JBLU - NASDAQ

Ladies and gentlemen, good morning. My name is Abbey and I would like to welcome everyone to the JetBlue Airways Second Quarter 2025 Earnings Conference Call. As a remainder, today's call is being recorded. [Operator Instructions]. I would now like to turn the call over to JetBlue's Director of Investor Relations, Koosh Patel. Please go ahead, sir.

Thanks, Abbey. Good morning, everyone, and thanks for joining us for our second quarter 2025 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 at our website at investor.jetblue.com and on the SEC's website at www.sec.gov. In New York to discuss our results are Joanna Geraghty, our Chief Executive Officer; Marty St. George, our President; and Ursula Hurley, our Chief Financial Officer. 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. Such forward-looking statements include, without limitation, statements regarding our third quarter and full year 2025 financial outlook and our future results of operations and financial position, including long-term financial targets, industry and market trends, expectations with respect to tailwinds and headwinds, our ability to achieve operational and financial targets, our business strategy and plans for future operations and the associated impacts on our businesses. 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 as well as our fiscal year 2024 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. 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 reference certain non-GAAP financial measures. For an explanation of these non-GAAP measures and a reconciliation of the corresponding GAAP measures, please refer to our earnings release, a copy of which is available on our website and at sec.gov. And now, I'd like to turn the call over to Joanna Geraghty, JetBlue's CEO.

Good morning, and thank you for joining JetBlue's second quarter earnings call. During the second quarter, we made meaningful progress with JetForward and met or exceeded guidance across all key metrics. Despite facing an uncertain macro backdrop, I am pleased that we produced a modest operating profit. We ran a strong operation and once again saw significant gains in customer satisfaction, with second quarter Net Promoter Score up double digits year-over-year. I want to take a moment to thank our crew members. These results are a reflection of all of their hard work. As we entered the second quarter, demand stabilized, and then accelerated as the quarter progressed. This resulted in a higher mix of close-in bookings. I'm encouraged that we also saw this close-in strength carry forward into July. However, I will note that weather and ATC-related disruption throughout the month of July have impacted operations. In May, we marked another JetForward milestone, introducing Blue Sky, our collaboration with United Airlines. I'm pleased to say that we received confirmation that the Department of Transportation has completed their review and we are now able to begin implementing Blue Sky. We'd like to thank Secretary Duffy, Assistant Secretary, Edward and the entire team at DoT for their engagement and thoughtful review of Blue Sky. As a reminder, this collaboration will benefit customers, increase the utility of TrueBlue and further strengthen each airline loyalty program. Blue Sky will enable JetBlue to sell nearly all of its flight on united.com via a traditional interline agreements and vice versa with the opportunity to earn and redeem loyalty points across each other's networks. United will also transition its distribution of non-flight ancillaries such as hotels, rental cars and more to our travel product subsidiary, Paisly, turbocharging its high-margin growth. Blue Sky links two complementary networks with industry-leading products and services to increase customer choice and benefits while promoting healthy competition. The collaboration is expected to contribute an incremental $50 million in EBIT through 2027, accelerating JetForward. Including the benefit from Blue Sky, we are increasing our target for JetForward EBIT to a range of $850 million to $950 million through 2027. Marty will share more details on the individual drivers, but we are excited that Blue Sky will build on the tremendous progress we've made to date. We are also pleased to report that our aircraft on the ground forecast due to the Pratt & Whitney GTF issue has improved, and we now expect the cycle through grounding much faster as a result. The revised forecast enables us to begin growing capacity again in 2026 through the end of the decade and achieve a more favorable unit cost growth trajectory. Ultimately, this will support our path back to restoring profitability. Turning to Page 4 of the earnings presentation. In 2024, we had a strong start to JetForward and realized $90 million of EBIT early due to success of revenue initiatives launched last year that ramped faster than we anticipated including preferred seating and enhancements to our Blue Basic offering. In the first half of 2025, we've continued building on that momentum, realizing an additional $90 million in EBIT across our four priority moves, despite a far more challenging macro environment. Cumulatively, we've achieved $180 million EBIT to date and remain on track to reach $290 million in JetForward EBIT benefit by year-end. Our efforts to drive a more reliable operations, part of our reliable and caring service priority move, have brought significant operational improvements in the first half of 2025. Our on-time performance was up 3 points year-over-year and completion factor was up 0.5 point, both industry-leading improvements. These improvements are also reflected in our customer satisfaction scores. And for the first half of 2025, our Net Promoter Score was up double digits year-over-year, building on improvements made in 2024. In all, efforts to run a more reliable operation have contributed approximately $15 million of incremental EBIT benefit over the first half of 2025. We realized cost benefits from reduced disruption-related spend such as lower overtime pay and fewer customer re-accommodation. Additionally, we are seeing indications that customers are choosing us more often, proof that the investments we are making in our operations, such as implementing increased schedule buffers and launching new tools to enable customer self-service are having a positive impact. We believe that on-time performance and customer satisfaction are leading indicators for improved financial performance and that running a strong operation is essential. These investments are especially important when we face disruptive weather, which is often compounded by air traffic control challenges as we have experienced across our network in July. Our efforts to adjust the network to our strengths and build the best East Coast leisure network are also maturing nicely. As you recall, in 2024, we closed 15 Blue Cities and redeployed over 20% of our network, as we realigned to serve our core customer. These changes are ramping and are showing signs of relative improvement. For example, newer markets in secondary Northeast cities are exceeding expectations and are showing positive early traction. Overall, network optimization represents $15 million of incremental EBIT over the first half of the year. As part of our products in first priority move, preferred seating continues to outpace expectations and our new premium credit card is on track to double full year projections for acquisitions, highlighting the tremendous amount of demand by customers for our premium products. Lounges slated to open in JFK during the fourth quarter and in Boston Logan in 2026, remain on track and will complement our premium car to enhance the overall value proposition of TrueBlue. We are also updating our onboard experience to better serve our premium customers. This includes the enhancement EvenMore launched earlier this year, and we also remain on track to begin rolling out domestic first class in 2026. At the same time, we are reinvesting in our brands and living the fund value. 25 for 25, JetBlue's 25th birthday promotion, our partnership with Bad Bunny and our newly released Dunkin' and Super Mario delivery are driving excitement and reinforced our unique style and brands. Altogether, products and perks have generated $35 million of incremental EBIT during the first half of 2025. Lastly, our cost transformation is underway to secure our financial future with around 100 initiatives focused on technology enhancements throughout our business, supporting customer self-service, disruption management and fuel savings. In total, cost savings have driven $25 million in EBIT and have contributed to our controllable cost outperformance with the second quarter marking our seventh consecutive quarterly cost beat. JetForward is a comprehensive multiyear transformation, and we are making meaningful progress. Our operation is improving. We are building on our industry-leading in-flight experience, and we are getting back to our roots, reigniting JetBlue's spirit of innovation and disruption. We know there's more work ahead, but the momentum we've built gives us confidence that JetForward is the right plan, supported by the best crew members in the industry and a leadership team that is acting with urgency to meet the demands of a dynamic operating environment. With that, over to you, Marty.

