at this time last year, albeit slowly, we continue to see signs that New York is recovering, and we are encouraged by the improvement of various economic indicators, such as the forecasted return of tourism to 2019 levels beginning next year.
Full under revenues, first quarter revenues declined 5.1% year over year at the better end of our outlook, driven by improving close-in and strong peak period revenue and aided by the shift of the Easter holiday outbound travel into late March. The shift contributed an estimated 1.5 points of unit revenue growth to the first quarter. Within the cabin, our premium offerings are performing exceptionally well, particularly our Even More Space Scenic, which produced double digit more revenue year over year on a low single digit decline in capacity. Our award-winning mid-cabin also continues to perform well with unit revenue growth up year over year in both our transcon and transatlantic franchises in our network, we saw improving results in our domestic markets with unit revenues inflecting positive for the quarter. This was supported by double digit year-over-year growth in contracted Corporate travel revenue. We've also seen significant improvement in trans-Atlantic performance for unit revenues, up greater than 25% year over year. However, as you can imagine, we continue to be challenged by elevated capacity at our LatAm region, which makes up roughly 35% of our total capacity and where we are nearly double the size of our next-largest competitor. Industry capacity in our Latin leisure markets has increased over 60% since 2019 and is growing double digits each quarter since the start of the second half of 2023, significantly pressuring our yields and fares. To put this pressure into context, if you exclude our Latin fine, a system level unit revenue growth will be positive for the first quarter versus actual unit revenue growth, which was down 2.5% in order to offset this weakness. The other two thirds of our network would have to perform far beyond planned levels. Despite these headwinds, we remain confident in our Latin leisure and VFR strongholds. These are core JetBlue geographies and they remain a top part of our refocused strategy and a meaningful component of our profit engine. We are committed to aggressively addressing Crown challenges and winning in these core markets. The key tenants of our refreshed strategy will help us get there from a reinvigorated focus on reliability to our enhanced loyalty program, improved merchandising efforts and the Vault product. I'm confident we are putting the right focus in place to win these masks.
Turning to our revenue outlook for the second quarter, we expect revenue to decline 6.5% to 10.5% year over year. We continue to cycle against a difficult revenue comparison given the unprecedented demand we experienced throughout the first half of 2023. And as mentioned, elevated new supply in the Latin region. Second quarter is further challenged by the Easter holiday shifts. When adjusting for the shift, the midpoint of our implied year-over-year resin growth in 2Q is in line to slightly improved versus Q1. Given these factors, we expect unit revenue remain largely stable throughout the first half as opposed to accelerating at the pace we had originally anticipated in Q2. That said, we do expect stronger year-over-year revenue acceleration in the second half of the year as our revenue initiatives ramp and we layer in additional initiatives in the first quarter we delivered $40 million in benefits, including preferred seating revenue, which is already exceeding expectations, and we expect the cumulative $300 million to ramp in the second half. We're also encouraged by the growth and the diversified revenue streams from our loyalty program and JetBlue Travel Products. Our loyalty program continues to drive margin-accretive revenue as we rollout additional ways for customers to earn points and be rewarded for their loyalty through our enhanced TrueBlue program, which now enables our customers to choose the perks that are most valuable to them. We're also expanding opportunities for our customers to redeem points, and we expect to add a number of global redemption partners in the current months.
In the first quarter, TrueBlue members accounted for a record percentage of overall revenue, reflecting increased engagement we are seeing from our hedge programs. Overall, spending on our co-brand card is up 10% year-over-year and new cardholder growth remained steady, particularly levels ex the vast majority of whom now carriage of tests as we refocus our core franchises were encouraged by continued outsized growth of active members and approved geographies, especially the greater northeast region and Florida, and this loyal customer base will be key to our success as we rebalance the network.
Similarly, JetBlue Travel Products out to 2024, continuing the momentum from a record set in 2023. Commission revenues from JetBlue Vacations and Paisley grew by 21% in the first quarter, and we see promising trends around forward summer bookings relative to last year. I'm particularly encouraged by the fact that not only the awareness of these product offerings increasing, but that repeat customers are our favorite, assuming our fastest growing segment for both products.
Before I turn it over to Ursula, I will turn to JetBlue because I love this brand, our crewmembers and our customers. Our culture is a true differentiator for the powers. Our brand drives a safe operation and distinguishes us from the competition. Our crewmembers are at the core, enabling us to deliver the JetBlue experience. Our customers expect and positioning us for operational and financial success. I'm excited to be back here at this pivotal moment because I see the major potential this company. I also see the collective commitment to evolve the strategy in order to restore our historical earnings power. This team is leaving no stone unturned as we pursue the path back to profitability. I am confident we are building the right plan to effectively compete and generate value for the stakeholders, again with us over the Russell.

