Q2 2022 JetBlue Airways Corp Earnings Call
Good morning, My name is Cody and I would like to welcome everyone to the Jetblue Airways second quarter 2022 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 <unk> director of Investor Relations. Joe Caito. Please go ahead Sir.
Thanks, Cody and good morning, everyone and thanks for joining us for our second quarter 2022 earnings call. This morning, we issued our earnings release and a presentation. We'll reference during this call all of those documents are available on our website at Investor Jetblue Dot com and have been filed with the SEC.
In New York to discuss our results are Robin Hayes, our Chief Executive Officer, Joanna Geraghty, our President and Chief operating Officer, Ursula Hurley, Our Chief Financial Officer, and also joining us for Q&A are Dave Clark head of revenue and planning and Argus, Barry President of Jetblue travel products.
Earnings call includes forward looking statements about future events, all such forward looking statements are subject to certain risks and uncertainties and actual results may differ materially. Please refer to our most recent earnings release and our most recent Form 10-Q were 10-K for a more detailed discussion of the factors that could cause the actual results to differ materially from those contained in our forward looking statements include.
Among others, the COVID-19, pandemic fuel availability and pricing the outcome of the lawsuit filed by the Doj related to our North East Alliance.
Currency of any circumstances that could give rise to the right of jetblue or spirit airlines or both to terminate the merger agreement failure to obtain applicable regulatory or spirit stockholder approval in a timely manner or otherwise and the potential financial consequences thereof failure to satisfy other closing conditions or failure.
If the parties to consummate the proposed transaction and the possibility that jetblue may be unable to achieve expected synergies and operating efficiencies within the expected timeframe or at all and to successfully integrate spirit's operations with those of Jetblue.
The statements made during this call are made only as of the date of this call and we undertake no obligation to update the information investors should not place undue reliance on these forward looking statements.
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 .
Thanks, Joe and good morning, everyone and thanks for joining us today.
I'd like to start.
I'd like to start with my thanks to our more than 24000 crew members for their tremendous work and dedication to delivering the award winning Jetblue experience to our customers as we marked some significant milestones in our recovery this summer.
This morning, we reported a record breaking absolute revenue result for the second quarter and we're on pace to top of the game here in the third quarter and drive our first quarterly profit since the start of the pandemic.
Turning to slide five.
Before we dig into our financial results and outlook I'd like to take a moment to discuss our recently announced agreement to acquire spirit.
I'm very pleased we found a path forward with spirit and we can't wait to welcome. The incredible 10000 team members to Jetblue as we create a true national low fat high quality challenger to the dominant big four airlines together, we will expand our uniquely disruptive combination of award winning service and competitive low fares to more.
Customers across the country as we combine the best of both airlines.
You've heard me say it before this transaction Turbocharges, our strategic growth plan, it will diversify and expand our network of customers create new jobs and opportunities for crew members and expand our foundation for profitable growth unlocking sustained long term value for all of our stakeholders.
We remain highly confident in our ability to obtain regulatory approval no later than the first half of 2024 weeks.
We expect the transaction to be accretive to EPS in the first full year, following closing and to deliver $6 million to $700 million in annual net synergies once integration is complete.
You can find more information about this transaction and the many stakeholder benefits on our website.
We are thrilled about this unique long term opportunity, but we also recognize that we have still some time away from closing and even as we begin early work on integration planning, we remain focused on running the standalone business in the into them and we also continue to execute on our organic initiatives.
Returning to sustained profitability slide five.
With that we're here today to discuss the earnings I'd like to start with our quarterly reports on slide six.
For the second quarter, we reported an adjusted loss per share of 47.
You will recall, we used to we had some operational challenges early in the spring, which drove a sizeable reset to a full year growth plan and a number of investments to ensure we could operate reliably during this exceptionally busy summer season.
I'm proud to say that our operational performance improved significantly throughout the quarter and we capitalize on the strong demand environment to deliver record revenue growth at the top end of our original guidance range and a record quarterly revenue result for Jetblue, we were profitable in the month of June on an adjusted basis entering the third quarter with solid bamboo.
And some as we expect to carry forward.
Due to sustained profitability.
I'm pleased to see record demand for travel with Jetblue and the solid underlying momentum in our recovery as we work to.
To build an even better jetblue for all stakeholders.
Moving now to slide seven with high fuel prices and our short term operational investments are weighing on our margins. This summer, we're making steady underlying progress on our long term initiatives to structurally improve our profitability and enhance our long term earnings power.
Network is foundational to our success and we continue to strengthen relevance. This year pardon me that primarily through our northeast Alliance with American Airlines or the NDA. The NDA will be a significant margin buildup of jetblue by allowing us to grow in New York and Boston are two largest focus cities and offering more value to all customers.
As in the region.
Gather with American Airlines, we've crazy to robust competition with industry leading network.
I'm, Brett a more combined daily departures than Delta and United.
<unk> continues to scale nicely on its multiyear path to steady state as we build our connectivity enhance loyalty benefits and a seamless customer experience.
Across the pond I'm delighted to say that we've secured permanent slots at London Heathrow starting at the end of October the culmination of some great work together without airport and government partners.
In addition, we're excited to expand our award winning Trans Atlantic Service. So our second largest focus city with the launch of service in Boston. This week further strengthening our relevance in the northeast.
With the addition of a third frequency between JFK and London in October we'll be operating five daily flights between the northeast in London. This fall.