Thank you, Joanna, and thank you all of our crew members. As Joanna noted, improvements to our operational performance and customer satisfaction are true testament to the work that you do day in and day out. It does not go unnoticed. I'm thrilled to share that during the quarter, JetBlue was recognized by J.D. Power as the top airline for first and business class customer satisfaction in The 2025 North America Airline Satisfaction Study. Our core experience also rose three spots, the second place in the economy and basic economy segments and two spots to the second place in the premium economy segment compared to 2024. JetForward and your commitment to the plan are driving real results and recognition. Over the quarter, we saw encouraging signs of an improving demand environment as the number of close-in bookings accelerated as the quarter progressed. Before we review quarterly results, I want to take a moment to talk more about BlueSky. I'm very excited we announced this new collaboration with United. As we evolve our network, it is even more important to provide customers with more choices to earn and redeem TrueBlue points. BlueSky features three primary value drivers. First, it will greatly increase choice for TrueBlue members through the implementation of our traditional interline agreement, which expands our distribution reach and customer choice by cross-merchandising flights on one of those websites and apps. Second, the collaboration promotes the growth of our Loyalty business by offering reciprocal earn and burn between programs and elite status recognition, increasing utility of our points and the breadth and value of our program. Lastly, the collaboration will supercharge as high-margin, high-growth and capital-light Paisly business, which is JetBlue's white label platform for the distribution of hotels, railcars, cruises, travel insurance and packages on the brands such as United and others. These EBIT benefits are split between our network priority move for interline benefits and a product priority move for Loyalty and Paisly benefits. BlueSky is accelerating our transformation while bringing demonstrable benefits to customers across our system. Further, while the partnership is expected to begin generating value as soon as the fourth quarter, we are already seeing promising early traction. Since announcing BlueSky at the end of May, new credit card sign-ups accelerated in June. In fact, we have seen a double-digit increase in average daily card acquisitions in geographies outside JetBlue's core markets. This is the early evidence that the collaboration is increasing our relevance and making the TrueBlue program more attractive. On Slides 8 and 9, we discuss the details of our second quarter revenue results and our unit revenue progression moving into the third quarter. We ran a strong operation during the second quarter and achieved a completion factor of 99.6%. Weather was generally favorable during the quarter despite the typical conductive weather challenges we saw during the back half of June. We ended the second quarter with capacity down 1.5% year-over-year towards the better end of our initial range of down 3.5% to down 0.5%. Demand trends for the first quarter continued into the second with bookings characterized by strong feeds and relatively weaker troughs. As the quarter progressed, we saw a significant strength in bookings within 14 days of travel. The close-in bookings were especially apparent for peak travel and throughout June. In addition to close-in strength, our second quarter RASM results were supported by actually the better match supply with demand. Early in the quarter, we took significant capacity action in the troughs, and we removed almost 8 points of our peak capacity for May and 3 points in June compared to the plan at the beginning of the year. Both the Easter and Memorial Day, weekend peaks performed well. The Easter shift added almost 1.5 points to the second quarter RASM. Peak RASM for the quarter was positive on more capacity year- over-year. We also experienced nearly 1 point on RASM benefit from Newark book away. As air travel disruptions caused customers to temporarily shift travel to alternate airports and multiple neighboring states. That benefit was transitory, as the runway reopened in early June. Overall, unit revenue declined 1.5% year-over-year in the second quarter, 2 points above the top end of our guidance range. The nature of close-in bookings made forecasting challenging, even within the quarter. And in May and June, revenue generated within 14 days of travel increased 7% year-over-year. Premium Cabin, Loyalty, and Transatlantic continue to demonstrate resilience. Premium unit revenues were up mid-single digits year- over-year during the quarter and Loyalty remunerations were up 9% year-over-year. International continued to perform well with Transatlantic unit revenues up low single digits for the quarter. As you look to the third quarter, we have seen the close-in strength carry into July, including the 4th of July holiday peak. We expect year-over-year unit revenue to be down between 6% and down 2% on ASMs ranging between down 1% and up 2%. As Joanna mentioned, we had to face more weather challenges than usual and elevated air traffic control delays throughout July, which have pressured the operation and our completion factor thus far in the third quarter. Our third quarter capacity guidance assumes a more typical operating environment for August and September, and we'll continue to monitor our operations closely as the quarter progresses. We anticipate a similar demand environment in the third quarter compared to the second with a continuation of strong peaks, elevated close-in bookings and weaker troughs. Notably, while demand is improving, there are a few onetime considerations that are impacting our sequential RASM progression. In the second quarter, we benefited from both the Easter shift and Newark, representing roughly 2 points of RASM uplift. During the third quarter, we will be lapping 1 point of CrowdStrike benefit or unlike many of our peers, we realized a revenue gain from peer book away during the event last year. Additionally, the midpoint of our guidance for the third quarter translates to a roughly 2-point sequential increase in year-over-year capacity. Adjusting for these considerations, our third quarter RASM guidance implies continued demand and unit revenue improvement as we head into the second half of the year. Further out at the end of the fourth quarter, we are optimistic that demand will continue to improve, and we're using this as our overarching planning assumption. However, revenue forecast remains challenging given elevated levels of close-in bookings and an improving but still choppy macro environment. Therefore, we will not be providing revenue guidance beyond Q3. Thank you. And now over to Ursula for an update on our balance sheet and cost outlook.

