JetBlue Airways Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 23, 2024

There are 15 speakers on the call.

Operator

Good morning. My name is James. I'd like to welcome everyone to the JetBlue Airways First Quarter 2024 Earnings Conference Call. As a reminder, today's call is being recorded. At this time, all participants are in a listen only mode.

Operator

I would now like to turn the call over to JetBlue's Director of Investor Relations, Koosh Patel. Please go ahead,

Speaker 1

sir. Thanks, James. Good morning, everyone, and thanks for joining us for our Q1 2024 earnings call. This morning, we issued our earnings release and the presentation that we will reference during this call. All of those documents are available on our website at investor.

Speaker 1

Jetblue.com and on the SEC's website at www.sec.gov. In New York to discuss our results are Joanna Garrity, our Chief Executive Marty St. George, our President and Ursula Hurley, our Chief Financial Officer. Also joining us for Q and A is Dave Clark, our former Head of Revenue and Planning and newly appointed Head of Financial Planning and Analysis, Investor Relations and Strategy. During today's call, we will make forward looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Speaker 1

Such forward looking statements include, without limitation, statements regarding our Q2 and full year 2024 financial outlook and our future results of operations and financial position, industry, market trends, expectations with respect to tailwinds and headwinds, our ability to achieve operational and financial targets, our business strategy and plans for future operations and the associated impacts on our business. All such forward looking statements are subject to risks and uncertainties and actual results may differ materially from these expressed or implied in these statements. Please refer to our most recent earnings release as well as our fiscal year 2023 10 ks and other filings for a more detailed discussion of the risks and uncertainties that could cause actual results to differ materially from those contained within our forward looking statements. The statements made during today's call are made only as of the date of the call. And other than as may be required by law, we undertake no obligation to update the information.

Speaker 1

Investors should not place undue reliance on these forward looking statements. Also during the course of our call, we may discuss certain non GAAP financial measures. For an explanation of these non GAAP measures and a reconciliation to the corresponding GAAP measures, please refer to our earnings release, a copy of which is available on our website and atsec.gov. And now, I'd like to turn the call over to Joanna Garrity, JetBlue's CEO.

Speaker 2

Thank you, Kush. Good morning, everyone, and thanks for joining us today. It's been a busy start to the year. With the Spirit transaction now resolved, we are moving quickly to execute on our refocused stand alone plan. Our Q1 beat demonstrates our sense of urgency.

Speaker 2

And while we are adjusting our full year guidance to reflect headwinds in our Latin flying associated with continued elevated capacity in the region, our early progress supports our confidence that we are building the right plan to create long term sustainable value for our owners and all of our stakeholders. As always, the success of our efforts depends on our crew members and they are stemming up for JetBlue every day. I would like to thank each of them 1st and foremost for running a safe operation and ensuring a strong safety culture. I'd also like to thank them for supporting one another and our customers as they strive to deliver an outstanding experience every day. Their actions contributed to our better first quarter performance, which included generating an adjusted pre tax profit for the month of March.

Speaker 2

In my 1st 2 months in this role, building the right senior leadership team has been a top priority. We've been able to appoint several seasoned leaders into key roles, including attracting great outside talent, giving us an ideal mix of expertise and skills at a pivotal time for JetBlue. In addition to Warren's promotion to Chief Operating Officer in January, we welcomed Marty St. George back to JetBlue in February as our new President. It's great to have Marty back here and on the call with us today.

Speaker 2

In addition, last week we announced that Daniel Schurz has joined JetBlue as our new Head of Revenue, Network and Enterprise Planning. Daniel has an impressive track record in the industry and is ready to hit the ground running. Dave Clark, who has demonstrated his capabilities over the past 15 years at JetBlue and is already familiar to many on this call is transitioning to lead Financial Planning and Analysis, Investor Relations and Strategy. Among our new leadership team, it's essential that we have alignment on our path forward. I want to ensure they have sufficient time to pressure test our strategy and frankly begin executing on more of it before we communicate our long term plans to investors.

Speaker 2

We also need to make additional progress with Pratt and Whitney for our team to feel confident in our multi year growth plans. With these things in mind, we are shifting our Investor Day from May 30 to the fall of this year. With that said, we remain biased toward action as reflected by the steps we are already taking including resolving the Spirit transaction, deferring Airbus deliveries, announcing meaningful network changes, implementing new ancillary fee initiatives, implementing early pieces of our multiyear reliability initiative and announcing key members of the senior leadership team. As we work toward Investor Day, we will continue to implement early pieces of the strategy in the weeks months ahead. Now turning to slide 3.

Speaker 2

During the Q1 of 2024, we began expeditiously implementing our strategic priorities. The investments we've made to build resiliency and recoverability into our schedule enabled us to complete more flights than planned despite facing weather events which were more severe and in greater frequency than last year. These investments also benefited us financially setting the foundation to generate more revenue and better control our costs, while positioning us to deliver a better experience for our customers. As a result, I'm pleased to share that our year over year revenue performed at the better end of our initial guidance metrics, while both capacity and unit costs exceeded the better end of their respected updated ranges, all of which was well ahead of our original guidance. As we look ahead, we are continuing to work with urgency to strengthen our competitive position.

Speaker 2

As we discussed last quarter, demand trends in our core geographies and from our core customers have changed considerably since before the pandemic. Many of these changes play to JetBlue's strength. For instance, leisure travel remains an increasing priority for customers and there is no longer the same divide between corporate and leisure travel as more people can take advantage of the ability to work from anywhere. However, that also means most of the industry has shifted a portion of their flying to meet this increasing demand for leisure travel, allocating capacity to many of JetBlue's bread and butter routes. Specifically, we continue to see elevated capacity in the Latin region, which represents 35% of our total ASMs and is one of our most valuable and profitable geographies.

Speaker 2

The elevated capacity in this region is significantly pressuring the overall revenue acceleration we expected to see from the Q1 into the Q2. We've therefore revised our full year guidance and no longer expect to approach breakeven adjusted operating margin for the full year. Marty and Ursula will share more on our outlook for the Q2 and full year. But before we get to the remarks, I want to stress the confidence I have in the near term actions we are taking and our long term plan to return to profitability again. We've made progress and we know we need to continue to do more.

