Q3 2020 JetBlue Airways Corp Earnings Call
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I would like to welcome everyone to the Jetblue Airlines third quarter 2000, and trendy earnings Conference call. As a reminder, today's call is being recorded.
This time, all participants are in a listen only mode.
I'd like to turn the call over to Justin Vice President Investor Relations David Johnson. Please go ahead.
Thanks, Mary Good morning, everyone and thanks for joining us for our third quarter 2020 earnings call.
Morning, We issued our earnings release, our Investor update and a presentation that we'll reference during this call. All those documents are available on our website at investor Dot Jetblue Dot com and have been filed with the FCC. Joining me here in New York to discuss our results are Robin Hayes, Our Chief Executive Officer joined a guarantee our president and Chief operating officer and Steve.
<unk>, our Chief Financial Officer also joining us for queuing day, or Scott Lawrence head of revenue and planning and Dave Clarke VP of sales and revenue management.
This morning's call 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 SEC.
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 table at the end of our earnings release, a copy of which is available on our website and now I'd like to turn the call over to Robin Hayes jump Lucy.
Thanks, Dave Good morning, everyone and thank you for joining us.
I'd like to start with my thanks to our crew members for their dedication to our customers.
I also want to thank our crew members for their sacrifice during the most difficult period in our 20 year history.
We are now over seven months into the pandemic and day in and day out our crew members deliver on our mission to.
[music] inspire humanity.
That dedication and passion for delivering outstanding service has been truly remarkable, especially as we work to a store customers competence in air travel.
We have responded to this unprecedented crisis with action, leading the industry with health and safety protocols to keep our crew members and customers site. We're grateful to all about team to bring in our industry, leading safety from the ground up program total life every day.
Our customers are recognizing the efforts and we are seeing record high customer satisfaction scores as a result of that professionalism and care.
Lets fly, let's turn to slide four of our presentation.
In the third quarter, we reported an adjusted loss of $1.75 cents per share. This.
Despite the ongoing demand challenges, we have worked to stabilize and protect jetblue.
Our efforts to raise liquidity reshape how network and reduce our costs are bearing fruit and have helped us navigate the immediate crisis.
We remain cautiously optimistic that we will see further steady improvement in bookings into the upcoming holiday season.
We have seen signs of pent up demand from customers, who want to visit their family and friends. All go on vacation and we believe that we will remain extremely well positioned to serve these customers as they return to air travel.
Moving now to slide five.
We are confident that our low cost low fat ledger model with the best crew members in the industry and the brand that customers Trust will help will all help jetblue to emerge stronger from the crisis.
Since March we have been focused on a three step recovery process.
We have made great strides in reducing our cash burn.
We continue to manage our daily flying and take tax collections to ensure we generate cash as demand recovers.
Secondly to rebuild our margins we are executing on revenue and cost initiatives.
Our margin today reflect the challenging revenue environment and in the near term we are redeploying our aircraft to new cash accretive markets, where we see demand.
Further out we are setting jetblue off to a strong rebound taking advantage of opportunities in our network and strengthening our focus cities to produce structurally better margins in the coming years.
Starting in the northeast we are building a strategic partnership with American Airlines. We believe this alliance, which is currently under regulatory review will help accelerate our Calgary preserve jobs and allow us to continue our 20 year track record of disrupting the market with low fat and great service.
I'd like to pause for a moment and highlight that while we are grateful to Washington for helping to save our industry in the spring.
Jetblue made a clear choice this past summer to accelerate the speed of our recovery from the crisis, when we announced our exciting New York and Boston partnership with American.
We've been working tirelessly tirelessly with both DFT and D.O.J. I want to thank the leadership teams of each agency for that team serious attention to reviewing our proposal.
Getting getting this partnership off the ground quickly is critical to our self help effort to expand low fares in New York, and Boston and get us on the road to a faster recovery and job growth.
In other parts of our network, we're positioning jetblue for future success. It Lx anew work, making our transcon franchise stronger.
In Fort Lauderdale, we're adding connectivity to enhance our position in south, Florida and in the Latin and Caribbean region.
We're looking forward to repeat.
That jetblue travel products subsidiary.
As demand recovers, we believe it will give us a competitive advantage in providing a unique value offering to leisure travelers who are looking for a trusted brand the office flexibility and a personalized experience.
On the cost side, our teams are working to realign jetblues cost structure to temporarily smaller revenue base.
Steve will provide some early details about our efforts that we believe will help us remain true to our low cost routes as we recover from the crisis.
Finally in terms of balance sheet, we have successfully raised more than $4 billion. Since March we have access to further capital should we need it naturally we aim to be a naturally.
Naturally we aim to be free cash flow positive with the goal of repairing our balance sheet over the coming years.
Of course, the timing will largely be a result of executing on our cost initiatives and the pace of demand with Tony.
As we look forward to the expected recovery, we continue to work with our elected leaders to help find the best public policies and technologies that will support a safe return to travel.
Rapid testing, we believe can help reopened domestic and international markets and be a critical step imbalance in public health considerations, while promoting an economic recovery.
The landscape continues to evolve and we are cautiously optimistic that we will see major advancements in this space in the near future.
Before closing.
And on behalf of all of our crew members I would like to take a moment to thank the federal government and their advisors for their continued support.
The Kazakh payroll support and loan program has helped save many jobs at jetblue and across the country.
Reality is that we're still navigating this unprecedented crisis and we expect demand to remain depressed for some time.
We are optimistic that the leaders of our country will soon find a path to provide additional support for jobs in our industry, giving us vital time to execute our recovery plan.
Thanks, again to our amazing and inspiring crew members, who despite the current hardships.
