JBLU - NASDAQ

Good morning. My name is Joelle. I would like to welcome everyone to the JetBlue Airways Third 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, [Indiscernible] Patel. Please go ahead, sir.

Thank you, Joelle. Good morning everyone and thanks for joining us on our third 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 Geraghty, 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 Barry, President of JetBlue Travel Products. During today’s call, we will make forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are subject to certain 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 actual results to differ materially from those contained in our forward-looking statements. This 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 an 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. For an explanation of these non-GAAP measures and a reconciliation to the corresponding GAAP measures, please refer to our earnings release, a copy of which is available on our website and on sec.gov. Finally, I’d like to add an important note for today’s call regarding our proposed transaction with Spirit Airlines. Given our trial has now begun, we will not be taking questions or commenting on Spirit beyond what is in todays prepared remarks. We appreciate your understanding and look forward to answering your questions once the trial has concluded. And now I’d like to turn the call over to Robin Hayes, JetBlue’s CEO.

Good morning, everyone, and thanks for joining us today. I’d like to start by thanking our incredible crew members for their hard work, dedication, and service to our customers. This summer, airlines faced an exceptionally high number of disruptions given air traffic control and weather challenges, and our outstanding crew members rose to the occasion each and every day to support our operation and deliver the JetBlue experience. Before getting into the results, as many of you are aware, the antitrust trial related to our proposed merger with Spirit Airlines began today. We look forward to presenting our case to court over the next few weeks, as we strongly believe our combination with Spirit is the best opportunity to disrupt the industry by increasing competition and choice, creating a long overdue national low fare challenger to the dominant Big Four Airlines. We expect the trial will proceed according to the process the judge laid out and is currently scheduled to conclude during the first week of December. Assuming a successful outcome, we remain on track to close the transaction in the first half of next year. For obvious reasons, it would be inappropriate for us to comment on any matters relating to this transaction while a judicial proceeding is underway. And therefore, as Kush [Ph] mentioned, we won’t be answering any questions related to Spirit on today’s call or making any other public comments while the trial is underway. Now moving to the results and slide four of our presentation. We reported a third quarter adjusted loss per share of $0.39. We planned and prepared for several challenges in the quarter, including the winddown of the Northeast Alliance, air traffic control delays, and shifts in post-COVID customer demand. However, weather-related disruptions were significantly greater than expected, and increases in jet fuel costs also weighed on results. While we are certainly not satisfied with these results, our team is working hard to mitigate these headwinds while also working to protect the customer experience. Turning now to slide five, we are updating our four-year outlook to reflect the impact of these near-term headwinds, including higher fuel prices and industry capacity that is outpacing domestic demand. We now expect a full loss per share of $0.45 to $0.65 per share. Our team remains focused on taking steps to control what we can control while identifying additional levers to deliver value to shareholders. First, with respect to weather and ATC staffing challenges, we are pleased that the FAA has extended its 10% slot waiver in New York through to October 2024, which we will be taking full advantage of. This is a critical step in affording much-needed support to a fragile ATC system. Importantly, the waiver was announced well ahead of the 2024 planning cycle, providing time to efficiently reallocate capacity, which we were not able to do in 2023. Secondly, as customer travel patterns continue to evolve, we are taking steps to better match capacity with demand. While overall demand remains healthy compared to pre-pandemic levels, inflationary pressures, including the recent uptick in fuel prices, are impacting margins in certain markets. We recently announced the closure of two blue cities and other capacity adjustments. As we look ahead, our capacity growth is expected to moderate in the fourth quarter and will be driven primarily by international markets, which have demonstrated yield resiliency this year. Finally, the NEA winddown continues to progress. We began returning LaGuardia slot pairs to American, and as we head into 2024, we plan to continue reallocating capacity out of LaGuardia as we return additional slot pairs. These changes are expected to benefit revenues and costs in 2024, as LaGuardia is one of our most expensive airports. Turning now to slide six, while we continue to face challenges in the near term, we firmly believe we have the right building blocks in place to position JetBlue for success. A large footprint in the slot constrained New York market is a key competitive advantage. New York remains our largest focus city with well over 200 departures per day, and has historically been a profit engine for JetBlue. While margins in New York have not recovered from their pre-pandemic levels as quickly as the rest of the network, we’re encouraged by the continual progress we are seeing in the market. We clearly have more work to do, but our competent margins in New York will fully recover to pre-pandemic levels over time. We’re also driving long-term structural improvements in our profitability from JetBlue travel products, where we have seen a 30% year-over-year increase in commission revenues for hotels and cars year-to-date. In addition, our redesigned TrueBlue program continues to be an important source of loyalty revenue, which increased as a percentage of total revenue by approximately one point year-to-date compared to 2022. Finally, we continue to deliver steady progress I should say on controllable cost execution this quarter. We’ve seen great success in our structural cost program, which is on track to deliver $150 million to $200 million savings by the end of 2024. We also continue to make strides in our ongoing fleet modernization program as we benefit our E190 fleet with the margin accretive fuel efficient A220s. In conclusion, I’d like to thank our crew members again, as they continue to go above and beyond to deliver for our customers and for each other day in day out. While near term headwinds persist, including the Pratt & Whitney GTF engine issue, which Ursula will provide an update on, we are focused on controlling what we can control. I am confident we have the right foundation in place to navigate the current challenges and work towards improving margins and driving profitable growth. With that, over to you, Joanna.