Ursula Hurley

Thank you, Marty. As Julianna and Marty have noted, the swift actions we took in the first quarter allowed us to exceed our Q1 financial commitments, one early indicator of our ability to advance towards our goal of generating positive returns again, and we were profitable in the first quarter, our operating margin exceeded our expectations, supported by our improving operational reliability, solid peak period demand and continued execution on controllable costs.
Starting on Slide 7, we delivered better than expected CASMex fuel in the first quarter with unit costs increasing by 7.1%, beating the better end of our revised March outlook. This was partially driven by improved operational performance as our continued focus on driving reliability allowed us to complete more flights than planned resulting in cost efficiencies. Additionally, we saw a shift in the timing of certain expenses primarily maintenance related to later in the year, also benefiting our cost performance as our structural cost program and fleet modernization program in the first three months of the year, our structural cost program delivered $30 million in incremental savings, driven by more efficient management of disruption costs and optimizing mid to end-of-life maintenance spend. With today's savings of $100 million, we remain on track to deliver run rate savings in the range of $175 million to $200 million by the end of the year. And we expect savings to ramp significantly throughout this year, driven by productivity improvements. Our fleet modernization program is coming to fruition as we continue to replace or even 90 fleet with the margin accretive A. to 20s, which deliver a 20% improvement in ex-fuel unit cost economics versus the even 90s. By the end of the month, we'll have reached a milestone on our fleet transition with more 80 20s in active service than even 90 days will continue to replace or even 90s with a two 20s on a one-for-one basis by the end of 2025 when the E. 90 fleet is set to officially retire. In addition to better economics, we've already realized $70 million to date in maintenance savings, and we now expect to realize $100 million in maintenance cost savings through the end of this year, up from the original $75 million goal we previously forecasted once we are through this transition period, we expect a more meaningful tailwind to our costs as we return to operating just two fleet types.
With regard to our aircraft availability in the second quarter and full year, we expect an average of 11 aircraft to be out of service due to the GTF issues throughout the year. We expect will peak in the low 10s in the late second, early third quarter as we run long range capacity plans to support our multiyear refocused stand-alone plan. We continue to face uncertainty around the expected number of aircraft on the ground for 2025 and 2026. While we expect this number will increase above 2024 levels. The situation remains frustratingly fluid. We also continue to work towards reaching an agreement with Pratt & Whitney on 2024 compensation. As far as the initial GTS. compensation that we had included in our 2024 plan, we had originally been advised that the accounting treatment for this compensation could be recorded as an offset to operating expenses. However, following analysis of precedent industry transactions of similar nature, we will now report compensation as a reduction to aircraft assets or is amortization of maintenance expense. This is expected to have an adverse impact on CASMex fuel as this benefit will now be recognized over a longer period of time, despite the significantly reduced compensation recognized in 2020 for earnings, full year CASMex fuel growth is expected to be within the range of our initial January guidance partially driven by incremental cost offsets we have already internally identified. For the second quarter, we expect CASMex fuel to increase between 5.5% and 7.5% year over year coming down from the first quarter levels as we lap a full year of cost related to our 2023 pilot agreement. And as we execute on our controllable costs and fixed cost reductions for the full year, we continue to expect CASMex fuel growth of mid to high single digits year over year to better align our cost base with our operating levels during this challenged growth period, we've scaled back fixed cost spending where we can. In January, we offered a voluntary opt out program to targeted work groups across our operation and support centers and the cost savings are on track with our expectations. In addition, we are rightsizing our real estate footprint in several airports with above average airport costs such as Liberty and L.A. Combined, these fixed cost savings are expected to drive a half a point of unit cost savings for the full year, which is reflected in our full year guidance Additionally, as Juliana mentioned, we are utilizing technology to further enhance our efficiency and productivity, and we expect it will be a main driver of incremental cost savings.
Finally, though, we no longer plan to approach breakeven profitability this year. I'm confident we have a strong plan in place to overcome the headwinds we face and the continued control of our cost structure will provide the baseline support we need to become profitable again.
Turning to liquidity and our balance sheet on Slide 8. As we continue to work through near-term growth challenges stemming from the GTF issues, we are exploring cost-effective and capital light ways to grow our fleet. To date, we have committed to purchase or purchased 1218 20 aircraft off lease that was set for return to lessors.
Looking ahead, we have further optionality and could elect to extend the life of approximately 38 through 20 aircraft in total, which represents approximately 10% of our total fleet today. We also continue to receive new aircraft from our order book with Airbus. And in the first quarter, we took delivery of eight aircraft through the remainder of the year, we expect to take delivery of 19 aircraft for a total of 27 deliveries in 2024, 20, of which are 80 20s, prioritizing 80 20 deliveries in the near term help to better match the needs of our customers with our cost goals while continuing to evolve our product offering as the A. to 20 offers 90% more premium seating that are even 90 aircraft. In addition, all of our 2024 and 2025 A. through 21 neo deliveries will be configured with our award-winning Mint product, further increasing our mix of premium assets. Ultimately, our fleet is a key enabler to delivering a more premium experience, which is a core piece of our strategic evolution to better serve the full spectrum of leisure customers. We ended the quarter with $1.7 billion in liquidity, excluding our undrawn $600 million revolving credit facility. As we reach the peak of our fleet modernization efforts. We have been actively financing our aircraft deliveries, and we have secured nearly $1.6 billion of committed financing year to date.
Finally, we continue to opportunistically look at hedging as a means to manage risk, particularly in a market that continues increased volatility as a result of geopolitical concerns in the Middle East as of today, we have hedged approximately 27% of our expected fuel consumption for the second quarter and approximately 16% for the full year.
In closing, I want to thank our amazing crewmembers for all their hard work and dedication day in and day out. We are 100% focused on executing on our strategic initiative to meet the challenges of our industry. We have already taken action across the board as evidenced by the deferral of $2.5 billion of planned CapEx, significant network changes, the launch of our revenue initiatives and our continued laser focus on costs, all with our eyes trained on our ultimate goal of profitability. I am confident we are building a strong plan to fully leverage our unique position in the market. And as you can see from our results, we are already executing on this plan and moving with urgency to set the airline on a path back to delivering long-term value for our owners and all of our stakeholders.
With that, we will now take your questions.

