JetBlue Airways Corp (JBLU) 2020 Q4 法說會逐字稿

Good morning.

My name is Mel.

And I would like to welcome everyone to the JetBlue Airways Fourth Quarter 2020 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, VP of Investors Relations.

David Fintzen, please go ahead.

Thanks, Mel.

Good morning, everyone, and thanks for joining us for our fourth quarter 2020 earnings call.

This morning, we issued our earnings release, our investor update and a presentation we'll reference during this call.

All of those documents are available on our website at investor.jetblue.com and have been filed with the SEC.

Joining me here 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; and Dave Clark, VP of Sales and Revenue Management.

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, Dave.

Good morning, everyone.

I hope you're doing okay.

As we've done in previous earnings calls since the pandemic began, I would like to pause and remember a lost crew member.

1 of the 10 we have now lost to COVID-19.

Garrett Gantt was part of our ground operations team at JFK since 2005, and his teammates will remember him for his kindness, his passion and warmth, and his willingness will always go above and beyond.

Our thoughts go out to Garrett's family and friends, to all of our crew members that knew him and, also, everyone so impacted by this pandemic.

Now I'd like to recognize our 20,000 crew members for their unwavering commitment to serve our customers.

2020 was a year like no other.

And as the COVID-19 pandemic challenged our industry in ways we have never seen before, our crew members rose to the occasion and delivered on our mission to inspire humanity.

The very foundation of our business model, our culture, our passion, our customer service and our focus on safety continue to guide us as we march towards recovery.

At JetBlue, we have been investing in our culture for over 20 years, and our long-standing commitment to empowering our crew members is now more important than ever.

As a service company, the pandemic and cries for social justice have underscored our role in reducing biases that have existed for too long.

We are starting 2021 with a reinvigorated diversity, equity and inclusion plan.

Our commitment is to better embed DEI into the fabric of JetBlue and to continue our minority and female representation in officer and director ranks -- continue to increase our minority and female representation in officer and director ranks between now and the end of 2025.

We are also reinforcing our commitment to invest in our crew members and improve their access to development opportunities.

Lastly, we intend to better reflect the diverse communities and cultures we serve in all areas of JetBlue.

We believe JetBlue will continue to set the standard in our industry with our comprehensive ESG strategy, and we were the first airline with SASB reporting.

Our commitment to the environment is to reduce emissions across our business as we respond to the changing expectations of our customers, crew members and owners.

Today, we are the only U.S. airline that has achieved carbon neutrality for all domestic flights.

We also intend to achieve net carbon emissions across all of our -- net-zero carbon emissions across all our operations by the end of 2040 at the latest.

Our plan is to accomplish these goals through fuel-efficient aircraft, expanding our use of sustainable aviation fuels and purchasing carbon offsets.

Later this year, we plan to publish our annual ESG report detailing new initiatives, strategies and disclosures, and we'll continue our conversations with all our stakeholders.

I'm proud that while we are in the middle of a pandemic, our team continues to prioritize our work on ESG.

Now let's move to Slide 4 of our presentation.

In the fourth quarter, we reported an adjusted loss per share of $1.53.

Despite the financial results, I'm proud of what our crew members have accomplished in this extraordinary year.

And I could not be more confident about our future.

Our team has not only managed through the ongoing demand challenges but also has made important progress on strategic initiatives, including revenue, capacity and cost actions.

Through this work, we believe we will emerge as a stronger JetBlue.

Moving to Slide 5. We continue on our path to recovery, which consists of 3 steps: first, reducing our cash burn; second, rebuilding our margins; and third, repairing our balance sheet.

As we moved through 2020 and meaningfully reduced our cash burn, and we are now starting to shift our focus to rebuilding our margins.

We remain cautiously optimistic that demand trends will improve later this year.

More importantly, this crisis has made us a more agile, creative and resilient airline, and we believe our initiatives will allow us to merge -- emerge with structurally better margins.

Let's start with our network plan.

We have taken aggressive actions to protect cash and remain relevant in our focus cities and announced over 80 new markets while accelerating our expansion in historically constrained markets such as Newark and LAX.

We are thrilled to incorporate new aircraft into our fleet that will support our network plan.

This year, we are bringing in the game-changing A220 with it -- and its fantastic economics.

We'll also fly the low-density A321neo and the A321LR, both of which include our incredibly exciting new Mint product, which will carry forward our success in disrupting and reimagining premium travel at significantly lower fares.

We're so excited to shortly launch our landmark Northeast alliance with American Airlines.

This is a truly innovative partnership between 2 independent airlines.

Through our different business models, we expect to expand flying in highly constrained markets and bring more low fares to more customers.

We plan to offer new and increased flight options, improved schedules, better connections and more competitive fares.

Our customers will have access to more domestic and international destination and an improved frequent flyer program.

For JetBlue, this alliance will help us recover more quickly while also protecting jobs.

Beyond fleet and network, we plan to continue to enhance our digital experience and develop our JetBlue travel products offering.

Last year, we relaunched JetBlue Vacations, bringing innovative new benefit to vacation packages such as personalized service in destination, travel perks, payment flexibility and a best price guarantee.

We also enhanced our travel insurance product.

We are now working to scale up our platform to help our customers easily add products to their travel plans with JetBlue.

The initial results are encouraging, and we believe that as leisure traffic returns, we will see attach rates improving compared to our pre-COVID rates.

Lastly, we remain committed to keeping our costs low and ensuring that our efforts across JetBlue translate into better margins and higher earnings.

We continue to find meaningful opportunities to both -- in both our fixed and variable cost structures, which reinforces our low-cost, low-fare leisure model.

Steve will provide more detail on our 2021 cost plan and how this adds to the cost savings we achieved through our structural cost program.