Thank you, Marty. During the second quarter, we generated a modest operating profit, a small step on our road to sustain profitability. We also adjusted our fleet plan, remain disciplined with our balance sheet and continued executing on our cost goals. These actions are grounded in our overarching objectives to enable capital-efficient, long-term growth, drive profitability and generate free cash flow. Turning to Slide 11 for an update on our fleet. At the onset of the year, we shared that our Pratt & Whitney GTF-related aircraft groundings were expected to average mid- to high teens for the duration of 2025 and to peak 1 to 2 years into the future. I'm very pleased to announce that the forecast for aircraft on the ground has improved materially, and we now expect to average fewer than 10 AOGs this year and believe that 2025 represents the peak with the number set to reduce as we progress into 2026 and fully resolve by the end of 2027. The improved AOG forecast is primarily driven by the extension of required maintenance intervals due to better-than-expected GTF durability performance and aggressive self-help we have undertaken to source spare engines. As a result of geared turbofan challenges, we have not grown capacity since 2023, which has put meaningful pressure on unit costs and significantly impacted profitability. The revised forecast now positions us to return to long-term capacity growth beginning next year. Since these aircraft are returning to service and are not new deliveries, they represent an extremely capital-light source of growth. This will allow us to return to a more favorable unit cost growth trajectory, supporting our return to profitability and free cash flow generation. Growing sustainably is important to our JetForward strategy, and we have pursued various initiatives to balance growth, optimize earnings and preserve capital across our fleet types. With our A320 fleet, we had planned to resile all 10 of our remaining A320 classes to mitigate AOG capacity pressure. Given the improved AOG forecast, we have decided to pause the restyling of 4 aircraft and will instead park them after the summer peak as previously communicated to our crew members. As we manage growth and balance sheet health, we have also decided to sell our two upcoming XLR deliveries. As a reminder, last year, we deferred roughly $3 billion worth of aircraft deliveries into the 2030s, including the majority of our A321 order book. Inducting these XLR deliveries would result in a costly orphan fleet of two aircraft for the remainder of the decade. Lastly, as previously announced, we officially end E190 flying at the end of this summer, simplifying our fleet from three to two types, the Airbus A220 and A320 families. The A220 replaces our E190s and offers higher gauge with 90% greater premium seat exposure and better fuel efficiency, resulting in a 25% to 30% improvement in direct operating cost per seat. We took delivery of our 50th A220 earlier this month, and the fleet type represents the majority of our order book through 2029. For our E190 fleet, I'm pleased to announce we now have binding sale agreements for all 25 owned E190 aircraft and engines. The transition began in the third quarter and will continue through the first half of 2026. Altogether, our revised fleet plan will enable sustainable and capital prudent capacity growth through the remainder of the decade. Starting in 2026, we anticipate CapEx will decline steadily through the end of the decade, commensurate with our delivery schedule and trend below $1 billion annually. The fleet actions will also help to preserve liquidity in the short term. And in the second quarter, we ended with $3.4 billion in liquidity, excluding our $600 million undrawn revolver. This represents 37% of trailing 12 months revenue compared to our liquidity target of approximately 20%, and we remain on track to end 2025 in excess of our target. Turning to Slide 12 for our second quarter cost results and third quarter outlook. The second quarter was another strong quarter for cost performance, driven by our operational execution and the progress of our JetForward cost transformation program, the team successfully mitigated pressures from closing capacity adjustments to end the quarter with CASM ex fuel up 6% year-over-year, better than our initial guidance of up 6.5% to 8.5%. This marks the seventh consecutive quarter we have achieved or beat our cost guidance. The beat is primarily from a better-than- expected completion factor for the quarter as well as timing shifts in fleet transactions. In addition to reducing capacity, we assessed our organizational structure and combined or restructured certain roles for greater efficiency at the leadership level. We also implemented across-the-board budget reductions at support centers and are closely assessing all spending. A portion of the beat was attributable to these cost actions during the quarter, as we took steps to respond to the evolving demand environment. As part of our efforts to return focus to our core business, we also announced the sale of assets from JetBlue Ventures to Sky Leasing. This unique transaction allows us to retain the upside of the investment portfolio and other benefits, including continued access to cutting-edge companies with greatly reduced costs. We expect to begin realizing these savings over the second half of this year. For the third quarter, we expect CASM ex fuel to be up 4% to 6%, with approximately 3 points driven by maintenance and roughly 2 points from crew member wages, as we fully lap the pilot wage increase from last August. Additionally, our third quarter CASM ex has been pressured by a difficult operation in July, representing a 1-point CASM ex headwind from overtime premium wages and other disruption related expenses. Our guidance assumes a more typical operating environment for August and September. Also for the third quarter, there are roughly 2 points of CASM ex benefit driven by fleet transactions, the majority of which is the gain on sale from a portion of our A190s. We expect jet fuel to be in the range of $2.50 to $2.65 per gallon over the quarter, and we currently have no fuel hedges in place. For the full year, we remain focused on controlling what we can, and I'm pleased to announce we expect full year CASM ex fuel of up 5% to 7% year-over-year on 1.5 fewer points of ASMs at the midpoint of our guidance. This reinstates our initial unit cost guidance from the onset of the year despite lower capacity, illustrating the benefits of our strong operations and cost reduction programs. At the same time, our full year interest expense remains unchanged at $600 million, and our new capital expenditure forecast for 2025 is $1.2 billion, down slightly from our prior guidance. We are working tirelessly to deliver value to our owners, customers and crew members. And we remain confident that JetForward is the right plan to get us there. We have the team, the strategy and the runway in place to drive transformational change, and we're already seeing clear tangible results in our operations, in customer satisfaction and in our path back to profitability. Thank you, and we will now open it up for questions. Back to you, Abbey.

