May 8, 2020 (Thomson StreetEvents) -- Edited Transcript of JetBlue Airways Corp earnings conference call or presentation Thursday, May 7, 2020 at 2:00:00pm GMT

Wolfe Research, LLC - MD and Senior Analyst of Passenger Airlines, Aerospace & Defense

JP Morgan Chase & Co, Research Division - U.S. Airline and Aircraft Leasing Equity Analyst

Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Airline Analyst

Good morning. My name is Erica. I would like to welcome everyone to the JetBlue Airways First 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 Investor Relations, David Fintzen. Please go ahead.

David E. Fintzen, JetBlue Airways Corporation - Director of Investors Relation [2]

Thanks, Erica. Good morning, everyone, and thanks for joining us for our first quarter 2020 earnings call. This morning, we issued our earnings release, our investor update and a presentation that we will reference during this call. All 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.

Robin Hayes, JetBlue Airways Corporation - CEO & Director [3]

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Thanks, Dave, and good morning, everyone. Thanks for joining us. And Dave, before I start, congratulations on your promotion, which occurred since the last earnings call. And of course, with everything else that's happened, we haven't really had a chance to celebrate that, but you do a terrific job. And thanks for what you do for the JetBlue team.

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David E. Fintzen, JetBlue Airways Corporation - Director of Investors Relation [4]

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Thank you, Robin.

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Robin Hayes, JetBlue Airways Corporation - CEO & Director [5]

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I could not be prouder about JetBlue family, not just over the past 2 decades, but for their service to each other, our customers and our communities as they provide an essential service during this coronavirus pandemic. In our 20th anniversary year, we are facing the biggest threat we've seen to our company and our industry. Our crewmembers, though, yet again, have risen to the challenge to inspire humanity at a difficult time, all while living our founding values of safety, caring, integrity, passion and fun.

We are deeply saddened to have lost 6 crewmembers to the coronavirus, including a pilot, 2 members of our in-flight community, 1 support center colleague and 2 airport crewmembers. Ralph Gismondi, Charles (Chuck) Lewis, Jared Lovos, Kevin McAdoo, Ray Pabon and Nikki Thorne were valued and amazing members of our JetBlue team, each with a special and unique story. Ralph joined us from after retiring from the New York City Fire Department including 2 tours of duty at ground zero, and we honor him with the cover of our earnings deck today. Chuck was known to his fellow ground ops crewmembers as a natural and confident leader. Jared brought the same warmth and compassion to our people team here in LSC, Long Island Support Center, that he demonstrated in his previous role as an inflight crew member. Kevin retired after distinguished service with the U.S. Air Force, where he served for 20 years and had multiple tours. Ray was known for his caring nature. And Nikki was known amongst her airport ops crew -- colleagues for being extremely kind hearted and having an excellent sense of humor. Our hearts go out to their families and loved ones as we are supporting them and also to all of our crewmembers who have been impacted by this virus. For those that we have lost, we remember them every day, and we pause briefly now as we remember them as our beloved members of the JetBlue family.

Turning to Slide 4 of our presentation. For the first quarter, we reported an adjusted loss of $0.42 per share, driven by an unprecedented fall in demand that started late in February. It has been a couple of very challenging months, and our team have responded with extreme urgency and taking actions at every level to protect JetBlue.

We were fortunate to have entered this crisis with the second strongest balance sheet among U.S. airlines. In the last 2 months, we have moved quickly to both protect and strengthen our liquidity position. Since the beginning of March, we have made decisive changes to our growth plan to minimize cash burns, including deep capacity cuts to our schedule. We have reduced our CapEx plan by $1.3 billion between now and the end of 2022, and by the end of May, we anticipate we would have lowered our operating expenses by about -- by around 50% year-over-year.

We are so incredibly grateful for the support received from our business partners and crewmembers who have helped us minimize cash burn during these challenging times.

In March, Congress passed and the President signed into law of the CARES Act. JetBlue is very grateful to President Trump and his administration, particularly Secretaries Mnuchin and Chao, as well as Congress, especially Senate Minority Leader, Charles Schumer for strongly recognizing the value of our industry and for supporting our crewmembers. I also want to thank Nick Calio and the team at Airlines for America for their amazing teamwork as we came together to protect jobs.

This law alone will not solve the longer-term problems that the coronavirus pandemic is creating. But it does provide much-needed temporary support for our crewmembers and buys us vital time to plan for both a changed demand environment and, of course, eventual recovery. We reached an agreement with the Department of Treasury and received $936 million in payroll support. In exchange for these funds, the U.S. government received approximately 2.6 million warrants as consideration for the amount granted to JetBlue. And of this $936 million, $251 million must be repaid to the U.S. government.

