Operator: Morning, everyone. My name is Jillian. I would like to welcome everyone to the JetBlue Airways Q3 2026 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's Director of Investor Relations, Koosh Patel. Please go ahead, sir.
Koosh Patel: Thanks, Jillian. Good morning, everyone, and thank you for joining us for our Q3 2026 Earnings Call. Yesterday, we issued our earnings release and a presentation that we will reference during this call. All of those documents are available on our website at investor.jetblue.com and on the SEC's website at www.sec.gov. In New York to discuss our results are Joanna Geraghty, our Chief Executive Officer, Marty St. George, our President, and Ursula Hurley, our Chief Financial Officer. During today's call, we will make forward-looking statements about our outlook, strategy, and future performance. These statements are based on our current expectations and are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our earnings release and SEC filings for information about risk factors that could cause those differences. These statements speak only as of today, and we undertake no obligation to update them.
Koosh Patel: We may also discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in our earnings materials and are available on our investor relations website. Now, I would like to turn the call over to Joanna Geraghty, JetBlue's CEO.
Joanna Geraghty: Thank you, Koosh. Good morning, everyone, and thank you for joining us today. I want to start by reinforcing the bigger picture and the progress that we are making. Despite significant fuel headwinds and a challenging summer operation, our revenue performance is among the strongest in the industry, with unit revenue up 18.4% in the Q3 and further acceleration expected in the Q4. Customer demand remains resilient, and we are seeing JetForward benefits compounding with some of our largest opportunities still ahead. Importantly, we are already expanding margins year-over-year despite elevated fuel prices. We remain focused on operating profitability in 2027 and see multiple paths to at least $1 in EPS and positive free cash flow in 2028. Importantly, our liquidity and financing flexibility provide an important bridge as these benefits build.
Joanna Geraghty: The fuel challenges the industry faces are real, but so is our progress. JetBlue has a strong brand, a high-value network, customers who are loyal to our differentiated offering, great crew members, and a clear strategy to achieve sustained profitability. We are confident in our plan and focused on delivering the results that this airline is capable of achieving. Turning to the Q3. I am very encouraged by the strength we saw in the underlying business this quarter. Revenue materially exceeded our initial expectations and strengthened as the quarter progressed, with momentum continuing into the Q4. For me, two highlights stand out from the quarter. First, demand remained resilient even as industry fares moved higher in response to elevated jet fuel costs.
Joanna Geraghty: This revenue strength helped us recapture higher fuel faster than initially expected, and we achieved 87% recapture in the Q3 versus our initial expectation of 70% to 80%. Second, Fort Lauderdale continues to demonstrate the strength of our network strategy, delivering strong unit revenue performance even as we significantly expanded our operation. At the same time, the quarter was impacted by an unusually challenging summer operating environment. Severe weather and air traffic control constraints across our core Northeast geographies reduced our completed capacity and increased our disruption and crew costs. Through it all, our crew members worked tirelessly to care for our customers and recover our operation, and I want to thank them for their tremendous dedication throughout such a demanding summer.
Joanna Geraghty: Even with elevated fuel prices and the air traffic control pressures we faced this summer, we still expect to deliver year-over-year adjusted operating margin expansion over the H2 of this year. We saw modest margin expansion in the Q3 and expect 1 to 2 points of further growth in the Q4, even with fuel up 85%. We know there is still work ahead, particularly given elevated fuel prices and macroeconomic uncertainty. But our Q3 performance provides further evidence that JetForward is delivering results. We have now delivered four consecutive quarters of improving year-over-year RASM growth and are among the industry leaders for H2 revenue expansion. We remain on track to achieve our 2026 JetForward targets, with several important initiatives continuing to build into 2027 and beyond. And we are already seeing that execution translate into results in Fort Lauderdale.
Joanna Geraghty: We expect our seat share to reach approximately 37% in the Q4, up 14 points year over year, reflecting the scale that we are building as our operation expands. We are also deepening our engagement with local customers, and co-brand acquisitions in Broward County increased 55% year over year in the Q3. These actions are driving strong RASM growth in Fort Lauderdale and illustrate the early success of our strategic capacity growth. BlueFirst is yet another important driver of our growth and is our largest JetForward initiative. Seats are now on sale, and we look forward to welcoming our first customers in early December. We are excited to offer customers a domestic first-class experience at an accessible price point. At Runway, we expect BlueFirst to deliver nearly five points of RASM improvement, with its revenue and margin contributions building through 2028 and beyond.