Thank you, Robin. I’d also like to thank our team as we continue to navigate a challenging operating environment. We very much appreciate your unwavering efforts to take care of our customers and support each other. We continued to experience greater than expected operational disruption during the quarter due to unusual September weather, far worse than we’ve historically seen, coupled with unprecedented ATC restrictions. In the third quarter, we had 68 days of significant operational disruption versus 40 days in the third quarter last year. Often these events occurred on multiple consecutive days, causing extended delays and cancellations in subsequent days as we recovered. The severity of ATC constraints was also worse than previous summers based on airborne holding, diversions, taxi time, and cancellations seen throughout the industry due to ATC. However, our investments enabled us to recover faster and better protect completion factor. As a result, for the third quarter, capacity grew 7.1% year-over-year. As Robin mentioned, we are pleased with the FAA’s recent decision to extend the 10% slot waiver in the New York City area through October of 2024, and we are taking full advantage of it. However, given that the extension was announced after our Q4 schedules were published, this resulted in close in and therefore less efficient schedule changes for the fourth quarter. For 2024, we will be able to better plan our network, proactively address associated costs, mitigate customer disruptions, and appropriately manage our hiring plans. While the slot waiver is a good initial step, we recognize that there is still a long way to go in terms of getting the right level of staffing and experience within ATC to drive substantial improvements in their performance and minimize the number of cancellations. We expect ATC disruptions to continue for the foreseeable future, and we continue to plan the operation with conservatism and with elevated crew reserve levels. With Mike Whitaker’s recent appointment, we are hopeful that we will see progress as a permanent FAA administrator can serve as a champion on these critical infrastructure issues. For the fourth quarter, we are forecasting capacity to grow between a half a point to three and a half points’ year-over-year, a five-point sequential reduction in scheduled capacity growth versus the third quarter of 2022. We are proactively managing our capacity in light of higher fuel costs and aircraft constraints, and have temporarily reduced flying in certain markets in off-peak periods. Our fourth quarter growth will be driven by international markets where we have seen yields holding up relatively well. For the full year, we are narrowing our capacity growth outlook to 5% to 7% year-over-year. Turning to revenues, third quarter revenues decreased 8.2% year-over-year and were impacted by the challenging operational backdrop as well as softer than expected off peak and close in leisure demand in September. Our premium offerings remained a bright spot with year-over-year Mint RASM outperforming CORE by 4.5 percentage points during the quarter. We continue to see strength in Mint, even with our Mint capacity up 19% year-over-year. All of our A321 neo deliveries for the foreseeable future will be in the Mint configuration, which we believe will allow us to continue to grow our strong premium leisure offerings. We are also seeing strength in even more space with revenue growing double digits in Q3 year-over-year on roughly equivalent load factors. And we look forward to the continued expansion of even more space as our A220s have 30 even more space seats compared to 16 on the E190s that they are replacing. Transatlantic also continues to deliver strong results as we continue to ramp. This quarter we launched service to our third Transatlantic Blue City Amsterdam from both New York and Boston. And we look forward to continuing to expand our Transatlantic network as we take delivery of additional A321LR aircraft. This includes the new summer seasonal service announced last week to Dublin and Edinburgh. And in New York City, as we continue to winddown the NEA, we are rebalancing our capacity to better match supply and demand. We are meaningfully reducing our footprint at LaGuardia, reallocating this capacity to geographies with stronger performance, such as the Caribbean, where we are launching new services in the fourth quarter from Orlando to Punta Cana and Santiago in the Dominican Republic, and from New York to Belize and St. Kitts and Nevis. In addition, we are also taking full advantage of the FAA slot waiver extension to allocate capacity away from New York. These changes will drive continued improvement in our New York performance in 2024 and beyond. Looking to the fourth quarter, we continue to see healthy travel demand during peak periods. Specifically, demand for travel around the fourth quarter holidays is in line with our expectations. However, during off-peak periods, we are seeing elevated industry capacity significantly outpacing demand. That being said, we have seen an acceleration in corporate booking since Labor Day, an encouraging sign that recovery and business travel is picking back up after notably dropping off through the summer. For the fourth quarter, we expect revenues to be down 6.5% to 10.5% year-over-year. For the full year, we now expect revenues to grow between 3% and 5% year-over-year. Finally, we remain pleased with the strength in our loyalty program, as active members have grown nearly 10% year-over-year, and member engagement has more than doubled across all customer levels following the launch of our redesigned TrueBlue program earlier this year. Co-brand card spend has increased double digits year-to-date and we expect to reach record contributions from our Barclays Co-brand portfolio this year as engagement grows. We recently introduced the ability to redeem TrueBlue points on key partner airlines directly on our website. We are excited by the growth these enhancements have delivered so far and are expected to deliver as part of our multi-year journey in evolving our TrueBlue program and closing the gap to our peers. I’d like to close by once again, thanking our crew members for everything they have done to serve our customers amid a challenging operational backdrop. With that, over to you, Ursula.