Speaker 2

Since our last earnings call, we've taken significant steps to rebalance our network and we expect to continue implementing additional tranches in the coming weeks months, including trimming capacity in the fall trough to better match supply with demand. Given we are not yet profitable and not growing this year, we have increased the hurdle rate of underperforming markets and as a result have announced the closure of 7 Blue Cities. It is never an easy decision for us to close a station and I want to extend a heartfelt thank you to the crew members in those blue cities for their dedication to JetBlue. In addition to significant network changes, we're making solid progress on the $300,000,000 of revenue initiatives we announced during our Q4 call, which Marty will elaborate on further. Our team is moving swiftly to continue to launch a number of these initiatives over the remainder of this year.

Speaker 2

And we remain on track to achieve the 300,000,000 dollars of cumulative top line benefit in the Q4 with additional ramp expected into 2025 as these initiatives achieve their full revenue potential. As we advance these initiatives and as we evaluate industry wide changes, we are also rigorously assessing the evolving needs and preferences of our core customers, particularly in how we merchandise our product offering and the experience they receive on board. We know there are still gaps in our product offering where our customers' needs may not be fully met and our team is working swiftly to address them. Finally, a key component of our work to return our business to profitability is ensuring we maintain a low cost base. In a year where we are not growing, it is imperative that we right size our fixed cost base to the current operating environment.

Speaker 2

To that end, we actioned several initiatives in the Q1, such as offering a voluntary opt out program, continuing to optimize our real estate footprint and leveraging technology to help us make decisions more efficiently. Across the board, we are acting quickly to take self help measures and advance our refocused strategy to return to profitability again. I am confident the benefits of this plan will help us to more effectively compete in our core geographies and coupled with our low cost base, strong brand and the industry's best crew members will distinguish us from the competition and set JetBlue up for long term success. I'd like to close by extending another thank you to our crew members for their continued commitment to delivering a safe experience for our customers and for each other and one another each day. The safety of our crew members and customers has always been our top priority and we as our number one value will continue to stress the importance of it in everything that we do.

Speaker 2

I will now pass it over to Marty who I'm excited to welcome back to JetBlue. While it is not your first earnings call with us, it has been a while and I know I speak for all of us when I say how happy we are to have you back in the room. Over to you, Marty.

Speaker 3

Thank you,

Speaker 4

Joanna. Let me start by saying how thrilled I am to be back at JetBlue at such a pivotal moment for our business. I see so much opportunity ahead. JetBlue has an exceptional brand, incredibly high value geographies and a strategy that I'm excited to execute on. Most importantly, we have the industry's best crew members.

Speaker 4

It's been great to reconnect with so many of our talented crew members over the past several weeks. And I'd like to echo Joanna in adding my thanks for all that you do for our customers and for each other. Turning to slide 5 for the Q1. Capacity contracted 2.7% exceeding our guidance as a continued focus on operational reliability drove a strong completion factor of 98.7 percent exceeding plan. This reflects the strong execution by the team and the planning we have done to position our operation to respond more effectively to operational disruptions.

Speaker 4

Looking ahead, we expect Q2 capacity to be down 2% to 5% year over year, driven primarily by the continued headwinds we face related to the GTF engine issues. Ursula will provide more detail on that front. And as you will hear, we are actively seeking opportunities to drive near term capacity growth, including extending the life of our A320 fleet. As Joanna mentioned, we remain focused on rebalancing our network to ensure we are allocating aircraft to support both our operational and financial goals. We are making margin accretive network changes, changes targeted at our core customers and geographies, redeploying capacity from underperforming markets and doubling down on proven leisure and VFI markets.

Speaker 4

As part of this work, we have closed a handful of blue cities and we're also scaling back our flying in Los Angeles ending a number of underperforming intra West Coast international markets as we prioritize our focus in LA on our transcon and net routes. We also continue the planned margin accretive unwinding of our LaGuardia flying. Starting this month, we will operate under 30 daily flights, down from 50 at this time last year, with another planned reduction anticipated at the end of October. This reduction is driven over a 15 point improvement to margin at LaGuardia and has benefited the trailing 12 month margin performance of New York City versus where it was at this time last year. Albeit slowly, we continue to see signs that New York is recovering and we are encouraged by the improvement of various economic indicators such as the forecast to return of tourism to 2019 levels beginning next year.

Speaker 4

Moving on to revenues. 1st quarter revenues declined 5.1% year over year at the better end of our outlook, driven by improving close in and strong peak period revenue and aided by the shift of the Easter holiday outbound travel into late March. This shift contributed an estimated 1.5 points of unit revenue growth to the Q1. Within the cabin, our premium offerings are performing exceptionally well, particularly our even more space seating, which produced double digit more revenue year over year on a low single digit decline in capacity. Our award winning mid cabin also continues to perform well with unit revenue growth up year over year in both our TransCon and Transatlantic franchises.

Speaker 4

In our network, we saw improving results in our domestic markets with unit revenues inflecting positive for the quarter. This was supported by double digit year over year growth in contracted corporate travel revenue. We've also seen significant improvements in transatlantic performance with unit revenues up greater than 25% year over year. However, as Joanna mentioned, we continue to be challenged by elevated capacity in our Latin region, which makes up roughly 35% of our total capacity and where we are nearly double the size of our next largest competitor. Industry capacity in our Latin leisure markets has increased over 60% since 2019 and is growing double digits each quarter since the start of the second half 2023, significantly pressuring our yields and fares.

Speaker 4

To put this pressure into context, if you exclude our Latin flying, our system level unit revenue growth would be positive for the Q1 versus actual unit revenue growth, which was down 2.5%. In order to offset this weakness, the other 2 thirds of our network would have to perform 5 year on planned levels. Despite these headwinds, we remain confident in our Latin leisure and VFR strongholds. These are core JetBlue geographies and they remain a top part of our refocused strategy a meaningful component of our profit engine. We are committed to aggressively addressing challenges and winning in these core markets.

