Q3 2019 Earnings Call
Good morning, My name is Charles I would like to welcome everyone to that Jetblue Airways third quarter 2019 earnings conference call.
As a reminder, today's call is being recorded.
At this time, all participants are in listen only mode.
I'd now like to turn the caliber to Jetblues director Investor Relations Mr., David Fintzen, Sir. Please go ahead.
Thanks, Charles Good morning, everyone and thanks for joining us for a third quarter 2019 earnings call. This morning, we issued our earnings release, our Investor update and a presentation that we will reference during this call. All those documents are available on our web site at Investor Day jet Blue Dot Com and I've been filed with the S. C.
Hey.
Joining me here in New York to discuss our results our Robin Hayes, our chief all includes forward looking statements about future events actual results may differ materially from those expressed in forward looking statements due to many factors and therefore investors should not place undue reliance on these statements for additional.
Information concerning factors that could cause results to differ from the forward looking statements. Please refer to our press release 10-Q, and other reports filed with the FCC.
Also during the course of our call. We may discuss several non-GAAP financial measures for a reconciliation of these non-GAAP measures to GAAP measures. Please refer to the tables at the end of our earnings release, a copy of which is available on our web site.
Now I'd like to turn the call over to Robin Hayes Jetblue CEO .
Thanks, Dave Good morning, everyone and thank you for joining us.
I'd like to thoughtfully my thanks to our more than 22000 crew members across Jetblues network, so that passion and delivering outstanding service to our customers through a busy and challenging summer.
Starting on slide four about presentation.
<unk> adjusted pretax income was $239 million adjusted pre tax margin was 11.4% and adjusted earnings per share was 59 cents.
We're pleased with about 2.4 points of pretax margin expansion and EPS growth.
Our margin to expanding both on the absolute and relative basis, even with a series of unique headwind locked in Caribbean region that ramps during the quarter. I was also driven by the compounding benefits of structural cost program that helped us beat the low end about <unk> guidance.
As we near the end of 29 team I want to thank the team that jetblue executing our plans to create long term value for our customers I wouldn't as including the majority of crew members who own jetblue stopped.
We are gaining traction on the building blocks, we laid out a aloft investor day and expect to make further progress in 2020 .
Despite the mid temperatures in international markets Neo delays. We believe we are on track to deliver I'll go to 50 to $3 <unk> in 2020 .
The mall, we are positioning Jetblue for continued success into the next decade.
I'm, particularly pleased with our improvement in unit costs.
The third quarter, we beat the low end about CASM ex fuel guidance despite over half a point into capacity lost due to how it can dorian.
I mean, <unk> completion factor more than offset any storm impact and we believe this demonstrates the solid progress that Joanna and the team I've made to strengthen the operation.
Since 2018, we eat the beat the low end all the midpoint of our quarterly guidance range trial, I kinda them ex fuel.
I want to acknowledge the moment that fits all about crew members in achieving this important goal that we set two and a half years ago.
The team working in the operation enough to put tend to understand the importance of differentiated local small too and this is clearly showing on them you know numbers, while keeping what is unique to jetblue, our culture and our award winning service.
You're not domestic markets, we are satisfied without RASM performance throughout the third quarter.
We expect to see steady domestic trend during the fourth quarter.
International markets, we've seen an unusually eventful year, but despite rising pressured in 29 team. This part of the met what remains the boxes to margin and we say as an important earnings contribution to the jet blue in the long term.
I've teams a hard at work executing out commercial building blocks.
We believe that I plan to strengthen unit revenues into 2020 can return off to positive RASM growth.
Well I suppose to include a second Jay a network reallocation and on silly initiatives innovations from Jetblue travel products up progress the loyalty as wasn't the contributions from fare options 2.0 launching this quarter.
In 2019, ancillary network and loyalty initiatives, we put in place, helping us outperformed domestic RASM growth on the stage adjusted basis.
The second Jay you know a.
Turning to fleet.
We are disappointed with the outcome of the dispute between the U.S. and European Union to impose towers, So an airport that.
We believe that decision will be detrimental for jet blue and the U.S. airline industry as a whole.
We strongly support an open fair and competitive trading volume and I believe that these towers will ultimately lead to higher Fas unless choice for our customers.
We hope the U.S. and you will reach a fair trade to making these punitive and harmful towers unnecessary.
Although it's still too early to discuss any potential changes we might make to our existing order book, we intend to stay disciplined capital deployment.
We plan to continues to make capital decisions to maximize the S and return managed to positive cash flow and maintain a strong balance sheet.
Regarding our 2020 deliveries they have not been any significant changes to the delivery schedule since we updated the market in July .
We are flying only one about 13 eight to 21 Neo deliveries. We originally expected for 2019, and the delays, we announced last quarter or blow it out plan capacity growth the 2020 by at least two points versus out 2018 Investor Day plan.
We are fully mitigated the capacity impact on unit costs and the neo delays in 2019.
They tend to mitigate the majority of unit cost pressure, we expect from 2020 due to slower growth.
On the wrapped inside the neo delays have resulted in some near term headwinds for the fourth quarter as we shifted flights to all peak period.
Given our current fleet delivery plan for 2020, we anticipate this pressure to be temporary and should the by early next year.
