Q4 2020 JetBlue Airways Corp Earnings Call
[music].
Good morning, My name is Mel and I would like to welcome everyone to the Jetblue Airways fourth quarter 'twenty 'twenty earnings Conference call. As a reminder, today's call is being recorded at this time all participants are in a listen only mode. I would now like to turn the call over to Jetblue VP of Investor Relations David <unk>.
Please go ahead.
Thanks, Mike Good morning, everyone and thanks for joining us for our fourth quarter 'twenty and 'twenty earnings call. This morning, we issued our earnings release, our Investor update and a presentation. We'll reference during this call all of those documents are available on our website at Investor Day, Jetblue Dot com and have been filed with the SEC joining.
Joining me here in New York to discuss our results are Robin Hayes, our Chief Executive Officer, Joanna Geraghty, our President and Chief operating Officer, and Steve Priest, Our Chief Financial Officer also joining us for Q&A are Scott Laurence head of revenue and planning and Dave Clark VP of sales and revenue management.
This morning's call includes forward looking statements about future events actual results may differ material materially from those expressed in the 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 tables 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 Jetblue CEO.
Thank you, Dave Good morning, everyone and I hope you're doing okay.
As we've done in previous earnings calls for the pandemic began I.
I would like to pause and remember aloft crew member Wanda.
One of the 10, we have now lost to COVID-19.
Gary gun was part of our ground operations team at JFK since 2005.
And his teammates will remember him for his kindness his passion and wounds and.
His willingness to always go above and beyond.
Our thoughts go out to go with family and friends.
For all of our crew members that knew him and also everyone. So and.
Packed it by this pandemic.
Now I would like to recognize 20000 crew members for their unwavering commitment to serve our customers.
To 'twenty and 'twenty was a year.
Like no other and as the COVID-19 pandemic challenge to our industry and ways, we have never seen before.
Our crew members rose to the occasion and delivered on our mission to inspire humanity.
And the very foundation of our business model, our culture, our passion, our customer service and our focus on safety.
Continue to guide us as we March towards recovery.
Hi, Jetblue, we had been investing and our culture for over 20 years and our longstanding commitment to empowering our crew members is now more important than ever.
The service company, the pandemic and cries for social justice of underscore alcohol and reducing biases that have existed for too long.
We are starting 2021 with a reinvigorated diversity equity and inclusion plan.
Commitment is to better embed D E a into the fabric of Jetblue and continue and minority and female representation and offset and direct to bank continued to increase our minority and female representation and offset and director banks between now and the end of 2025.
We're also reinforcing our commitment to invest and our crew members.
And improve the access to development opportunities.
Lastly, we intend to better reflect the diverse communities and cultures, we serve and all areas of Jetblue.
We believe Jetblue will continue and set the standard and our industry without comprehensive ESG strategy and we will.
First airline with SaaS be reporting.
Our commitment to the environment is to reduce emissions across our business as we respond to the changing expectations of our customers crew members and owners.
Today, we are the only U S airline that has achieved carbon neutrality for all domestic flights.
We also intend to achieve net carbon emissions across all of our operating and net zero carbon emissions across all other operation by the end of 2040 at the latest.
Our plan is to accomplish these goals through fuel efficient aircraft, expanding our use of sustainable aviation fuels and purchasing carbon offsets late.
Later this year, we plan to publish our annual ESG report detailing new initiatives strategy and disclosures and we will continue our conversations with all our stakeholders.
I'm proud that while we are in the middle of a pandemic our team continues to prioritize our work on ESG.
Now, let's move to slide four.
Of our presentation.
And the fourth quarter, we reported and adjusted loss per share of $1 53.
Despite the financial results I'm proud of what our crew members have accomplished in this extra ordinary year.
And I could not be more confident about our future.
And does not own and manage through the ongoing demand challenges, but also has made important progress on strategic initiatives, including revenue capacity and cost actions.
And it's work.
We will emerge as a stronger jetblue.
