Why is JetBlue forecasting loss for 2006?

[FlyBoeingJets]

No flamebate by me! Just wondering.

I have been hearing about the rollout of the 190 and how it is/was going to really excel in new markets for JetBlue...and be profitable.


How has this all changed? Costs are still high or higher than forecast at JetBlue's competitors. Costs have not spiked up at JetBlue (unless I missed something) (New JFK terminal costs or training center costs coming due?)


I do know some maintenance costs are hitting this year and debt has started taking a bite out of profits but that doesn't explain enough. But maybe it adds enough to hurt the thin margins.

Is USAir really getting competitive? Airtran and SWA don't overlap enough to have an affect.

Thanks for any useful replies.

 

[FlyBoeingJets]

My theory was regionals would get tough in late 2006 on the new 190 routes and give JetBlue a headache. Maybe this happened earlier than I thought.

 

[Blue Dude]

Primarily fuel. Estimates predicting a 2006 loss were based from $1.98/gal fuel. Current fuel is well below that, but I think they wanted to avoid another situation where they had worse than forecast numbers. They like to surprise on the upside. UAL by contrast is basing their (still not stellar) financials on $50/barrel. We'll see which one is more accurate.

 

[G4G5]

I have to agree with Blue Dude. JBLU stock got hammered because Neelman was honest. As you can see from the numbers below he was the most conservative. Keep in mind that no one is really hedging either. It just doesn't make sense until fuel prices drop.

UAUA on the other hand estimates their fuel to be 17cents a gallon less then what JBLU has predicted. UAUA has no fuel hedges so Tilton is going to have to pull a rabbit out of his A$$ to make that happen.

Morgan Stanley came out last week and said JBLU should make money in 2007. I would not be to concerned about JBLU stock this year, it is what it is. My concern would be '07

 

[D-Bo]

Primarily fuel. Estimates predicting a 2006 loss were based from $1.98/gal fuel. Current fuel is well below that, but I think they wanted to avoid another situation where they had worse than forecast numbers. They like to surprise on the upside. UAL by contrast is basing their (still not stellar) financials on $50/barrel. We'll see which one is more accurate.

You couldn't miss that opportunity to talk about UAL and divert the attention away from the question that was asked? The $50 per barrel oil figure that UA came up with is not their predicted break even price. That figure is around $67/barrel. As far as $1.98/gal figure, what barrel price does that correlate to? And are you sure the correlation is linear? So we can compare apples to apples.

 

[G4G5]

You need to do some research. Price per gallon is an apples to apples comparison. If you do the research not all companies list price per barrel in their SEC 8K filings. The variable is too difficult because it can be based upon fuel hedging among other things.

Both JBLU and UAUA listed estimated price per gallon for 2006 in their SEC 8K filings. $1.81 vs $1.98. That's as apples to apples as it gets.

 

[FDJ2]

The simple answer is that JBLU's costs, even their fuel nuetral costs keep going up and their RASM isn't keeping up. With significant increases in maintenance costs coming as their fleet ages JBLU's costs have only one place to go. Higher.

Operationally JBLU has a 71.4% on-time performance record for 2005, a decrease of over 10% from 2004. JBLU's on-time performance is lower than all other major airlines but one. With double digit growth forecasted for next year it will be a real operational challenge to get JBLU out of the cellar in on-time performance.

Currently the average age of JBLU's fleet is only 2.5 years old, but as the fleet ages, maintenance costs will go up significantly. JBLU currently expects their 2006 CASM to increase 10%-12%. It will be quite a challenge for their marketing department to generate an additional 10%-12% of RASM, particularly with their continued hyper growth strategy.

Finally, the airlines currently operating in bankruptcy may emerge with substantially lower costs and be able to compete more vigorously, putting an even greater strain on JBLU's ability to increase its RASM.

 

[Booster]

Per Gallon vs Per Barrel

I think, but am not sure, the price per gallon also includes refining costs ie $$ at the pump.
The $$ per barrel is before refinement.
JB may be adding a cushion for disruptions in the refinement/distribution of the finished product.
Those pesky hurricanes ...

 

[D-Bo]

You need to do some research. Price per gallon is an apples to apples comparison. If you do the research not all companies list price per barrel in their SEC 8K filings. The variable is too difficult because it can be based upon fuel hedging among other things.

