JetBlue Airways Corporation (NASDAQ:JBLU) Q4 2023 Earnings Call Transcript

JetBlue Airways Corporation (NASDAQ:JBLU) Q4 2023 Earnings Call Transcript January 30, 2024

JetBlue Airways Corporation beats earnings expectations. Reported EPS is $-0.19, expectations were $-0.28. 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 Travis. I would like to welcome everyone to the JetBlue Airways’ Fourth Quarter 2023 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, Travis. Good morning, everyone. And thanks for joining us for our fourth quarter 2023 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 Robin Hayes, our Chief Executive Officer; Joanna Geraghty, our President and Chief Operating Officer and Ursula Hurley, our Chief Financial Officer. Also joining us for Q&A, are Dave Clark, our Head of Revenue and Planning and Andres Barry, President of JetBlue Travel Products. 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 first 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 those expressed or implied in these statements. Please refer to our most recent earnings release and our most recent 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 — during this 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, copy of which is available on our website and on sec.gov. Now, I’d like to turn the call over to Robin Hayes, JetBlue’s CEO.

Robin Hayes: Good morning, everyone. And thanks for joining us today. As always, I’d like to start with a huge thanks to our incredible crew members. Today that message takes on even greater importance for me, because as you know, in two weeks, I’ll be retiring as CEO. And this marked my last earnings call with JetBlue. So after 15 years of earnings calls, I want to extend one more public thank you to our crew members, who are the reason our customers keep coming back to JetBlue. Their energy and dedication, their attention to delivering exceptional service to our customers, they truly are the source of our distinctive culture and brand. We would not be JetBlue without them. Let me also thank all of you, the analyst investors who have supported us and challenged us along the way.

We very much appreciate the constructive engagement over the years. It’s been a pleasure working with all of you. And I know you’ll enjoy working more closely with Joanna. I’m also very excited for Joanna, who will be our next CEO, effective February 12. No one on our team has worked alongside me or as she would say, suffered longer than Joanna. She is an inspiring and energetic leader for spearheaded many of our major strategic, operational and commercial initiatives. Over the last six months, she has been leading our efforts to develop and implement a turbocharged organic plan to help get us back to sustain profitability and restore our stock earnings power. You’ll be hearing more about that today and in the future. I’m very confident about the next phase of our evolution, which you’ll hear more about and will deliver sustainable improved performance over time and create value for our shareholders, customers and crew members.

Before passing it over to Joanna, I want to briefly touch on the Spirit transaction. We strongly disagree with the court’s ruling and yesterday we filed a motion to expedite and appeal of the decision. Last week, we notified Spirit that certain conditions to close may not be satisfied prior to the outside days that out in the merger agreement. We are evaluating our options under the merger agreement which remains in effect. Unless and until such time as the merger agreement is terminated JetBlue will continue to fully abide by all of its obligations. We’re not in a position to discuss this bear transaction any further at this point. And our focus today will be on our organic business. With that, for the last time, over to you, Joanna.

Joanna Geraghty : Thank you, Robin. I want to start by expressing my deep gratitude to Robin for his leadership and friendship over the years. He deserves tremendous credit for building JetBlue into the company we are today. He transformed us from a small domestic airline to one with a global footprint. He created new ways to innovate and challenge the competition from free onboard Wi-Fi to Mint our award winning premium offering which has disrupted Transcon and now TransAtlantic business class. On behalf of the entire JetBlue team. We wish him all the best in his next chapter. I’m honored to be taking on the role of CEO on behalf of this incredible company at a very pivotal moment for our business. JetBlue has a strong foundation underpinned by a truly exceptional brand and the industry’s best crew members.

We’re building on this foundation as we take aggressive action to get back to profitability and intensify our focus on delivering value for our shareholders. Before I begin my remarks, I’m thrilled that my first leadership appointment was announced yesterday, promoting Warren Christie to Chief Operating Officer, effective February 12. Warren has a robust aviation career spanning 30-plus years from his leadership and service in the military to his Jet Blue career beginning 21 years ago and spanning various roles. Warren’s dedication and passion for safety, operational performance and service excellence has been instrumental in our evolution. And he’s well positioned to help us execute a plan that will mark the start of JetBlue’s next major chapter.