Joanna Geraghty: Turning to our financial position. We ended the quarter with $2.2 billion in liquidity and approximately $7 billion in unencumbered assets, including $2.8 billion in aircraft and engines. Together, these resources provide substantial financial flexibility and an important bridge as we execute JetForward and move toward a stronger earnings and cash flow profile. The progress that we are seeing across our business is real. Our revenue initiatives are delivering, we are beginning to expand margins year-over-year, and the benefits of JetForward are compounding as existing initiatives mature and new ones come online. With the financial resources to support our plan, our focus is on building on that momentum to achieve sustained operating profitability in 2027 and achieve positive free cash flow and at least $1 of earnings per share in 2028.
Joanna Geraghty: Let me be clear, that is where our intention is, and that is how we intend to create long-term value for our shareholders. With that, I will turn it over to Marty.
Marty St. George: Thank you, Joanna. I also want to thank our crew members for their unwavering commitment to our customers and to JetBlue throughout the summer. Their efforts helped us navigate a challenging operating environment while continuing to deliver strong commercial results. Revenue was a clear highlight in Q3, and we are pleased that the strength we saw through September has carried into Q4. During Q3, RASM increased 18.4% year-over-year, roughly 4 points better than the midpoint of our initial guidance. That puts JetBlue among the industry leaders in year-over-year total and unit revenue growth this quarter, reinforcing the momentum that we have seen from our commercial initiatives. Higher yields, supported in part by our investments in revenue management technology, drove a majority of this outperformance.
Marty St. George: Customer volumes remained relatively resilient, and we saw no meaningful signs of elasticity despite high fares as we responded to elevated fuel costs. Both premium and main delivered double-digit revenue growth, with the strength in main particularly encouraging. Demand strength remained broad-based across both peak and off-peak travel periods, with healthy booking trends continuing into the fall. Turning to Fort Lauderdale, we have seen continued acceleration in RASM growth throughout the year, even as we significantly expanded our operations. In Q3, RASM increased nearly 15% year-over-year on more than 65% capacity growth. This performance demonstrates strong customer response as we continue to rapidly build scale in the market. We are expanding travel options for Broward County residents and creating more connecting opportunities for customers throughout our network by adding destinations and frequencies and optimizing our rolling bank schedule.
Marty St. George: With 15 new destinations and increased frequencies to others, we expect peak daily departures to exceed 150 this winter, up 39% year-over-year. We recently launched service to 2 new destinations in Colombia, bringing our international network from Fort Lauderdale to 18 destinations. Robust growth requires close collaboration, and I want to personally thank Mark Gale and the team at Broward County Aviation Department for their ongoing partnership as we continue to expand our operations. While we plan to continue to grow, we believe the Q3 likely represents our peak year-over-year growth rate in Fort Lauderdale. This should support further RASM expansion as our growth moderates and new capacity matures. Turning to BlueFirst, our new domestic first-class experience is now on sale across more than 30 routes.
Marty St. George: Service begins 8 December between Boston and Fort Lauderdale and will expand to additional routes in a phased rollout. We prioritize markets with strong premium demand where BlueFirst can help us capture higher-yield bookings and improve our revenue mix. We are encouraged by the early response to BlueFirst, which suggests that we are tapping into pent-up demand for a domestic first-class product among existing customers, particularly on leisure routes from New York and Boston. Approximately 35% of bookings so far are award redemptions, and Mosaic members account for nearly a quarter of the seats booked. While still early, this engagement reinforces our confidence in BlueFirst's ability to capture more premium travel demand from our existing loyal customer base. We are also pleased with the progress that we are making in modernizing our revenue management technology.
Marty St. George: We have completed the transition to a new system that improves forecasting and enables more sophisticated revenue optimization across our network, including automated management of Mint and connecting itineraries for the first time. Early results are ahead of our expectations, and we are adding capabilities to better anticipate shifts in demand, respond more quickly to market conditions, and support further unit revenue improvement over time. Loyalty continues to deliver strong sequential growth driven by our premium and partner strategy, with revenue up 20% for the quarter, the highest level of growth since 2023. Acquisitions of the Premier Card grew 8-fold year-over-year in the Q3 as customers responded positively to the benefits refresh and the opening of our latest BlueHouse in Boston. Card spend remained robust across our program portfolio, growing double digits, and loyalty cash remuneration solidly on track for mid-teens growth for the year.
