JetBlue to get some relief from maintenance costs in Q4

Washington DC
Source:
This story is sourced from Pro
See more Pro news »

JetBlue Airways expects niggling maintenance costs to abate in the fourth quarter, but the expenses will still drive up the airline's full-year unit costs.

The carrier has been grappling with higher maintenance costs this year due to its ageing Embraer 190 fleet and maintenance for its General Electric CF34 engines. "Although maintenance expense has been a source of significant cost pressure this year, we expect to see year-over-year maintenance cost inflation slow in the fourth quarter," says the carrier's chief financial officer Mark Powers in an earnings call yesterday.

Cost per available seat mile (CASM), excluding fuel and profit sharing, rose 4.9% in the third quarter.

JetBlue expects fourth quarter CASM excluding fuel and profit sharing to vary by between negative 0.5% and positive 1.5%, but Powers was quick to point out that the airline enjoys a CASM tailwind this year due to flight cancellations in the fourth quarter of 2012 caused by Hurricane Sandy, which drove up unit costs then. Overall unit costs for this fourth quarter are expected to vary by between negative 1% and positive 1%.

For the full year of 2013, JetBlue forecasts that unit costs excluding fuel and profit sharing will grow by between 2.5% and 4.5%. Maintenance costs will contribute to about two-thirds of this increase, says Powers. Overall unit costs for the full year are likely to vary by between negative 1% and positive 4%

JetBlue announced yesterday it would defer deliveries of 24 Embraer 190s to 2020-2022, from 2014-2018. It also announced an order for 15 Airbus current generation A321s and 20 A321neos, and will convert 18 existing A320 delivery positions to the larger A321. Of the 18, eight current generation A320s will be switched to current generation A321s. The other 10 positions, for the A320neo, will be converted to A321neos.

The fleet restructuring reduces JetBlue's aircraft obligations by $200 million through 2016, says Powers. The new aircraft orders will increase JetBlue's capital expenditure by $1.8 billion, most of which will come on after 2018, he adds. That is when the A321neos begin delivery to JetBlue, as well as the deferred E-190s, explains Powers.