More customers are engaging with jetblue than ever before as we continue to see double digit growth in our loyalty business fueled by the NEA and the strength of our brand preference as we generated record cash flows from the program and back in 2018, we shared with you our vision for a new Jetblue travel products subsidiary with an audacious.
Go are contributing a $100 million in EBIT.
By 2022.
And despite all of the challenges over the last 24 months, we are on track to deliver close to that target this year.
Last month, just in time for the busy travel summer travel period, the J T. P team rolled out a revamped website and additional inventory to Paisley by Jetblue travel website that we launched just over a year ago and offers customers a one stop shopping platform to conveniently purchase ancillary travel products relevant to that tree.
It all backed by Jetblue has great customer service.
Earlier this year when we set a medium term capacity plan to reflect the industry's constraints, we highlighted some potential mitigating actions to rightsize our footprint. This new reality to get today, we announced a further acceleration about 190 transition with our fleet modernization efforts poised to accelerate.
Only our margin expansion, but a path to reducing emissions and Earth's level walk you through our new structural cost program, which will set a new foundation for our long term low cost structure.
Finally, our responsibility to mitigate climate risk is a core part of our mission and we remain steadfast in leading the industry and our efforts, we've recently announced our commitment to work with the science based targets initiative.
Our near term emissions reduction target while airline operation. In addition to our sustainability efforts, we remain committed by fostering diversity.
And we're proud to say that underrepresented groups represent over 60, and 90% of students enrolled in our gateway select and gateway direct programs, respectively, which are industry, leading career development programs.
But allow crew members and external applicants to pursue a path to become a pilot or maintenance technician at jetblue.
Once again I'd like to thank our passionate crew members.
Caring for our customers each other and.
Jetblue with the foundation, we put in place in the many exciting initiatives, we have underway I've never been more excited about our long term cost outlook, our long term outlook, which will only be enhanced by our acquisition of spirit.
With that over to you Joanna great. Thank you Robyn.
I'd also like to add my thanks to our great team earlier. This year, we made a number of operational decisions to better set us up for the summer and while this summer has not been without its challenges. These investments are providing relief and we are pleased that our completion factor is now back above 98%.
I think our team as we know it has been a particularly challenging operating environments. I'd also like to thank our industry partners at the FAA for their continued support and importantly, their transparency as we all work to bring flying back to the level and quality of the pre pandemic environment turning to capacity on slide nine.
As Robin mentioned, we actually began moderating our capacity plans back in March and following a challenging few weeks in April we moved quickly to reset our full year growth plan right. The reality is that almost no airline has been immune to operational challenges. This year as the industry quickly ramped back up and it's clear that what we experienced has now.
And felt by all of our peers frankly, it just hit US earlier, giving our network footprint and therefore, we were able to reset earlier.
On our last call, we announced we were taking decisive action to reduce our full year capacity plan by 10 points to build greater resiliency into the operation and today, we are tightening that capacity range in fact, it'd be incremental investments for the summer, partially delayed and anticipated productivity benefit into the fourth quarter as an example.
In June we had 16% more active pilots, but 8% fewer block hours compared with 2019.
Also carrying elevated reserve levels as we move beyond the peak summer. We expect some of these investments will gradually normalize as the broader aviation ecosystem stabilizes and we ramp utilization back up that said, we firmly believe that this level of investment and a more conservative operational planning philosophy.
With necessary to ensure that we can reliably deliver for our customers and crew members, especially as external factors continue to make for a challenging operating environment. During this busy summer season.
As noted we closed <unk> in June with a completion factor above 98% compared to approximately 90%. During the first three weeks of April as a result, when we provided our Q2 investor update in late May we were the only airline to guide up capacity on a better may completion factor, while others were enacting further.
<unk> reductions and in our congested geography, where more than two thirds of our flights touch the north East we had a higher completion factor than our peers in may and in June .
With this said we do continue to see challenges beyond what we can control with continued difficult weather events on the east coast and meaningful ATC constraints as they too faced some of the same staffing challenges as most other businesses to address this and builds in a degree of resilience. We will continue to plant appropriate levels of reserve crude in the <unk>.
Context at a more fragile national aviation system, and one that is likely to remain so for the near to medium term. We continue to work collaboratively with the FAA to better understand their constraints improved transparency and ensure we are set up to deliver for the flying public.
For the second quarter of 2022, our capacity increased two 3% year over three with strong completion factor trends for the third quarter, we expect capacity to be negative 3% to flat year.
Year over three we believe the sequential step down in capacity in Q3, consistent with the revised capacity plan, we announced back in April is the right move to set us up for success this quarter.
And for the full year 2022, we are tightening our forecast for capacity to grow between zero and 3% versus 2019.
During the second quarter, we continued our international expansion the startup service to our first Canadian Blues City, Vancouver, marking another milestone in Jetblue history, and making us the only airline to offer nonstop flights from JFK.
And as Robin mentioned, we're boosting Trans Atlantic service, even more this quarter with new daily service between Boston, and both Gatwick and Heathrow as well as a third frequency between JFK in London in October .
We're obviously very pleased to see the CDC, followed the science and remove inbound testing requirements for international arrivals into the U S. Finally, eliminating a cumbersome hurdle to the industry's continued recovery and driving further improvement in international demand, particularly in our Caribbean network, where trends were already strong on the other hand, we were.
Disappointed to see the Canadian government reinstate the random testing regime, which we believe is a step in the wrong direction, but also serves as a reminder of the ever evolving landscape of pandemic recovery.
Domestically, we have fully consolidated our laguardia operations to terminal B earlier. This month in the fall, we're relocating to the brand new South terminal C. In Orlando as the anchor tenant and in the fourth quarter. We also plan to move into Newark, New terminal a.