Speaker 4

The key tenets of our refresh strategy will help us get there from our reinvigorated focus on reliability to our enhanced loyalty program, improved merchandising efforts and an evolved product. I am confident we are putting the right focus in place to win these markets. Turning to our revenue outlook for the Q2. We expect revenue to decline 6.5% to 10.5% year over year. We continue to cycle against a difficult revenue comparison given the unprecedented demand we experienced throughout the first half of twenty twenty three and as mentioned elevated industry supply in the Latin region.

Speaker 4

2nd quarter is further challenged by the Easter holiday shift. When adjusting for the shift, the midpoint of our implied year over year RASM growth in 2Q is in line to slightly improve versus Q1. Given these factors, we expect unit revenue will remain largely stable throughout the first half as opposed to accelerating at the pace we had originally anticipated in Q2. That said, we do expect stronger year over year RASM acceleration in the second half of the year as our revenue initiatives ramp and we layer in additional initiatives. In the Q1, we delivered $40,000,000 in benefits, including preferred seating revenue, which is already exceeding our expectations.

Speaker 4

And we expect the cumulative $300,000,000 to ramp in the second half. We're also encouraged by the growth and the diversified revenue streams from our loyalty program and JetBlue Travel products. Our loyalty program continues to drive margin accretive revenue as we roll out additional ways for customers to earn points and be rewarded for their loyalty through our enhanced TrueBlue program, which now enables our customers to choose the perks that are most valuable to them. We're also expanding opportunities for our customers to redeem points and we expect to add a number of global redemption partners in the current months. In the Q1, TrueBlue members accounted for a record percentage of overall revenue, reflecting the increased engagement we are seeing from our enhanced program.

Speaker 4

Overall, spending on our cobrand card is up 10% year over year and new cardholder growth remains steady, particularly with our mosaics, the vast majority of whom now carry to Blue Card. As we refocus our core franchises, we're encouraged by continued outsized growth of active members in our proven geographies, especially the Greater Northeast region and Florida. And the loyal customer base will be key to our success as we rebalance the network. Similarly, JetBlue travel products started 2024, continuing momentum from a record setting 2023. Our commission revenues from JetBlue Vacations and Paisley grew by 21% in the 1st quarter, and we see promising trends around forward summer bookings relative to last year.

Speaker 4

I'm particularly encouraged by the fact that not only is awareness of these product offerings increasing, but that repeat customers are our fastest growing segment for both products. Before I turn it over to Orsula, I return to Jeff Flue because I love this brand, our crew members and our customers. Our culture is a true differentiator, one that powers our brand, drives a safe operation and distinguishes us from the competition. Our crew members are at the core, enabling us to deliver the JetBlue experience our customers expect and positioning us for operational and financial success. I'm excited to be back here at this pivotal moment because I see the amazing potential of this company and I also see the collective commitment to evolve in the strategy in order to restore our historical earnings power.

Speaker 4

This team is leaving no stone unturned as we pursue the path back to profitability. I am confident we are building the right plan to effectively compete and generate value for the stakeholders again. With that, over to you Orsula.

Speaker 5

Thank you, Marty. As Joanna and Marty have noted, the swift actions we took in the Q1 allowed us to exceed our Q1 financial commitments, one early indicator of our ability to advance towards our goal of generating positive returns again. And though we weren't profitable in the Q1, our operating margin exceeded our expectations supported by our improving operational reliability, solid peak period demand and continued execution on controllable costs. Starting on Slide 7. We delivered better than expected CASM ex fuel in the first quarter with unit costs increasing by 7.1% beating the better end of our revised March outlook.

Speaker 5

This was partially driven by improved operational performance as our continued focus on driving reliability allowed us to complete more flights than planned, resulting in cost efficiencies. Additionally, we saw a shift in the timing of certain expenses, primarily maintenance related to later in the year. Also benefiting our cost performance is our structural cost program and fleet modernization program. In the 1st 3 months of the year, our structural cost program delivered $30,000,000 in incremental savings, driven by more efficient management of disruption costs and optimizing mid to end of life maintenance spend. With to date savings of $100,000,000 we remain on track to deliver run rate savings in the range of 175 dollars to $200,000,000 by the end of the year.

Speaker 5

And we expect savings to ramp significantly throughout this year driven by productivity improvements. Our fleet modernization program is coming to fruition as we continue to replace our E190 fleet with the margin accretive A220s, which deliver a 20% improvement in ex fuel unit cost economics versus the E-190s. By the end of the month, we'll have reached a milestone on our fleet transition with more A220s in active service than E190s. We'll continue to replace our E190s with A220s on a one for one basis by the end of 2025 when the E190 fleet is set to officially retire. In addition to better economics, we've already realized $70,000,000 to date in maintenance savings and we now expect to realize $100,000,000 in maintenance cost savings through the end of this year, up from the original $75,000,000 goal we previously forecasted.

Speaker 5

Once we are through this transition period, we expect to continue to see a meaningful tailwind to our costs as we return to operating just 2 fleet types. With regard to our aircraft availability in the Q2 and full year, we expect an average of 11 aircraft to be out of service due to the GTF issues throughout the year. We expect we'll peak in the low teens in the late second to early third quarter. As we run long range capacity plans to support our multi year refocused standalone plan, we continue to face uncertainty around the expected number of aircraft on the ground for 20252026. While we expect this number will increase above 2024 levels, the situation remains frustratingly fluid.

Speaker 5

We also continue to work towards reaching an agreement with Pratt and Whitney on 2024 compensation. As far as the initial GTF compensation that we had included in our 2024 plan, we had originally been advised that the accounting treatment for this compensation could be recorded as an offset to operating expenses. However, following analysis of precedent industry transactions of similar nature, we will now record compensation as a reduction to aircraft assets or as amortization of maintenance expense.

