JetBlue Airways Corp (JBLU) 2021 Q1 法說會逐字稿

Good morning. My name is Fate. I would like to welcome everyone to the JetBlue Airways First Quarter 2021 Earnings Conference Call. As a reminder, today's call is being recorded. (Operator Instructions) I would now like to turn the call over to JetBlue's Head of Treasury and Investor Relations, Ursula Hurley. Please go ahead.

Thank you, Fate. Good morning, everyone, and thanks for joining us for our first quarter 2021 earnings call. This morning, we issued our earnings release and a presentation that we will reference during this call. All of those documents are available on our website at investor.jetblue.com and has been filed with the SEC.

In New York to discuss our results are Robin Hayes, our Chief Executive Officer; Joanna Geraghty, our President and Chief Operating Officer; and Steve Priest, our Chief Financial Officer. Also joining us for Q&A are Scott Laurence, Head of Revenue and Planning; Dave Clark, VP of Sales and Revenue Management; and Andres Barry, President of JetBlue Travel Products.

This morning's call includes forward-looking statements about future events. Actual results may differ materially from those expressed in the forward-looking statements due to many factors, and therefore, investors should not place undue reliance on these statements. For additional information concerning factors that could cause results to differ from the forward-looking statements, please refer to our press release, 10-Q and other reports filed with the SEC.

Also during the course of our call, we may discuss several non-GAAP financial measures. For a reconciliation of these non-GAAP measures to GAAP measures, please refer to the tables at the end of our earnings release. A copy of which is available on our website.

And now I'd like to turn the call over to Robin Hayes, JetBlue's CEO.

Thank you, Ursula, and good morning, everyone. And for those regulars on the call, you will notice a change of voice. So Ursula, congratulations on your new position and assuming the Investor Relations portfolio. Also my thanks to Juan Carlos and Scott here in the room with me who run IR team.

And also, obviously, we have to say farewell to Dave Fintzen. He's not leaving JetBlue. But Dave has done an amazing job as the head of our IR team for many years. And like many leaders in JetBlue, he's been doing double duty for the best part of the year.

So Dave is now leading our effort as VP of the NEA, which is the -- our partnership with American Airlines. And Dave is single-mindedly focused on delivering the benefits of the NEA in terms of growth and low fares for JetBlue and our customers. So Dave, the very best in your new role as well.

And as Ursula said, we also have Andres Barry joining us on the call today as a new addition, President of JetBlue Travel Products.

So with that, let's get on with the call. Again, good morning, everyone. And as we've done since the start of the pandemic, I'd like to take a moment to remember another crew member, we have lost to COVID-19. Alexander (inaudible) was a member of our JetBlue family for nearly a decade. Alex joined us in October 2011 as a ground ops crew member in Tampa, and our hearts go out to Alex's family, friends and the fellow crew members that he work with, as it does to all of us who have been impacted by COVID-19.

I would now like to thank -- start by thanking our amazing 20,000 crew members for their extraordinary work through the most challenging time in our history. They continue to work together to serve our customers with just such incredible passion and determination. Our crew members have demonstrated our decisiveness as a team to overcome the many challenges presented by the pandemic while setting the foundation for JetBlue's recovery and future success.

Starting with the presentation. Let's move to Slide 4. I'll start with an update on our ESG efforts, an area where JetBlue continues to lead the airline industry and generate value for our stakeholders. We are taking actions to reduce our impact on the environment and address societal changes in demand, mitigating business risk and enhancing our long-term financial returns.

I'll provide an overview of the targets we announced last quarter. Starting with the environment. Our ultimate goal is to achieve net 0 carbon emissions by 2040. Since last July, we achieved carbon neutrality for all domestic flying using carbon offsets.

We've also set interim 2030 goals, which include reducing emissions per ASM by 25% from 2015 levels converting 10% of our jet fuel to sustainable aviation fuels and changing over half of our ground support equipment vehicles to electric.

In the short term, we are investing in next-generation fuel-efficient aircraft to reduce our emissions and increase returns. Our technology venture subsidiary is positioning JetBlue to help us charter path towards net 0 emissions over the long term with investments in start-up companies like Joby and Universal Hydrogen.

Moving on to Social. We're focused on empowering our crew members and protecting our talent pipeline through our enhanced diversity, equity and inclusion strategy. The recent Derek Chauvin verdict reminds us how George Floyd's murder has been a catalyst for change. And over the past year, we have examined -- we have reexamined how we can help tackle systemic societal racism by focusing on diversity and equity at JetBlue.

We have accelerated our efforts towards building a more diverse slate of leaders and are creating greater access to select clear parts with our emerging talent platform including our new gateway college program. We have also committed to grow our spend with minority and women-owned businesses, and we are ensuring our brand strategy enhances trust and build connections with customers and the diverse communities we serve.

Lastly, regarding governance, we have embedded controls and increased our accountability with oversight from an ESG subcommittee of our Board of Directors. In addition, we recently incorporated ESG factors as performance measures into our senior leadership incentive compensation plan.

Turning now to Slide 5. In the last quarter, we reported an adjusted loss per share of $1.48. Although EPS remains in negative territory, we have seen meaningful progress in the demand recovery and have started to gain momentum from the groundwork we have laid to emerge from the crisis as a stronger JetBlue. Since mid-February, we have seen a meaningful rebound in leisure travel.

We are encouraged by the improving booking trends and with COVID-19 vaccinations rolling out, we believe the ongoing demand acceleration will continue into the summer. We are bringing back capacity in response to demand and we plan to capture a growing share of improving revenue from our customers in our leisure and VFR, or visiting friends and family -- visiting friends and relative markets. More importantly, we are taking a number of actions aimed to bring us back on a path towards superior margins.

Moving to Slide 6. Looking back to our work from 2020, I could not be more confident in our future. Our teams continue executing our comprehensive recovery plan, reducing our cash burn, rebuilding our margins and repairing our balance sheet.

