JetBlue Airways Corporation

Good morning. My name is Lara. I would like to welcome everyone to the JetBlue Airways' second quarter 2023 earnings conference call. As a reminder, today's call is being recorded. At this time, all participants are in a listen-only mode. I would now like to turn the call over to JetBlue's Director of Investor Relations, Kush Patel. Please go ahead, sir.

Thanks, Lara. Good morning, everyone, and thanks for joining our second quarter 2023 earnings call. This morning, we issued our earnings release and a presentation that we will reference during this call. All of those documents are available on our website at investor.jetblue.com and on the SEC's website at www.sec.gov. In New York to discuss our results are Robin Hayes, our Chief Executive Officer, Joanna Garrity, our President and Chief Operating Officer, and Ursula Hurley, our Chief Financial Officer. Also joining us for Q&A are Dave Clark, our head of revenue and planning, and Andres Berry, president of JetBlue Travel Products. This morning's call includes forward-looking statements about future events. 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. All such forward-looking statements are subject to risks and uncertainties and actual results may differ materially from those expressed or implied in these statements. Please refer to our most recent earnings release and our most recent 10-K and other filings for a more detailed discussion of the risks and uncertainties that could cause the actual results to differ materially from those contained in our forward-looking statements, including, amongst others, The COVID-19 pandemic, risks associated with execution of our strategic operating plans, our extremely competitive industry, fuel availability and pricing, our planned wind down of the Northeast Alliance, the outcome of the lawsuit filed related to our merger with Spirit Airlines, and various other risks and uncertainties related to JetBlue's acquisition of Spirit. The statements made during this 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. 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. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. For an explanation and reconciliation of these non-GAAP measures to the corresponding GAAP measures, please refer to the tables at the end of our earnings release, a copy of which is available on our website and on sec.gov. Please note that our definition of these measures may differ from similarly titled measures presented by other companies. And now I'd like to turn the call over to Robin Hayes, JetBlue's CEO.

