雅虎香港財經 JetBlue Airways Corporation (NASDAQ:JBLU) Q1 2024 Earnings Call Transcript
JetBlue Airways Corporation (NASDAQ:JBLU) Q1 2024 Earnings Call Transcript April 23, 2024
JetBlue Airways Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning. My name is James. I would 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 in a listen-only mode. I would now like to turn the call over to JetBlue's Director of Investor Relations, Koosh 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.jetblue.com and on the SEC's website at www.sec.gov. In New York, to discuss our results, are Joanna Geraghty, 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 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 1985.
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 and market trends expectations with respect to headwinds, our ability to achieve our 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 more detailed discussion of the risks and uncertainties that could cause the actual results to differ materially from those contained in our forward-looking statements.
The statements made during today's call 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 this 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 reconciliation to the corresponding GAAP measures, please refer to our earnings release, a copy of which is available on our website and on sec.gov. And now, I'd like to turn the call over to Joanna Geraghty, JetBlue's CEO.
Joanna Geraghty: Thank you, Koosh. 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 standalone 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 crew members, 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 pre-tax 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 Shurz 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 is 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 biased 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 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 respected updated ranges, all of which was well-ahead of our original guidance. 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 played a JetBlue 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 is 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 have 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 crew members 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 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're 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 on board.
We know there are still gaps in our product offering where our customer's 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 right size, our fixed cost base to the current operating environment. To that end, actioned several initiatives in the first quarter, such as offering a 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're acting quickly to take self help measures and advance our refocus 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 crew members 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 crew members for their continued commitment to delivering a safe experience for our customers and for each other and one another each day. The safety of our crew members and customers has always been our top priority. And we, as our number one value will 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, while it is not your first earnings call with us, it has been a while 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.
Marty 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 ahead. JetBlue has an exceptional brand, incredibly high value geographies, and a strategy that I'm excited to execute on. Most importantly, we have the industry's best crew members. 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 we continued focus on operational liability 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, we'll 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 A320 fleet. As Joanna mentioned, we remain focused on rebalancing our network to ensure we are allocating aircraft support both our operational and financial goals. We are making modular creative 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 and in a number of underperforming intra-West Coast international markets as we prioritize our focus in L.A. on our Transcon and net routes. We also continue the planned margin-accretive unwinding of our LaGuardia flying. Starting this month we will operate under 30 daily flights, down from 50 at this time last year with another planned reduction anticipated at the end of October. This reduction has driven over a 15-point improvement to margin at LaGuardia and has benefited 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.
Moving on to revenues, first quarter revenue 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 up-bound travel into late match. This 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 seating, 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 improvements in TransAtlantic performance with unit revenues up greater than 25% year-over-year. However, as Joanna mentioned, we continue to be challenged by elevated capacity in our Latin 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 has grown 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 flying, our system-level unit revenue growth would 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 five-year on 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 challenges and winning in these core markets. The key tenets of our refreshed strategy will help us get there. From our reinvigorated focus on reliability to our enhanced loyalty program, improved merchandising efforts, and an evolved product. I'm confident we are putting the right focus in place to win these markets. 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 industry 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 RASM growth in 2Q is in line to slightly improve versus Q1. Given these factors, we expect unit revenue will 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 RASM 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 our 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 roll out 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 the increased engagement we are seeing from our enhanced programs. Overall, spending on our corporate card is up 10% year-over-year, and new cardholder the growth remains steady, particularly with our mosaics, the vast majority of them now carry JetBlue card. As we refocus our core franchises, we're encouraged by continued outsized growth of active members in our proven geographies, especially the greater Northeast region and Florida, and the loyal customer base will be key to our success as we rebalance the network. Similarly, JetBlue Travel Products started 2024, continuing the momentum from a record setting 2023. Our commission revenues from JetBlue Vacations and Paisly 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 is awareness of these product offerings increasing, but that repeat customers are our fastest growing segment for both products. Before I turn it over to Ursula, I returned to JetBlue because I love this brand, our crew members, and our customers. Our culture is a true differentiator, one that powers our brand, drives a safe operation, and distinguishes us from the competition. Our crew members 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 maze potential of this company, and 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. And I'm confident we are building the right plan to effectively compete and generate value for the stakeholders again. With that, over to you, Ursula.
Ursula Hurley : Thank you, Marty. As Joanna 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 though we weren't 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 CASM ex-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 is 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 to-date 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 monetization program is coming to fruition, as we continue to replace our E190 fleet with the margin accretive A220s, which deliver a 20% improvement in ex-fuel unit cost economics versus the E190s.
By the end of the month, we'll have reached a milestone on our fleet transition with more A220s in active service than E190s. We'll continue to replace our E190s with A220s on a one-for-one basis by the end of 2025, when the E190 fleet is set to officially retire. In addition to better economics, we have 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 we'll peak in the low teens in the late second to early third quarter. As we run long-range capacity plans to support our multi-year refocus standalone 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 GTF 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 record compensation as a reduction to aircraft assets or as amortization of maintenance expense.
This is expected to have an adverse impact on CASM ex-fuel, as this benefit will now be recognized over a longer period of time. Despite the significantly reduced compensation recognized in 2024 earnings, full-year CASM ex-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 CASM ex-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 costs 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 CASM ex-fuel growth of mid-to high-single digits year-over-year.
To better align our cost base with our operating levels during this challenge growth period. We've scaled back fixed costs spending where we can. In January, we offered a voluntary "opt-out" program, to targeted workgroups 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-the average airport costs, such as LaGuardia and LAX. Combined, these fixed cost savings are expected to drive 0.5 point of unit cost savings for the full year, which is reflected in our full year guidance. Additionally as Joanna 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 12 A320 aircraft off lease that were set for return to lessors. Looking ahead, we have further optionality and could elect to extend the life of approximately 30 A320 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 A220. Prioritizing A220 deliveries in the near-term helps to better match the needs of our customers with our cost goals, while continuing to evolve our product offering, as the A220 offers 90% more premium seating than our E190 aircraft. In addition, all of our 2024 and 2025 A321neo deliveries will be configured with our award-winning Mint product, further increasing our mix of premium ASN. 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 to increase 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 crew members for all their hard work and dedication day in and day out.
We are 100% focused on executing on our strategic initiatives 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.
Koosh Patel: Thanks, everyone. We are now ready for the question-and-answer session. James, please go ahead with the instructions.
See also
Latest Insider Trading Activity: 11 Stocks Executives and Directors are Buying and
13 Best Ethical Companies to Invest in 2024.
To continue reading the Q&A session, please click here.