Starting with cash burn. We have seen positive cash from operations for March and this milestone is our first step towards achieving positive EBITDA and returning to profitability. We expect our improving operating results and balance sheet will support JetBlue over the coming months as leisure demand approaches pre-pandemic levels.

To rebuild our margins, we have been executing network, commercial, fleet cost and capital allocation initiatives designed to help us rebuild our margins and repair our balance sheet. With respect to network, we are focused on strengthening our 6 focus cities and accelerating our recovery. We have taken advantage of unique opportunities that would have not been available to us before the pandemic.

We have also expanded and diversified our route map to better serve areas of relative demand strength, and some markets will remain long-term strategic investments for JetBlue. In New York and Boston, we forged a unique alliance with American Airlines that delivers low fares, a trusted brand and outstanding service to more customers.

Lastly, we will soon announce our inaugural flight to London bringing both our award-winning Mint and Core products and low fares for the transatlantic market, starting later this summer. Moving to the revenue front. We continue to implement our plan to improve our unit revenues over the coming years. I'll highlight 3 areas where we have made significant progress, and Joanna will provide additional details in a couple of minutes.

The first is our latest update of fare options, which provides our customers with more low fares. Secondly, we are in the contracting stages of our co-brand credit card RFP, which we expect will meaningfully enhance the economics of our loyalty program. Third, we are seeing momentum with JetBlue travel product. Over the last 2 months, JetBlue Vacations has performed well ahead of 2019 levels. We are very excited about last month's launch of Paisly, a new travel site that leverages smart technology to provide tailored offers to customers based on their individual itineraries.

In its early days, we are already seeing great customer engagement and believe this will be a significant contributor for future earnings growth. On the cost front, we remain committed to executing our plan to keep our costs low as capacity comes back. Our low-cost business model enables us to compete with low fares while driving higher margins.

We continued to reshape our fixed and variable cost base to provide a path to produce better than 2019 CASM ex-fuel in 2022. Regarding fleet, our order book solely consists of next-generation aircraft that will help us execute our network plans while producing structurally better margins. We are thrilled that our first A220 entered into service yesterday. We've also started selling Transcon flight on our first A321neo low-density aircraft. And tomorrow, we expect to take delivery of our first A321 long-range aircraft.

Both aircraft types equipped with our incredible next-generation Mint cabin. Lastly, we plan to maintain a balanced approach to our capital allocation, investing in aircraft that we build our margins while reducing debt. Last quarter, we took a step towards optimizing our capital structure, reducing our overall cost of funding with a successful convertible debt offering.

In conclusion, as we continue to navigate the challenges of the current year, we are so optimistic about our future. We will make the changes needed to weather the crisis while staying true to our mission and values and placing people and culture at the heart of our company. We have a truly great opportunity ahead of us and have laid the foundation to make JetBlue a stronger airline for years to come.

Joanna, over to you.

Thank you, Robin. I'll start with my deepest thanks to our crew members for ensuring a safe operation as we ramp up capacity in response to accelerating demand. We are pleased that more people in the U.S. have been vaccinated and quarantines and testing requirements for travel have been removed in the Northeast and other key locations across our network.

We are setting up operational -- our operation accordingly to serve a growing number of customers returning to JetBlue. Moving to Slide 8. In the first quarter, our revenue declined 61% year over two. A 6-point sequential improvement from the prior quarter, sitting at the better end of our latest planning assumption. While we initially anticipated trends improving during the quarter, we saw a bigger than expected step-up in demand for leisure travel beginning in mid-February.

Our cash revenue increased from $6 million per day in early January to $15 million by the end of March. Additionally, the length of our booking curve is now largely back at pre-pandemic levels as customers increasingly plan further ahead for their travel with JetBlue.

As expected, first quarter average load factors finished at 64% and we ended the quarter with load factors in the mid-70s. We are pleased with the broad improvement in demand across all of our geographies. Our LatAm and Caribbean franchise again proved resilient and recovered quickly from the setback that followed the CDC's order requiring testing for international arrivals.

Demand to our Florida markets increased, driving the quarter, and our Transcon region also strengthened as quarantine measures relaxed in our East and West Coast focus cities. For the second quarter of 2021, our planning assumption for revenue is a decline between 30% and 35% year over 2, the largest sequential improvement in our revenue since the pandemic started. We expect unit revenue to improve meaningfully, driven by both increasing load factors and improving yields. Our system load factors have been in the mid-70s since the start of April, and we expect them to remain at that level or higher through the quarter.

Based on forward bookings, we are optimistic about the upcoming summer months. In April, we have seen cash revenue average as high as $17 million per day. Our latest bookings and survey data show that customers are increasingly willing to take trips they have put off since last year. We are also seeing increasing attach rates for our JetBlue Vacations products, which signals that leisure traffic is ramping up well.

However, we will remain flexible given the potential for future restrictions that could slow down a return to travel. As Robin mentioned, we have continued to deploy initiatives to grow our unit revenues as capacity normalizes towards pre-pandemic levels. We updated our fare options platform to more competitively cater to price-sensitive customers with our Blue Basic offering. Whether in-flight product and changeability, Blue Basic is now the best value proposition in the ultra-low fare segment.

Our new Blue and Blue Extra offerings also provide unique features, such as guaranteed overhead bin space and flexibility, addressing longstanding customer frustrations. We estimate these updates will drive an approximate 1% increase in unit revenue in steady state. In addition, we continue to make progress with our new revenue management system. The value of these tools will become increasingly beneficial as industry-wide demand recovers and load factors continue to rise.

We also extended our booking window to 331 days, and have seen an immediate and significant booking impact following the rollout. In the medium term, we expect a meaningful increase in our revenue base from our network investments and notably from our alliance with American Airlines. We also anticipate to start reaping the benefits of our investments in JetBlue Travel Products.

So far this year, we have seen attach rates, gross sales, bookings and margins at all-time highs. We believe this performance is a result of the product revamp we put in place in early 2020, our updated pricing strategy and significant advancements in merchandising and targeted marketing capabilities.