Achieving 2020 gold is only the first that towards producing superior margins looking beyond next year. Our goal is to maintain a flattish CASM ex fuel trajectory controlling cost it's a way of life for Jetblue and we plan to remain intensely focused on cost discipline.
The station in July eight to 2018 to replace 190 fleet.
With more cost effective eight to 20 is just one example of how we're managing jetblues cost base, enabling us to expand margins and grow earnings.
As a reminder, on a pro forma basis of my review last year. The eight to 20 opportunity represents an increase of 65 cents EPS.
This is mainly driven by 30% decrease in direct operating cost per seat versus the 190 fleet.
Before turning the call over to Joanna looking back at our recent history, we have made impressive gains and structural costs a margin growth.
We believe that the items masking, our progress depression or international markets, a neo delays are temporary in nature.
Turning a rash them trajectory back to positive outlook into 2020 will compound without gains in unit cost to keep our margin growing.
We are confident in our plan to drive the earnings growth and improved margins that our own is expect from Jetblue and believe we remain on.
Paul throughout 250 to three but all those EPS target the 2020 .
Again.
Hi, Thanks to all that our crew members for their hard work Joanna over to you.
Thank you Robyn I'll start with our capacity outlook on slide sex.
During the third quarter, our capacity grew 4.8%.
The high end of our guidance range at 3% to 5%.
Higher capacity growth was the result solid improvement in completion factor.
We're pleased with the benefit of operational initiatives, which more than offset the impact of hurricane Dorian and friendly construction in Fort Lauderdale and JFK.
I'd like to thank the Jetblue team for the steady operational improvement throughout the year.
Since the beginning of the here, we have seen year over year improvements in all of our operating metrics, including being theater, L.A. 14 and completion factor.
For the fourth quarter of 2019, we expect capacity growth between four and a half and 6.5%.
As a result, we now expect full year capacity to range between six and 7%.
The increase about capacity guidance for the year is due to expected improvements and completion factor carrying into the fourth quarter.
Scheduled capacity growth for 29 team remains below our initial plan.
Turning to our network.
Let me start with New York.
We're continuing to grow and develop our trans Con network. Most recently through added frequencies to the JFK iliac market.
We're currently the carrier that offers the most nonstop flights between New York and the L.A. Basin.
We also continued to propel our long haul via far footprint with plan service between JFK, and San Jose Costa Rica, Glasgow, Ecuador, and Georgetown Diana.
In Boston, we continue to build our network improved relevance and grow our customer base.
We've been pleased with the unit trends in Boston overall, and we're particularly pleased with the growth in performance at the business market.
We now have 15 daily flights between Boston in DCH complementing the hourly service to New York.
Markets are exceeding our expectation.
Our relevance in Boston and other focus cities continue to drive up customer loyalty.
I'd like to take a moment and talk about our progress in Fort Lauderdale, just spoke a city continues to develop very well even as our revenue performance was temporarily impacted by hurricane Dorian and challenges and the Latin Caribbean region, we're proud to be the largest operate in Fort Lauderdale offering more than 120 daily depart.
Chairs and providing a differentiated high quality, but still low cost option to customers.
This past month, Broward County approved an additional $500 million in capital improvements to further enhance the customer experience and add gate capacity.
We're also proud to call Fort Lauderdale, Hum for Jetblue travel products business.
Fort Lauderdale will continue to play a central role and our long term margin and earnings growth.
Transcon markets showed solid improvement during the quarter.
We continue to see the benefits of the network reallocation efforts, we put in place, stating starting in the fourth quarter of 29 team and mid RASM growth again outperformed the system quarter, driven by strong business demand.
Lastly, a lot and Caribbean franchise was impacted by unique events in a number of market.
We saw demand it competitive capacity challenges began earlier this year, but ramped significantly through this summer.
We've taken quick action and our redeploying capacity to manage demand any impacted markets. We continue to be bullish on the region long time over the years, we've invested any portfolio of leisure and via farm markets.
I would have had and continue to produce strong margins for example, it.
Today, we are the largest carrier Puerto Rico in many can Republic and other key markets.
As we look to be on short term events. We are pleased with how the network is developing.
We're very confident both in the network reallocation and disciplined growth that helps expand our margins in the near term we plan to continue to take networking capacity action based on profitability and returns aimed at building critical math and our focus cities.
Turning to slide seven and then revenue outlook.
Third quarter, RASM decreased 2.9% versus last year slightly better than the midpoint of our updated range of minus two to zero percent.
Despite RASM trends decelerating during the third quarter good headwinds, we called out in early September our domestic RASM grew over 3% outperforming the industry.
Latin Caribbean RASM declined in the high single digits, reflecting reduced demand from the unique disruptions any number of markets in the third quarter.
For the fourth quarter, we expect RASM to decline between minus 3.5, and minus 8.5% year over here.
Looking at our domestic markets, we expect steady demand led by Trans Con and business.
From a high level, we see a broad decelerating domestic yield environment for the Jeff for Jetblue and the industry as capacity growth picks up.
And the Latin Caribbean region, we expect our ongoing capacity adjustments combined with demand recovery to improve RASM trends into next year.
In the specific markets, we called out in Q3, we anticipate third quarter headwinds to continue into the fourth quarter.