As Robin mentioned, we’ve been hard at work evolving our standalone organic plan to restore profitability and reset JetBlue for future growth. And we’ve already begun to implement some of the initial components. The key strategic challenge we’ve always faced is how to thrive as a small player in an industry dominated by four large airlines. We now face this challenge in a post-COVID environment, where industry dynamics are coalescing around some clear trends. For example, customer travel preferences, including a premium onboard experience and improved customer service. These are increasingly shifting towards JetBlue’s strengths. We will deepen and strengthen our competitive position as a unique brand with a superior customer experience, finding new ways to be the best at what we do, and further distinguish ourselves from the competition.

This begins with refocusing on our most proven geographies. Our core network sits in some of the largest markets in the world where there are clear barriers to entry. And we intend to capitalize on our deep relevance in these markets by urgently re optimizing our network to make sure that we’re taking care of our core customer, making sure we go where they want to go when they want to go. We’re also recharging our innovation DNA, to bring an even better quality experience to the full spectrum of JetBlue customers, from leisure to visiting friends and relatives, to corporate and premium travelers. This means segmenting our onboard product offering more precisely so that each customer can get the best travel experience at the best price. We will use this new chapter to improve how we merchandise to our core suite of customers.

And to the extent there are opportunities across certain customer segments, we will launch new revenue initiatives and close the gaps on our product offerings. All of this is underpinned by a more reliable operation, a complementary loyalty program and a strong culture with a competitive cost structure. In many ways, this means refocusing on our core strengths. Let me be clear, it is not however, business as usual. I commit to you that with a renewed focus, we are bringing more data-driven rigor, intensity and creativity than ever before, with a relentless focus on building value for our shareholders. Over the coming weeks and months, including at an Investor Day, we will host in May, we will be sharing more with you on our longer term plan.

But today, I want to share our 2024 priorities, a preview, if you will, of how we intend to return to sustain profitability, and how we are taking urgent action, including launching several initiatives in the first quarter. Starting with our new initiatives, these are aimed at evolving our offerings to better serve our core laser customer, while further diversifying our revenue streams. In this process, we’ve identified over 15 different revenue initiatives. And in 2024, we expect these to add over $300 million to our top-line, of which nearly two thirds is ancillary revenue. Included in these initiatives is our recent launch of preferred seating, which provides customers with the option to select more desirable seats closer to the front of the aircraft.

This also gives us another way to reward our most loyal mosaic customers who will get this additional benefit for free. And it enabled us to better match our product offerings to customer demand. Another example I will highlight is our expanded distribution and OTA partnership. This expansion further aligns our distribution capabilities with the legacy carriers, allowing us to reach more customers and giving those who are aligned OTAs greater access to our product. We’re also making changes to how we manage our network rebalancing to deploy the right mix of routes and applying even greater discipline to our assessment of underperforming markets. As part of this refinement, we are aggressively reallocating capacity to proven leisure and VFR markets, including doubling down in those markets, where we can leverage JetBlue Travel Products superior offerings to better serve customers and help us generate higher margins.

Our loyalty program also remains a priority as we look for additional ways to provide more value to our customers and we expect our TrueBlue program to continue to drive margin accretive growth, as we execute our multiyear plan to close the gap to peers and better monetize the program. We are expanding our suite of products with the continued goal of appealing to more of our core customers and plan to launch several new loyalty products in the coming years. Next, continued costs and capital discipline are a top priority. To that end, we have reached an agreement to defer $2.5 billion of plant aircraft CapEx and smooth our delivery stream. Ursula will provide more detail in her remarks. Finally, as we operate in one of the most complex and challenging air spaces, operational reliability is foundational to all of our priorities, helping us deliver a better customer experience while also improving revenues with fewer refunds and disruption vouchers and better costs as we mitigate overtime and premium pay.

This will be a continued area focus in 2024 as we make more targeted investments in our operation, prioritizing areas such as predictive aircraft maintenance and scheduling enhancements, where we are already seeing meaningful returns for reliability. As I mentioned, we will share more at our investor date later this year. Shifting now to our fourth quarter results. We delivered a strong end for the year as both revenues and costs exceeded our expectations. Fourth quarter revenues declined 3.7% year-over-year ahead of our December guidance update, driven by healthy close in demand with both strong peak holiday period demand and better than expected performance during off peaks. Our premium offerings, and even more space in particular, continued to perform extremely well with double digit year-over-year revenue growth in the fourth quarter.