Thank you, Joanna. I’d like to add my thanks to our incredible team for their hard work and commitment to ensure we are delivering for our customers, our fellow crew members, and our owners. As Robin mentioned, we delivered a third quarter loss per share of $0.39 as we faced unprecedented levels of weather and ATC-related disruptions and rising fuel prices. CASM ex-fuel was up 5.9%% for the quarter, just above the high end of our guidance. Our proactive planning and operational investments to boost resiliency through additional pilot reserves and capacity pull-downs drove four points of CASM ex-fuel pressure in the third quarter. However, a greater number of, a greater volume of extended ATC delays versus plan resulted in higher labor premiums, hoteling and disruption-related costs, driving an incremental 1.5 points of CASM ex-fuel headwinds in the third quarter. Excluding these unprecedented headwinds, we would have delivered CASM ex-fuel near the midpoint of our guide. Looking ahead, for the fourth quarter, we are forecasting CASM ex-fuel to increase 8.5% to 10.5% year-over-year. As a reminder, the uptake in expected Q4 CASM ex-fuel includes four points related to the additional compensation step-up tied to our pilot agreement and two points related to the timing of maintenance events. In addition, we’ve made a number of near-term capacity cuts to utilize the New York slot waiver. However, as Robin and Joanna mentioned, the waiver was announced shortly before the start of Q4, so many of the costs associated with that fine were already fixed, resulting in an incremental three-point headwind to our fourth quarter CASM-ex fuel. For the full year, we are raising our CASM ex-fuel outlook to up 4.5% to 5.5%, just above the high end of our prior range. This includes two points of headwinds from the challenging operational disruptions we have faced this summer and the proactive investments we made to more quickly recover from these challenges. While we have been successful in identifying levers to offset some of these incremental costs, the sheer magnitude of the ATC and weather-related delays has been staggering. Our team is continually looking for opportunities to mitigate additional costs. With respect to the GTF engine issues, we continue to have conversations with Pratt & Whitney to assess the longer-term impact, and discussions around compensation are ongoing. Based on Pratt & Whitney’s initial analysis, we expect to end 2023 with up to six of our aircraft grounded due to GTF engine issues, and we anticipate the number of out-of-service aircraft to increase throughout 2024, ending the year with high single digits to low double digits of aircraft out of service. These issues are also driving an elevated number of engine changes, and despite introducing a number of self-help measures over the last 18 months, we expect our 2024 capacity plans and cost outlook to be meaningfully impacted. Given the increase in unscheduled GTF-related downtime, coupled with the aircraft delivery delays and aircraft retirements, we are planning capacity in the first quarter of 2024 to be slightly down on a year-over-year basis. With the slower capacity growth, we remain laser-focused on executing our structural cost program and delivering efficiencies. We expect to drive approximately $70 million in cost reduction this year, and $150 million to $200 million in run rate savings through 2024 under our structural cost program. We expect these savings to ramp quickly throughout 2024 as we streamline input costs for onboard offerings and ramp up our use of technology-based solutions to enhance productivity. Additionally, through our fleet modernization program, we have achieved $55 million in cumulative cost savings to date and remain on track to achieve $75 million of maintenance cost avoidance through 2024 as we replace our E190 fleet with Margin Accretive’s A220. Additionally, the A220 is 20% more efficient compared to the E190 on a unit cost basis, which will be a long-term benefit to our cost structure as we transition out of the E190s. 18 E190s have already exited the fleet, and as a reminder, we continue to plan for all our E190s to be retired by the end of 2025. Turning to slide 11, we ended the third quarter with $2.1 billion in liquidity, including our $600 million revolving credit facility, which remains undrawn and which we’re pleased to announce we recently extended by one year. We continue to take a conservative approach to managing liquidity as we step up our fleet modernization efforts. We have been actively financing and have committed financing in place for approximately $1 billion year-to-date, of which $600 million is reflected in our quarter-end liquidity position. We took delivery of five aircraft in the third quarter, bringing our year-to-date total to 11 new aircraft. We expect to take delivery of six additional aircraft through year-end for a total of 17 new deliveries this year, with two deliveries now pushed into early 2024. As a result, we now expect our full year 2023 CapEx to be $1.2 billion. Finally, rising oil prices have led to increased fuel prices. We continue to look for opportunities to layer in hedges to help mitigate this risk. As of today, we have hedged approximately 30% of our expected fuel consumption for the fourth quarter, which we expect to provide a $0.05 per gallon benefit to our fourth quarter fuel price. In closing, while we continue to manage through an exceedingly dynamic and challenging operating environment, we are focused on controlling what we can control and executing our plans to mitigate these challenges. We have reduced our Q4 capacity and markets will yield remain pressured. And as we trim our New York schedules, we are reallocating that capacity to merge in accretive leisure and VFR opportunities. In addition, we are aggressively focused on pulling the levers at our disposal to manage costs, including our structural cost program and fleet modernization plans. We are confident in our strategy and believe these actions, coupled with the strategic initiatives we have in place, are creating a strong foundation positioning us to drive profitable growth, return margins to historical levels, and deliver long-term value to our owners and all of our stakeholders. With that, we will now take your questions.