In late April, we also applied for the federal loan program, which would provide up to $1.14 billion in further liquidity. We will continue to evaluate all alternatives to raise cash and plan to access the facility, if needed. Given our actions and government support, we believe our balance sheet remains one of the strongest amongst U.S. airlines, and our cash and short-term investments currently equates to over $3 billion.

The demand environment continues to be exceptionally challenged due to the coronavirus. As we move towards recovery, we have 3 priorities: the first one is the immediate need to protect the safety of our crewmembers and customers. The second is to minimize cash burn. The third priority is to set JetBlue up for future success by restoring customer confidence by returning to cash generation and by rebuilding our margins and balance sheet. We are preparing for a number of recovery scenarios and working with different leading indicators.

For JetBlue, we expect our path will look a little different from many of our peers, given our network footprint, customer demographics, low-cost model and our customers' trust in our brand. As you'd expect, we are being conservative in our planning and as states reopen and the economy comes back online, we are planning on being flexible and quick to adapt.

We believe that building customer confidence will be a critical part of recovery, not just for JetBlue or the airline industry, but the travel industry overall. We believe confidence will come from a cross-functional effort that includes working together with industry partners, local governments, regulators and other entities. We also believe that the broader travel industry will need to make a collective effort to stimulate and promote a return to travel. Only by getting things moving again, will we get back to generating cash. We look forward to working with our travel partners throughout the recovery. We have taken a leadership position in our industry and started by giving competence and flexibility to customers with travel waivers. We were also the first carrier to provide free flights to health care professionals for relief efforts and transport essential medical equipment. It remains critical that we collaborate and support each other in these challenging times.

We believe that, not only will we get through this crisis, but we will emerge as a stronger JetBlue. Over the past few years, we focused on strengthening our balance sheet and preparing for an eventual downturn. After the start of this pandemic, we were well on course to deliver on our financial commitments in 2020. As we move into recovery, we look forward to getting back to executing our building blocks, improving our network, our product offerings, investing in our fleet, all while remaining true to our low-cost routes.

Just as in past downturns, along the way, we anticipate looking for opportunities that may not have been possible for JetBlue just a few months ago. JetBlue has been a true force for good in our industry, and we have been resilient through crisis for over 20 years. Most importantly of all, I want to once again thank our 23,000 amazing, inspiring crewmembers for their vital role in this tremendously challenging time.

And with that, I'd like to pass over to Joanna.

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Joanna L. Geraghty, JetBlue Airways Corporation - President & COO [6]

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Thank you, Robin. I'd like to start by thanking most profusely our crewmembers for their outstanding service and loyalty, not only to our customers but to each other. From the very beginning of this pandemic, a few short months ago, predictions and forecasts of every type each day only proved how uncertain the future could be. At JetBlue, however, each new day brought one absolute certainty. And that was the professionalism, humanity and commitment of our crewmembers to delivering a safe and secure JetBlue experience while living our values. This constant has been and continues to be an inspiration to us all.

Our first priority since the onset of the pandemic has been equally constant, ensure the safety of our customers and crewmembers. We've responded quickly to changing conditions and overseeing the rapid evolution of policies and programs designed to address the threats to crewmembers and customer safety posed by this virus.

We were early to announce the COVID-19 sick pay and quarantine framework and to implement an internal contact tracing and notification process.

And as the press recently reported, we were the first to acquire customers to wear face coverings. We've aggressively managed capacity from the very outset, doing our best to eliminate any nonessential flying while also ensuring CARES Act compliance.

We've focused on crew protection by increasing cleaning and disinfection across our operation in all facilities, eliminating New York City overnight crew layovers, working with crew transportation companies to ensure social distancing, implementing jump seat buffers, mandating the use of facial coverings and the use of other PPE, reducing service touch points on board the aircraft, modifying in-flight briefings and deferring training events.

I would now like to turn to Slide 6 and our revenue and demand trends. Beginning of last week of February, we saw a sharp fall in forward bookings across our network, and revenues in March were down 52% year-over-year. Following a very solid start to the year, our first quarter revenues declined 15% year-over-year, resulting from both lower demand volumes and a very challenging fare environment. During April, our revenues were down approximately 95% year-over-year.

While the overall number of bookings remained extremely limited during the second quarter, we expect to see small increases in demand as various geographies in our network begin a phased reopening.

To provide some additional detail regarding the level of our capacity changes, we are currently operating around 100 flights per day. This compares to our previous average of approximately 1,000 flights per day. The customers we fly today are largely people who are traveling for critical reasons or due to essential needs. And our load factors averaged between 10% and 15% for much of April. We believe that we've reached the bottom in terms of demand around mid-April. That said, we expect to have a better sense of the third and fourth quarter of 2020 by early summer.

We envision this environment of very limited demand will continue into at least the short, if not medium term, and believe our inherent strengths as a trusted brand with an unparalleled culture and superior product should serve us well as customers evaluate their air travel options. We plan to continue to be thoughtful as we adapt to changing customer needs.