Of course, all these efforts would not be possible without our incredible crew members.

I want to thank them for their personal sacrifice as this crisis has impacted their lives with reduced hours and reduced paychecks.

And on behalf of all of our crew members, I want to thank our government leaders particularly at the U.S. Treasury for their continued and vital support for our industry, which has helped save many jobs.

We are, as we all know, navigating the most challenging times in our history, but we are starting to see light at the end of the tunnel.

Our team will continue to do everything we can to protect the future of JetBlue, protect our crew members and emerge as a stronger airline.

Joanna, over to you.

Thank you, Robin.

First, a shout-out to our crew members who continue to manage all of the challenges and operational complexities associated with COVID.

They are delivering a safe and healthy experience day in and day out for our customers and have truly been at the center of our safety from the ground-up program.

They continue to instill confidence that flying remains a safe mode of travel.

And thanks to them, we saw in 2020, one of the highest NPS scores in our recorded history.

Consistently delivering on our safety commitments remains one of the top reasons why customers are returning to air travel and why, when given the choice, they are choosing JetBlue.

And we continue to evolve our program to reflect the most current information about COVID and addressing the areas that customers tell us they need to see addressed to get them flying again.

Our focus remains on cleanliness, reduce touchpoints and air quality.

And we are also prioritizing efforts to educate our customers about the changing regulatory requirements associated with air travel, including testing, quarantine and documentation requirements.

We know that many customers want to travel, and we are trying to help them more easily navigate the landscape.

We are working with CommonPass, a health records platform in certain markets to help customers easily validate their COVID status prior to travel.

We have an eye toward including verifiable vaccine information in such a platform, as we believe this will be an important part of future travel.

We are also offering pre-departure and arrival testing options in Boston and JFK with XpresCheck, and we continue to grow our partnership with Vault Health, providing customers with a home-based testing option both within the United States and internationally.

We will continue to work on options that help our customers more easily navigate this landscape while also pivoting to vaccine documentation.

Moving to Slide 7. In the fourth quarter, our revenue declined 67% year-over-year.

This marks a 9-point sequential improvement from the prior quarter.

And while demand improved in October, booking trends slowed in November, following increasing case counts and the CDC recommendation to avoid travel during the holidays.

However, even with this headwind, we were pleased to close the quarter with the December holidays, providing our highest traffic volumes since the start of the pandemic.

During the fourth quarter, our Latin and Caribbean franchise continued to perform relatively well, with demand being led by our VFR markets as well as a modest increase of customers traveling to leisure markets.

All of our domestic regions also saw revenue growth quarter-over-quarter with Florida markets having the greatest improvement domestically.

Despite this progress in the fourth quarter, our geographic challenges persist with elevated case counts and continued quarantine measures, particularly in the Northeast and California.

For the first quarter of 2021, our planning assumption for revenue is a decline of between 65% and 70% versus the first quarter of 2019.

We saw increased demand for Martin Luther King weekend and are seeing a similar pattern for President's Day weekend, but we do not anticipate traffic to reach the levels of late December.

The CDC order effective earlier this week, requiring all customers over the age of 2 to present a negative COVID test before entering the U.S. is also pressuring bookings in our international markets.

As a result of these international travel restrictions, we are seeing increased leisure demand to Florida, including our new Blue cities of Miami and Key West.

However, Florida fares are low with relatively high levels of industry capacity.

Our revenue plan for 2021 continues to evolve.

And as we've said all along, we do not expect that recovery will be linear.

We believe that we will begin to see material revenue recovery when there is a meaningful and sustained decrease in COVID case counts.

As proof points, we saw demand accelerate back in May and August when case counts started to decline.

We expect to see much of the same as case counts decrease in the coming weeks and months, particularly in the Northeast, where we believe demand may accelerate at a higher pace given the more stringent quarantines.

We are optimistic that this decrease will come when there's increased immunity across the population.

We also believe that governments will adjust travel restrictions with decreasing case counts, further fueling demand.

At present, the booking curve is relatively short.

As case counts come down, customers will be able to more confidently plan future trips, leading to a lengthening of the booking curve.

As we move to a recovery phase, we believe that our predominantly leisure footprint and low-cost structure buttressed by our strategic initiatives should position JetBlue well exiting the pandemic.

We are excited about our recent upgrade to a new revenue management system, part of our continuous improvement in our revenue management tools.

This system enables us to better forecast demand and better understand customer elasticity, which is a key tool for driving increased revenue.

We are also implementing EMD capabilities that will allow us to sell ancillary products more broadly and also to price them more dynamically.

We also continue to optimize our ancillary offerings, making our product and price proposition more competitive and more attractive to customers.

We remain very pleased with the upsell behavior of Fare Options 2.0 since the rollout in 2019.

As we continue to refine and improve our segmentation strategy, we will announce updates to Fair Option features in the coming weeks.

We've made additional strides towards a direct distribution strategy and have reduced the number of external partners that we work with.

There are numerous channels for our customers to view our fares and offerings, but we are always encouraging them to book their travel at jetblue.com.

Lastly and certainly not least, our loyalty program is an area ripe for evolution.

We see an opportunity for JetBlue to grow our revenue base substantially over the coming years through personalization and a program tailored to different types of customers and their preferences.

We are also currently out with an RFP for our co-brand partnership to enhance our value proposition to customers.

Turning to capacity on Slide 8. In the fourth quarter, our flown capacity declined 47% year-over-year.

For the first quarter of 2021, our planning assumption is for capacity to decline at least 40% versus Q1 2019.

The sequential growth is driven in part by expectations for improving demand trends in the back half of the quarter and also by the extension of the payroll support program, which brings down our cash breakeven load factors despite the headwinds of high fuel prices and seasonally lower fares.

