JetBlue Forecasts Red Ink Due To Increased Fuel Costs
(Oct. 21, 2005) -- JetBlue Airways has announced that it expects to report a negative operating margin for the fourth quarter of 2005 of between 5.0% and 7.0%, resulting in an expected net loss for that quarter and for the full year, an outcome the company said results from increased fuel costs.
In a publicly webcast 3d third quarter investors' conference call on Oct. 20, JetBlue officials said revenue is up...but fuel costs are up even more, due in part to Gulf Coast hurricanes.
In a companion written release, JetBlue said it forecast a loss for the fourth quarter and the year based "on an assumed aircraft fuel cost per gallon of $2.00, net of hedges, during the fourth quarter as well as a non-cash, one-time stock compensation expense that is estimated to be up to $9 million related to the acceleration of stock options" announced on Oct. 19.
"This quarter was a difficult one for JetBlue," JetBlue Chairman/CEO David Neeleman said in the release. "The combination of record high jet fuel costs, which were 58% above fuel costs for same period last year, hurricanes, and a competitive revenue environment has proven difficult for all airlines, and JetBlue is not immune. We will continue to build our business for the long term through strategic growth and by striving to exceed our customers' expectations."
During the conference call, company officials indicated the carrier plans to reduce selected, cross-country (large fuel burning) flights on midweek days (Tuesdays-Wednesdays) when demand is lowest, particularly during pre-holiday "trough" periods when demand tends to slacken. The carrier described the move as a surgical-type response consistent with its policy of adjusting its schedules to meet demand.
In an extemporaneous statement during the conference call, Chairman/CEO Neeleman also mentioned cutting a daily LB flight...prompting a follow-up inquiry by LBReport.com to JetBlue's NY HQ.
A spokesman told us two JetBlue cross-country flights are being reduced effective Nov. 1: one JetBlue flight to Washington, DC (Dulles, reducing the daily number from 4 to 3), and one JetBlue LGB-NYC flight (reducing the daily number from 8 to 7)...and both of these parallel similar reductions made last year at the same time on the same routes.
Meanwhile, JetBlue will be adding two shorter-haul flights involving LB: one more daily flight from LB to Oakland (raising the number from 5 to 6), and one more daily flight from LB to Las Vegas (upping the daily number from 2 to 3).
The spokesman said the LB changes reflect both consumer demand and increased fuel costs. He added that in terms of the company's overall schedule changes, while about 200 million Available Seat Miles (ASM) will be removed, overall 4th quarter ASM is expected to be up by 24-26% over last year.
JetBlue Chairman/CEO David Neeleman said on the webcast, "Most of you know we have large amounts of frequency to a lot of our markets, particularly places like Long Beach where we had eight daily flights...so we did do some Tuesday-Wednesday cuts, some day of week stuff, not to inconvenience any of our customers, only cut flights that are about an hour apart where we could combine and did it on more than a week out basis. Schedule integrity is very important to us." He then added during investors' Q & A:
"...I think the only one [reduction] that we did daily was, we pulled one Long Beach flight -- and by the way, Long Beach, we overdid it a little bit in southern California because we added a flight or two [at] Long Beach but we added the four Burbanks and one to Ontario, so if you add it all up, I think it's like 14 flights a day and we probably need to be more like 13 or 12..."
CEO Neeleman said that although JetBlue had put some fare increases in place during the summer and continued to show year over year increases with very strong summer load factors, "as we got through September, we tried to sustain some of those higher fares, particularly on the trough days, and what we found is that on the low, off-peak days, we weren't as successful at maintaining those prices." He continued:
Neeleman: The west markets are obviously particularly sensitive to spikes in fuel prices, because obviously the amount of fuel that's consumed by someone going five or six hours is more than someone going an hour or two and a half hours down to Florida and so we're up year over year significantly [in revenue] on our average fares to the west coast but, again, not enough to cover this big spike in fuel prices...
What we did in the fourth quarter given that there were days, I guess weeks in this [3d] quarter we were paying up to $3.00 a gallon out of New York, we did cut some capacity on some of the trough periods on the low day of week times. Most of you know we have large amounts of frequency to a lot of our markets, particularly places like Long Beach where we had eight daily flights...so we did do some Tuesday-Wednesday cuts, some day of week stuff, not to inconvenience any of our customers, only cut flights that are about an hour apart where we could combine and did it on more than a week out basis. Schedule integrity is very important to us...
During Q & A with investors, company officials elaborated:
CFO John Owen: We want to emphasize that when we talk about these pullbacks, we are revisiting three markets during the November trough, the early part of November leading up to Thanksgiving, by one round trip a day, on certain days of week off. It's like a Tuesday-Wednesday type...Likewise, we're doing it in the early December trough after Thanksgiving and before Christmas time, where we're taking a total of seven markets and dropping one round trip on certain days of the week off. So this is not massive cutbacks in capacity, it's a very selective focusing on the fact that we, like every other airline, have a hard time getting people to pay us a whole lot of money to fly on a Tuesday or a Wednesday.
CEO Neeleman: And I think the only one that we did the daily was, we pulled one Long Beach flight -- and by the way, Long Beach, we overdid it a little bit in southern California because we added a flight or two [from] Long Beach but we added the four Burbanks and one to Ontario, so if you add it all up, I think it's like 14 flights a day and we probably need to be more like 13 or 12...
Another questioner asked:
Q: ...The tactical capacity that you're taking out in the off-peak times, I assume that if fuel prices stay in this range for next year, we should sort of be thinking you would also have the capacity out during those time periods as well. Is that a fair assumption?
CFO Owen: Yes, I think that's a fair assumption, because in essence with the day of week reductions that we've done, it's an extension of what we've always done. We have always ramped up for peak times and pulled back at off-peak times...
JetBlue President/COO Dave Barger said in a written release, "Our crewmembers did an excellent job this quarter despite the numerous challenges. Going forward, we remain committed to examining every opportunity to increase revenue, reduce costs and improve our operational integrity."
The company said its operating revenues for the 3d quarter of 2005 had grown 40.2% over the 3d quarter in 2004, and the carrier had a 3d quarter operating margin of 3.1%$ (compared to 7.0% in the 3d quarter of 2004).
JetBlue said its 3d quarter completion factor was 99.4% of scheduled flights versus 97.9% in the third quarter of 2004. "On-time performance, defined by the U.S. Department of Transportation as arrivals within 14 minutes of schedule, was 72.2% in the third quarter of 2005 compared to 79.0% for the same period in 2004. The Company said it attained a load factor in the third quarter of 2005 of 86.6%, an increase of 1.7 points on a capacity increase of 28.2% over the third quarter of 2004.
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