Jetblue Earnings (good News/bad News)

[bluetoad]

JetBlue profit rises, fueled by expansion
January 29, 2004 06:42:00 AM ET



NEW YORK, Jan 29 (Reuters) - Low cost airline JetBlue Airways Corp. (JBLU) on Thursday said fourth-quarter earnings rose as its aggressive expansion led to higher passenger count and revenue.

JetBlue, which has reported a profit each quarter since its public offering in April 2002, said net income rose to $19.5 million, or 17 cents per share, from $15.2 million, or 15 cents cents a share, a year earlier.

Wall Street analysts, on average, had been looking for the New York-based carrier to earn 17 cents per share, according to Reuters Research, a unit of Reuters Group Plc. REUTERS

© 2004 Reuters


Good news is jetBlue still making money. CASM actually went down. Load factors still outpacing capacity increases. Bad news looks like revenues are still under pressure to fill those seats. RASM down

 

[Speedbird]

Just got off the jetBlue CC and must say it went better than I expected on several counts. DN talked about the competitive pressures jetblue is facing at present and made the following statements:

AA 2 for 1 promotion: He expected that overall impact on transcon margins would drop approximately 3% to around 10% overall. He believed that the cost for AA to offer this promotion is unsustainable and will not detrimentally impact jetBlue's ability to remain very profitable on competing routes indefinitely.

Song: Song has had a minimal effect on jetBlue's NY-FL market. Using Sep 03 DOT data, LFs on Song were 54% and 85% for B6. Meanwhile trip costs between the 757 and A320 are 40% less on the Airbus. Despite comparable fare, service offerings, and schedules jetBlue is still flying more passengers than Song in this market.

LGA Slots: JetBlue has been given at least 7 slots which must be used within the next 120 days. One way they may combat excessive ground delays at LGA is to divert aircraft to JFK and move passengers via alternate ground methods to their final destination in NYC. He also said that LGA lines would be "isolated" from the rest of the system to mitigate system-wide delays as a result of LGA operations.

JetBlue is projecting that 04 will see operating margins of between 9-11% in the Q1 and 13-15% for the remainder of the year. CASM should also remain flat at about 6.0-6.2 cents/mile for the year despite fewer ASMs/aircraft, higher fuel costs, and a 100% increase in mx costs from 2003 (primarily engine overhauls).

The news is not good enough for the stock price to maintian its formerly lofty P/E, but good enough to keep jetBlue in business and growing for quite some time.

 

[FWAAA]

I agree with DN about the transcon margins, but he is out to lunch if he thinks that AA's 2 for 1 promotion entails "unsustainable" costs. Restricted T class award tickets cost AA very little money, and even those costs are often pushed out into the future.

But nice buying opportunity this morning as it dipped to $22.30. B)

 

[funguy2]

I agree with DN about the transcon margins, but he is out to lunch if he thinks that AA's 2 for 1 promotion entails "unsustainable" costs. Restricted T class award tickets cost AA very little money, and even those costs are often pushed out into the future.

But nice buying opportunity this morning as it dipped to $22.30. B)

I think the "unsustainable" thing is that on AA for $320 (assming seats available in these classes), a passenger can buy two transcon roundtrips + get a free AAdvantage ticket to Europe.

I am basing this on the roughly $160 roundtrip transcon fares that have been promo'ed lately.

That is probably what DN was refering to. The "costs" aren't unsustainable, but the loss on the service is. AA cannot afford to give away 3 transcon/transatlantic roundtrips for $320 and expect to make money. Even Southwest charges more than this.

 

[Speedbird]

If the 2 for 1 promo is intended to strip away profitability from jetBlue's transcon operations and or force them out of AAs Bos/NYC transcons then it is doomed for failure. DN said that OMs will only suffer by 3% on average for all its transcon services. That is hardly a fatal blow to jetBlue which will still maintain a 10% OM. If this a game of attrition then it appears that AA is behind the eight ball on this one. After this promo is deep-sixed what else is left in AA's arsenal...a 1 for 1?