Both JBLU and UAUA listed estimated price per gallon for 2006 in their SEC 8K filings. $1.81 vs $1.98. That's as apples to apples as it gets.

Ok. You need to do some XXXXXXXX reading before you tell me I need to do some research. I never debated the $1.81 and $1.98 figures. But, since you are all knowing, what price per gallon does $67 per barrel oil correlate to in gallons? Is $1.98/ gallon gas at JBLU break even or would that create a gain/loss? We all know that the $50 oil figure came from UAL's BK exit plan filed with the courts last year. The $1.81 figure came from last month's filing. They're probably close but you can't assume the $1.81 equals exactly $50/ barrel oil. My point is this. There are so many F'n variables to this airline game. A lot of folks want to make it sound like fuel is the only factor here. It's one of the latgest variables but it isn't all telling of the current and future success of an airline. $1 per gallon gas doesn't mean sh*t if you do a lot of flying in low yield markets and a low ticket price environment. But if you want to oversimplify it, fine.

Anyway, what does UAL's fuel planning have to do with JBLU anyway? Someone asks a question on why JBLU is forecasting a loss for 2006 and someone throws UAL in the mix. That's cool. If that's what it takes for you to feel better. If you wanted to consider every aspect of each compnay you still wouldn't be comparing apples to apples. They're in the same field but in different ballgames. I don't have to elaborate.

Please watch the colorful languge. It adds no light, only heat to an already warm debate.

Thank you.

 

[Dave Siegel]

The simple answer is that JBLU's costs, even their fuel nuetral costs keep going up and their RASM isn't keeping up. With significant increases in maintenance costs coming as their fleet ages JBLU's costs have only one place to go. Higher.

Operationally JBLU has a 71.4% on-time performance record for 2005, a decrease of over 10% from 2004. JBLU's on-time performance is lower than all other major airlines but one. With double digit growth forecasted for next year it will be a real operational challenge to get JBLU out of the cellar in on-time performance.

Currently the average age of JBLU's fleet is only 2.5 years old, but as the fleet ages, maintenance costs will go up significantly. JBLU currently expects their 2006 CASM to increase 10%-12%. It will be quite a challenge for their marketing department to generate an additional 10%-12% of RASM, particularly with their continued hyper growth strategy.

Finally, the airlines currently operating in bankruptcy may emerge with substantially lower costs and be able to compete more vigorously, putting an even greater strain on JBLU's ability to increase its RASM.

Hi, everyone, it's Dave!

I totally agree with the above observation, but since I didn't post it, most of you will not consider it flame bait. Once again, I'll ask you in the future to evaluate the message, but please don't shoot the messenger.

9 years, 11 months

 

[Snecma]

Why is JetBlue forecasting a loss for 2006?

Maybe because they really are unprofitable.

http://www.airlineempires.net/index.php?option=com_content&task=view&id=93&Itemid=79

 

[Lake Alice]

If its not flame bait then why post and then answer your own post?

 

[Blue Dude]

You couldn't miss that opportunity to talk about UAL and divert the attention away from the question that was asked? The $50 per barrel oil figure that UA came up with is not their predicted break even price. That figure is around $67/barrel. As far as $1.98/gal figure, what barrel price does that correlate to? And are you sure the correlation is linear? So we can compare apples to apples.

I didn't divert attention - I answered the question. The UAL info was to compare management styles in presenting similar negative information. One is pessimistic (JBLU), one is optimistic (UAL). One is predicting a small loss while leaning toward the high end of 2006 fuel. This directly answered the question. The other is predicting a recovering company based on something close to the best case. That wasn't in the question, but it's an interesting comparison. That's all. If that offends you, this is a message board. Get over it.

 

[G4G5]

Ok. You need to do some fcking reading before you tell me I need to do some research. I never debated the $1.81 and $1.98 figures. But, since you are all knowing, what price per gallon does $67 per barrel oil correlate to in gallons?

You tell me? You mentioned the $67 amount so you tell me.