We are excited to welcome our customers and these world class terminal and provide them with an enhanced airport experience and a more seamless travel journey with Jetblue.
And of course operationally, we're looking forward to the improved efficiencies that come with eliminating split terminal operations at Laguardia.
As we've smoothed out and de risked our return to growth. This year, we are setting a strong foundation for the network to deliver sustained profitability as we build out our relevance as always we'll remain nimble and adapt as needed to the broader macro environment, making decisions through the lens of margin.
Turning to slide 10 during the second quarter, our revenue increased 16, 1% year over three better than the high end of our initial outlook as a result of robust demand across the network with a record number of customers.
And we expect load factors to remain in the high eighty's through the summer.
Our ancillary revenue per customer grew 65% in the second quarter to well over $50 per customer and we are pleased with the success of our segmentation strategy with a broad product portfolio that offers great value and choice for all customers.
For the third quarter, we expect unit revenue to increase between 19 and 23% to the highest level in our history, a strong demand combined with a tight supply backdrop help offset the high price of fuel.
Revenue is tracking well to help deliver a profitable quarter and early bookings keep us cautiously optimistic about the fall as.
As Robin mentioned, we are solidly executing across a number of commercial initiatives on the network front, we're making good progress in ramping up our margin accretive northeast Alliance with American Airlines and while the industry has yet to return capacity to 2019 levels. The NEA is growing well in excess of the U S market. We've added over 50, new routes not previously.
Served by either carrier and increased frequencies on another 130 collectively with American Airlines, we are now offering more departures out of New York than Delta and United.
This growth is delivering tremendous consumer benefits as we offer more customers Our award winning combination of low fares and great service, while eliciting a strong competitive response from other carriers, such as Delta substantial growth at Boston and United additions at Newark, as well as new service between Boston and London.
The NEA Jetblue was able to serve a broader set of customers, including business travelers fly to more markets and create thousands of jobs in the process.
Business travel also continues to recover nicely with Q2 contracted corporate bookings improving 10 points sequentially as we move closer to pre pandemic levels, the northeast lines positions us well to capitalize on the continued business travel recovery as we expand our share of the corporate travel wallet in the region with a compelling network scourge.
<unk> and service offering as well as reciprocity across our loyalty programs.
Turning to loyalty and co brand the value proposition of our Triple loyalty program continues to resonate extremely well with our customers with program engagement at all time highs and I'm pleased to see yet another record quarter of program growth with spend growth that continues to consistently and meaningfully exceed pre pandemic levels.
Up over 40% year over three this is an area with ample runway for growth and our team continues to find new ways to add further value as we evolve the programs and enhance this resilient cash flow stream.
The short term investments we made in the operation have positioned us well to reliably deliver the jetblue experience as we capitalize on the strong demand environment, all our strategic initiatives to fuel our profitable growth over the long term.
I'll close with another thanks to our crew members. We know it's been a long summer and we are very appreciative of how you've taken care of our customers and importantly, one another I'll turn the call over to you.
Thank you Joanna I'd also like to thank our incredible crew members for their commitment and hard work to ensure that we deliver for our customers. Our fellow crew members and our owners as we lay the foundation to build back our margins beyond pre pandemic levels and create sustainable long term value for all of our stakeholders.
I'll start on slide 12, with a brief overview of our financial results for the quarter.
Revenue was a record $2 $4 billion up 16, 1% year over three.
Cost per available seat mile was up 34, 7% year over three <unk>.
CASM, excluding fuel and special items was up 14, 5% year over three and.
Our GAAP loss per share was 58.
And adjusted loss per share was <unk> 47.
I'm very pleased with the team's execution this quarter to position us to return to sustained profitability in the back half of the year.
Despite the operational headwinds in April the subsequent operational investments, we made and the sharp rise in fuel prices throughout the quarter. We exited Q2 with an adjusted pretax profit for the month of June and we look forward to carrying this momentum into Q3 and beyond.
Turning to slide 13.
During the second quarter CASM ex fuel increased 14, 5% versus 2019 below our original guidance driven by efficiencies tied to a better operation.
As you've heard the reliability investments we made for this summer are yielding much improved operational results and have helped to derisk. This summer, but they are weighing on our margin recovery.
For the third quarter, we are forecasting CASM ex fuel to increase 15% to 17%.
We do expect this heightened investment to ease once we get beyond this summer peak as a result, we expect to see some productivity improvement in the fourth quarter and into 2023.
We are also tightening our forecast for full year 2022, CASM ex fuel to increase in the range of 11% to 14% versus 2019 from prior guidance of 10% to 15%.
As a reminder, this includes six points from the capacity reductions announced back in April .
A total of three points from the spring operational challenges and the investments, we're making for the summer and one point from inflationary pressures from pilots and our business partners.
Turning to slide 14 on our last call. We mentioned that we had engaged some outside experts to conduct a thorough review of our cost to help us identify the optimal long term cost structure for Jetblue as we.
We emerge from the pandemic.
Most of that work is the new structural cost program that I am pleased to share with you today.
Just prior to the pandemic, we concluded our first structural cost program, which successfully removed over $300 million of cost and what's centered largely around sourcing contracts distribution and implementing self service technology and rationalizing other fixed costs.
That program drove an industry, leading CASM ex performance in 2019, and we were on track to execute a zero to 1% CASM ex CAGR from 2018 to 2020.
Fast forward to today and while we are still benefiting from our first structural cost program. We're embarking on a new plan to keep our costs low as part of our continuous focus on this area of our business.