Finally, we are getting ready to announce the outcome of our co-brand RFP. We believe this will help us close the gap in loyalty revenue to our peers over the next few years. We anticipate sizing our revenue initiatives and the expected dollar contribution to earnings as our baseline revenue stabilizes over the next year.

Turning to capacity on Slide 9. In the first quarter, our flown capacity declined 41% year over 2. During the pandemic, we've been focused on balancing supply and demand through managing our capacity to maximize revenue and rebuild our margins. For the second quarter of 2021, our planning assumption is for capacity to decline approximately 15% year over 2, given the strong sequential improvement in demand.

Our schedules are firm through the end of June. Over the next few weeks, we plan to make some additional changes to manage the peaks and troughs for the rest of the summer. We are well positioned to ramp our capacity in the coming months and expect only 10 aircraft from our fleet to remain in storage for the summer. Our thoughtful approach to offering crew members opt out and voluntary time-off programs early on during the pandemic has allowed us to remain nimble and help us scale back as demand normalizes.

Over the past year, our crew members have continued to undergo training and are returning to work in numbers to scale up our operation, and we are hiring in specific areas to address rapidly increasing demand. We will, of course, maintain our flexibility to scale utilization up or down as needed, while protecting the financial health of JetBlue.

In terms of markets, we are very pleased with our VFR and leisure performance. This quarter, we added service to Miami and Key West, which further expands our relevance in South Florida. 2 weeks ago, we operated our first flight to Guatemala City. And in mid-June, we plan to launch our inaugural flight to Los Cabos, Mexico. We are making great progress implementing our Northeast alliance with American Airlines, which we expect will provide a path for JetBlue to grow profitably over the coming years and to better utilize scarce infrastructure at New York and Boston Airport.

We launched codes haring in late February and announced a further expansion last week. Our customers are benefiting from new destinations, improved schedules, more frequencies and, of course, more low fares. To date, the NEA has announced a total of 58 new markets, 32 flown by JetBlue, and we are looking forward to additional announcements in the future. Through the alliance, both JetBlue and American will have new growth opportunities in the Northeast. For example, we expect to triple our flights at LaGuardia Airport from 16 flights per day prior to the pandemic to more than 50 by the summer of 2022.

Notably, we expect to reach our largest ever number of flights in New York later this year. Our customers will benefit from more than just a greatly expanded network and more low fares. For our TrueBlue members, we will offer the ability to earn points and redeem travel on American, and we are currently working to establish reciprocal benefits between our loyalty programs.

I will close with a big thank you to the many JetBlue teams who are working tirelessly to ramp up the operation and serve our customers. While we are pleased with demand returning so quickly, we acknowledge the tremendous hard work the team put in over the past 2 months. Thank you for remaining true to our values and setting the foundation for our future success.

With that, over to you, Steve.

Thank you, Joanna, and good morning, everyone. I'd also like to thank our crew members and leaders. I could not be proud of their resilience to overcome the challenges presented by the pandemic and to ensure the future success of JetBlue.

I'll start on Slide 11 with a brief overview of our financial results for the quarter. Revenue was $733 million, down 61% year over 2. Operating expenses were down 43% year over 2. Excluding the benefit from PSP2, operating expenses were down 26% year over 2. Adjusted EBITDA loss was $458 million, and GAAP loss per share was $0.78, and adjusted loss per share was $1.48.

As Robin mentioned, in March, we reached breakeven cash from operations, and we took a first step towards repairing our balance sheet. Starting with our operational performance. Our first quarter adjusted EBITDA was ahead of the range we anticipated in mid-March. This is a result of improving revenue trends and continue to successfully manage our cost structure despite increasing fuel prices. For the second quarter, we estimate that EBITDA will range between negative $100 million and negative $200 million, reflecting an acceleration of demand, partly offset by cost pressures from fuel prices and airport rents and landing fees.

On an EBITDA basis, we will believe that we will reach breakeven in the third quarter and expect to remain in positive territory through the end of the year. Turning to Slide 12. We are managing through the volatile demand environment with a laser focus on cost control as we bring that capacity to meet demand. During the first quarter, our adjusted operating expenses declined 26% year over 2, better than our initial assumptions and despite higher fuel prices. This excludes a payroll benefit of $289 million from PSP2.

Our planning assumption for the second quarter is a reduction in our total operating expenses of approximately 8% year over 2. This quarter-over-quarter increase of 18 points is primarily due to scheduled increases in capacity as we ramp up the operation to serve customers during the summer. As we navigate the current environment, we'll continue to manage our cost structure while mitigating near-term headwinds, namely higher fuel prices, rent and landing fees, maintenance and labor costs driven by the scaleup.

We are pleased, as a result of our aggressive cost management, we are starting to see CASM ex-fuel declining meaningfully from 41% year over 2 in the first quarter to 17% in the second quarter.

Moving to Slide 13. Since the start of the pandemic, we have gone deep on our cost structure with a focus on our fixed cost base adding to the continued momentum from our structural cost program. We expect to achieve better than 2019 CASM ex-fuel in 2022, providing a path to expand our EBITDA and ultimately, our pretax margins.

Last quarter, we announced our plan to reduce our 2021 fixed costs between $150 million and $200 million compared to 2019. We intend to preserve these savings as we grow our capacity back to pre-pandemic levels. Our work focuses on 5 key areas: one, driving automation and rolling out technology to improve processes and support functions; two, driving efficiencies in our IT infrastructure, for example, by consolidating our data centers and moving data and applications into the cloud. 3, consolidating our real estate footprint in both support centers and airports; fourth, continuing to rationalize our business partner spend; and 5, remaining disciplined in limiting our discretionary spend.

Regarding our variable costs, we continue to focus on driving efficiencies and productivity across the business as we bring back our frontline crew members to support the operational ramp-up. We expect to continue to see the run rate savings associated with our structural cost program, and we will continue to execute our plan to increase our fuel efficiency.

For the rest of 2021, we expect some headwinds related to maintenance as we approach 2019 capacity levels, a continuation of higher rents and landing fees in our airports as well as some inflationary headwinds. I'd like to thank our teams again for their hard work and engagement to rebuild our margins as we execute our revenue and cost initiatives.

