Q3 2022 JetBlue Airways Corp Earnings Call
Good morning, My name is Anthony I would like to welcome everyone to the Jetblue Airways third 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 as director of Investor Relations joke, Colorado. Please go ahead.
Thanks, Anthony and good morning, everyone and thanks for joining us for our third quarter 2022 earnings call. This morning, we issued our earnings release and a presentation that 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 Andras, Barry President of Jetblue travel products.
This morning's 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 or 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.
Including among others, the COVID-19, pandemic fuel availability and pricing the outcome of the lawsuit filed by the Doj related to our northeast Alliance. The occurrence 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 approval in a timely manner.
Or otherwise and the potential financial consequences thereof failure.
Failure to satisfy other closing conditions or failure of the parties to consummate the transaction and the possibility of the Jetblue may be unable to achieve expected synergies and operating efficiencies within the expected time frames 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 the 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 Good morning, everyone and thank you for joining us today.
Our thoughts are with all of those affected by the recent hurricanes in the southeast.
The Caribbean is.
Including many of our crew members customers and their loved ones.
As always supporting our crew members and.
I'm the communities is a top priority after devastating events like these and we know it's going to be a long road to recovery for several impacted regions.
Jetblue is working with nonprofit partners such as world Central kitchen.
Chip supplies and assist with relief efforts.
Along side, our Jetblue crew member crisis from we're working to provide support for our crew members who were hardest hit.
We're going to stay with them every step of the way.
I'd like to thank our more than 24000 crew members for their dedication patience and service.
I'm always amazed at how our crew members that are in these challenging times to care for each other and the communities we serve prioritizing safety above all else.
Our crew members also helped deliver another record quarter of revenue, resulting in our first quarterly profit since the start of the pandemic.
Despite the macroeconomic uncertainty we are building momentum in the second half of the year and I'm confident that we're on a path to continue increasing our margins.
We bring a low fare award winning jetblue experience to more customers.
Let's now turn to our quarterly results on slide four of the deck.
For the third quarter, we reported an adjusted pretax income of $118 million adjusted pre tax margin of four 6%.
On an adjusted earnings per share of 21.
The changes we made earlier this year to enhance operational was all thing and the resilience of our schedule resulted in strong operational performance over the summer peak, despite significant weather and air traffic control challenges and record customer demand.
We've made excellent strides on the hiring and we're now at a point, where we believe we are appropriately was all.
From a staffing perspective, which in turn should translate to improve productivity.
Looking ahead, we expect our momentum to continue through to another solid quarter of mid single digit pretax margins in the fourth quarter.
We will look to build margins further in 2023 as we continue to restore our pre pandemic earnings power. We continue to see a very healthy revenue environment with no signs of slowing demand for air travel.
Moving now to slide five.
Our teams are diligently working on the strategic initiatives driving our earnings recovery and enhancing our business for the long term.
With fortifying our unique business model to more effectively compete with entrenched big four carriers and deliver significant consumer benefits as we continue to disrupt the market.
It starts with our network, our Multistem Alliance, which has been up and running for more than a year and a half is fundamentally about growing capacity in consumer choice.
He was promoted competition in both New York and Boston.
By all measures Jetblue and American are delivering substantial consumer benefits with the launch of dozens of new routes increased frequencies on over 100, additional boots unimproved schedule offering and with typical frequent flier benefits for our customers.
Again, this growth would not be possible without the NDA and consumers are further benefiting when the clear competitive response that we have stimulated.
The NDA is doing what it set out to do giving consumers more choice and better value and we look forward to continuing to expand these benefits.
Outside of the NDA I am extremely pleased with the recent the recent ship spirit shareholder approval for a combination which will create value for all of our stakeholders together, we will build a low fare challenge out to the dominant big four airlines on a national scale and expand out compelling combination.
<unk> of our award winning service and low fares to more customers across more destinations.
On the Trans Atlantic front by the end of this week will offer five daily flights between the northeast.
And London.
And we look forward to taking delivery of a handful of about 321 L. L. L. All aircraft next year.
Our expansion into Europe .
And notwithstanding some modest delivery delays.
Stay tuned for an announcement in the near future.
Customer engagement with Jetblue remains at record levels, and we continue to see healthy spend on our co branded credit cards.
Our loyalty program is producing record cash flows, which is a testament to our customer value proposition separately, a jetblue travel products subsidiary continues to innovate with the launch of truth, a free group planning out to help groups decide when to travel where to go and what to do building on efforts to make the travel experience more seamless.
Yes.
Jetblue travel products is on track to generate close to $100 million of EBIT this year compared to $15 million in 2019.
We also continue to make great progress on the structural cost program, we announced last quarter, which Ursula will discuss shortly in more detail.
We made further progress on the ESG front with an agreement to purchase 25 million gallons of sustainable aviation fuel starting in 2027 from Air Company one of the Jetblue Ventures' investments, we're committed to growing and diversifying our supply as we progressed towards.
The goal of converting 10% about jet fuel usage to attack by 2030.
We also applaud the international Civil Aviation organization or Iqos for endorsing a net zero by 2050 go for international Aviation emissions and important milestone that U S Airlines had already voluntarily committed to.
We expect this will continue to drive the investments in technological technological innovation needed to enable our industry to continue to grow sustainably.
I'll close with another huge thank you to our crew members. Thank you for all of your hard work your patients.
We are building strong momentum.
I'm excited about the journey that lies ahead with that over to you Joanna.
Robyn I'd like to also add my thanks to our fantastic teams for their dedication in delivering for our customers through a very challenging summer ambulatory Hurricanes I'm extremely proud of how they stepped up to support each other and are impacted communities as we recover from the recent storms.