What I can tell you is "For the third quarter of 2005, crude oil prices averaged $63.19/bbl." for 4Q05 . Which equates to "Average mainline fuel price for the quarter was $2.09 per gallon (including taxes)." As far as I know UAL has never come out and directly stated a price per gallon for $67 a barrel but I would love for you to show me. So if you plan on responding to this make sure you come up with that number.

http://app.quotemedia.com/quotetools/showFiling.go?name=UAL%20CORP%20/DE/:%208-K,%20Sub-Doc%202,%20Page%2029&link=http%3A//quotemedia.10kwizard.com/filing.xml%3Frepo%3Dtenk%26ipage%3D3895033%26doc%3D2%26num%3D29

http://app.quotemedia.com/quotetools/showFiling.go?name=UAL%20CORP%20/DE/:%208-K,%20Sub-Doc%203&link=http%3A//quotemedia.10kwizard.com/filing.xml%3Frepo%3Dtenk%26ipage%3D3916596%26doc%3D3&type=TEXT

Is $1.98/ gallon gas at JBLU break even or would that create a gain/loss?
According to their latest 8k filing that price would equate to a loss:
http://www.sec.gov/Archives/edgar/data/1158463/000095013606000623/file002.htm

We all know that the $50 oil figure came from UAL's BK exit plan filed with the courts last year. The $1.81 figure came from last month's filing. They're probably close but you can't assume the $1.81 equals exactly $50/ barrel oil.

No need to assume anything if you do the research;"United assumes a long-term crude oil price of $50 per barrel for 2006 to 2010, or an equivalent of jet fuel price of $1.48 per gallon (before hedging expenses). " See above link.

THATS WHAT CRACKS ME UP. UAL is on record stating that $50 a barrel equals $1.48 and then they tell us that they need fuel to equal $1.48 over the next four years. Funny thing is they think fuel will be $1.81 for the year. That's 33 cents higher then what they need to average over the next 4 years. So lets say they are right and everyone else who has told the SEC it will be $1.91+ is wrong. They need next years fuel to be $1.17 just to stay on track with what they told the SEC.


My point is this. There are so many F'n variables to this airline game. A lot of folks want to make it sound like fuel is the only factor here. It's one of the latgest variables but it isn't all telling of the current and future success of an airline. $1 per gallon gas doesn't mean sh*t if you do a lot of flying in low yield markets and a low ticket price environment. But if you want to oversimplify it, fine.

The reality is what you tell the SEC is what you can be held legally accountably for.

Anyway, what does UAL's fuel planning have to do with JBLU anyway?
People ripped JBLU for having a loss in 2006. What do you think is more realistic, Neelmans $1.98 or Tiltons $1.81? Try to keep in mind that UAL spent $2.09 last quarter.b

Someone asks a question on why JBLU is forecasting a loss for 2006 and someone throws UAL in the mix. That's cool. If that's what it takes for you to feel better. If you wanted to consider every aspect of each compnay you still wouldn't be comparing apples to apples. They're in the same field but in different ballgames. I don't have to elaborate.

What people are trying to point out is your mgt is feeding everyone a line of BS. Could it have something to do with Tilton being able to sell 20% of his options in 6 months at a strike price of $9? Neelman on the other hand comes out with a realistic forecast and people jump all over him.

 

[32LT10]

G4G5,

I am so glad that the success of UAL is toasting your nuts. The stock continues to rise and your credibility continues to decline. Ah revenge is best served with a right cross.

 

[FlyBoeingJets]

I hotter debate than I figured on. But the debate has stayed interesting.



I guess it may be mostly fuel. But I was thinking of another cause. Since every competitor JetBlue faces (besides SWA) is mostly unhedged the fuel issue didn't seem to be the deciding factor. But then there is the elasticity of demand. If loads drop it would be bad because once they start falling it scares investors and the like. It's hard to raise ticket prices and guess how much is too much. But I hear prices are slowly moving up.

With the huge loss Delta just posted last quarter it might be Delta vs. JetBlue that is causing the loss forecast. With some forecast competition from USAir and regionals who want to hold onto their market share.

With oil this high, do turboprops make more sense? They do save gas. Could a big turboprop challenge the 190??

The new TSA fees are not helping either.


Thanks for the responses. And no, it is still not flame bait. I am just interested in this stuff.