Thanks everyone. We’re now ready for the question-and-answer session. As we mentioned we will not be answering any questions related to Spirit on today’s call. With that Joelle, please go ahead with the instructions.

Thank you. [Operator Instructions] Your first question comes from Savi Syth with Raymond James. Please go ahead.

Hey, good morning, everyone. If I might, on the kind of next tier, excluding what the earnings contribution or any merger-related spend, how should we think about some of the key cash outflows and inflows as you think about CapEx and then maybe financing and debt payments?

Good morning, Savi. Thanks for the question. So as a reminder, we continue to work through our fleet modernization program. So next year we do have a step-up in terms of the number of aircraft deliveries. So we’re expecting 28 aircraft to deliver next year. The majority of those are the margin accretive A220. So we will have a step-up in our CapEx profile related to that fleet modernization program. We also have a manageable debt tower next year as well, and we continue to have a really healthy balance of unencumbered assets. So, the debt raises that we have done thus far this year is inclusive of not only deliveries this year, but previously purchased aircraft that we did with cash. So, I think the headline is I feel comfortable about where the liquidity number is. We do have a step-up in CapEx next year. The debt paydown is reasonable, and we continue to have a healthy unencumbered base to support a healthy liquidity level as we navigate through 2024.

That’s helpful. And just to -- if you can provide the unencumbered assets, and I would also kind of like to ask the -- just the timing of the LaGuardia wind-down and how you’re thinking about it. I know you shared plans earlier, but I wonder if that’s changed given the kind of new capacity view.

Sure. So in regards to the unencumbered assets, as I mentioned in my prepared remarks, we have a billion dollars of liquidity coming in the door. Six hundred of that has already hit through the third quarter, and the remaining will come in the door through the end of the year. Once we complete that cash inflow, we’ll have about 50 aircraft that will still be unencumbered. And as a reminder, we have the bridge facility currently in place to support the Spirit transaction. That bridge is encumbered by our loyalty program. We have aircraft. We have engines, and we also have our slots, gates, and routes. And so once that bridge is taken out, we will also have some of those unencumbered assets fall back into the portfolio that we could use in the future to raise additional liquidity. And I will hand it over to Dave to answer the LaGuardia question.

Hi. Good morning, Savi. For LaGuardia, we’d flown as much as 52 departures a day at the height of the NEA. We handed back six slot pairs as we entered the winter season here, so we’re about mid-40s in terms of departures per day from LaGuardia as we go through this winter. And then in late March, we’ll step down to roughly 30 per day and continue that pace through next summer.

Very helpful. Thank you for all the color.

Your next question comes from Dan McKenzie with Seaport Global. Please go ahead.

Oh, hey. Good morning. Thanks guys. Just kind of looking at the stock here, there’s a lot of skepticism. I’m just hoping you can help us understand the path, and the timing back to profitability. Maybe not necessarily in 2024, but, say 2025. And so I guess high level, can you just help us size the hit to pre-tax profits, say from the slower than expected recovery in New York City, the ATC cancellations and the Pratt & Whitney engine issues? It just seems like there’s a huge chunk of revenue, huge chunk of costs that at some point, go away. And just, how can we size that?

Yes, thanks for the question, Dan. I mean, our goal is to get the business back to consistent profitability. And we believe that we have specific tailwinds to JetBlue that are going to come to fruition as we navigate through 2024. The New York recovery has been slower than we anticipated. However, we continue to see meaningful progress in New York profitability levels. We still need to get them back up to pre-COVID levels, but we’re seeing progress. The 10% slot relief obviously provides us meaningful runway to redeploy capacity to more margin accretive opportunities. The second issue is ATC. And as I mentioned, the slot portfolio reduction of 10% allows us to plan more effectively as we build the 2024 plan. And so that will definitely provide some relief from a cost perspective. And then our continued execution of structural costs in our fleet modernization program. We’re still in the very early stages of our fleet modernization program. We’re about a third of the way in. And so that will continue to deliver meaningful value given the A220 provides a 20% unit cost benefit compared to the E190. And then I’m pleased with the structural cost program progress. We’ve achieved $70 million a date. And our 2024 plan will assume that we achieved $150 million to $200 million commitment that we made. So on the whole, I believe we have the right foundational pillars to bring the business back up to consistent profitability.

I’ll also add just loyalty and JetBlue travel products. Those are continuing to expand with profitable growth. And I think you could expect, one to three incremental points of margin tailwind as we move through 2024 to 2025. And then just to kind of reemphasize Ursula’s point on New York, New York is progressing nicely. It’s not back to where it was pre-COVID. And pre-COVID, it was a margin engine for JetBlue. It will get back there. It’s a constrained environment. And over time, we think it’s strategically an important, incredibly important part of our network and our efforts here.

Yes. And I guess to that point, I’m wondering if there’s a second question here, if you’d be willing to address the credit card competition act of 2023. And so I guess maybe this would be for Robin. We are seeing other CEOs predict that these, the programs would go away. But I’m wondering if you can elaborate what that would mean for JetBlue. Is, and I guess, just in particular, is this revenue that would necessarily disappear? Or I guess, how should investors think about this at that, think about that at this point?