[Operator Instructions]. And our first question comes from the line of Dan McKenzie with Seaport Global.

Great job on the second quarter. A couple of questions here. If I could just start with growth from diminishing AOG starting in 2026. Wondering if you can just help us size the pace of that growth that we should expect? And just related to this, how much larger could JetBlue be today without adding pilot headcount?

Thanks for the question. Given all the puts and takes with the fleet, we tried to lay out all the transactions that essentially are delivering us to be able to grow low single digits starting in 2026 through the end of the decade. So we're extremely pleased with the improvement in the AOG forecast, which we will complete and be through by the end of 2027. And then, we've been trying to optimize the rest of the fleet, whether it be retiring E190s, simplifying it by selling the two XLRs and then deferring just some resales. So we landed on this low single digit. Obviously, we're willing and able to respond to the macro backdrop over that time frame and increase capacity slightly or decrease capacity to better match the outlook based on the demand environment. So that's the trajectory. Obviously, we're extremely pleased to be able to see the light at the end of the tunnel in terms of the AOGs, because this has been a material headwinds on JetBlue. And I do believe that when the macro environment continues to improve, this will be a tailwind for us.

If I could just add on the pilot question, we have a sufficient number of crews. We've been managing the challenges with AOG through a series of voluntary programs across both our pilots and our in-flight and our airports. And so the benefit of voluntary program is that because we knew the AOG issue was transient in nature, we will be able to sort of adjust our staffing levels appropriately as these aircraft come back into service.

Yes. Very good. Marty, if I could go to JetBlue's 51 Partners. I remember when JetBlue first began adding partners, the stat you would share with us all was that these partnerships were filling the equivalent of two to three planes per day. I'm just wondering, where is that stat today? And then related to that, is there less international inbound today that you would expect to come back in 2026 and '27? And roughly how many percentage points of RASM can that increase connectivity typically drive?

Okay. Well, a lot of questions, Dan. Thanks. Let me start with this. We have 51 partners today. And we're -- we feed in multiple focus cities, and we're really happy with the partner portfolio that we have. Obviously, the United partnership is going to be very, very important for us, and we're really excited about adding United into the portfolio, not just from a perspective of feed, but also what it's going to do for TrueBlue, what it does for Paisly, et cetera. So I feel a lot of upside as far as how that goes. And Daniel, I remember also the comments about, it fills 1 airplane, 2 airplanes. And I think that was back when there was a lot of skepticism about low-cost airlines doing partnerships. Now it seems like everybody is talking about partnerships, including ultra low- cost carriers. So I think we, sort of, don't even look at that way anymore, because our view is this is asked and answered, and we've proven the partnerships are very effective for us. The thing we have going for us is that, if you're an international airline that wants access into the interior of the country, and you're not a member of SkyTeam, obviously, because you've got the one SkyTeam airline with a very big operation in New York and Boston, like your best way to get access into the interior U.S. is JetBlue. And I think a lot of our partnerships -- a lot of partners and partnerships are tied to that presence we have in this marketplace. I will also say not just adding United to the mix, but we're looking forward to working with Star Alliance partners, who we think will also appreciate the ability to get connectivity into the East through New York and Boston. But overall, I feel like there's so many things about the JetBlue model. And again, I came here in 2006 for the first time. So may things about the JetBlue model that people questioned when we first did them, that are now basically accepted as normal course of business for low-cost airlines. And I think it's just another example. We're very proud of the partnerships we've done. We love working with the partners that we do, and I see a lot of upside going forward.

Our next question comes from the line of Tom Fitzgerald with TD Cowen.

I'm just kind of curious, just looking at the different buckets for JetForward, the four priorities. Are you able to provide any color about how, as you go from the 180 to the 290, which are the four buckets, what you expect the contributions to be?

Yes. I can take that. I think, in general, it's kind of spread evenly across the four buckets. I think as you think about the back half of the year, network ramping continues to be a meaningful driver. Most of the change we made in the network relapsed Q3 last year, and they're nicely in ramp, but we've got a ways to go. So pleased with the progress. As we mentioned, we've realized $180 million of EBIT cumulatively, $90 million 1H. We'll see another $110 million through the year-end for a total of $290 million by the end of this year. And we have very clear proof points across each one of the priority moves that JetForward is working. But it is a multiyear plan, and it's going to take some time to realize the full benefits of it.

Okay. Great. That's really helpful. And then just as a follow-up, I'm just wondering if you mind providing any more color on just kind of customer trends like by the different segments over the course of 2Q and then just quarter-to-date, what you have kind of on the books, whether by, kind of, core leisure, VFR, TrueBlue loyalty members, corporates?

