JetBlue has spent much of the last couple years hoping that others would solve its problems. First it was the Northeast Alliance with American and then it was the Spirit acquisition. Both have now been shot down in court, and while there is a very tiny chance of winning an appeal on the Spirit deal, nobody in their right mind would rely on that. So it was that on the airline’s fourth quarter earnings call, it finally started talking about how it would clean up its own house. It’s saying the right things, but until we have more details, it’s hard to know if this is going to do anything.
You can listen to the call yourself if you’d like, or you can browse the presentation. It was clear that CEO Robin Hayes has really already left the building. Though he is officially still on duty until February 12, other than opening remarks, he let soon-to-be CEO Joanna Geraghty do the heavy lifting. Joanna explained that the airline has been working on a “plan B” for months in case the merger didn’t go through. Details were in short supply, but she promised that much more would be revealed during the May investor day.
What do we know about this plan? We know the basic building blocks as displayed in this slide from the presentation.
This is high level and somewhat fluffy, but directionally it makes sense. Let’s break this down.
Focus on Core Customer
JetBlue says its target is the premium leisure customer, and that happens to be a customer segment that’s having quite a moment these days. Then again, that’s a group that’s been having a moment for some time now. And really, this is what JetBlue has to focus on.
JetBlue will never have ULCC-level costs, so it has to get more revenue in the door than those guys. At the same time, as a smaller airline that doesn’t have the reach of the big guys, JetBlue will do better in a leisure world than a business one. That being said, Boston and New York should still be good candidates to woo business travelers, and JetBlue isn’t ignoring that.
If you can get beyond the bullcrap of “recharging our innovation DNA,” Joanna did pay a little lip service to the corporates.
We are also recharging our innovation DNA to bring an even better quality experience to the full spectrum of JetBlue customers from leisure to visiting friends and relatives to corporate and premium travelers.
The question is… how does JetBlue change its focus? Joanna announced that the airline has more than 15 revenue initiatives that will be worth more than $300 million this year. The first example makes me queasy… preferred seating where people have to pay to sit closer to the front even though the seat is no different. I do not understand how copying what the legacies do is something that customers will like. This is just a money grab.
JetBlue also says it will expand its selling through online travel agents which… uh, ok. That’s trying to scrape the bottom of the barrel to fill seats and hope to upsell people, not about taking care of your loyal premium leisure travelers.
So it doesn’t start off well, but then it gets me drooling…. Take it away, Joanna.
This begins with refocusing on our most proven geographies. Our core network fits in some of the largest markets in the world, but there are clear barriers to entry, and we intend to capitalize on our deep relevance in these markets by urgently reoptimizing our network to make sure that we were taking care of our core customer, making sure we go where they want to go, when they want to go.
WHY WAS THIS NOT HAPPENING BEFORE? Sorry, I’ll calm down now. But yes, yes, and yes. Please focus on strengths and try to win in those markets — Boston, New York, and Fort Lauderdale. In the call, they said that this has already started, but there’s more to come. It can’t come soon enough.
That’s really all JetBlue is saying so far, so we’ll have to wait for May to learn more about what other ”revenue initiatives” are in place.
Continue to Integrate Travel Brand
If you don’t fly when and where people want to go, then nothing else matters, but if you can do that as JetBlue said in the first part of the plan (and you can do it on-time, as we’ll talk about later) then a big effort can be put into trying to get a higher share of wallet from those travelers.
Part of that is putting more and more benefit into the TrueBlue frequent flier program. All airlines are trying to do this, and JetBlue has made several changes to make its program more appealing. But it’s not just TrueBlue. There’s also JetBlue Vacations and Paisly which are about trying to get more money from people’s vacations beyond the flight.
Normally, I find these kinds of initiatives silly, but in JetBlue’s case if it’s really aiming at premium leisure, being able to help those travelers with the whole trip is an actual value-add that could also bring good money to the airline.
My assumption is that JetBlue is underperforming in this area, and so it should do something to get that low-hanging fruit. It must still be an airline first and foremost, so this needs to be put into the proper place in the airline’s hierarchy, but there is likely some opportunity and it’s not bad to try to grab it.
Drive Cost and Capital Discipline
At first, it seems very strange that JetBlue would talk about how it desperately needs to merge with Spirit only to then turn around and say it’s going to now take fewer aircraft as a standalone airline. But there is a method to this madness.
The airline is pulling down orders significantly, really dropping A321neo deliveries and deferring some A220 deliveries to a later date, as you can see below.
This would seem strange for an airline that couldn’t get enough airplanes and pilots to satisfy its desires, but there is another side of the coin here. As Joanna explained…
Most notably, we have a significant amount of flexibility to extend the life of over 30 A320 aircraft to provide growth tailwinds and we will continue to explore other cost-effective and capital-light ways to grow our fleet.
Ah yes, so instead of getting brand new, expensive airplanes, JetBlue can just keep some A320s in the fleet for longer and for cheaper. At the same time, JetBlue CFO Ursula Hurley explained that they will keep A220 deliveries at a level so that they can still retire the Embraer 190s soon. This makes all too much sense.
I never really believed there was huge opportunity for a ton of new airplanes and pilots anyway, not with the NEA dead.
Operational Reliability…
… is the foundation to restoring profitability. At least, that’s what the slide says. It’s supposed to underlie everything JetBlue does, which I find hilarious since JetBlue has never run a good operation. The airline did crow about its Q4 performance, but with FAA slot waivers keeping flying lower than usual in NYC during winter for the first time, it would be hard for JetBlue to not do better. JetBlue needs to be proactive and make big changes to its operation to make sure it can run better even when slot waivers go away or weather gets terrible.
Joanna was the COO before her promotion, and just this week she hired her replacement, Warren Christie. Warren has been with JetBlue for more than 20 years which wouldn’t seem to bode well considering the airline hasn’t run a good operation during that time. But early feedback I’ve heard from people is positive on him. I’m happy to give him the benefit of the doubt and hope he’s able to actually right the ship.
JetBlue says it is still committed to fighting through appeals and trying to buy Spirit, but if that doesn’t happen, this is the standalone plan. And you know what? I like the bones of the standalone plan way more than I like the Spirit purchase rationale.
Naturally, the devil is in the details. We will see what the full plan is in May at investor day. For now, it feels weird to say that it looks like the airline is starting to turn slowly in a better direction, but this is the first time I’ve felt that way in a long time.
More in May…