As in the past, we intend to take network actions to mitigate the impact of external events on these markets and moderate the current RASM decline.
As Robin mentioned in the fourth quarter, we are facing some headwinds for the neo delays as we shifted flights to off peak periods.
This is come with some pressure on the quality of flown schedules. We anticipate these headwinds to be temporary given our current expectation for neo deliveries in 2020.
Beyond near term headwinds, we continue to look forward to more progress in our commercial building blocks.
Heading into 2020, we anticipate approximately three points of revenue initiatives to returning to positive system RASM growth, including from the continued ramp of our network reallocation efforts there are options to Dato jetblue travel products and our ongoing work and loyalty.
We're particularly excited that later this year, we expect to rollout fare options to data.
We believe this platform will allow us to better segment, our customers and better provide each group with the offerings. They find most attractive.
We are encouraged by the success of our current version fare options, which launched in 2015 and believe the net duration will add even more value to our customers crew members and owners.
We expect that our revenue initiatives in combination with our other building blocks will drive RASM growth consistent with our 250 to $3 EPS goal in 2020.
I'd like to add my thanks to our amazing people across Jetblue for delivering a safe operation during the always challenging summer peak with that I will turn the call over to Steve.
Thank you John or thoughts on slide nine some highlights from the third quarter.
Revenue was $2.1 billion.
4% year over year.
Adjusted pre tax margin was 11.4%.
Up 2.4 points from the third quarter of last year.
Pre tax margin was driven by solid focusing on cost control, partially offset by revenue challenges in the losses Caribbean region.
Our GAAP pre tax margin also includes a small game Tonight investments in jet sweet equals a $15 million.
We reported a 63 cents GAAP EPS per diluted share.
Just a deep yes, 59 cents per diluted share.
Our adjusted effective tax rate this quarter was 26 to said.
We expect the similar effective tax rate to 29 team.
Moving to slide 10.
During the quarter CASM ex fuel increased north 0.3% year over year basing the low end of our guidance range of no point in 5% to 2.5%.
That makes fueled growth was driven by ongoing stretch across plug them, both and fits but also benefited by half point of timing due to expenses shifting from the.
Fourth quarter.
Looking for fourth quarter, we expect CASM ex fuel growth to lies between minus one plus 1%.
I'm thrilled to the progress, we're making on best to controlling our CASM ex fuel.
We ended the fourth quarter ahead of the plan for the year missing the timing benefits and we're well on pace to beat the midpoint of our original fully guidance of 1%.
We have lowered our CASM ex fuel guide for 29 team who runs between <unk> 0.5, plus 1%.
I'm proud of yes, it's all about crew members and lead us to overcome let's go through capacity growth.
Managing through them like construction in foreclose on JFK image sensing the impact of no delays and he can do it.
As a reminder, this year, we also cycle through a 1.75 point headwind for my first pilot contract.
This accomplishments as result of relentless execution of our search across program I'm I'm outstanding focus on cross Bob the entire Jetblue today.
It's hard to 20, we suspect that progress into CASM ex fuel to carry through.
We anticipate some pressure on using it costs coming from the neo delays.
We're working to mitigate much of that pressure through our budget plan.
We are committed to delivering the unit cost guidance.
We laid out for next year.
20, 280, CASM ex fuel guidance remains between minus 2.5.
A minus no point, it's 5%.
Progress in unit costs during 2020 will be driven by keeping the momentum about 29 to start to cross achievements of the impact from a athree 20 restarting assets.
We are fully aware the improving margins by managing our unit costs is pivotal to creating bodies to jetblues on this.
Turning to slide 11.
We ended the third quarter with 254 aircraft have received a second ice which ones who when they are just three weeks ago.
We continue to expect the maximum six neo deliveries in 2019, I'd expect for additional deliveries by yearend.
As a reminder, we originally anticipated 13 years its frenzy 90.
The current order book is included in the Investor Upsides in the appendix to our earnings presentation.
With restyled 43 choices I continue to target approximately 50 aircraft for the end of 29 team.
Oh really starting plans take good times of aircraft shifting from 29 teams is 2020 in order to minimize the impact of no delays on occupancy growth.
Turning to slide 12.
We continue to is it.
Transcon overall is performing well.
[laughter] close to monosyllabic [laughter] all right.
Yes, all settled for that I Didnt yesterday.
Loyalty was expected to contribute 35.
[noise] besides.
Sounds didn't earn its actually that wasn't all loyalty, but loyalty was part of that bucket.
I may be mistaken, but I don't as you look at ancillary revenue overall ancillary revenue was up 17% year over year. We're now at $33.60 per customer loyalty is the biggest component of that it's the fastest and largest growing component we've seen our co brand portfolio more than double in the last year.
The Irrs and were very optimistic about the future of our loyalty program.
And just a real quick one for Steve It at what point just so we can kind of keep incident or calendar is at what point [laughter] will you provided guy further out than the 250 to three assuming your on track what you said several times today.
When should we expect the subsequent guide.
Good morning, driving us to speak to this morning, I mean to be honest, we would certainly be advised guy that if anything has changed and when we went out back in a 20 I see a assad investor day, or we laid it out the 250 to $3 or with some macro assumptions associate.