Moving to slide five we continue on our path to recovery, which consists of three steps for.
First reducing our cash burn.
And rebuilding our margin and third repairing our balance sheet.
As we move as we move through 2020 and meaningfully reduced our cash burn.
And we are now starting to shift our focus to rebuilding our margins.
We remain cautiously optimistic that demand trends will improve later this year.
More importantly, this crisis has made us a more agile creative and resilient and airline and we believe our initiatives will allow us to merge and emerge with structurally better margin.
Let's start with our network plan, we have taken aggressive actions to protect cash and remain relevant and our focus cities and and now over 18, new markets, while accelerating our expansion and historically constrained market such as music and L. A X.
We are thrilled to incorporate new aircraft into our fleet that will support our network plans. This year, we are bringing in the game changing <unk> hundred 20, with it and it's fantastic economics.
Also fly that looked at and state and <unk> hundred 21, Neo and the <unk> hundred 21 at all and both of which include our incredibly exciting new mint product.
Which will carry forward, our success and disrupting and re imagining premium travel at significantly lower fares.
We're so excited to shortly launch a landmark northeast Alliance with American Airlines. This is a truly innovative partnership between two independent and airlines.
Through our different business models, we expect to expand flying and highly constrained market and bring more low fares to more customers and.
We plan to offer new and increased flight options improved schedules better connections and more competitive fares I'll.
Customers will have access to more domestic and international destination and and improved frequent flier program for.
For Jetblue. This alliance will help us recover more quickly while also protecting jobs.
Beyond fleet and network, we plan to continue to enhance our digital experience and develop our jetblue travel products offering.
Last year, we were launched Jetblue vacations, bringing innovative new benefit to vacation packages, such as personalized service and destination travel perks payment flexibility and best price guarantee.
We also enhanced our travel insurance product.
We are now working to scale our platform to help our customers easily add products to their travel plans with Jetblue day.
The initial results are encouraging and we believe that as leisure traffic with 10, and we will see attach rates improving compared to a pre COVID-19 right.
Lastly, we remain committed to keeping our cost low and ensuring that our efforts across jetblue translate into better margin and higher earnings.
We continue to find meaningful opportunities for both and both our fixed and variable cost structures, which reinforces our low cost low fare leisure model Steve.
<unk> will provide more detail on our 2021 cost plan and how this adds for the cost savings we achieved through our structural cost program.
Of course for these efforts would not be possible without our incredible crewmembers.
And I want to thank them for their personal sacrifice as this crisis has impacted their lives with reduced hours and would use paychex.
And on behalf of all of our crew members and I want to thank our government leaders, particularly in the U S. Treasury for that continued and vital support for our industry, which has helped save many jobs.
We all as we all know navigating their most challenging times and our history.
But we are starting to see light at the end of the tunnel.
Our team will continue to do everything we can protect for future jetblue protect how crew members and emerge as a stronger airlines.
John over to you.
Thank you Robin first a shout out to our crew members to continue to manage all the challenges and operational complexities associated with Covid.
They are delivering a safe and healthy experience day in and day out for our customers and have truly been at the center of our safety from the ground up program.
We continue to instill confidence that flying remains a safe mode of travel and thanks to them. We saw in 2021 of the highest NPS scores and our recorded history.
Consistently delivering on our safety commitment remains one of the top reasons why customers are returning to air travel and why and when given the choice they are choosing jetblue.
And we continue to evolve our program to reflect the most current information about COVID-19 and addressing the areas that customers tell us they need to see addressed to get them flying again.
Our focus remains on cleanliness and touch points and air quality.
And we are also prioritizing efforts to educate our customers about the changing regulatory requirements associated with air travel, including testing quarantine and documentation requirements.
And that many customers want to travel and we are trying to help them more easily navigate the landscape.
We are working with common path I Hope records platform and certain markets to help customers easily validate and their COVID-19 status prior to travel.
We have an eye toward including verifiable vaccine information and such a platform and we believe this will be and important part of future travel.