 

[Mugs]

I always thought the SAAB 2000 would have been a great airplane, especially in the Northeast stuck down low. It's fast enought that the block time differences would have been small while the fuel burn would have been much better than an RJ. Also, short / slippery runways would not have been as much of an issue. But, the SAAB 2000 got killed by the "can't have props" mentality that took over the industry thought process when the mighty RJ hit the scene. Economics ignored in favor of the jet yet the people still complain anyway.

 

[Stealthh21]

Sometimes I wonder why some of you don't start your own airline. Seems like it would be a good idea. You are all that good. I am just...amazed.

 

[Dave Siegel]

Sometimes I wonder why some of you don't start your own airline. Seems like it would be a good idea. You are all that good. I am just...amazed.

Hi! It's Dave again.

Frank and I have been considering it, but the timing has to be right. For now, we'll keep our fingers on the pulse of the industry and wait for the right time to make our move. Labor costs are still too rich for me to get back in the saddle again.

I know we're that good, and I know that you're just amazed. Thank you for the kind words.

If either one of us makes the move first, I think Frank may take the lead, but for now we'll keep our skills up by paying "competitive" wages to those JetBlue pilots who are "fortunate" enough to be in our presence for 18 holes. Sorry smurfs, no 19th hole for you. There's a certain line you'll never cross. It's important that "you people" know your place, after all.

 

[banger]

G4G5,

I am so glad that the success of UAL is toasting your nuts. The stock continues to rise and your credibility continues to decline. Ah revenge is best served with a right cross.

I never read G4G5's comments as attacking UAL. He just listed some research, somebody challenged him, and he responded with the evidence.

 

[koko nw]

"UAUA on the other hand estimates their fuel to be 17cents a gallon less then what JBLU has predicted. UAUA has no fuel hedges so Tilton is going to have to pull a rabbit out of his A$$ to make that happen. "

"One of these things is not like the other one:
AMR $1.95
CAL $1.91
JBLU $1.98
UAUA $1.81
Estimated 2006 price per gallon."

From G5: These are two of his comments about UAL in a "non-attacking" way. Having an opinion is fine, he just seems to relish in all things negative about UAL. Time will tell, let him have his fun.

Koko

 

[Widow's Son]

The real reason JetBlue is forecast to lose money is DEBT and DEBT service costs. JB owes more than SWA and has one tenth the revenues to service that debt. JB also took on tons of variable interest debt which, while risky, was fine as long as rates were low, but now that rates have increased, JB's interest obligations have soared exponentially.
The variable interest debt is like the backloaded airplane warranties in that they are great initially, but they are painful when the devil comes to collect his due.

 

[Benhuntn]

I think its because they will take in less money tha they will spend but I could be wrong.

 

[FlyBoeingJets]

I think its because they will take in less money tha they will spend but I could be wrong.

That would be "How" a loss is generated.

Looking for the "Why"

But that is funny, I don't care who you are



I'm thinking it is all the above. Debt, fuel, some mx costs inching up, new fleet type and more brutal competition.

I'm starting to believe the airline formerly left for dead (USAir) is obtain to kick some behind.


http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:reuters.com:20060210:MTFH67960_2006-02-10_00-11-20_WEN0414&symbol=LCC.N


US Airways amends aircraft order from Embraer

Thu Feb 9, 2006 7:10 PM ET

NEW YORK, Feb 9 (Reuters) - US Airways Group Inc. (LCC.N: Quote, Profile, Research) and and Brazilian jetmaker Embraer (ERJ.N: Quote, Profile, Research) (EMBR4.SA: Quote, Profile, Research) said on Thursday they have reached an agreement to amend their original aircraft order.
The previous order of 57 undelivered Embraer 170s will be converted into 25 firm Embraer 190 aircraft and 32 additional firm Embraer 190 aircraft that are subject to reconfirmation by US Airways.

The amendment also includes up to 50 options on other aircraft in the Embraer 170/190 family, the companies said. Deliveries will resume in November 2006.

 

[FlyBoeingJets]

The next question to pop into my mind is--

How is JetBlue going to fight Virgin USA during their first 2 years of operation when they have new employees and new airplanes? What advantage does their current or 2007 fleet size give them over another well financed startup?