This new program focuses on cross functional cost and its more about gaining operational and planning efficiencies.
This past quarter, we announced the creation of a new enterprise planning team, which will play a critical role in unlocking the structural efficiencies across the airline longer term some of which we have already begun implementing successfully for example, Joanna mentioned that we are currently staffed at much higher level.
A flying activity and.
And we have strategically invested in reserves as part of our more conservative summer planning, but at the same time, we're actually seeing big improvements in planning productivity and reductions in pilot soft time.
And these are exactly the types of underlying efficiencies that will carry forward and ramp beyond the summer while utilization also improved.
We're also investing in automation across the business, especially in support of end of life maintenance planning given that we are now in a position where we are retiring aircraft for the first time.
Specifically, we are investing in software that optimizes went to swap or remove engines to maximize utilization before retirement, thereby reducing total system wide cost of engine ownership.
We expect this new structural cost program to deliver one rate cost savings of approximately $175 million by the end of 2024 with half of these savings expected by the end of 2023 therefore.
This will help to mitigate any medium term CASM headwinds and support our objective of a flat or better CASM ex trajectory over a multiyear period fueling our margin expansion beyond pre pandemic level.
You'll also recall that earlier this year, we exercised an accelerated 3800 20 options in order to exit our <unk> hundred 90 fleet by 2026 today.
Today, we announced a further acceleration of our <unk> hundred 90 retirement pulling it forward by over a year to mid 2025, as we further optimize our fleet planning and maintenance spend.
As part of this acceleration, where our we've already part three even 90 aircrafts and plan to set an additional nine for a total of 12 <unk> hundred 90 exits this year.
We expect to save at least $75 million in maintenance expense through 2024 and will benefit from re allocating flying to much more CASM efficient 800, Twenty's, which has 30% lower direct operating costs and 35% better fuel efficiency.
Our fleet modernization plans will not only improve our margins, but also accelerate our de carbonization journey.
In total the structural cost program and the accelerated even 90 retirements will drive approximately $250 million of cost savings through 2024 with $150 million to $200 million of that representing a permanent run rate cost reduction.
Turning to the balance sheet on slide 15.
In the second quarter, we paid down approximately $106 million of debt and we funded approximately $205 million and capital expenditures.
For the full year 2022, our Capex forecast remains at approximately $1 billion.
At the end of June our adjusted debt to cap was 54% and we closed the quarter to quarter with liquidity of $2 $6 billion or 32% of 2019 revenue, excluding our revolving credit facility.
As we think about our proposed acquisition of spirit. It's important to remember that Jetblue is relative balance sheet strength is a key enabler of this transaction.
Post closing, we continue to expect that Jetblue would maintain a strong balance sheet with pro forma net leverage of approximately three to three and a half times, which we believe to be very manageable level that still compares favorably to the peer group.
A strong balance sheet is foundational to jetblue strategy and the strong earnings accretion and cash flow profile of the combined business will allow us to quickly delever the balance sheet as we integrate.
To close we recognize there is a lot of work ahead, but through the strong underlying momentum in the business and the continued execution of our various strategic initiatives from the northeast Alliance to the evolution of our loyalty program to scaling jetblue travel products and now our new structural cause.
Program as well, we are setting a foundation to structurally improve our long term earnings potential beyond pre pandemic levels.
I'm also very excited to welcome their team members to Jetblue as we create the number five care in the U S and unleash a national low fare challenger to the big four.
I'd like to once again express my sincere thanks to our crew members for their tireless efforts in helping to build a better jetblue for all of our stakeholders.
With that we will now take your questions.
Thanks, everyone.
Cody, we're now ready for the question and answer session with the analysts. Please go ahead with the instructions.
Absolutely. Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad.
If you are using a speaker phone. Please make sure that you'd be function is turned off to allow your signal to reach our equipment.
Louise on your phone line Linda once your line has been opened.
Please state your name and your company before posing your question. Once again, please state your name and company before posing your question once again Thats Star One we'll take our first question caller. Please go ahead.
Okay.
This is Duane <unk> from Evercore ISI.
Just on the timing of the debt raise too.
Support the spirit acquisition, how do you how do you think about the timing of that are there or sort of regulatory hurdles you want a clear before that happens and if you could comment at all on estimated cost of capital on that on that debt raise.
Good morning Duane.
So we currently have a 264 day bridge facility in place for $3 5 billion dollar we envision that staying in place until we receive regulatory approval and then once we receive regulatory approval. We will then take out that bridge, we'll assess the various.
Marcus at that point in time and focus on all in cost of funding and will determine appropriately which assets and which markets to utilize in order to take out that bridge and the cost of that in regards to the bridge at the moment is around 6%.
Given the time frame in which the bridge stays in place there are some step up fees along the way so that could slightly increase depending on the length of the regulatory approval, obviously the cost of debt when we take out the bridge facility that could be the end of next year or early 2024, so the financing markets at that point in time.
Could look very different than what they look like today, but you shouldn't envision us playing a keen focus on the all in cost of funding when we take it out.
Thanks.
Then just for my second there was a.
Competitor, we're an extension of basically credit balances.
Impacted revenue trends or their outlook for the third quarter.
And then going through that post that call. It looks like Jetblue does have some policies of sort of.
Colby credits that expire at the end of September can you comment on how many points of revenue growth or how many points of revenue.
From credit balance breakage.
Hi, Duane this is Dave Clark.
Can take that one.
