JetBlue made good this quarter

[lowecur]

Maybe it has something to do with the fact we're buying lots of new airplanes, building a hotel, building a new terminal, buying new simulators, opening new cities, hiring tons of people etc....

Mgt has done a poor job in the last 3 or 4 years. They spent their cash on high end infrastructure like drunken sailors in lieu of fuel hedges. Route planning got snookered into the long haul paradigm, and continued opening cities with only a few flights instead of building out a strategic network. They should have stuck to their original plan of opening short to medium haul markets and connected the dots, thus allowing 10 - 15 flts per station, which in turn keeps productivity high.

The 320 is a terrible plane for transcon, and at this point they have too many on order. They should have made an announcement this quarter to keep the fleet flat at around 90 for the next 36 months. By putting this off, they will be forced to make the announcement at some point in the not too distant future. They can turn this around, but it will take a few years. In the meantime, the easypickens on legacy routes is over, and the hunter will the hunted in the next few years. In that time period Jetblue will have to do what they can to keep their head above water until they can turn this battleship around.

imp:

 

[SpeedBird]

IMO, a good comparison of B6's results can be matched against FL, which posted very strong results. On a quarterly revenue basis both airlines are closely matched (B6: $612m;FL: $528m). However, on the net income side of the equation FL has produced double the return over B6 with $32m compared to $14m. FL has not gone through a major shakedown of its workforce and uses an LCC business model.

The major difference as I see it is FL's use of smaller gauge aircraft which are optimized against a route structure that is has shorter stage lengths than B6. The good news for B6 is that they are moving in the right direction with the E190 fleet acquisition and new route announcements.

I think the A320s are too big for short haul and too small for long haul and are therefore caught between a rock and hard place as far as future fleet growth opportunities go. I think A319s would be a better type variant going forward for B6.

 

[lowecur]

IMO, a good comparison of B6's results can be matched against FL, which posted very strong results. On a quarterly revenue basis both airlines are closely matched (B6: $612m;FL: $528m). However, on the net income side of the equation FL has produced double the return over B6 with $32m compared to $14m. FL has not gone through a major shakedown of its workforce and uses an LCC business model.

The major difference as I see it is FL's use of smaller gauge aircraft which are optimized against a route structure that is has shorter stage lengths than B6. The good news for B6 is that they are moving in the right direction with the E190 fleet acquisition and new route announcements. The 190 will only be 5% of the total B6 capacity by year end. If you keep bringing the 320s on board, it will take years to get the proper equilibriam. They need to cap the 320 capacity asap until the 190 can catch up. Also, B6 has turned to accepting airport incentives when opening new stations. This has been in the form of advertising and reduced landing fees for the first year. This pales in comparison to the 3 to 4M per year(travel bank) accepted by FL to open new stations and keep them running.

I think the A320s are too big for short haul and too small for long haul and are therefore caught between a rock and hard place as far as future fleet growth opportunities go. I think A319s would be a better type variant going forward for B6.

I've been saying this. The 320 looked good while picking low hanging fruit the last 6 years, but the 319 is a more functional a/c for Jetblue at this stage of their growth. New a/c deliveries should be only 319s, as an equal number of old 320s go out the back door. I believe they need to give Airbus a (2) Year lead time, so it wouldn't be possible until 2009.


imp:

 

[Schwanker]

Maintenance Costs???

I just read the 10Q -- I'm surprised the increase in mx costs haven't been discussed. The last line in this paragraph is what concerns me most about JBLU's future. This statement didn't leave room for speculation. I guess this is due to the expiring "warranty" periods on the older aircraft.

From 10Q Summary:

[FONT=&quot]Maintenance materials and repairs increased 67%[/FONT][FONT=&quot], or $9 million, due to an average of 28 additional operating aircraft in 2006 compared to the same period in 2005 and a gradual aging of our fleet. Cost per available seat mile increased 35% due primarily to operating under engine and airframe third-party maintenance contracts in 2006, compared to expensing these repairs on a time and materials basis in the same period of 2005 when we also benefited from one-time warranty coverage on our engines. This increase was partially offset by three fewer airframe checks in 2006 compared to 2005. Maintenance expense is expected to increase significantly as our fleet ages.[/FONT]

 

[JP4user]

Won't they just sell the aircraft as they come up on the heavy maintenance checks?