Continued to show their dedication to safely serving our customers.
And taking care of each other.
Joanna over to you.
Thank you Robyn.
To start by expressing my profound thanks, and gratitude to our crew members for their extraordinary effort.
Well it on behalf of each other and on behalf of our customers and delivering day in and day out on the commitments. We've made in our safety from the ground up program.
Crew members are the face of Jacqueline.
As customers become more confident in return to air travel we know it will be our crew members who lead the way convincing the flying public that with the safety measures, we've undertaken and observed air travel is indeed safe for all.
We continue to see new data that proves that the controlled aircraft cabin environment limit the transmission of coated because now often cabin Eric continuously we circulated.
The top to bottom airflow patterns that avoid spreading bacteria.
And to the hospital, great filters, which removes 99.9% of particle and bacteria.
Independent research studies by Harvard Ayada, and the Department of Defense to name just a few indicate that air travel is safe and the risk of contracting COVID-19 onboard in aircraft, particularly when we're in a math is very low.
Our customers are telling us that we are taking rate actions to keep them safe with nearly 95% of customer who has been with us during the pandemic, saying they will fly Jeff will again in the very near future.
Our net promoter scores are near an all time high with a 10% 10 point increase reflecting that our crew members are doing an exceptional job delivering a safe experienced during these unique times. This.
This is simply remarkable customers trust Jetblue and we remain their first airline of choice in our key markets.
That said the lack of uniformity in foreign in U.S. State government regulations related to quarantining present additional challenges to recovery and we are working to support our customers to understand and comply with these rules and for those that need a chronic virus test prior to travel we are building partnerships to make koby testing more accessible.
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Moving to slide seven.
In the third quarter, our revenue declined 76% year over year, a welcome improvement compared to our initial expectation.
We saw a modest sequential improvement in August and September demand as new case counts decreased in quarantine restrictions in some states where he.
During the quarter, we are pleased to see states, such as Connecticut, and Massachusetts rollout testing options to help travelers managed through Florentine.
Our northeast geography continues to be disproportionately impacted so we believe it will undoubtedly rebound as it always has with past challenges.
In terms of key markets.
We saw relative strength in our Latin and Caribbean region, especially driven by visiting friends and relative demand.
At the end of the quarter 20 of our 35 international destinations, we're open to customers from the U.S., albeit with varying travel requirements.
We expect more destinations to reopen subject to foreign government rules.
France Con demand trend modestly improved following the removal of quarantine measures from travel between New York, and California, Lastly, northeast to Florida traffic was a relative source of strength, despite the tristate quarantine and pricing pressures from elevated industry capacity.
Our planning assumption for the fourth quarter as a revenue decline of approximately 65% year over year.
We are encouraged by customers responding positively to our promotional activity, including an early holiday sale in late September.
And although there is still quite a lot of uncertainty about the evolution of chronic virus. We are starting to see the booking curve extend slightly into the upcoming Thanksgiving and December holiday travel period.
Booking trends remain largely close and a continued to improve despite the recent rise in case count.
In terms of market, we continue to see demand recovering quickest to Latin Caribbean and Florida destination.
Turning to capacity on slide eight.
We are managing through the vinyl tile demand environment with a laser focus on capacity planning are scheduled a few months out and adapting it to close in trends.
During the fourth sorry during the third quarter, our flown capacity declined 58% year over year lower than our initial planning assumption as we optimize flying to manage cash burn.
As revenue trends improved slightly through the summer months, our system load factor increased to approximately 50% at the end of the quarter.
For the fourth quarter, our current planning assumption is for capacity to decline approximately 45% year over year, given our current expectations for improved bookings.
In the near term, we have reallocated some aircraft to new markets to capture via bar and leisure demand, helping us generate additional cash and our focus cities and in non traditional markets for jetblue.
These include the approximate 60 routes, we announced during the summer months, which we expect will contribute to our cash during this fall and into the holiday season.
Our new routes are performing within expectations to date, our new markets from new work, particularly Trans Con mint are performing better than we anticipated we.
We are seeing similar results in our recently added flying in Florida, Providence and Hartford.
We are excited about our strategic partnership with American Airlines. This alliance is expected to bring more low fares to more customers allow us to offer improved schedules offer more options and activity in Boston and New York and offer an enhanced loyalty program along those lines. We have just completed the terms of our frequent flyer agreement with American.
We look forward to activating the partnership, which which should help generate cash recover faster and preserve jobs in our industry.
I want to close by thanking again, our incredible crew members for serving our customers with passion in everything that they do over to you Steve.
Thank you Joanna I'd also like to add my thanks to our crew members and leaders I could not be proud of their determination and efforts to keep each other on a customer site and to ensure the financial sustainability of Jetblue.
I'll start on slide 10, with a brief overview of our financial results for the quarter.
Revenue was $492 million down 76% year over year.
Operating expenses were down 45% year over year.
Excluding the benefit from has us in charges related to fleet volatility pardon truck crew members.
Operating expense was down 39% year over year.
GAAP loss per diluted share was $1.44 cents on adjusted loss per diluted share was $1.75 cents.
Moving on to slide 11.
Our average daily cash burn for the third quarter was $6.1 million ahead of the $7 million to $9 million range. We anticipated three months ago. This was the result of a modest improvements in demand beginning in August.
Cost savings achieved through a balanced approach to capacity or the many actions we took to minimize fixed costs across our business.
For the fourth quarter, we estimate our daily cash burn to be between four and $6 million. This.
The sequential improvement reflects our continued options to minimize cash costs.