Now turning to liquidity on Slide 14. At the end of March, our unrestricted cash and short-term investments were $3.2 billion or 40% of 2019 revenue. Given our strong liquidity and improving revenue trends, we're switching our focus to repairing our balance sheet and lowering our total cost of debt.

In March, we successfully executed a $750 million convertible debt offering with a coupon of 0.5%. We partially used these funds to pay down our $550 million revolver facility. In the first quarter, we also received over $500 million from the second round of payroll support from the federal government to support the salaries, wages and benefits of our crew members.

We expect to receive an additional $76 million in the forthcoming days related to PSP2. We are grateful to the administration for their continued support of our industry and for crew member jobs. We remain very comfortable with our liquidity position. Given our expectation for recovery through 2021 and continued support from the federal government. At this time, we do not intend to draw down on the remaining $1.8 billion available to us under the CARES loan -- Act program.

As a result, our loyalty program remains our most valuable and encumbered asset. In the event we need additional liquidity, we believe we can access attractive and competitive financing in various markets.

Moving to Slide 15. In the first quarter, we took delivery of 3 A321neos, including our first aircraft with our reimagined Mint cabin. The fleet currently stands at 270 aircraft, and we expect to take delivery of 6 additional shelves during the second quarter, including 2 A220s; 2 A321neos; and 2 A321LRs. We continue to forecast approximately $1 billion in CapEx spend for 2021, the majority of which consists of aircraft, which we expect to fund using cash.

As the first A220 enters into service, we are particularly excited about the outstanding economics it provides. With 30% better cost efficiency per seat compared to our E190s. We expect to take 69 additional deliveries through the middle of the decade, including 7 this year. We believe this fleet will be pivotal to helping us reshape our cost structure and growing our margins.

Moving to Slide 16. At the end of March, our debt-to-cap ratio was 59%, a small increase from the prior quarter, driven by the opportunistic convertible debt offering we made in March to pay down the revolving credit facility and lower our cost of funding.

Going forward, as we produce positive cash from operations, we plan to prioritize paying down high-cost debt with the goal of reducing our weighted average cost of debt to below pre-pandemic levels. We also intend to continue a strategic and measured approach to return to investment-grade metrics and a debt-to-cap ratio of between 30% and 40%.

We believe that as we grow back, our amazing culture will continue to power our strategy. We are confident that our network and commercial initiatives, cost reduction efforts and long-term investments will put us back on a path to superior margins. On behalf of the JetBlue leadership team, we want to again thank our crew members as well as our business partners, our communities and our owners for all of their support.

With that, we will now take your questions.

Thank you, Robin, Joanna and Steve. Fate, we're now ready for the question-and-answer session with the analysts. Please go ahead with the instruction.

(Operator Instructions) Your first question is from Savi Syth from Raymond James.

I was just kind of curious especially on the cost side, what expectations are kind of embedded behind your EBITDA outlook for the second half of '21. Just wondering if there are some kind of ramp-up costs that go away, and generally, what you expect from a demand standpoint.

Savi, it's Steve here. It's a good question. I think the first thing I would say is, obviously, in a high fixed cost capital-intensive business with capacity down even 15%, there continues to be inherent inefficiencies in the cost structure, that as you start to continue to grow capacity, that alleviates over time.

We are continuing from -- on a quarter-to-quarter basis in terms of cost structure as we grow to drive more efficiency. So if you think about Q1 to Q2, our capacity is up 50% quarter-over-quarter, but our nonfuel costs are only going up 22%. So you have got those inherent efficiencies as you scale back. But I'm sure some of the essence of your question is regarding some of the headwinds that we've discussed.

Obviously, as we embed the fixed cost initiatives that we are working through in 2021, we will continue to see efficiencies associated with that. Certainly, there are some material inefficiencies that will remain in the second quarter until we scale back. Think about the likes of pilot minimums in terms of hours, which are obviously additionally impacted by the CARES Act.

Thirdly, as we get ready for the summer, we are incurring some costs as we ramp up the summer peak. Think about some crew member, cost associated with labor and maintenance to make sure that we have the fleet ready. And then as we've always talked about rent and landing fees, I think you'll start to see some alleviation in that when industry traffic continues to normalize. Because particularly those cities that have seen a precipitous drop in traffic, they have been impacted quite clearly.

And again, when that normalizes, you'll see some sort of rationalization of costs. So there's a number of areas that I think will become more efficient as we navigate through the rest of the year and the business ultimately scales up.

That's helpful color, Steve. And Joanna, if I might quickly ask on the -- mentioned that majority of the new markets are performing in line to better than expected. Just curious if there are any common trends or characteristics in the new routes that are working versus those you had to kind of pull back on.

Yes. Thanks, Savi. Great question. I think the 2 trends I'd say leisure is obviously performing well in those jurisdictions or locations where there are travel restrictions in place and/or higher case counts tend to lag some of the other markets that we're seeing performance in. But overall, very pleased with the performance of the new markets that we've added. I'm very encouraged. There will be some that will be lasting markets. We've also, as we always do, been pretty disciplined in the markets that are underperforming and making sure that we scale those back.

Your next question is from Jamie Baker from JPMorgan.

I assume you have pretty detailed financial forecasts, at least for the first year or 2 of the transatlantic expansion. Can you compare how those forecasts are looking today to what they were in early 2020? Obviously, the Heathrow outcome might be different than what you had planned pre COVID. But I'm curious if your overall Atlantic forecasts have strengthened, and if so, by how much?

Jamie, it's Robin, and I'm going to ask Scott to take that one.

Great. Jamie, I appreciate the question. And obviously, the transonic has seen quite a bit of change here. I think the first thing I would say is that we have a strong fundamental offering here and the ability to disrupt the premium cabin is something that we feel very confident that we're going to be able to do.

I think if you sort of look at the transatlantic, vis-à-vis what we expected pre Covid, it's clear that the initial portion of this is still going to be in a recovery mode. I think for us, we had based our business plan around the concept of people actually paying their own money to sit in business class rather than people looking at the fares that historically have been somewhat extortionate with corporate discounting in the front cabin.