Yes. So thanks for the question, Dan. And in case everyone isn’t aware of the issue, this is a proposal to basically bring more competition into the interchange space so that merchants have an alternative to either Visa or MasterCard to process the transaction. It’s really a follow on to the -- what we saw on the debit card side, 2010. Personally I think that this is likely to continue to face a lot of opposition. The majority of Americans have a reward card, whether that’s a travel card or another sort of benefit. And that would be lost if this act passes because the, the, the value of those consumer benefits come through that, that interchange network. And so, the argument goes that price reductions would get passed on by retailers to consumers. I think there’s a healthy level of skepticism whether that would happen. I think it’s, it’s far from clear that there were benefits to consumers when we saw the debit card changes back in 2010. And frankly, if consumers want the cash option, there are plenty of 2% cash back cards available now that they can go and get. So whether it’s kind of cash off or whether it’s travel, whether it’s hotels or airline or these travel cards, these are very, very popular. And I think that, if this thing progresses then I think members of Congress across both sides of the aisle will hear a significant number of complaints from their constituents, because these cards are popular and they make vacations and they make other things more accessible for people than they would be otherwise. And I think people want to keep the benefits rather than see them be passed to big box retailers who, could decide just to keep the profit for themselves. So I’ve got a great level of skepticism as to whether this would pass.

Okay, thanks for the time, you guys.

Your next question comes from Jamie Baker with JPMorgan. Please go ahead.

Oh hey, good morning, everybody. So obviously lots of talk about air traffic control, weather and oversupply and all that, but one thing that Mark and I have been thinking about is the remuneration from your credit card partners, from loyalties. So if we tie loyalty back to earnings, and if we think about your margins relative to just pick one, Delta or United, and I know Joanna talked about closing the gap, but do you have an internal estimate as to how many points of margin differential loyalty might currently be driving?

Yes hi, Jamie. Look it’s clearly a margin gap for us, right? I mean I think all these airlines report sort of roughly what their percentage of revenue is, and then if you assume that the margin on these programs are high, it’s definitely, it’s definitely single digit, low single digit percentages of difference. This is why actually, we’ve been so focused on not just building our travel, build our own loyalty program to sort of play catch up, but also creating JetBlue travel products. We know that we do not have the same exposure to business travel as some of these global leisure airlines, and so how do we gain more exposure, more share of wallet for leisure customers as well? And so our goal over time 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. So that’s the road we’re on, Jamie. We’re not there yet, but we’re I think, making really good progress.

And thank you, Robin. And as a follow-up to that, you’ve talked about loyalty as a means to fund the business, particularly if you do find yourself, hypothetically, with greater leverage a year or so down the road. Spirit and Hawaiian Loyalty is now trading north of 20%. I guess, how are you thinking about loyalty as a funding option going forward? Do you need to identify some contingencies in terms of funding potential?

Hey, Jamie. I think we’re just going to kick that question to following the trial, not really addressing any of the Spirit-related questions today on the call.

Well, it had more to do with leverage than Spirit, but fair enough. Okay, thank you.

Your next question comes from Conor Cunningham with Melius Research. Please go ahead.

Hi, everyone. Thank you. Could you speak a little bit to the puts and takes as you think about the cost structure in the 2024? It seems like maintenance is going to be up a fair bit. You have the flight attendant deal, but you also have some self-help initiatives. Just curious on how you’re thinking about it in the context of you’re talking about 1Q capacity being down your rear. It just seems like CASM ex is starting to track up year-over-year for 2024. Just curious on how you’re thinking about it now. Thank you.

Yes, thanks for the question, Connor. So maybe at the highest level, JetBlue typically is targeted mid to high single digit growth rate and then flat CASM ex-fuel. That profile is going to look different next year because of aircraft delivery delays. We have GTF aircraft that will be grounded, and also we’re continuing with the E190 retirement plan. And so the growth profile will look different. As you mentioned, capacity will be down in the first quarter, slightly down year-over-year, and we’re still working through our 2024 planning assumptions. You should assume that we will pinpoint CASM ex-fuel to be competitive compared to where we put, depending on where we put capacity. The headwinds, which we’ve always known about, is maintenance next year, just given the aging fleet, and also continued pressure on labor, right? And just the inflationary environment, which is consistent with what others have been seeing. We obviously have another pilot step up in August of next year. So those are the headwinds, but those are really the reasons whereby which we put in place the structural cost program. And so the structural cost program is meant to offset some of these headwinds. So working through the planning process, you can expect us to have a competitive CASM ex-fuel number next year once we pinpoint capacity.

Okay. Thank you. That’s helpful. And then on premium products, are you needing to discount those in the current environment? The reason why I ask is you’re seeing a sequential deceleration, versus 2019, from 3Q to 4Q, and I would have thought that maybe even more space would have protected you a little bit. Is that, I think you called out four points of RASM benefit from Mint. Is that continuing into 4Q? Just curious on how those products are specifically holding up. Thank you.

Yes. Thanks. This is Joanna. A great question. Yes. We are really pleased with how well premium continues to hold up, and we would expect those trends to continue into the fourth quarter. As we mentioned in the scripted remarks, as you look at next year, we’re actually taking all 321s in the Mint configuration, and the 220, 190 retirement will be going from 16 EMS seats to 30 EMS seats. So we’re very pleased with the strength that we are seeing in the premium sector moving forward.