Marty St. George: Our investments in premium products and partnerships are driving deeper loyalty and engagement with record levels of active TrueBlue members and elite status qualifications this quarter. Our newest BlueHouse launch has been met by rave reviews and outstanding NPS results since opening in August, and is just another one of the many investments we are making in the premium customer experience. Our Blue Sky loyalty collaboration, which improves global access for TrueBlue members, has now passed more than 1.1 billion TrueBlue points redeemed on United flights since the loyalty investment launched in February. We are also seeing encouraging progress at Paisly, which delivered its strongest financial results ever in Q3. Further, rental car bookings through MileagePlus Travel have outpaced United's previous provider on a per-day basis since launch.
Marty St. George: We're building on that early traction with plans to introduce additional offerings throughout 2026 and the H1 of 2027. Paisly is on track to deliver nearly $100 million in operating income this year, with that contribution expected to nearly double by 2028, driven by the maturation of our existing JetBlue business and the continued ramp of planned offerings with United. Importantly, this target does not assume any additional partners, which presents a potential source of further upside as we expand the platform. Looking forward, we expect Q4 RASM to increase 18% to 22% year-over-year. This represents further acceleration from the Q3, despite year-over-year comparisons that are 2 to 3 points more challenging as we begin to lap the demand improvements that started late last year.
Marty St. George: This is expected to be our fifth consecutive quarter of best-leading year-over-year RASM growth, which provides further evidence that our JetForward initiatives are delivering results and strengthening our revenue performance. Based on what our competitors have guided so far, we expect to continue to be among industry leaders in the Q4 as well. For the full year, we now expect RASM to increase 13.5% to 14.5%. Even with this revenue momentum, we remain disciplined with our capacity deployment. Q4 growth is concentrated in Fort Lauderdale, where the initial return and substantial opportunity continue to support additional investment. Capacity in the rest of the network is flat to down. We expect Q4 capacity growth of 3% to 4% and full-year growth of 1.5% to 6.5% year over year.
Marty St. George: Our Q4 capacity guide reflects significant impact of weather and operational disruptions that reduced completed flying last year. Excluding the impact of those prior year disruptions, scheduled capacity growth is nearly 2 points lower. Taken together, continued revenue strength, disciplined capacity deployment, and the growing contributions from our JetForward initiatives give us confidence in our revenue trajectory as we close out the year and head into 2027. With that, I'll turn it over to Ursula.
Ursula Hurley: Thank you, Marty. We're encouraged by the progress we're making on margins. We delivered year-over-year adjusted operating margin improvement in the Q3 and expect further expansion in the Q4 as continued revenue strength is complemented by a meaningful step-down in the growth of our CASM excluding fuel. This progression is an important step towards sustained operating profitability in 2027. We are also taking concrete steps to further enhance liquidity and maintain the financial flexibility needed to execute JetForward. On the cost side, Q3 CASM ex-fuel increased 7% year over year at the midpoint of our updated September guidance. As previously communicated, our underlying unit cost performance remained consistent with our initial 2.5% to 4.5% guidance range, excluding approximately 4 points of pressure from summer operating disruptions. Our Q3 fuel price was $3.91 per gallon, 57% higher year over year.
Ursula Hurley: Looking to the Q4, we expect fuel prices of approximately $4.64 per gallon, with continued revenue strength supporting further progress in recapturing higher fuel costs. Looking to the Q4, we expect CASM ex-fuel between -1% and +1% year over year. This represents a meaningful step-down in unit cost growth and a return to the cost trajectory we guided at the beginning of the year. For the full year, we now expect CASM ex-fuel growth of 3.5% to 4.5%. Turning to profitability, we now expect a full year adjusted operating margin of -4.5% to -6.5%. The revision primarily reflects higher fuel prices, which created 3.5 points of pressure relative to our July outlook. Stronger revenue performance has helped offset a significant portion of these headwinds.
Ursula Hurley: We also expect 1 to 2 points of year-over-year adjusted operating margin expansion in the Q4, despite fuel prices expected to be 85% higher than last year. This reflects the strength of our revenue initiatives and continued improvement in our underlying cost trajectory. Turning to liquidity, our position remains strong, and we continue to take a disciplined and proactive approach to managing our balance sheet. Our quarter-end liquidity was $2.2 billion, including our $600 million undrawn credit facility. We also provided notice to draw the incremental $250 million available under our aircraft-backed financing accordion, with funding expected in the Q4. We have recently completed updated appraisals across our fleet, positioning us well for potential additional aircraft-backed financing.