To do that are not still stands as we saw a go forward.
Are we supposed to look for next year I'm. The only gets into this year. When we go into the the first quotes from a lot quarter four and is cool or you can expect just to slow taught out little bit further, but very very pleased with the play I guess, we can continue to my very happy with the the margin than if you ask accretion that.
We see in June 29 teams I look forward to Jetblue can continue to keep the momentum going forward.
Perfect. Thank you everybody hi, Jamie it's a Robyn I just want to build on Steve's comment because I think you make a very important points you know a right now we are entirely focused on the 252 to three but as we've laid out as we talked about we have a number of initiatives that will continue to deliver beyond 2020, you know we talked about our commitment to call.
Longer term some of the fleet changes and we're very excited about EPS growth story, we have beyond 2020, as well and so we know that's something we're looking forward to showing a a the white time, but right now our focus is on the 252 to three and that's what we're executing too.
Understood. Thank you very much rather than take care everybody. Thanks.
Next question comes from the line of Hunter Keay from Wolfe Research. Your line is real time.
Thank you good morning.
What do you could give us we'll update on the neo delays that you are they all caught off or or is the optimism that the deliveries will pick up again in early next year still based on some catch up that they have to do.
Hi, Steve I'll pay that went up as we exist are referred to were not prepared comments. We watch it just takes that Sina craft a in 29 team with take into deliveries say Fox button or the full by the ended the year. So six in 29 team, we gave a pretty comprehensive update.
July cool and nothing has materially changed as results of that are we continue to work through the delays with Atlas and have discussions with them. It's certainly been a challenge for us and as a result to that results in this mechanism tactical adjustments as you know to restart in 29 team.
So if it's at the schedule in operation will continue to look for any further actions we need to take a to mitigate further july's come forward, but nothing's changed from the July cold and yet because then.
Okay.
And then if you're tracking below the earnings Guy or the CASM guide is is that $50 million as non airline expense the buckets that you're willing to really caught deeply to hit the 2020 numbers given its almost certainly a near term PNM drag.
Well actually hands I wasn't ready so to start considering not at this point because we're making so this momentum with regard to our unit costs along the lines, it's really delighted with the progress you're making a lot cost structure. I mean, if you look at quarter three as we just refer to we were 20 basis points below the low.
What about guidance range. When you look at the adjusted Q4 as results of the half point shifting cost timing and the the pilot deal that we cycling over you are seeing.
Underlying negative CASM as we progressed to the second half of the as so I'm I'm not even so thinking about all of them I'm in the team at Jetblue is doing a fantastic job we continue to execute.
And I'm confident in the the structure cost program and the associated to the impact on cousin Max.
Thank you Steve.
Our next question comes from the line of carrying O'brien from Goldman Sachs airline children.
Morning, Thanks for the time.
Just walk us just give us some color on how we should be thinking about the cadence your cost performance. There next year you know be helpful. For if you could maybe remind us when you'll hit the full run rate for structural cost cutting program and then how we should think about the benefit some restyle I didn't hear deliveries. Thanks.
Hi Tech I, just didnt wanting to stay for I just wanted to clarify did you say the cadence of our cost structure through 2020 .
Yeah, just like how we should think about maybe when you'll hit the full 2020 <unk> run rate on the structural cost program and then how we should think about the benefits of the styling program and neo deliveries wrapping up. Thanks. Thank you are tied to just wanted to make sure has effectively so I can invite places the progress we've made a with regard to the structural cost program.
As we I was just alluded to we give us each other site in Q2 in Q4 and those on its pools, but just to give you a sense of the progress. We haven't made since July . We're currently sitting at 279 million as out the under this quarter. So, let's say 50 to 300 million, we might seem very significant player.
Yes.
Well its has been the biggest though this a this quarter business mix of products. If it's in sourcing projects that we've taken food. This continues to ramp I wake continues to be confident in the execution. This structure cost program as you've got three to 10 to 29 team to make sure we have not pick up in place as we sort of cycle through 20 Twond.
And so as those referred to in my prepared comments you Oh Jeez you see the restoration of the guys that we have a 2020 on the CASM side, the modest through the house to the Moneta Hall on CASM.
We are leaving quotes a full exactly why we need to be leaving it in order to go into 20 trenches. Your go forward I think the only other points as Mike you would continue to expect two elements that should they won the restarting we'll continue to ramp as we progress three 2020 we will.
We do anticipate having 50 as though they saw that cross completed by the end of 29 tea and that will continue to ramp foods. So you'll see the progress as we go through that on the second thing. The early data yeah, Choppiness that we saw genuinely C is associated on maintenance costs.
Of course as opposed to basis as we all the time intensive Tom in the two will contract. So other than that you should or should continue to see the momentum as if it progressed through 20, Twond say I'm worried about confidence in the plan that we put in place.
Okay understood maybe one quick follow up to that one and I have something else on a share purchases, but so Steve is that is it to somebody now you. Just mentioned is that running through your cost structure right now or is that what you've achieved in terms of what we should expect to see run for next year.
That's what you should assume a runs through the 2020 paying now.
We have obviously they are taking the benefits of the so structural cost program as we've been going through the various years. For example, we sold 30 million in 27 say, so 60 million in 20 I see you should expect just north of 100 million in Swansea 90, and as I mentioned on my so advance its Uh huh.