Turning to capacity on slide seven in the third quarter of 2022, our capacity was down half a percent year over three compared with our most recent guidance for flat capacity.
Hurricanes, Fiona and Ian impacted our flown capacity by roughly seven tenths of a point throughout.
Throughout the quarter, our teams executed well, particularly in the context of significant ATC constraints, resulting in a strong completion factor for.
For the fourth quarter, we expect capacity to be up 1% to 4% year over three and modest sequential step up versus the third quarter.
Full year 2022 capacity growth is now expected to be up zero to 2% year over three.
Looking ahead, we expect the aviation ecosystem to continue to remain fragile given supply chain challenges and ATC staffing headwinds. Therefore, we are maintaining a continued bias towards more conservative planning assumptions in the medium term such as carrying higher levels of reserves versus 2019 to ensure that we are.
Set up for operational success.
During the third quarter, we expanded our Trans Atlantic service with New Daily service between Boston, and London, and we plan to add a third frequency between JFK and London later this week.
As we think about our growth plans for 2023, we expect.
Expect to return to our historical growth rate of mid to high single digit growth year over year as Robin mentioned, we will soon be announcing our next European destination as we build even more relevance and our largest north east focus cities.
And we also expect to grow our other focused cities as we take delivery of the next generation Airbus too Twenty's and 321 Neo aircraft and replace our older <unk> hundred 90 <unk>.
Turning to slide eight.
In the third quarter, we delivered the highest quarterly revenue result, and Jetblue history or revenue per available seat mile increased 23, 4% year over three at the high end of our original expectations.
Hurricane Ian was a net neutral impact to our unit revenues in the third quarter as revenue was offset by reduced capacity.
Throughout the quarter, we saw strong leisure and VFR demand trends, we were particularly pleased to see load factor in the off peak month of September increased approximately three points above 2019 levels.
We see these positive trends continuing here in the fourth quarter and we are confident strong demand will continue through the upcoming holiday peaks.
As a further proof point ancillary revenue per customer grew over 50% year over three in the third quarter as our varied product offerings and low prices continue to resonate extremely well with our customers.
For the fourth quarter, we expect unit revenue to increase between 15 and 19% year over three this includes a five point impact from Hurricane Fiona and in the placement of the holidays this year and tough loyalty comps.
Our strong revenue performance continues to be bolstered by our commercial initiatives, we've unlocked a men's consumer benefits through our northeast Alliance, which is rooted in providing customers with more choice as a true third competitor in the northeast.
Crucially, we're growing supply in the northeast with any growth well outpacing overall domestic industry capacity launching.
Launching do Nestor nations, adding flights to others, enhancing our schedules and allowing our loyalty customers the ability to benefit from two different programs.
In addition, we've seen the entrenched carriers respond by matching our new destinations as well as expanding their own service boosting competition in the region and benefiting consumers the.
The northeast Alliance also enables jetblue to provide another compelling option for business travelers with the best network and schedule is in the region. We were pleased to see business travel step up again post labor day. Following the typical summer lull in July and August and continued to recover towards pre pandemic levels.
Our contracted corporate revenue bookings are now roughly 90% recovered compared with roughly 80% at the end of the second quarter aided by our northeast Alliance, which is helping us capture a greater share of corporate customers in the northeast, which has yet to be fully recovered.
On the loyalty front I am pleased to see program engagement at record highs as evidenced by spend growth persistently well above pre pandemic levels.
Last month, we hit a new record and Cobra and acquisitions and our portfolio of accounts is set to expand by over 20%, 25% year over year.
As a testament to the outstanding traction we've made in closing the revenue gap to peers loyalty revenue now represents roughly 10% of our total revenue compared to approximately 7% in 2019.
As I've said before we are in the early innings of the multi year evolution of our loyalty program and we could not be more excited for its growth.
Before closing I would like to highlight that although we are seeing no indications of any type of drop off in air travel demand. We are keeping a very close eye on the macroeconomic environments.
As we look to 2023, we take comfort in the fact that.
The U S economy is much larger than it was prior to the pandemic while industry capacity is still below pre pandemic levels, suggesting that our industry's experience with a potential 2023 economic downturn could look quite different than historical downturns for.
For Jetblue, specifically, our business model has evolved significantly since the last downturn as we have built a more segmented strategy that appeals to a wide spectrum of customers.
Our ancillary revenue base has also grown improved stable even through the pandemic and of course capacity is the biggest lever we have.
Thank you again to our crew members for all of the hard work during an exceptionally busy summer and for taking care of our customers and each other now I'll turn the call over to you Ursula.
Thank you Joanna I'd also like to thank our incredible crewmembers for always stepping up to tackle the numerous challenges that arise in our industry and safely delivering the jetblue experience for all our customers through at all.
By all of the challenges from extreme weather events to external staffing pressures to record fuel prices. We remain focused on what we can control and we are taking action to forge a strong cost trajectory that supports our margin expansion and value creation over the long term.
I'll start on slide 11, with a brief overview of our financial results for the quarter.
Revenue per available seat mile was up 23, 4% year over three <unk>.
Cost per available seat mile was up 32, 4% year over three <unk>.
CASM, excluding fuel and special items was up 16, 3% year over three.
GAAP earnings per share was <unk> 18, and.
And adjusted earnings per share was 21.
I'm very proud of the team's execution and delivering a profitable third quarter, a very important milestone for us we exceeded our original revenue guidance.
Maintain CASM ex fuel in line with our initial outlook. Despite the impact from Hurricane and continued pressure tied to ATC staffing challenges and we delivered a solid pre tax margin result in our first quarter of profitability since the pandemic.
We have overcome many hurdles and our path is.