So again, I think if you look overall at our forecast and our potential, as we move forward, I think it is -- it continues to be very strong. It continues to be very similar to what we initially expected. And we look to move forward confidently as we begin transatlantic service.

Okay. That's helpful. And then second, a few years ago, the LaGuardia perimeter rule was a topic. JetBlue publicly objected to a potential relaxation of the rule, if I recall. But if we fast forward to today, I mean, your fleet capabilities have obviously expanded. You've got the relationship at LaGuardia with American, is perimeter something you've discussed with American? Are you permitted to? And could it be part of the evolution in the relationship at LaGuardia?

Thanks, Jamie. I'll take that. And first of all, as is tradition on our April call, let me wish you a very happy birthday week. But no, look, our view on that hasn't changed. I mean whilst our alliance with American has allowed us to make some positive changes in our LaGuardia footprint, it's still a very, very fraction of our largest competitor there. The New York airports work as an ecosystem. And we're talking about making some significant investments to our partners at JFK and as such that if the perimeter rule was to ever be modified or changed, it's our view that, that will need to come with a significant slot divestiture to make sure the sort of new ecosystem continues to work together.

Your next question is from Joseph DeNardi of Stifel.

Joanna, you talked about co-brand economics improving. And I think you said closing the gap between your earnings and peer earnings over the next few years. I just want to understand kind of what the expectations are. In 2019, you guys reported about $200 million in fee revenue from the card. Alaska reported $465 million. Is your expectation that you can close that gap within a few years?

Joe, thanks for the question. Yes. I mean we're very encouraged by what we're seeing with the results of the co-brand RFP. As Robin mentioned in his opening remarks, we are in the middle of contract negotiations with the finalist and I describe it as a meaningful improvement over existing economics of our deal, and we'll be prepared to discuss more in the coming weeks.

Okay. That's helpful. And then, Steve, just on the CASM expectation for kind of improving CASM on the same level of capacity. Can you talk about maybe what's working against you when you take into account that structural cost initiatives and just kind of having that capacity production with a leaner organization? What are some of the headwinds kind of moving against you all?

Yes. Thank you, Joe. It really just goes back to a couple of other things in the relatively short term that I just discussed with Savi. I think that in an industry like ours, high fixed cost, capital-intensive even short levels of capacity reductions have a headwind.

I think as we sort of enter 2022, undoubtedly, rent and landing fees are sort of a key aspect in terms of headwind that needs to sort of normalize. General labor and price inflation are other items that we need to sort of think about as we sort of go through. And on the assumption that we continue to get the fleet and we'll work forward as we go through 2021, making sure that our maintenance is in good shape as we sort of get to the year.

But obviously, outside of those 3 areas as we get into 2022, there's a whole host of work that we completed coming into the 2020 year around the structural cost program that will meaningfully change the paradigm from a variable standpoint and the $150 million to $200 million of fixed cost initiatives, which I've outlined in our prepared comments, which will also offset some of those cost pressures.

Your next question is from Brandon Oglenski of Barclays.

I guess for Robin or Steve or Joanna, can you talk to your ability to get back to 2019 profitability levels or not even -- or maybe even exceeded like you had in your prior plan? What are the proper thresholds here? Do you guys need to get back to where you were from a capacity standpoint and then see revenue recover or are there other levers that you guys can pull?

Brian, good to hear from you this morning. It's Steve here. I would sort of go back a little bit in the way back time machine and think about how we were coming into 2020. With our $2.50 to $3 of EPS and the 5 building blocks that would be high in the whole of our business from a commercial cost, fleet, capital allocation perspective.

And as we've gone through the pandemic, not only have we looked from a defensive standpoint, but we've also been on the offense. So there were -- I've talked extensively about our cost structure, both on the structural cost standpoint, really focusing on available efficiencies, but also on the fixed side.

So we'll sort of put that to 1 side. The fleet initiatives very much stand in good stead. And as Robin referred to, we took our first A220 yesterday, incredibly excited about the potential economics that bring to JetBlue as we go forward from a margin standpoint, in addition to the 321neos which are going to continue to ramp in the fleet. And then there's a whole host of revenue initiatives that we're driving forward with. Joanna talked about the co-brand RFP. We've talked about the Northeast alliance that we're incredibly excited about, which will continue to drive lower fares and growth for the Northeast with American Airlines partnership.

If you think about the revenue management initiatives that we're sort of driving in place and then incredibly exciting travel company that we're developing with JetBlue Travel Products and the great work that Andres is going for. So when you think about costs, you think about commercial, you think about fleet, and the acceleration that we've taken place with regards to balance sheet repair and capital allocation, I feel very optimistic about the future margin capabilities of JetBlue as we evolve into next year and beyond.

Steve, appreciate that response. And I guess, Joanna, as a quick follow-up. I think the restrictions in the Northeast and specifically, New York have been lifted. In fact, I don't think I (inaudible) asked by the government anymore getting off a plane. So have you seen any pent-up demand in these regions and could revenue be exceeding to the upside here as people realize that it's a lot easier now?

Yes. I mean it's a great question. We were very pleased to see the Northeast restrictions come off. And I think that's giving us some wind in our sales as we step into the summer time frame. Overall, the network is performing well across multiple geographies, which has been fantastic for us, particularly as we step into the summer in our peak travel period.

So very encouraged by New York. Very encouraged by Massachusetts. Also encouraged by the Caribbean, frankly, and what we're seeing down there. The Bahamas updated their guidance last week. So that's all good news, and we continue to encourage the islands to kind of work in a coordinated fashion to reopen in a safe, thoughtful way that makes it easy for customers to travel there.

Your next question is from Helane Becker from Cowen.

On the new guidance that you're giving for the second quarter, I know this is a short-term question, but how should we think about the percentage that traffic improvement versus the percentage that's fares improvement? In other words, is there opportunity to raise theirs as demand increases here through the summer?