Question and Answer Session

Koosh Patel

Thanks, everyone. We're now ready for the question and answer session. James, please go ahead with the instructions.

Operator

Thank you. At this time, if you'd like to ask a question, please press star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two Once again, star and one to ask a question.
And we'll take our first question today from Dan McKenzie with Seaport Global.

Dan McKenzie

For Hey, thanks. Morning, guys. I guess, Joanna, following up on the steps that you outlined to restore earnings and feel free to emphasize those steps again, but what normalized margins are you targeting at this point and what does that trajectory look like? And I guess what I'm getting at is should investors view the changes as a gradual ramp up to normalized earnings, say two years from now maybe three or four of the steps you've outlined, is there some low hanging fruit that could really move the dial near term?

Joanna Geraghty

Again, thanks for the question. I'm not going to put a time line around when we start to see meaningful margin accretion. I think our focus right now is about returning to profitability, and that is where all on all of our priorities are focused on. You know, we've talked about our unique position in the industry, obviously, coming out of COVID. Leisure is a strong point for JetBlue we've got great geographies, some of which obviously our be impaired at this point in time, but we do think they will become a tailwind. We've got a good product. We know there's gaps. We're working to fill those. Our brand, our cost structure, our focus right now is executing what we can control. And I think you're seeing that in many of the steps that we have undertaken in the last several weeks, including the network redeployment of some of the changes to ancillary fees and revenue. I'm doing some nice work around driving that $300 million of revenue initiatives. Our reliability initiatives and early wins there, a stronger completion factor in Q1 and improved a 14 compared to Q1 of 23. Obviously, loyalty and JTP. are doing well. And then our cost initiative will be a frank. The Pratt situation is a challenge, and we'd like more certainty there. And we're working toward having that on. But the team is focused on executing and really focused on returning to profitability, the challenge in the Latin region that we'll cycle through, and we'd hoped that we would see an acceleration into Q2. We're not seeing that. But again, we view that as transitory in nature in terms of what could provide real acceleration. Honestly, the network changes as we look at those and the $300 million of revenue initiatives, many of those network changes haven't actually layered in yet, so they're announced, but you're not seeing the benefit of those. So I'm again focused on making sure that we're executing quickly and with haste to return to profitability.

Dan McKenzie

Yes, very good. I guess on that point, I guess the second question is for Marty on the network announcement, is there an adjustment period as the new flying ramps up or in as you or is it typically a move up and resume as you lap off the unprofitable flying? And my thought is maybe it's the latter just given your expectation for resume acceleration in the back half of the year. But if you could just clarify a little bit more on sort of where you know if we if there's more to do and how that would impact, how you're thinking about revenues back half of this year into 2025? Thanks for taking the tariffs.