In addition, as John mentioned, we are cautiously optimistic that the demand trends. We saw in August and September will continue and we are taking consequential capacity actions as needed to manage costs and supports our revenue recovery.
Well, we fall within the range will again depend on the pace of the revenue recovery, we see during the quarter.
At the end of September our total liquidity included restricted and unrestricted cash was $3.1 billion or 38% of our 2019 revenue.
During the quarter, we drew down $114 million for the care that loan program and raised over $300 million of sale leaseback proceeds or the mix of existing a new aircraft deliveries.
In addition, we refinanced our $1 billion term loan facility with two stability Tc transactions.
We have approximately $1 billion of traditional unencumbered assets on the balance sheet, excluding our loyalty program on subsidies.
With regards to our loyalty program, we continue to explore parallel path with both us treasury on the capital markets to rise up to $2 billion of additional liquidity.
Turning to slide 12.
During the first quarter adjusted operating expenses declined 39% year over year.
This excludes the payroll benefit from cause us a $332 million.
$58 million in charges related to crew member opt out programs.
The $56 million charge related to a fleet impairment.
$106 million charge relates to the loss incurred on sale leasebacks.
Since the start of Toby 19, we have offered a significant number of voluntary programs to help us preserve jobs and avoid furloughs.
On a cumulative basis over 6603 members of volunteers opt outs of extended lead programs and we continue to offer similar initiatives to help us adjust resources to support offline.
We are grateful to those crew members, who stepped up to participate in these programs. The contribution has been instrumental in preserving the financial health of Jetblue.
Our working assumption for the fourth quarter as a reduction in total operating expenses of approximately 30% year over year.
The sequential change is primarily due to scheduled increase in capacity to support revenue mitigated by continued efforts to lower fixed costs.
As we navigate the current environment with a steady hand, we are shifting our work to rebuilding our margins.
We are taking an aggressive approach to improving our cost structure.
That's we're lining our fixed and variable cost base to temporarily low revenue and capacity.
We believe that our work will return jetblue to profitability, we structurally better margins on the ultimate intention is to achieve superior pre tax margins versus the industry.
We are currently working on our budget for 2021, shaving a prolonged revenue recovery.
Using 2019 as a reference our emphasis will be lowering our costs on a permanent basis, reducing external spend on driving efficiency.
Our recent delivery of our structure cost program gives us full confidence that we can emerge from this crisis and even stronger cost position, which we believe will reinforce our margin recovery as demand returns.
Moving to slide 13.
In the third quarter, we took delivery of two Athree 21, Neos and in the fourth we expect delivery of two additional Athree 21, Neos and our first eight to 20.
All of our 321 delivers in the second half of 2020 are covered by sale leasebacks.
The Jetblue fleet currently stands at 265 aircraft, including a recent deliveries in early October.
Earlier. This month, we reached the second negotiated agreement with Airbus to defer additional aircraft and associated capital expenditure over the next few years.
Since the beginning of the crisis, we have reduced aircraft a non aircraft capex by approximately $2 billion between 2020 and 2022.
I would like to take this opportunity to thank have us for their tremendous partnership as we collectively navigate these unprecedented times for our industry.
We continue to look forward to bringing both the Athree hundred 21 at all on the 80 20 into the Jetblue fleet to help execute our network strategy and rebuild our margins through the outstanding economics.
We are forecasting approximately $200 million of Capex spend for the remainder of 2020, the majority of which will be funded through sally's Bucks.
We continue to expect our capex in 2021 to be less than $1 billion.
We have laid out our revised order growth and the impact that section about that.
Moving to slide 14.
At the end of September our debt to cap ratio was 58%.
Small increase from the prior quarter, driven by sale leasebacks and the recent drilling because that loan program.
Balance sheet remains amongst the strongest in the industry and we believe that our current leverage is very manageable.
Over the coming years, we intend to return our balance sheet, so pretty pandemic levels, while making strategic investments in our network and our fleet to accelerate our recovery efforts.
We entered the crisis with a strong financial foundation and while the pandemic has proven to be a truly unprecedented downturn.
We believe our efforts both past and present will enable us to recover faster and so ultimately we establish a full earnings potential.
As we move towards Twentytwenty, one and what appears to be a prolonged recovery we.
We will continue to work to protect Jetblue in the short term, while positioning us for success in the years to come.
I want to again, thank our crew members for their relentless world.
An old so thank goodness for their continued support.
With that we will now take your questions.
Thanks, everyone Mary we're ready for the question and answer session with the analysts. Please go ahead with the instructions.
Thank you if you would like to ask a question you will need to press star one on your telephone can you do all your question press the pound key.
Will only allow one follow up question.
Please standby will be compiled acuity.
Our first question comes from Savi.
Raymond James.
Hey, good morning.
On the cash Brian I was wondering can and towards the end of September and indication with cash crop is coming in at the lower end of guidance is is the difference and that it improved so much related to kind of the fare sales that you had at towards the end of September and also just what what see kind of the biggest drivers of improvement that you're expecting from Q3 to Q4 is that already.
Why do we see some cost benefits in there as well. Thanks. Good morning, Savi, Steve here I'll take that I think is about the effect of the balanced approach. So the $6.1 million of cash burn that we talked about Q3 was the average of the overall quarter I think the way I would describe it is that we're getting the balance right between.
Capacity revenue on our cost structure and the teams are doing a fantastic job dynamically managing the capacity to demand, which is really helping our overall costs are.
Our cost and our obviously our cash flow performance as we think about quarter three going into Q4 is.
It's a continued steady or increase in demand that we are such a forecasting as we saw it come through.
In terms of Q4, but it's also the boost this focus that we've had on our variable cost structure.