As Robin mentioned, we are working on a number of scenarios for recovery. And although we are conservative in our planning assumptions, we will respond quickly to changes in demand with capacity, pricing and customer policies.

Moving to capacity on Slide 7. Our March capacity declined 19% year-over-year as a result of scheduled reductions and close in cancellations. As the pandemic began to manifest during the month, we adjusted our March flying levels to mitigate cash losses and rapidly declining load factors. We typically would have managed reductions at this level through a schedule change. But due to the speed and impact of the pandemic, we are put in a position of having to make these changes much closer into the travel day. I'm very proud of our crewmembers for reshaping our operation in such a short period of time and reaccommodating our customers under enormous pressure.

For April and May, we have had more time to adjust our schedules, and our working assumption for the second quarter is for capacity to be down about 80% compared to our original plan. We've been aggressively managing all capacity decisions with the goal of maintaining only an essential level of flying in our markets and complying with the CARES Act.

In mid-April, we consolidated operations across 5 metro areas through June 30 and now operate at only 1 or 2 airports in each, including Boston, Los Angeles, San Francisco, New York and Washington, D.C. Based on our projections for continuing low demand in the near term, we expect to reduce many markets to less than 1 flight per day.

Due to ongoing border closures, we have already suspended service to more than 20 of our international cities. We anticipate the situation will remain fluid as we head into the summer as states and foreign governments reopen their geographies.

Given the meaningful capacity reductions, we have grounded approximately 170 aircraft. This has been a significant source of cash savings. As we look to future quarters, we expect to remain flexible, managing our fleet and adjusting our capacity in response to travel demand.

While much of our team is focused on navigating the near-term challenges, we are also laser-focused on how the business will look for customers and crewmembers as we transition to recovery. Our focus will be on safety from the ground up, which includes healthy crewmembers, clean air services, more space, fewer touch points and travel flexibility.

Given the goodwill and trust that we've built in our brand over the last 20 years, our mission to inspire humanity is now more important than ever. We believe we are well positioned to be the airline of choice for customers as they become more comfortable returning to flying.

Thank you, again, to our crewmembers for continuing to serve our customers and maintaining a safe operation. Over to you, Steve.

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Stephen J. Priest, JetBlue Airways Corporation - CFO [7]

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Thank you, Joanna. I would like to add my thanks to our crewmembers on the front line and support centers who in this sub-time of crisis are working day and night to take care of each other and our customers.

I'll start on Slide 9 with a brief overview of our financial results for the quarter. Revenue was $1.6 billion, down 15% year-over-year. Adjusted pretax margin was minus 9.5%, down 13 percentage points from the first quarter of last year.

GAAP loss per diluted share was $0.97, and adjusted loss per diluted share was $0.42. Our effective tax rate for the quarter was 24%.

In just a few short months, the coronavirus has significantly disrupted our business. Thanks to our continued focus over the last few years on managing JetBlue to investment-grade metrics, building a strong balance sheet, improving our cost structure and strengthening our margins, we believe we are in the best position of anytime in our 20-year history to effectively weather this crisis and emerge even stronger.

From a financial perspective, we are focusing our efforts over the coming months on 3 key areas: preserving our liquidity, reducing operating expenses and managing our capital expenditures.

Moving on to Slide 10 and our actions to preserve liquidity. We started the year with good momentum ending 2019 with over $1.3 billion in cash, cash equivalents and short-term investments. Since the start of the crisis, our treasury team has done an incredible job raising additional liquidity. In mid-March, we've quickly raised $1 billion under a term loan arrangement. And in April, we drew down our revolver of $550 million. We also raised $150 million of cash to the sale of future points.

Finally, 2 weeks ago, we received a cash injection for $936 million from the CARES Act to support our crewmembers. At the close of April, our cash, cash equivalents and short-term investments reached $3.1 billion or 38% of our 2019 revenue.

As we move into the summer, we plan to take further actions to bolster liquidity. We recently applied for the federal CARES Act loan for $1.1 billion. However, we are now prioritizing additional liquidity raises in the public markets, including issuing secured debt and entering to sale-leaseback transactions to take advantage of our unencumbered asset base.

Excluding the CARES Act loan, our goal is to raise up to $750 million over the next couple of months, which would take our total liquidity to approximately $3.25 billion by the end of the second quarter.

In addition to successfully raising liquidity in a short period, we have acted with urgency to minimize our cash burn, reduce our expenses and rework our plan for capital expenditures. We lowered our cash burn from an average of $18 million per day during the second half of March to an average of $12 million in April. As we enter May, we expect that cash burn to be just under $10 million per day. We expect to see further improvements in the third quarter aiming our cash burn to range between $7 million and $9 million per day.