We also benefited from continued strength in our redesigned TrueBlue loyalty program within the fourth quarter and for the full year. In 2019 we have had the fastest growing loyalty program any major U.S. airlines, growing revenues by 75%. This reflects strong performance in our Barclays Co-brand portfolio, which achieved a record high for JetBlue Co-brand spent and generated over $1 billion in cash remuneration in 2023, more than double our 2019 performance. We continue to make enhancements that unlock value for our customers by expanding ways to earn and redeem points, which helped fuel record growth in redemptions in 2023, growing by over 25% year-over-year. We expect continued growth going forward, as we recently launched our first seamless partner redemption relationships with Qatar and Hawaiian in the fourth quarter of 2023.

And I’m pleased to announce that we have additional new partners coming on board this year. Capacity in the fourth quarter grew 3.3% year-over-year, above the midpoint of our initial expectations, as our strong operational performance in November continued through the end of the year. We operated with high load factors during the peaks and extremely busy time of year. And despite weather issues, we were able to recover quickly and minimize cancellations when dealing with storms early in the quarter enduring holiday peak. Our completion factor for the quarter was 99.8%, which is our best fourth quarter completion factor since 2004 and was one of the best in the industry. And we continue to see momentum on this front headed into the first quarter.

More broadly, we saw year-over-year improvements across nearly all of our operational metrics in 2023, reflecting the benefits of the structural investments we are making to improve reliability and boost resiliency. Strong operational performance, coupled with our continued cost discipline resulted in fourth quarter CASM ex-fuel ahead of our expected range, as Ursula will discuss. Looking ahead for the first quarter, we are seeing positive momentum in our revenue. Demand during peak periods remain strong and we have better match our capacity to demand during off peaks. International demand remains very healthy and the domestic revenue environment is improving as industry capacity has been moderating. For the first quarter, we are forecasting revenues to be down 5% to 9% year-over-year at the midpoint in factoring in our capacity outlook of down 3% to 6% year-over-year.

This represents a 5-point improvement in year-over-year unit revenue growth versus last quarter. Looking further ahead to the full year, we are well positioned to achieve roughly flat year-over-year total revenue growth, which we believe represents a positive outcome any year when capacity is decreasing. While the first half of 2024 cycles against the high pent up demand we saw in the first half of 2023, we expect year-over-year revenue growth to be much stronger in the back half of ’24, as comparisons ease and the benefits from our enhanced revenue initiatives grow. I’d like to close by thanking our crew members for their commitment to delivering a safe and reliable experience to our customers. These investments we’re making position us to deliver the JetBlue experience better than ever before, as we refocus our efforts on serving our core customer.

We are increasing our efforts to drive reliability and consistency in our operations, product and service. By digging deeper to do more of what we do best, we will be able to compete more effectively return to profitability and ultimately expand margins and returns for our shareholders. With that, over to you Ursula.

Ursula Hurley : Thank you, Joanna. I’d like to add my thanks to our outstanding crew members for all their hard work and closing out the year on a strong note. I am particularly pleased with our cost performance in 2023, amid a very challenging backdrop. For the full year 2023, CASM ex-fuel increased 4.5% year-over-year within the range we provided last January despite facing an incremental 1.5 points of CASM ex pressure from weather and ATC challenges in the Northeast. Fourth quarter cost performance was stronger than expected driven by a higher completion factor and better overall cost execution. Specifically, our operational investments have been enabling us to better manage day of disruption planning and to recover more quickly and complete a higher number of flights without having to incur additional costs related to overtime premium pay or disruption vouchers.

We continue to be impacted by the GTF engine issues. We currently have seven aircraft parked due to these issues and expect the number of out-of-service aircraft to increase steadily as the year progresses. Our current assumption is 11 average aircraft will be out of service throughout the year, kicking at 13 to 15 aircraft out of service at the end of the year. We are actively engaged in discussions around compensation with Pratt & Whitney. However, in the meantime, we have launched a number of measures to mitigate the impact, including leasing and purchasing extra spare engines. While these efforts have yielded additional spares, they are not enough to offset the headwinds associated with the elevated number of engine changes. As a result, we expect capacity and departures to be down in 2024.