Speaker 6

This is expected

Speaker 5

to have an adverse impact on CASM ex fuel as this benefit will now be recognized over a longer period of time. Despite the significantly reduced compensation recognized in 2024 earnings, full year CASM ex fuel growth is expected to be within the range of our initial January guidance, partially driven by incremental cost offsets we have already internally identified. For the Q2, we expect CASM ex fuel to increase between 5.5% and 7.5% year over year, coming down from the Q1 levels as we lap a full year of costs related to our 2023 pilot agreement and as we execute on our controllable costs and fixed cost reductions. For the full year, we continue to expect CASM ex fuel growth of mid to high single digits year over year. To better align our cost base with our operating levels during this challenged growth period, we've scaled back fixed cost spending where we can.

Speaker 5

In January, we offered a voluntary opt out program to targeted work groups across our operation and support centers and the cost savings are on track with our expectations. In addition, we are rightsizing our real estate footprint in several airports with above average airport costs such as LaGuardia and LAX. Combined, these fixed cost savings are expected to drive 0.5 point of unit cost savings for the full year, which is reflected in our full year guidance. Additionally, as Joanna mentioned, we are utilizing technology to further enhance our efficiency and productivity and we expect it will be a main driver of incremental cost savings. Finally, though we no longer plan to approach breakeven profitability this year, I'm confident we have a strong plan in place to overcome the headwinds we face and the continued control of our cost structure will provide the baseline support we need to become profitable again.

Speaker 5

Turning to liquidity and our balance sheet on slide 8. As we continue to work through near term growth challenges stemming from the GTF issues, we are exploring cost effective and capital light ways to grow our fleet. To date, we have committed to purchase or purchased 12 A320 aircraft off lease that were set for return to lessors. Looking ahead, we have further optionality and could elect to extend the life of approximately 30 A320 aircraft in total, which represents approximately 10% of our total fleet today. We also continue to receive new aircraft from our order book with Airbus.

Speaker 5

And in the Q1, we took delivery of 8 aircraft. Through the remainder of the year, we expect to take delivery of 19 aircraft for a total of 27 deliveries in 2024, 20 of which are A220s. Prioritizing A220 deliveries in the near term helps to better match the needs of our customers with our cost goals, while continuing to evolve our product offering as the A220 offers 90% more premium seating than our E190 aircraft. In addition, all of our 2024 2025 A321neo deliveries will be configured with our award winning Mint product, further increasing our mix of premium ASM. Ultimately, our fleet is a key enabler to delivering a more premium experience, which is a core piece of our strategic evolution to better serve the full spectrum of leisure customers.

Speaker 5

We ended the quarter with $1,700,000,000 in liquidity, excluding our undrawn $600,000,000 revolving credit facility. As we reach the peak of our fleet modernization efforts, we have been actively financing our aircraft deliveries and we have secured nearly $1,600,000,000 of committed financing year to date. Finally, we continue to opportunistically look at hedging as a means to manage risk, particularly in a market that continues to increase volatility as a result of geopolitical concerns in the Middle East. As of today, we have hedged approximately 27% of our expected fuel consumption for the Q2 and approximately 16% for the full year. In closing, I want to thank our amazing crew members for all their hard work and dedication day in and day out.

Speaker 5

We are 100% focused on executing on our strategic initiatives to meet the challenges of our industry. We have already taken action across the board as evidenced by the deferral of $2,500,000,000 of planned CapEx, significant network changes, the launch of our revenue initiatives and our continued laser focus on costs all with our eyes trained on our ultimate goal of profitability. I am confident we are building a strong plan to fully leverage our unique position in the market. And as you can see from our results, we are already executing on this plan and moving with urgency to set the airline on a path back to delivering long term value for our owners and all of our stakeholders. With that, we will now take your questions.

Speaker 1

Thanks everyone. We're now ready for the question and answer session. James, please go ahead with the instructions.

Operator

Thank And we'll take our first question today from Dan McKenzie with Seaport Global.

Speaker 3

Hey, thanks. Good morning, guys. Guess, Joanna, following up on the steps that you outlined to restore earnings and feel free to emphasize those steps again. But what normalized margins are you targeting at this point? And what does that trajectory look like?

Speaker 3

And I guess what I'm getting at is, should investors view the changes as a gradual ramp up to normalized earnings, say, 2 years from now, maybe 3? Or whatever the steps you've outlined, is there some low hanging fruit that could really move the dial near term?

Speaker 2

Hi, Deane. Thanks for the question. I'm not going to put a timeline around when we start to see meaningful margin accretion. I think our focus right now is about returning to profitability. And that is where all of our priorities are focused.

Speaker 2

We've talked about our unique position in the industry. Obviously, coming out of COVID, leisure is a strong point for JetBlue. We've got great geographies, some of which obviously are a bit impaired at this point in time, but we do think they will become a tailwind. We've got a good product. We know there's gaps.

Speaker 2

We're working to fill those, our brand, our cost structure. Our focus right now is executing what we can control. And I think you're seeing that in many of the steps that we have undertaken in the last several weeks, including the network redeployment, some of the changes to ancillary fees and revenue, doing some nice work around driving that $300,000,000 of revenue initiatives, our reliability initiatives and early wins there, stronger completion factor in Q1 and improved A14 23. Obviously, loyalty and JTP are doing well and then our cost initiative. I'll be upfront, the Pratt situation is a challenge.

Speaker 2

We'd like more certainty there, and we're working toward having that. But the team is focused on executing and really focused on returning to profitability. The challenge in the Latin region, that will cycle through. We hoped that we would see acceleration into Q2. We're not seeing that.

Speaker 2

But again, we view that as transitory in nature. In terms of what could provide real acceleration, honestly, the network changes as we look at those and the $300,000,000 of revenue initiatives, many of those network changes haven't actually layered in yet. So they're announced, but you're not seeing the benefit of those. So, again, focused on making sure that we're executing quickly, and with haste to return to profitability.

Speaker 3

Yes, very good. I guess on that point, I guess the second question is for Marty. On the network announcement, is there an adjustment period as the new flying ramps up or is it typically a move up in RASM as you lop off the unprofitable flying? And my thought is maybe it's the latter just given your expectation for RASM acceleration in the back half of the year. But if you could just clarify a little bit more on sort of where you if there's more to do and how that would impact how you're thinking about revenues back half of this year into 2025?

Speaker 3

Thanks for taking the question.