 

[Snoopy Mendoza]

Cost per available seat mile increased 35% due primarily to operating under engine and airframe third-party maintenance contracts in 2006, compared to expensing these repairs on a time and materials basis in the same period of 2005

Translation: $3 million a month in new third party MX contracts.

Instead of booking MX expenses as they occur we are paying for them with a power-by-the-hour contracts: scary stuff.

With these contractual arrangements there is no "speculation" required.

Later…:beer:

 

[Longhorn]

Wow...a month old thread comes back to life. Have'nt be beat this to death.

 

[Schwanker]

Translation: $3 million a month in new third party MX contracts.

Instead of booking MX expenses as they occur we are paying for them with a power-by-the-hour contracts: scary stuff.

With these contractual arrangements there is no "speculation" required.

Later…:beer:

As I understand it, that is what management is attributing the 35% increase for - Apr thru Jun (past expenses). They later go on to say they expect future expenses to increase significantly.

 

[Snoopy Mendoza]

If you are senior to me:

The problem we are facing is the MX expense line item.

Be scared and accept the recall.
Later...:beer:

 

[J32driver]

If you are senior to me:

Ha! Thats good.


Reality check for the Voodoo priest that brought this thread back to life:

It costs more to perform maintenance on 120 airplanes than it did on 100 airplanes. Its going to cost even more to do maintenance on 200 airplanes than what it does for 120. And if you think thats rough.... just wait until we get to 400 planes and see how much the maintenance costs then.

 

[Schwanker]

Wow...a month old thread comes back to life. Have'nt be beat this to death.

Longhorn,

Actually I haven’t seen this discussed at all in this thread. I looked and posted here instead of starting a new thread only to have someone complain about that. The reason I bring it up is because I have “heard” the following many times and was just told about it again yesterday (I have no idea if it’s true!):

• Airbus gave JBLU a sweetheart deal on the aircraft, specifically the financing package (back-loaded payments) and a very generous warranty period (ie..nearly all mx covered the first 5 years as part of purchase agreement).
• When the warranties start to wane the maintenance costs will skyrocket as the planes reach 5 years old. JBLU will really see the costs go up as over 40% of the fleet warranty expires.

I’m just curious if these statements/predictions are starting to materialize or if it is just coincidental. The statement on future significant increases in maintenance costs does give these predictions some credibility as several more aircraft are starting to reach 5 years on property. I’m just curious where the truth lies. I’m not wishing ill will on JBLU as I’m sure I’ll be accused of. I’m just trying to surface some answers to some questions/rumors.

I’m sure some idiots will give some sarcastic answers like AIRBUS GAVE THEM THE JETS FOR FREE or AIRBUS PAYS FOR ALL MAINTENANCE… I’m not sure why these people are so defensive. Maybe they could explain.

My question is: Why the sudden increase in mx costs and company forecasts of further significant increases in maintenance costs? This could shed some light on JBLU’s ability to undercut the competition on fares and previous cost advantages--extremely low CASM JBLU has historically had. I’m sure it’s not all from cheaper labor. This info will be very relevant going foreward.

 

[Snoopy Mendoza]

My question is: Why the sudden increase in mx costs and company forecasts of further significant increases in maintenance costs?

It's called guidance and legal speak for analysts modeling.

Many of our aircraft are beginning to be switched from factory warranty to pay-as we break-'em and finally to power-by-the-hour.

I very much doubt anyone who covers this sector is thinking this is '"sudden". We have been talking about this over the past 2 years (at least as long as I have been tracking).

Hoop-on-down to the local library and use "ProQuest" and pull up the past X-years worth of Qtrly conference call transcripts and read up on it.


Must watch football...


Later…:beer:

 

[Longhorn]

What snoop said. Also, the costs go up as we grow. Our cost for MX at our current number of aircraft plus the ac that we take next year and so on will be higher then it is now with our current fleet. The cost of MX will be higher with 200, then 400 aircraft then they are now. We will also have the income coming in from the revenue gererated with the new planes. Just because our mx cost go up does not mean anything bad at all. The cost will also go up as the aircraft get older, just like everyone else but the fleets will be growing as well.

 

[Schwanker]

Many of our aircraft are beginning to be switched from factory warranty to pay-as we break-'em and finally to power-by-the-hour.

Later…:beer:

Thanks Snoop... That helps answer some of the exponential increase in costs.

Longhorn,

We are talking costs on a CASM basis. New aircraft should bring this down, not up. The mx CASM increases are huge. Expiring warranties is likely the primary driver. This would mean the honeymoon is over and start putting JBLU on equal footing in the mx cost arena with the competition.