Ursula Hurley: Higher appraised values, together with eight A220 aircraft purchased with cash this year through the Q3, bring the value of our fully unencumbered aircraft and engines to $2.8 billion, up from roughly $2 billion previously. This brings our total unencumbered asset base to approximately $7 billion. Importantly, our portfolio of unencumbered aircraft and engines includes a similar mix of assets as those we successfully financed earlier this year. Together with our existing liquidity, our financing options give us confidence that we have the flexibility and runway to navigate a prolonged period of higher fuel prices while continuing to support our operations and advance JetForward. Turning to capital expenditures, Q3 CapEx was $189 million, below our prior outlook, primarily due to the timing of one aircraft delivery and LGA slot payments shifting into the Q4. Our full-year CapEx outlook remains unchanged at approximately $850 million.
Ursula Hurley: We continue to expect annual CapEx below $1 billion through the end of the decade, supporting our path towards positive free cash flow and balance sheet improvement. Looking ahead, we expect the benefits of JetForward to continue compounding as our existing commercial initiatives mature, BlueFirst begins to contribute, and cost efficiencies build. That growing contribution supports our goal of achieving operating profitability in 2027 and progressing towards positive free cash flow. Further out, we continue to target at least $1 of earnings per share in 2028. While the mix of drivers may differ from what we outlined in July, our strong revenue performance reinforces our confidence that there are multiple paths to achieving that target, including through stronger unit revenues that could help offset potentially higher fuel costs. Despite the challenging macro environment, we are starting to see financial progress and adjusted operating margin expansion.
Ursula Hurley: We still have plenty of work to do, but the path is becoming clear. We expect positive free cash flow in 2028 and believe we have the liquidity and unencumbered asset base needed to get us there. We will remain focused on disciplined execution and capital management to drive sustainable earnings growth and create long-term value for our shareholders. With that, we are happy to take your questions. Over to you, Jillian.
Operator: Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Jamie Baker with JP Morgan. Jamie, your line is open. Please go ahead.
Jamie Baker: Oh, thank you very much. Good morning, everybody. Ursula, can we discuss liquidity options from here and maybe dig into what the pecking order for future raises might look like? We have been assuming that aircraft-related debt was probably just, I do not know, first in the queue, but have you considered the carve-out in the loyalty deal, that $400 million of forward mileage sale potential? With the Paisly disclosure, there has been a lot of focus on the Air Canada precedent, but that is loyalty. We had not really thought about Paisly and how the value of that business could hypothetically exceed your equity market cap. Perhaps that is a more realistic option than issuing debt tied to TrueBlue. Quite a bit in here, but I will let you run with it from there, if you do not mind.
Ursula Hurley: Yeah. Thanks for the question, Jamie. We believe we ended the quarter with a really healthy liquidity position at the $2.2 billion, including the revolver. As I mentioned in my script, we are looking to potentially do some incremental aircraft financing in the back half of this year. We are very focused on cost of funding. I mentioned we had our assets reappraised, and we have the $2.8 billion in aircraft and engines. However, we do have other levers that can help bridge us to 2028 in terms of liquidity, so other potentials that exist. We are focused on cost of funding, so in the immediacy, we are focused on aircraft as we end 2026. Maybe Joanna, over to you, if you have any other comments.
Joanna Geraghty: Yeah, I will just add, I think Ursula did a nice job. She has laid out sort of the liquidity levers that we have on the debt side. I think you correctly point out that we do have opportunities beyond traditional debt financing that could drive meaningful value without adding additional interest. I think the broader point I would like to make is we have multiple avenues to strengthen liquidity beyond the current balance we have and the unencumbered assets to support our plan and bridge us to 2028, where we remain committed to the goal of a dollar of EPS. That includes everything from, as you point out, Paisly. We have venture investments. Are there opportunities with the co-brand credit card? We are just not in a position today to further elaborate on those.
Jamie Baker: Okay.
Joanna Geraghty: But I think, point being, we have got a healthy liquidity balance and opportunities beyond what you see on the paper.
Jamie Baker: Okay, that is helpful. Thank you. Then just to follow up on the ex-fuel CASM, obviously Q4 capacity is going to be down from Q3. Ex-fuel CASM is going to be meaningfully better. I know Q3 had 4 points of pressure in there, but even if we adjust for that, the sequential change looks pretty good. Are there any line items in particular that drive the planned outcome, or is it just sort of everything? Thanks in advance.
Ursula Hurley: Yeah. So extremely pleased with the guide for Q4 on controllable costs. The team has been executing exceptionally well. So the team had executed over $30 million of controllable cost savings in Q3. We are really focused on driving efficiencies, whether that is productivity, whether that is just in the technology that we are using, or even how we source it and procure with business partners. So super proud of the team. We always knew that this was going to be the trajectory and the cadence of this CASM ex-fuel performance this year. As a reminder, last year, we did face 2 points of headwinds. We had some weather, we had the government shutdown.