Speaker 4

Sure. Hi, Dan. Thanks for the question. Well, first, I'll say that our expectations as far as the accretion due to the network changes are part of the $300,000,000 we've already communicated as our expectation for 2024. So that's actually built in there.

Speaker 4

And I think to make a point that reiterate a point that Joanna made, the first city closure actually isn't until next week. So we haven't really seen a lot of benefits going forward. I would say as far as redeploying of aircraft, we're coming into the Q3. I think we had identified some very desirable places to redeploy and that again it's all reflected in numbers that we saw. I have to say that some of the network changes were directly related to aircraft shortfalls due to our situation with Pratt.

Speaker 4

So, it's one of the reasons why we thought the best way to communicate this would be just to explain the $300,000,000 number. And again, that's the number we'll be getting by the end of the year. So that's sort of how

Speaker 7

we should view the accretion of

Speaker 4

the network changes. And I will also say that there are more network changes to come. And back to the point that Joanna made about the postponing of Investor Day, I think these things were all tied together as far as making sure that we have rolled out all the changes that we want to do with respect to the opportunities. That being the case, the next tranche is in the $300,000,000 But I think it's fair to say we are not done as far as continue to fine tune the network.

Speaker 3

Thanks so much, you guys.

Operator

Our next question will come from Jamie Baker with JPMorgan.

Speaker 8

Yes. Good morning, everybody. So probably for Marty, I know airlines don't like to offer route P and L commentary, but I figured I'd try to ask the question in a way you might answer. So without speaking to individual stations, can you give us some margin commentary on the aggregate of Baltimore, Kansas City, the short haul LA and Latin markets that you are exiting and perhaps a margin basis or maybe just sheer dollars of loss. Just trying to any color as to what that reduction in loss production sums to?

Speaker 4

Well, listen, I appreciate your efforts in trying to get me to give you that number. I mean, we generally really don't talk about that level of detail. I will just say that the aggregate of those changes and the redeployment of airplanes is all based in the $300,000,000 So that's really sort of how we look at that and how we communicate it. Okay. I feel like given more time and different competitive situations, I think it may have been different as far as some of the stuff that we chose to exit.

Speaker 4

But between the stuff you mentioned, between the LA short haul and the imperative back to Joanna's point, the imperative of improving profitability now, it was really it was time for us to make moves. And we're very excited about the changes. It's always unfortunate given the situation with our crew members, but we have to prioritize returns right now.

Speaker 8

Yes. Okay. And then second, probably for Ursula on liquidity, what's the minimum cash balance that you internally target to run the airline? And also if we set aside brand and loyalty, what's the size of the remaining unencumbered asset pool in your estimate?

Speaker 5

Thanks for the question, Jamie. And I think you're celebrating a birthday this week, aren't you?

Speaker 8

Robin's legacy lives on. Thank you.

Speaker 5

Of course.

Speaker 7

That's David actually.

Speaker 5

So we are targeting somewhere between $1,500,000,000 $1,600,000,000 of cash at any point in time. As a reminder, we also have the $600,000,000 revolving credit facility on top of that. And to your question on the unencumbered asset base, so we've publicly commented that we have about $10,000,000,000 and just over half of that is associated with the loyalty and the brand. So the remaining of that unencumbered asset pool is a combination of slots, gates and routes, aircraft and engines.

Speaker 4

Okay, perfect. Thank you very much.

Operator

Our next question will come from Mike Linenberg with Deutsche Bank.

Speaker 9

Good morning, everyone. Just a downward revision in top line for the year, is that entirely Latin America? Or is there a shift in maybe GTF groundings and or delayed Airbus narrow bodies? I mean, are there other components to that?

Speaker 7

Hi, Mike. This is Dave Clark. I'm happy to take that. Yes, it is primarily sort of unit revenue related and as exemplified with the Latin capacity and pressure we're seeing that's causing it to not accelerate as quickly as we expected. There is a little bit of capacity.

Speaker 7

We're trimming the fall trough as we look at the latest demand and supply trends and try to better match supply with demand. You don't see that in the capacity guidance because completion factor is running ahead, but it's mostly sort of unit revenue and there's a bit of lower trough capacity in the back half of the year.

Speaker 2

And Mike, maybe I'll just add. We did see capacity growth coming down slightly in Q2. So we had Latin market to JetBlue and its importance, we think this is the most prudent move. As we know, capacity comes and goes. This region tends to be quite resilient and performs well for us.

Speaker 2

We will continue to double down in this area because it is so core to our geographies. But it is frustrating that we aren't seeing that acceleration into Q2 that we thought we would see with capacity growth slightly moderating from Q1 to Q2.

Speaker 9

Okay, great. And just a second question, I think I heard you correctly, Orsula, you said that all of the airplanes, maybe or at least the A321neo is coming in 2024 and 2025, which I guess are all the airplanes, I could be wrong, except for well the A220s, are coming with the Mint configuration. Is that the large Mint configuration or small mint configuration? And I guess also what I'm getting to is, should we anticipate additional transatlantic cities over the next year or 2 above and beyond what you've already announced? Thanks for taking my question.

Speaker 5

Yes. Thanks, Mike. So as a reminder, we have 27 deliveries this year in 2024, 7 of them are A321neos. So they will be in the 16 seat, mint configuration. And then in 2025, we have 25 deliveries and 5 of those are A321neos, which will be in mint.

Speaker 2

And then maybe I'll pick up on the Transatlantic question. Transatlantic has performed very well for us. We know the summer will be strong, as we've mentioned before. However, as we look at growth there, we are currently serving what we believe are sort of the top underserved markets for JetBlue out of Boston and New York. So we'll look to continue doing this further seasonalizing them as appropriate.

Speaker 2

If you look at Edinburgh and Dublin, both seasonal markets doing well for us so far, but, great contributors right now. On the Mint question, I'll also emphasize premium is doing exceptionally well. 25% of our seats are premium, a combination of Mint and even more space. And so between the A220 and the 321s that we're receiving, we will see an increase in our premium mix, which is great.

Speaker 9

Very good. Thank you.

Operator

Our next question will come from Duane Pfennigwerth with Evercore ISI.