I want to recognize the many JetBlue teams who have been managing the peaks and troughs of the quarter, quickly ramping up the operation to over 700 flights per day during the holiday and dialing our flights back to less than 300 per day during troughs.

We continue to adjust our flying to areas of relative strength, and over 15% of our capacity in the first quarter of 2021 is in new markets.

We've been quick to add new flying in areas of strength but also quick to pull capacity in underperforming areas.

Thank you to our network team for finding new and creative opportunities to deploy our fleet to support cash generation and the financial sustainability of JetBlue as well as our operations, customer experience and revenue teams for executing these opportunities so well.

As we move through 2021, we plan to bring capacity back in line with demand trends, addressing short-term pressures while solidifying our long-term position in our focus cities.

Thank you again to our crew members for closing out another year with their commitment to safety during what has been the most challenging year in JetBlue's history.

With that, over to you, Steve.

Thank you, Joanna, and good morning, everyone.

I would like to add my thanks to our crew members for doing a phenomenal job in 2020, taking care of each other and our customers and ensuring the financial health of JetBlue.

Turning to Slide 10 and a brief overview of our financial results for the quarter.

Revenue was $661 million, down 67% year-over-year.

Operating expenses were down 38% year-over-year.

Excluding the benefit from CARES Act and charges related to fleet and voluntary leave programs for our crew members, operating expenses were down 34% year-over-year.

GAAP loss per diluted share was $1.34, and adjusted loss per diluted share was $1.53.

Moving on to Slide 11.

As Robin mentioned, we continue to make progress towards recovery, reducing our cash burn, laying the foundation to rebuild our margins and remaining committed to balance sheet repair.

Our average daily cash burn for the fourth quarter was $6.7 million towards the lower end of the $6 million to $8 million range previously expected.

This was a result of variable cost savings achieved through our balanced approach to capacity and our actions to minimize fixed costs across our business.

At the end of December, our total liquidity, including restricted and unrestricted cash, was $3.1 billion or 38% of our 2019 revenue.

Our liquidity includes funds from the equity transaction we executed in December and sale leasebacks to finance aircraft deliveries.

Starting this quarter, we will transition from reporting all-in cash burn to EBITDA.

We believe that this metric brings better visibility to JetBlue's underlying performance as we move towards recovery.

We estimate our EBITDA for the first quarter will range between negative $525 million to $625 million, reflecting similar revenue trends for the fourth quarter, but also manifesting recent cost pressures from rents and landing fees as well as fuel prices.

For reference, we have included the reconciliation table in the appendix section of our presentation.

As Joanna mentioned, we are starting the year with challenging demand trends and where we fall within the planned EBITDA range will depend on the pace of revenue recovery during the quarter.

Turning to Slide 12.

During the fourth quarter, our adjusted operating expenses declined 34% year-over-year.

This excludes the payroll benefit from CARES Act of $49 million, the CARES Act benefit related to employee retention credits for $36 million.

It also includes a $15 million charge related to fleet impairment and $1 million in charges related to crew member opt-out programs.

This performance relative to our expectations was driven by our capacity actions and solid cost execution during the quarter.

Our working assumption for the first quarter is a reduction in our total operating expenses of approximately 25% year over 2. The sequential quarterly increase is driven by our capacity plan and external cost headwinds, particularly rents and landing fees as well as fuel prices.

We anticipate some of these cost pressures will normalize over time as traffic volumes recover.

Moving to Slide 13.

We continue to take aggressive approach to improve our cost structure and to help rebuild our margins.

Our 2021 plan reduces our total operating cost by over $1.2 billion compared to 2019.

We believe that executing our plan will put us on a path to emerge from the crisis with better CASM ex-fuel in 2022 than 2019.

Naturally, achieving our plan will be a function of demand recovery, bringing back capacity and ultimately taking our aircraft utilization to pre-crisis levels.

In order to achieve our unit cost goals and improve our margins going forward, we are targeting a reduction in our 2021 fixed costs between $150 million to $200 million compared to 2019.

For perspective, this is a 6% decline on our fixed cost base on a 6% larger fleet year over 2.

Our fixed cost savings will come from our support functions and business partners.

We've rescaled our support footprint through crew member opt-out programs and consolidating our real estate assets and plan on driving additional efficiencies across JetBlue.

This includes automation, standardization of internal processes and, of course, aggressively managing our discretionary spend.

Throughout 2020, we work closely with our business partners to adjust our commitments and secure rate reductions as well as payment term modifications.

This year, we will continue collaborating with them to rightsize our contracts, increase available components of our pricing and further drive down our overall costs.

In addition to our work on fixed costs, we are aligning the variable portion of our cost structure to our capacity and network plan.

We are focused on achieving savings by optimizing engine maintenance events as you bring aircraft back to the operation and continue to drive frontline productivity with the support of technology.

Moreover, we are incorporating more fuel-efficient aircraft into our fleet and increasing fuel efficiency measures throughout the operation.

We do expect some headwinds in 2021, which will undoubtedly develop, including investments to protect the health and safety of our customers.

Low costs remain an absolute strategic focus at JetBlue.

At the beginning of 2020, we reported the completion of our structured cost program, resulting in run rate savings, which will manifest in our P&L as we return to growth.

We look forward to continuing the momentum and controlling our unit cost trajectory over the next few years.

Moving to Slide 14.

In the fourth quarter, we took delivery of 2 A321neos and our first A220 aircraft, bringing our year-end fleet count to 267 aircraft.

During 2021, we expect delivery of 7 A220s, 5 A321neos and 3 A321LRs with annual CapEx of approximately $1 billion.

For the 3-year period, 2020 to 2022, we lowered our CapEx by $2 billion compared to our pre-pandemic plans.

Our reworked order book, which supports our network strategy, protects our A220 deliveries, a platform we expect to deliver 30% lower direct operating cost per seat compared to our E190s.