Regarding the credits since the pandemic began we've seen a higher cancellation rate and thus more credits being issued this is especially too early in the pandemic when customers. We're canceling a flight some pretty high numbers.
And we've been forecasting uses rates of the credits and recognizing increased breakage revenue since Q3 of 2020. So this is a.
Two years into the process for us, it's a relatively smooth ramp for us with no large lumps sort of as we go up or down.
The highest breakage revenue recognition was actually the past three quarters from Q4 of 21 to Q2 of 'twenty, two and we're starting to normalize right now and this is all sort of fairly low numbers.
Low single digits on the way up and it will normalize at a higher rate than it was because customer cancellation behavior has changed with the removal of most change cancel fees and.
So on the way down it it's roughly a one point headwind, but all pretty smooth and low numbers for us.
Thanks, and just to just to put a finer point at that one point headwind.
Would be like a <unk> relative to <unk> is that the right way to think about it or next year versus this year.
Correct think think starting <unk> and throughout the first few quarters of 2023.
Okay. Thank you.
Yeah.
Thank you, we'll now move on to our next question. Please go ahead.
Yes.
Good morning, Savi <unk> from Raymond James.
I was just kind of curious there's a lot you know keeping CASM ex flattish versus kind of 2022.
Let's say, it's around $12, 5% above 29.
Mid to high single digits, it seems a little bit disappointing given that.
2020, you were supposed to have a step down because of the first structural cost program and and you have had some kind of one time items. This year. So could you talk about what the incremental costs, you're seeing in 2023 that requires a new program to kind of maintain this flattish level.
Sure. Thanks for the question Savi, So maybe just to walk forward. So the midpoint of our guide. This year is 12.5% if you take out the spring disruption costs as well as the summer investments you get down to an underlying CASM ex of eight five.
Per cent for 2022.
So next year, if you think about our growing capacity mid to high single digits next year. That's historically, what we've said is the sweet spot.
You would expect us to drive to your point in a flattish CASM X fuel. However, we have also highlighted that we do have some headwinds next year one of those being we will have a small incremental impact due to the NEA and this is really because we moved.
Into new terminal space and Laguardia this year as well as new Newark, So you'll have the full year effect of that increase in 2023. We also have an aging fleet. So we've highlighted that we have a level of maintenance investment that will need to take place and then we also have some in flight rate.
<unk> from our new contracts there that are effective in January as well so essentially.
Our structural cost program that we rolled out today is going to help offset those headwinds and essentially we intend to deliver a flattish if not better CASM ex fuel next year.
That's super helpful. Thank you.
And can I just ask on on the.
Past age is going to start going back to that mid to high single digit growth level, especially the step up from third quarter to fourth quarter.
You know what what you can expect on the resource side or I expect on the operations side, that's giving you confidence you can kind of meet that level of I know you mentioned that it sounds like there's a pilot soft times are coming down, but I just kind of curious.
Given the issues that the industry has been having on on on kind of restoring capacity.
Where the confidence comes from for the fourth quarter and beyond Yep. Thanks, Ravi I'll take that it's Joanna So we're confident with the investments that we've made into the summer that we're now in a position where we are ramped up to handle that level of capacity.
Teased out some of the investments, we made with pilots and additional reserves.
We expect to continue some of those investments as we move forward just to ensure a level of operational reliability. Yes. There are some shorter term some are investments that will peel off but there are some given the more fragile aviation ecosystem that will stay and will continue to invest there and we feel that we're adequately staffed to handle handle that.
The adjustment obviously the talent landscape is challenging but the underlying infrastructure to support all of that whether it's training hiring is fully ramped and we feel good about that.
Thank you.
Yes.
Thank you we'll take our next question caller. Please go ahead.
Thanks, It's Scott group from Wolfe Research. So I just wanted to clarify just one thing on that that CASM point about flattish or are you talking are you guys guiding flattish versus the.
12, 5%.
This year or versus what you tried to talk about the more normalized underlying an a plus 8%.
For this year.
Yes, Scott so it's against the 12 and a half midpoint of our 2022 guide.
Okay. Okay perfect. Okay, I just want to clarify can.
Can you guys share some color on the monthly trasimene trajectory throughout second quarter, and what Youre, assuming sort of as you look out throughout third quarter and maybe Robin you add some.
Cautious or maybe uncertain comments around fall in what business travel could look like and any updated thoughts or color there.
Hey, maybe I'll take that and flip it to Dave to give you some color additional color. So as we think about Q2 into Q3, we're seeing many of the same trends that were present in Q2 carry into Q3, ultimately broad strength across most of our geographies transcon actually outperformed most of the geographies.
And then as we look at VFR and international.
The removal of the inbound testing requirements provided some nice lift a lift there domestic mint has also significantly performing if you look at load factors were back to 2019 levels and then fares and yields for Q2 are both above 2019 level. So we're pleased with what we're seeing.
Obviously, you know cautiously optimistic about the fall in seeing these trends carry into into the Paul Davis do you want add any color.
Sure. Thanks, Joanna this is Dave.
As you mentioned the trends continue we've actually been remarkably steady throughout the quarter ramped up really well during Q2, and then the just more or less plateaued and stayed relatively flat as we move through the third quarter with the leisure bookings that we've taken so far into September and October are remaining very strong and indicating that that leisure travel should be resilient through the fall.
And then in terms of corporate corporate continues to progress.
We progressed about 10 points in a recovery.
The second quarter, we've seen that continue here for the first month of the third we expect to see another step up in the fall.
Driven by continue.
Continued returned to work after labor day.