The idea that this doesn't cost AA a dime is naive at best since passengers redeeming vouchers on this program were very likely to be traveling to higher yielding markets anyway, thus their future potential revenue will be lost in exchange for a couple of $160 R/Ts to Florida.

Also if AA thinks it can manage this program by limiting seats available for the promotion, and then ending the redemption period next April 2005, it will only result in pissing off more passengers who not soon forget that AA was pulling the wool over their eyes. A great program for short-term cash flow, but a long-term loser and a failure based on its original intent.

 

[JS]

The idea that this doesn't cost AA a dime is naive at best since passengers redeeming vouchers on this program were very likely to be traveling to higher yielding markets anyway, thus their future potential revenue will be lost in exchange for a couple of $160 R/Ts to Florida.

I don't know about everyone else, but I never had any intentions of buying a ticket to Hawaii (or wherever I may end up) on my free AA ticket.

 

[AAmech]

Slow down Speedbird!! "Game of Attrition", "Strip away profitablility", "Fatal Blow"!! Wow!! Its JUST A PROMOTION!! It keeps AA's name out there in front of Customers and helps bring new AAdvantage members. I'm surprised how this is shaking up the JBers. Its not that big a deal!!

 

[Speedbird]

Oh sure..what was I thinking...it's just a promotion!

I guess I should believe in the Tooth Fairy and Easter Bunny too!

 

[Whadayano]

One other thing on the webcast (can be found on the jetblue website under "about us" and then go to investor relations). They said BOS is spooling up faster than JFK did and the BOS-Florida flights will be profitable in February. Sounds like they're pretty successful if they can make money a month after start-up and despite 2 for 1 offers and lots of cheap fares...

 

[Speedbird]

JetBlue's January report showed another drop in LF despite an increase in traffic. The problem is due to an even greater increase in capacity. The fouth quarter numbers showed the same trend. This is the first time jetBlue has had this situation arise since it started operations four years ago. Accurately predicting capacity needs has never been a strong-point of this industry, which is a big reason why its never made much money over the years. At any rate, AA's 2 for 1 promotion has also exacerbated this problem. This has been admitted by jetblue leadership and begs the question how long can AA continue promotions like this into the future.

Here is an excerpt from the San Diego Union-Tribune quoting Mr. Arpey about the 2 for 1 deal and promotions in general:

"Speaking at a Goldman, Sachs & Co. conference in New York, Gerard Arpey, American's chief executive, said he is no fan of giving away mileage, but he adds that in the current environment – especially with a proliferation of discount airlines – American has no choice.

"I'm constantly challenging the folks in our (frequent flier) Advantage program as to why we have to do things like give away double mileage," he said. "But they say we have no choice because of what our competitors are doing."

The current promotional program, for instance, was inaugurated on the same day that JetBlue, a discounter based at New York's John F. Kennedy Airport, began its service at Boston's Logan airport.

Arpey said that the industry as a whole is reviving from the disastrous dip in air travel following the Sept. 11, 2001, terrorist attacks. He added that as business revives, he would eventually like to limit the airline's promotional programs.

"As supply and demand comes more into balance in this industry, airlines should be able to evolve programs in a way that they are less generous than they have been before," he said.

"As demand for pure seats rises, the desire or efficacy of giving away miles should be reduced and we should be able to get some pricing power. That doesn't exist today."

Arpey said it could take months or years for the situation to change.

Arpey did not estimate the price tag of the current promotion. It could be substantial, given the number of free tickets the carrier will give away.

If people continue signing up at the present rate, it means American ultimately could give away more than 350,000 free tickets by the promotion's deadline, many of them to far-flung destinations."