So for us to be producing these levels of sorts of CASM flattish cousins was.
You know you can sort of see.
Certainly a appreciate your math to stretch a cost benefits going through the paying now so the to 79 is this a cumulative run by is that one would see through the 2020 piano.
Understood. Thanks, and then and then just quickly on the share repurchase can you remind us how much I know you had seven cents plus and your to $53 target. When you first introduced it but was the 800 million dollar New program. You introduced this quarter was that at all contemplated in the 250 to $3 or is that incremental thanks great.
<unk> so when we went back.
I Investor day in 20, I see obviously didn't want to Guy has the board only had the existing go to Ization in place. So the seven cents the best Southern sense that we talked about Assad Investor day in 2018, only ashamed the completion of the existing 750 share purchase program and Didnt contemplate any benefits.
Funny subsequent share purchase agreements.
Thank you so much for all the color.
Thanks, Kate you have a good day.
Next question comes from the line of Brandon Oglenski from Barclays. Your line is open.
Thank you and good morning, everyone.
I guess Robyn a you know as you stick with the EPS guidance next year.
It does look like you'll have to get maybe slightly better revenue performance and I understand that you have fare options 2.0, coming but I guess my question would be if we're in the current environment is that enough you need to see improvement in the marketplace hit those revenue targets.
Good morning, but I'm going to offset drama too I take that sure thing. So I think it's worth pointing out that two thirds of our rather initiatives at 420 20 are yet to calm and we're confident on in low single digit RASM growth for 2020, Let me just walk you through what's behind that so we've got four initiatives three that are.
$354 million worth as revenue their options launches this quarter that represents about 150 million on as we think about the benefit we're pretty conservative any assumptions around the upselling take rate and as he looked at what other carriers have experienced particularly those that implemented there.
Basic economy later, they've really learn from what has worked in what hasn't worked and so we are on our compound that we can ramp ups fare options much faster than what some of the I'm carriers to work early to launch basic economy, we're able to do.
I also mentioned that fare options provides a platform for additional revenue initiatives beyond fare options on late into 20, and even beyond that to 2021. We've also got our network reallocation efforts, we have another 50 million coming into 2020 from those and I'll just point out that every city every route hats or.
On its way into the network and not only if we had plans network reallocation efforts, but we also on take advantage of opportunities, where we see something underperforming and not on the ability to in a meaningful way turn it around such as our actions in Mexico City. This past week on to ensure that we're protecting protecting our margins and then obviously, we have jeopardy travel products.
Which represents 25 million and the progress there is really there is a 1% I'm attach rate that we believe we can really drive upward in the next and the next year. So and then loyalty is also a significant tribute or so these four revenue initiatives, we believe will comfortably get us into low.
Single digit RASM growth for 2020, and we think that plan even works in a negative RASM environments negative industry RASM environment.
Okay actually that very thorough appreciate that Joanna and you know maybe I'm jetblue travel products is that what's driving your other revenue growth right now it seems pretty significant Boeing.
[noise].
I bought him to do a soft Dave to take that.
Sure.
Thanks for the question. This is Dave we've got a number of different pieces, adding.
I wouldn't call chip, which I'll refer specifically on the other but we've got a number of things just across the whole anthro stream mature driving good growth in those areas abandoned maybe I'll take that question little bit more to a jetblue travel products. Because again. This is a plan that we're sort of Ah preparing to optimize the next year.
As Joe honest at the corporate units you Guy is too when you fly Jetblue and you booked to Jetblue Dot com between one you know between one one the hopped on a customers attaching an additional product for so through the O. T. I is when you buy jetblue that you know that number is significantly significantly higher. So you know the team has been making.
A lot of very solid progress into a 29 team and I really start I'm very confident around the 25 million number that we've or building for 2020. The team is also a you know identified some other travel related products that we'll be rolling out into the 2020, good as well so I probably.
If I did about what was saying that.
Okay. Thank you.
Next question comes from lineup Judgeship Denardi from Stifel. Your line is open.
Thanks, Good morning, Steve It seems like over the past couple of years, there have been more headwinds and tailwinds to your kind of accomplishing as the 2020 CASM story.
So should we just kinda forget about the favorable end of that range the down two and a half and focus more on maybe the the higher end or is the kinda, though the lower end of the range still in play.
Hi, guys, Steve Hey, good to us to speeches I think you said it will actually in your initial point, which is we have had a number of headwinds as we went into this whole probably gum and it's interesting to see them. It was olin's board, but I just say in particular on the so called size a house we have.
Executed as we've gone through 2018, and 29 team I'm I'm Weve continues to take those headwinds in us dollars be it you know july's bid. So it's a past adjustments, but you know the continued challenge of ITC realizing that in the northeast so and obviously the loss in revenue that.
John I refer to be not perfect prepared comments, so I think what you're seeing from the Jetblue leadership team and the wasn't Jetblue team is a relentless focus on execution an odd passenger logic is what we've been sitting over the last two years. They all Jetblue. Your has a number of excuses and you're not good enough and his team.
Absolutely focused on delivering upon a an extra teaching too so.
We will continue to do that despite the any headwinds that continues to come forward towards us.