Jamie Baker: Yeah. Mm-hmm.
Ursula Hurley: And so those contributed last year, so that is making the comp year over year look a little better. What I will say, as we enter 2027, we have provided previous guidance that if we are growing mid-single digits, we expect to print a low single-digit controllable cost growth next year. So that just speaks to the continued execution of the team
Marty St. George: Yeah
Ursula Hurley: in regards to the JetForward cost initiatives.
Jamie Baker: That's great. Thanks, everybody.
Ursula Hurley: Thanks, Jamie.
Operator: Your next question comes from the line of Brandon Oglenski with Barclays. Brandon, your line is open. Please go ahead.
Brandon Oglenski: Yeah. Good morning, and thanks for taking the question. Ursula, maybe if we can come back to liquidity, because I think that's been the focus here with investors recently, especially with rumors of a creditor group forming or something here. I do not know if you can speak directly to that, but then maybe specifically as you look out, it looks like you will be burning through pretty sizable amount of cash in Q4, and I think seasonally, Q1 is a little bit soft for you as well. So what would be the right amount of incremental capital that you would be looking to raise here?
Ursula Hurley: Yeah, I appreciate the question, Brandon. Since we launched JetForward, we have used this 17% to 20% as a percent of trailing 12 months revenue range as kind of guidance. We thought that this level would provide us the appropriate runway to execute JetForward through a volatile environment. So I would still use that as a reference point. I think as the business continues to improve and we get to consistent profitability, that that metric could evolve. Clearly, we are not managing the business to a percent in isolation. To your point, we are definitely managing our uses of cash, including fuel, working capital, obviously our debt obligations, and our capital spending. I do find comfort in the fact that we do have a CapEx profile that will be below $1 billion through the end of the decade.
Ursula Hurley: As I mentioned in my prepared remarks, I do believe that we have a very healthy unencumbered asset base, like 2.8 aircraft and engines, that I believe can be a really strong bridge to get us 14 months until 2028, when we are going to deliver the dollar EPS and positive free cash flow. So I feel comfortable about where we are at to get us to a point where the business is generating healthy levels of cash going forward.
Brandon Oglenski: I appreciate that, Ursula, and Joanna, maybe a bigger question here. Just how much debt do you think this company can sustain long term? JetForward appears to be working here. You guys have the bridge to get to 2028, but I guess longer term, where do you want to see leverage for this business? Thank you.
Joanna Geraghty: Yeah, at this point, we are focused on driving an operating profit next year and delivering the dollar EPS and a return to free cash flow in 2028. There are multiple paths to that goal. I think one point just worth mentioning, the fuel assumptions behind those commitments or those projections, and we assume fuel is slightly above $4 for 2027, which I think is important. Then we assume consensus for 2028, which is around $3. Listen, our focus is on continued execution. We recognize we need to get to a position where we are repairing the balance sheet. Fuel obviously presents a challenging headwind, but again, I think there is a significant disconnect between the narrative and the bond market and what our financial results are demonstrating, but also the financial flexibility we have over the foreseeable future to bridge us to that 2028 EPS goal.
Marty St. George: Marty, I just want to say one thing. When we gave that 2028 goal, we were doing that on Q2 2026 revenues. Obviously, the pricing environment has changed pretty dramatically since then. So I think what we are excited about is we have a lot of different paths to get to at least a dollar EPS in 2028. I will remind everybody, 2028 is 14 months away. So this is a bridge, but it is not a very long bridge.
Ursula Hurley: Yeah, just the last thing I would add is when we deliver at least $1 in EPS in 2028, we are producing positive free cash flow. The number one priority is going to be de-levering the business. I think it is important to note that we have a very manageable CapEx profile through the end of the decade, both sub-$1 billion, so all positive free cash flow, what will be going to improve the leverage metrics. I would also highlight that the most important part is driving margin expansion and helping the business de-lever. In Q4, we are expanding margins to the tune of 1 to 2 points, even with fuel up like 85%.
Ursula Hurley: What that tells you is that the underlying initiatives in JetForward are compounding and driving margin expansion, which is going to get us on a path where we are generating significant free cash flow so that we can de-lever and improve the credit metrics.
Brandon Oglenski: Thank you all.
Operator: Your next question comes from the line of Michael Linenberg with Deutsche Bank. Michael, your line is open. Please go ahead.