Moving to Slide 15.

We continue to have one of the strongest balance sheets in the industry with a debt-to-cap ratio of 57% at the year-end of 2020.

We believe our current liquidity, our efforts to reduce cash burn and our balance sheet strength will enable us to navigate the demand challenges of 2021.

This quarter, we anticipate receiving over $500 million from the second round of the CARES Act payroll support program, helping us protect jobs at JetBlue.

I'll close with a final thank you to all of our crew members.

We remain confident in our ability to protect JetBlue and position us for better days ahead.

Although 2021 will be another challenging year, we'll remain nimble and continue to execute on our cost plan and commercial initiatives.

We believe that our hard work will begin to pay off and will make us stronger for the years to come.

With that, we will now take your questions.

Thanks, everyone.

Now we're now ready for the question-and-answer session with the analysts.

Please go ahead with the instructions.

(Operator Instructions) Our first question comes from the line of Duane Pfennigwerth from Evercore ISI.

I'm just looking at your slides here with the reduction in total OpEx expected for 2021.

What is the capacity base that you're assuming?

And I guess, what is the implication for unit costs?

Obviously, it's a little confusing here in the early part of the year.

But just as we roll forward, kind of what does this imply for second half capacity and unit costs?

Duane, it's Steve here.

Duane, if you just refer to our Slide 13 that you've talked about, you'll see a footnote in terms of the assumption for capacity.

Full year 2021 capacity of 70% of sort of 2019 capacity.

The way that we are planning our business, Duane, is that we continue to see sequential improvement in the demand environment and, hence, capacity as we progress through 2021, leaving '21 and entering '22 with comparable capacity for the sort of 2019 year.

So from a unit cost progression, I would expect that, that will improve as we gain momentum through 2021 because, naturally, we become more efficient as a business as we fly more of the fleet, and we get back to sort of sense of normality.

And then our planning assumption underpinning the economics that we've laid out from a cost standpoint is that 2022's capacity mirrors that of 2019, but obviously, that's all predicated on what happens in the demand environment, where things lie with sort of vaccinations and coming out the other side of COVID.

Hopefully, that makes sense to you, sir.

Yes.

That's a good perspective.

And then just on some of the fleet movement as you bring on a new fleet type here and you're preparing for London flying, presumably.

Can you just quantify the training or the approval cost associated with kind of new fleet types and Europe approval?

Yes.

Good question, Duane.

We have been ruthless over the last year about prioritization across JetBlue.

You can imagine an airline, many different priorities coming into 2020, and we've done a really great job at consolidating those and being really driven on some specific ones.

For example, the A220 that's got game-changing economics to protect and grow our margins as we go forward.

And so embedded in our sort of 2021 cost plan are, obviously, the training and transition costs are bringing both the A220 and the A321 LD -- the new neo LD, low-density, and the LR into the fleet and our launch to London later this year.

So that's all incorporated into our numbers.

And the teams have worked tirelessly to make sure we do this both in the right way, but we do it with the right economics.

So that's all sort of embedded in there.

And so that's where we are with that.

Not, obviously, going to get into the specifics of those items, but just to give you confidence, it's all embedded in there, and we're looking forward to having both aircraft enter into service during this year.

Next question comes from the line of Catherine O'Brien from Goldman Sachs.

Maybe just another one on costs for you, Steve.

So can you share how we should think about what, if any, of that $1.2 billion and lower 2021 cost versus 2019 is permanent as opposed to volume-related?

Is it just that $150 million to $200 million fixed cost amount you called out or there's more than that?

Catie, yes.

So this is why we have laid out and given you some transparence in our planning assumption between fixed and variable costs.

And so obviously, we have had the opportunity off the back of the structural cost program and being during this pandemic to turn over every stone again and go even deeper to look at the fixed cost structure and keep and maintain as much of that fixed cost structure out as we sort of come back to normality going forward.

And that, candidly, is where the $150 million to $200 million comes from in a number of areas like, as we sort of previously discussed, our support footprint, real estate consolidation, IT infrastructure and transition from data centers to the cloud, et cetera, just to mention a couple.

Now when you think about the variable cost structure, we did a huge amount of work associated with the structural cost program, where we really get the benefits of scale.

And as we've come into 2021 with a compromised network you obviously aren't getting the economies of scale as that returns.

And so with the way we're thinking about this is a huge level of stickiness associated with fixed costs that we've taken out, and we'll do everything, obviously, not to put them back in, but also as we scale our business and we get our fleet utilization back up, you are going to see the fruits of our labor on our variable cost structure, which will continue to drive economies of scale.

So again, hopefully, that gives you some color about how we've laid this out in a very transparent way so that you can see our game plan for the next couple of years.

Yes, definitely.

And then maybe my second one, I think, might be for Joanna, but so with your network exposure to some of the more restricted parts of the country, the Northeast and California, what flying are you able to reallocate to parts of your network that might be seeing better demand trends?

Are there any additional new markets you look at in addition to that 15% of capacity you've got planned for the first quarter?

And then I guess, lastly, tied to all this, is there any way for us to think about order of magnitude?

How much California and Northeast are underperforming the rest of your network?

Thanks a lot there.

Now let me try to piece it apart.

So maybe broadly speaking, I think the team has done an exceptional job of redeploying capacity to those areas where there is demand.

So as Robin mentioned in his opening remarks, we've announced more than 80 new routes since the pandemic started.

15% of what we're seeing in 2021 is actually flying in new geographies, which is just, I think, fantastic, and I think reflects the nimbleness and creativity of the team to address and try to mitigate that disproportionate impact that we are seeing in the Northeast.

And so far as California is concerned, it still represents a relatively small portion of our overall network.

