Thursday, October 25, 2018

JetBlue posts $50 million 3Q profit as fares, ancillary revenues rise

New York-based LCC JetBlue Airways, reacting to a 37% year-over-year (YOY) increase in fuel prices, doubled down on its plan to “improve our earnings, particularly in the areas we can control,” CEO Robin Hayes said in a third-quarter earnings call Oct. 23.

“We are taking actions to recapture higher fuel costs through price, both with fare increases over recent months and through higher ancillary revenue initiatives,” Hayes said. “We are on track to hit our 2018 CASM ex-fuel guidance, despite pulling capacity in both the third and fourth quarters to adjust to higher fuel prices.”

JetBlue EVP-commercial & panning Marty St. George said the airline’s flown capacity for the third quarter grew by 8.7% and fourth quarter capacity growth is expected to be between 7.5% and 9.5%. “Given the 2.9 points of lost capacity from hurricanes in the fourth quarter of 2017, our schedule-to-schedule capacity growth is approximately 6% for the fourth quarter of 2018,” St. George said. “[It] includes a previously announced 2 point ASM growth reduction to mitigate the impact of higher oil, [which] follows the 0.5 point reduction related to the third quarter.”

The airline posted a $50 million net profit for the third quarter, down 72.1% from a $181 million net profit in the 3Q 2017. While total revenues increased 10.5% to $2 billion, JetBlue’s operating expenses rose 28.1%, to $1.9 billion, with fuel and related taxes rising 48.4% YOY, from $347 million to $515 million. The carrier paid $2.32 per gallon, a 36.6% increase over the 3Q 2017 cost. The airline will hedge about 7.7% of its fuel for the 2018 fourth quarter and first quarter of 2019—32 million gallons total—and expects its 4Q per-gallon price to be between $2.25-$2.45.

JetBlue reported $83 million in operating income for the quarter, down 73.6 % YOY. Its operating margin was 4.1%, a 13.2-point drop from a 17.3% operating margin in the year-ago quarter.

Passenger traffic increased 9.7% YOY to 13.4 billion RPMs, as capacity grew 8.7% to 15.6 billion ASMs, producing an 85.9% load factor for the quarter, up 0.8 point YOY. The carrier’s 3Q RASM was 12.91 cents, up 1.7%, while CASM-ex was 8.27 cents, up 3.2% YOY. Yield increased 1% YOY to 14.53 cents.

In the fourth quarter, JetBlue’s Airbus A320s will fly 53% of available ASMs, with its A321 Mint-configured aircraft next at 20%, followed by its “all-core” A321s at 16%, and its Embraer E190s at 11%. Three A321ceos are expected for delivery by year-end; at which point JetBlue’s fleet will comprise 253 aircraft: 130 A320s, 35 Mint-configured A321s, 28 high-density A321s, and 60 E190s.

A significant step in JetBlue’s strategy to increase margins came Oct. 9, when the airline announced network reallocations set for early 2019 that will fortify networks in its three primary focus cities, Boston, New York-JFK and Fort Lauderdale.

“We’re relocating underperforming routes … and expect revenue benefits of $100 million to $120 million by 2020,” St. George said. “We will be closing three cities, Washington Dulles, St. Croix and Daytona Beach. We plan to convert a fourth city, Portland, Maine, to seasonal service. And we are reducing frequencies to Mexico City from both Fort Lauderdale and Orlando. We do not take these changes lightly, as we know these relocations impact a number of our crew members.”

“With the uptick in fuel in the second half of the year, I think JetBlue has been very proactive on capacity reductions,” Hayes said, when an asked about expectations for margin expansion in 2019. “We’ve been very proactive on fare increases, we’ve been very proactive on ancillary revenue changes … wherever we can [to] mitigate the cost of higher fuel.”

Hayes emphasized the company has the network building blocks and structural cost programs in place to reach its $2.50-$3.00 EPS goals by 2020. “Many of those start to kick in, in early 2019,” Hayes said. “We are very confident that we will see absolute margin expansion in 2019, even if fuel was to rise from here.” 

(Mark Nensel - ATWOnline News)

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