Proved our operational performance generated record revenue and laid plans to improve our cost trajectory looking.
Looking ahead, we expect to build on our momentum and deliver another profitable quarter in Q4.
Turning to slide 12.
During the third quarter CASM ex fuel increased 16, 3% versus 2019, the impact from the Hurricanes was roughly one point of CASM ex in the third quarter.
In addition, we continue to build more resiliency into the operation, which pressured CASM.
Separately ongoing spirit related transaction expenses combined with <unk> hundred 90 fleet transition costs were approximately $13 million in the third quarter, which we exclude from CASM ex fuel.
For the fourth quarter, we are forecasting CASM ex fuel to increase eight and a half.
<unk> to 10, 5%.
Year over three growth rate in CASM ex fuel is improving by seven points sequentially from Q3 to Q4 or five points after adjusting for our capacity as we Peel back some of the operational investments from the summer while maintaining a conservative approach to planning as we enter 2023.
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We're also benefiting from early progress on our structural cost program and savings from early you were 90 retirement.
We're tightening our full year 2022, CASM ex fuel forecast two an increase of 13% to 14% year over three versus our prior guidance of an 11% to 14% increase.
Turning to slide 13.
Last quarter, we announced two initiatives designed to help us deliver a flattish unit cost trajectory first our structural cost program, which we expect to drive $150 million to $200 million of cost reductions through 2024, and secondly, the acceleration of our E.
90 retirements.
Today, we're deep into our annual planning cycle and as we look ahead to 2023, we remain committed to keeping our non fuel unit costs flat or better year over year in support of our continued margin recovery.
You'll recall that next year, we're facing several cost headwinds as we manage through the timing of a number of expensive heavy maintenance visits as well as airport cost pressures related to upgrading to new terminals across our network.
These major headwinds are in part with the new structural cost program was envisioned to help offset in addition to the three years of inflationary pressures currently in the cost base.
We're driving a strong sequential improvement in ex fuel unit cost in the fourth quarter with some benefit from maintenance timing, but most importantly, due to the early returns we're seeing from our new structural cost program.
Typically we're gaining traction with our enterprise planning effort producing crew efficiencies and improvements in soft time without sacrificing operability and with our maintenance optimization initiative as we work to minimize the investment in some of our older engines in our fleet.
In addition, we're seeing savings from the accelerated retirement of our Eva 90 fleet, having already part five of these aircraft to date.
Turning to the balance sheet on slide 14.
The third quarter, we paid down $66 million of debt funded $260 million in capital expenditures.
And paid a $25 million break fee related to the spirit transaction.
At the end of September our adjusted debt to cap was 53% and we closed the quarter with liquidity of $2 $3 billion or 28% of 2019 revenue.
This excludes our revolving credit facility, which we recently increased to 600 million, ensuring jetblue has the flexibility to navigate an uncertain environment.
Separately, we've also layered on fuel hedges for roughly 27% of our consumption for Q4 to protect against oil exceeding $100. A barrel. We view these hedges as a form of insurance to help mitigate financial risk and we'll continue to monitor the market regularly to help derisk.
Our earnings profile.
Our full year 2022, Capex forecast remains unchanged at approximately $1 billion.
Looking ahead to 2023, we expect our capex to increase consistent with our order book as we worked through renewing our fleet over the next several years.
While we recognize that aircraft deliveries are a moving target given OEM production challenges and delays, we believe our mid to high single digit growth target next year is achievable based on what we know today.
As Robin mentioned, we're thrilled that spirit's shareholders overwhelmingly voted for our proposed transaction with spirit last week, which triggered the prepayment of $272 million to spirit's shareholders here in the fourth quarter.
We're making good progress on the regulatory front and we expect to receive regulatory approval and close the transaction by the first half of 'twenty 'twenty four.
Finally, our balance sheet today remains one of the strongest in the industry, enabling us to pursue the acquisition of spirit to create a national low fare challenger to the big four.
Post closing, we expect a very manageable leverage position and we expect the enhanced pro forma earnings and cash flow generation to help us quickly delever again.
To close I'd like.
I think our teams once again for taking care of all of our stakeholders and for helping steer jetblue towards sustained and growing profitability with a game changing moves we've made including the northeast alone.
Our evolving loyalty program, our new structural cost program and our planned combination with spirit I could not be more excited about our future.
We are on the right path to transform our long term earnings power and create value for all of our stakeholders.
With that we will now take your question.
We will now begin the question answer session.
To ask a question you May press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question will come from Savi <unk> with Raymond James You May now go ahead.
Hey, good morning, everyone.
Can I ask a if you could provide an update on the on kind of the staffing.
Levels here in 2022, and what Youre seeing in terms of attrition.
And maybe what your plans are for 2023, given it seems like you're taking maybe two to three times more aircrafts in 2023 that you did this year.
Hey, Savi. Thanks for the question, it's Joanna so in terms of overall staffing we're pleased with the progress. We've made we're actually seeing I think some good normalization of staffing levels overall across most of our work groups and we are also seeing attrition across most of the work most of the other work groups slow in the last several months, which is also fantastic.
Maybe I'll do a double click on pilots because I think that's probably where folks want to hear us offer of your two so with regard to pilots we have a very strong pipeline, but we continue to plan for elevated levels of pilot attrition and.
And for an excess reserves so that we can ensure we're protecting the operation during what we believe will continue to be a constrained.
T C environment for 2022, we're tracking to higher close to a thousand pilots that number remains largely unchanged for 2023 that is inclusive of attrition.
And then obviously, we're in the midst of moving the 190 fleet out to that also drive some incremental pilots.
Pilots as we transition as we transition fleets.
