Like most other airlines JetBlue reported a nice profit for 2014. During the investor call yesterday there were a few vaguely interesting bits which caught my attention.
New Aircraft Deliveries
JetBlue has a dozen A321 aircraft scheduled for delivery during 2015 and, based on comments made during the call, the company expects to pay cash for those planes. This approach is counter to plans announced by American Airlines earlier in the week to finance many if its new deliveries. AA executives noted that financing could be achieved at such low rates that it made more sense for the larger carrier to pursue such an approach. JetBlue is paying down debt where it can but also appears to want to spend some of its free cash on the new aircraft. Perhaps financing terms are less favorable for the smaller carrier??
Ancillaries remain king
News that “fare families” are coming is not new. We were reminded during the call that the new fares, including an option which does not include a checked bag allowance, will be launched in Q2 2015. That change is expected to drive $65mm in ancillary revenue during 2015 and the company projects that number to increase to $200mm annually by 2017. I like the idea of “just pay for what you use” and I can support it as a general concept. But when the company makes it so abundantly clear that the goal is to separate more passengers from more of their money – to the tune of $200mm annually – it is a bit harder to stomach.
Speaking of $200mm, that’s how much JetBlue grossed from its Even More products in 2014. The price for the extra legroom seats is now calculated based on multiple factors which has resulted in higher revenue on that front for the company.
That $200mm represents about 27% of all the ancillary revenue the company brought in during 2014. During the 4th quarter then number was roughly $25/passenger. And that’s before bag fees start to kick in for everyone.
FlyFi Flies High
The FlyFi in-flight wifi product is now installed on about 120 of the company’s planes and remains on-schedule for completing the big jets (~30 remaining) in the next few months and starting on the E90s after that. I have not yet seen the Supplementary Type Certificate for the hardware on the E90s and was expecting that late last year so we may need to keep an eye on that as a potential issue for the company.
Extra: Race is on for more bandwidth as US fleet nears IFC saturation
JetBlue is unique in the US market in offering the FlyFi product for free to all customers on all flights. It looks like that will continue at least through 2015 based on comments made by company President and soon-to-be CEO Robin Hayes. He noted that “We have been able to cover bandwidth costs for the coming year” through advertising and sponsorship deals. You might need to be a member of the TrueBlue program a bit later in the year to get the free access but that’s a freebie and a fair trade to me.
Mint-ing Money
The Mint premium cabin product has exceeded company projections in its success. Hayes suggested that JetBlue was able to create a market for the product with the competitive pricing, similar to how low fares of a new entrant work in economy class travel. He also took a dig at the product being offered competitors Delta, American, United and Virgin America when Mint was introduced, suggesting that “People were getting a pretty crummy product at high fares.” Mint definitely brought down the fares and the other carriers have all stepped up their game in terms of product quality. Still, mint remains competitive on both fronts.
When it comes to premium cabin transcon travel most folks assume it is all corporate customers with fat discounts off of list price. While that group makes up the bulk of those ticket sales there is a growing leisure and small business sector as well. JetBlue is grabbing a decent chunk of that market and even a few corporate customers, calling the latter “icing on the cake.”
Future Growth
JetBlue has big plans for growth fueled by the big (for them) planes which are coming online during 2015. But the growth will not accelerate just because fuel prices are low right now. Just like all the other airlines JetBlue says capacity discipline is key and growth will happen along the previously charted course, not adjusting “based on short-term price swings in fuel.” Hayes stated that the business is built around a $90bbl price point for oil, roughly double what we’re seeing right now in the market. It will be interesting to see how long JetBlue and the others maintain this discipline.
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Thanks for the write-up. Was there any mention about new corporate partners (credit cards, specifically).
While it is known that the company is shopping around on CC partner options nothing was mentioned in that regard during this call. Most analysts tend to avoid the loyalty programs in the discussions.
On financing – in our company’s all hands meeting (not the same industry) they discussed that if our company were to tap into financing at cheap levels we needed to pass more stringent SOX audits. This is not saying that JBLU is not passing their audits and as you noted, they have some debt to pay down. I’m sure their finance team played around with many scenarios