JetBlue is redeploying capacity once dedicated to its former Northeast Alliance with American Airlines to “high-margin leisure opportunities throughout our network,” JetBlue CEO Robin Hayes said on a Tuesday earnings call.

A Massachusetts district court in May ordered JetBlue and American to terminate the Northeast Alliance. JetBlue decided in June not to appeal that ruling. 

The dissolution of the agreement “will result in a near-term drag on margins as we lose key co-chair revenue,” Hayes said, and certain NEA costs will linger due to the gradual winddown of the alliance. 

To mitigate the impact, “we are increasingly able to redeploy capacity currently underperforming in NEA markets” to leisure-focused routes, Hayes said. That redeployment will be more aggressive as the company heads into 2024, with capacity shifting to “expected pockets of future demand areas where our [visiting friends and relatives] and leisure orientation give us an advantage in the marketplace.”

This redeployment plan echoes one announced last week by Southwest Airlines on its quarterly call. 

“Historically, leisure markets have ramped up more quickly, and we know that many months a year, there is a demand that can’t be satisfied,” JetBlue head of revenue and planning Dave Clark said. “In a world where corporate travel is 20 percent down, how do airlines sort of meet that off-peak need? I think it’s far broader than network. I think it’s resourcing strategy. I think it’s maintenance planning. I think there’s a whole number of things that in a world where business travel may not be coming back, we’re going to have to work through and think through and just rest assured that we have a lot of actions on focus on that area.”

Executives also cited the summer challenges first anticipated a quarter ago which included weather disruptions and “more restrictive [air traffic control] programs” as reasons for some performance slips.

“The ATC challenges we faced in June were more severe than expected which resulted in lengthier delays, increased cancellations and a lower completion factor,” said JetBlue CFO Ursula Hurley.

“We are facing headwinds from weather and the ATC in the Northeast which have been much, much worse than we planned for when we reduced our New York departures by 10 percent for this summer, and we are seeing ATC programs stay in place longer than we’ve ever seen before for similar weather events,” Hayes said. Those challenges are “driving hundreds of delayed flights a day for JetBlue alone.” 

JetBlue president and COO Joanna Geraghty added that the challenges are worst in summer, and they typically abate in the fall and winter, but they “just won’t improve in the next couple of years,” she said. Geraghty added that the carrier is working with the U.S. Federal Aviation Administration, including on additional slot relief next summer, which this year came “too close in.”

The carrier is more exposed to and concentrated in the Northeast, with New York and Boston accounting for 75 percent to 80 percent of JetBlue’s capacity, Clark said. “We’ve already started to execute [the redeployment], and we’ll be continuing to execute that over the coming period,” he said. “But with the non-New York part of our network driving above 2019 margins in the second quarter, we feel confident that we’ve got a number of good options to redeploy this capacity into.”

Still, though Hayes said he thinks the FAA’s 10 percent slot waiver was “not enough,” he also said that New York will remain the airline’s “largest focus city with well over 200 departures per day.”

JetBlue Q2 Metrics

JetBlue reported record second-quarter revenue of $2.6 billion, up 6.7 percent year over year. Passenger revenue for the quarter was nearly $2.5 billion, up 6.9 percent from a year prior. Net income was $138 million compared with a loss of $188 million in Q2 2022.

Second-quarter capacity was up 5.8 percent year over, while load factor increased 0.2 percentage points to 85.3 percent. Average fuel costs were $2.63 per gallon. 

The company projects third-quarter capacity to be up 5.5 percent to 8.5 percent year over year, with revenue down 8 percent to 4 percent. The estimated average price of fuel is $2.75 to $2.90 per gallon.

Capacity for 2023 remains the same as previously projected, up 5.5 percent to 8.5 percent year over year. Estimated average fuel costs were lowered a dime to $2.85 to $3.05 per gallon. JetBlue, however, lowered its anticipated revenue to be up 6 percent to 9 percent compared with a prior guidance of up in the high single digits to low double digits. 

RELATED: JetBlue Q1 performance