In a year in which we aren’t growing, cost discipline is even more important, and we are taking a hard look at our spending to make sure every dollar we invest is making an impact and making a change when it does not. As part of this, we are making deeper cuts across our cost base, including rationalizing our real estate footprint, offering voluntary opt-out packages to crew members as well as better leveraging data to plan our operations and reduce unexpected disruption costs. We also continue to execute on our structural cost program, which delivered $70 million in cost reduction in 2023. We are now on track to deliver run rate savings in the range of $175 million to $200 million by the end of 2024, which is $15 million better at the midpoint than previously expected.

Savings accelerated through the back half of 2023, as we launched technology-based solutions aimed at enhancing crew member productivity and optimized maintenance planning for our midlife aircraft. Additionally, through our fleet modernization program, we remain on track to avoid $75 million in maintenance costs through 2024 as we replace our E190 fleet with a margin accretive A220. We have already achieved $55 million in cumulative cost savings to date and we continue to plan for all of the E190s to be retired in 2025. In the interim, we will still be operating three fleet types, which will result in near-term headwinds from associated costs and complexity. However, once we are through this transition period and back down to two fleet types, we expect a bigger benefit and a more meaningful tailwind to our costs.

This will be further amplified by the fact that the A220s deliver a 20% improvement in ex-fuel unit cost economics compared to the E190. For the first quarter, we expect CASM ex-fuel to increase between 9% and 11% year-over-year, which includes impacts from the GTF issues and approximately 2 points related to wage step-ups in our pilot contract. As we move past the first quarter, we expect absolute CASM ex to moderate downward and supported by our robust set of cost initiatives stay relatively flat on an absolute basis through the end of the year. We expect this to result in CASM ex growth up mid- to high single digits for the full year. Together with the $300 million of revenue initiatives Joanna mentioned earlier, we expect this cost performance will result in an adjusted operating margin that is approaching breakeven for the full year.

Turning to our fleet. As Joanna mentioned, we reached an agreement with Airbus and other business partners to defer approximately $2.5 billion of aircraft CapEx previously expected in 2024 through 2027. This agreement supports our path back to positive free cash flow, provides a more consistent level of aircraft deliveries and CapEx through the end of the decade and prioritizes the margin-accretive A220 and fleet modernization program as the E190 exit the fleet. We now expect to take delivery of 27 aircraft in 2024 and expect our full year 2024 CapEx to be approximately $1.6 billion. While we work through the near-term growth challenges stemming from the GTF issues, we recognize this level of growth is not in line with our historical performance, and we are evaluating all of our levers to partially offset the growth headwind.

Most notably, we have a significant amount of flexibility to extend the life of over 30 A320 aircraft to provide growth tailwinds and we will continue to explore other cost-effective and capital-light ways to grow our fleet. Turning to the balance sheet. We ended the year with $2.3 billion in liquidity including our undrawn $600 million revolving credit facility. We continue to take a very conservative approach to managing our liquidity and in 2023, we raised $1.4 billion in aircraft financing to support our liquidity needs. In 2024, we plan to raise additional financing to support our CapEx and our planning assumption for full year interest expense is between $320 million and $330 million. We also continue to maintain a healthy unencumbered asset base.

We hold a total financeable asset pool of over $10 billion, which includes the TrueBlue loyalty program, the JetBlue brand, our slot portfolio, aircraft and engines. Finally, we continue to opportunistically look at hedging as a means to manage risk. As of today, we have hedged approximately 30% of our expected fuel consumption for the first quarter and approximately 13% for the full year. Turning to Slide 10 for a recap of our financial outlook for the first quarter and full year 2024. As you can see, we are refocusing our guidance around six key metrics, which we believe are mission critical to understanding our story and measuring our progress. As we refocus our efforts around returning the business to profitability, we are shifting to adjusted operating margin, which we believe will provide greater insight into our core business performance.

Additionally, for the full year, we have moved towards directional qualitative guidance rather than specific ranges given the number of moving variables. We plan to provide more specific guidance for the full year at our upcoming Investor Day in May. To conclude, I’d like to thank our amazing crew members once again for all of your incredible work in 2023. We are at a pivotal moment in our company’s history. And I know that we are focused on the right areas to position the business for long-term success and restore our historical earnings power. The fourth quarter showed us that we are making progress. So while 2024 is a transition year, we have a strong plan in place, and we are taking the necessary steps to return the business to profitability.