As we continue to take things style and that's why we're projecting sequential improvement from the $6.1 million in quarter. Three so the four to six that we've we forecast for Q4, so big sign construct three members I think the work has been tremendous and it's a balance of both revenue and cost.
Thanks, Sam and Steve if I might follow up you mentioned, the kind of trying to monetize that loyalty to raise liquidity with lies the program. Just wanted to clarify I think you said with the Treasury our capital markets. So if you go with the Treasury would you just swap Alex whatever.
Collateral you have in there right now or is there an opportunity to kind of get the.
Got more financing there.
Thanks, Savi I think the way I would describe our French.
With a very steady hand on the tiller, it's about having flexibility.
Robin So it's about the suppose hard from the government not prepared comments.
We continue obviously to look to the federal government to wonder whats going to happen with cause too.
We don't know what the outcome of that is at the moment. We also not like clear ultimately what's going to happen in the demand environment. So for me, it's about having the access to liquidity and continues to have the flexibility about what to Joel and while I'm. So we are running a parallel path both with this so to federal government, but also looking at.
A public market transaction with regards to the government. The government loan we do have access up to $1.9 billion. So we've just draw on a small sliver of that as we do that the by the end of September was $114 million I'm sorry, the loyalty program. If we chose to guys are not really.
Would supplement the philosophy that we've already committed obviously, if we decide to go forward I mean, we determined we need extra liquidity and go forward to the public markets. Then we'd obviously look at pledging the loss you plug in the public markets, but I think the overall message always give the.
The analysts and Investor community is that we've built flexibility both in terms of the past we type, but also in terms of assessing whether we need the liquidity or not in terms of the provisions we put in place to go forward.
Got it thank you.
Our next question is from Hunter Keay with Wolfe Research Your line is open.
Good morning, everybody.
Yeah, Robin I realize you're on pace and is not your priority right now well how do you think how are you and the board thinking about whats going to shape drivers.
Executive compensation over the next few years, given you know the prior drivers of target EPS and target ROI see or are probably not appropriate.
For the next few years or have you sort of have those discussions yet to sort of shape what drives the variable component of comp.
Sure Hi, Hunter good morning, yes.
Yes, I mean, obviously right now we're focused on the short term as we said before and I I laid out in my comments you know we've got we laid out a three stage approach. This about you know minimizing cash burn I'm rebuilding margins a name repairing the balance sheet you know what we try to do is ensure that exact.
To compensation targets aligned with our priorities as a as a business. So that's what we're focused on right now I ask Steve you know I think margins and EPS I mean, our goal is to get us back on track with that as soon as a as soon as possible I think we've also taken a flexible approach to targets over the years, where we.
Adjusted them to you know reflect what is the what are the prices at the.
This time I will remind you, though that at least for next period of time and longer if we take the government loan on the exact comp is limited by the the Kazakh restrictions and so that is also something we have to be mindful log and ensure we comply with.
Understood and then I'm sorry for this ridiculous specificity of this follow up but you are striking a tone of cautious optimism on holiday bookings did you write that script of last week I mean do you because it sounds like things got maybe a little bit worse over the last few days here over the weekend at least is that.
Obviously, you've had the opportunity to add is that of course, knowing what we know, but I just want to make sure we're not sort of like top ticking demand commentary to set expectations for the fourth quarter. There that maybe things are sort of worsening a little bit around the periphery.
Hi, Jessica just as a point of clarity what are you looking at when you say things got worse over the weekend.
I'm looking at I'm looking at the positivity tests in the Tri State area in New York City area, Connecticut, specifically again like I, just as I started to a specific question Robin I now, but tell you and I know I just was making sure that you didn't have a secret source of data that we that we didnt see no.
No no no you're is it your point is taken obviously I I already answered the question I get it but I just I want to make sure that knowing what we know as of this morning, you still feel like this is realistic yes, let me let me let me let me say one thing then maybe hand, it over to Joann I've husband.
Well, David I think that.
What we did see back in the summer was as case count started off in the Sun Belt. You know, we did see an impact on bookings we've talked about that before we haven't seen that yet. So as case counts has started to come off around the country. We haven't seen that yet I think some of that is just say, it's been a big pent up demand for travel.
We're also in the Thanksgiving holiday period, there's lots of students coming home and I'm, a moving around Thanksgiving and you know we think that traffic is going to be a hold up pretty well, but you know as we said before this is a non linear recovery path. We expect it to you know a ever wind. We we are you know we give insight that we.
We think we see we're pretty plugged into what's going on in different jurisdictions around quarantines and sort of try to make a a estimate around that and but as you know hunter. This thing can move very quickly you know I think we have about 28 states, where maybe 30 states now where they are right is sort of at or close to about 1.2% Oh sorry.
1.2 and.
We'll see where that money is but right now we're cautiously optimistic and we continue to see a that over the last several days, especially into the Thanksgiving and holiday period in December.
Great. Thanks, Rob appreciate it.
Our next question comes from Jamie Baker with JP Morgan Your line is open.
Hey, Good morning, everybody. My first question is sort of a follow up to hunters you know I know there is talk about New York abandoning the current quarantine structure or modifying it somehow [laughter] I've done a couple of quantum's myself, it's really mostly an honor system, you talked about Florida, Brazil.
Since I mean, what what I really care about is whether there would be a surge in bookings if new York rescinded the quarantine your comments maybe.
Makes me think otherwise than that maybe people are just blowing off the quarantine blowing off some of the recent headlines any any further color on that.
Yeah, I'll hand, you over to our quality and expert Joanna Jamie for this one [laughter]. Thanks for telling me how are you doing on it.