There is certainly high travel or willingness to be on the road, we sit in the surveys and with all of our discussions with corporate customers. So we think the recovery will continue as we head through the fall.
Okay. Thank you guys for the time.
Thank you, we'll now take our next question.
Okay.
Oh, Hey, good morning, it's Jamie Baker Jpmorgan, Robyn, we Didnt speak last week. So I did want to offer my congratulations on getting the deal announced.
Question on the regulatory process.
Our second data request has already been made you disclosed that what happens from here I mean in the case of Alaska Virgin.
They've pushed back their closing date to give them more time to work with justice, which essentially disclose the fact that they were talking do you envision providing color. In this regard are you even permitted to do so would a third data request be disclosed for example, I'm just trying to think.
Through how to monitor from the outside.
Thanks, Jamie.
I appreciate the.
Comments on the.
Thoughts about getting the spirit transaction closed.
Extremely pleased with that.
I think we have laid out.
On the regulatory front right through this process I think we've laid out.
A sense that we expected this to take a fair amount of time, obviously, we're not in control of the timeline. Although we are active participants in the <unk>.
Process.
And we're going to continue to engage with both Doj.
T as well as we work through the process Jimmy I don't know at this point, what will exactly say when I do okay understand.
I understand people want to know where we are in the process, but equally.
It's a process that.
It's going to take some time and we want to be respectful of the regulator's view on rights to review this transaction.
Okay. That's fair thanks Robyn.
How do you think U S recession plays out for Jetblue as a public company you have only experienced a single downturn. So so not a huge history to call on but that's exactly why I'm interested in asking the question. Thanks.
Thanks Simon.
I'll ask Joanna to I picked out hey, Jamie how are you.
Hey.
So you mentioned our history. So if you take a look at how we performed during the 2008 2009 cycle, we actually performed better in <unk> versus <unk>.
Obviously, a lot has changed hopefully we don't see a recession, but if we do you know we've taken a hard look at our business model and its resilience during what we believe could happen.
And.
We've changed quite a bit since then I think for the good in terms of building additional resilience in it.
Continuing to evolve our customer segmentation strategy as you know premium leisure tends to be more resilient during economic downturns and we now have our mint product, which we did not have back in the <unk> <unk> crisis. We also carry a higher mix of VFR traffic, which also tends to be resilient and we saw this as you know even in the face of the pandemic when there were.
Barriers to travel in this customer segment continued continue to fly to see their friends and family and then as you think about segments potentially choosy.
Choosing to go down sort of the segmentation ladder the introduction of our price.
<unk> sensitive product basic is also I think bodes well bodes well for us and then finally ancillary revenue.
This is only grown over the last decade, and this tends to be much stickier during during a recession. So we do think there are inherent advantages in our business model.
But we also recognize that recessions bring about a lot of change and and not just on the demand side, but also it could include lower input costs as well that said as you think about the levers that we have to pull capacity. We've demonstrated I think all airlines have demonstrated their ability to poke about full capacity.
In a challenging environment and so we could slow our growth rate and obviously right size to.
The demand environment labor.
That continues to be an opportunity as we think about what jetblue was able to accomplish during COVID-19 with voluntary programs.
<unk>.
Crew members, taking advantage of those and then obviously our fleet. We do have an aging fleet. So there could be opportunities to retire aircraft early so again inherent advantages in our business model, we think will serve us well during a recession, but I'm not looking at that through rose colored glasses, and recognizing that we do have these additional levers on and in our toolkit that we could pull if we need.
Two.
You've obviously put a lot of time and thought into it. Thank you Joanne I appreciate it take care.
Thank you will never go to our next question.
Oh, Hey, good morning, everyone, Mike Lindenberg of Deutsche Bank.
Robin just to follow up on Jamie's question, obviously, it is going to be it seems like it's going.
Going to be a long regulatory process, but what what can you do before you've gotten the full approval can you can you initiate code sharing frequent flier reciprocity can your fleet people talk to their fleet people I know that there are things that you can do some of them may need Doj approval can you just talk about maybe.
Some of the things that you could do or planning to do in the near term.
Yeah, Hi, Michael Yes, no. Thanks, Thanks for the question obviously.
Airlines have been through this many times so we have a lot to learn from.
Others have done.
Yes, it is true though.
A small number of things that you're able to sort of.
Talk about in that period, but we're going to take a very cautious approach that we're going to follow our.
Legal advice and make sure that we're doing nothing to jeopardize the close the transaction or two.
Give a concern to our regulators who are.
Reviewing it and so.
I think work is all underway in terms of some of the internal planning that we do right now our focus in addition to obviously.
The regulatory process, which is underway is to make sure we get the shareholder approval of spirit shareholder approval for the transaction.
What is the data that Robyn.
Come out with a date on the spirits shareholder.
No.
My best estimate microwave sort of 60 to 90 days and we have to get the proxy completed with spirit and we have to see if there's any SEC comments on that.
And then it's going to go.
So the publisher meeting date, so not don't have the exact date, yet, but we'll know more on that soon.
Okay, Great and then just my second question Joanna.
Getting from a 90% completion factor to 98, obviously, a step in the right direction, but I suspect.
<unk> is not still where you want to be you know probably 99 to 99, three but you did call out.
Operational challenges for not just you, but the industry in the near and medium term.
What.
How do we get to 99% plus do we get there by year end is that a 2023 phenomenon.
You know every point of completion factor is probably you know the old saw was worth a point of margin I'm not sure. If that's still applicable to you or not but it does seem like there's some upside there, but it may take some time if you can comment on that thank you. Thanks for the yes Sir.