Martin St. George

I Dan, thanks for the question. But first, I'll say that our expectations as far as the accretion due to the network changes are part of the $300 million we've already communicated as our expectation for 2024. So that's actually built in there. I think, to make a point that I reiterated for the joint have made. The first site closure actually isn't until next week. So we haven't really seen a lot of benefits going forward. I would say, as far as redeploying of aircraft we're coming into the third quarter. I think we had identified some very up and desirable places to redeploy. And that again, it's all reflected in numbers that we saw, I have to say that some of the some of the network changes were directly related to aircraft shortfalls to our situation with Pratt. So it's one of the reasons why we thought the best way to communicate this would be just to explain the $300 million number. And again, that's a number we'll be getting by the end of the year. So that's sort of how we should view the accretion of that purchase. And I will also say that there are more network changes to come and talk to your point the joint I made about on the postponing Investor Day. I think these things are all tied together as far as making sure that we have rolled out all the changes that we want to do with respect to the opportunities that be the case, the next tranches in the $300 million. But I think it's fair to say we are not done as far as continue to fine tune the network.

Dan McKenzie

Thanks so much, guys.

Operator

Yes. Our next question will come from Jamie Baker with JPMorgan.

Jamie Baker

Yes, good morning, everybody. So probably for Marty, I know airlines don't like to offer, you know, route P and L commentary, but I figured I'd tried to ask the question in what you might answer. So without speaking to individual stations. Can you give us some margin commentary on the aggregate of Baltimore, Kansas City, the short haul, LA and land markets that if you are exiting and perhaps a margin basis or maybe just sheer dollars of lost it? Just trying to add any color as to what that reduction in lost production some two.

Martin St. George

Well, listen, I appreciate your efforts and trying to get me to give you that number. I mean, we generally really don't talk about that level of detail. I will just say that the aggregate of those changes and the redeployment of airplanes is all based in the $300 million. So that's really sort of how we look at that and how we communicate it on. I feel like you've given more time and on, you know, different competitive situations, I think may have been different as far as some of the stuff that that we chose to exit, but which we the stuff you mentioned between the LA, short haul and the imperative back to John's point, the imperative of improving profitability. Now it was really it was time for us to make moves. And we're very excited with the changes. It's always been fortunate, given the situation with our crew members, but we have to prioritize returns right now.

Jamie Baker

Yes. Okay. And then second, probably for Ursula on liquidity, what's the minimum cash balance that you internally target to run the airline? And also if we set aside brand and loyalty, what's the size of the remaining unencumbered asset pool in your estimate?

Ursula Hurley

Thanks for the question, Jamie. And I think you're celebrating a birthday this week are to SSL Robin's legacy lives on systemic experts, sister product, of course, starting to move, essentially it sets us up to. And so we are targeting somewhere between $1.5 billion and $1.6 billion and of cash at any point in time. As a reminder, we also have the $600 million revolving credit facility on top of that.
And to your question on the unencumbered asset base, we've publicly commented that we have about $10 billion and just over half of that is associated with the loyalty and the brand. So the remaining of that unencumbered asset pool is a combination of slots, gates and routes on aircraft and engines.

Jamie Baker

Okay, perfect. Thank you very much.

Operator

Our next question will come from Mike Linenberg with Deutsche Bank.

Mike Linenberg

And good morning, everyone. The I'm just the downward revision in top line for the year. Is that entirely Latin America or is there, you know, a shift in maybe GTF groundings and or delayed Airbus narrow bodies? I mean is are there other components? Thanks.

Dave Clark

Hi, Mike, this is Dave Clark. I'm happy to take that. Yes, it is primarily sort of unit revenue related and you know, as exemplified with the Latin capacity and pressure we're seeing that's causing it to not accelerate as quickly as we expected. There is a little bit of capacity. We're trimming the fall trough. As we look at the latest demand trend and tried to better match supply with demand, you don't see that any capacity guidance because completion factors running ahead, but it's mostly sort of unit revenue, and there's a bit of a lower trough capacity in the back half of the year.

Joanna Geraghty

And Mike, maybe I'll just add. We did see capacity growth coming down slightly in Q2. So we had expected acceleration from Q1 into Q2. We're just not seeing that. And so as you think about size of the Latin market to JetBlue, and its importance. We think this is the most the most prudent move. As we know capacity comes and goes, this region tends to be quite resilient and performs well for us. We will continue to double down in this area because it is so core to Geox to our geographies. But it is frustrating that we aren't seeing that, that that acceleration into Q2 that we thought we would see with capacity growth slightly moderating from Q1 to Q2.

Mike Linenberg

Pretty great. And just a second question on I think I heard you correctly, Ursula, you said that all of the airplanes maybe or at least the three 21 neos coming in 24 and 25, which I guess are all the airplanes that could be run on except for well, the two 20s are coming with the Mint configuration. Is that the, you know, large Mint configuration or small Mint configuration? And I guess also what I'm getting to is should we anticipate additional transatlantic cities over the next year or two above and beyond what you've already announced? Thanks for taking my question.

