JetBlue plans to grow by adding more flights, selling travel services

New York

JETBLUE AIRWAYS, stuck in its third straight year lagging the airline industry's share returns, is looking to boost earnings by expanding in three key cities and selling more travel services such as car rentals and hotels.

The carrier will shift more flights to Boston and Fort Lauderdale, Florida, and add more at New York's John F Kennedy International Airport. It will step up efforts to improve on-time performance, which also trails the industry, while adding more seats on some planes. JetBlue is also banking on a renegotiated maintenance contract to help lower costs and improve margins.

The plan, outlined on Tuesday during a half-day meeting with investors and analysts, represents a new push by the carrier to broaden revenue sources while trying to contain rising costs from pricier fuel and new and pending labour contracts.

The initiatives should result in earnings per share of as much as US$3 in 2020, the company said. That would top the US$2.21 average of analysts' estimates compiled by Bloomberg.

"JetBlue is doing a better job addressing cost concerns while also providing a promising revenue/earnings outlook," said Adam Hackel, an analyst with Imperial Capital. The aircraft maintenance contract "could be instrumental in getting their costs in line with the industry".

JetBlue fell 15 per cent this year till Monday, the biggest decline among major US carriers except for American Airlines Group Inc. JetBlue trailed a Standard & Poor's index of US airlines last year and in 2016.

"As much as we are focused on costs, I want to make sure everyone recognises that we know we are never done on the revenue side," said Marty St George, JetBlue's executive vice-president for commercial and planning.

The airline is targeting a net operating profit margin of 10 per cent in 2020, up from 7.3 per cent this year, and a return on invested capital of as much as 13 per cent compared with 8.2 per cent. JetBlue said that it has achieved US$171 million of savings under a previously announced programme to reduce structural costs by US$250-300 million by 2020.

JetBlue follows larger carriers such as American and United Continental Holdings Inc in focusing growth on select cities in its network.

"In 2019, you will see us pretty aggressively redeploy aircraft across our network," Mr St George said.

The growth plan for focus cities was expected, said Susan Donofrio, a Macquarie Group analyst. As for the new earnings target, investors are "digesting whether or not they think it's achievable", she said.

JetBlue already is taking steps to boost revenue, increasing the charge for first and second-checked bags by US$5 each last month. It laid out a plan last week to offer discount prices in a new fare class with fewer frills to combat similar offerings from larger rivals. The carrier did not detail other changes to its fare categories, saying that they will be rolled out starting next year.

The airline also wants to secure a greater share of travel spending by its passengers for services such as hotels, insurance and car rentals. Those new products and the network changes will together add as much as US$400 million in revenue by 2020, JetBlue said.

The airline will begin shedding its costly Embraer SA E190 jets in 2020, replacing them with 60 Airbus SE A220s that are more fuel efficient and able to profitably fly longer routes. It is continuing to add seats to its A320 aircraft, an effort that will not be completed until the second half of 2020.

Also in the Tuesday session, JetBlue said that it has considered a "Junior Mint" offering that would place its premium cabin on secondary cross-country routes. The airline currently offers its premium "Mint" service on select flights. BLOOMBERG