Tom, I'll take that one. Thanks for the question. As far as what we're seeing, a lot of what we're seeing is similar to what we've heard from other airlines in their calls, definitely doing better for international than domestic, definitely doing better for a premium versus the basic-type customers. So I think we're sort of consistent with what we're seeing. We continue to see good numbers at TrueBlue. And we talked about some of the numbers as far as the growth of the credit card, our remuneration. I think overall, the trends are actually good. I think the most important trend is one that I give all the credit to our crew members for is our Net Promoter Score. The last report we had done for Net Promoter Score, we were at the top of the industry for NPS. And frankly, we've come a long way in the last 3 years. So from that perspective, I, sort of, look at that as, sort of, the front third of the drink, so to speak, if we can use the baseball analogy. Because without a great customer experience, we can get these customers on board once but they may not come back. But I had a great gratitude for our crew members providing just amazing service so that the customers who do fly JetBlue are really happy and hopefully come back. And frankly, I'm looking forward to having our partnership customers, whether United or Lufthansa or whoever ends up being a partner, come to fly JetBlue because, again, I feel like once you try us, once you'll recognize how much better JetBlue is, and well you very much appreciate the JetBlue experience and look for us in the future. I should have mentioned, you asked about business customers. In general, we have -- year-over-year, we've taken a pretty big hit to our business customer network, because we've closed a lot of the business routes we flew at LaGuardia. Notwithstanding our business revenue is basically flat quarter over -- year-over-year for the quarter. So I actually see it as a very good sign.

And our next question comes from the line of Jamie Baker with JPMorgan.

Marty, a question on JetBlue. Do you have a view on where they fly with their 7 daily frequencies? I mean, I'm assuming it's Transcon as opposed to, I don't know, flying at Dallas or something like that from JFK. So if it is Transcon flying, have you modeled for that increased competition as part of your overall Blue Sky estimate?

Jamie, this is Joanna. I'll take that. So as you know, it will be illegal for us to discuss with our partner where they may intend to fly the JFK slot. So we have not had those conversations, nor do we intend to. Obviously, we've made certain assumptions in our model as to what the impact of United flying those swaps may be and that is included in the value of the overall deal. There's obviously a series of puts and takes. United was obviously addressed in the slots and there is an impact to JetBlue if they operate those slots to a variety of different markets. At the same time, selling the JetBlue network over United.com has a very important revenue benefit for JetBlue. Likewise, the utility of the TrueBlue program and giving our customers global access, as you know, we sort of focused our own network on trying to drive scale in the Northeast. This is about trying to give scale to our customers to a global network. And then Paisly is, sort of, the real upside here in terms of the unique opportunity for us to basically provide a white label platform for United to sell its non-air ancillaries in the future.

Okay. Perfect. And then maybe, Marty, this is one for you. And maybe it's too early to ask this question, but you're obviously aware that certain struggling discounters are trying to lean into premium. I mean, it's more of a leg room exercise really. But in any case, in overlap markets, have any of those new products that have begun being sold by your competitors having any impact on your results?

Jamie, great question. And I will tell you, we have seen no impact whatsoever from any of these so-called premium products that are competing against us. I think, if you look at our 15 years experience or actually 20 years of experience, including even more legroom of premium products, we have great, great credibility with our customers that we can offer a great, great premium products. And I feel like you can try to do that in a ULCC environment, but I really don't feel like it's kind of come close to what we've been offering for 20 years. So from that perspective, I think I'll paraphrase, Harry Truman, when the customer is choosing between a real premium product and a fake premium product, the real ones are going to win. And fundamentally, that's what we're seeing right now. And if you look at -- we just went through our recent announcement of some growth in Fort Lauderdale where our biggest competitor is ULCC. And frankly, I feel like that is an example of how well we are doing in that market. I mean we really are the only non-ULCC option in Fort Lauderdale, and we're very competitive with the Hub Airport down a couple of miles down the beach. But even with all that, I think it's also worth mentioning bringing us back to JetForward, we continue to evolve our premium products. We relaunched EvenMore with enhanced customer experience. And like most importantly, we announced the domestic first class product that's coming out next year. So even as well as we've done in premium and as well as the revenue results have been, we're not resting on our laurels. We'll continue to do more exciting products. We could not be more excited about the domestic first-class product. And frankly, I think our timing is great for it because we're really seeing that, I keep using the phrase, the barbell -- get the barbell of, a lot of demand is at the bottom, a lot of demand is at the top, and we are really well positioned to capture that demand at the top of the demand curve.

I appreciate that. It actually was some of those Fort Lauderdale ads that you announced that actually got me wondering about it. And I obviously share your skepticism.

Well, again, your feet to my feet don't matter, it's the customers and the customers going with their feet luckily.

We need immediate customer sometimes.

It's just refreshing for me to agree with the management on anything these days, it seems, so yes, I was just pulling that.

Maybe you went to the lounge. Maybe we'll let you into the lounge the same day.

And our next question comes from the line of Savi Syth with Raymond James.

If I might follow up on Dan's earlier question on the capacity growth in 2026, a little bit more. Just how much of that growth is coming from reversals of AOG and even in 2027? I'm just trying to get a sense of just how much of this, at least the very near-term growth in the next couple of years might be highly efficient from a cost perspective?

Yes. Thanks for the question, Savi. I mean, the majority of the projected growth is driven by the improvements in AOGs. I mean, if you take a step back, our original guidance for this year was that we have mid- to high teens number of aircraft on the ground, and we're now trending lower than 10 on average for the full year. We believe that this year is the peak. So as we navigate through 2026, that will come down over time and be complete by the end of 2027. I think, one of the major benefits here is gaining some efficiency on the unit cost growth trajectory. Obviously, we've been pressured in not being able to grow over the last 2 years. And so this should give us a level of efficiency on the cost side of the equation. So again, I'm hopeful that the macro backdrop is going to continue to improve. And when that does, this is going to be a tailwind for us, not only on the growth side, the cost side, but just from a true profitability perspective.

Appreciate that. And if I might, I wonder if you could -- and I don't know if this is a question for Marty perhaps, like just talk a little bit about what you're seeing on the competitive landscape and is like this current environment is causing any kind of change of behavior among any of your competitors?

It's a good question. I mean, honestly, I don't think -- I would not call it anything unusual in the competitive landscape right now. The one thing that I would say is, we're obviously watching very closely, the pull downs we're seeing in the ULCC world, and we've reacted to that with some of the growth reported recently. I think another thing that is important to be on the list is just trying to understand what the likely trajectory is going to be of capacity for the industry, because I would think we're still not exactly clear what the rest of the year is going to look like as far as growth rate, and that's obviously going to be very important as far as understanding what you're expecting for the rest of the year. But overall, I'm not looking at any significantly, sort of, noteworthy change in behavior that I would call out. I don't know, Joanna, if you see something like that.