This shows that AA is viewing these promotion deals as a last-ditch effort to stimulate traffic. Obviously there is a big cost to these promotions and imagine the redemption demand for this latest promotion as the potential for 350,000 free seats must be absorbed over a 12-month period, along with all the other "normal" FF redemptions. I see a lot of upset AA customers in the future if AA can't accomodate them, or must open more seats to support the increased demand, all at a loss of potential revenue in many of its highest yielding markets.

 

[FWAAA]

JetBlue's January report showed another drop in LF despite an increase in traffic. The problem is due to an even greater increase in capacity. The fouth quarter numbers showed the same trend. This is the first time jetBlue has had this situation arise since it started operations four years ago. Accurately predicting capacity needs has never been a strong-point of this industry, which is a big reason why its never made much money over the years. At any rate, AA's 2 for 1 promotion has also exacerbated this problem. This has been admitted by jetblue leadership and begs the question how long can AA continue promotions like this into the future.

Here is an excerpt from the San Diego Union-Tribune quoting Mr. Arpey about the 2 for 1 deal and promotions in general:

"Speaking at a Goldman, Sachs & Co. conference in New York, Gerard Arpey, American's chief executive, said he is no fan of giving away mileage, but he adds that in the current environment – especially with a proliferation of discount airlines – American has no choice.

"I'm constantly challenging the folks in our (frequent flier) Advantage program as to why we have to do things like give away double mileage," he said. "But they say we have no choice because of what our competitors are doing."

The current promotional program, for instance, was inaugurated on the same day that JetBlue, a discounter based at New York's John F. Kennedy Airport, began its service at Boston's Logan airport.

Arpey said that the industry as a whole is reviving from the disastrous dip in air travel following the Sept. 11, 2001, terrorist attacks. He added that as business revives, he would eventually like to limit the airline's promotional programs.

"As supply and demand comes more into balance in this industry, airlines should be able to evolve programs in a way that they are less generous than they have been before," he said.

"As demand for pure seats rises, the desire or efficacy of giving away miles should be reduced and we should be able to get some pricing power. That doesn't exist today."

Arpey said it could take months or years for the situation to change.

Arpey did not estimate the price tag of the current promotion. It could be substantial, given the number of free tickets the carrier will give away.

If people continue signing up at the present rate, it means American ultimately could give away more than 350,000 free tickets by the promotion's deadline, many of them to far-flung destinations."

This shows that AA is viewing these promotion deals as a last-ditch effort to stimulate traffic. Obviously there is a big cost to these promotions and imagine the redemption demand for this latest promotion as the potential for 350,000 free seats must be absorbed over a 12-month period, along with all the other "normal" FF redemptions. I see a lot of upset AA customers in the future if AA can't accomodate them, or must open more seats to support the increased demand, all at a loss of potential revenue in many of its highest yielding markets.

You're right, Speedbird - AA is gonna be hurtin' mighty bad from the possible redemption of 350k free T class tickets; it just might break the bank.

From the 2002 10-K:

The number of free travel awards used for travel on American and American Eagle in 2002 was 3.5 million, representing approximately 8.1 percent of passengers boarded. Comparatively, the number of free travel awards used for travel on American and American Eagle (excluding TWA LLC) was 2.7 million in 2001 and 2.8 million in 2000, representing approximately 7.4 percent of total passengers boarded in 2001 and 7 percent in 2000 (excluding TWA LLC). The Company believes displacement of revenue passengers is minimal given the Company's load factors, its ability to manage frequent flyer seat inventory, and the relatively low ratio of free award usage to total passengers boarded.

So this promotion might increase the number of free tickets by 10%. Big deal. AA's 2003 Load factor was 72.8%; lots of empty seats for the holders of these anti-B6 awards.

Perhaps Arpey should learn something about free AAdvantage tickets before he shoots his mouth off. Butts in otherwise empty seats don't cost very much - and very few people would dream of paying for their free seat - so we're not talking about a lot of lost revenue. Like JS said - he wasn't planning to pay for his trip to Hawaii if he didn't have the free ticket.