Robin Hayes Thanks, Kush. And good morning, everyone. Thank you for joining us today. I'd like to start by offering a resounding and heartfelt thank you to our 25,000 crew members for their incredible dedication, patience, and perseverance. I've been at JetBlue now nearly 15 years, and this is the most exceptionally difficult summer that I can remember. And our crew members have worked tirelessly to serve our customers as air traffic control challenges and weather issues have affected tens of thousands of flights industry-wide. Our crew members have gone above and beyond in helping our customers deal with this summer's problems, and we very much appreciate their efforts every day, but especially during this very challenging period. For the second quarter, we delivered revenue and cost performance within our guided ranges. I am particularly pleased that we delivered all-time record quarterly revenues, including record revenues in each month of the quarter, as well as our sixth consecutive quarter of meeting or exceeding our cost expectations. As a result, we reported adjusted pre-tax income of $236 million, adjusted pre-tax margin of 9.1%, and adjusted earnings per share of 45 cents, which was at the top end of our guidance range. These strong results demonstrate our momentum in this post-COVID era. Turning to slide five, On our first quarter earnings call in April, we predicted the summer would be very challenging. To prepare, we made significant investments to build resiliency into operation, which helped us to manage costs related to unexpected schedule disruptions and enabled us to deliver our second quarter results. We also received a very disappointing NEA decision during the quarter and have been working to adjust to the loss of that agreement. And finally, as you've heard from others, the transitory shifts in post-COVID customer demand are also affecting our results. Therefore, as we look ahead, we've recalibrated our expectations for the remainder of the year. While the current environment is extremely dynamic, we are executing plans to offset these challenges, as we'll discuss. Firstly, and as previously disclosed, we made the difficult decision not to appeal the unfavorable NEA court ruling. This allows us to turn our full focus to our combination with Spirit, which we believe is the best and most effective way to increase competition in the industry and bring the JetBlue effect to more customers across the country. However, our decision to terminate the NEA will result in a near-term drag on margins as we lose key code share revenue. But certain NEA costs will linger due to the necessary gradual wind down of our NEA-driven capacity growth. We expect a $0.20 to $0.25 EPS headwind to our four-year outlook, and we expect to see the biggest impact in Q4. As we head into 2024, we will be able to mitigate the impact as we are increasingly able to redeploy capacity currently underperforming in NEA markets to high-margin leisure opportunities throughout our network. We've already begun to reflect this initial capacity redeployment in our selling schedules, and we are planning an orderly but gradual wind down of the NEA-driven capacity growth through next summer to ensure that we continue to support our customers. As I mentioned, we are facing headwinds from weather and ATC in the Northeast, which have been much, much worse than we planned for when we reduced our New York departures by 10% for this summer. And we are seeing ATC programs stay in place longer than we've ever seen before for similar weather events, which is driving hundreds of delayed flights a day for JetBlue alone. To put it in perspective, when we look at the FAA's data on the worst industry cancellation events for thunderstorms at JFK, the worst four events since 2014 happened in late June and early July of this year. And while we don't know what the ATC impacts will be in August, we have assumed that they will be similar to July. These real-time disruptions generate cost pressures beyond our initial planned investments and also impact revenue due to higher cancellations which drive refunds and reduce sellable capacity. Taken together, we expect ATC constraints through Q3 to result in a $0.20 to $0.25 headwind to our four-year EPS outlook. Our Q2 results, though, do show the investments we made are making a difference, as our June completion factor in New York outperformed the average of other airlines with a more significant footprint in the market. But it is coming at an incredible cost that is not sustainable over the long term, as we are pulling all the levers under our control to help drive improvement. As we look to next summer, while the wind-down of the NEA-driven growth in New York will help reduce our Northeast exposure, we will also need to see substantial improvements in ATC performance and additional industry slot relief to ensure we can deliver the operational experience our customers deserve. Finally, we've seen a greater than expected geographic shift in pent-up COVID demand, as the strength in demand for long international travel this summer has pressured demand for shorter-haul travel. We estimate this shift away from domestic travel is negatively impacting our full-year EPS by 15 to 20 cents. However, we expect this trend to improve as we move out of the peak summer travel period and into Q4, particularly around the winter holidays, when demand typically favors VFR travel, which is not as susceptible to these shifting trends. As we head into 2024, we will be more aggressive in redeploying capacity to expected pockets of future demand, areas where our VFR and leisure orientation give us an advantage in the marketplace. Given these revenue headwinds, we are updating our four-year earnings outlook to 5 to 40 cents of EPS. Let me be clear, we are not satisfied with this change, and as I've described, we are taking action on all of these issues. I also want to emphasize that our four-year unit cost outlook remains intact, as our team has been successful in offsetting the incremental costs associated with these challenges. We consider the coming quarters a reset as we adjust for the loss of the NEA and for the overall shift we and others are seeing in post-COVID demand. Over the longer term, we continue to believe we have the right building blocks in place and we remain laser focused on rebuilding our earnings power and adding incremental value for our shareholders. Moving to slide six, I want to spend a few moments reviewing these building blocks that are positioning JetBlue for long-term success. First and foremost is the transformational nature of our planned acquisition of Spirit. Combining with Spirit will not only turbocharge our organic growth plan, creating a truly national low fare challenger to bring more competition to the industry, but it will also add geographic diversity to our network, which will improve our network relevance and increase our operational resilience. We look forward to bringing more of JetBlue's low fares and award-winning service to more customers and more markets. Next, a large footprint in the slot-constrained New York market is a substantial long-term asset for JetBlue. And even as we wind down the NEA, New York will still remain our largest focus city with well over 200 departures per day. While New York was significantly impacted by COVID and therefore has taken longer to recover, it has historically produced long above system average margins and is now improving faster than our network average. The closing of the gap will drive continued improvement of our revenue and margin performance. We're also driving long-term structural improvements in our profitability from our redesigned TrueBlue program, which continues to see double-digit membership growth and, of course, JetBlue travel products. Finally, we continue to deliver outstanding progress on cost execution. We have seen great success from our structural cost program, which is on track to deliver 150 to 200 million in savings by the year end 2024. We also continue to make strides in our ongoing fleet modernization program as we replace our E190 fleet with the margin accretive A220s. I'd like to close by again thanking our crew members for delivering our second quarter results. While we face near-term headwinds, we remain focused on controlling what we can control and work towards improving margins and driving profitable growth. I remain optimistic about our future as our unique combination of low fares and great service continues to distinguish us in the market. With that, over to you, Joanna.