We are refocusing on our core customers and proven geographies with network, product and operational changes to better meet their needs while still delivering the low fares and great service JetBlue is known for. We are diversifying our revenues with margin-accretive initiatives to grow our TrueBlue loyalty program and JetBlue Travel Products portfolio. And we are executing with continued cost and capital discipline, making more aggressive cuts to our controllable costs and deferring CapEx to help the balance sheet. Taken together, I am very confident in our ability to create long-term value for our owners and all our stakeholders. With that, we will now take your questions.

Koosh Patel: We are now ready for the question-and-answer section. As Robin mentioned, we are not in a position to discuss the Spirit transaction any further, and we will not be answering any questions related to the transaction on today’s call. Travis, please go ahead with the instructions.

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Q&A Session

Operator: Thank you, sir. [Operator Instructions] Our first question comes from Mike Linenberg, Deutsche Bank.

Mike Linenberg : Hey, good morning. And congratulations, Robin, on the retirement. Congratulations Joanna on extension to the CEO position. Thanks. Jenny, you laid out a lot of the elements of what you believe will make JetBlue a successful standalone company, notwithstanding the M&A process, which still has to play out here with Spirit. As you think about JetBlue over the next several years, though, we still have, call it, a market share relevance or a scope issue. Does that still feature prominently? Or is that still a priority for JetBlue even at running it as a standalone that still longer term, it’s important for that company to become bigger. What is your thinking on that? How has that evolved as you move into the senior role? Thanks.

Joanna Geraghty : Yeah, thank you. Great question. So maybe Spirit was about accelerating our organic growth, more JetBlue to more places, more people. And we still intend to do that. We’re going to do it organically. It will be a bit slower for sure. But as we think about this year, this year is really about a recent year to get the fundamentals of the business right to ensure that as we grow and as we bring more JetBlue to more places that we’re doing it in a profitable way on a sustained basis. I mean if you think about some of the unique advantages that JetBlue has, I mean these are tremendous strengths and we need to redouble our efforts around amplifying those strengths of our network, obviously. We’ve got the Conor lot at JFK and Boston.

These are markets that are constrained. They are markets where JetBlue is very relevant and customers know our brand and our experience. We need to maintain our leadership position there. But we need to be more selective where we fly to bolster profitability in those core geographies, so that we can start rebuilding top-line revenue. We’ve already got an extremely strong leisure franchise with a strong premium onboard offering. More than 25% of our seats are actually premium seats in the industry. And so, when we think about how we can capitalize on the leisure customer with our diverse portfolio of products, we are quite bullish there, but we need to improve how we segment, how we merchandise. We need to close gaps in that product offering and we need to kind of do all of this at the same time.

Hence, Dave focus on delivering over $300 million of revenue initiatives this year. Loyalty and co-brand is well positioned to be an accelerator, JetBlue Travel Products. Likewise, it’s had one of its best years yet. Ursula touched on capital and cost discipline. We need to be unflagging in our efforts to reduce and better control our costs. And then reliability underpins all of this. Obviously, our network footprint makes that more challenging, but we are making really nice progress there, notwithstanding some of the headlines and then reinvigorating our culture. So scale, it matters, but we also believe relevance matters. And we have scale and we have relevance in some really big markets, and we need to focus on doing what we do best in those markets.

We also have a path to capital-light growth. So Ursula touched on the deferrals, but I think it’s worth noting, we’re still taking over 50 aircraft over the next two years and we have the ability to defer some of our A320 deliveries, which isn’t the same as acquiring another airline, but it will give us a path to sustainable profitable growth over the next few years. So we have a short-term priority. But yes, we believe we’ve got a nice long-term plan as well.

Mike Linenberg : Great. Thanks for that answer. And then just a quick follow-up. Just Ursula on the debt balance sheet. It looked like it was up I think, 4.7, maybe that was up about $700 million. Is that mostly aircraft debt? Like what was the swing there quarter-over-quarter? Thanks and thanks for taking my questions.

Ursula Hurley : Good morning, Mike. Just I just want to go back to one of Joanna’s comments in regards to the one lever that we have is extending or buying out A320 aircraft. So that —

Joanna Geraghty : That defer in deliveries, I mean extending the retirement.

Ursula Hurley : Yes. But back to your question, Mike, the increase in debt was driven by the financing of aircraft throughout 2023. So we raised $1.4 billion against various aircraft as we navigated through last year. So that’s really what’s driving the uptick in the debt metrics year-over-year.

Mike Linenberg : Great. Thank you.

Operator: Our next question comes from Dan McKenzie, Seaport Global.