Okay. That's helpful. Steve and then Robin just your commentary about around tariffs.
The assumption that leads to higher fares for consumers means I think that you would be paying higher prices for those aircrafts. So.
Can you just maybe walk us through when all this actually starts didn't materialize when you have to make decisions and a yet just what you're kind of thinking a little bit more detail is around that thank you yeah. No sure. Thanks, John Good morning, I'll keep my comments high level, because I'm, obviously not going to comment on sort of a you know jet jetblue specific comment.
Patients way, we're having with Airbus but.
Overall, I think that these terrorists are extremely detrimental to the industry and Jetblue you know other airlines have.
Said, a similar things and you know I think the concern is that it's an issue that can continue to escalate you know there were other complaints in front of the W.P., a which could lead you to issued Tyler if that goes in that direction next year and so you know we're concerned about just where we all know hospitals.
So where it could become whether it could go now you know in terms of mitigation. Then you know we how about 220 is all moved up which will be assembled here in a in the U.S. you know I've concern about the way the towers or has been impose it was a imposed on airplanes I have already been ordered I mean, unlike many part.
Okay, I talked about purchase cycle time that a year is in some cases ahead of when there are taken a we've also being a big support that boss production in mobility. In fact, the first airplane came off the production line down I was there with other.
Jetblue a leader so.
No were at a macro sense are concerned about sort of or the tariff environment, where it could go in terms of sort of jetblue specific commentary I'm not going to get into.
Matt with this Oh, you know obviously, a we're working not through without Boston, It's very it's too early to say where that leads at this point right now, though we're not making any changes throughout 2019 or 2020 aircraft delivery assumptions.
Thanks Robert.
Next question comes from the line of Duane finding work.
From Evercore your line is open.
Thanks.
What is the profile of the international markets that are that are still working well for you all versus those that are not I noticed your cutting Mexico City I think from all points on the East coast and I think the industry commentary about Mexico in particular is actually pretty good. So what are you seeing as a bed.
Her use up for those aircraft.
Maybe I'll talk a broadly speaking about the Latin region. So as we think about Latin in Q3, there. Obviously is a significant capacity pressures into Q3, as we think about moving into Q4 capacity in the broader Latin region.
Decreases to what degree so we expect improvements there as we look at some of the more challenged areas that we mentioned in our and our September report those headwinds will continue into Q4 that said weve made adjustments to I'm trying to mitigate.
Packed up some of those unique challenges as we look at the Caribbean. It you know what is an area, where we have the ability to redeploy capacity into different markets and we've done that in print to kinda you know in the past we've done it in other areas you know customers will continue to travel to the Caribbean region for vacation and.
And they will just go to other islands to the extent that there are areas that that they would prefer to not travel too as we think about points its strength in the Caribbean The leader Caribbean markets continued to perform well for us and our long haul BFR markets also continued to perform offer us.
You know the creating an overall we've had a long history operating in this region and it's a reason why there are normal puts and takes.
This year, we've obviously seen a bit more pressure, but based on our experience. This is temporary in nature and it will it will it will move you know it's a great fit for our model, we're very committed to the region and I'm. It's a it's an area that produces outstanding margins and returns that we see there more than offset.
The volatility.
In terms of you know Mexico Reappointment, Scott would you like to take that sure. So Mexico redeployment is very interesting for us because I think we see a lot of strength in the non mint transcon, so you're going to see some daylight transcon flying from that a mix of 'em, some northeast to Florida, and then seasonally.
The additional actually northeast the Caribbean capacity, so that for US is a really positive margin change, we're really excited about that.
Thanks for that too detailed response and then just just for my follow up.
You know jetblue used to spend a lot of time talking about partnerships and partnership revenue.
No just noticed in some of your recent announcements there can you talk about to what extent that still important.
And what are the attributes of partners that are attractive to you.
To what extent is you know credit quality or the fact that apart and who will be a going concern in five years, you know one important attribute.
So this is Scott. Thanks for the question look I think we got 50 partners or that are out there and eat that works very well for us. It's an incredibly important part of the business and it produces for US I think what we look for in a partner is the amount of connecting seats. They fly into our focus cities that tends to.
To be in a big deciding factor for us and look we managed volatility with partners. We've done that in the past then we'll.
Probably have to do that I'm going into the future with a portfolio as large as we have so again I think we look at the potential for connections in revenue production.
Thank you.
Next question comes from the line of Michael Linenberg from Deutsche Bank. Your line is open.
Oh, yes actually touches on some of the previous questions, but maybe just a little bit more specific and say look like for example, you're one of the largest like for instance, you love any U.S. carrier and then just following the changes at the administration.
The changes the restrictions that reimpose for later this year did you have you seen a meaningful falloff.
And demand you know and then sort of as it as a result have you responded with your supply to that market just curious.
So it's just got again I will take that when I think the first piece is you know we've seen that impact in Havana, not at some of the secondary cities in Cuba the impact of.
Corresponded almost directly to the customers that were flying under that category.
And so I think again, we continue to watch Cuba, we continued to see some of the changes there and like you and I noted earlier you know each one of our cities and fights has to earn its way into the network. You know just cubic continues to do that so we're excited about that I think the other pieces right. We have utilize the 190 in Cuba.