And maybe just to provide a little bit of color when California came off the quarantine last we saw upside in bookings and so as we think about the northeast.
And potential upside there that that's how we see it I will say that you know in the corn teams or foot first put into place we definitely saw more cancels and its slowing but as people have adjusted to those quarantines and in the case of Connecticut, and Massachusetts with the testing out options. They understand the ability to reduce the length of the quarantine through negative tests or eliminate entirely.
We've absolutely seen on demand coming back.
From our perspective, we're spending an enormous amount of time I'm on testing and maybe to provide a little color. There. You know there is a lot of talk about a vaccine. We don't believe the vaccine is necessarily a panacea, we definitely think it's critical to longer term recovery.
But in terms of returning to you know something that even looks remotely like a pre pandemic travel level, we're going to need to have in the short and medium term a rapid testing strategy that balances the public health considerations economic recovery and allows countries and states to reopen or relaxing eliminate on what we see is low.
Hardly ineffective quarantines and other travel travel restrictions. So we're spending a lot of time on that right now and a lot of time with states and international many of our Caribbean destinations, but we believe there is a combination of testing and longer term vaccine that will be the method by which quarantines, which we believe are largely in it.
Effective well out will be reduced or eliminated. Okay. That's helpful. Second question for Steve on the sale leaseback activity can you give us an idea as to the economics of the lease component how monthly rates.
You know when these deals compare to what you were being offered before the downturn and also have you thought about any sort of revised.
Lease versus own ratio going forward just in hopes of the better Variabilizing, which I guess is the increasingly popular term.
Very variablizing your cost structure.
Thanks, Jamie and good morning, I sort of bifurcate the salaries back activity in terms of the work we did on some of the older vintage aircraft. They all do I three trenches.
And the new Neos that we've we've been doing solid spot song I have been pleasantly surprised some of it's not only got and the the the economics on the on the call. The I've been pleasantly surprised about the transactions that we've managed to go forward with it.
We we did them obviously towards the start the last quarter and they the work has been done and that was a pretty good demand for jetblue mantle cell is pretty pleased with where we ended up with from a source of rights perspective.
And so the team on a big shots at the team at the complex transactions and the work that the teams work through to my that help homeowners was was outstanding with regards to your question about Sally's pass I've been very public about my views of this I've lost three years, which will leave because of the relatively strong position that jetblue is hot.
The strength of our balance sheet, the the cash that we're starting off from operations.
Matt the for the aircraft deliveries, we genuinely I stayed away from Sallie spot obviously, we're in unprecedented times.
How many views this as a balance to continue to generate cash for Jetblue has been cash into the business and so in the short term we have not stopped our proportionate to the fleet. This is the Sally spot, but like I said, you know like looking forward thought so please pandemic situation, we genuinely more geared toward.
Just a couple so the ownership side of things on a on a fleet going forward I got it. Thank you both take care. Thanks John.
Our next question comes from Duane Pfennigwerth with Evercore ISI. Your line is open.
Hi, Thank you good morning, it's there's much I want to ask another.
Quarantine New York question in Plano holiday [laughter] as well as as much they want to ask you. Another quarantine question I won't.
So just with respect to the value of a of a premium cabin right now in the early stages of a recovery.
If you compare like for like you know say Athree 20 high density to Athree 21, our Athree 21 high density to Athree 21 with men are.
Which one is more profitable and if you had a clean slate right now would you be leaning more on density or premium.
I'll take it and then ask Dave to add any color. So at this point and both are performing about the same we do like mint in terms of providing additional space and the additional on opportunity for customers on longer haul travel is performing transcons, that's performing pretty well relative to our other markets did you have anything youd like.
To add.
I think you've covered it well clearly customers appreciate the extra space and an excellent product goes government cabin. So that's always been extremely popular as mentioned before the rest is on transcon is coming back.
You have to really ended out the mix of routes, though because the high densities, which largely go down in the Caribbean are performing quite well in that region, given the strength of visiting friends and relatives traffic.
I think you push the pause button on it but can you just tell us how you're thinking about the Athree 20, rephresh and where that stands today and kind of where that would be in order of your priorities. When you when you begin to invest again.
That's right and I'll pick that up its Dave here. We did initially up put the full pause button on the Threeqtwenty program as at September we have started back up again, it's pretty de minimis dry and to be honest with doing one shot at a time the big thing I would say is that the vast majority of the cup.
The expenditure that we have on the based all program was already sunk which sells to both out into the play in terms of the kits the seats et cetera, but with obviously our customers appreciate the newer cabin as they saw it come through so we're supposed to start really doing well at the time as we saw guys food as is.
Dave I slightly wrong, and then will you know depending on the demand environment, depending on the revenue environment, we'll assess in Twentytwenty. One let me start ramping things up again to complete the slate.
Okay. Thank you.
Thank you I have a good day.
Our next question comes from Catherine O'brien with Goldman Sachs. Your line is open.
Hi, good morning, everyone. Thanks, so much for the time.
So this is on for Steve just a question on your structural cost program. You know I know before close then you are you locked in above the high end of your acute 15 at 300 run rate target and that was before the engine deal Youve secured some fun, but you know how should we think about the incremental cost savings we should be expecting next year.
Versus maybe 2019, just just from this program exclusively so so what did that cost savings over 100 over accuse me 300 million is flowing through in 2020, and then what will be in ground next year. Thanks.
Thanks, Casey and good morning up first of all I would like to say how please in terms of why we always are continue to flex not cost structure. The the structural cost program sets us up extremely well to your point I think for two reasons, one it's really embody the cultural cost consciousness across the whole the Jetblue announced.