We think from an opportunity perspective on the cost side. This is where as a T. C. Hopefully over the next year or so begins to normalize and hopefully as attrition because the normalize there'll be some opportunity here.
Here in terms of slowing that hiring pace, but but again, we're on track to hire on the pilot front at least 1000 for this year and into next.
That's super helpful color John Thank you.
Maybe just on that if I might follow up on your Capex comments, you're willing to provide a little bit more color on capex, given I don't think never as many deliveries. This year next year. So do you expect like a big step up or how should we think about the capex.
Sure Savi.
We're all well aware of the Oems are struggling with challenges in terms of ramp up in manpower and supply chain. So we've been working hand in hand with Airbus on staying close to any delivery delays.
As you've seen in our update today in regards to next year contractually, we're supposed to take 29 deliveries from a planning assumption perspective, we're expecting 22. So in terms of Capex. This year, we're expecting a $1 billion next year I think a logical.
<unk> will be anywhere between one five and 2 billion. However, I think this is going to continue to remain fluid as we work with Airbus over the next 18 months or so and managing the delays I also want to reiterate even with the planning assumption with the 22 aircraft. We still believe that we can achieve.
Our mid to high single digit growth rate in 2023.
Perfect. Thank you.
Our next question will come from Scott Group with Wolfe Research you May now go ahead.
Great. Thanks, good morning so.
The guidance implies a pretty big drop on an absolute basis, just any color there or is that just seasonality you've seen anything in terms of I know you said demand youre not seeing any changes there, but I mean were spares or cancellations and any color on the sequential drop in travel. Thanks.
For the question, so maybe a little color first and foremost we're not seeing any cracks in underlying demand extremely strong as we step into Q4 across all geographies led by our VFR markets, followed by Minton Transcon, all of which are performing very well, we're seeing both positive load factors.
<unk> RASM as well and all of those and then obviously positive fair. So we're really pleased with the underlying demand environment, what you're seeing from Q3 to Q4 are a few are are a few things I'll flip it to Dave to walk through the specifics, but youre seeing the December holiday shift specifically with a shorter peak period for that Christmas.
Holiday, you're also seeing a modest impact from Hurricanes, Fiona Ian on Puerto Rico, the Dr and Florida, and then Youre seeing a.
A comp issue with regard to loyalty, we had a very very strong loyalty number in Q4 of 2019, so you're seeing a slight decrease there but loyalty as we noted in the script remains extremely strong in absolute terms. So there was a five point difference Q3 to Q4, but other than that the demand trends underlying our.
All of that remain extremely strong just these three items that are a bit of a put and take Dave maybe you want to give a little color to the three sure and I think you covered it well demand very strong just three transitory items here that are that are pushing our.
A headwind of about five points for Q4, and they're all roughly the same size in terms of the magnitude.
As mentioned the royalty some choppiness from 2019, there were some one timers there in Q4 between to 219 and then just some ongoing choppiness in the sort of ongoing strength as we continue to build our royalty, but extremely happy with how royalties performing we continue to have very high growth both on a quarter over quarter basis, and a year for three so no concerns.
Or is it all just a hard comp in 2019.
The holiday placement I think some other airlines have called this out as well with regards to the weekday placement with Christmas on a Sunday, we've seen a outbound about three days later than you had in 2019 given school calendars I'm in the northeast, which is where the.
The largest chunk of our customers originate from and then lastly on the Hurricanes.
It was actually both Ian and Fiona obviously Fort Myers was the most impacted from a revenue perspective, but we've had the opportunity to redeploy some of that capacity for the Q4 peaks and we did see some capacity for the troughs in Q4, and then Puerto Rican Dominican Republic did have some lingering effects from <unk>.
Ah, which passed in late September the volumes are completely back, but we have seen especially in Puerto Rico, a lower fare trajectory than we were seeing before the hurricane it's improving week on week in Puerto Rico is fully open for business and a great experience for tourists. So no concerns here, but we have seen that fair sort of creep back a little bit each way.
But it's still about 10 or 20 points below where it was so all transitory items and no concern at all with underlying demand.
Okay. Thanks for the color there and just secondly.
Fuel hedging.
Just the rationale on why are starting it is it just Q4 or is some of this are you hedging anything for 'twenty three at this point.
Thanks for the question Scott So we're constantly monitoring the market over the last 18 months or so it's been pretty.
Costly to enter the hedging market, we saw a window of opportunity a few months back to layer in some hedges to protect against.
Fuel volatility here in the fourth quarter, it's something that we'll continue to monitor going forward. As a reminder, we view fuel hedging as insurance and we utilize hedging to protect against extreme volatility in oil prices. So as we enter 2023, you can expect us to continue to monitor.
The market and potentially layer in future hedges.
But at this point is there anything for 'twenty three hedged we do not have any hedges for 2023 at this point.
Okay. Thank you guys I appreciate it.
Our next question will come from Jamie Baker with Jpmorgan you May now go ahead.
Hey, good.
Good morning, everybody and sorry, if I missed this I fell off the line, but when.
When does your locked in deal financing expire.
Trying to understand if there's a delay with the deal.
At what point would you be exposed to current rates.
Good morning, Jamie So the bridge financing that we currently have in place has the current exploration of.
Mid 2024, and as a reminder, we're not currently drawn on the bridge, we are paying a small commitment fee for that bridge.
And as you recall when we receive regulatory approval at that point in time, we will look at the potential takeout financing markets and so I remind everyone. The financing markets at that point in time could look very different compared to where we sit today.
Today.
Okay. That's helpful and then for.
Excuse me for 2023 ex fuel CASM flat or better I assume there is no specific allowance in there for any movement on the pilot contract. If I just look at Alaska's fall 2023 rates it looks like it's about 12% higher than your current rates recognizing that.
