JetBlue’s Horrific Financial Results: This can’t be good

Over the past two weeks, we’ve seen most of the major US airlines report their second quarter earnings. Despite high oil prices, most US airlines have made impressive profits, given the huge demand for leisure air travel, as well as high air fares.

Well, JetBlue just reported its financial results and they’re pretty depressing. It’s especially bad when you consider that JetBlue is in the process of buying Spirit.

JetBlue reports a large loss despite high revenue

JetBlue reported a GAAP pre-tax loss of $ 151 million in the second quarter of 2022, compared to a pre-tax profit of $ 236 million in the second quarter of 2019. Excluding one-time items, the loss was “only” $ 102 million, compared to a profit of $ 238 million in the same period in 2019.

In other words, the airline’s results were $ 350-387 million worse than the last “normal” second quarter before the pandemic, depending on which metric you want to look at.

Here’s what makes it so bad: JetBlue’s revenue was up 16.1% over the same period in 2019. That makes it one of the highest revenue quarters ever, and the revenue was even better than JetBlue’s initial outlook. .

So what went wrong? JetBlue’s operating expenses per available mile has increased 34.7% over the past three years. Excluding high fuel prices, operating costs increased by 14.5%. Things could get even worse: the airline acknowledges “rising costs against”, related to running new terminals, aging planes and in-flight employees getting salary increases.

JetBlue is now making an effort to cut costs. This will include the withdrawal of the Embraer 190 aircraft ahead of schedule and their replacement with Airbus A220s, which have lower operating costs. JetBlue is also “investing in automation across the enterprise” and creating “a new business planning team to help unlock structural efficiencies across the airline in the long run.” JetBlue says these initiatives alone will cut costs by approximately $ 250 million through 2024.

JetBlue is also highlighting how a merger with Spirit will create $ 600-700 million in net annual synergies once the integration is complete.

Unlike competitors, JetBlue posted a loss in the second quarter

Is JetBlue a viable long-term airline?

Let me just say that I really appreciate JetBlue and that the airline takes a different approach than its competitors:

Flying JetBlue is a real pleasure, with two main caveats:

  • JetBlue seems to no longer be able to run its operation on time and reliability is more important than free Wi-Fi and televisions
  • While this is minor in comparison, I think JetBlue has lost its spark when it comes to having great customer service; The Mint crews continue to be great, but other than that, the JetBlue staff are a mixed bag (and I don’t blame them, to be honest, because I’d be frustrated even working in JetBlue)

Now, here’s the thing: the airline you want to invest in and the airline you actually want to fly with are often not the same. JetBlue is in a rut and I’m not sure how the airline can get out of it. JetBlue has higher costs than ultra low cost carriers, although historically the airline had other advantages, simply being quite new.

This meant that most of the employees were towards the lower end of the pay scale, the planes were new, etc. Since JetBlue is now over 20 years old, the airline no longer has those cost advantages.

So how should JetBlue compete with others, be it American or Spirit?

  • JetBlue doesn’t have as much premium corporate traffic as legacy carriers, simply because of the type of airline it is and the routes it flies on
  • JetBlue does not have nearly as many revenue opportunities compared to ultra low cost carriers; these airlines often make most of their income through ancillary services
  • It doesn’t matter if JetBlue seems to be increasingly competing head-to-head on routes with ultra-low-cost carriers, which won’t exactly work in the long run with price-conscious and high-cost consumers.

You now have JetBlue trying to take control of Spirit:

  • The integration of these two airlines will be really expensive, and this is a gigantic acquisition and Spirit has a larger market capitalization than JetBlue.
  • If you ask me, Spirit has a much better business model than JetBlue, yet JetBlue is planning to bring its business model to Spirit with this merger.

JetBlue’s management seems to basically argue that if it didn’t acquire Spirit, the airline would be in big trouble. But I’m not sure if the argument “well, if only we had more planes, our business model would work better” is logical. This is especially true when you consider how much JetBlue is paying to acquire Spirit.

JetBlue is now looking to acquire Spirit

Bottom line

While most of the major US airlines posted profits in the second quarter, JetBlue reported a significant loss. While revenue has surpassed the 2019 numbers by a significant margin, costs have risen even more. While it is a pleasure to fly on JetBlue (when the airline can operate on time), I think this fundamentally questions the carrier’s business model.

Now JetBlue wants to acquire Spirit, which will be a huge and expensive venture. It doesn’t matter if I’d say Spirit has a better business model than JetBlue (although I’d rather fly JetBlue). Maybe JetBlue should consider acquiring Spirit and adopting its business model? It is also less likely to face regulatory scrutiny.

What do you think of JetBlue’s financial results?

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