Summer is typically the best time of year for airlines. It is when profits are stockpiled to help pad the slower, colder seasons. Alas, JetBlue joins a handful of US carriers who did not enjoy summer 2023, reporting a loss of $153 million for Q3.
The company cited unprecedented weather near its key operations at New York City, Boston, Orlando, and Fort Lauderdale as driving higher costs. ATC staffing shortages also contributed. And that covers part of the cost side of the equation. But revenue was also down. The demand outlook is weaker than most competitors cited. Oh, and the company’s lawsuit with the DOJ over its planned purchase of Spirit Airlines (the only carrier with worse performance this quarter) just kicked off in Boston.
While we have been able to offset some of the costs associated with the challenging operational backdrop, the sheer magnitude of the air traffic control and weather-related delays has been staggering. We remain focused on controlling what we can control, including our structural cost program and fleet modernization plans.
– Ursula Hurley, JetBlue’s Chief Financial Officer
Controlling costs
On the cost side JetBlue is saying many of the right things. CEO Robin Hayes says “we now have a year of experience” with the delays it can expect, allowing it to plan better for disruptions in 2024. It is unclear if the prior 20 years of experience in New York City was simply insufficient or if it was materially different from 2023 to justify the additional learning period. AI-based planning tools to better handle scheduling (crew and aircraft) and reduce those assets being out of position was one of the ideas cited by President Joanna Geraghty in the call.
Revenue shortcomings
Perhaps more critical to JetBlue’s future, however, is its softer revenues. The company saw that drop 8.2% compared to 2022, worse than Spirit’s 6.8% hit.
As with Spirit, Frontier, and even Southwest Airlines, JetBlue sees demand softening. Geraghty explains, “We continue to see healthy travel demand during peak periods and the fourth quarter holidays. However, industry capacity is outpacing domestic demand during off peak travel periods.” The softer demand will be somewhat offset by reduced capacity growth owing to P&W engine issues which will keep some JetBlue planes grounded through 2024.
But that is not enough to solve the problem. The company still has to figure out where to position its planes to make more money in 2024.
Geraghty called attention to the transatlantic market, noting that even with a 140% increase in capacity this year the company managed to hold unit revenue steady for the period. Next year will see even more growth across the Pond, with Edinburgh and Dublin joining the route map. But Hayes also expressed caution, noting “sometimes things become hot very quickly and everyone moves towards it and then ends up being oversupplied. And so what we’re trying to do is kind of be very thoughtful” in targeting new markets.
Dave Clark, the company’s Head of Revenue and Planning, noted that business travel remains 20% below 2019 levels, affecting primarily short-haul markets. But Clark also called out Florida – a market where JetBlue has traditionally performed very well – as having “a lot of industry capacity right now.” Clark continued, “Demand is healthy; we have no concerns there. But it is a bit, I’d say, temporarily pressured by industry capacity which should absorb over time.”
Moreover, even smaller markets are beginning to see saturation as smaller airlines like Avelo and Breeze join the fray. They can pick off Florida traffic with non-stop operations and lower fares eroding some of JetBlue’s appeal. Clark insists the carrier can win by increasing its focus on the leisure market, “the markets JetBlue was founded and designed to serve 23 years ago.” Clark continued, “[F]or our bread and butter, for Florida and the Caribbean and Transcon, we’re going to fight. And we’re going to win.”
The increase in leisure mix may also hurt the company’s efforts to drive premium revenues. Mint RASM outpaced core by 4.5%. And the 2024 deliveries all include more extra legroom seats than the planes they’re replacing. But finding more markets to sell a flat bed premium leisure product is going to be a challenge. Especially if focusing primarily on the domestic market. That said, premium leisure traffic is a thing, and JetBlue has solid offerings for both Mint and extra legroom seating.
Loyalty has its limits
For the larger US airlines these days loyalty is a massive part of the business model. That’s true for JetBlue as well, but Hayes acknowledges JetBlue also has a margin gap in that segment compared to the bigger players. Rather than trying to close the gap directly, however, the company is looking at JetBlue Travel Products – the package bookings and other non-flight revenue options – as a way to catch up. “Our goal over time,” Hayes explained, “is to get to a point where our JetBlue travel products and our loyalty program together can be the point where they can compete for what I’d call a legacy airline type margin.”
This ties in to the shift in target market Clark described, aiming more for leisure travelers who might be keen to bundle a hotel or rental car rather than take advantage of loyalty status in those channels. It absolutely can work, and to great effect. Allegiant has shown spectacular success over the years with that approach. But it does require better integration of those offers. They must be more relevant than what JetBlue has delivered to date with its Paisly program.
Spirit managed to maintain its ancillary revenue margins in Q3 even as base fares dropped 27.8%. JetBlue does not have the product portfolio to drive that level of non-ticket revenue, even if the company says that’s going to be a major part of its future.
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