Speaker 10

Hey, thank you. I wonder if we could drill a little bit deeper on the Latin trends. Is this primarily U. S. To Caribbean?

Speaker 10

I think of JetBlue historically is more of a Caribbean network. Your 2 largest markets by a very wide margin are Puerto Rico and the Dominican Republic. Can you speak to trends in those two markets specifically? And then if you would, is there any differentiation in trend between Caribbean originating from the Northeast and Caribbean originating from South Florida?

Speaker 7

Thanks, Duane. This is Dave. I'll take that. I think the easiest way to think about it is the breakdown between sort of Caribbean beach destinations and Caribbean VFR destinations. The VFR is holding up relatively well.

Speaker 7

Industry capacity there has been relatively less. So that is still under some pressure, but not as much as the beach destinations, where we see increased capacity, really high increased capacity, which is driving even higher pressure on the yields. Puerto Rico and Dominican Republic, both extremely important markets to us. We are 100% committed to winning, competing and maintaining our leadership in these markets. So we feel very good about them.

Speaker 7

We have a deep history there, a large operation, and are working to roll out some enhancements to be performing even better in each. So I'm really committed to these markets. They're under a bit of pressure with competitive capacity that ebbs and flows, but we feel transitory in nature in Latin will continue to be a very important and profitable region for us.

Speaker 10

I guess of those 2, which one is more VFR and which one is more beach?

Speaker 7

The Dominican Republic in general is a bit more VFR, especially a very large operations in Santo Domingo and Santiago, which are almost entirely VFR.

Speaker 10

Thanks. And then just for my follow-up on reliability, I wonder if you can survey this in any way. But as your reliability has improved, do you think there may be a gap between how customers perceive your reliability and where it stands, the improvement you've made? How long of a hangover may exist from past operational perceptions? Thanks for taking the questions.

Speaker 2

Yes. Thanks, Wayne. So we are in the early stages of our operational reliability initiative. So we're seeing some nice progress, but it's a multiyear initiative and we've got some work to do. So I definitely think there'll be a lag in perceptions.

Speaker 2

We obviously are also focused on this summer. ATC is going to be a challenge this summer. So despite many of the efforts that we're making, we're still going to have bad weather days, and we'll probably be fairly acute in New York. So there's definitely some work to do on the customer perception piece, but we got to start somewhere and I'm pleased with the progress that we've made in Q1 and it'll be some, I think, incremental quarter over quarter until we're in a much better place over the next couple of years.

Speaker 10

Okay. Thank you.

Operator

Our next question will come from Savi Syth with Raymond James.

Speaker 11

Hey, good morning. I just kind of curious on the unit revenue guidance seems to be calling for going from like down the single digits to up mid single digits. And you kind of called out some of the components that drive that. But I was wondering just generally how much of that is driven by maybe easier comps in the second half last year versus this year versus kind of the network changes you've talked about and just maybe the 3rd bucket, how much of that might be coming from just industry capacity moderating in Latin?

Speaker 7

Yes. Thanks, Savi. This is Dave. I'll take that. You hit the big three components right there.

Speaker 7

There's a few things that help us as we go from the first half to the second half in terms of the continued progress of our sequential unit revenue. The $300,000,000 of revenue initiatives ramping up is clearly the first one. As mentioned, we secured $40,000,000 in the Q1. That will continue to ramp over the next 3 to get us to a total of $300,000,000 across all of them. So that's clearly a significant head significant tailwind, excuse me.

Speaker 7

And then there is a comp certainly easing coming up. The first half of twenty twenty three had a lot of pent up COVID demand, especially in our sort of spring break, Florida and Latin geographies that we're still cycling against in this quarter, but that eases as we go through the quarter. So I think those are the 2 biggest ones. Capacity, right now it looks to moderate. We'll sort of see if schedules from up and we go through the year and that could be sort of the 3rd benefit as well.

Speaker 6

Got it. And then if

Speaker 11

I might on for Orsula, just on the financing for this year, could you talk about what you're seeing and just as all of that kind of comes together, what you're kind of expecting in terms of net interest expense?

Speaker 5

Yes. Thanks, Savi. So we had previously communicated we were targeting to raise 1 $600,000,000 And so I mentioned in my prepared remarks that we have committed financing up to $1,300,000,000 So that's a combination of finance leases and just some bilateral bank loans. Obviously, with the adjusted to revenue that we provided today will most likely need to raise some incremental capital beyond the $1,600,000 that we originally targeted. So we will clearly be out in the market later this year.

Speaker 5

As a reminder, we've got a healthy mix of unencumbered assets. So we can optimize across markets to focus on quite frankly the cost of the debt as well as building in some prepayment flexibility because those are priorities of ours. In terms of interest expense on a full year basis, in my prepared remarks in January, I provided guidance $320,000,000 to $330,000,000 We are trending even despite having to raise incremental debt. We are trending slightly below that, just given we've been more thoughtful about the timing that we're bringing in cash, but also, we've been seeing some relief in terms of rate as well. So, hopefully that gives you a little bit of color.

Speaker 11

Very helpful. Thank you.

Operator

Our next question will come from Helane Becker with C. D. Cowen.

Speaker 6

Thanks very much, operator. Hi, everybody. Just Ursula, one point of clarification. In your slide, I think on my page, it's Slide 9, but it might be Slide 8. You talk about not having any significant debt due before 2026.

Speaker 6

So and maybe just to answer this in Savi's question, I think you also have a $750,000,000 convert that has to be addressed. Are you thinking of refinancing your debt that's coming due? Like how should we think about, I guess, maybe replacing debt versus paying down debt?

Speaker 5

Yes. Thanks for the question, Helane. So in regards to the comment in the presentation, a significant debt maturity due in 2026 that actually is the convertible debt deal. So that's the next significant maturity that we'll face. We do intend to refinance that.

Speaker 5

It's quite early at this point, but the team is exploring opportunities to refinance that. Again, we've got a significant amount of unencumbered collateral and we can target specific markets just through the lens of raising the most cost effective money. That is the convertible debt is the most friendly in terms of rate that we have in the capital structure. So in terms of financing, we'll do that as close to maturity as possible. We got to get the business back to profitability so that we're actually generating free cash flow so that we can then pivot to actually start paying down debt.