Obviously weather and then continued ATC disruptions are what will stand in the way of improving completion factor I will say, we're we're nearing historical levels.
So I think we're really pleased with where we are now the teams have done a really really nice job, but at the end of the day weather and ATC challenges continue to be sort of the the impediment to getting it above 98%.
Michael Let me just add to that if we take July Joanna.
John had mentioned this but if we were to take our completion factor in July 2022, and compared with 2019. It is extremely close I mean, I think it's like 2% away. So I think the biggest driver of completion factor during the summer period is just the.
The amount of ATC programs getting put in place primarily those are weather.
Connected so on a good day here, we will have a completion factor of <unk>.
It's close to 100% as we can.
But because of the geography in the northeast and just the number of ATC programs that we see.
On a day when you sort of a three to four hour ground delay programs pushed into New York Youre going to see the industry with our completion factor somewhere probably between 90% to 95% and so when you average those are you kind of get to that sort of 90, 899% from a completion factor, which I think means that we based.
Competing every almost every flight other modes at all directly impacted by the ITC program or weather.
Okay, great great for the details thanks, everyone.
Thank you, we'll now move on to our next question.
Okay.
Oh, Hey, good morning, Dan Mckenzie from Seaport here, a couple of things, it's great to see the messaging that reiterate the prior objective.
Achieving the same or better margins versus pre pandemic levels.
The growth in cost commentary is helpful on the balance sheet side. It looks like the plan is for lower leverage on a stand alone <unk> emerged a merger scenario and on this point are there free cash flow targets that you can share once back to normalized levels of profitability.
Yeah.
Good morning, Dan Good to hear from you. So we did highlight that post transaction, we expect to end up at three to three and a half turn of leverage which is below the median within the industry and obviously.
The joint combined company, we intend to generate meaningful cash flow right out of the gate and so the focus will be on delevering, our balance sheet to get it back to them.
And even more acceptable level to Jetblue based on our historical performance and the way in which we manage the balance sheet. So we do believe that that could be a fairly quick delevering exercise once the two combined companies come together well what I will say is the synergies obviously ramp up over.
For a multiyear period timeframe. So it will take us a few years, but the goal obviously it will be as I mentioned to get even lower than the three to three and a half times.
Understood.
On the corporate trends.
Corporate trends I'm wondering if you can just put a finer point on some of the prior Q&A questions.
I guess with respect to the operational challenges to what extent of the impact the corporate trends in the second quarter is there an impact on corporate demand heading into third quarter. So I'm just trying to get a better read on what's behind the revenue outlook.
And is there some some pent up corporate demand here.
And when can the volumes and revenue really surpass 2019 levels.
Yes.
Thanks, Dan for the question this is Dave.
We saw just a little pressure I'd say at the beginning of the second quarter more of a blip as we had the difficult first half of April slightly.
Slightly on the corporate side saw some on the leisure side as well, but as we move through the second quarter and improved and got back towards our targets and at or above where our peers were any of that has dissipated away.
We've seen corporate sentiment continue to you know.
Rebound.
The operation has improved.
And it's clear the corporates or the travelers themselves the individuals who are ready to get on the road all the survey show that.
Has returned to office continues.
It will help enable more trips certainly.
Corporate customers are excited to get back in front of their customers.
We do face to face revenue generating meetings as well as some internal work in conference where it has been suspended for the last couple of years. So a lot of different pieces. There. The NDA is really helping to add more options for these customers in the northeast as a seamlessness continues to ramp up we've seen increasingly positive sentiment from our corporate customers and about two thirds.
Each of them now have the.
A code share benefits in their corporate contracts. So things continue to improve don't have a final date, yet on when we'll reach fully recovered this trend.
Looking you know late this year or over the winter, but we'll see how that progresses and it could happen sooner.
Very good thanks for the time guys.
Thank you, we'll now move onto our next question.
Good morning, Thanks for taking my question. This is Chris that's a level of Susquehanna financial group.
No.
First of all Robin I, just wanted to dig into this the struck the buckets here you've outlined on slide 14.
The range of these numbers here are these independent of the high single digit pass and guide you put out meaning.
If we are.
A recessionary scenario and that high single digit is perhaps a four to five can you still hit these targets.
And then.
B.
How much of this.
Does the maintenance piece was in tech ops, if I remember.
Was a big focus in the last plan. So how much of this is sort of.
Identified during the pandemic versus <unk>.
A natural evolution of the plan that you envision as you were coming exiting 2019.
Thanks for the question, Chris So first and foremost half of the program that we've laid out is tied to enterprise planning. So when I think of network and crew planning, we're essentially redesigning our processes to improve operability, which should result in improved.
Cost performance and the way in which our network has evolved given COVID-19. It's the pertinent time to actually ensure that we're iterating half performance in identifying quite frankly, the optimal intersection between network Operability and quality of life for our crew. So the range is taken into consideration.
Ration the capacity growth in.
In regards to end of life maintenance optimization, the structural cost program 1.0 that we delivered on that was really focused in tech ops on airframe and engine contracts.
This program is putting technology in place to optimize quite frankly end of life retirements for aircraft and engines.
This program also is focused for maintenance on operational improvements so given how the network has evolved having the right tools parts and processes in place.
To deliver from an Operability perspective, and so from a maintenance perspective. These initiatives are very different than the first structural cost programs. So all in all to summarize that we feel confident in delivering the 150 to 200 million in structural cost savings by the end of 2024 and <unk>.
