jetblue

MIAMI — JetBlue reported a net profit of $88 million for the fourth quarter of 2014, an increase of 47 percent year-over-year (YOY) driven primarily by a reduction in fuel expenses.For full year 2014, JetBlue recorded a net profit of $232 million excluding special items (primarily accrued gains from the sale of LiveTV), up from $168 million in 2013.

JetBlue President Robin Hayes. (Credits: JetBlue)
JetBlue President Robin Hayes. (Credits: JetBlue)

The primary driver of JetBlue’s improvement in profitability, was, as with most U.S. airlines in the fourth quarter, the precipitous decline in the price of fuel. JetBlue’s Q4 fuel bill fell $30 million YOY despite a 7 percent increase in capacity as measured by ASMs, or 12.7 percent on a per ASM basis.

In fact, JetBlue’s overall cost discipline was admirable, with cost per available seat mile excluding fuel and profit sharing declining 0.9 percent YOY. Across the board, cost-line items mostly declined on a per-ASM basis, all except the two that have become almost a constant refrain since I began writing this series of analyses: labor and maintenance.

Labor expenses rose 5.7 percent YOY on a per-ASM basis while maintenance costs rose 7.6 percent YOY under the same conditions. The rise in labor expenses is mostly expected, especially given that JetBlue’s pilots are now unionized. In that sense, a large portion of the labor cost increase is really beyond JetBlue’s control. Maintenance costs, on the other hand, are something that management can address more directly, and thus far JetBlue has done poorly at managing its MRO. Even when pressed on the quarterly earnings call, President Robin Hayes didn’t have a clear answer for how JetBlue plans to address this.

Latin America. JetBlue is proportionately less exposed to the commodity-dependent countries of South America than its network peers, but demand slowdowns in the region could affect revenues. In normal times, JetBlue’s capacity growth plans of 7-9 percent might be cause for worry, but given fuel prices, even a minor PRASM decline could still be margin additive.

Other highlights during the quarter and the year were:

  • ROIC of 6.3 percent, three-year goal of improving to 10 percent;
  • Expected profit contribution of $65 million by 2015 and $200 million by 2017 from Fare Families;
  • 2014 Even More revenue hit $200 million, up 25% YOY;
  • Operating margin on Mint improved twice as much as the rest of transcon markets;
  • New inline baggage system, expanded gate areas, and streamlined checking experience at Boston Logan;
  • On time departures up 2.7 percentage points to 63.5 percent and arrivals up 2.5 percentage points to 77.1 percent;
  • Ancillary revenue up 11 percent YOY to $745 million, or $25 per customer;
  • Business plan is built on assumption of Brent Crude at $90 per barrel, Q1 fuel price including hedges expected at $1.97;
  • 12 A321 deliveries for 2015, and assumed that the airline will pay cash;
  • 28 percent of capacity in transcon markets, 30 percent in the Caribbean and Latin America, and 29 percent in Florida;
  • Roughly 100 A320s have Fly-Fi (inflight Wi-Fi), and all A321 deliveries have it, and E190 installations will begin in 2015;
  • Cancelled 1,000 flights due to winter storm Juno, but the effect will be smaller than last year’s Hercules;
  • Had 12 consecutive days of 100 percent completion factor in New York City in December;
  • Fastest growth market is Fort Lauderdale in terms of YOY margin improvement, all six focus cities are profitable;
  • Mint has stimulated demand growth on transcon routes, and the product has seen strong uptake from individuals and large corporate contracts; and
  • JetBlue will use excess cash to prepay debt and buy back shares.

JetBlue certainly has a way to go before it matches network peers, Southwest, and Alaska (let alone the LCCs) for quality of financial results, ROIC, operating margin and the like. But one item of note this quarter was the interesting shift in the dynamics of JetBlue’s corporate earnings call, one that signals the increased focus on Wall Street at JetBlue’s management.

I’ve been listening to JetBlue’s earnings calls for nearly seven years now, and for the first time in that span, JetBlue’s lead executive on the call (now Robin Hayes) did not go out of his way to highlight the carrier’s customer experience. He certainly mentioned certain customer-facing items (Fly-Fi, operational performance), but even these were couched in terms like “high-margin” and “revenue potential” without mention as to the improvement in customer experience.

Now clearly some of that is knowing your audience, and JetBlue’s management doing a better job of telling Wall Street analysts what they want to hear. But it still is a shift from the days when CEO David Barger was manning the helm on these calls. And the reaction from the analysts was overwhelmingly positive and upbeat, as was market reaction.

Interesting times lie ahead for this new Wall Street darling.

 

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