JetBlue Airways Corporation (NASDAQ: JBLU) today reported its results for the second quarter of 2022:
Reported GAAP loss per share of ($0.58) in the second quarter of 2022 compared to diluted earnings per share of $0.59 in the second quarter of 2019. Adjusted loss per share was ($0.47)(1) in the second quarter of 2022 versus adjusted diluted earnings per share of $0.60(1) in the second quarter of 2019.
GAAP pre-tax loss of ($151) million in the second quarter of 2022, compared to a pre-tax income of $236 million in the second quarter of 2019. Excluding one-time items, adjusted pre-tax loss of ($102) million(1) in the second quarter of 2022 versus adjusted pre-tax income of $238 million(1) in the second quarter of 2019.
Operational and Financial Highlights from the Second Quarter
Capacity increased by 2.3% year over three, compared to our guidance for capacity to increase 2% to 3% year over three.
Revenue increased 16.1% year over three, compared to our guidance of an increase of 16% or above, year over three. Revenue was better than the high-end of our initial outlook as a result of robust demand across the network with a record number of Customers.
Operating expenses per available seat mile increased 34.7% year over three. Operating expenses per available seat mile, excluding fuel and special items (CASM ex-fuel) (1) increased 14.5%(1) year over three, compared to our guidance of a 15% to 17% increase year over three.
Balance Sheet and Liquidity
As of June 30, 2022, JetBlue’s adjusted debt to capital ratio was 54%(1).
JetBlue ended the second quarter of 2022 with approximately $2.6 billion in unrestricted cash, cash equivalents, short-term investments, and long-term marketable securities, or 32% of 2019 revenue. This excludes our $550 million undrawn revolving credit facility.
JetBlue paid down approximately $106 million in regularly scheduled debt and finance lease obligations during the second quarter of 2022.
Fuel Expense and Hedging
The realized fuel price in the second quarter 2022 was $4.24 per gallon, a 97% increase versus second quarter 2019 realized fuel price of $2.16.
As of August 2, 2022, JetBlue has not entered into forward fuel derivative contracts to hedge its fuel consumption for the third quarter of 2022. Based on the forward curve as of July 22, 2022, JetBlue expects an average all-in price per gallon of fuel of $3.68 in the third quarter of 2022.
Creating a National Low-Fare Challenger to the Dominant Big Four Airlines
On July 28, 2022, JetBlue and Spirit Airlines, Inc. (“Spirit”) announced that their boards of directors approved a definitive merger agreement under which JetBlue will acquire Spirit for $33.50 per share in cash, including a prepayment of $2.50 per share in cash payable upon Spirit stockholders’ approval of the transaction and a ticking fee of $0.10 per month starting in January 2023 through closing, for an aggregate fully diluted equity value of $3.8 billion(2) and an adjusted enterprise value of $7.6 billion(3).
This combination increases JetBlue’s relevance and offers consumers more choices by leveraging the airlines’ complementary networks and fleets. The airline will offer its combined 77 million customers more options and choices and will accelerate JetBlue’s organic growth plan with 1,700+ daily flights to more than 125 destinations in 30 countries based on December 2022 schedules. The combined airline will have a fleet of 458 aircraft on a pro forma basis and an order book of over 300 Airbus aircraft
JetBlue expects to achieve $600-700 million in net annual synergies once integration is complete, driven in large part by expanded customer offerings resulting from the greater breadth and depth of the combined network. JetBlue expects the transaction to be significantly accretive to earnings per share in the first full year following closing. The company also expects to maintain balance sheet flexibility with post-transaction leverage of 3.0-3.5x, well inside historical levels, and to continue its deleveraging trajectory as it captures synergies.
Delivering Significant Growth and Consumer Benefits Through the Northeast Alliance
While the industry has yet to return capacity to 2019 levels, the Northeast Alliance (NEA) is growing well in excess of the U.S. market. The NEA added over 50 new routes, and increased frequencies on another 130 routes. Collectively with American, JetBlue is now offering more service in New York than the other two legacy carriers.
The NEA growth is delivering tremendous consumer benefits, enabling JetBlue to offer more customers an award-winning combination of low fares and great service, while simultaneously eliciting a strong competitive response from other carriers.
Through the NEA, JetBlue is able to serve a broader set of customers, including business travelers, fly to more markets, and create thousands of jobs in the process.
Accelerating Retirement of E190 Fleet and Pulling Forward Fleet Modernization Plans
When we reset our medium-term capacity plan back in the spring to reflect our industry’s output constraints, we highlighted some potential mitigating actions to optimize our footprint for this new reality. Today, JetBlue announced the acceleration of its E190 retirement schedule, pulling it forward by over a year to mid 2025 versus prior plans to exit the fleet by year-end 2026.