Ursula Hurley

Yes. Thanks, Mike. So as a reminder, we have 27 deliveries this year in 2024, seven of them are in the A. three 21 neos. So they will be in the 16 seats and Mint configuration. And then in 2025, we have 25 deliveries. And five of those are A. through 21 neos, which will be in men.

Joanna Geraghty

And then maybe I'll pick up on the transatlantic question. Transatlantic has performed very well for us know the summer will be strong as we've mentioned before. However, as we look at growth there, we are currently serving what we believe are sort of the top underserved markets for JetBlue out of Boston and New York. And we'll look to continue doing this further seasonalized them as appropriate if you look at Edinburgh and Dublin on both seasonal markets doing well for us so far, but are great contributors right now.
On the main question, I'll also emphasize premium is doing exceptionally well, 25% of our seats are premium, a combination of mid and even more space. I mean, so between the 80 20 and the three 20 ones that we're saving, we will see an increase in our premium mix, which is great. Very good.

Mike Linenberg

Thank you.

Operator

Our next question will come from Duane Pfennigwerth with Evercore ISI.

Duane Pfennigwerth

Thank you, I wonder if we could drill a little bit deeper on non on the Latin trends is just primarily U.S. to Caribbean. I think of JetBlue historically as more of a Caribbean network are your two largest markets by a very wide margin, our Puerto Rico and the Dominican Republic. Can you speak to trends in those two markets specifically? And then if you would you know, is there any differentiation in trend between Caribbean originating from the Northeast and Caribbean originating from South Florida?

Dave Clark

Thanks. Duane, this is Dave. I'll take that. I think the easiest way to think about it is the break down between sort of Caribbean beach destinations and Caribbean VFR destinations. The VFR is holding up relatively well. Industry capacity. There has been relatively less. So that is is still under some pressure, but not as much as the beach destinations where we see increased capacity of really high increased capacity, which is driving even higher pressure on the yields from the Puerto Rico and Dominican Republic, both extremely important markets to us. We are 100% committed to winning competing and maintaining our leadership in these markets. So we feel very good about them. We have a deep history, their large operation and are working to roll out some enhancements to be performing even better. And each so I'm really committed to these markets. They're under a bit of pressure with competitive capacity that ebbs and flows. But we feel it's transitory in nature and a lot and will continue to be a very important and profitable region for us. I guess of those two, which one is more VFR and which one is more Beach, the Dominican Republic in general but more VFR, especially a very large operations incentive dimming on Santiago, which are almost entirely the FR.

Duane Pfennigwerth

Thanks. And then just for my follow up on on reliability. I wonder if you can survey this in any way, but as your reliability has improved, do you think there may be a gap between how customers perceive your reliability and where it stands on the improvement you've made, how long of a hangover may exist from past operational perceptions. Thanks for taking the questions.

Joanna Geraghty

Yes, thanks. Thanks, Wayne. And so we are in the early stages of our operational reliability initiative. So we're seeing some nice progress, but it's a multiyear initiative, and we've got some work to do. So I definitely think there'll be a lag in customer perceptions. We obviously are also focused on this summer on ATC is going to be a challenge this summer. So despite many of the efforts that we're making, we're still going to have bad weather days, and we'll probably be fairly acute in New York. So there's definitely definitely some some work to do on the customer perception piece, but we got to start somewhere. And I'm pleased with the progress that we've made in Q1, and it will be some, I think, incremental progress quarter over quarter and toward a much better place over the next couple of years.

Duane Pfennigwerth

Okay. Thank you.

Operator

Our next question will come from Savi Citi with Raymond James.

Savi Syth

Hey, good morning. I was just kind of curious on the unit revenue guidance seems to be calling for in going from like down mid-single digits to up mid-single digits. And you've kind of called out some of the components that drive that. But I'm just wondering just generally how much of that is driven by maybe easier comps in the second half last year versus this year versus kind of the network changes you've talked about and just maybe the third bucket, how much of that might be coming from just industry capacity moderating in the US?

Dave Clark

Yes. Yes, I think Savi, this is Dave. I'll take that you hit the big three components right there. There's a few things that help us as we go from the first half to the second half in terms of the continued progress of our sequential unit revenue on the $300 million of revenue initiatives ramping up is clearly the first one. As mentioned, we secured $40 million in the first quarter that will continue to ramp over the next three to get us to a total of $300 million across all of them. So that's clearly a significant expense, significant tailwind, excuse me. And then there is a comp of certainly easing coming up from the first half of 2023 had a lot of pent-up demand, COVID demand, especially in our sort of spring break Florida and L.A. and geographies that we're still cycling against some this quarter, but that eases as we go through the quarter. So I think those are the two biggest ones capacity, um, you know right now it looks to moderate. We'll sort of see as schedules firm up as we go through the year. And that could be sort of the third benefit as well.