Other deals may be struck between now and then.
So our flat to about our CASM ex fuel guidance for next year, just for planning purposes does not assume any change to our current CBA.
Unlike a lot of the contracts that are currently open or is actually just opened them.
At the negotiation table working for the complexity of a potential update to the CBA and so for our planning perspective and as of right now we're assuming the CBA no changes to the current CPA for next year.
Got it okay. Thank you very much.
Our next question will come from Andrew <unk> with Bank of America, You May now go ahead.
Hey, good morning, everyone. Just a follow up to that to that last question does your 2024, CASM assumption assume any change in the CBA.
So we haven't provided any CASM X fuel guidance yet for 2024.
Okay I thought the flattish.
I thought in the.
Presentation said flattish CASM ex fuel through 2024. So I was just wondering if theres anything in pilots for for two years out.
Got it so our structural cost program, we've committed as a result of the structural cost program. Our intent is to deliver flattish CASM X fuel over the next multi year period. So as I mentioned 2023 does not include a change to the CPA and so.
And in addition to that we have not yet provided 2024 guidance, but our goal is to get back to that flattish on a multiyear.
Over a multiyear period.
Got it.
Robin just strategically how do you think the competitive dynamics change on the Trans Atlantic over the next several years I ask because I think the CEO of the U S. You'll LCC said that he is.
<unk> Trans Atlantic flight since the XLR is delivered.
Other <unk> may do the same just curious to get your thoughts on how you think the trans Atlantic evolves here.
No I think so.
Certainly.
I think the first thing to say that we are a relatively small player on the trans Atlantic I mean, we are pleased to be starting our fifth flight, but as you know that represents a very tiny besides of the market and probably around 2% to 3% about.
And in total.
We see an opportunity out of New York, Boston to fly to a number of European markets and we are constantly.
Nothing with those plans when I think about the transatlantic historically always had a mix of legacy and low cost carriers and so you know I think that's going to continue I mean, we saw with the Norwegian a large number of our low cost carrier pizza come out come out of the market we've seen in.
New entrants are cooled move there and I think youre going to continue to to.
To see that but what we believe with the LR XLR is we have the right airplane to serve these markets and carrying a mix of both low cost premium travel because what we're doing with our transatlantic mint product is appealing to a segment that has been grossly overcharged and gouge by legs.
See carriers for many years.
Also making a competitive.
Offering for our coal coach customers, which includes a combination of low fat and the great product. We think that's a great niche we think that's a niche that most customers want it and so we feel very confident that we have the right plans continue to.
This market.
That's great. Thank you for your thoughts.
Our next question will come from Conor Cunningham with mainly.
This research.
You May now go ahead.
Hey, everyone. Thank you.
Do you think about 2023, what do you think is the best opportunity for outsized revenue production.
Historically, I think pre pandemic, you would think that Theres jetblue.
Jetblue had a bunch of levers that would generate above average unit revenue performance. Just curious if there's anything else that's out there that could juice choose.
Those numbers higher and I know you spoke to loyalty but is there.
Anything else that youre thinking about into next year.
Thanks, Conor this is Dave I'll take that one as we look ahead to revenue levers for next year a lot of it is the continued strong performance of the initiatives that we've already outlined on things like the very strong growth, we're seeing loyalty as well as in Jetblue travel products I do want to go deeper on a couple of them, though that we haven't talked about.
Yet.
So one is our customer segmentation strategy, which has really seen excellent buy up with customers choosing premium leisure products things like mint.
Having a RASM improvement about 10 points better than the core system and Youll see next year all of our Airbus <unk> hundred 20 family deliveries will come with the mint configuration, given the strength you've been seeing there, but also within the core kind of been seeing very strong buy up numbers to our blue in our blue extra fair its now well above 50% which is.
A really strong and has made a lot of progress the last year or two so very pleased there.
And then secondly, the northeast Alliance, we're thrilled to be growing this area to be offering more choices to customers in more low fares and we're seeing our customer response, there really pick up. So for example in the third quarter, our revenues and profit margins in the NDA accelerated more quickly than the rest of our network.
We're seeing really good codeshare growth sort of quarter over quarter and remain above our targets there.
And then the corporate response is really improving.
Seamlessness continues to improve and our loyalty benefits rollout, we're seeing more corporations book.
The Codeshare, we're seeing some additional account side because of the NDA.
And then lastly, and this really points to the future stickiness, our co brand card.
Growth in the EMEA geographies has been faster and greater than the not any new geography. So we think really continuing to execute and ramp up. These revenue initiatives that we've been speaking of should help give us a good tailwind as we go through 2023.
Okay. That's helpful and then.
On the buckets of your structural cost program I'm, just curious on what's taken hold a lot quicker than you would've expected and then maybe what's your biggest focus into next year as we start to work through that thank you again.
Thanks for the question. So we've started to see meaningful progress in our enterprise planning and as a reminder, what we're doing here is optimizing how we're building schedules around our existing work rules and we're planning smarter and we're building more resilient pairings.
We're collectively identifying.
Any hidden inefficiencies and we're reducing structural operability risks so in the <unk>.
<unk> improvement between Q3, and Q4, we've actually seen a point of improvement.
<unk> with our enterprise planning work, so that is going to continue to ramp up as we enter next year.
In addition to that we're also going to make meaningful progress on our maintenance opportunities entering next year. So we moved to a phase in which we're retiring airplanes and so we've strategically been making decisions on what level of investments, we do or do not make it in certain airframe and engine. So next year.
You will continue to see enterprise planning benefit them as well as.
Maintenance benefits in addition to that as I mentioned in my remarks, we have actually started the retirement of our <unk> hundred 90 airplanes. So.