Definitely there was a very significant number of initiatives that we've been able to build upon as we've navigated through the crisis I'm I think when I stand back and think about our cost structure as solid fuel obviously, the the biggest cost associated with that but it's a label are pretty members and our business partners from next analyst.
Spend perspective, and so the way we're thinking about this case is a couple of things number one taking away all sorts of focused look at taking fixed costs out of our business and we've already started doing a lot of things in the short term, which will stand the test of time, so they truly will be structural as we solicited before I'm building.
On the $320 million, a that we deliver that coming into the 2020 yet the way. We think about this is obvious they will continue to use that those initiatives and additional cost savings as we go through 21. The thing were thinking about is as we get at some point in 2020 to Abaxis.
Some sort of normality I've on capacity is getting back on the <unk> industry, leading cause in terms of unit cost progression. You know we were leading consensus for the whole industry in Twentytwenty were top of the industry in 29 team I mean looking forward at some point in 2022 getting back home to that yeah.
<unk> cost progression that you saw in early Twentytwenty.
Okay got it and then probably another one for you Steve actually just on aircraft deferral, you know with what's the neo delays over the last couple of years and production cuts.
In the cold there were any of these deferrals at the request of Airbus asking a pushback deliveries or or were these all pushed back at the request of Jetblue and then should we assume that any that you know 2 billion dollar reduction in Capex.
Concessions from delays are those all aircraft moving out of out of the period. Thanks.
Uh-huh came down and I mentioned this in my prepared comments today I do want to again, thank our partner lab or something with navigate through this process together its being a partnership as we've <unk>. We've had numerous discussions over the preceding months just to keep it is very simple. Its shallow spite, we have moved over 50% of ice reach.
21 Order book Arts of 2020, 2022 to a point in the future, which has delivered the reduction of the sub 2 billion ish of Capex over those two years. So it's been a a joint process. This is.
Purely around the thought of as Kraft.
And I feel now that we've got the balance right between navigating the crisis. We saw it go through this and bringing in such a high margin high return aircraft to supplement me just briefly.
Okay I understood. Thank you.
Our next question comes from Joseph Denardi from Stifel. Your line is open.
Thanks, Good morning.
Two easy ones for me, Steve what level of data centers or do you think you need to fly to get CASM ex back to 2019.
Well in terms of it's interesting when we sort of look at that with regard to sort of 20 to 22, there's a couple of things I would so size. So obviously it depends on the demand than capacity recovery, but having to FID.
I have a two building around $2 billion of deferred Capex, we are expecting less growth than we had with regards to the p. cobot environment and so the denominator and das Lee is going to be lower than we had expected in 22, but in terms of I will cost structure. The initiatives that we started taking going forward.
Puts us in a good shape and that's why we're so to the shaving that we'll get back to that level and then 20 to 22, but it's very bad at this point just all sorts of thinking about exactly what the past two intending to fly but this is the Oh. This is the plan or the planning assumption that we're working through a.
We'll continue to evolve that as we navigate through so 2021 and getting towards that but I remain confident in the tremendous work that the company in our crew members are doing so it's a wrestle with the overall cost structure. So my should withdraw its back to those efficiencies.
Okay, Steve is it cleans it closer to 80% of 2019 capacity you need to get to or is it 95%.
I think the while its describe it as a way of anticipated I mean, who knows what's gonna happen the demand environment, but by the time, we getting back into sort of 22, I would expect us to be due to the higher ends at the so 29 seen capacity.
Okay, and then and then maybe a question for Dave or Joanna just the mix of business versus leisure from a revenue standpoint for you all and then I'm kind of the importance of the business traffic to your pre co that earnings power. Thank you sure. So I'm, if it's largely leisure I mean, there's very de Minimis business travel in there and you know as we said since the onset of hand.
Thank you know, we do believe leisure the f., our traffic will be the sort of path to recovery out of this well before business I traveled here far tends to be quite resilient in times like this and we're seeing that town absolutely play out.
Our next question comes from Brandon Oglenski with Barclays. Your line is open.
Hey, good morning, everyone. Thanks for taking my question.
Joanna I want to come back to response, you had the one of the questions I think you mentioned testing.
Do you guys think that could play a bigger role in can you be proactive and helping to bridge the gap between authorities and.
Travel restrictions and I guess as a follow ups that who's going to bear the cost of that it is a solution.
Sure. So we are absolutely on being proactive with regard to testing from a few angles first we're on actively working with governments. Steve Other states are international government to put into place a consisting testing framework first that customers understand part of the challenge is they're all different so that create.
The level of confusion for customers and then ultimately is that countries and states well upon providing proof of the negative tests allow a customer to test out as I'm a reduced the links us on these core and teens I'm right now and as we see it you know there is some testing options, which weve announced wine and we're working on a few other.
And then also looking at pre departure testing facilities in the airport environment. There's a number of locations that have rolled those out. We're also exploring that you know at the end of the day you know, we we believe we need a cost effective so very inexpensive rapid think five minutes antigen test that can accurate.
Lead attacked Colgate invoke symptomatic and asymptomatic people to ideally test that can be applied on up to pre departure basis or even one you could using your home thinking like a lateral flow pregnancy test you could actually take before he leaves that you could do on your own anything that's how we see kind of the future moving you know in terms of.
Who would bear the cost obviously it depends on whether it's a government initiative, whether it's an airline initiative right now the cost of test. They're all PCR tests are largely are about $150 give or take you know that worked at work, we're not adding any kind of revenue share anything that we're just passing on the cost attached to customers when they.
Hi purchase through both which is our current partner, but you know we havent explored how we would cost share any anything around testing. We think you need a very inexpensive 10 15 dollar task and the key here is a test that can detect.