Michael Linenberg: Oh, yeah. Hey, good morning everyone. Marty, earlier you mentioned that you just weren't seeing any signs of elasticity. I know there was a fare increase, I believe, that actually you led a day, not you personally, but JetBlue led a day or two ago, and it looked like it did not go through. Is that a sign that maybe the consumer is, we're sort of at the limit? We've had, I don't know, somewhere between 15 and 20 fare increases since earlier this year. What's the appropriate read on that?
Marty St. George: Hey, Mike. Thanks for the question. First of all, I will take credit for leading fare increases because we have to get to compensatory pricing. We are still in a situation where prices in 2026 are still lower than the real prices in 2019. We have still not gotten back to 2019 prices on a real basis. Second thing is, don't believe everything you read. I do not consider that fare increase failed.
Michael Linenberg: Okay.
Marty St. George: There was one airline that did not come along on a relatively limited number of days. 93% of our seats have been subject to that fare increase. So yes, 7% of the seats we actually pulled back on because one of our competitors didn't match for whatever reason. But notwithstanding, I do see resilience in pricing right now. Again, if you look at the inputs, let's take fuel out of it. Let's just talk about rents and landing fees. Let's talk about labor. Let's talk about maintenance.
Marty St. George: There are a lot of cost inputs in this business that have gone up by big numbers since 2019, and we still have not caught up to those increases in real pricing. So nobody looks at the environment and says that we've reached an equilibrium as far as pricing. But if you look at where cost is right now, we still have not, as an industry, caught up to the cost input changes.
Michael Linenberg: Okay, great. This is my second question. Ursula, when we look at your aircraft that are delivering, I think you have a few more A220s this year, then I think another 7 next year, 9 in 2028. Should we assume that those are all going to just be paid for out of cash? If that is the case, at what point does your net debt peak? Is that 2028? I know you have talked about hitting free cash flow and deleveraging, but there is always a bit of a lag. I am just trying to go through the timing here. At what point does that net debt position peak before it starts coming down? Thanks for taking my question.
Ursula Hurley: Yeah. So, appreciate the question, Mike. As you mentioned, that is our go-forward delivery schedule. We have the 2.8 in unencumbered aircraft and engines today. That obviously is going to continue to build as we take deliveries. In regards to funding the business for 2027, it is our job to evaluate all markets, all assets, and basically run the analysis to say, "What is the most efficient way to finance the business? Based on where we sit today, I do believe that that is going to continue to be aircraft, but we will do the appropriate analysis at that point in time. What I will say is that I have zero concerns about being able to finance in the market.
Ursula Hurley: The vintage and age of these aircraft are similar to what we financed earlier this year. I have all the confidence that we have a lot of flexibility and a lot of options as we go forward. It is our job to make sure we are evaluating using the entirety of the unencumbered pool, all markets at that point in time. Joanna also mentioned that there could be some other non-debt opportunities for us to bring cash on the balance sheet that could also help bridge us to 2028 when we are delivering positive free cash flow.
Michael Linenberg: Great. Thanks for that. Thanks, everyone.
Operator: Your next question comes from the line of Savi Syth with Raymond James. Savi, your line is open. Please go ahead.
Savi Syth: Hey, good morning. Just maybe on BlueFirst. I was curious, any early learnings? How many aircraft a month can you reconfigure as you get through next year? I am just trying to figure out how we should think about the cadence there.
Marty St. George: Well, first of all, as far as early learnings, I think by far our favorite fact is seeing how many of the seats being sold are being sold to our existing customers. I think there was a lot of speculation that this is a business model that was predicated on stealing customers from our competitors, and it is just not what we are seeing at all. We are seeing our current customers flocking to fill these seats. I think that is actually a very good finding for us, number one. Number two, as far as the pace of installation, we will not be done installing until later in 2028. Frankly, the issue right now is supply chain. We can absolutely go faster. In fact, I was with Colin on Friday and had this exact conversation, we would love to get these seats in faster.
Marty St. George: But unfortunately, as is the situation with so many products in the industry right now, supply chain is a critical path factor. I would gladly take seats faster if we could.
Ursula Hurley: But the majority of the fleet will be complete in 2027.
Marty St. George: By the end of 2027, yeah.
Savi Syth: Got it. Appreciate that. You mentioned Fort Lauderdale, that growth should peak here in Q3, and you annualize into next year. Curious how some of your other focus cities are performing here and where you would like to see growth next year.
