JetBlue is struggling to find positive news after operational issues forced it to cancel about 10% of its flights in April and drastically cut summer flights. The pilot shortage has come home, with some wondering if JetBlue is now just a stepping stone for crew members en route to bigger airlines.
JetBlue Airways had little to celebrate on its first quarter earnings call. Executives have been put to work over the airline’s operational collapse in April and the additional costs it expects this summer to stave off further trouble.
The New York-based carrier canceled about 10% of its schedule in the first three weeks of April, the equivalent of about 2,250 flights based on Cirium schedule data. The situation has made JetBlue a pariah among its U.S. peers by forecasting a second-quarter loss while the rest of the industry looks set to go black.
But there was a silver lining for the airline: Revenue momentum is strengthening and ancillary charges — charges for things like extra legroom seating at priority boarding — jumped in the first quarter. JetBlue President Joanna Geraghty said Tuesday that ancillary revenue increased 70% in the March quarter compared to 2019. This increase in ancillary revenue, which JetBlue does not separate from other passenger revenue, and costs higher than airlines are imposing on total revenue are on track to jump as much as 20% in the second quarter ahead of a four-point hit from the April numbers.
“We are poised to deliver our best quarterly revenue results in the second quarter and are positioned to accelerate that momentum through the summer,” Geraghty said. JetBlue expects revenue to increase 11-16% from 2019 in the June quarter.
The auxiliaries are something of a star in the global airline recovery. This is particularly noticeable in Europe where increases in these surcharges at some airlines are as dramatic as the one JetBlue experienced in the first quarter. EasyJet saw what Bernstein analyst Alex Irving earlier in April called a “dramatic shift” in ancillary sales to over $25 (£20) per passenger from nearly $19 before the pandemic. And at some carriers, including Wizz Air, auxiliaries now account for more of their revenue than ticket sales.
Revenue tailwinds for JetBlue include its new Northeast alliance with American Airlines and expanded loyalty tiers. Additionally, it saw lucrative business travel return to 75% of 2019 levels in March.
Additional revenue from accessories and other metrics is welcome as JetBlue faces steep cost increases. Non-fuel unit costs – a measure of the airline’s cost of carrying a passenger a mile – jumped 13.9% year over year in the first quarter and are expected to rise 10-15% for all of 2022. Healthy unit costs excluding fuel growth are considered at or below the national economic growth rate.
Much of these additional costs stem from the situation JetBlue executives were responding to on Tuesday: operations.
Stepping Stone Airline
JetBlue has significantly reduced its growth outlook for 2022 in an effort to stabilize operations. The airline plans to fly up to 5% more capacity this year than in 2019; a downward revision of up to 10 points from January. And in the second quarter, JetBlue forecasts stable capacity at 3% over three years.
The reductions, as Geraghty put it, take into account: “high pilot attrition, pilot training delays resulting from planned disruptions to training schedules due to Omicron, commercial partner staffing shortages and [air traffic control] lack of staff. »
But the situation for pilots is worse for JetBlue than for many other US carriers. The airline now expects high pilot attrition rates for the first four years that crew members fly for JetBlue, Geraghty said. In other words: it’s become a kind of farming team for the Big 3 – American, Delta Air Lines and United Airlines – rather than a long-term career for Airmen.
“Historically, JetBlue has been a destination carrier for airline professionals. And yet now it looks like for some it may be a stepping stone,” Deutsche Bank analyst Michael Linenberg said on the call Tuesday.
Geraghty and other executives have pushed back against characterizing JetBlue as a “stepping stone” to jobs at other airlines – a role typically reserved for regional carriers, such as Cape Air or Mesa Airlines. However, she acknowledged that JetBlue now includes high attrition rates in its long-term staffing and capacity plans. Some pilots, for example, want to fly jumbo jets, like the Airbus A350 or the Boeing 787, and leave JetBlue for jobs where they can fly those types, she added.
“Access to pilots is really becoming the driving factor in the growth of the industry over the next few years,” said JetBlue CEO Robin Hayes.
The “a few years” delay is the longest a US airline executive has given to the pilot shortage. American Airlines executives expect their the training backlog will be eliminated by the end of the year, while regional Republic Airways executives believe the situation won’t calm down until mid-2023. In addition to JetBlue, Alaska AirlinesAmerican and Spirit Airlines have all cut their 2022 capacity forecasts due to problems hiring or training pilots.
Raymond James analyst Savanthi Syth estimates that US airlines will hire around 13,000 new pilots a year this year and in 2023. However, the current training and certification process only produces around 5,000 to 7,000. new pilots per year.
Both Alaska and United have established flight schools to increase the number of pilots. However, programs generally take several years to produce new crew members. JetBlue has several career path programs, including one with Cape Air.
JetBlue executives said despite the pilot’s situation, its capacity reductions and other preparedness efforts will translate into operational reliability for travelers this summer.
And the numbers
JetBlue reported a net loss of $255 million in the first quarter. Revenue fell 7.3% from 2019 to $1.7 billion on a 17% increase in expenses to $2.1 billion. Unit costs excluding fuel increased by 13.9% compared to 2019. Passenger traffic fell by 14% on 0.3% less capacity.
Hayes declined to comment on JetBlue’s pending bid to acquire Spirit. He referred questions about a decision timeline to the Florida-based discounter, who said he was considering JetBlue’s offer more than one from Frontier Airlines.
Looking ahead, the combination of additional spending in April and slowing capacity growth means JetBlue is forecasting a second-quarter loss despite record revenues. Non-fuel unit costs are expected to increase by 15-17% compared to 2019.
“I think 2023 will be the first year where we actually count against the previous year as opposed to 2019,” Hayes said in a sign that JetBlue wrote off 2022 as another so-called recovery year.