We're also offering pre departure and arrival testing options and Boston and JFK with express check and we continue to grow our partnership with vault health, providing customers with a home based testing option, both within the United States and internationally.
We will continue to work on options that help our customers more easily navigate this landscape, while also pivoting to vaccine documentation.
Moving to slide seven.
And the fourth quarter, our revenue declined 67% year over year.
This marks a nine point sequential improvement from the prior quarter.
And while demand improved and October booking trends slowed and November following increase and case counts and the CDC recommendation to avoid travel during the holidays.
However, even with this headwind we were pleased to close the quarter with the December holidays, and providing our highest traffic volume since the start of the pandemic.
During the fourth quarter, our Latin and Caribbean franchise continued to perform relatively well with demand being led by our VFR markets as well as a modest increase of customers traveling for leisure markets.
All of our domestic regions also saw revenue growth quarter over quarter, with Florida markets, having the greatest improvement and domestically.
Despite this progress and the fourth quarter, our geographic challenges persist with elevated case counts and continued quarantine measures, particularly in the northeast and California for.
For the first quarter of 2021, our planning assumption for revenue is a decline of between 65 and 78% versus the first quarter of 2019.
We saw increased demand for Martin Luther King weekend and are seeing a similar pattern for Presidents' day weekend, but we do not anticipate traffic to reach the levels of late December.
The CDC order effective earlier this week, requiring all customers over the age of two to present, a negative COVID-19 test before entering the U S is also pressuring bookings and our international markets.
As a result of these international travel restrictions, we are seeing increased leisure demand to Florida, including our new Blue cities of Miami and key West. However for the fares are low with relatively high levels of industry capacity.
Our revenue plan for 2021 continues to evolve and as we've said all along we do not expect that recovery will be linear.
We believe that we will begin to see material revenue recovery. When there is a meaningful and sustained decrease and Covid case count.
As proof points, we saw demand accelerate back in May and August when case counts and started to decline.
We expect to see much of the same as case counts decrease in the coming weeks and months, particularly in the northeast, where we believe demand may accelerate at a higher pace given the more stringent quarantines.
We are optimistic that this decrease will come when there's increased immunity across the population.
We also believe that governments will adjusted travel restrictions with decreasing case counts further fueling demand.
President and booking curve is relatively short as case counts come down and customers will be able to more confidently plans future trips leading to a lengthening of the booking curve.
As we move to a recovery fees, we believe that our predominantly leisure footprint and low cost structure buttressed by our strategic initiatives should position jetblue well exiting for pandemic.
We are excited about our recent upgrade to a new revenue management system part of our continuous improvement and our revenue management tools and the system enables us to better forecast demand and better understand customer elasticity, which is a key tool for driving increased revenue.
We are also implementing E M D capabilities that will allow us to sell ancillary products more broadly and also to price them more dynamically.
We also continue to optimize our ancillary offering, making our product and price proposition and more competitive and more attractive to customers.
We remain very pleased with the upsell behavior of fare options two data and the rollout in 2019, as we continue to refine and improve our segmentation strategy, we will announce updates to fare option features in the coming weeks.
We've made additional strides towards the direct distribution strategy and have reduced the number of external partners that we work with there are numerous channels for our customers to view, our fares and offerings, but we are always encouraging them to book their travel at Jetblue Dot com.
Lastly, and certainly not least our loyalty program is an area ripe for evolution, we see an opportunity for jetblue to grow our revenue base substantially over the coming years, your personalization and a program tailored to different types of customers and their preferences.
We're also currently out with an RFP for our co brand partnerships to enhance our value proposition for customers.
Turning to capacity on slide eight and.
And the fourth quarter, our flow and capacity declined 47% year over year.
For the first quarter of 2021, and our planning assumption is for capacity to decline at least 40% versus Q1 and 2019.
The sequential growth is driven is driven in part by expectations for improving demand trends in the back half of the quarter and also by the extension of the payroll support program, which brings down our cash breakeven load factors. Despite the headwinds of high fuel prices and seasonally lower fares.