JetBlue currently has a sizable A220 orderbook, with 100 total A220s either in the airline’s fleet or on order following a recently revised agreement announced earlier this year.
Expediting the transition towards A220s and our fleet modernization plans will result in meaningful cost avoidance. We expect to save at least $75 million in maintenance expense alone, and we expect to benefit from reallocating flying to more CASM efficient A220s which burn up to 35% less fuel per seat. We do not expect any impact to our near-term capacity plans as a result of the updated fleet transition plan.
A220s enable greater flexibility with efficiency across different range profiles, supporting our network strategy, as well as our leadership in reducing carbon emissions.
Setting a New Foundation for Long-Term Costs
Following a review of JetBlue’s optimal long-term cost structure, we announced the launch of a new program focused on operational and planning efficiencies. During the second quarter, we announced the creation of a new Enterprise Planning team to help unlock structural efficiencies across the airline longer-term.
JetBlue is also investing in automation across the business, particularly in support of end-of-life maintenance planning as we begin to retire aircraft for the first time in our history.
We expect this new program to deliver run-rate cost savings of approximately $150 million to $200 million by 2024, supporting our objective of a flattish CASM ex-Fuel trajectory over a multi-year period and margin expansion beyond pre-pandemic levels.
The structural cost program and the accelerated E190 retirements is expected to drive a total of approximately $250 million of cost savings through 2024.
Building Back to Sustained Profitability
“I’m very pleased we found a path forward with Spirit, and we can’t wait to welcome their incredible 10,000 Team Members to JetBlue as we create a true, national low-fare challenger to the dominant ‘Big Four’ airlines. Together we will expand our uniquely disruptive combination of award-winning service and competitive low fares to more customers across the country as we combine the best of both airlines,” said Robin Hayes, JetBlue’s Chief Executive Officer.
“We reported a record-breaking revenue result for the second quarter, and we’re on pace to top it again here in the third quarter and drive our first quarterly profit since the start of the pandemic.
I’m proud to say that our operational performance improved significantly through the quarter, and we capitalized on the strong demand environment to deliver revenue growth above the top-end of our original guidance range. We’ve entered the third quarter with some solid momentum that we expect to carry through to a sustained profit inflection.
While high fuel prices and our short-term operational investments are weighing on our margins this summer, we’re making steady underlying progress on our long-term initiatives to structurally improve our profitability and enhance our long-term earnings power.”
Revenue and Capacity
“We took decisive action last quarter to reduce our full-year capacity plan by 10 points and build greater resiliency into the operation, and we have seen good returns – we closed May and June with a completion factor above 98%, compared to approximately 90% during the first three weeks of April. In our congested geography where more than two-thirds of our flights touch the Northeast, we have completed more flights versus our peers in May and June,” said Joanna Geraghty, JetBlue’s President and Chief Operating Officer.
“For the third quarter, we expect capacity to be flat to negative 3 percent year over three, which remains above legacy carriers yet more cautious compared to ULCC growth. For the full-year 2022, we are tightening our forecast for capacity to grow between 0 and 3 percent versus 2019.
For the third quarter, we expect unit revenue to increase between 19 and 23 percent, to the highest absolute levels in our history as strong demand combined with a tight supply backdrop help offset the high price of fuel. Revenue is tracking well to help deliver a profitable quarter, and early bookings keep us cautiously optimistic about the fall.”
Financial Performance and Outlook
“I’m very pleased with the team’s execution this quarter to position us to return to sustained profitability in the back half of the year. Despite the operational headwinds in April, the subsequent operational investments we made, and the sharp rise in fuel prices throughout the quarter, we exited Q2 with an adjusted pre-tax profit for the month of June, and we look forward to carrying this momentum into Q3 and beyond,” said Ursula Hurley, JetBlue’s Chief Financial Officer.
“For the third quarter, we are forecasting CASM ex-Fuel(4) to increase 15 to 17 percent. We’re also tightening our forecast for full-year 2022 CASM ex-Fuel(4) to increase in the range of 11 to 14 percent versus 2019. We expect the heightened level of operational investments to normalize once we get beyond the summer peak. As a result, we expect to see some productivity improvement into the fourth quarter and 2023.
We’re embarking on a new plan to keep our costs low, focused on cross-functional costs and applying best practices with respect to operational and planning efficiencies. Through the strong underlying momentum in the business and the continued execution of our various strategic initiatives – from the Northeast Alliance to the evolution of our Loyalty program to scaling JetBlue Travel Products, and now our new structural cost program as well – we are setting a foundation to structurally improve our long-term earnings potential.”
Earnings Call Details
JetBlue will conduct a conference call to discuss its quarterly earnings today, August 2, 2022 at 10:00 a.m. Eastern Time. A live broadcast of the conference call will also be available via the internet at http://investor.jetblue.com. The webcast replay and presentation materials will be archived on the company’s website.