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00:00We're here in Rio de Janeiro and I am here with the CEO of JetBlue, Joanna Garrity, here live at
00:05the annual IATA meeting.
00:07Joanna, great to see you. Thank you so much for being with us.
00:09Lovely seeing you too. I think we were last in our lounge together.
00:10I know, and that's a big part of the whole story.
00:13I want to start with demand for the lounge, but more broadly from customers.
00:16Whether you've seen it really hang in there, the way that we've heard from some of the other airlines,
00:21despite some of the concerns and the higher costs that we're seeing.
00:24Yeah, I mean, we're very pleased with the demand environment.
00:26Customers are still flying.
00:27I think it speaks to the importance of air travel, and particularly going into the summertime,
00:31customers still want to have that vacation, and so we're very pleased with that.
00:34Obviously, the fuel environment is very challenging.
00:36We're passing on about 40% of the cost of fuel right now within the ticket price, which isn't great.
00:41Obviously, you want customers to really see affordable air travel, but we're seeing demand strong.
00:45We're hoping it keeps up through the summer and to the end of the year.
00:47With the 40% increase to customers, are you seeing any pushback, or are people pretty okay with it,
00:52and does demand kind of hang in there?
00:53I think everybody understands, given the current environment where fuel prices are,
00:57that airfares are going to be a bit higher.
00:59Since 2019, before the fuel crisis, airfares really hadn't kept up with the cost of inflation,
01:04and so there's a little bit of catch-up happening, and then you add the increased fuel price on top
01:08of things,
01:08and I think we've got to make sure that we're covering our costs.
01:11Spirit is a great example of an airline that just couldn't cover its costs.
01:14Everybody loves $29 fares, but when your input costs are a lot more than $29 a customer, it makes it
01:20challenging.
01:21At this point, is it sustainable with 40% passed on to customers if the prices of oil stay where
01:27they are currently
01:28or even reflect higher for a prolonged period of time?
01:30We need to continue to see prices stay where they are so that we can ensure that the incremental fuel
01:38costs are being passed on.
01:40As we think about this year, I mean, it's close to a billion-dollar incremental expense to JetBlue fuel,
01:45so we're really focused on how do we make sure that we're driving great value for customers in the product
01:49offering
01:49and the service we provide, but also making sure that we recapture those fuel costs.
01:52You talked about Spirit. Have you seen any pickup in business that you've taken on from Spirit as a result
01:59of the bankruptcy?
02:00We're definitely seeing some positive trends in Fort Lauderdale. It's one of the opportunities for JetBlue.
02:05Spirit obviously had a big footprint down there. We're the largest carrier down there now,
02:09and we look forward to continuing to serve South Florida. We're adding flights this summer.
02:14We'll be up to 130 flights in Fort Lauderdale this summer, hopefully growing to 150 through the peak next year,
02:19and customers are responding very well to our product, to our service down there,
02:23and we look forward to continuing to serve that market.
02:25A lot of people said it was a mistake. Retroactively, post facto, it was a mistake that the antitrust officials
02:31did not sign off on the merger between JetBlue and Spirit. I'm sure this is like a dagger through your
02:35heart.
02:36You don't want to revisit this in any way. It was incredibly painful.
02:38There is a feeling, though, that there would be a more kind of openness to consolidation in the sector going
02:46forward.
02:47Would you want to try again with something, or are you just like, absolutely not, putting that aside?
02:52We're a publicly traded company, so we're always going to do what's in the best interest of our shareholders.
02:56With that said, companies need to focus on their organic plan,
03:00and when we think about all the time we spent with Spirit trying to get that transaction done,
03:04we have a great plan. Our Jet Forward plan is working.
03:06We're looking forward to bringing First Class on by the end of the year across our domestic fleet.
03:11We've got our lounges opening up. We've got our great partnership with Blue Sky.
03:14So you can obviously never say never as a publicly traded company,
03:17but we really need to be focused on getting JetBlue healthy again,
03:20and all the moves we're making are working in the right direction.
03:23Now we just need the macro environment to cooperate with us.
03:26You talk about the upgrades to some of your offerings, in particular some of your premium,
03:30your lounge, for example, which I attended with you.
03:33I'm curious about how much you've been able to meet that demand for upgrades
03:39with supply of, say, Airbus planes coming in.
03:42We've heard just some rumblings about delays. Has that been a problem for you?
03:46Yeah, there's definitely delays out there.
03:47Obviously, the supply chain is still challenged, even following COVID,
03:51across whether it's engines or aircraft.
03:53We've got the right fleet that we're operating now.
03:55We're going to be adding a First Class seat on through the end of the year.
03:58That's on track. That's largely on track.
04:00And so we'll be able to meet that desire for a premium seat that customers have today
04:04as we introduce that product.
04:06And then our lounges, we bring Boston on at the end of the summer.
04:09Looking forward to delivering that.
04:11Our goal is to have no lines in our lounges.
04:13We all walk by an airport lounge, and there's a line,
04:15and people have buzzers like the old restaurants and whatnot.
04:19The only line we've seen in our lounge are lines to sign up for the Premier Card
04:22so that they can get into the lounge.
04:24So I'm excited about the new product offerings we're going to have to deliver that experience to customers.
04:29So none of the Airbus delays have really affected some of the overlap.
04:32We're all seeing modest delays, but we're managing through it.