Covidien asymptomatic people right now there are not any test out there that are antigen rapid test that can actually detect covidien asymptomatic people. The PCR test that many of you take that we take it after the gold standard that's pretty expensive need be administered by a clinician hi, Dr., we do not see that as as you know a longer term cost.
This solution.
Yeah, I guess, you kind of answered it but there is a lot of price elasticity, there right if things get too expensive.
Got it thank you.
So a lot of price elasticity, we're testing.
Yeah.
I guess on your customer base right.
Yeah, I mean, I don't think its something that customers necessarily are going to be willing to wouldn't it's nothing I think we envision passing on through our fair or anything of that nature. This is something I think we were as we are getting right now setting up a partnership with various companies and customers would reach out in directly procure detached from those companies and pay for it on their own.
All right. Thank you.
Our next question comes from Mike.
The numbers with Deutsche Bank. Your line is open.
Hey, good morning, everybody, Hey, Joanna I thought I heard you mentioned that you had sort of finished up the work with American on the loyalty program and I'm just curious what elements of the partnership can you roll out now before Deo TDO Jay approval or worse can you can you can you proceed without there.
Blessing at this point.
Sure I mean, I've got take that one.
Make it a Scott how are you.
Again, I think we we want to be respectful of the.
Of what we're doing with the regulators and again I think as we move forward with that you know obviously, we're excited about all the elements of this including a frequent traveler, but I think the you know our focus obviously is bringing you know low fares and and growth to the northeast points in a faster recovery. So you know again I think it's.
Sort of what we could do you know we're moving toward a I think a close on this and I think what will be in a better position to kind of move forward you know more holistically. So you know I don't think it's a matter of what we can do versus what we want to do I I I I believe that we're moving forward at a time.
And that allows us to kind of move in a way that makes sense.
Okay, Great. That's helpful. And then just on my second question. Scott. This is maybe for you a Andorra gave you know when you look at just your yields relative to others and you guys are running a lot a bit higher I mean, you've been in positive territory for the past couple of quarters.
But your loads are often a lot lower and I realize that you know some of that may be a function of the blocking the middle seat and I know that you know I think it was mid October you sort of a modified that to go from blocking the middle seat to you know, maybe bulking up I think 70% or something and then it looks like.
Maybe in early December that goes away I'm, Pete I haven't seen anything you know maybe.
To counteract that how should we think about the yield trends as that less or are we going to get you know as we move into the fourth quarter will we see lower yields higher higher but higher loads and you know ultimately see a better RASM. There I mean do you feel like maybe you are leaving some revenue on the table because.
You have this middle seat block so sort of a multi prong question. However, best he can answer. Thank you [laughter] I'll take it and then I'll ask Steve or Scott to add some color. So you know as we've said since the onset the middle C. block has largely been about rebuilding customer confidence and travel we absolutely recognize that longer term, it's not something that's sustainable and that.
As loads come back on the cost of the middle seat block is it's quite expensive and so you know what you've seen us announced I'm through December one is that we are living fees I'm just below 70% on and will continue to increases led to longer term based upon what a that we recently.
Safety studies have come out, saying that any aircraft cabin is inherently safe favorite emmis on indoor events and so as we see into the holidays upside frankly, I'm as seats open up both in terms of fair, but also in terms of load great.
Thanks, John.
Your next question comes from Joel <unk> with Credit Suisse. Please go ahead.
Hey, good morning, everyone. Thanks, very much Steve Your Q4 average daily cash burn outlook excludes any one time costs associated with severance or employee separation related expenses is that right and if so could you just tell us what those expenses are expected to be in Q4, and a and if you've got it for 2021 as well.
<unk>.
Hi, John its Dave you're correct. It's excluded we actually obviously, a nice a public statement I'll answer in the <unk>.
The prepared comments the opt out provision that we talked about especially lot. Some in Q3 was 58 million and so that is the opposite launch or.
Oh, what youre going to see with regards to that in terms of what we know at the moment with premium.
Mmm is it really so stepped off in my own sites opportune to flatten them to support us through that obviously with regard to slide 21, we would not get into any of that yet because we've done what the future holds but the lion's share of the obviously line shows would have been booked in Q3.
Got it thanks for clarifying that and then just a quick follow up maybe for Joanne I.
I think as part of your your revenue initiatives you highlighted in the slides that an upgrade of the revenue management optimization system.
And I'm just curious you know.
Didn't you recently upgrade the the RM system in the last year or two and so can you describe exactly what this upgrade is and what capabilities you're unlocking with that thanks for your time, everyone sure. Dave Clark is very excited to talk about our new our ancestors I'll pass it over to him. So thanks for the question as mentioned we're in the process of upgrading to a savers newest version of the.
<unk> revenue management system called revenue Optimizer, we have been talking about this for a few years. This is part of our continuous improvement revenue management tools, which was part of our 22 Investor day.
It's more sophisticated system, we will have better ability to forecast demand to understand customer elasticities things like that I'm planning to cut over later this quarter and reworking the team process the business process and the team structure to maximize the benefits of the new tools. So I'm excited or later this quarter when we start using it in production.
Thanks for the color.
Our next question is from Andrew Didora with Bank of America. Your line is open.
Hi, Good morning, everyone I'm My first questions like root for Robyn or Joanna I'm just on obviously leisure has been been leading the recovery here general consensus is that leisure continues to outperform corporate over the next few years you clearly have this new oriented network and basing your comments today it doesn't.
Really seem like New York Northeast Flying is it as big of a hindrance as maybe it could be both just when I look at your total revenue growth here, it's been more in line with network carriers and your Fourq you can projection is similar to them as well I guess my question is what do you think is a catalyst for jetblue to begin.