The range is do take into account.
You know a small capacity range.
Okay, and the flattish my followup CASM ex guide through 2024.
That is on the guessing on a sustained high single digit.
Fan base is that just remind us if that includes any labor deals and on that high single digit ASM base. If you could any color you could break out in terms of how youre thinking about gauge stage lengths or new markets. We're building out that schedule. So I just want to understand the buildup into that.
ASM guide thank you.
So we're talking about not providing 23 and 2024 capacity guidance. However, historically, we've provided those guardrails around mid to high single digits being the sweet spot for Jetblue and delivering superior margin. So that's how I would think about that the next few years.
Actually I forgot the second part of it.
Oh labor, yes, not going to comment on labor at this point in time, we are in discussions with our pilots, but I'm not going to comment on that today over to you David any color on stage and gauge over the coming years.
Sure I think we will see.
No.
Roughly what were seeing today, obviously with the retirement of the <unk> and bringing in the <unk> hundred Twenty's, there's a bit of a.
Gauge increase that's well known as part of that but in general we'll see the same sort of trends that we've had for the last couple of years.
Yes.
Thank you.
Okay.
Thank you, we'll now take our next question.
Hi, Tim It's Helane Becker from Cowen. Thank you for the time.
<unk>.
So just on that.
Question.
Moving leader I guess did you say later this.
Winter fall.
Into new terminal at Newark, and then new operations, our new terminal in Orlando as you think about the costs of doing that versus the benefits can you just talk about I don't know, whether it's a cost savings.
That you would experience with those two or maybe include Laguardia on their airports of Israel.
Yeah. So thanks for the question Helane, obviously moving into new terminals will have an impact on the cost structure. However, we're growing it in high high.
High value geography, so we expect the margin production.
Heavily offset the infrastructure investments that are taking place Dave It is an enhanced customer experience for our customers and so there are benefits there Dave anything else to add sure. Thanks first of all in <unk>.
Helane. This is Dave in addition to the superior customer experience, there's some efficiencies as well as think in Laguardia terminal B.
We're reducing from two terminals that we were operating before down to one that creates efficiencies were also co locating with American which provides efficiencies in terms of customer connections within the northeast Alliance. So feel really good about that one Newark has also been a real challenge and the old terminal.
There wasn't enough space security room hold room space, we're pushing departures across multiple terminals as well so there's a lot of.
Efficiency and just getting the customer experienced an acceptable level.
And then to a very good level, though we're excited about there. So certainly some benefits that come with simplifying operations into one terminal across various cities.
Thanks for that and then just for a follow up question on as you think about first of all since you mentioned.
Thiago fees and and.
Operating in high value geographies.
No way for you over maybe the next year three to move some of that capacity to other geographies that maybe are less of them.
By Air traffic control.
Hey, Helane. This is Joanne I'll take it and then Rami I'm here wants to chime in so as you look about the spirit transaction. That's in part what it is about is the ability to grow more quickly and diversify our network outside of the northeast. If you look at the divestitures that we've put out there it's really keeping the northeast growth kind of in line with where it is today.
And growing outside of that geography.
The piece I will point out as you know New York has historically been a great sort.
Sort of margin building engine for Jetblue and it has not fully recovered yet and so as you think about potential upside even in the northeast geographies. New York is one of those places where you know whether it's moving to the new terminal in Newark, and Laguardia. These are long term investments by the way Newark Theyre tearing it down so there's not an option there but these are investments we think are more than.
More than appropriate given where new York has historically been and where we think it's going to return to over the over the medium term.
Oh, Thank you very much thank you.
Thank you and we'll take our final question caller. Please go ahead.
Yeah.
Hi, it's James Hollins from BNP Paribas.
Mike My first question is from staffing levels. It looks like they've hopefully just above 20000 I'm just wondering if that's kind of the rule.
Right number through the rest of 'twenty two maybe.
Where you expect to be in 2023, as you look to grow with sounds like mid to high single digit. Thank you.
Okay.
Yeah, I think the staffing the staffing numbers around 24000, they'll stay I'd say roughly in line I mean at this point, we're really hiring for just that sort of mid to.
Mid single digit growth and so you know part of what you saw from kind of 2000 2021 through today was really ramping up.
We also obviously you've had some elevated levels of attrition. So we'll continue to hire there, but it's largely largely back filling and then just small incremental growth associated with our capacity growth.
Thank you and then I know you.
The answer to this.
Gentex strategy change at all with the spirit they were being landed.
And also in mind that the.
Perfect he food costs right.
No.
It's unchanged.
Our as we think about Europe , it's really flying to.
The markets in Europe .
Most important to.
New York and Boston, So for example, London.
Others to others to follow we really looking at the spirit transaction to help grow our footprint outside of the northeast a headline point.
We like New York.
Like our northeast geography.
Very important that jetblue stays relevant in these markets in order to drive long term margin success as John mentioned, despite the very strong revenue guide into Q3.
New York is still ramping up we added a lot of capacity over the summer.
We will now as you add that it takes some time to ramp up so I mean, I think good legs on that.
On that still.
And.
Well Heathrow cost increases have gone up.
Very small part of our network and as we have Boston It would be two two departures and arrivals.
And so sort of de Minimis ready in terms of the overall.
The impact.
I appreciate it great. Thanks Robyn.
James Go ahead did you have a follow up.
No that was it.
Great well, that's going to conclude our conference call for today. So thank you so much for joining us and have a great day.
Thank you that does conclude today's call. Thank you all for your participation you may now disconnect.
Yeah.
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