Okay. Thank you.

Your next question comes from Michael Lindenberg with Deutsche Bank. Please go ahead.

Hi. Good morning. This is actually Shannon Doherty on for Mike. Just a quick one. We are hearing that the GTF engine inspection requirements are not based on aircraft manufacturer dates between mid-2015 and mid-2021, but rather the production and the timeline of the contaminated parts, which could be spilling into newer aircraft deliveries. Can you confirm this? And at this point, do you think that your A220s are going to be affected by this issue?

Thanks for the question. So Pratt has given us an initial assessment of JetBlue’s exposure. So we highlighted on the call today we’ll have up to six aircraft grounded by the end of this year, and then that will increase as we navigate through next year. So we’ll end next year with high single digits, low double digit number of aircraft on the ground. So in regards to your specific serial number question, so on the PW1100, so that’s the A321 aircraft, a service bulletin is coming out imminently. And that’s important because it will give a very detailed view of serial numbers and it will solidify what we believe to be our exposure in 2024 and beyond. In regards to the 1500, the majority of our engines were manufactured post-2021. We have a very small amount of engines that were manufactured pre-2021. And so I think that’s what you were referencing in terms of the handful that are pre-2021 are going to need full part replacements. We do have a view on how the A220 PW1500 will impact us next year, and that is built into the mid or high single digits, low single digit number by the end of next year. It’s very small compared to the A321 aircraft in terms of exposure. So hopefully that helps.

Yes, that is. That’s really helpful. Thanks, Ursula. And we saw that you pulled eight percentage points of capacity growth in the March quarter schedules over this past weekend. Was that driven by the anticipated acceleration of the groundings? Or was that a demand-driven cut, maybe something that you’re seeing in the off-peak period before spring break or something? Thank you.

Sure. Thanks for the question. This is Dave. Thank you. The Q1 2024 capacity cut is driven by aircraft availability constraints. So largely, the engines and the delivery delays. And we expect that to remain the case throughout 2024.

Thank you.

Your next question comes from Duane Pfennigwerth with Evercore ISI. Please go ahead.

Hey thank you. Can we talk a little bit about the revenue outcome, capacity up 7%, revenue down 8%. Obviously, you’re taking some steps on capacity into 4Q and into early next year. But maybe within domestic, can you speak about relatively stronger versus weaker markets within the domestic entity, how does your Latin RASM compare with that domestic decline? And obviously, many of these NEA changes were forced on you without much lead time and I guess, over time, you’d be able to plan for that a little bit better. Can you quantify how much the NEA wind-down acted you in the quarter?

Sure. Thanks, Duane. This is Dave. I’ll take that. So clearly, it’s been a challenging environment as we’ve seen demand sort of transition out of the domestic space in the third quarter on a year-over-year basis while at the same time, a lot of capacity was coming in from the industry. Where we’ve been reallocating capacity out of and have seen, I think, the most acute demand challenges have been in some of the shorter-haul markets in some of the business markets. So we’ve really focused there to right size that capacity to the new reality in those markets. The corporate side continues to recover for us, but it’s still well below about 20% below the revenues of pre-COVID. Latin continues to be pretty resilient, and we’ve been growing there and traditionally have done extremely well there. And then some other places like Florida has a lot of industry capacity right now. Demand is healthy. We have no concerns there, but it’s a bit, I’d say, temporarily pressured by industry capacity, which should, I’d say, absorb over time. But we’ve really been focused on the places where we’ve seen demand roll out and making sure that we’re aligned. With regards to New York City, the NEA for the first -- for the third quarter was about a one-point headwind. We did have a partial quarter there as we didn’t terminate until late July. So we did have some sales for the quarter. It grows to about two points this quarter, which we expect to be the biggest impact and then starts to get better next year as we can allocate more capacity out of New York City and take advantage of the redeployments we’ve done recently.

I’ll also add on transatlantic. Also some very strong performance there. 140% ASM growth with flat year-over-year RASM and I think you see some of the moves we’re making in terms of Dublin and Scotland trying to take advantage of that leisure seasonal flying.

Yes, Joanna, you had the honor of having all three of us to answer a question. I think that what we’re trying to be very -- it is very easy to reallocate capacity in this industry. It’s very mobile, it moves quickly. And 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 around not just sort of the immediate trends that we’re seeing now and some of the commentary. But what do we think kind of sits behind that because the really good news for us is the new slot waiver, which we know about now means that we can be much more considered about these changes rather than sort of having to pull latest short notice, order of [Indiscernible]. We’ve got the cost embedded in the business, not really an opportunity to efficiently redeploy that. It’s a very different chessboard we have in front of us for 2024.

Okay. Thanks for those thoughts. And just for my follow-up on 2024 CapEx. It looks like you have a contractual delivery table and then some footnotes with kind of likely deliveries. Simple question. Does the aircraft commitments CapEx of roughly $2.2 billion reflect your contractual or likely deliveries, a very long-winded way of asking you what your total CapEx will be next year?

So there’s definitely a difference between our contractual commitments and what we’re planning. So we’re planning to receive 28 aircraft. However, the CapEx number you referenced is ballpark where we should end up.