Outperformance on the top line or do you think just the big fight for the leisure traveler might prevent that from happening would love to get your thoughts there.
Yeah, no. Thanks, I'll, a maybe a thought that men Oh, so to Joanna you know I look the north East issue has been very very significant you know we saw in Q2 for example, and we all know this how are the northeast was the most.
Most impacted in terms of Ah Ah krona boss and that you know I think we did a really really good job in Q2, bringing down our opex. A accordingly, you know as we've gone into Q3, we are still whilst of course, the northeast states have done a terrific job over the last few months on keeping the case count.
Down a you know that was still significant parts of New York that people come and visit the open. So you know Broadway regardless shut down going into next year. So I do think that some of the demand trends that we've seen into the northeast both business and leisure and then we also have the.
John I talked about the calling team then yes, you know compliance protocol in pain, but I would say, it's a mixed at best and I'm being kind, but nevertheless, it is I I barrier for people to fly and we also see you know post to traction when states create pesto exemption exemption.
Fall campaign that you know that is a positive catalyst. So I can't I'm, just I mean, I think the team have done a terrific job mitigating the impact we were the first airline to redeploy a large amount of new flying those 30, new routes. We've done it again, but but you know those acts as a a good mitigant and so I think that.
We will continue to do that we will continue to.
Manage that accordingly, but we're going to continue I think to see headwinds into the northeast for the you know I mean for the coming.
Mom and you know I think as we think about Thanksgiving, we were encouraging states to think about a testing option I mean, if people are coming back for Thanksgiving and quantifying in Oh, yes, but what we're seeing now of course is vivus spread in People's homes. So I see testing either before you leave but when you get here actually could have I think a real.
The positive impact on public health as well as helping US I think a deal with some of the demand headwinds at quanta things Greg.
And I think that yeah, I mean, I think it's a sad leisure VSR is what we are built to do it what we were founded on and we've got a product a price point a cost structure all built for leisure and as we navigate through this crisis and see that that's where the demand is we are uniquely positioned to to meet that demand and and recover.
More quickly than carriers that are overly reliant on and business travel.
Understood. Thank you and then my second question just for Steve I know you get this you'd probably get this question a lot, but just wanted to get your thoughts on where you think kind of liquidity requirements move to sort of on the back end of the the pandemic and I ask because you clearly have a couple of years worth.
Liquidity on your balance sheet right now at fourth quarter cash burn levels. So just trying to get US just trying to figure out how quickly the balance sheet can be repaired once we start to see demand recover more robustly here. Thank you.
Thanks, Andrea and I'll make this please I've I.
Again being delighted with the worse the treasury team have done a good I've described before as having a study hands on the Telo, we've been flexible with a measured in terms of how we've gone to analyze the put it say coming into the crisis with one of the strongest balance sheets in industry.
We kept about 10% to 12% cautious trading 12 month revenue I think and dastardly on Jay we are in a position while the industry as a whole will be thinking about going forward, obviously with a once in a generational a pandemic, but at the same time I think those that have had strong Obama and she's like.
Yes coming into this will obviously benefit going forward. So we'll certainly assess size it come out of the sites during the pandemic as we all at the moment, having over $3 billion in the bank I'm supposed to now be guys not see it might show that sleep well at night and balance sheet. Your path is absolutely at the forefront of our thinking.
You know, we got <unk>, we got to get.
Get down to ilmenite that cash, but where do you focus on the margins to start driving positive cash from operations.
As Robin said in his prepared comments the balance sheet. We have is right in the sense of a thinking as we come out of this other causes.
Thank you everyone.
Okay.
Well last question comes from Myles Walton from GBM. Your line is open.
Great. Thanks, So the last couple of quarters or last quarter and then this upcoming quarter, you're looking at your you're guiding to a 30% incremental drop through and Steve maybe just looking into 21 is that an appropriate dropped through to be looking out for operating earnings relative to revenue growth or are there other costs.
Perhaps coming back to the system that youve may be avoided or better cost savings that are going to be in the structural run rate.
Hi, Myles I think I'd start off with a couple of the headwinds the things that generally people they've got a sort of think about obviously in the very very short term a and you gotta sources have a bit of a pick in terms of medical costs. As you saw it come out the back into the courts, where people have put some sutton.
Elective procedures off et cetera, but the biggest too the other thing we got to now the guy and those sorts of a major future is rents and landing fees. When you think about this as a public hands and citizen the airports where that has less traffic I would say so that puts not to a pressure on the cost structure and in addition, as the volumes of our customers go up thinking.
Sure about such as there.
The amounts are claiming a services on initiatives that did and this is a whole other portfolios. So when I think about headwinds that probably the the couple in terms of the work that we're doing in terms of the the tailwinds.
That's really as I've said before in my previous answers to questions. We've done a tremendous job at jetblue through the structural cost program, we've really taken a homage to some of the biggest cost items think about engine management think about heavy mines is think about taking fixed costs out but also for dominated the last few months we've been ship.
Thing fixed cost to variable we've done some outsourcing from an output standpoint, we've done some in sourcing to drive millions of dollars of benefits are not tick ups organization would bring some heavy maintenance work. So we're leaving no stone unturned to make sure we got back on to that so to 2020 or the 2022 that Trey.
As we got into this so 22 financially so I'm pleased with the progress we're making.
Okay I'll leave it werent. Thanks.
Hi, Michelle.
And that concludes our third quarter 2020 conference call. Thanks for joining us have a great day.
And again that will conclude today's conference. Thank you for your participation.
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