To be clear, all of our cash burn assumptions do not include the CARES Act proceeds. We are leaving no stone unturned to protect the financial security of JetBlue.

Turning to Slide 11. We spent the last 3 years executing our Structural Cost Program and building a cost-conscious culture across the whole of JetBlue. We are all in this together. And since the start of the pandemic, all of our 23,000 crewmembers have been relentlessly focused on finding ways to manage our costs and preserve our liquidity.

Starting in March, we quickly reduced our operating expenses to lower our daily cash burn and extend our liquidity. We took action, eliminating all nonessential discretionary spend and minimizing marketing, training, catering and onboard services. In addition, we took the opportunity to in-source services across 29 airports in order to reduce our cash costs.

As Joanna mentioned, we are able to cancel some of our flying for the month to avoid some variable costs. However, much of our cost base was relatively fixed, partly due to the timing of bid periods. As we moved into April and especially now into May, we are improving our daily cash burn as we further reduce our variable and fixed cost structure. We continue pulling down capacity aggressively to ensure we achieve variable cost savings, and we are taking steps to hammer down our fixed costs across the organization. This includes consolidating airport operations, parking aircraft, reducing landing fees and optimizing maintenance expenses. Looking ahead, anticipate shifting our focus to more permanent Structural Cost Program savings.

Thanks to these assets, we successfully moved around $150 million from our cost base during the first quarter. We expect operating costs, including fuel, to decline approximately 50% year-over-year in May. I'd like to extend a massive thank you to our amazing crewmembers who have volunteered to participate in time-off programs and to all of us in the JetBlue family for making a personal sacrifice. I'd also like to thank our business partners for their flexibility and for working with us to extend payment terms and renegotiate contracts.

Moving to Slide 12. During the past couple of months, we negotiated a deal with Airbus to rationalize our order book. We appreciate their partnership in supporting a new delivery schedule that helps our efforts to protect JetBlue. As a result, we expect to take fewer aircraft than our original plan. And our CapEx for 2020 to 2022 is now lower by $1.3 billion. In addition, we suspended our plans to take the 4 leased aircraft we announced in January, deferring associated ending CapEx required to add those aircraft to our fleet. We also halted our A320 restyling program, having completed over half of our fleet. We appreciate the related impact on customer experience, but we do not anticipate resuming our efforts until demand improves. Lastly, we have reduced non-aircraft CapEx by suspending all nonessential projects across the organization.

Moving to Slide 13. At the end of March, our debt-to-cap ratio was 44%. We anticipate principal and interest payments through the end of 2020 of approximately $100 million per quarter. Over the past few years, we invested the majority of our cash from operations back into JetBlue. It's too early to know what the right level of leverage and liquidity will be during recovery, but our conservative approach in managing our balance sheet will not change.

We remain confident that we will navigate this crisis as we have in the past and emerge even better positioned for success in the years to come. As a trusted travel brand, we believe that our efforts to inspire confidence will help support recovery. On behalf of the JetBlue leadership team, again, I would like to thank our incredible crewmembers, as well as our business partners, and our communities for all of their support as we navigate these unprecedented times. We also want to thank the many government agencies out there on the front line, supporting essential travel needs. Our hearts are with those, including friends and neighbors who have been impacted by COVID-19. We will now take your questions.

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David E. Fintzen, JetBlue Airways Corporation - Director of Investors Relation [8]

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Thanks, everyone. Erica, we're now ready for the question-and-answer session with the analysts. Please go ahead with the instructions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Duane Pfennigwerth from Evercore ISI.

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Duane Thomas Pfennigwerth, Evercore ISI Institutional Equities, Research Division - Senior MD [2]

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Just on the -- on the CapEx. So you've taken that down nicely. And I just want to check out that implies about $500 million for the remainder of the year. And are you done? Should we consider this sort of your final work on 2020? Or you're continuing to work that down?

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Stephen J. Priest, JetBlue Airways Corporation - CFO [3]

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Just before we guide any further, I just wanted to have a shout out to our partner Airbus. I think such a challenging time where they're going through their own sort of response to the crisis, they've been true partners as we navigate through this event. You're not far off in terms of your math, Duane. You're pretty much in the ballpark.

And with regards to, like are we done, our work is never done. We are ruthlessly focused at taking down the cash burn as we navigate through 2020. I'm incredibly proud of the work of the team, taking us down from, as I said, $18 million at the back end of March per day down to sort of $10 million in May. And hence, whether it's on the CapEx side of the business or the OpEx side of the business, you can expect us to continue to act with rigor and expediency to get our cost structure down and continue to reduce our cash burn.

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Duane Thomas Pfennigwerth, Evercore ISI Institutional Equities, Research Division - Senior MD [4]

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Excerpt from:
Edited Transcript of JBLU earnings conference call or presentation 7-May-20 2:00pm GMT - Yahoo Finance