JetBlue Airways Corporation (NASDAQ: JBLU) today reported its results for the second quarter 2018:
Reported diluted loss per share of $0.38, inclusive of $319 million pre-tax impairment charge on E190 assets. Excluding this charge, adjusted diluted earnings per share of $0.38(1). This compares to JetBlue’s second quarter 2017 diluted earnings per share of $0.62.
Pre-tax loss of $160 million, inclusive of the E190 asset impairment charge. Excluding this charge, adjusted pre-tax income of $159 million(1), a decrease of 51.1% from the second quarter of 2017.
Pre-tax margin of (8.3%), inclusive of the E190 asset impairment charge. Excluding this charge, adjusted pre-tax margin of 8.2%(1), a 9.5 point decrease year over year.
Highlights from the Second Quarter 2018
Second quarter 2018 revenue per available seat mile (RASM) decreased (1.2)%, year over year, including 2.5 points of negative impact from holiday travel that shifted into the first quarter, as well as lapping a 1.25 point benefit that occurred in second quarter of 2017 from completion factor and co-brand incentive payments.
Operating expenses per available seat mile, excluding fuel (CASM ex-fuel) growth of 1.9%, slightly better than the initial guidance range of 2.0% to 4.0%, partially driven by the timing of expenses from the second into the third quarter of 2018 and higher completion factor.
JetBlue announced a signed MOU for the purchase of 60 A220 aircraft, starting in 2020 through 2025 and a transition plan for its current E190 fleet. The transaction is expected to mitigate costs increases into the next decade, strengthen JetBlue’s network strategy and offer Customers and Crewmembers with a state-of-the art product experience.
Key Guidance for the Third Quarter and Full Year 2018:
Capacity is expected to increase between 7.5% and 9.5% year over year in the third quarter 2018. For the full year 2018, JetBlue expects capacity to increase between 6.5% and 7.5%, including a 2 point reduction to capacity in the fourth quarter of 2018.
RASM growth is expected to range between flat and 3.0% for the third quarter 2018 compared to the same period in 2017.
CASM Ex-Fuel is expected to grow between 1.0% and 3.0% for the third quarter of 2018. For the full year 2018, JetBlue expects year over year CASM Ex-Fuel to be between (1.0)% and 1.0%. CASM Ex-Fuel guidance includes accelerated depreciation of approximately $0.4 million per quarter for the balance of 2018, related to the E190 asset impairment.
For further details see the latest Investor Update and the Second Quarter 2018 Earnings Presentation available via the internet at http://investor.jetblue.com.
(1) Note A provides a reconciliation of non-GAAP financial measures used in this release and provides the reasons management uses those measures.
JetBlue will conduct a conference call to discuss its quarterly earnings today, July 24, at 10:00 a.m. Eastern Time. A live broadcast of the conference call will also be available via the internet at http://investor.jetblue.com.
Progress Continues Towards Margin Commitments
“I’d like to thank our 22,000 Crewmembers, for everything they do to deliver an outstanding JetBlue experience to our Customers. Our financial performance was impacted by the holiday calendar, but more importantly, by fuel prices that increased over 40% year over year. The team is focused on mitigating the impact of higher fuel in order to stabilize and improve our margins. We are planning a series of adjustments to both capacity and our ancillary revenue to take effect over the coming months, said Robin Hayes, JetBlue’s Chief Executive Officer.
I was pleased with our CASM ex-fuel growth coming in below the low-end of our guidance range for the second quarter. Controlling our costs is even more critical amid higher oil prices and we are lowering our annual capacity growth to protect our margins.
We are focused on our many building blocks aimed at improving our relative margins. Fleet is one broad example of building blocks that improve margins. We are delighted with the outcome of the E190 fleet review and our selection of the Airbus A220-300. We believe the recent transaction will be ROIC accretive as well as EPS accretive.”
“Our investments in the operation to mitigate ATC challenges are showing signs of positive results as we move through the peak summer season. We look forward to continuing to focus on improving our best in class Customer experience including on time performance and investments in our product,” said Joanna Geraghty, JetBlue’s President and Chief Operating Officer.
Revenue Performance and Outlook
Second quarter RASM decrease of (1.2)% was slightly better than expected and within JetBlue’s guidance range from early June of (2.5)% to (0.5)%.
“We continue to target a mid-to-high single digit capacity growth, and are taking a number of actions to adjust to higher oil prices. We are updating our 2018 capacity guidance, including a 2-point reduction to our fourth quarter growth that will run through our schedules over the next few days,” said Marty St. George, JetBlue’s EVP Commercial and Planning.
Looking into the third quarter, we expect year over year RASM growth to be between flat and plus 3 percent. RASM continues to be driven by close-in bookings, and we’ve seen strength throughout July. The deceleration in RASM we are seeing in the third quarter is a result of slowing ancillary per Customer trends, driven by a transition to our new Vacations platform that has been more challenging than anticipated. To mitigate the impact, we are moving forward with a series of ancillary adjustments that are independent of the platform change.”
Cost Performance, Outlook and Balance Sheet
Second quarter CASM ex-fuel was below the guidance range from April, driven by a solid operational environment and timing of expenses. JetBlue reaffirms its expectation for CASM ex-fuel growth to inflect during the second half of the year.
“By the end of the quarter we achieved $154 million in 2020 run rate savings as a result of our Structural Cost Program. We continue to expect an inflection in our unit cost trends in the second half as the benefits of the Structural Cost Program build," said Steve Priest, JetBlue’s EVP Chief Financial Officer.
We are also thrilled about the outcome of the E190 fleet review and our selection of the Airbus A220-300. This aircraft is a perfect fit for our network strategy and Customer Experience, and most importantly for our Owners, it is the ideal aircraft to carry the momentum of our Structural Cost Program well into the next decade. Our strong balance sheet and investment grade metrics allows us to invest in value-accretive projects, such as our recent fleet transaction.”
Capital Allocation and Liquidity
JetBlue ended the quarter with approximately $915 million in unrestricted cash and short term investments, or about 12.6% of trailing twelve month revenue. In addition, JetBlue maintains approximately $625 million in undrawn lines of credit.
In its commitment to maintaining a balanced approach to capital allocation, JetBlue executed an additional $125 million in share repurchases during the quarter.
During the second quarter, JetBlue repaid $66 million in regularly scheduled debt and capital lease obligations, and raised nearly $280 million in secured aircraft debt. JetBlue anticipates paying approximately $54 million in regularly scheduled debt and capital lease obligations in the third quarter and approximately $212 million for the full year 2018. JetBlue anticipates maintaining a 30-40% adjusted debt to cap range and liquidity between 10% and 12%.
Fuel Expense and Hedging
The realized fuel price in the quarter was $2.28 per gallon, a 41.7% increase versus second quarter 2017 realized fuel price of $1.61.
JetBlue entered into forward fuel derivative contracts to hedge approximately 7% of its fuel consumption during the third quarter of 2018. Based on the fuel curve as of July 13th, JetBlue expects an average price per gallon of fuel of $2.33 in the third quarter of 2018. - –