That said, we are pleased to see the stay-at-home orders lifting and optimistic that we will see demand recover in, I'd say, medium time frame for California as we've seen in other parts of the country where quarantines have been lifted and where case counts have dropped.

So we're encouraged by that.

At the end of the day, as we think about the Northeast and our footprint here, I think we've been very transparent.

It is an area that's been disproportionately impacted, but we do believe when case counts come down when more customers are vaccinated, when quarantines are lifted, that there will be an even greater level of pent-up demand in the Northeast because of these stricter quarantines, and we're well positioned for recovery in those areas as an airline that was born to do leisure, travel for low fares for customers at a low cost.

Next question comes from the line of Jamie Baker from JPMorgan.

Joanna, I'm going to ask a question that reveals my ignorance about revenue management, but I'm going to ask it anyway, so please bear with me while I publicly embarrass myself.

After the Amtrak derailment in Philadelphia, fares in the shuttle market, including those at JetBlue, shot up to levels that I don't think anybody had ever witnessed, airlines were accused of price gouging, but the reality, as I understand it, is that pricing systems were just overwhelmed and passengers were pushed into fair categories that I don't think any airline ever intended to charge.

When the U.K. first went into lockdown, RyanAir experienced something similar, folks trying to rush home before a deadline.

It wasn't that they raised fares, it's just that the systems were overwhelmed.

I'm not suggesting we're going to see a nationwide repeat of this, but my question relates to pricing automation.

I mean are the systems just being left on cruise control?

How much human intervention typically takes place?

I'm not asking about future pricing I just wonder if there's an RM or a pricing angle related to automation that might influence yield when you consider that demand could come back in a way that your systems aren't ordinarily calibrated for.

Does that make any sense?

Yes, I'm going to throw it to Robin because he's anxious to answer this question.

I'm not going to answer your question, as you would expect, but I'm going to call the flag on your self-proclaimed statement that revenue management is not your thing.

We know that's not true.

You're too kind.

No, it's a hobby of yours, and we will now do the best to answer your questions.

So Joanna, and then maybe Dave?

Yes, I'll just start.

I think it's a great question, Jamie.

And there has, obviously, been quite a bit of human intervention this year because so much of the data that we've historically relied upon in our systems has not been indicative of demand trends and some of these external factors that have factored into whether customers are flying, pandemic, case counts, travel bans and quarantines.

So I'm going to have Dave get into a little detail.

I'm going to ask Dave not to take the entire earnings call to do that because I know he would love to, but Dave, maybe you can provide a little detail on your team thinking and then new system, the new automation system we're thinking there.

Yes.

Thanks, Jamie, for the question.

This is Dave.

It's a really good one.

It's a difficult time for revenue management systems in general because demand is so choppy and can change frequently and volatilely.

So there's been more human intervention, I think, than normal, certainly at JetBlue and just in general.

And historically, you mentioned some, say, big shock like a natural disaster, which has driven prices up because the system sort of normally do that if left untethered, but we focused a lot in the last few years on one, ensuring that doesn't happen through manual intervention, and we've had a very good several year track record of making sure we have fare caps and low fares.

And two, just sort of ensuring that we have low fares, in general, not even during shocks like that but overall.

So going forward, hopefully, we will see in the coming quarter or 2, a nice demand increase as case count comes down and vaccinations go up.

I don't think it will be anywhere near the level we've seen in some of those past shocks, but it will certainly be something that we'll be working closely to ensure that fares stay relatively low and appropriate and that we get more customers on board as demand recovers.

And I think, Jamie, it's Robin.

I just want to close that out.

It's a great question.

I mean I'm actually very proud of JetBlue's record.

When these events have happened.

I mean you talked about the Amtrak tragic accident, but I think about hurricane Irma, Maria, some of these natural disasters we had that deal with a similar thing.

I mean we have led the industry in fare caps, making sure fares are artificially low so that we can get people to travel at those times and at affordable level.

And that's something that we're going to continue to do when these types of events happen.

Real quick follow-up.

It will be short.

I do remember Continental top taking the market with its Heathrow slot purchase.

I think they paid something like, I don't know, $200 million for 4 pairs.

I'm not going to ask what your willingness to pay is, but I haven't kept up with recent transactions for the time slots you're interested in.

Where is the market right now?

Jamie, you do an amazing job.

I'm not going to go there either.

I will say that, obviously, we are still on track for Q3 London launch.

Obviously, we are paying attention to what's going on.

We will go out for sale when we think the time is right.

And that's when we'll share our thinking on slots.

What I'd say at a general level, by Heathrow slots, as you know, with the slot waivers that have gone in there, the sort of scenario last year maybe that may be some would -- some commentary around airlines through a cash trap, they would sort of monetize Heathrow slots because they couldn't fly them.

Obviously, with the waiver process, that hasn't happened.

And so again, we continue to sort of have paths to more than one London airport and more in due course.

Next question comes from the line of Helane Becker from Cowen.

Operator, it's kind of tough to follow Jamie.

But would -- there's been some discussion on domestic testing.

So I have 2 questions regarding that.

Would you support it is the first one.

And the second one is what's -- you fly a lot of VFR into the Caribbean and Puerto Rico, specifically.

What does it look like there from a testing capability and from a demand capability to continue flying those routes?

And are people there also getting vaccinated in an untimely fashion?

Sure.

So I'll start with your second question first.

So Puerto Rico, we definitely see some constraints with testing in that environment.

We've actually partnered with Vault Health, which is an at-home option to try to encourage more customers to use that option in Puerto Rico for travel.

I know that Puerto Rico tourism is very encouraged by that.

And we are seeing a decent amount of domestic bookings given the CDC quarantine coming into the international market.

So we are seeing an uptick in that area.