Savi Syth

Got it. And then if I might on or Ursula, just on the financing for this year, could you talk about what you're seeing and just as all of that kind of comes together, what you're kind of expecting in terms of ASPs? Net interest expense?

Ursula Hurley

Yes, I think Savi, so we had previously communicated, we were targeting to raise $1.6 billion. And so I mentioned in my prepared remarks that we I've committed financing up to $1.3 billion. So that's a combination of finance leases and and just some bilateral and bank loans. And obviously, with the adjusted to revenue that we provided today, will most likely need to raise some incremental capital beyond the 1.6 that we originally targeted. So we will clearly and be out in the market later this year. And as a reminder, we've got a healthy mix of unencumbered assets so we can optimize across markets to focus on, quite frankly, the cost of the debt as well as building and some prepayment flexibility and conservatism and our priorities of ours in terms of interest expense on a full year basis. And my prepared remarks in January, I provided a guidance of $320 million to $330 million and we are trending even despite having to raise incremental debt, we are trending slightly below that. And just given we've been more thoughtful about the timing that we're bringing in cash but also and we've been seeing some relief on in terms of rate as well. So hopefully that gives you a little bit of color.

Savi Syth

Very helpful. Thank you.

Operator

Our next question will come from Helane Becker with TD. Cowen.

Helane Becker

And thanks very much, operator. Hi, everybody. Just Ursula, one point of clarification and in your slide, I think on my page it's Slide 9, but it might be Slide eight. You talk about not having any significant debt due before 2026. And so and maybe you just answered this in Savvis question I think you also have a $750 million convert that has to be addressed. Are you thinking of refinancing your your debt that's coming due? Like how should we think about, I guess, maybe replacing debt versus paying down debt?

Ursula Hurley

Yes. Thanks for the question, Helene. So in regards to the comment in the presentation, the significant debt maturity due in 2026. That actually is the convertible debt deal. And so that's the next significant maturity that we'll see and we do intend to refinance that. You know, it's quite early at this point, but the teams are exploring opportunities to refinance that. Again, we've got a significant amount of income, unencumbered collateral and we can target specific markets and just through the lens of raising the most cost effective money that is and the convertible debt is the most friendly in terms of rate that we have in the capital structure. So and in terms of financing, we'll do that as close to maturity as possible. And we got to get the business back to profitability so that we're actually generating free cash flow. So that we can then pivot to actually start paying down debt, and that is the goal that we're focused on.

Helane Becker

Okay. That's very helpful. Thanks, Ursula. And then on on the $562 million of special items in the quarter. Can you say like what percent was related to Spirit versus opt-out versus the E. one 90s 90 transition and are all the Spirit cost now behind you.

Ursula Hurley

And so put very simply all of the Spirit costs are behind us. And the $560 million, $530-ish million were associated with Spirit.

Helane Becker

Thanks. Thanks very much, Kim. Thanks, Ursula.

Operator

Our next question will come from Scott Group with Wolfe Research.

Scott Group

Hey, thanks. Good morning. So I understand I'm not breakeven for the year. I'm just wondering, do you see a path back to breakeven in the second half? And then I just want to clarify that in the second quarter, sort of horizon. So I guess given flat, it seems like domestic rather than flat to up slightly year over year. Is that right? And I guess why not better, just given domestic capacity down over 10%?

Ursula Hurley

Yes. So I'll take the first part of the question. In terms of operating margin and make no mistake, our number one priority is getting this business back to consistent profitability. We were profitable in the month of March in the month of March, and we're focused on driving sustainable long-term profitability. And you know, we were in an environment where we were constrained over the last few years given spirit. And so I feel confident that we're showing action between the network changes, the revenue initiative, controllable costs and as well as reducing our fixed costs. I do believe that these actions are going to continue to ramp up and put us on a path to drive accretive value. And in terms of the second half of the year. I mean, and it's a little early to tell. I mean, it's very dependent on the strength of the peak period demand during the summer. And obviously over the holidays in November and December in fuel. I mean, we can't ignore that the volatility of fuel over the last few weeks, it has been extremely volatile. And so it's challenging to tell whether we're breakeven in 2H. Obviously, that's the ultimate goal.

Dave Clark

And then, Scott, this is Dave. With regards to the second quarter resin question. So yes, Latin is the entire headwind, right? It's down mid 10s. As we said in the presentation, it's about 35% of our capacity. So that's a big piece. If you look at the rest of our network excluding and it continues to be rather than positive as it was in the first quarter.
And then in terms of why not better, regardless, given the capacity being down. Keep in mind, we're still comping against very significant pent-up demand. And last year in the first half of the year, as especially Spring Break destinations had pent up demand that had been sort of built up during COVID. And then secondly, competitive capacity does tick up a bit for us in the second quarter. It's one point higher than it was in the first. So there is a bit of pressure there as well.