 

[skykid]

I never read G4G5's comments as attacking UAL. He just listed some research, somebody challenged him, and he responded with the evidence.

He has an axe to grind. This is the same guy who was convinced the PBGC would "liquidate" United.

 

[G4G5]

"UAUA on the other hand estimates their fuel to be 17cents a gallon less then what JBLU has predicted. UAUA has no fuel hedges so Tilton is going to have to pull a rabbit out of his A$$ to make that happen. "

"One of these things is not like the other one:
AMR $1.95
CAL $1.91
JBLU $1.98
UAUA $1.81
Estimated 2006 price per gallon."

From G5: These are two of his comments about UAL in a "non-attacking" way. Having an opinion is fine, he just seems to relish in all things negative about UAL. Time will tell, let him have his fun.

Koko

It's called shooting the messenger. I have not seen this fact brought up anywhere on the message board. People seem to think somehow I relish in this. I don't.
On the contrary knowledge is power. The folks who spend time on this board obviously care about their profession. Knowing the above numbers are what they are, doesn't that make you think something isn't right? If I worked for UAL I would do the same research that I have provided you with and take it to your union financial folks. Ask them what the story is, how is it possible that out mgt team provides the SEC with such a bogus number.

Or would you rather just stick your head in the sand and make like it never happened? Sorry if I just don't trust airline mgt or ALPA union officials. I like to look out for myself.

If I am wrong, great. Whats the worst that happened, you did a little research into the SEC 8k filings and learned a little more about how your company operates. You can come on the board and tell everyone how F'ed up G4G5 is. I am not above apologizing. That's why I always quote my source, so people can check for themselves. I make mistakes.

If I am right, then at least you can be prepared for the future.

Go back a page, I didn't start the UAL JBLU thing all I did was agree with Blue Dude.

 

[G4G5]

He has an axe to grind. This is the same guy who was convinced the PBGC would "liquidate" United.

We just went around with this last month:

Quote:
Originally Posted by skykid
G4G5, when is the PBGC going to liquidate United? That's what you said, isn't it? Let me know if it is going to be next month because WhiteClould's latest prediction for UAL liquidation is still next month.


Are you proud that your pension got dumped on the tax payers?

Forbes places the value for UAL at over $10 billion. I would have much rather seen UAL liquidated and that $10 billion given to the PBGC to distribute to the UAL employees. Here's a thought give the UAL employees the pension that they worked for. This goes beyond UAL, I would rather see that happen to USAir, Delphi, GM, whomever.

It's supply and demand. The folks who fly UAL would still keep flying. The industry would not lose those jobs. The pilots at UAL would be just like those at TWA pilots, who found jobs at AA, Fedex, UPS, Airtran, Jetblue, AmericaWest, SWA. I could go on. The difference is they would have pensions from UAL when they retire and companies would think twice about dumping their pensions.

No instead we now have a trend that companies like IBM, Verizon and soon to be countless others will be following. The dumping of the American pension system.

I am glad you can come on FI and gloat about it.

http://forums.flightinfo.com/showthread.php?t=70899&page=4

I am on record as being wrong:
"My point is moot, the pensions were dumped on the PBGC, the employees got screwed. IBM, Verizon and countless others will dump their defined benefit plans onto the PBGC and in all likelihood you and I will wind up bailing out the PBGC sometime, in our lifetimes. Oh yeah for those who want to here it, I was wrong, I actually thought for once maybe the courts or the government would do the right thing for the average working slob. "
http://forums.flightinfo.com/showthread.php?t=70899&page=10

 

[skykid]

I know we went over it last month, I just like to keep pointing it out because your idea that the PBGC COULD and WOULD liquidate United was so ridiculous it bears repeating. Yet you kept posting it over and over and over, just like your current broken record.

 

[h25b]

Operationally JBLU has a 71.4% on-time performance record for 2005, a decrease of over 10% from 2004. JBLU's on-time performance is lower than all other major airlines but one. With double digit growth forecasted for next year it will be a real operational challenge to get JBLU out of the cellar in on-time performance.

I personally would rather be 15 minutes late traveling on JetBlue than 15 minutes early traveling on Delta, United, or American...

My 2 cents...