No.

No. I think we're focused on the changes that we were putting forward in the original JetForward, all the network changes that we went through, and that's -- we're really sort of heads down on that right now.

And our next question comes from the line of Mike Linenberg with Deutsche Bank.

I want to go back to your comment just about the higher mix of close-in bookings, this acceleration. Is this temporary? Is this structural? I sort of think as JetBlue rolls out a first-class product next year, I mean you're probably going to get -- you're going to rebuild your share of corporate. I mean, are we on to something here?

Mike, great question. And trust me, it's a question we ask ourselves every single day, we look at the booking report, at least since we started to see the strength. I don't think any of us are ready to call this to be a permanent change. And it's one of the reasons why we're relatively cautious as far as our guidance. I do think based on the research that we have done, I do believe a big chunk of it is just consumer sentiment and customers being cautious, because of bigger uncertainty with all the stuff going on with tariffs and who knows what other stuff. I'm not sure I understand the core drivers of it, but it certainly has the feeling of the, I'm going to wait a while before I make my booking. I think, the reason I mentioned that is because we really didn't see it in April, so much into any measure. It really was, I would say, middle of May, when we started seeing Memorial Day bookings pick up. We had a fantastic Memorial Day, much better than forecast, and that really carried into June. But it does have the feeling of people just waited a long time to make the final decisions. And then when they decided, they made their bookings. But I don't -- I would not call this something that we expected to be a permanent fixture of a change for the booking patterns.

Okay. Great. And then just my second, I know -- I think, Joanna, you called out the $50 million sort of incremental EBIT because of the United partnership. What was the placeholder amount that you had for partnerships in the original get forward plan? Just trying to get a total size of the United contribution.

Yes, thanks, Mike. Yes, we haven't broken out the total amount. As we've said before and JetForward, there's a number of puts and takes that we're only focused on kind of the contribution of each of the priority moves as a whole. So the $50 million incremental EBIT that's largely associated with the benefits from Paisly as part of the United partnership, but we haven't broken it out. You should expect kind of full run rate 2028 for BlueSky. It takes some time to implement it, and it will be staged with benefits coming over the course of the next couple of years.

And our next question comes from the line of Catherine O'Brien with Goldman Sachs.

Marty, maybe just one more on the revenue environment. Can you just talk about RASM between the months of the second quarter? And then what's underlying the monthly progression for the third quarter guide? Anything you can provide on book yields or loads? And with bookings fairly close in, as you've been talking about, how are you going about your September forecast?

Catie, thanks for the questions. Good questions, too. As far as the progression, I think we really saw an accelerate. We don't generally give a lot of monthly feedback, but I'll just give a little bit right now. We really saw progression sort of Memorial Day forward, and it was pretty hefty progression. I mean, as you saw, we had a pretty big beat for the second quarter. I think, if you asked the exact question on April 30, no one would have predicted a beat like that. But really, when we get to the middle of May, we really started to see things turn on and continue. And that has been continuing through July and August and -- excuse me, June, July and August. And I think the real issue is that, this is one of the only prolonged peak periods of the calendar year. And one of the things that every airline has been calling out, including some of the biggest of legacies is that, there's a pretty significant difference between peak and trough demand. Now clearly, we still have troughs. Our load factor will be down in the third quarter versus third quarter 2024, and the troughs are weaker than the peaks. But in general, this is a period of really good peak demand. Specifically with September, we've done a lot of self-help in September as far as pulling down ASMs. We pulled a lot of off-peak capacity. And again, thanks to some of the programs that Joanna mentioned with respect to voluntary leaves, we're doing the best we can to control our costs during September. And frankly, I think the fact that we continue to meet our cost guide, and we have met it for 7 -- 6 to 7 quarters, I think 7 quarters consecutively, even in light of all these changes, just shows how well we are doing as far as managing our costs even with relatively close-in schedule changes. So I look at this and I feel like we will be well set up for the third quarter guide that we laid out. As of right now, I think with the work we done in September, September actually has the highest year-over-year RASM increase of the 3 months in the third quarter. So I think it just shows how well we've managed September through capacity. So actually very positive about that.

That's great. Maybe one for you, Ursula. With all the fleet updates driving low single-digit growth through the end of the decade, how should we be thinking about your historical comments on low single-digit growth, driving mid-single-digit CASM ex? Should that be better over the next couple of years as JetForward initiatives ramp?

Yes. Thanks for the question. Yes, previously, we've highlighted mid- to high single-digit growth will result in a flattish CASM ex fuel. So if you just triangulate low single-digit growth rate. Obviously, the unit cost performance will be higher than flattish. I'm extremely pleased with the cost performance that the team has been executing to. I mean, at the highest level, we've maintained the unit cost growth guide that we gave last in January despite pulling capacity over 1.5 points. So we're finding ways to take cost out of the business. And some of these decisions have not been easy, between divesting the JetBlue Tech Ventures assets as well as additional budget targets and going through a corporate headcount support center review, like these are tough decisions, but we need to continue to deliver on cost. We've executed for 7 quarters in a row. And I do think the AOG outlook will provide us the improvements that we're seeing here on the AOG outlook will provide us further efficiencies as we build the unit cost growth target for 2026 and beyond.

And our next question comes from the line of Duane Pfennigwerth with Evercore ISI.

Just on the Travel Products business or Paisly business. Can you expand on how you kind of generate a margin in that business on your own bundle? What shape does that take? Is it commission based? Is it kind of a third-party clearing house? Do you have negotiated agreements on room inventory? And then, maybe you could contrast again, high-level broad strokes the margin you make on one of your own customers versus the margin you'd make on a third-party airline customer like United?