With regard to our views on domestic testing, I think, first, we're trying to take a step back and recognize that the government is trying to balance a number of factors.

It's a new administration.

They're trying to balance economic recovery, public health considerations and stepping into a crisis like this.

Air travel, we know it's safe.

There's numerous scientific studies that have shown the aircraft is safe.

We are not supportive of testing on the domestic front for a few reasons.

I think first, the virus is here.

There's community spread.

We really want the CDC to work with the industry to help come up with pragmatic solutions to help mitigate the right risks and, frankly, address some of the real operational complexities.

The testing regime, the CDC put in place for international, that's, I think, been as good as you can get, given that international already has a framework for document checking and whatnot, and that was really -- the goal towards that was really to use that as an alternative to quarantines.

Obviously, it hasn't quite worked out in the same way, but there's a framework there, and we would expect in the coming days for the CDC testing framework to kind of settle in and folks would adjust to that.

But on the domestic front, it's hard to see practically something like that working at that scale.

Air travel is just one mode of travel.

You obviously have rail, road transportation.

People need to travel.

They'll figure out a way to get there.

They'll figure out a way to see mom, dad.

And frankly, putting this burden on air travel is, we think, far too cumbersome.

I also have concerns around just the testing capacity in the United States.

I think teasing out a little bit about what you're saying about Puerto Rico.

In many parts of the country, testing slots are scarce.

And it takes, frankly, many days, in some cases, to actually get results back.

We know based on what U.S. travel and tourism has recently said that if you start testing domestically, you'd see 42% more people introduced into the current testing framework on a daily basis.

And so when you start thinking about a framework that's already overburdened then you add domestic travelers into that, this puts a ton of pressure on an already-fragile system, and frankly, we're concerned that it would actually reduce the ability of some people who legitimately need to get test for health reasons to get tested.

And then you look at our crew members and asking them to whether check documentation, check attestations domestically.

We already have them as the mask police.

We already have them as the social distance police, adding document checks and testing validations puts them in frankly an untenable position and in an environment where we're trying to promote social distancing.

So we have real concerns about this.

We are open to reasonable measures, but we don't believe a domestic testing regime is feasible given the existing framework.

Next question comes from the line of Savi Syth from Raymond James.

So maybe just on the CapEx front.

I was kind of curious how you're thinking about like 2022 or normalized levels, it seems like there'll be fewer aircraft deliveries, especially in 2022.

I was kind of curious if like 2021 is a high watermark.

And also related to that, is the E190 retirement, it looks like they're delayed.

Is that because they are slower A321s coming in?

Savi, good to speak to you.

I've been really pleased and proud of the work that has taken place over the last 9 months.

And a little shout out to our partners, Airbus.

To sort of do 2 amendments to our order book and to take $2 billion of CapEx that over the 2020 to '22 period has been incredibly helpful as we've navigated this pandemic and also thought about aircraft needs as we go forward.

However, I suppose to your tangential point, the A220, we're incredibly excited about taking that shell.

We had our first one arrive on December 31, can't wait to get into the operation, and they'll provide game-changing economics.

So with regard to '22, when you look at the order book, you're right, we have sort of a lower order book than we had before the pandemic.

And as you look out, we will continue to refine and look at our order book.

Obviously, one has more flexibility the further out that you go to make sure that we get the balance right between our CapEx profile and also investing in high-return, high-margin aircraft to support our operation and drive margins for JetBlue.

Specifically for the E190, nothing has changed.

Our first A220 has arrived.

We're going through the process.

As a reminder, it's -- the plan is for one-to-one replacement.

Looking forward to the A220 coming in for EIS.

We currently have over 25% of our current E190 in storage at the moment.

And so there's nothing to sort of see or nothing to change there.

And you can expect this in due course as the -- we get a penetration of A220s into the fleet, then we'll see the E190s rollout.

So a very considered and strategic approach to our fleet plan, which will support margins for the years to come.

So then maybe thinking of 2021, CapEx as a high watermark is probably not the fair comment?

I think it is when you look into the sort of near term because of what we've done to rationalize our sort of '22 order book, even if we've got spikey levels of CapEx as we go further out, naturally, you end up smoothing things accordingly.

So as I said, this should be a high watermark in relation to 2022, but the '23 and beyond, we'll continue to work on the order book to get that balance right.

Next question comes from the line of Brandon Oglenski from Barclays.

I guess, Robin or Joanna, if I listen to every airlines conference call this quarter, everyone's got a good plan and a positive view on the future, but specific to you guys, with your focus on margins, what happens if everyone comes back to pre-pandemic levels of capacity, but we just don't see the level of business demand or maybe leisure demand as we think it will be?

What are some of the levers you can pull, especially we see United getting back into the transcons from JFK, isn't this potentially going to be a much more competitive environment, especially domestically looking forward?

Thanks.

I'll take that.

So we recognize that other carriers are redeploying their fleets.

I think at the end of the day, this is what JetBlue does.

We fly leisure customers from the North to the South at low fares, and we have a cost structure that enables us to do that and to do that very well.

Our loyalty program is built for leisure.

Our operation is built for leisure.

Obviously, our goal is always to balance supply and demand, but at the end of the day, that we're going to be competitive here.

And so I think we're proud of this track record.

We'll continue to lean into leisure VFR markets where the demand is as we move forward, and that's our plan for the future.

We've got a number of interesting revenue initiatives in the hopper, as we've discussed on the call, and we think that will give us some additional wind in our sales.

Robin, do you want to add?

No, I think that's right.

Just to bit on, Brandon, obviously, we are -- we very firmly believe that we have some very specific JetBlue tailwinds.

I mean we're excited about our partnership with American Airlines.

Joanna mentioned our focus on loyalty and the co-brand RFP, we think that is a source of value.