Speaker 5

That is the goal that we're focused on.

Speaker 6

Okay. That's very helpful. Thanks, Ursula. And then on the $562,000,000 of special items in the quarter, can you say like what percent was related to Spirit versus opt out versus the E190 transition? And are all the spirit costs now behind you?

Speaker 5

So put very simply, all of the spirit costs are behind us. And of the $60,000,000 $530 ish million were associated with Spirit.

Speaker 6

Thanks. Thanks very much team. Thanks, Ursula.

Operator

Our next question will come from Scott Group with Wolfe Research.

Speaker 12

Hey, thanks. Good morning. So I understand not breakeven for the year. I'm just wondering, do you see a path back to breakeven in the second half? And then I just want to clarify that the second quarter sort of RASM.

Speaker 12

So I guess given Latin, it seems like domestic RASM flats up slightly year over year. Is that right? And I guess why not better just given domestic capacity down over 10%?

Speaker 5

Yes. So I'll take the first part of the question in terms of operating margin. Make no mistake, our number one priority is getting this business back to consistent profitability. We were profitable in the month of March and we're focused on driving sustainable long term profitability. We were in an environment where we were constrained over the last few years given Spirit.

Speaker 5

And so I feel confident that we're showing action between the network changes, the revenue initiatives, controllable costs, as well as reducing our fixed costs. I do believe that these actions are going to continue to ramp up and put us on a path to drive accretive value. In terms of the second half of the year, I mean, it's a little early to tell. I mean, it's very dependent on the strength of the peak period demand during the summer and obviously over the holidays in November December and fuel. I mean, we can't ignore that the volatility of fuel over the last few weeks has been extremely volatile.

Speaker 5

So it's challenging to tell, whether we're breakeven in 2H. Obviously, that's the ultimate goal.

Speaker 7

And then Scott, this is Dave. With regards to the Q2 RASM question, so yes, Latin is the entire headwind, right? It's down mid teens. As we said in the presentation, it's about 35% of our capacity. So that's a big piece.

Speaker 7

If you look at the rest of our network, excluding FLAT, and it continues to be RASM positive, as it was in the Q1. And then in terms of why not better, regardless given the capacity being down, keep in mind, we're still comping against very significant pent up demand last year in the first half of the year as especially spring break destinations had pent up demand that had been sort of built up during COVID. And then secondly, competitive capacity does tick up a bit for us in the Q2. It's 1 point higher than it was in the first. So there is a bit of pressure there as well.

Speaker 12

Okay. That's helpful. And then just separately, on the cash balance, can you just let us know where the ATL stood at the end of the quarter? And then on the financing side, are there any covenants we need to be aware of just in terms of limits on how much more debt you can raise?

Speaker 5

Yes. Thanks for the question, Scott. We'll take the ATL question off line. I'll have, Khush circle up with you. There hasn't been a material change.

Speaker 5

And then in regards to your covenants question, there's nothing material. I mean in a few of our agreements we have a min liquidity target, which we are more than well above. So there's nothing else material beyond that.

Speaker 12

Okay. Thank you, guys. Appreciate it.

Operator

Our next question will come from Chris Stathoulopoulos with Susquehanna International Group.

Speaker 12

Good morning. Thanks for taking

Speaker 13

my question. So, Joanna or Dave, I understand the revised revenue guide primarily due to LatAm and full trough line. But if you could put a finer detail as we think about perhaps the 0 to 60 day booking window, but then also the second half when we look at the various segments. So maybe if you could put a finer detail domestic leisure business, short haul international, long haul, peak, off peak? And then tying it all together, just kind of what gives you the confidence here that other parts of the network, I know you have the ancillary initiatives in place, but that can offset what looks like this persistent LatAm weakness?

Speaker 13

Thank you.

Speaker 2

Yes, maybe I'll take the kind of second flip it to Dave for a deep dive on the network by geography. So we're confident that the Latin headwinds are transitory in nature. While it's still up, it is moderating and it continues to moderate in Latin through the rest of the year. And the reality is this is a very strong market for JetBlue from a margin perspective and it will continue to be. These headwinds are transitory and we're going to continue to double down in this area because this is part of our core geography.

Speaker 2

We're pleased with the progress of domestic that has generated positive unit revenue into Q1 and then into Q2. We expect to see about the same. Transatlantic, RASM is up 20% against significant capacity adds in that region. So again, very happy there. So as we think about kind of looking at the full year, this Latin headwind given the presence of JetBlue in those markets, 35% is really the big challenge that we're currently facing.

Speaker 2

But we've been there before. It will cycle out and JetBlue will win in these geographies. Dave, if you'd like to maybe grab a deeper dive some of the other areas.

Speaker 7

Yes. Thanks, Kristen. I think you noted there's a lot of different moving pieces, as sort of we come out of this COVID period. To address a couple of them, peaks remain stronger than off peaks. That's been consistent for about a year or so now.

Speaker 7

We were taking those learnings and continuing to plan our trough periods a bit differently than we had before in order to try to drive the best financial performance during that. We've already been doing that for the fall trough. As mentioned, we're going to pull a bit more capacity at the fall trough as well. So working hard with those learnings. The comp gets easier as we go through the year, as we sort of get away from cycling against this pent up COVID demand that we've seen in the first half.

Speaker 7

So that's another too. And then lastly, I mean, the booking window, we still have customers booking relatively close in. That's where the majority of our revenue comes. It can give us more challenges looking further ahead, which is why we sort of go 1 quarter at a time generally with our guidance. The booking curve has moved out a little bit, I'd say, over the past year as sort of COVID concerns have dissipated and as more and more customers are buying, our Blue fare, which is our main cabin fare and has no change fees, so there's less risk to book further out.

Speaker 7

But within all those things, we feel really good about the moves we're making, about our Latin geography over the long term as it cycles through this temporary increased competitive capacity and feel that all parts of our network with the moves we're making are going to be contributing meaningfully in the future.

