JetBlue has posted some great results for the second quarter of 2019, announcing operating profits of $250m compared to a loss of $152m in the same period last year. However, their growth is being slowed by lagging deliveries of their Airbus orders. In 2019, they expect to receive just six of the 13 they had on order. With Boston becoming a battleground for biggest carrier status, JetBlue needs Airbus to ramp up deliveries if they’re to stay ahead of Delta in the coming years.
A promising second quarter
In JetBlue’s earnings call yesterday, the airline reported a number of key wins over the past quarter. Pretax income was up 52%, with an adjusted pre-tax margin of 11.3%, up 3.2 percentage points from 2018. Revenue per available seat mile was up 3.1%, and operating expenses per seat mile increased by just 1.8%, at the low end of their previous guidance window.
Passenger revenue increased 9.3% to $2.03bn, partly driven by the Easter break falling in this quarter. Although its load factor dropped slightly to 86%, a drop of 0.2 percentage points, fares jumped on average by 8.3%. Joanna Geraghty, JetBlue’s President and Chief Operating Officer, commented on the quarter saying,
“During the second quarter our capacity grew 5.9 percent, slightly over the mid-point of our guidance range of 4.5 to 6.5 percent. This was due to a solid completion factor in the quarter, despite runway construction in Fort Lauderdale and JFK, and smaller projects elsewhere in our network … We continue to adapt to an always changing industry environment.”
Looking forward, the airline expects capacity to increase again in the third quarter, of between 3% and 5%, and for the full year, JetBlue’s capacity increase is estimated to be as high as 6.5%.
Slowed down by Airbus
Among all the good news in the earnings call, there was also some concern that ongoing delays to deliveries of their Airbus A321neos has meant a reduced growth outlook for next year. Robin Hayes, JetBlue’s Chief Executive Officer, commented on the delays in the earnings call, saying,
“Airbus has recently communicated additional A321neo delays that will reduce our 2020 growth plans and naturally add pressure to our CASM ex-fuel. Despite these delays, we remain confident that we can execute both our unit cost commitments and achieve our $2.50 to $3.00 earnings per share target for 2020.”
Airbus has been hampered by production delays on the A320neo family line. JetBlue is not the first airline to complain about delivery delays, with IAG stating that this was one of the reasons they felt pushed to book a massive order for the 737 MAX at Paris Air Show.
While JetBlue was far less scathing in their criticism of the manufacturer but was clearly less than impressed with the lack of aircraft forthcoming. So far this year, JetBlue has received just one new aircraft and will be expecting to have six by the end of the year, which is seven fewer than anticipated. They had hoped to take 15 in 2020, but Airbus has already said that the maximum they can supply will be 14.
As such, the overall growth for the year has been reduced from the original 7% to a maximum of 6.5%. Next year they had hoped to grow in the double digits, but have reduced this estimate by two percentage points in light of the current backlog of new aircraft.
The slow deliveries from Airbus are hurting the carrier in other ways too. Not wanting to take older aircraft out of service for refitting means interior upgrades have been slow to take effect, and most of their 120 A320s are still sporting aging cabins rather than the snazzy new products that JetBlue are so keen to market.
Despite this, the airline is still confident that plans to fly to London will go ahead in 2021. Hayes commented on this saying.
“We believe our work is positioning us for success into the next decade. Next year we anticipate the first delivery of our margin-accretive A220s, a game-changing aircraft to further help us reduce our unit costs, improve our margins and increase our EPS. We are thrilled that we recently converted 13 additional A321s in our existing order book to A321 XLRs, and we expect to begin our European service by adding London from Boston and New York starting in 2021.”
Battling for Boston
Despite needing to put the brakes on slightly in light of Airbus delivery delays, JetBlue are still confident they’ll hold on to dominance at Boston Logan International Airport. Delta Air Lines have recently revealed plans to build a competing hub at the airport, but JetBlue say they aren’t worried about the competition. Speaking at their earnings call, Geraghty said,
“We are very profitable in Boston … We are committed to winning in Boston.”
Currently, JetBlue is the biggest airline operating out of Boston (BOS). Their daily departures are pegged at as many as 175, whereas Delta operates 140, including partner flights, and American airlines just 87. During the earnings call, JetBlue stressed how profitable Boston is for the airline, and outlined plans to grow its operation to 200 daily departures by 2021.
Delta has been transparent in its plan to grab a share of the Boston market too, announcing it would upgrade the airport to hub status in June. In the past five years, Delta flights from Boston have grown from just 30 daily departures to the current level, and have said it plans to increase this further to 150 daily flights by the end of this year.
Whether JetBlue can maintain their status as the biggest carrier at Boston amid their aircraft delivery issues remains to be seen.