I think we had a lot of conversations, honestly, about CapEx and what is the right mix of CapEx right now, but the fleet changes we're making are very margin-accretive and important.

And then, of course, just our focus on costs, I mean we, I think, have overall 3 or 4 years changed the culture of how we think about costs at JetBlue.

And that is, as you know, a critical part of managing margins.

So there's the sort of overall macro environment where I think leisure -- and I'm convinced leisure will come back.

There is so much pent-up demand, so much pent-up demand.

I think we'll recognize that, but then there's all the JetBlue-specific things that we talked about before.

And I think all of those position us really well for margin expansion in the years ahead.

Yes.

I appreciate that response.

I guess, Joanna, you did talk about changes to your fair and ancillary pricing strategy.

Is that to be read, "Hey, we want to get a lower fare in front of consumers and maybe put more emphasis on ancillary going forward."

Yes, I'd say more emphasis on ancillaries and, frankly, better providing customers in different segments what they value.

And that's -- I'll leave it at that.

Next question comes from the line of Mike Linenberg from Deutsche Bank.

Yes, two here.

I guess first 2, it's probably Scott and Joanna on, one, congrats on getting the agreement with the DOT and the agreement with American in place.

How should we think about how that agreement ramps up?

I asked because on the American call, they talked about how they have negotiated, I guess, their first corporate contracts with Alaska for West Coast accounts.

So presumably, you're going to participate -- that's probably part of the agreement with American in the Northeast.

Is it code sharing first, followed by frequent flyer reciprocity, maybe there's club room access on American.

Can you just kind of run through how things ramp through 2021 on that agreement?

Yes.

Mike, great question.

It's Robin, obviously.

I'll start it and then maybe hand over to Scott on some of the more specifics.

But we are, as I said in my prepared remarks, we are very excited about this.

If I think about our -- one of our biggest frustrations at JetBlue over the last several years is that we couldn't do more in the Northeast to bring our great products and service and our low fares to more people and also some of our challenges being competitive with some of the corporate accounts because our lack of our global network.

And so when I think about why we, as JetBlue, are excited about this, and we've been through a very extensive 6-month review with DOT on this, is that this is going to allow us to do, and Joanna said earlier, what we do best at JetBlue flying, at JetBlue to more markets and to bring more low fares.

And it has been documented over many years when JetBlue is flying in a market, the positive impact it has on competition.

There are still too many routes in the Northeast where competition doesn't exist.

And so that's why we're excited.

I know that's not the question that you asked, but I wanted to sort of get that out there.

And then maybe, Scott, over to you on some of the specifics.

Sure.

And thanks, Robin, and thanks, Mike, for the question.

I think we're really excited about this, as Robin talked about.

What I foresee is moving very quickly on code.

That's something that definitely will take place in first quarter, and we're doing everything we can to accelerate that to get the customer benefits out there.

Moving into that, I think we'll have more to report on frequent travel reciprocity and what we're doing on the sales side as well because that leans in very nicely to some of the things that, frankly, we couldn't do without this partnership.

And Robin referred to that.

So things like growth in LaGuardia.

There's a number of LaGuardia markets right now that are served by a monopolist.

We think that's a great opportunity for us to disrupt.

Certainly into the coastal Southeast, that's the case.

And then going forward, when we think about sales contracts and things like that, I think as the transcon recovers, bringing Mint to bear, doing so with access, in some cases, to the corporate accounts that our partner has, I think, is really something that's powerful in terms of bringing competition, bringing lower fares.

And then lastly, as we bring code going forward, we've seen American launching long-haul flying from New York.

We look forward to feeding that and creating, again, a sort of third global competitor in the Northeast.

That's really important.

It's highly beneficial for us.

It means faster recovery.

It means -- frankly, it's saving jobs.

It's all sorts of the things that we look at to recover more quickly.

And I think that excitement that we've got is building here because we really want to get moving.

Okay.

Great.

That's fantastic, Scott and Robin, just one quick one on Heathrow slots or access to Heathrow.

Just remind me, as I recall, I think that there were some remedy slots.

I think there was a pair tied to Boston and one tied to South Florida.

Are those still out there or maybe others are using?

And then does the A321neo XLR, would that have the range from South Florida to London?

I apologize, it's sort of a 2-parter.

So this is Scott.

I'll take that one.

Those pair slots that were there, we pursued, continue to pursue.

They were awarded to another carrier who we have not seen them moving forward with those.

So we'll see what direction that goes.

I think we'll continue to move forward and pursue that.

But we have not seen a lot of eagerness by that competitor to frankly serve those markets.

So as far as 321 XLR, it's a very interesting airplane.

It does bring a level of capability that exceeds the 321 LR.

As far as Florida to Europe, I don't want to put the cart before the horse, but the airplane is likely capable of that.

There are some specific issues to Fort Lauderdale that we would have to overcome, but we're pretty interested in when that airplane does come in what we can do with it.

Next question comes from the line of Hunter Keay from Wolfe Research.

Dave Clark, a question for you.

When you think about adding back supply with improving demand and you see these weekly or daily revenue runs, which metrics can you see and which is the one that you prioritize most?

Thanks, Hunter, for the question.

We've been really focused in the past months on volume, on getting customers on board, on getting them traveling, getting them to have a good experience so they come back and tell their family and tell their friends, and it keeps the virtuous circle going.

So for the past months and I expect in the coming weeks and months, we'll be quite focused on our customers' volume and getting people in the skies again.

So you're looking like a booked load factor exclusively at this point pretty much?

Just in general, again, incentivizing travel, stimulating more traffic.

We've had a lot of promotions.

Just generally driving volume has been the #1, returning to revenue through a volume and onboard customer focus.

Next question comes from the line of Joseph DeNardi from Stifel.