Marty St. George: We do not get into too much detail as far as performance by focus city. I would say that I think that we are much more even as far as profitability across cities than we have had historically, and I think we have had a lot of progress as far as right-sizing capacity. We have shrunk pretty significantly in Boston, New York, and Orlando temporarily to fund Fort Lauderdale, but we are expecting to backfill a lot of that capacity as deliveries come in. Overall, I would say that we love where this network is shaking out, and I would go back to the original conversation of the four key initiatives in JetForward, one of which being best East Coast leisure network.
Marty St. George: We did not forecast Fort Lauderdale becoming available for a significantly larger focus city and a connecting operation when we wrote JetForward. But at the core, it is completely consistent with what we originally said we wanted to be, which is the best East Coast leisure network. So we are excited we have that opportunity. I am actually very optimistic in what we are seeing in San Juan right now. I think that we have a lot of opportunity across the system, which to me is a sort of a high-class problem to have. And it is one of the points I made in the script was we reached a peak year-over-year growth in Fort Lauderdale, and now I think it is going to normalize to more typical growth. And I think that is going to give us the opportunity to backfill some of the places where we had to take capacity out.
Savi Syth: Appreciate the color. Thank you.
Operator: Your next question comes from the line of Atul Maheswari with UBS. Atul, your line is open. Please go ahead.
Atul Maheswari: Good morning. Thanks a lot for taking my question. You have $2.2 billion in liquidity, and you mentioned about the 17% to 20% target of trailing 12-month revenues. Your covenants have a much lower requirement. My question is, what is the thought process on keeping liquidity at these high levels? And whether it would make sense to lower the threshold internally so that you can manage through the near-term cash burn posed by the higher jet fuel prices without raising too much more debt.
Ursula Hurley: Yeah, it is a really good question, Atul, and that is kind of what I referenced in my earlier response. We believe given the volatility in oil right now, and the business is still on a path to getting to positive op margin. 17% and 20% has been the target range. I think as we get the business to consistent profitability and churning out free cash flow, you could see us revise that target to be lower, especially if and when the oil environment settles down. I think it is just a matter of time by which we adjust that target. But we got to get the business to a place where we are delivering a dollar EPS in 2028 and generating positive free cash flow.
Atul Maheswari: Okay, that makes sense. As a quick follow-up, you mentioned about the $2.8 billion in unencumbered aircraft and engine base that you have. Is that an end of Q3 number? And if so, what would be the unencumbered asset base after you raise the additional $250 million in Q4?
Ursula Hurley: The $2.8 billion is as of quarter close Q3. Obviously that number, there are some puts and takes that will occur in Q4. We will fund the $250 million aircraft that afford in Q4, but we will also be taking four incremental aircraft deliveries within the quarter. So I expect at year-end the $2.8 billion to be roughly in the same ballpark that it was at the end of Q3.
Joanna Geraghty: And another seven aircraft next year. So we are going to continue to add to that unencumbered asset base.
Atul Maheswari: Great. That is very helpful color. And good luck with the rest of the year.
Joanna Geraghty: Thank you.
Operator: Your next question comes from the line of Dan McKenzie with Seaport Global. Dan, your line is open. Please go ahead.
Dan McKenzie: Oh, hey. Thanks. Good morning, guys. Going back to the commentary in the release about meaningful runway for further growth as the commercial initiatives mature here. Just curious, what percent of the network is less than 12 months mature? Historically, when new routes have matured, can you just remind us what that RASM uplift looks like? I know you guys have pulled down pretty sharply in Newark and obviously the 85% growth at Fort Lauderdale.
Marty St. George: Right now, great question. Right now for Q4 2026, 4% of the system is at less than one year, and only 5% less than two years. So it is basically a mature network right now. We are really, really excited about what we are seeing in Fort Lauderdale as far as the pace of growth of RASM, even with all the capacity increases, which we are really excited about.
Dan McKenzie: Yeah. Okay.
Marty St. George: As far as the, and I think the second issue is, again, we have hit peak growth in Fort Lauderdale, so we actually think that is actually a great launching point for a continued increase of revenue going forward in Fort Lauderdale. Then finally, we have barely scratched the surface as far as what we can do as far as revenue management capabilities, especially on connecting itineraries. I mean, this is something that we have only done manually for the history of JetBlue because we carried so few connections. We made this investment in a revenue management system before we realized that connecting itineraries would be so important. But we knew that we would be in a situation where it was good to have that capability. Then, a year later, Spirit ends up creating opportunity for us in Fort Lauderdale.
Marty St. George: We did prepare ourselves for this, and we are just barely starting to take advantage of it.