And what would we add to that $2.2 billion? What would your total be?

It will be slightly less than that. Actual commitments are higher.

Thank you.

Your next question comes from Andrew Didora with Bank of America. Please go ahead.

Hi, good morning everyone. So Robin, just seems like a lot of the capacity hold down that you talked about on the call is coming from like external factors in the GTF slot extensions at JFK. Can you speak to maybe some of the more proactive capacity adjustments you’re making? What markets make the most sense for your product now? I know you’re looking at moving capacity to international markets, but what are the real structural changes you’re considering right now to kind of help the margin profile going forward?

I said I’m going to start and then hand over to Joanna and Dave. I mean we’ve actually been extremely proactive over the last couple of quarters in reallocating capacity. Clearly, we’ve seen the strength in international that others have seen. We just don’t have as much exposure to it. But I think we’ve got to be really thoughtful around what trends do we see into 2024. If everyone starts pulling domestic capacity, and that’s some of the commentary has been made, we could see a bounce back to domestic much more quickly than we think, and then you may have too much exposure to international. So the team is kind of constantly reallocating and moving things around. And we’re going to continue to do that. I think the other thing that’s going on with our fleet renewal is that with the 220, there’s a broader set of markets that would work compared to 190. The 190 historically had some range considerations and the 220 remove that as well. And so that also creates the opportunity of redeploying outside some of the shorter, more business markets that have sort of been really served by the 190 into sort of more leisure-focused markets as well. So I don’t know if you, I don’t know, Joanna or Dave, you want to sort of...

Yes. Maybe I’ll just add on the leisure front. I mean, I think as you look at JetBlue overall, knowing that this is our core bread and butter and what we were built for. We’ve got the point-to-point network. We have the product offering that covers an array of customers who want different things from a more basic unbundled product to a premium product and then our strength as we see it growing sort of the premium sector. And then you look at that overlaid with being in these constrained environments, whether it’s Boston with gate constraints, or JFK, Newark in places like that. We’ve got a network over the long term that should perform very well in these leisure markets and a product that also perform as well. And then you wrap that with loyalty and just with travel products creating that leisure ecosystem, over time, we expect it to produce some nice results. We’re just in a more challenging environment right now as we navigate through this quarter into next year with some of these external headwinds facing us around engines and excess capacity in some of the leisure markets.

Okay. And then just as a follow-up, I know you mentioned corporate travel has improved, and sorry if I missed this, but can you quantify that quantify the corporate travel improvement? And is this more of a New York comment? Or are you seeing it more broadly across your network? Thank you.

Sure. This is Dave. So corporate travel has had a very nice step up since Labor Day. We’ll admit it had sort of softened over the summer and appear to be a seasonal thing that happened at beginning of the summer and then it bounces back to the end. But if you look at, say, since COVID, if you look at our best 7 booking weeks since COVID started 3 to 4 years ago, 6 of them in the past 2 months. So we’ve seen a real nice pickup here. I mean in terms of personal recovered, we’re still sort of 80% or low 80s, but we are seeing that sequential improvement also seeing some areas like media and entertainment, which has seen some softness over the summer with strikes picked back up in the fall. So feel good about how we’re progressing on the corporate side, but still feel it’s largely in steady state, and we’ll just grow sort of with the economy going forward.

Got it. Thank you.

Your next question comes from Helane Becker with TD Cowen. Please go ahead.

Hello, hi everybody. Thanks very much for squeezing me in here. So I just have a clarifying question. I have two questions. One is, I think, Ursula, you mentioned competitive CASM ex. Can you just say what competitive CASM ex means?

Yes. I think we’re obviously going to have a much lower growth profile than we have historically. And so if you look at competitors’ performance at a lower growth profile, I would envision us being in that same realm. Again, we’re still going through our planning process for 2024. But I guess you can expect us to ensure that we’re building a plan with a CASM ex that is competitive based on the growth rate that we pinpoint compared to historical competitor performance.

Okay. I think that’s helpful. And then just my other clear question. On corporate, where you’re talking about New York being slow to come back. Actually, can you parse out how many a way, is there a way to parse out trips that are just one day, like are those the ones that aren’t coming back versus trips that are two or more days?

Yes, thanks Helane. So certainly, yes, we’re seeing the most pressure on the short-haul day trip market, and we’re seeing that in our network and sort of the global data seems to be indicating that in other parts of the world as well. And that’s one of the places we’ve been rightsizing is on those sort of day trip markets, keeping still a robust schedule, but some places we’re hourly. We’re now sort of hourly when it counts at the key times a day and then every couple of hours, the rest of the day. So that’s certainly been our experience to sort of the hall of the sorts going to come back.

Got it. Okay, thank you.

Your next question comes from Stephen Trent with Citi. Please go ahead.

Good morning everybody and thanks for squeezing me in. And thank you very much for taking my question. Just one clarification here. I appreciate a lot of this whether stuff is out of your control but you mentioned taking some steps to try and ease the disruptions. And could you just give a little color if that was adding crew bases or doing something in your schedule, maybe AI in your flight scheduling or something? Would just love to hear that. Thank you.