Duane, thanks for the question. Great question, by the way. And I love talking about Paisly because, a, it's been a fantastic product for us and a great product for our customers; and b, as you saw from our guide up for JetForward, it's going to be an important part of our recovery program going forward and an important part of BlueSky. So as far as how the math works, it's actually very simple. Just as a reminder for those who don't understand what we do through Paisly, selling all of our non-air ancillary products. So that includes hotel packages under JetBlue vacations brand, it includes stand- alone rental cars at hotels, it includes travel insurance, it includes cruises. We actually have like theme pack tickets, like all sorts of things that customers use that are tied to a flight booking. Interesting enough, we see customers who will book on Paisly, who are not tied to flight booking. We sold cruises originating in Asia, for example, because they like the prices that we have and the ability to earn TrueBlue points. So Paisly has actually been great for our customers. We basically earn on commissions. So we get commissions from the hotels, from the rental car company, insurance, et cetera. We've negotiated. We don't release the exact number, but we're in the 4 digits of the number of hotels with whom we have contracts in addition to a great exclusive deal right now with Airbus for rental cars. And overall, it's been a great profit generator for us. The EBIT margin for Paisly is in the 50s and climbing into the 60s. It's also a very low capital business. The only capital we spend is basically a little bit of IT CapEx. And frankly, what we're most excited about is that we can scale this product up with the addition of access to United customers. And the way we describe it is basically it's the leads business. We bring them 40 million leads -- excuse me, the airline brings 40 million leads a year into Paisly, and now we're going to add 9 digits of leads from United customers. We don't actually know what United's margins are for their current relationships, because that's not something that we would share. But when you look at what we're producing and what we believe we can produce United, they made the independent decision that we would do a better job of generating profit for them than their current partners. We are splitting the commissions. We're not releasing that split publicly. So unfortunately, I can't give you that amount of detail. But we're really excited about it. I know this is something that we are extremely good at. We have a group of people who are red ring from JetBlue, separate IT systems, separate everything. They're in Fort Lauderdale. They're not in New York. And this has really been set up to be a white label for multiple brands. We are talking to additional airlines over and above United. And in fact, we're talking to some non-airlines. And this group is very, very good at the job, and we're really excited about its ability to contribute to our profitability going forward.

Our next question comes from the line of Atul Maheswari with UBS.

On fourth quarter -- I know, you're not providing RASM guidance yet, but assuming demand stays at current levels, should RASM improve versus the third quarter, again on a year-over-year basis, so fourth quarter year-over-year versus third quarter year-over- year, does that improve in the fourth quarter if demand stays at current levels? Or does it take a step back given you lap some of the December strength from last year? So just some directional color using your third quarter guidance as a marker would be helpful assuming that the fourth quarter demand is in line with what you've assumed for the third quarter.

Okay. Atul, thanks for the question. I'm not even going to come close to approximately on the guide. So I'm going to answer your question very carefully, because we've deliberately chosen not to guide fourth quarter. And there's really two reasons. One of them is that, when so much of the strength we're seeing in the third quarter is coming from close-in bookings, which is a new pattern for us, I don't know that we want to call that as a permanent change in the booking curve, number one. Number two, there's a lot of uncertainty as far as the ASMs that are going to be out there in the industry. I think if you look at what airlines have reported their growth was, that would give you one assumption on RASM. If you look at what's actually out there loaded and what practice has been as far as people are actually flying, that would give you a different number. And frankly, we are still offering a little bit too many ASMs in the fourth quarter. If you look at our annual guide for ASMs and look what's out there selling, it's right very easy to do the math that we have probably a little under 1 point of ASMs to pull in the fourth quarter that are still out there selling. So I think with the lack of visibility on both the pace on how permanent this change in booking patterns will be and also on whether the capacity cuts in the fourth quarter will go forward for the rest of the industry. I think it's too early to tell. That being the case, I think that what we've seen as far as the bigger performance in second quarter and then on top of that, the progression in the third quarter, we're feeling very confident about where the revenue environment is as far as recovery. But I think it's way too soon to call the specifics of what you're asking for fourth quarter.

Yes. We have less than 20% booked for Q4. And so as we get a bit closer, we'll be in a position to provide an update.

Okay. Fair enough. And then as my follow-up, as you return to growth next year, where will this growth be concentrated, like what markets, geographies that you believe you're underserving today that could benefit from this growth? And related to that, how do you ensure that this growth does not cause any meaningful RASM dilution next year that could maybe offset some of the CASM ex benefit that you might get?

Yes. Thanks for the question. So we're not going to open the playbook and tell our competitors where we're flying next year. So I think we'll keep that close to the vest until we're ready to communicate more carefully what we're going to be doing with that flying. I think, in terms of your second question around how we're thinking about ensuring that the growth doesn't erode RASM and/or impact sort of that low single-digit cost trajectory. A few things, the growth is very capital-efficient. We already own these aircraft that are coming back into service. So there's very small costs associated with that, as we think about it. If the environment doesn't improve or further degrades, we have a number of different levers we can pull to manage that growth. And I think if you look at what we've been doing this year, we've been doing just that. So we've reduced capacity, we've looked at making actions with the fleet, so we've taken 4 of our 10 classics and we're not going to be restyling those. We've also sold two XLRs and then we can obviously adjust utilization up and down as the case may be. So I think we've got a track record of being pretty aggressive with the fleet to manage the demand environment, whether it's the sales that we've done or as we think about going forward, needing to manage capacity closer in. So we'll adjust as we need to. But the goal is this is very efficient growth because we already own these aircraft, and it should drive improvements to unit costs.

And our next question comes from the line of Ravi Shanker with Morgan Stanley.

Just a couple of follow-ups here. I think you said earlier in the call that you expect BlueSky to be implemented in stages. So how do you think about that kind of ramping in the next 2, 3 years? Is that going to be pretty lumpy? And kind of if you could give us some color on kind of when the next stage is going in? Or is it still going to be pretty linear?