Back to football...Have a great weekend!
Schwanker

 

[curtaindriver]

Schwanker, what in the world would make you believe we are not "on equal footing" right now? The Legacies have the lowest recent historical costs they've ever experienced, the cost of fuel is the highest, the amount of competition is greatest, and the ticket prices have only shown in increase over the past quarter or so. What supposed "advantage" do we have? I would say that the "footing" is more equal now then ever before. It is unfortunate that we didn't start getting 100 seat airplanes when some of these things didn't exist, then we might have an advantage. But, in this stage of the game, it is extremely difficult for us to compete and expect record profits. Don't misunderstand me, I do think JetBlue will be just fine, because I believe the costs of the other carriers can only increase from here. I believe our costs, overall costs related to CASM will decrease. We are still growing into our shoes.....infrastrucure. We'll wait and see.

CD

 

[Schwanker]

Schwanker, what in the world would make you believe we are not "on equal footing" right now? The Legacies have the lowest recent historical costs they've ever experienced, the cost of fuel is the highest, the amount of competition is greatest, and the ticket prices have only shown in increase over the past quarter or so. What supposed "advantage" do we have? I would say that the "footing" is more equal now then ever before. It is unfortunate that we didn't start getting 100 seat airplanes when some of these things didn't exist, then we might have an advantage. But, in this stage of the game, it is extremely difficult for us to compete and expect record profits. Don't misunderstand me, I do think JetBlue will be just fine, because I believe the costs of the other carriers can only increase from here. I believe our costs, overall costs related to CASM will decrease. We are still growing into our shoes.....infrastrucure. We'll wait and see.

CD

How you doing Curtaindriver? Breathe.....Breathe.....

With respect to "equal footing" I was simply refering to maintenance costs on a CASM basis. Historically JBLU has had very low costs in this area, as well as overall costs. Now JBLU's maintenance costs are escalating to match the legacies on a CASM basis with an upward trend-per the 10Q.

I certainly didn't mean to get you all wound up. Have a good one!

 

[Schwanker]

Ha! Thats good.


Reality check for the Voodoo priest that brought this thread back to life:

It costs more to perform maintenance on 120 airplanes than it did on 100 airplanes. Its going to cost even more to do maintenance on 200 airplanes than what it does for 120. And if you think thats rough.... just wait until we get to 400 planes and see how much the maintenance costs then.

J32driver,

What does CASM mean??? Hint: It's not in the dictionary!

 

[Longhorn]

Ahhh..my bad. Thought you were discussing something else.

back to the ND game

 

[clickclickboom]

costs

Jb is fighting an uphill battle and yes as the company grows and more planes age costs will go up. The most important factor is how lean we can remain while growing out our route structure.

JB has some incredible costs right now while adding cities, integrating the 190 as more planes are delivered, and dealing with congestion and inefficiencies while the new terminal is being built.

We have approximately 50 cities we need at least 100 and more like 150 to connect the dots and draw the passengers with an extensive route structure.. We are positioned to do that.

Jb in my opinion has the best domestic product out there and we are positioned to be successful long into the future as long as we continue what we are doing.

Jb might not be perfect but this is a great company with great people..

 

[curtaindriver]

How you doing Curtaindriver? Breathe.....Breathe.....

With respect to "equal footing" I was simply refering to maintenance costs on a CASM basis. Historically JBLU has had very low costs in this area, as well as overall costs. Now JBLU's maintenance costs are escalating to match the legacies on a CASM basis with an upward trend-per the 10Q.

I certainly didn't mean to get you all wound up. Have a good one!

I am not sure why you think I'm wound up, I never get wound up. Our mx costs are definetely increasing, and will for some time as the relationship between expiring warranties versus size of the fleet begins to right itself. It's a difficult transition, obviously one that was planned for....nothwithstanding the fact that the current market is more difficult than planned. i.e. oil, bankruptcies, hurricanes, etc. Oh and by the way, I didn't view your post as flame, but a good question. Have a good one as well. Thanks.

CD

 

[J32driver]

[FONT=&quot]Maintenance materials and repairs increased 67%[/FONT][FONT=&quot], or $9 million, due to an average of 28 additional operating aircraft in 2006 compared to the same period in 2005[/FONT]

That statement doesn't reference a specific CASM now does it? You can have your dictionary back now.