So we actually have a point of saving sequential savings between Q3, and Q4 associated with that and that will continue to ramp up so as a reminder, in 2023, we've assumed the structural cost program will deliver between 60 and $80 million and.
<unk> hundred 90, retirements will drive $45 million of savings next year I want to reiterate in terms of structural costs. Those are structural savings that will carry through in regards to the E. 190 retirement think of these as one time cost avoidance items, so the 75 million.
And isn't necessarily run rate, but it's one time savings that will be achieved over the next two years.
Great I appreciate it thank you.
Yeah.
Our next question will come from Duane <unk> with Evercore ISI you May now go ahead.
Hey, thanks.
So I think a piece of the CASM guidance improvement sequentially is peeling back on reliability investments that you've made over the summer I wondered if you could just expand on that a little bit what specifically.
Are you kind of loosening and what are you seeing that kind of gives you confidence to do that or is it really just a function of it's kind of a less peaky time and theres more kind of slack in the system, which enables you to do it.
Thanks, Duane so between Q3 and Q4, we are peeling back two five points of summer investments and the majority of that is related to internal and external labor as you recall, we are operating in somewhat of a challenging environment throughout the network given hec.
And so we naturally built a level of resiliency into our planning around labor to ensure that we can deliver and operate so Joanna I don't know if you have anything else to add a couple of things maybe I think the biggest investment we made this summer with pulling back to schedule and so I think you know as you see Q3 to Q4, we're adding more could.
Paucity back into the schedule. So I think that's showing some of these some of these investments have paid off in terms of things that we're peeling back.
Obviously slowing the pace of hiring across our in flight and airport teams are actually in some cases offering some rest and relaxation programs. This fall, which is in a more more of a trough which is in a great. That's a great place to be given where we were a year ago on sort of a higher higher higher a framework and then the other piece is pilots, which I mentioned.
And before we're actually seeing even Q3 to Q4, a slight ease up on some of our reserve levels. We.
We'll continue to plan to have greater reserves in 2019, but I would not expect 2023 to have as high a reserve level as 2022, and so youll see I think some meaningful improvements there over time, we are being careful though because the ATC environment remains fragile the.
He has been a great partner.
A ton of transparency around what they're seeing in terms of staffing challenges. We know and 90 is particularly challenged and we don't think this is going to course correct. In the next few months. So we are working closely with them to ensure that we are aligned in our planning assumptions and what we expect.
To see how they handle some of these programs and some of the irregular operations, Dave So continuing some investments there, but there remains opportunity in pilot reserve levels.
This is Dave doing one thing I'll note as well is our aircraft utilization on a year over three basis improved several points as we move from Q3 to Q4, so that helps as well and we'll continue to see that in 2023, as we continue to ramp back towards our pre COVID-19 utilization.
Joining me, it's Robin Youre going to win the award because.
Giuliani potent so far to get full four liters to answer your question.
So it's a very comprehensive answer which is appreciated.
But I do think that.
We're confident in the so first of all youre going to see more of buffer the peaks more.
In future years, as well, we're not going to go back to where we were in 2019 and if we think about the sort of the if we think about pilots John talked about that in a week.
Ben.
If we look at sort of November .
November for example, we're going to be we can have about 14% more pilots flying about the same capacity than we did in 2019, So I would say significant instead a significant stockpile.
What we don't know fully it we know we will.
Peel those investments over time.
We don't what we don't quite know how quickly we can do that because it's going to be very driven by as Joanna said, the external environment and some of the issues that we've seen this year, but clearly there is a significant opportunity there to reduce costs as we peel. It you know.
So if I look at if I, if I was to kind of take a.
That's sort of a crystal ball into next year as Joanna said that we will have lower cut reserve coverage than we had this year, but we won't be back to 2019 levels I just don't know yet.
Until we get into planning cycle, how big of a step down that would be.
Well. Thank you for that comprehensive answer I didn't have a quick follow up hopefully quicker.
Just with respect to.
Routes that you as you build out Laguardia right. So as you have markets that maybe historically served from JFK and now you've built that out from Laguardia.
Has anything surprised you in terms of very different demands very different pricing.
Hum.
Are there markets that look you know.
It's completely different from Laguardia.
Thanks, Brent I'll take that this is Dave I'd say, there's nothing that is completely surprised to sort of looked a lot differently than we thought but we certainly been learning a lot in the past several months here, especially since Laguardia went up to 52 flights a day in July and the team is sort of constantly reworking the capacity planning schedules, so that not only does this.
Capacity naturally improve as it ramps over time, but that we accelerate that improvement and raise the ceiling by improving the schedule to more closely align with customer demand. So no big surprises, but lots of tweaks and refinements.
We'll be rolling out over the next months and year to continue to improve our New York performance.
Thank you.
Our next question will come from Helena Becker with Cowen.
You May now go ahead.
Thanks, very much operator.
As you.
Hi.
Change in IATA designation for Newark change the way you have to respond.
To the government on the any airline.
Hi, Helane I'll take that no absolutely not.
The change that IATA has has.
Proposal made a really light relates to affect construction only it doesn't relate to what we call sort of multi airport city codes and <unk>.
So if you go into a GDS, if you'd go into Expedia and.
N y C.
Youre going to get all airports come up including Newark, everyone, who lives or works in New York Clearly knows Buick is part of the New York Airport system managed by the same with faulty as Laguardia and JFK and we see customers move between those airports are pretty regularly.
As well so no no no.
No impact told me NDA, but also no impact on Jetblue business or any other airline business.
Thank you that's very helpful. And then just a point of clarification.
In terms of aircraft in an aircraft out.