I want to recognize the many jetblue teams have been managing the peaks and troughs of the quarter quickly ramping up the operation to over 700 flights per day during the holiday and dialing our flights back to less than 300 per day during trucks.
We continue to adjust our flying to areas of relative strength and over 15% of our capacity and the first quarter of 2021 is in new markets.
<unk> been quick to add new flying and areas of strength, but also quick to pull capacity and underperforming areas.
Thank you to our network team for finding new and creative opportunities to deploy our fleet just for cash generation and the financial and sustainability of Jetblue as well as our operations customer experience and revenue teams for executing these opportunities so well.
As we move through 2021, we plan to bring capacity back in line with demand trends addressing short term pressures, while solidifying our long term position and our focus cities.
You again to our crew members for closing out another year with their commitment to safety during what has been the most challenging year and jetblue history with that over to you Steve.
Thank you Joanna and good morning, everyone.
I would like to add my thanks to our crew members for doing a phenomenal job and 2020.
And I can kind of each other and that.
Customers and ensuring the financial health of Jetblue.
Turning to slide 10, and a brief overview of our financial results for the quarter.
Revenue was $661 million down 67% year over year.
Operating expenses were down 38%, yeah other year <unk>.
Excluding the benefit from cash and charges related to fleet and voluntary leave programs for our crew members.
Operating expenses were down 34% year over year.
GAAP loss per diluted share was $1.34 and adjusted loss per diluted share was $1 53.
And then I'm going to slide 11.
As Robin mentioned, we continued to make progress towards recovery, reducing our cash burn and laying the foundation to rebuild our margins and remaining committed to balance sheet with Pat.
Average day, the cash burn for the fourth quarter was $6 $7 million towards and lower end of the $6 million to $8 million range previously expected.
This was a result of variable cost savings achieved through our balanced approach to capacity and the <unk>.
And to minimize fixed costs across our business.
The other December our total liquidity, including restricted and unrestricted cash was $3 1 billion for <unk>.
And that's yet decides about 2019 revenue.
Our liquidity includes funds from the equity transaction, we executed in December and saw these spots to finance aircraft deliveries.
Starting this quarter, we will transition for reporting all in cash burn for EBITDA.
We believe that this much it brings better visibility to jetblue and underlying performance as we move towards recovery.
We estimate our EBITDA for the first quarter will range between negative 525 to six inch and $25 million, reflecting similar revenue trends for the fourth quarter, but also manifesting waste and cost pressures for them.
Rents and landing fees.
Well as fuel prices.
For reference we have included a reconciliation table and the appendix section of our presentation.
As Jonathan mentioned, we are starting the year with challenging demand trends and why.
And we fall within the EBITDA range will depend on the pace of revenue recovery during the quarter.
Turning to slide 12.
During the fourth quarter, our adjusted operating expenses declined 34% year over year.
It excludes the payroll benefits and cash of $49 million the cash.
Cash benefit related to employee retention credit for $36 million.
And it also includes a $15 million charge related to fleet impairment and $1 million and charges related to cream and opt out program.
This performance relative to our expectations was driven by for policy actions and solid project execution during the quarter.
Our working assumption for the first quarter is a reduction and our total operating expenses of approximately 25% year over too.
The sequential quarterly increase is driven by a capacity plan and external and cost headwinds, particularly rents and landing fees as well as fuel prices. We anticipate some of these cost pressures will normalize over time as traffic volumes recover.
Moving to slide 13.
We continued to take aggressive approach to improve our cost structure and to help rebuild our margin.
'twenty 'twenty one plan reduces our total operating costs by over $1 2 billion.
Compared to 2019.
We believe for executing our plan will put us on a path to emerge from the crisis with better CASM ex fuel and 2022 and 2019.
Naturally achieving our plan will be a function of demand recovery for thinking about capacity and ultimately taken on aircraft utilization to pre crisis levels.