Joanna, I'm wondering if you can talk a little bit about the co-brand RFP.

Maybe why that path was chosen rather than an extension?

And is now a good time or a bad time to be going through the RFP process?

I guess I could see both sides, just interested in your perspective.

Yes.

Thanks, Joe.

So let me start with, we've been very pleased with the performance historically of our co-brand card.

And then Barclays has and continues to be just a tremendous partner.

We accelerated an RFP for our co-brand.

We felt that it was the right time to do so.

Various carriers had renegotiated their deals recently.

And I don't want to get the cart ahead of the horse, but at the end of the day, we're very encouraged by what we're seeing.

And all I'd say is more to come when we're ready to come out with a further announcement.

Okay.

And then for Robin, just on this notion that there's all this pent-up demand, which I would tend to agree with, if that's the case, why shouldn't demand in 2022 for you all be higher than it was in 2019.

Like where are you expecting the offsets to come from?

Is it a certain demographic or maybe just speak to kind of why that shouldn't produce higher demand structurally in the future.

Sure.

I mean maybe I just build on a thought that Dave had earlier about the short term and then sort of segue to the longer term.

I mean right now, I think it's important to get people on airplanes because what our research tells us is that our customer NPS scores are really still at record highs.

People have overall a very positive reaction to how safe the industry has made air travel.

And so what we find is once people have that experience, they tell people and that's part of how we build in confidence.

So yes, it drives an environment in the short term where people are focused on volume, but that is about revenue maximization because that's what we think is going to drive the recovery most quickest.

When we look at the longer-term view, look, we just don't know.

I mean I think what we want to do is plan conservatively, plan cautiously.

We certainly don't want to build a business plan that relies on a huge amount of demand recovery.

So we have to focus on costs, and we have to focus on some of the other things that we can control.

We also are excited about the American partnership because we know that is something that's going to help our recovery.

If it's there, we'll be there to take it.

We are -- we've built a very nimble response, and JetBlue knows how to drive very high aircraft utilization.

So we know how to sort of put that incremental capacity back if the demand is there.

And so we're going to continue, I think, to take a cautious view in the short term.

I don't think there's any medals right now for overpromising on revenue.

We need to be focused, and we need to be creative to everything we can to build recovery.

And we need to size our company for margin expansion, and we need to be there to take advantage of the demand as and when it comes back, and that's what we like setting out to do.

Question from the line of Dan McKenzie from Seaport Global Securities.

A couple of questions here.

Just going back to the partnership with American.

I'm just wondering if you can help us understand what that ultimately is going to mean.

So ballpark, big picture, what could the economics ultimately look like in a normalized world?

And I guess just thinking even big picture, business travel, 20%, historically.

Is the goal to get it to 22%, 25%?

Or what can this partnership, pardon me, actually help you accomplish.

30%?

Big picture, what can you share?

Scott, do you want to take that?

Yes.

So I'll take that.

I think we're not in a mode to sort of disclose where this can go in part because the environment we're in right now makes the longer-term recovery a difficult question, but I would say this, I think if you look at the potential there and sort of the ability to serve business customers, I think, that this partnership is prime for that for 2 reasons.

One is it brings sorely needed competition, where you've got 2 large legacies who have dominated the Northeast business customers.

There's an opportunity here to kind of break that up and open things up, and as business recovers, one of the things that's going to be there is providing competition and lower fares is something that we can do and better access.

So I think, very excited about that.

I think also, as you think about access to markets like LaGuardia.

And again, I think for JetBlue, that's something that we've coveted for some time.

The ability to work with American, to be able to grow in LaGuardia, to take advantage, not only of that access, but then again, as we work together to have additional relevance in some of the more business-oriented markets in the Midwest, for example.

That we have not been able to break into historically.

I think that gives us a chance to push that number up.

So again, I think on a percentage of customers flying for business, I think that's going to be heavily dependent upon how quickly we see a recovery move.

And again, I think as you look into 2023 years like that where other carriers are talking about a business traffic recovery, I think we end up with a number better than we've seen historically.

Okay, very good.

Second question here.

I'm just wondering if you can elaborate on discussions with the Caribbean or Latin American governments and their willingness to embrace a travel passport.

I guess what are you learning from a pilot program that may be underway currently?

What are the logistical hurdles to wide-scale rollout?

Is it just simply government saying, yes or no, or does it get turned on the next day, or how can we think about how that would enable a potential recovery?

Yes, I'll take that.

So we definitely think it will enable a potential recovery.

I think more importantly, it'll just make the experience easier and more seamless for customers and, hopefully, assist crew members and airline employees with document validation.

So each Caribbean Island is an individual Caribbean island.

So you need to work individually with them.

Some are further along.

I'll call out Aruba, for example.

They've done an exceptional job.

We're working very closely with them.

I know other carriers are as well.

And as an industry, we've actually agreed to a set of principles that outline a health passport, ideally a standardized set of, call them, requirements.

Obviously, different carriers are going to pick different health passport providers, but ideally, you would have a common framework and a common set of standards regardless of that platform to make it easy across platforms and across different islands, but also encouraging obviously, those governments to use that same set of criteria.

So it is on an individual by-island basis, which does make it take a little bit longer, but we do think, listen, necessity is the mother of invention.

And if you actually look at the CDC order that came out this week, we've had very few denied boardings in most of our international locations.

Day 1 was bumpy; day 2, a lot better; day 3 will be a lot better.

Testing centers are popping up in all sorts of places.

You've got hotels offering testing.

And so things will adjust, and we think that we'll all adjust with it, and that will support and bring back demand recovery as we step into the late spring and early summer.

And that concludes our fourth quarter 2020 conference call.

Thanks for joining us.

Have a great day.

Thank you.

And again, that will conclude today's conference.

Thank you for your participation.