Besides - only morons would count on these vouchers to get them to their expensive destinations during peak season - who cares if they are pissed off when there is no availability to LHR or CDG in the Summer??

These free tickets will be used primarily for extra trips - they won't replace real revenue.

If AA ran load factors like B6 (and never ever overbooked - so it would never need to bump), then these free seats might be a problem. But with sensible load factors - these vouchers are not the problem Neeleman (and maybe even Arpey) thinks they are.

Keep believing that this promotion is actually hurting AA. So far, the financial markets don't seem to agree. B)

 

[Speedbird]

FWAAA

You might be right that it costs nothing for AA to run this program. If true then the obvious question would be why not run this promo indefinitely? Or, if it doesn't cost anything then why is this first time since airlines have been giving away free seats in over 20 years that AA has come forward with a 2 for 1 promotion? If it doesn't cost anything then why does Mr. Arpey feel a reluctance to use them (nevermind your personal views of his managerial prowess)?

You know the 2 for 1 promo would at least be a breakeven deal for AA if it could sell the two R/T tickets at a profit, but they aren't getting anything close to that in the markets they are offering them in. does that fact get included in your cost analysis? But you know this whole thing is just a red herring to the real issue.

FWAAA, I don't where you got your education but nothing worth achieving or gaining is ever obtained for free. I think a big part of your problem in understanding how to succeed in this business can be highlighted in your following statement:

Besides - only morons would count on these vouchers to get them to their expensive destinations during peak season - who cares if they are pissed off when there is no availability to LHR or CDG in the Summer??

If you see passengers (i.e., the customers) as morons who can be blown off because they didn't read the legal small print restrictions then you have no business being involved with the airline industry.

Here's a news flash for you. AA (or any other airline for that matter) will never find lasting success in this business if it see passengers as morons, and as part of the "problem." JBLU's competitors think jetBlue is successful because they don't pay for their airplanes, or becasue they treat their employees like slaves, or because they have LiveTV & comfy leather seats. The real reason for jetBlue's success is because they truly value each of their customers and treat them fairly and beyond what is expected or required.

The industry's abysmal track record for its treatment of passengers creates a ripe environment for jetBlue to gain maximum impact from its stated value of bringing humanity back to air travel. Thanks for contributing to our bottomline!

 

[G4G5]

"LGA Slots: JetBlue has been given at least 7 slots which must be used within the next 120 days. One way they may combat excessive ground delays at LGA is to divert aircraft to JFK and move passengers via alternate ground methods to their final destination in NYC. He also said that LGA lines would be "isolated" from the rest of the system to mitigate system-wide delays as a result of LGA operations."


This is probably the funniest thing I have ever read!!!!!!!!!!!!!!!!!!!!!!!!

Move Pax via ground transportation? 164 folks in unison getting on 3 busses at the already crowded JFk terminal, after they collect their luggage, during rush hour, on a Friday at 5 pm to try and transfer to LGA Via the Van Wick. That's 164 folks that will never fly JetBlue again.

Now I know that he is only bluffing about actually starting up at LGA. This has never worked for any NY airline. The Van Wick is one of the worst roads in the Area and it hte only commercial road that connects LGA to JFK. Oh did I forget to mention that Shea stadium and the Arthur Ash Tennis center are between the two airports connected via the same roadway. Not really that big a deal because out of 365 days a year the Mets are only home 81 of those days.

Yeah right, you can"isolate" LGA delays.......................................

When you only have a certian number of aircraft and your business plan revolves around maximizing their utilization. LGA is not the answer. I have spent years out of LGA and their is no way to isolate any delays. You are at the mercy of the weather. If they need the additional IFR seperation, you are screwed. If it's too busy for the visual to 13 and you need to shoot the LOC, you are screwed. If they are single runway, you are.......... If you can't get to you gate becuase of push backs or traffic........