And in order to achieve our unit cost growth and improve our margins going forward, we are targeting a reduction and our 'twenty 'twenty, one and fixed costs between $150 million to $200 million.
Compared to 2019.
For perspective, this is a 6% decline on our fixed cost base on a 6% and largest fleet average.
And two.
Our fixed cost savings will come from our support functions and business partners.
We've rescheduled our support footprint through Crewmember dot programs and consolidating our real estate assets and.
And driving additional efficiencies across jetblue.
This includes automation and standardization of internal processes and of course aggressively managing our discretionary spend.
Throughout 2020, we work closely with our business partners to adjust our commitments and secure rate reductions as well as payments for modifications.
This year, we will continue collaborating with them.
And so as our contracts increase the variable components of our pricing and.
Further drive that drive that and our overall costs.
In addition to our work on fixed cost with all lines and the value of a portion of our cost structure to our capacity and network planning.
We are focused on achieving savings by optimizing engine maintenance events and <unk>.
Big aircraft back to the operation and <unk>.
Moving to drive frontline and productivity with the support of technology.
Moreover, we are incorporating more and more fuel efficient aircraft and small fleet.
And increasing fuel efficiency measures throughout the operation.
We do expect some headwinds in 2021, which will endoscopy debella, including investments to protect the health and safety of our customers.
Low cost and absolute strategic fits for Jetblue.
The beginning of 'twenty and 'twenty, we reported the completion of our structural cost program, resulting in run rate savings, which will manifest in our P&L as we turn to growth.
We look forward to continuing the momentum and controlling our unit cost trajectory other than next year.
Moving to slide 14.
And the fourth quarter, we took delivery of two <unk> hundred 21 day.
And our first <unk>.
Kraft, bringing argument and fleet count to 267 aircraft.
During times of 21.
We have 725 <unk> hundred 21 day.
And so.
21, and allows us with annual Capex of approximately $1 billion.
For the three and a payment of 22 months to 'twenty and 'twenty, two we lowered our capex by $2 billion.
Uh huh.
And we work order book, we support on that strategy.
<unk> delivering a platform, we expect to deliver 30% love and thought about the off price and cost per seat.
And even nineties.
Moving to slide 15.
We continue to have one of the strongest balance sheets and the industry with a debt to cap ratio of 57%.
And 2020.
We believe our current liquidity.
And it's to reduce cash burn and our <unk>.
Balance sheet strength will enable us to navigate and demand challenges of 2021.
This quarter, we anticipate receiving over 500 millions on us for the second round of the cash program.
Program, helping us protect jumps at Jetblue.
I'll pause for the final. Thank you for all of our crew members.
We remain confident and our ability to protect jetblue and position us for better days ahead.
'twenty 'twenty, one will be another challenging year.
And when my nimble and continue to execute on our cost plan and commercial initiatives.
And he's a hardware and begin to payoff, while Mike is strong enough to come.
With that we will now take your questions.
Thanks, everyone and now we're now ready for the question and answer session with analysts. Please go ahead with the instructions.
Thank you as a reminder to ask a question.
One on the telephone keypad to withdraw your question press the pound key.
And with the question to one question and one follow up question to allow other other person and sponge to ask a question. Please standby, while we compile the Q&A and Boston.
Our first question comes from the line of Julian Shannon from.
From Evercore.
ICI.
Your line is now open you may ask your question.
Hey, Thanks, good morning.
And.
And just looking at your.
Your slides here with the reduction and.
Total opex expected for 2021.
What is the capacity base that you're assuming and.
What is the implication.
For unit costs, obviously, it's a little confusing here and the early part of the year.
But just as we roll forward kind of what does this imply for.
And second half capacity.
And unit costs.
Hi, Joanne and Steve had good morning. This is more for me.
And if you just refer to slide 13 that you've talked about you'll see a footnote and tons of your assumption for capacity full year, 'twenty and 'twenty, one capacity of 70% of 2019 capacity the way that way.
