Fretting About JetBlue’s Recent Financial Trends

To a glass-is-half-full optimist, JetBlue is doing just fine. In 2016, it outperformed even Southwest in terms of operating margin. In 2017, it came within a whisker of closing its once-gaping margin gap with Spirit. Today, JetBlue’s New York, Boston, Florida and transcon markets are all healthy. And unit revenues are rising.

But to the glass-is-half-empty pessimist, JetBlue has reason to worry. During this year’s second quarter, its operating margin fell below 10%, marking one of the biggest y/y declines of any carrier in the world—it earned 19% in last year’s Q2. Ancillary revenues were weaker than expected. Fuel costs spiked. Security concerns disrupted usually-reliable profits in Haiti and Cancún. Puerto Rico struggled in its comeback from hurricane Maria. A Southwest-Alaska price war in California hurt west coast shorthaul yields. Maintenance costs are uncomfortably inflationary. Operations remain messy and thus costly. Delta is escalating its attacks in Boston—and all of this before labor costs jump thanks to a new pilot contract.

It’s with these concerns in mind that JetBlue’s executive team, at an investor day event last week, outlined plans to make its margins great again.

Some of these initiatives are not new. The airline, for example, is just now implementing a long-discussed densification of its A320s, upgrading cabin amenities while adding 12 seats. Densification has juiced profits at other airlines by cutting unit costs while increasing total revenues—JetBlue is bullish about the benefits of going to 162 seats on an A320, rather than 150. Should it more boldly have gone to 168 seats (which would still— for perspective—be far less than, say, Spirit’s 182)? In July, JetBlue announced a blockbuster A220-300 order, taking 60 firm and 60 options. These will replace …

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