Dan McKenzie: Very good. Marty, I noticed the basic first class product that is out there that is competitive with peers, but can you just help us understand what percent of the revenue you would characterize as upsell, and is that revenue pool outpacing system unit revenue trends today?
Marty St. George: I actually do not have that exact number, and I am not going to try to make one up on the spot. Right now, we are very happy with the ability to put the Mint-based product in there. That was something we have been looking at for a while, but we wanted to wait until we had our second lounge open to do that because we do think that the lounge access is a pretty big hook as far as having people want to get the opportunity to pay a little fare because we do not have a lounge access. We just added with a business partner called Plusgrade working on an upgrade product, which we are extremely happy with.
Marty St. George: We may eventually build that product ourselves, but given that IT is always a constraint as far as we want to do more than can actually get done, we are very happy to work with a business partner that can do that for us. It has been very effective so far. We have got a lot of stuff in the pipeline as far as better upgrade performance. Obviously, very important with the BlueFirst product coming in, as far as trying to make sure that we optimize the unit revenue of that cabin. One thing that I think people are not giving much attention to is we are also using the upgrade products to better fill the EvenMore cabin. Overall, we recognize that it is very important to maximize unit revenue or premium seating, and we have got a lot of initiatives going on to make sure we get there.
Dan McKenzie: Great. Thanks so much, you guys.
Operator: Your next question comes from the line of Catherine O'Brien with Goldman Sachs. Catherine, your line is open. Please go ahead.
Catherine O'Brien: Hey, good morning, everyone. Thanks for the time. Marty, can we dig in to what drove the 3Q RASM beat versus that initial July guidance? I know you noted broad-based strength, but any particular part of the network or cabin, a bright spot in particular? Could you share some color on the geographical or cabin-level assumptions underlying your 4Q outlook?
Marty St. George: Okay. Great, Katie. Thanks. First of all, I think the big surprise for us in Q3 was actually the strength of the trough. Historically at JetBlue forever, we've had a pretty big drop-off from August to September when kids go back to school. I think our original expectation was that we'd see a similar drop-off, but the results we saw in September in a pricing environment where we had some pretty significant fare increases due to the spike in fuel in August, which surprised us a lot. We did not have the expectations of the performance in September we did. The one fun fact that I think we all have been very surprised by, our average fare in September was higher than our average fare in July, which has never happened in the history of JetBlue.
Marty St. George: I think the overall strength we're seeing, and I think it's what has resulted also in such a great Q4 guide, is that we're seeing troughs perform very well, which historically we have not seen. I think that's actually a very good sign of the underlying resilience. I will also say, we have pulled a little bit of capacity out of Q4. Even with strong demand at this higher fuel environment, there's definitely marginal flying that's not as accretive as we would like it to be. So we pulled that capacity out. I'd say for 2027, we gave a guide of low to mid-single digits. Now we're not guiding 2027 on this call. That'll be next call, but I think you'd expect that number to be more to the low end than the high end of that guide.
Marty St. George: But again, we'll talk about that 3 months from now. Overall, I think that the way that the pricing environment has reacted, and the customer demand environment has basically not significantly dropped, I think is giving us an incredible amount of optimism. I would say that we've seen a marginally better performance in international than domestic, but it is double-digit basis points. It's not that big. I think part of that is that Fort Lauderdale has been so incredibly strong, and that may be biasing it a little bit because Fort Lauderdale international has been outstanding. But overall, this is very broad-based, the strength we're seeing right now.
Joanna Geraghty: I'll just add a plug for JetForward as well. Yes, broad-based strength across the network, demand remains resilient, industry pricing is constructive, but at the end of the day, we've also been at JetForward for 2 years working on a series of initiatives, as you know, that we believe are now driving a compounding effect with, by the way, BlueFirst really still yet to come. We just went out for sale 2 weeks ago, I think. So whether it's Fort Lauderdale, the new revenue management system, our loyalty program with lounges and the Premier Card. Co-brand signups in South Florida are up 55%. Paisly, we just launched cars with MileagePlus. We've got all of that yet to come. Just really proud that this is not just industry phenomenon. This is JetBlue's strategy working underneath all of this and beginning to deliver tangible benefits with a lot still yet to come.
Marty St. George: I would plug in Q4. We are basically at the top of the industry guidance as far as our unit revenue. The other airline in there is Southwest. Southwest is still lapping the change in bags and seats. We are producing those numbers without having done bags and seats year-over-year. I think that is a real testimony to JetForward.
Joanna Geraghty: Hello?
Operator: Apologies, ladies and gentlemen. We will be pausing the broadcast. There is a brief technical difficulty. Please stand by.