Yes, maybe I'll just grab at a high level. So we're still working on the implementation plan with United. So I don't want to get into a ton of specifics. I will say the NEA has set us up pretty well, the Northeast Latin America and the technology we did behind that has set us up pretty well from a technology perspective. So you'll start seeing kind of earn and burn and interline sales come sooner. There's very little contemplated this year. Those will kind of layer in into '26 and then Paisly would come after that. There's some more technology needed to implement Paisly. Ultimately, we will not achieve, as I mentioned, kind of full year run rate until 2028.

Understood. And Marty, I think you were talking about next quarter and kind of how a lot of capacity has come out and you've taken a lot of trough capacity. But again, just going back to the kind of a little bit of a blindsiding the industry got in February and March and a lot of that came from close-in weakness. Is that a risk that after a pretty decent kind of peak season with summer that close-in continues to kind of resume that drop off, if you will, in the third quarter? And if so, kind of, do you think the industry is taking out enough?

Ravi, I think, the answer is, we know what historical patterns have looked like as far as seasonality. I think the only question is, do we think economic sentiment, customer sentiment will take a step back, and I don't see any indication that that's going to be coming. Again, we do find the close-in nature of this to be a little bit different, which is why we're a little bit apprehensive, but I don't think we're looking at this like waiting for a shoe to drop. If you look -- we've gone back and looked at our four or five relatively big stepbacks in demand, whether it's world financial crisis, 9/11, dot-com bust, things like that. And they follow a relatively predictable pattern. And frankly, we had said that fourth quarter was when we thought there'd be an inflection as far as demand coming back up, because that's what we've seen historically in situations like this, and we actually see it in the third quarter. So from this point, I don't see any reason to be too cautious about it, but I'm probably more worried about the capacity situation than the demand situation. But obviously, we watch it very closely. We do have a good base in the books for the fourth quarter, but we have a lot of bookings to go. So I wouldn't want to get too ahead of myself on that.

Yes, if I could just add. I mean, I think we were the first to call it this year when we saw it, and we made very, very quick steps to try to drive cost savings out of the business and reduce capacity. And so we've got a playbook so that we can try to make the business as flexible as possible when we do see stepbacks in demand. And so I think if you look at what we did in kind of Q1 and into Q2 around reducing capacity, reducing discretionary spending and other cost savings measures, I think we're always focused on how we can try to keep the business as agile as possible in an industry that is more difficult to pull some of those costs out closer in.

And our final question comes from the line of Conor Cunningham with Melius Research.

Just on -- maybe sticking with the -- I mean, I appreciate that you're not giving fourth quarter guidance, because it's obviously very dynamic. But I'm just -- what I think -- I'd love to get your thoughts just on the capacity set up for 4Q in general, because last year was particularly strange for the election and so on. And when I think about how the progression of last year kind of played out October and November were particularly weak and then really, really strong in December of last year post election. So can you -- I think the biggest fear that a lot of folks have right now is that there's going to be too much supply come to fall given the fact that RASM is inflecting a little bit here. So if you could just talk about the setup in terms of supply into the end of this year, just how you think it all unfolds in general?

All right. Thanks, Conor. And yes, obviously, this is one of our biggest concerns with calling in the fourth quarter. But I can only talk about my view of the world. I can't talk about what our competitors are going to do because I really don't know. I know what they've said, and we'll see what they actually do because those tend to have been different at some points. We're pretty consistent with what we say and what we do and things like this. We have -- right now, we do have a little bit more capacity selling in the fourth quarter, that capacity coming out relatively soon. We've given a guide for ASMs for the year and which you can calculate the fourth quarter number out of that, and that's where we're going to fly. I mean, absent some significant change in demand, we do the ASM planning based on what we see demand to be. I think we have made incredible steps in this network in the last year as far as all the changes we made tied to JetForward and then followed that up with some very aggressive sculpting of peak versus trough. And frankly, I go back to the thing which I am eternally grateful for is how well this company has risen to the occasion and continue to meet our cost guide while we were doing some pretty aggressive ASM pulls on the Tuesday, Wednesday, Saturdays of the world. So I think we're at the point now where we feel relatively free to do these margin-accretive activities knowing that we'll get the cost out, and we'll continue to do that. Fourth quarter is a pretty heavily trough quarter. I mean, certainly, October, half of November, half of December, it definitely trough. And we're going to be pretty aggressive as far as filling capacity during those periods. Again, this is not -- I'm not telegraphing you, you always see it out there already in what we've loaded that we pulled the troughs down pretty well. And I look forward, if we see this peak demand coming in like it is right now, I look forward to seeing that in the fourth quarter. But frankly, we are a small airline in this business. Our ASMs are not going to drive significant impact industry RASM like the big four are and like let's -- I think, we'll have to see what they do before we can make a call on that.

Okay. That's super helpful. And then just a point of clarification. Ursula, the 2-point benefit to CASM ex from the fleet changes, is that a sale -- like are you booking a gain that's going to ultimately be a contract expense? I'm just trying to understand the bridge as we move from third quarter to fourth quarter. My guess is there's just some sort of simplification benefit as well, but just any thoughts there, that would be helpful.

Yes. So here's some color on the fleet transaction. So on a full year basis, we're actually going to have a gain across all these asset sales to the tune of 1.25 points of CASM ex benefit on a full year basis, okay? And so then you back up. And in the second quarter, we actually outperformed on the CASM ex guidance and about 0.5 point was driven by a gain on sale of these assets. So when I say assets, we got a multitude of different assets that we've been selling, right? It sees XLR two aircraft, it's the E190s. And then we've also been doing some sale leasebacks on engines as well. So quite frankly, those assets are being pretty well received by the market. And so we're hence booking gains above and beyond what we had anticipated. So it was 0.5 points in the second quarter, we've obviously got 2 points in the third quarter. And then on a full year basis, to round it out, at 1.25 points.