JetBlue Growing Mint, Seats, IFE and More

What are a few extra seats on board an aircraft worth? For JetBlue the answer is $100 million annually by 2019. At least that’s the number the company is trying to sell Wall Street on. JetBlue announced a while ago that it would be adding seats to its A320 fleet, increasing the capacity by 10%. In an updated announcement it backed off that number; the new plan is to add only 12 seats to the A320 fleet, a nod to safety regulations, passenger comfort and crew work space according to Jamie Perry, VP of brand & product development. But the A321s are also going to get more seats, growing from 190 to 200. That’s a smaller fleet but, as we were reminded in this morning’s earnings call the carrier is capacity constrained at JFK in New York City and it needs the extra seats ASAP.

The new layout will also feature new screens and a brand new in-flight entertainment system throughout the A320 fleet. It will be a significant upgrade to 10″ HD screens from the legacy 5″ SD model flying today and the STV+ product from Thales appears, at least from the specs, to be a tremendous solution. It won’t be flying until 2017 so still a bit of time before we learn if that’s really the case, but I’m incredibly excited by the potential it presents with Android tablets as the screens and full internet connectivity via JetBlue’s Fly-Fi in-flight internet service.

And that Fly-Fi will soon be available for more of the flight time. Starting in Q2 the service will be activated gate-to-gate rather than only while above 10,000 feet. This will enable access to the stored content streaming as well as more web browsing for all passengers. And it will remain free to travelers for the “foreseeable future” according to management thanks to sponsorship deals from companies like Amazon and the Wall Street Journal as well as the TrueBlue loyalty program.

But back to that $100 million dollars. By the time the seats are fully deployed that’s what the company thinks it can eke out in incremental seat revenue. That’s a relatively small number relative to the $6.4 billion the company brought in for 2015 overall but it comes with a relatively low cost basis (mostly higher crew costs with the fourth flight attendant on board) so that’s good news in general.

Speaking of good news, expect to see more Mint from JetBlue by the end of the year. Adding service at Boston is no surprise but in today’s call the company indicated that it will be adding another Mint plane this year, bringing the total for new deliveries up to 6 in 2016 from the previously announced 5 (one was already delivered in mid-January). That will bring the Mint fleet to 17 aircraft, up from the 11 operating in 2015. And it means there is potential to either add frequencies or destinations to the Mint map. The current Mint fleet utilization has planes averaging more than two transcon segments daily and the Boston increase is only 6 daily round-trip flights by the end of the year. With the additional slack in the aircraft usage it is possible we will see other growth on this front. And, despite the noting of higher fares coming during the call the $599 starting price appears to be stable, at least for now.

Finally, there was one particular quote during the earnings call which stood out to me more than the others. As the Wall Street analysts peppered executives with questions about shoring up cash flow and increasing stock buy-backs to drive up share price CFO Mark Powers managed to answer one of the inquiries,

I don’t wake up in the morning dying to be investment grade. I don’t see the benefit of that anyways.

You can make the claim that JetBlue bowed to the bankers’ demands in pushing David Barger out and increasing seat count (though I still maintain that the newer seats, even with more on board, will be better for passengers so long as you don’t need to use the lav at the rear of the plane) but today’s call included a decent amount of pushback, including this line. Even as Delta‘s Richard Anderson continues to make noise about his company being treated like an industrial on the stock market rather than the way airlines were historically treated JetBlue doesn’t seem completely wrapped up in that.

I do believe all the stock buy-backs are a short-sighted move and represent a lack of creativity and willingness to invest in the product and people as much as the airlines could, but I also get why they’re happening. Gotta keep the share priced propped up for management to make those bonuses.