Thanks, Helane. Great question. If you think about it in terms of 50-50, I think the good news for the summer is we're growing TRASM while we're growing ASMs, and that's being driven by double-digit improvements in both load factor and in yield. I'll also point out that the booking curve is normalizing, which is giving Dave Clark and his team an ability to better yield manage our flights. So that's been a great change as well.

Your next question is from Duane Pfennigwerth from Evercore.

A question for Robin, if you're still around, maybe more of an industry question. The EU commentary on letting vaccinated U.S. passengers travel to Europe. What had we actually learn, I guess, this weekend, what do you view as the next steps from a U.S. perspective? And how would you handicap the odds of this getting implemented in time to book summer travel?

Yes. No, thanks, Duane. By the way, where do you think I went, it's our earnings call.

Well, you're doing a good job of deferring and delegating.

Well, it's a team sport, isn't it?

Fair enough.

Anyway No, no. Look, it was a positive development. And I think it's -- I just want to build on what Joanna just said because I think we're seeing this now in more and more markets. We started seeing it in the domestic market as states started to move some of the restrictions.

We started to see it in some of the Caribbean markets as they sort of figure out what works and doesn't work and trying to strike that right balance between public health and making markets accessible. And there's a number of EU countries, as you know, where tourism is a significant driver.

And so I'm confident. Look, I think it ultimately depends on the country's ability to bring down their case count and vaccinate people because that's what gives you a sense that sort of some of the case count reductions are permanent. What we've seen here in the U.S. and other markets as the case counts start to come up again, restrictions go back in, that definitely impacts traffic. And so I think providing the EU and the country in the EU can kind of catch up with the vaccination program, hopefully, that makes the summer open and accessible.

And if I look at the U.K. because obviously, that's the top of our list, they've done a terrific job with the vaccines. And I think they're really on track to some form of opening up here for the summer.

And then if you're willing to comment on it, question for the team, what percent of capacity would you envision pointed at Europe in the fourth quarter? And then how do we think about that balance of growth longer term? So in other words, is it -- is domestic a priority until you get back to full 2019 levels? Or how should we be thinking about it kind of '22, '23, that balance of growth between domestic and Europe?

Well, I'm going to deflect that to Scott, Duane, even though I think I could give you a very good answer.

Team support, indeed. So again, I think if you look at Europe for us, it's going to be de minimis in terms of the ASMs as a percent of system. It really is limited. So I think that's the first thing that I would lay out there that, again, in the near future, you're looking at 6 LRs that are coming in, they just do not produce enough ASMs to be -- to really push up the chart.

In terms of domestic versus international, I think the -- this continues to evolve for us. We were very concerned when we saw the testing come in for international. We've seen, particularly in the Caribbean region that, that has recovered nicely. And so as we go forward, I think you're going to see a balance of growth for domestic versus international that has looked kind of like it has historically for us.

So again, we're in the midst of a leisure-oriented recovery. I think that we're built for leisure. We're excited about that. I think that actually plays right into our strengths. And as we allocate growth going forward, I think that mix of domestic international is going to be what's optimal for us in the short to medium term.

Maybe if I could sneak 1 more in. Can you speak to start-up costs that you're incurring here, June quarter, September quarter for the Europe launch? And thanks for taking the questions.

So again, I think as we look at this, we went through the crisis, we did not lay people off. And I think while we want to make sure that we're leading the burden and were as operable as possible, I don't think you're going to see a significant impact from that as we go forward. And I think, again, as -- as we look at the summer and the fall, we look forward to getting the airplanes up in the air and doing so in a way that has our customers happy.

Your next question is from Catherine O'Brien from Goldman Sachs.

So maybe first, a question for Joanna, just about the RASM drivers you've laid out, completely understand you'll need to wait to give more details on the co-brand agreement until the contract is finalized. But just high level, should we think about that as the largest of the 3 RASM drivers versus the additional fare option uptick in the JetBlue travel products impact?

Great question. Sorry, my mic was off apologies. Thanks for your question. So I would -- we're going to go out with firm numbers as we start seeing a more stable revenue environment. Clearly, the co-brand card is a significant contributor. Fare options 1.0, we've -- or 2.1, we've already communicated is 1 point of unit revenue and then some of the work in the Travel Products -- Travel Products world, we're calling about 100 EBIT based upon what we said in 2018 investor meetings.

And so that is on track, and we're optimistic that we're going to hit those numbers. I would not underestimate the contribution of the American Airlines NEA agreement or, frankly, some of the smaller initiatives, the 331 schedule changes or the new revenue management changes.

So overall, we're encouraged by the momentum behind these initiatives. They're unique to JetBlue. We'll be prepared to give greater detail in the coming months as the revenue environment stabilizes. Co-brand is a significant contributor in line with some of the other larger initiatives.

Okay. Got it. And then maybe second question for Steve. So you guys noted that the first priority for cash flow when it turns positive is paying down high cost debt. Can you just talk about what opportunities you have to delever over the next couple of years, maybe both through scheduled payments or any opportunities to prepay that? And then just how do you think about pacing those opportunities?

Yes. Katy, it's a good question. We've been very measured and strategic as we've gone through the last sort of 12 to 15 months going through. Not only have we had an eye on bringing liquidity and cash into JetBlue, but based on the facilities that we have used to bring cash into JetBlue, we thought very much in terms of not only rate, but sort of tenure as well as we've gone through it.

So we do have a number of opportunities based on how we go forward. I mean I'm delighted that we're generating positive cash from ops in March and going forward in that good position. We obviously have the PSP2 top-up and PSP3 coming. And so we are going to take every opportunity to pay down the debt and ultimately reduce the weighted average cost of debt. Coming into the pandemic, our weighted average cost of debt was in the high 3s. It's sitting around 4 now. And as I mentioned in my prepared comments, we expect our weighted average cost of debt over the forthcoming months to actually be at a level that's lower than where it was coming to the pandemic.

So I feel not only incredibly comfortable with where our liquidity sits and the strength of the balance sheet, but also in terms of driving down financing costs as JetBlue goes forward.