As a competitive tool it's their rightsides airplane for what we're doing and when we see demand reduced we're able to use those down gauges effectively to to ensure that the economics or their work for us.
Great then maybe Scott you made this maybe gene as well just the you know the announcement out of that you know this interline agreement that you guys announced with Norwegian.
I saw something after that indicated that you would also be servicing them at chief size is that accurate I wasn't even sure. If you had the space to handle and never flights a day have into Kennedy. Thanks.
So that this is Scott I'll take that one.
We do handle some partners at T. Five I'm at this point, we haven't looked at that as part of the discussion I'm with Norwegian again, I would just stress here. This is part of the kind of relationships, we have with a with 50 other carriers, it's very similar to that.
Some of these relationships are closer than others and they involve things like handling, but we'll see where that goes as we move forward and this discussion.
Okay, great. Thank you.
[laughter].
Next question comes from the line of Helen, but [noise] Becker from a collyn.
Your line is open.
Great. Thanks, very much operator, I appreciate the time hi, everybody.
Just a couple of things on on you know that the what you're seeing in some of your secondary focus cities and how you're planning to get through let's say this winter as you ramp up capacity in New York Boston in Fort Lauderdale in Boston in Fort Lauderdale specific.
Great. How how are you you're thinking about you know recovering from operations affected by weather and air traffic control delays.
I lean I'll take it you know jumping lottery I'm in those hi, Jeff who operates in those congested airspace of any U.S. carrier. We've got a solid operating plan I'm that will take us through the winter and snowstorms and other events I think if you look at our performance. This summer I'm in the face of two significant run like in.
Your next in both Fort Lauderdale, and JFK and <unk> I mentioned the J K. One continues through November we improved operational performance year over year. So you know I think we've got a great team on the operation side that is dedicated to continuing to deliver a great experience for our customers even in the face of mother nature.
And and this thing if an air traffic control delays that we experienced in the network footprint that we operate.
Okay, Great. That's that's very helpful. Thank you and that's really all all I'll leave it there.
Next question comes from the line of Daryl.
Vezzi.
From vertical research.
Your line is open.
Hey, Steve can you just update us on where you are in your progress towards getting the Trans Atlantic service going I guess, you have semi thompson vessels to make in some probably some custom stuff that you need to do.
Can you give us a sense of sort of what's already taking place and what.
You know the potential cost it from that is in 2020.
Hi, dialogue that I'll pass over to John I with regards to transatlantic.
Action, so John of up to.
Thanks, Steve So you know the the work is well underway, we have kicked off or etops certification process.
With the Federal Aviation administration, that's about an 18 month to two year process. You know we're confident we've got an external party that's supporting us with its done it before and were where a confident that you know will move through the process as as outlined by the regulations in terms of our.
The airport that we're going to fly to in spot access we continue to work those issues in parallel.
And you know will be a reporting back at a later date as to you know what airport, we've chosen and ER and looking forward to add to that time.
With regard to your cost question any costs associated just with the launch of the Trans Atlantic Service for then I'll 2020 CASM. It's included within the God's just a closet.
Okay.
Thank you and then and then just quickly on this on this tariff issue I guess I'm following up on of the Joes question.
It seems like a lot of the.
You know a lot of the trouble for Jetblue, specifically as far as I can tell is related specifically to this.
CCF option.
I think that's that's that's what's caused some of the delays in in Hamburg and also I think that does in some ways kind of preclude you from trying to take more.
Airbus deliveries out of mobile Alabama.
How important is that easy ops AOCF option for you guys. Overall, you know is it something that you would forgo if this tariff stuff lingers on.
That's how it's probably not a I'll take that actually I was a a in Hamburg, a few weeks ago with the I bought team so I'm pretty familiar with this issue I mean, just some some background as you know we ended up delaying the neos from what we originally ordered and we sort of Ah Balsam Ceos forward and we did that because of the.
Issue engine challenges around the GTF when we didn't want to have engines are waiting until they've gone through more than modifications. The has now been you know that have now been underway that left us in a position really well for simplicity in cost the right thing for us with to move to the new IC F. configuration no at some point a abbas will move.
Ah Ah completely to the idea of configuration and it's really it's too late and not the right thing too to go back to Oh, no NACF configuration I'm not you'd be show at boss would have the manufacturing capability to do it what tends to happen either I buses approaches to produce some of the average initial.
Or any kind of new config in Hamburg. It was a 320 model to lose if it's 320, a and then move that to Imobile a bit later in the process and so it's not it's not just its not just the configuration that drives mobile. It's also the the production right you know its.
To a much lower production right than say a hamburger go to lose so again all of those issues that were currently working I'm actually to build on the point Stephen might I'm extremely proud of the fact that we face significant challenges with these neo delays.
And yet we haven't moved away from our cost guidance. You know we have found other ways to mitigate the a very significant impact that these delays of up in bringing a into 2020, we have built some conservatism into other live we find them right now we're comfortable with walked a what we've already guided which is the two point reduction.
Great. Thanks, very much everybody.
Next question comes from the line up for a g. of loan money from Morgan Stanley . Your line is open.
Hi, Good morning, Steve a question for you.