04:34Meanwhile, the United partnership has been deepening,
04:36and I'm wondering, is it expected to deepen even further?
04:39Are some of the regulators okay with that, with this partnership really increasing?
04:43Yeah, we're still very much in the sort of mid-innings of actually implementing the existing partnership,
04:48so we're focused on that.
04:49We introduced reciprocal earn and burn with our loyalty program at the end of last year.
04:54We just started selling interline flights on each other's websites.
04:56We're also in the process of integrating Paisley, which is our vacation and ancillary platform,
05:02into United.com so that they can sell all their ancillaries on Paisley,
05:05and that's where our focus is right now,
05:06is really focusing on how do we continue to bring that partnership to life.
05:09So we've still got quite a bit of runway to go with the existing partnership.
05:12You know, there's a lot of existential discussion around the model for low-cost airlines.
05:16This idea of catering to people with affordable air travel is getting somewhat difficult for people
05:23just because the margins are so narrow at a time of crisis, it becomes really difficult.
05:28How do you convince people that it's a viable model, given all the turmoil?
05:32Yeah, I mean, at the end of the day, we've got to make sure we're covering our costs,
05:35and that's an important component of this.
05:36If you look at what happened with Spirit, there were many things that went sideways for them.
05:41You know, they had an engine issue, so at one point, you know, a third of their fleet was grounded.
05:45The product that they offer, the basic economy product, was matched by other carriers.
05:49We've matched that as well.
05:50So their product offering didn't keep up.
05:52You know, then you look at the regulatory landscape and being a smaller airline.
05:55So what we're really focused on is how can we leverage our partnership with United to build scale.
06:00We've got to make sure our costs stay in check,
06:02and we've got to make sure, as we think about that premier customer is willing to pay a little more
06:05for a better experience,
06:06that we really redouble our efforts there.
06:08But also, the customer that flies in coach, the customer that flies in economy, they're equally important.
06:14So we've got to make sure that we don't tinker too much with the premier experience,
06:18that we really compromise that customer who needs affordable air travel.
06:22But affordability, it's relative.
06:24If you look at, you know, customers that take a taxi from, say, Midtown Manhattan to JFK,
06:28it's $150 in an Uber to take an Uber.
06:32Nobody complains about that.
06:34But when an airfare is $150 from JFK to Fort Lauderdale, you know, you've got a lot of folks saying
06:39air travel is very expensive.
06:41And, you know, I would submit air travel actually means highly affordable.
06:44Yes, it's a bit more expensive because of the cost of fuel.
06:47But we have a lot of input costs, and they've only gone up since COVID.
06:50Well, this is the issue.
06:51And I think that this is where people are struggling, that there's a lot of hangover debt.
06:56JetBlue has a bunch of debt.
06:57To service that debt, to invest in premier experience, to keep up with some of the major, the big three,
07:04that have these deep pockets is incredibly challenging.
07:07What's the pathway to do that, to pay down debt, to free yourself up while also tackling some of these
07:13other areas of growth?
07:14I mean, the focus is generating an operating profit to begin with, and we're not there yet.
07:17So the first step is generating an operating profit, which we were on track to do this year until the
07:22war.
07:22And so that's a bit of a step back, obviously, given, you know, the cost of fuel and so much
07:27money is just being directed towards that.
07:29The hope is that that moderates and that comes to an end and fuel comes down over time.
07:33And then we'll be back to focusing on generating an operating profit.
07:36That's the first step.
07:37The second step is then free cash flow, and you start paying off your debt.
07:40But we need to be very mindful of that.
07:42We do have a pretty heavy debt burden, but we also have a lot of liquidity.
07:45We also have a lot of unencumbered assets.
07:47So, you know, as I think about JetBlue, the debt is a challenge, but we are focused on doing all
07:52the right things in terms of investing in that premium customer
07:54so that we can drive an improved revenue environment for the company.
07:57Where do oil prices have to go to get it profitable once again?
08:00Yeah, I mean, I'm not going to put a number out there.
08:02They need to go down.
08:03That's our focus is they need to go down and moderate.
08:06We're not planning, even if the war were to end, we're not planning for oil prices to snap back overnight.
08:11We think it's going to be a longer protracted sort of unwind of the escalated fuel prices.
08:17You know, and at the end of the day, you know, our focus needs to be on really not losing
08:21sight of our plan.
08:22We see it working when you strip out all of the macro noise.
08:25We do see that JetForward, which is our turnaround plan, is working.
08:28We just need the macro environment to cooperate with us, and that's been challenging.
08:32The fuel environment, shutdowns, you know, it's kind of hit the customer, hit the airline industry, I think, in a
08:38disproportionate way to some other industries.
08:39I just want to finish by asking, are there any new routes coming up that you want to talk about?
08:43It's all about Fort Lauderdale.
08:45So I'd say keep your eyes focused there.
08:47We're actually building a connecting operation there.
08:49So if you have a need to go to the Caribbean, to Latin America, you know, Fort Lauderdale's going to
08:53be a great way to get there, even if you're not originating there.
08:56We're known for point-to-point.
08:58We're building a bit of a different model down there and excited to see how that brings value to customers
09:02and really helps drive our profitability.
09:03Joanna, thank you so much for being with us today, Joanna Garrity, here with us at the IEDA General Conference
09:09in Rio de Janeiro.
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