Your next question is from Ravi Shanker from Morgan Stanley.

Joanna, if I can just follow-up on the previous response on RASM. I completely appreciate that the current environment is really messy. But given the initiatives you have with international and ventures and co-brand card and everything else, kind of much like the detail you've given us on the CASM side in terms of thinking about '22 versus '19, can you comment or do you have really good confidence that '22 RASM can be comfortably above 2019 given those idiosyncratic advantages that you have?

Yes. So good question. We're not in a position right now, specifically to the revenue initiatives to break out exactly where they are. As we said, we'll do that at a later date. What I would say about 2022, however, is we are encouraged by what we're seeing this summer. And if we believe that carries into the fall and into the winter, we are optimistic that 2022 has the potential to be a strong recovery year.

Leisure has led the recovery. We believe there's still pent-up demand for travel that will carry into the fall. If you look at GDP growth in 2022 versus 2019, it's 4 points higher. And frankly, we think travelers have extra savings. And with the access to the vaccine, there'll be additional locations opening up. You add that to our series of revenue initiatives and we think that 2022 could be a strong recovery year.

The other piece I'll mention is, if you think about JetBlue and how we're positioned, a trusted brand, unbelievable crew members committed to our success, a great product, largely domestic leisure with a history of serving these markets. It's what we do. Coastal markets, our network. We think this is going to serve us very well for our recovery year.

Got it. And maybe as a follow-up, kind of a longer-term question on the venture side. Obviously, you are a leader in kind of investing in SAF and committing to using that for your ESG targets. But the hydrogen investment was pretty interesting and kind of caught my eye. Can you share a little more light on kind of what are you thinking there? Kind of how you think hydrogen fits into your long-term field plans?

No, great question, Ravi. I'll take that. I'll try and be brief because I could talk about this topic for hours. I think, certainly, JetBlue takes the view that the sustainability of our industry as we come out of the pandemic will be an extremely critical topic and something that we need to demonstrate a real continued commitment to reduce our carbon emissions in order to continue to earn the right to grow.

So over the short to medium term, we're very focused on areas like sustainable aviation fuel, continuing to try to work with the U.S. government on more efficient air traffic control procedures. As you know, JetBlue is investing billions of dollars in more fuel-efficient airplanes. We are aggressively replacing our ground equipment with much greener electric ground equipment.

But for airlines to make reach some of the longer-term aspirations around 0 net carbon and do it in a way that doesn't rely on offsets, which we clearly just view as a bridging strategy, we have to consider alternative types of aviation -- alternative ways of powering aviation. So we stay close to the electric airplane industry. I think we will recognize that, that's, I think, at least over the next couple of decades, going to be confined to smaller airplanes over shorter distances. But we're intrigued. Airbus has made similar comments as well about the ability for hydrogen to provide a sort of a longer-term cleaner fuel option.

And so this is why we have our tech ventures subsidiary. It allows us to get smarter on these things, and we have a real focus at JTV at the moment on considering investments in the sustainable aviation space.

Your next question is from Hunter Keay from Wolfe Research.

How are you guys thinking about the fall after your kids get back into school, obviously, not looking for any revenue or capacity guidance or anything like that. But how do you think about a good case scenario and a bad case scenario in terms of just sort of how your consumers behave?

Yes. Thanks, Hunter. I'll take it and then I'll let Dave Clark add some color. So I think we're still in pandemic. And so we're very mindful of that. While we are, as we've said, encouraged by what we're seeing stepping into the summer, we also don't know what we don't know. And so that's sort of at the heart of our comments around remaining nimble and flexible with how we manage capacity stepping into the fall time frame.

We do believe, based upon what we're seeing, that there will continue to be pent-up leisure demand. Dave will get into a bit on what we're seeing on the corporate side. But we're cautiously optimistic that assuming there aren't any increase in travel restrictions, that the vaccine continues to take a hold, that case counts stabilize or come down, that the fall has the potential to be -- to be good for JetBlue is obviously a trough period historically for us.

As we think about the holidays, and customers that have not had a chance to visit their families over the Christmas, Hanukkah holidays, Thanksgiving, we think that has an opportunity to be a very strong period for us. Dave, do you want to add some color on the corporate side?

Sure. Thanks, Joanna. And I agree, I think the fall is actually the trickiest period to forecast from right now. We know leisure is holding up well, but the leisure demand base in general in the fall is lowest compared to any other time of the year. So the real question is how quickly will business in corporate ramp back up? Just we've been seeing good growth in these areas, but off a quite low base.

Early in January, our year over 2 corporate travel is still down about 95%. It's been improving. We're now about minus 80% or so in terms of bookings. So good improvement, but awful low base. As we stay close and talk with our largest customers, we do expect to see a phased approach as they go through the summer, especially returning to office in late summer and early fall, and they expect to really accelerate travel in the September-October time frame. But exactly when that occurs and how robustly it comes back is something that we're still looking at very closely as we think about fall revenue and capacity.

All right. And then, Steve, just to flesh out the cost commentary a little more for '22, as you think about CASM. On your P&L, as you guys report it, which do you think -- which single line item on a unit cost basis has the best prospects of being below 2019 and which one you think is going to be the toughest?

Thanks, Hunter. I think the toughest and the one that we're keeping the closest control on it -- the closest focus on, should I say, is really around rent and landing fees. Because that has continued to be one of the headwinds for the industry, and I've mentioned that specifically. So we'll have to see how that evolves. I think from a positive standpoint, I would suggest distribution. I think the commercial team have done some tremendous work over the last few years in terms of driving our direct strategy.

Also looking through the lens of the business partners in terms of how we think about cost of sale, not only in terms of sales, but also servicing for our customers, and really using automation and driving our direct proposition. So on the negative side, on the pressure side, it would be rent and landing fees. On the positive side, it would be our cost of sales and distribution.

Your next question is from Andrew Didora from Bank of America.

Steve, just in terms of your 30% to 40% debt to capital, what time frame do you think you can achieve that in? And more importantly, do you think this is a goal that you can get to organically? Or do you think there needs to be some other form of capital raise to get there?