Can you just say of the 22 aircrafts you're planning for next year what percent are replacement and what percent are growth.
Okay.
Helane. So next year, we take we're expected to take delivery.
No.
Well contractually, we're supposed to take 18 to 20.
Our planning assumption is that we take 14, so you can consider those replacement.
We're contractually retiring six even nineties.
And then of the 30 that we own we will also be retiring some of those as well. So in summary, the 14 airplane <unk> hundred 20 that we take next year the margin accretive aircraft that we take next year will be replacement.
Okay. Thanks for your help.
Yes.
Hmm.
Our next question will come from Mike Lindenberg with Deutsche Bank you May.
Go ahead.
Hey, good morning, everyone, Hey, Eric just a question on Capex the $1 billion. This year, just to remind us thats predominantly airplanes and thats being paid out of cash you're 152 billion of Capex that you.
Sort of guided to earlier on the call is that presumably that's going to be a mix of cash and debt given the size and I guess as an add on have you gotten actually any commitments for aircraft finance for aircraft that are coming in 2023.
So you're correct like the $1 billion this year will be completely be funded by cash.
The estimated Capex range next year, one five to two none of that is currently finance, we're going through the 2023 planning process at the moment and so we'll share color with you in January around the baseline assumptions between cash and financing.
Okay. Great. That's helpful. And then just a question I don't know if it's robin or Joanna just.
The news that a week or two ago down to making an investment in Jovi Richardson somewhere something about an exclusivity and I know that you guys also have an investment in <unk> does that preclude you from doing anything with them down the road I'm not sure. If it was like geography specific airports specific the exclusivity just any comments I know I'm sort of jumping ahead.
A few years.
Yes, hi.
I'll take that I mean, we were an early investor in <unk>, we had a great partnership with them are really appreciated seeing that business grow and develop and you had the partnership that amounts with Delta does.
You know it does provide exclusivity.
You would have five years.
But I think we are very focused right now on executing the initiatives that we have.
We are focused on getting the spirit transaction done because this is a very important strategic priority for our allied and J T V.
<unk> had dozens of investments and ventures, and we have many opportunities across the across the spectrum there.
Yes, that's what I thought alright, great. Thanks.
Our next question will come from Chris Stephanopoulos with Susquehanna International Group You May now go ahead good morning.
Good morning, everyone. So so robin or Steve could you talk a little bit more color on the modest Aercap aircraft delays that you mentioned in your prepared remarks for next year.
Is that five or seven and do you think that you can still grow capacity at mid to single digits with with a modest delays in I guess said another way if it's easier to just answered this way it could you fly sketch.
A schedule that you are planning for 2023 with the aircraft that you have.
In the fleet now with the CASM ex.
That you're looking for thank you.
Two as I mentioned, so contractually Airbus is supposed to deliver 29 airplanes to US next year I think we're all well aware that there are struggling from ramp up challenges driven by manpower and supply chain. So we are seeing delivery delays.
We're working hand in hand with them to manage through this from a planning assumption perspective contractually. We're supposed to get 29, we're assuming we get a minimum of 22 next year and with those 22 airplanes. We believe that we can deliver the mid to high.
Single digit growth rate that we're planning for next year.
And in turn and we also believe that we can deliver the flat or better CASM ex fuel.
Utilization continues to be down here in the fourth quarter by a handful of points and as we enter next year. Our fleet wide utilization, we expect to increase a couple of points as well. So again, we feel confident based on what we know today and the assumptions that we've been working with Airbus on we can deliver that mid to high single digit growth.
Right, Yeah, and if I can just add to that we also have the option of the language assignments if.
If we need to.
We are trying to give as much color on 2023 as we can based on what we know today. We expect there is a macroeconomic question Mark out there that people have we don't see any signs of concerns around that today, but we also recognize it could be in the future and so we will ultimately.
Take decisions next year driven around by margin.
And so we also have flexibility to adjust capacity down if that's what we need to do because of the you know because of the economics.
Environment. So we have a lot of flexibility to.
Delay retirement increased utilization, we've taken us back up significantly this year to de risk.
Operation will bring that down next year <unk> talked about some of the flavor around the delivery date, but I think at the end of the day, our capacity is going to be governed.
By what we what we see in terms of the economic environment as we go into next year and clearly.
CASM forecast are built off the capacity assumption.
King today.
Okay. Thank you follow up Joanne as shown in your comments you spoke about potential cyclical slowing in some cautious planning around that what are the key data points, you're watching everyday with respect to the obvious one being I'm guessing daily bookings cash and take about what are some of the more nuance data points that you believe.
Mike.
Oh slowing. Thank you yeah, just to be clear, we didn't we didn't signal any cyclical slowing quite the opposite actually it's very strong we're not seeing any any slowdown specifically we did speak to if there is one down the road, we think we're well positioned with a number of levers we have to pull capacity being the largest but we are not seeing any.
Any slowdown in terms of underlying demand in terms of things, we look for bookings fare mode things of that nature, but beyond that we're not seeing we're not seeing anything in terms of any kind of slowing or signs of it.
Yes, I think in addition, yes, there is a number of other metrics that we can look at in terms of our.
Credit card data is also a good.
Sort of indicator.
No concerns at this point and I think what we're all struggling with here is the economy has grown significantly since 2019.
Property has not kept up with that growth. If we think about for those who have been in the industry, a long time GDP and capacity growth was a.
Was probably one of the.
Between capacity and GDP was probably the best correlation you could have an and so we have a lot of GDP growth that has occurred since 2019 and so the question is if we have a recession.
How much of that the ethane to that sort of a sort of a higher base that we've already got and again, we continue to see a lot of pent up demand people, who haven't flown prepay at a time, we continue to see very high load factors on days, where we havent historically seen a probably.