The team talked about CASM longer term beyond 2020 is being flattish I do you think you could potentially do a bit better than that or maybe the other way to ask it is uh huh.
And what are you, including in that number I would think you'd have some pretty nice opportunities given what you're gonna do next year based on your guide and then layering me.
Okay to 20 as it grows structural costs continuing to ramp et cetera. So why can't you do watch a gallon longer term given what I described.
Hi, Good morning. Thank you very much for the question I've gotten just rates rising or your comments I'm delighted to the progress that we saw continued to make 19 and through.
The potential for 20 to 20 in the God that we have an execution is going on I'm not going to go ahead of myself at this point regarding God three to 2020 for me when I think about let me talk around slots is CASM. We've always said mid to high single digit capacity growth because of all sorts of growth level for it so it's a jet blue.
Oh, I'm going to focus on cost structure cost program through the under this that can't be on should facilitate flattish cousin going forward. You are absolutely correct with very very happy to have the I teach when she's on order and as we've said before that gonna be so the game changer for Jetblue as we migrate.
He's supposed to predict city, 20, 324, and build but again I'm not I'm not gonna go ahead of myself, we Ah we guided to each one gtwenty well, that's really focused on execution. The only funnels like points toward Mike is through the structure cost probably going through the initiatives that we're doing whether the engine deals where that fleet deals whether along with some contractual deals.
We have got T.I. onto the next decade, then it's not just a very short term focused.
Thanks again.
<unk> or maybe first Scott a question for you we've seen a a good amount of interest and building out a lot and south Florida from American Delta. How do you look at that as Oh arrest school longer term HM do you see it as a threat or do you think you operate in differ.
In parts of the network such that there shouldn't be much overlap even if they are building out a south Florida on San Juan.
Hi, This is Scott I'll take that one it look I think we always watch what our competitors are doing in the overlap between Miami and Fort Lauderdale is certainly something that we watch very closely in this case you know I think we'll continue to monitor a the impacts here with the Delta in American as you do with all the competitors.
I don't see a big impact for us given the let him issues.
Excess.
Our next question comes from the line of savvy suite offering and change your line is open.
Good morning, I, just had no one follow up on the domestic RASM commentary about at moderating I am guessing just China based on your comment that it was it was broad based that you're seeing and I'm curious you know what you think is driving that is it just the fact that we don't have the feel pressure anymore.
He has kind of too much supply in the domestic market or is there some kind of slowing and then going on.
Yes, maybe a little more color on that so as we think about Q3, we outperformed the industry and domestic RASM in Q3.
We also pointed out in our re guide about one point of domestic softness and that was largely in the back half of Q3.
Demand remains steady, but consistent with the rest of the industry, we're seeing RASM deceleration largely associated with capacity ticking higher as we move into Q4 I'll also point out something you need to Jetblue, we're seeing about a half half a point of RASM pressure tied to the neos because of the delays in the close in nature.
The delays, we band putting a position where were flying a sub optimal schedule. So that obviously also pressures on pressures RASM.
Perfect and and I know John you mentioned that that was short term in nature. When do you think that is any color that clarity as to when that will.
He's up or is it kind of depends on when you get then yes.
Oh in terms of the Neo question, Yeah, maybe lastly, yes, the neo we believe a short term in nature, obviously based on the information that we know I'm managing to I'm to the existing I'm delivery schedule that we do believe that short term in nature.
Meaning just for Q.
Correct.
Hi, Thank you.
Operator, we'll take one last call from the analysts.
Understood Sir.
Your last question comes from the line of Joe payout from Credit Suisse. Your line is open.
Hey, Thanks, very much for squeezing me on here I'm just a couple of quick clarification ones first maybe for Robin or Joanne on fare options to point out just how should we think about the rollout and the ramp up in and not initiative is the plan to roll it out in the domestic market first and then international and when do you expect to have it fully rolled out system wide.
So.
We're looking at rolling it out the back a the back half a quarter for it ramped very quickly largely system, why but there'll be some markets, where we will not offering.
Okay got it and then Steve a quick follow up for you I'm, just curious what which bucket of of the structural cost program is outperforming your expectations and driving a stronger underlying cost performance is it the tech ops bucket do you continue to find incremental opportunities there like I'm wondering maybe the south.
New contract that you just announced with a our it looks like that might be incremental to the program.
Hi, John Thank you for the question I have to size the full buckets that we laid out.
The 2016 investors often delighted by the progress of all of them.
Obviously, we did have a bottom up exercise at this time and obviously that was two and a half years. It guys itself looks like he says there's been some puts and takes as we've gone through that I think I mean, the one that that's probably I. We've achieved as you probably saw from the July .
This call Upsize thing distribution, while we've actually I've performed a it sounds to the original was having said all the via the Olivia the buckets that we've taken Florida progressing very very nicely. Although it has to do you know supposed to be at 217 on millions.
Yeah. This this quarter, so very happy with all the progress happy with the progress in Tech you're right, we progressing quite nicely with some of those along with some contracts that will impact beyond 2020 , but so happy with old bucket sizeable.
I appreciate your thoughts.
That concludes our third quarter 2019 conference call. Thanks for joining us have a great that.
And again that will conclude today's conference. Thank you for your participation have a great.
Yeah.
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