Andrew, and great question. So we've previously talked about this. I'm really, again, very pleased and delighted that we started generating positive cash from operations in March. And also, we've sort of taken the momentum as we've gone through this and been very appreciative of the administration for the support they've given the industry.

We've always said it, we expect it to be between the 2023 year and the 2024 year. So that's when we're sort of thinking about getting back into that situation. We came into the pandemic with the second strongest balance sheet in the industry. We continue to be in that place. We continue -- I mean we'll see how things evolve.

But I would anticipate based on generating positive cash from ops, sort of going through the position that we've been through. I've been happy with the market transactions we've done. I expect this to be still organic means, but I won't get ahead of myself and 2023, 2024 is quite a way off, but that's our current working and planning assumption at the moment.

Great. And then just my second, just a quick follow-up. Apologies if I missed this, but just your comments on getting back to 2019 or better CASM levels in 2020. Have you said what level of capacity you're assuming next year relative to 2019?

Yes. So it's back at sort of [2009-ish] levels of capacity. So that's the sort of level that we talked about.

2019. Okay. Sorry, you said 2009.

Sorry, 2019. It must be the British Accent. Apologies for that.

Your next question is from Mike Linenberg from Deutsche Bank.

Joanna, you brought this up and maybe you or Dave, just about the move to 331 days in the booking window. What was it before? And presumably, this is graduations, weddings, family reunions, maybe people who book cruises out 9, 10 months, a less price-sensitive segment. Is that -- that's the pickup there? Or is there something else related?

Mike, this is Dave Clark. I'll take that one. Previously, we're selling between 7 to 10 months of schedule sort of on a seasonal block basis. Now we're consistently at 331 days. And you're right on the type of traffic that books 10 or 11 months in advance, these are big events, these are family events, big milestones, things where the trip and getting the reservation booked important -- getting it booked ahead of time is the most important part to the customer.

So we're happy to be able to take more of that traffic, put some revenue on earlier in the booking curve. And generally, yes, it's not as price sensitive as closer in traffic.

Dave, have you thought -- I know there's at least 1 carrier I can think of that's now gone beyond the 331. And with the cruise industry saying that people are now booking out more than a year, have you -- and because you guys are big in Fort Lauderdale, have you thought about actually extending it for that type of passenger? Or is it just -- it's just too far out.

I think for now, we're really pleased with where we are. It's only been a couple of months, and the initial results are good. So we'll keep our eyes on the future, but no short-term plans.

Okay. And then just a quick follow-up on the fleet. I think it was mentioned that this summer you'll only have 10 aircraft in storage. But if we look at the fleet that's operating through the summer, how does the utilization compare versus what it was back in 2019? I mean if you have sort of a block hour per day summer of '21 versus 2019?

Yes. Thanks for the question. So we're slightly below 2019 levels at this point. We expect them to approach closer to 2019 as we step into the summer time frame, a little bit lower, but getting back there.

Your next question is from Myles Walton from UBS.

I was wondering if you could comment in the context of the down 15% capacity and down 30% to 35% year over 2, what LatAm, Caribbean looks like versus '19. I imagine those are probably trending above '19 levels. And if you think you're disproportionately benefiting from the lockdowns elsewhere in the world, if these kind of gains become more sustainable on a go-forward basis in leisure destinations that you currently serve?

Myles, this is Dave Clark. I'll take that one. The LatAm, Caribbean region has been at the very top end of our strong performing regions, both from a revenue and a capacity standpoint. If you look ahead at our selling schedules, we actually have capacity to that region up year over 2 in July and August, reflecting the strong demand and performance there.

Okay. And then could you be a little bit more specific on the PSP3 cash that you're going to get in this current quarter, Steve?

Yes. So the -- thanks to sort of the administration. If you think about it from a U.S. industry standpoint, PSP2 was around $15 billion. PSP3 is $14 billion for the industry. So you're sort of talking low 90% versus the PSP2 number. So should be in the ballpark for JetBlue, around $500 million. And obviously, there's a blend of grants and loan embedded in that.

Our last question is from Dan McKenzie from Seaport Global.

A couple of questions. I appreciate the corporate demand is pretty depressed right now. But regarding the relationship with American, are there any examples of accounts that you've already talked to jointly and whether or not you've seen any corporate wins. And so I guess I'm just trying to get some perspective on, are these smaller Fortune accounts? Are they, say, Fortune 100 accounts, the bigger ones? And just related to that, what is the cumulative collective corporate spend that you've been blocked from historically that you could potentially tap into for the first time?

So this is Scott. I will say that we're early enough that we're still sort of working through the process to handle joint sales. And again, I think the goal here is to make sure that we're providing competition, and in our case, lower fares and a great experience to customers in the NEA market.

So I think it's something we're going to be rolling out here in the short term, and we look forward to working jointly with our partner on that. And I think, again, providing appropriate competition in a number of the markets, particularly in New York that we haven't played in previously.

And that collective spend? Is it $10 billion, $15 billion potentially that you could -- the wallet you're looking to tap into?

So we're kind of looking at each other here. I think we'll follow-up on that. I don't have a good answer for you.

Okay. Second question here. The new flying in the first quarter, I think it was 15% of the total flying. What percent of that flying was in support of the new American partnership? And what percent of the overall network does the American relationship cover?

So the relationship itself covers about 66% of our network, which touches sort of the NEA airports, and that number has grown a little bit as we've -- as we move forward. So you're going to see is we're able to enter LaGuardia based on the NEA that, that number comes up a bit. So a big chunk of what we added was either added associated with the NEA or in anticipation of the NEA.

So a number of the markets where we're able to provide competition, whether that's in New York with the dominant carrier there, at LaGuardia with the dominant carrier there. I think what we're doing is sort of enjoying the benefits of breaking up a number of monopolies here. And I think that's something that can work for us as we're playing a role of disruptor.

And that concludes our first quarter 2021 conference call. Thank you all for joining us this morning, and we hope you all have a great day.

And again, that will conclude today's conference. Thank you for your participation.