Scott Group

Okay. That's helpful. And then just separately on the cash balance, can you just let us know where the ATL stood at the end of the quarter. And then on the financing side, are there any covenants we need to be aware of just in terms of limits on how much more debt you can raise?

Ursula Hurley

Yes. Thanks for the question, Scott. And we'll take the ATR question offline. I'll have to circle up with you. There hasn't been a material change and then in regards to your covenants question, there's nothing material. I mean, in a few of our agreements, we have a minimum liquidity target, which we are more than well above. So there's nothing else material beyond that.

Scott Group

Thank you, guys. Appreciate it.

Operator

Our next question will come from Chris Stathoulopoulos with Susquehanna International Group.

Chris Stathoulopoulos

Good morning. Thanks for taking my question. So Joanna, or Dave, I understand the revised revenue guide primarily due to Lat Am and fault trough line. But if you could put a finer detail as we think about perhaps the 0 to 60 day booking window, but then also the second half when we look at the various segments.
So maybe if you could put a finer detail, domestic leisure business, short haul international long-haul peak off-peak and then tying it all together, just kind of what gives you the confidence here that, you know, other parts of the network. I know you have the ancillary initial initiatives in place, but that can offset what looks like this persistent it might and weakness. Thank you.

Joanna Geraghty

Yes, maybe I'll take the second flip it to Dave for a deep dive on the network by geography. So we're confident that the Latin headwinds are transitory in nature and we've seen capacity. While it's still up, it is moderating and it continues to moderate in Latin through and through the rest of the year. And the reality is this is a very strong market for JetBlue from a margin perspective, and it will continue to be these headwinds are transitory, and we're going to continue to double down in this area because this is part of our core part of our core geography. We're pleased with the progress of domestic, and that has generated positive unit revenue into Q1. And then into Q2, we expect to see about the same transatlantic revenues, up 20% against up significant capacity adds in that region. And so again, very happy there. And so as we think about kind of looking at the full year, this Latin headwind, given the presence of JetBlue in those markets, 35% is really the big challenge that we're currently facing. But we've been there before it will cycle out and Jeff will win in these geographies. Dave, if you'd like to maybe grab a deeper dive in some of the other areas of things because,

Dave Clark

Well, you know, I think you noted there's a lot of different moving pieces sort of we come out of this COVID period due to just a couple of peaks of remained stronger than off peaks. That's been consistent for about a year. So now we are taking those learnings and continuing to plan our trough period a bit differently than we had before in order to drive to drive the best financial performance during that we've already been doing that for the fall trough. As mentioned, we're going to pull a bit more capacity or the fall trough as well. So working hard with those learnings, the comp gets easier as we go through the year as we sort of get away from cycling against this pent-up demand that we've seen in the first half. So that's another piece to have and then lastly, I mean, the booking window, we still have customers booking relatively close, and that's where the majority of our revenue comes. That can give us some more challenges of Looking further ahead, which is why we sort of go one quarter at a time generally with our guidance. The booking curve has moved out a little bit of time. I'd say over the past year as sort of COVID concerns have dissipated. And as more and more customers are buying our Blue fare, which is our main cabin fare and has no change fees. So there's less risk to book further out. But within all those things, we feel really good about the moves we're making about the airline on geography over the long term as it cycles through this temporary increased competitive capacity and feel that all parts of our network with the moves we're making are going to be contributing meaningfully in the future.

Chris Stathoulopoulos

Okay. Thank you and my follow-up. So on slide 7, here, we reference the potential for exploring additional cost savings opportunities. Could you walk us through sort of what areas you're thinking about there, whether it's on maintenance or there's perhaps additional opportunities within these voluntary opt out. And within that, if you could kind of clarify the work groups that those have been applied to, but also what does that opportunity also move with depending on what these where these fall trough capacity revisions are made? Thank you.

Ursula Hurley

Yes, we have committed given the accounting change due to the Pratt & Whitney and GTS. compensation. We have, to your point committed to offset a good portion of that. And so the team has identified opportunities to better leverage technology to drive better productivity in our frontline workforce and also being more strategic and thoughtful about maintenance timing as well as what level of investments take place when obviously not at the at the expense of safety. And so these are areas that the team is doubling down on to help overcome the price offset in terms of the opt out and that has trended where we thought it would and the areas that were covered them within the opt out our support center. So think corporate functions and as well as some of the frontline work groups. And so we also and so I do think and we're pleased with the result. And the other area we've been diving into is real estate footprints in downsizing in high cost cities. And then the third focus continues and always continues. And in terms of strategic sourcing and just working to be more thoughtful and strategic about the contracts that we enter into and whether it be pricing and service expectations as well as some variability to move with the business focus.