Probably load factors, which suggests to me that still you know a lot of pent up demand that we're still eating into.
Okay. Thank you.
Okay.
Our next question will come from James Hollins with BNP you May now go ahead.
Hi, many thanks, just I wanted to come back on corporate travel I mean, the 90% recovered from pre Covid. It looks pretty good to me and maybe just immediate I mean pumps I think can speakers parts absence is really talking up the corporate travel only the renewal you'll release presentation, maybe you could run through the thoughts on.
So how you will see in corporate travel, how it's trending into <unk>.
The current season. Thank you.
Sure. Thanks, James This is Dave I'll take that we're certainly pleased with the corporate travel trends we've seen in the last four to six weeks here. There is still some choppiness. So I don't think we want to completely declare success and it's still being about 90% bookings, it's clearly below between 19 levels, whereas.
The rest of our revenues up more than 20% so relative to that it still got a long list to go but we're seeing a number of things we're seeing not.
Not only the bookings, but the travel obviously, which falls on a few week lag.
We did have one week.
Earlier, this month, where we had a higher float revenue so hard travel revenue this year than we did the same we can.
In 2019, so that was a new record.
Record, which is very helpful.
And the Big thing for US too is as mentioned before the NDA is really accelerating for us in the past quarter.
We see the lion's share of our corporate how it happens in New York and Boston, So as EMEA ramps up with Seamlessness as we continue to layer in the loyalty benefits.
It is very heartening to see.
How the corporates have responded with additional codeshare bookings additional accounts things like that so we feel very good about just the general corporate recovery as well as the the NDA benefits that it's driving.
Thanks, very much and then just I mean from a fall I'm getting a lot of headlines on your court case, obviously on the Northeaster launch I was wondering if you are having any traction in court.
It's not so much.
With American banks.
Yeah, no I'll take that and thanks for the question James.
Okay.
Yes, the trial is wrapping up soon.
No.
I believe that we put on a really compelling.
Case.
We have a lot of conviction about the NDA. The consumer benefits are there for everybody to see everyone in New York last having more Jetblue, Florida, one in Boston loves having more jetblue flying they don't want to go back to how it was and so we have a.
We're confident that at the end of the day, it's a process the judge will make the.
Decision and.
We'll wait we'll wait to hear on that but I'm very pleased with the case of the theme of our portfolio.
Thanks very much.
Again, if you have a question. Please press Star then one our next question will come from Dan Mckenzie with Seaport Global you may.
Go ahead.
Oh, Hey, Thanks for squeezing me in here guys.
Robin to put a bowl on the revenue cost and utilization comments.
For 2023, I'm guessing you could drive a mack truck through how youre thinking about the business and what the street is modeling and you've shared in the past the pieces are in place to to drive $3 a share more than earnings at some point and you know the street seems to be dismissing that so I guess the question is do.
Do you continue to have confidence in that outlook and given that would you say consensus embedding a recession next year based on what you know today.
And the point of course is not really to tell us what's the model. It's just again going back to the conviction in your ability to drive sustainably higher margins from here.
Yes, Dan I mean, thanks for the question I mean, we have a lot of conviction a lot of competence.
We had a deeper holding some to climb out talk because of Covid. We were in geography that I think everyone accepts with some of the most.
Impacted we didn't have the diversification and some revenue streams like cargo during COVID-19.
Others had.
We had a bump this April as we have to pull down capacity to reflect I think.
A different planning assumption around some of the external constraints that we made in the system and some of the hiring challenges that we had of course others have also have to course, correct and I think we have good momentum now.
Continue to see strong revenue performance notwithstanding some of the one off.
Headwinds that Dave enjoying a walk through from Q3 to Q4.
Executing on CASM, we have a new structural cost program underway, we have the fleet.
Hum.
Fleet modernization.
Going on as well our revenue initiatives around travel products and loyalty are doing exactly what we said we've been doing for.
The last couple of years now and we're pleased with those and let's not forget the geography like New York is still not fully recovered to the same degree as other geographies in the U S and we're seeing that recovery now and then on top of that we're seeing with the benefits from the NDA. So we have a lot of conviction. We recognize that that has confidence has to be earned quarter by quarter.
On delivering on the results I mean, that's exactly what we are intending to do.
Mm Hmm okay.
Second question here, you know regulatory approval for the spirit merger by early 2024, I think is the.
Messaging.
That seems pretty specific and I guess is that are there some outside data points that give you certainty around that or is it simply a illegal guests by your counsel and I'm. Just wondering you know from where you said is there anything that you know what what might cause that that timeframe to slip.
No. Thanks, Dan.
I think we laid out a pretty conservative timeline that I mean, if you look at historically.
On previous precedent transactions in this space they've been.
Decided more quickly than that I think we recognize as we've been through that this transaction will face a lot of regulatory oversight and overview and we wanted to lay out a pretty cautious timeline and hopefully beat it.
Right now we're not changing anything.
We're very excited about the prospect of craziness true national low fare challenge out to bring the jetblue effect to more geographies and more markets and speeding up our organic plan by several years and I've been spending quite a bit of time recently down in Orlando and Fort Lauderdale, and there's a lot of excitement.
Down there around this merger.
So we are very excited to get on with it but we're going to fully respect the regulatory process. That's under way comply with the request that are being made by the department of Justice.
And hopefully get to a regulatory approval as quickly.
Time permits.
Very good thanks for the time you guys.
This concludes our question and answer session I would like to turn the conference back over to Joe <unk> for any closing remarks.
Thanks Anthony.
That concludes our third quarter 2022 conference call. Thanks for joining us have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.