Sure. Yes, I can speak to that. So a few things. I think number one, how do you make sure the day is more resilient. You do that by ensuring you have adequate reserves in place, whether that’s pilots or in flight. And so we’ve done that. I think the good news is we’re getting smarter about how we do it, so it’s more efficient. But for the foreseeable future, we will have additional reserves in place during peak and summer periods to protect the operations so that when you experience long delays and crews bump up into their hours limit, we can replace them. That’s kind of the first thing. We’ve also gotten, I think, much smarter around how we think about the day, so AI tools that can enable our system operations team better plan today, and we’re in the process of introducing a number of these. So one example, when you have lengthy delays and long air traffic control initiative that can be longer to fly from New York to Caribbean, for example. And so you may protect that flight by double crewing it. We want to make sure if we double crude these things, we’re doing it in the most efficient way, so we save costs. So we’re getting smarter about making decisions on which flights to double crew and which flights not to double crew by way of example, also how you cascade the lease through the day and making sure that we understand when we do see aircraft control delays earlier in the day that cascade through the day. We’re making smart decisions on what flights to hold on to versus what flights we may want to proactively cancel. We’re not there yet, but well underway in terms of building tools to better enable our team to make decisions day of as we address this more challenging operating environment that JetBlue operates in.

And if I could just add to that. I do think that -- we’ve got a whole sum of experience to look back on and really partner with the FAA, who are absolutely committed. We have a new administrator who is the perfect person for the job in Mike Whitaker. And whilst the staffing challenges won’t go away, we can accomplish a lot by mitigating. Now we’ve got the 10% slot waiver. It’s been done ahead of time, which is terrific. We’re -- JetBlue is going to continue to advocate may not be enough or 10% should be mandated. 10% should include international carriers. Now this is our view. Ultimately, the FAA is the final decision-maker on that, but we can advocate for our perspective. And also as the summer went on and as the airlines and the FAA kind of built sort of ways of working to do with these issues, we saw better performance overall as well. And so I think we -- a whole year nearly to [indiscernible] his team do and give a better job. When we kind of -- at more things on time, out revenue from ad and post business quickly, if you’re protecting [Technical Difficulty] impact . So we’re going to continue to -- it’s our really number one operating priorities to kind of improve, try and make sure next summer is better than this summer.

Many thanks Robin, you were breaking up a bit there, but I think I got the gist of what you were saying. And thanks for the time.

Operator, can we move to the next question? Operator, can you hear us? Operator, if you can hear us, we are -- we can go ahead.

I’m so sorry about that. Your next question comes from Chris Stathoulopoulos with Karan International. Please go ahead.

Thank you this is Susquehanna International. I’ll keep it to one question. It’s been a long call. So Robin, I want to go back to your comments you made around this chessboard as it relates to thinking about your network for next year, Ursula spoke about reallocating capacity to margin-accretive leisure and VFR markets. I’m curious where those are. We’ve heard from another competitor that sort of the plan here. It doesn’t seem that there’s sort of areas that are perhaps untapped and kind of looking at some of these more leisure-focused destination capacity as it stands today is up double digits. I realize you had a midpiece here, but trying to square that away with how, for instance, the travel products might kind of fit into all of this. So is this sort of a wholesale we look at geography or kind of fine-tuning, just would love to hear some your thoughts there on this...

Yes, I’m going to Dave to maybe pick that up. Thank you.

Sure. Thanks, Chris. This is Dave. As mentioned before, we’re increasing our mix of leisure even more heavily as we reallocate out of some of the shorter haul business, but we feel very confident in our ability to compete and win. I mean these are the markets JetBlue was founded to and designed to serve 23 years ago. These are the markets we had in mind. We built our loyalty program when we updated it earlier this year to introduce things like tiles like you have increasing customers, even more rewards and more incentive than they get through other loyalty programs. It fits right into our JetBlue travel product, which is designed provide a holistic experience and drive a lot of ancillary revenue. It goes with our point-to-point network, it goes with our customer service. So we have our six focus cities in our leisure focus, and we’re going to compete hard and we’re going to win in those markets. And of course, there’ll be tweaks around the corner or around the edges, and we’re doing that very actively with -- we had about a dozen markets we’ve closed or announced closure over the last two months. We’ve closed two cities. But for our bread and butter for Florida and the Caribbean and Transcon, we’re going to fight, and we’re going to win market.

Yes, I think the point yes, just -- I mean, the point I was trying to make as well is that obviously, the industry far data we have is historic. We see short-term sort of trends. It’s also trying to kind of get ahead of that and think through what markets may be -- there was lots of commentary last week about Las Vegas. And so there’s now so much capacity to get put out of Vegas, Vegas becomes a stronger pro forma gain. So -- all I’m saying is we’re trying not to just respond to what’s in front of us, but be thoughtful and think through what are the things we need to do that more closely aligned with our strategy to drive margin recovery. And that’s what we’re going to be focused on and more news to follow as we get into next year. But I think that the message for 2024 is going to be capacity constraints because of the engine issues and the delivery delays we have. And so we want to make sure we’re flying the most margin accretive markets given those constraints.

Okay. Thank you.

There are no further questions at this time. Please proceed.

And that concludes our third quarter 2023 conference call. Thanks for joining us, and have a great day.