And our business why is that we continue to see sequential improvement and.
And the demand environment, and hence capacity as we progress through 'twenty and 'twenty, one, leaving 21 and entry and 22 with.
Comparable capacity for such as 2019, yeah. So for me unit cost progression.
I would expect.
And does that will improve as we gain momentum.
2021, because naturally.
And we become more efficient as a business.
And we fly more of the fleet and we got boxes for a sense of normality.
And our planning assumption underpinning the economics that we've laid out from a cost standpoint is it 'twenty and 'twenty twos capacity Medisoft twenty-nine thing, but obviously that so predicated on what happens in the demand environment, where things lie with vaccinations and and coming out the other side of Covid and hopefully that makes sense for yourself.
Yes, that's good good perspective, and then just on.
Some of the fleet movement as you as you bring on a new fleet type here.
And you're preparing for London.
London flying presumably can you just quantify that the training or the approval cost associated with kind of new fleet types and and Europe approval.
Yeah. Good question.
And we have been.
Ruthless over the last year about prioritization across Jetblue, and you can imagine and Illinois.
And many different politics coming into 2020.
And we've done a really great job consolidating that isn't being really driven on some specific ones. For example, the at each one and see that it's got game changing economics.
To protect and grow our margins as we go forward and so embedded and Eos as a 'twenty 'twenty one cost plan, obviously, the training and transition costs are thinking about the <unk> 20 on the <unk> hundred 21.
The new NAV all day low density.
And for the fleet and our launch to London like for this year, So that's oil and coal price into our numbers and it.
And what policy to make sure we do this boat and the right way, but we do it with the right economics. So that's all sort of embedded in that.
And so that's why we always thought not obviously going to get into the specifics all day.
Those items, but just to give you comfort and that's all embedded in that and we're looking for it to having both aircraft and enter into service during this year.
Thank you next question comes from the line of Catherine O'brien from Goldman Sachs. Your line is now open you may ask your question.
Hey, good morning, everyone. Thanks for the time and maybe.
And maybe just another one.
On on costs for you Steve.
Steve So can you share how we should think about what if any of that $1 2 billion and lower 2021 costs for 2019 as permanent as opposed to volume related is it is it just that 150 to 200 million fixed cost amount you've called out or are there for that.
Hi, good morning, and Katy Yes. So this is why we have laid out and giving you some transport and our planning assumption between fixed and variable costs.
And so obviously, we have had the opportunity of the back of the structural cost program and Bain and journeys pandemic to get to try and I've got every starting and again and got even deeper to look at the fixed cost structure and Cape and maintain as much of that fixed cost structure out as we sort of come back to normality going forward.
Not candidly is one of the 150 to 200 million comes from and a number of areas like as we sort of previously discussed our support footprint, where the state consolidation and it infrastructure and.
And I would transition from data centers to the.
And the cloud et cetera, just to mention a couple non why do you think about the variable cost structure.
We did a huge amount of work associated this stretch of cost program, where we really get the benefits of scale and <unk>.
As we've come into 2021 with a compromised network, you, obviously oil and gas and ecommerce as Scott is that lead times and so with the way. We're thinking about this is a huge level of stickiness associated fixed costs that we've taken out and we will do everything you know, obviously and not to put them back in but also as we scale our business and we got our fleet.
Utilization and backup you aren't going to see the fruits of our labor on a variable cost structure, which will continue to drive economies of scale. So again and hopefully that gives you some color about how we've laid this out and a very transparent way. So that you can see a guy and plan for the next couple of years.
Yes, definitely thank Steve and then me and my second one I think might be for Joanna, but so with your network exposure and some of the more restricted parts of the country, the northeast and California.
And what flying are you able to reallocate for parts of your network that might be seeing better demand trends you know other.
Any additional new markets, you've forgotten and addition to that 15% and capacity you've got planned for the first quarter and and then I guess lastly, titled is there any way for us to think about.
Order of magnitude, how much, California, and northeast or underperform.