Speaker 13

Okay. Thank you. And my follow-up, so on Slide 7 here, where you referenced the potential for exploring additional cost savings opportunities. Could you walk us through sort of what areas you're thinking about there, whether on maintenance or there's perhaps additional opportunities within these voluntary op out? And within that, if you could kind of clarify the work groups that those have been applied to.

Speaker 13

But also, does that opportunity also move with depending on where these fall trough capacity revisions are made? Thank you.

Speaker 5

Yes. So we have committed given the accounting change due to the Pratt and Whitney, GTF compensation, we have, your point committed to offset a good portion of that. And so the team has identified opportunities to better leverage technology to drive better productivity in our frontline workforce. Also being more strategic and thoughtful about maintenance timing as well as what level of investments take place when, obviously not at the expense of safety. And so these are areas that the team is doubling down on to help overcome the Pratt offset.

Speaker 5

In terms of the opt out, that has trended where we thought it would. The areas that were covered within the opt out are support centers, so think corporate functions as well as some of the frontline work groups. And so, we also so I do think we're pleased with the results. The other area we've been diving into is real estate footprints and downsizing in high cost cities. And then the 3rd focus continues and always continues in terms of strategic sourcing and just working to be more thoughtful and strategic about the contracts that we enter into, whether it be pricing, service expectations, as well as variability to move with the business.

Speaker 13

Okay. Thank you.

Operator

Our next question will come from Connor Cunningham with Melius Research.

Speaker 14

Hi, everyone. Thank you. As you've made all these network changes, I was wondering how you're gauging your change in relevancy with your core customers. You didn't cite any loyalty numbers or credit card sign ups. I'm just curious on why the lack of comments there.

Speaker 14

Is there anything to dive deeper into that? Thank you.

Speaker 2

Yes, sure. So I think we mentioned in Marty's prepared remarks some loyalty commentary. But I think importantly, the network changes are focused around retrenching into our core strengths, which should drive, improvement in relevance for our customers, who tend to be over indexing in those areas. So think New York, Boston, South Florida. We're really pleased with loyalty and we've had strong growth of our TrueBlue base below Mosaic in Q1 versus Q1 2023.

Speaker 2

Our Mosaic continue to grow. We have a much higher attach rate this quarter compared to year over year. We've seen healthy growth in customer spend, healthy remuneration from Barclays. So we're very pleased with their trajectory. The majority of our Mosaic now hold a JetBlue co brand credit card.

Speaker 2

So I think that's a great indicator of the value that they place, in the loyalty program and the value that the Barclays co brand card drives. The other piece I'll mention is we've introduced a number of new perks this quarter. We will continue to introduce new perks and we think we've got more opportunity with diversification of the card portfolio products. So, overall, I think a lot of great progress there, but we're focused on being highly relevant in our key focus cities. And over the last several years, some of that relevance came at the expense of those focus cities because we paused things for Spirit or because the NEA was in place that we had to draw down from certain areas.

Speaker 2

I'm actually excited by this retrenching because I think it will actually drive even more relevance for our customers in those locations. Marty, you have something to add?

Speaker 4

Yes, Connor. I think if you actually were to look at the schedule patterns that we've had, most specifically in Boston, to a lesser extent in Fort Lauderdale, and you look over the last 5 years, we've actually done a lot of compromising on the schedules to take advantage of things like the NEA. And frankly, going from 20 something flights to 50 something flights in LaGuardia, those planes came from somewhere and a lot of that came from schedule quality. So I would actually say the exact opposite, which is this is actually going to supercharge our schedule quality in some markets that we've actually neglected over the years because we were trying to do a lot of things at the same time. And I'm actually very excited about what this is giving us the ability to do as far as reclaiming some of

Speaker 7

the strength that we've had historically.

Speaker 14

That's helpful. And then I've heard a lot of talk about Latin America headwinds being somewhat transitory. And I don't I'm trying to understand why you think that. Do you expect the market to shrink or do you believe it just takes a little bit of time for it to mature a little bit from here? Just trying to understand the transitory comment there.

Speaker 14

Thank you.

Speaker 4

So I'll make two comments. First of all, I think if you look at total ASMs to Latin America since short Latin, Caribbean, since 2019, they're up 50% or 60% like 60%. Now to be clear, there has been a permanent shift in the business leisure mix. And a lot of those ASMs have actually been absorbed by the marketplace. That being the case, I think if you look at go back 6 or 9 months when the industry was all talking about Florida and how much capacity is thrown into Orlando, capacity tends to moderate when RASM is pressured.

Speaker 4

And frankly, this is a period where RASM is pressured. And I think if you look at the way capacity ebbs and flows, it does tend to return to the mean and mostly because there's opportunity cost for every ASM that we fly and every ASM our competitors fly. So, frankly, I think that we're already seeing a bit of that moderation already and we expect to see it continue. Okay. Thank you.

Operator

Our final question will come from Stephen Trent with Citi.

Speaker 13

Many thanks to everybody and appreciate you squeezing me in. Just one very quick follow-up to Helane's question earlier. When we think about your cash level, do you sort of have a minimum cash balance in mind that you think about maintaining as you're looking at your aircraft needs and the 2026 convert? We just love your color on that.

Speaker 1

Thank you.

Speaker 5

Thanks, Stephen. Yes, we target about $1,500,000,000 to 1 point $6,000,000,000 in cash on hand at any point in time. We actually ended the quarter slightly on the higher end of that. As a reminder, we have a $600,000,000 revolving credit facility. So between cash on hand and the revolver, we think that that's a healthy balance.

Speaker 5

And also as a reminder, we've got a healthy unencumbered asset base as well that we can utilize at any point to raise funding when necessary.

Speaker 13

Okay. I appreciate that. Thank you.

Operator

That will conclude today's question and answer session. I will now turn the conference over to Mr. Patel for any additional closing remarks.

Speaker 1

And that concludes our Q1 2024 call. Thanks for joining us and have a great day.

Operator

And again, that will conclude today's conference. Thank you for your participation.

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Earnings Conference Call
JetBlue Airways Q1 2024
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