Chris Stathoulopoulos

Thank you.

Operator

Yes, our next question will come from Conor Cunningham with Melius Research, everyone.

Conor Cunningham

Thank you. As you've made all these network changes, I was wondering how you're gauging your change in relevancy with your core customers. You didn't cite any loyalty members or credit card sign-ups. Curious on why the lack of comments there. Is there anything dive deeper into that? Thank you.

Joanna Geraghty

Yes, sure. So I think we mentioned in Marty's prepared remarks, some loyalty commentary, but I think importantly, the network changes are focused around retrenching into our core strengths, which should drive improvement and relevance for our customers. We tend to be over-indexing in those areas. So I think New York, Boston, South Florida, we're really pleased with loyalty, and we've had strong growth of our TrueBlue base below Mosaic in Q1 versus Q1 23 on our mosaics continue to grow and we'd have a much higher attach rate this quarter compared to year over year. And we've seen healthy growth in customer spend help your remuneration from Barclays. And so we're very pleased with the trajectory and the majority of our Mosaic now holding JetBlue co-brand credit card. So I think that's a great indicator of the value that they place on the loyalty program and the value that the Barclays co-brand card drives.
The other piece I'll mention is we've introduced a number of new perks this quarter, we will continue to introduce new products and we think we've got more opportunity with diversification of the card portfolio products. So overall, I think, you know, a lot of great progress there, but we're focused on being highly relevant in our key focus cities. And over the last several years, some of that relevance came at the expense of those focus cities because we paused things for Spirit or because the FDA was in place. So we had a drawdown from certain areas. I'm actually excited by this retrenching because I think it will actually drive even more relevance for our customers in those locations. Marty, if something to add.

Martin St. George

That your current average, if you actually were to look at the schedule patterns that we've had most specifically in Boston and to a lesser extent, Fort Lauderdale. And you look over the last five years, we've actually done a lot of compromising on their schedules to take advantage of things like the NEA. And frankly, going from 25 to 50, somebody flights Maguire, those plants came from somewhere and why they came from schedule quality. So I would actually say the exact opposite, which is this is actually going to supercharge our schedule quality in some markets. We've actually linked to the collector over the years because we were trying to do a lot of things the same time. And I'm actually very excited about what this is giving us really to do as far as reclaiming some of the strength that we've had historically.

Conor Cunningham

But that's helpful. And then I've heard a lot of talk about Latin America headwinds being somewhat transitory. And I don't know, I'm trying to understand why you think that do you expect the market to shrink or do you believe digest it just takes a little bit of time for it to mature a little bit from here and just trying to understand a transitory comment. Thank you.

Martin St. George

So I'll make two comments. First of all, I think if you look at of total ASMs to Latin America, since you have short, Latin Caribbean since 2019, they're up 50 or 60 like 60%. Now to be clear, there has been a permanent shift in the business, leisure mix and a lot of those ASK are nice gas are in those cases and a lot of those ASMs have actually been absorbed by the marketplace. And that being the case, I think if you look at go back six or nine months when we when the industry was talking about Florida and how much capacity on Orlando fully capacity tends to moderate when resin is pressured and frankly is the period where Rasmus pressured, um, and I think if you look at the way capacity ebbs and flows, it does tend to return to the mean and most because there's opportunity cost for every every asset that we fly and everything about competitive fly. So um, you know, frankly, I think that we're already seeing a bit of that moderation already, and we expect to see it continue.

Conor Cunningham

Thank you.

Operator

Our final question will come from Stephen Trent with Citi.

Stephen Trent

Many thanks to everybody, and appreciate you squeezing me in on just one. Very quick follow up on James' question earlier. When we think about your cash level, do you sort of have our minimum cash balance in mind that you think about maintaining as you look at your aircraft needs and the 2026 convert would just love your color on. Thank you.

Ursula Hurley

Thanks, Steven. And yes, we target about $1.5 billion to 1.6 billion in cash on hand at any point in time. And we actually ended the quarter and slightly on the higher end of that. And as a reminder, we have a $600 million revolving credit facility. So between cash on hand and the revolver, we think that that's a healthy balance. And also, as a reminder, we've got a healthy unencumbered asset base as well that we can utilize at any point and to raise funding when necessary.

Stephen Trent

Okay. How's that? Thank you.

Operator

That will conclude today's question and answer session. I will now turn the conference over to Mr. Patel for any additional or closing remarks.

Koosh Patel

And that concludes our first quarter 2024 call. Thanks for joining us and have a great day.

Operator

And again, that will conclude today's conference. Thank you for your participation.

Q1 2024 JetBlue Airways Corp Earnings Call (2024)

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