Home Breaking News JetBlue Pulls Back on London Due to Travel Restrictions – Skift

JetBlue Pulls Back on London Due to Travel Restrictions – Skift

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JetBlue Airways cannot wait to take travelers to London. The airline has bought new planes, developed a new cabin with posh business class seats, and worked for years to gain access to sought-after London Heathrow airport ahead of its August 11 launch.

But the one thing JetBlue could not plan for was the Covid-19 pandemic and continued UK-U.S. travel restrictions.

“We’re disappointed on the continued restrictions on travel between the U.S. and UK,” said CEO Robin Hayes on JetBlue’s second quarter earnings call on Tuesday. As a result, the carrier will reduce its London schedule to several days a week from daily in September, and continue to evaluate the situation on a month-to-month basis thereafter. Hayes did not say whether New York-London Gatwick flights would begin as planned on September 29.

JetBlue’s response mirrors that of the travel industry: frustration in the continued restrictions. On July 26, the U.S. Travel Association re-upped its recommendation that President Biden drop restrictions on inbound travelers from the EU and UK, and noted that the rules had not stopped Covid-19 variants from entering the U.S. Neither the U.S. or UK have indicated when they will remove restrictions.

Aside from the London reductions, JetBlue is optimistic about the recovery and its prospects. Leisure and visiting friends and relatives travelers returned at a “robust” pace ahead of the airlines expectations in the second quarter, said Hayes. That buoyed revenues that were down 29 percent compared to 2019, at least one point better than the carrier’s guidance in April. Capacity was down 15 percent year-over-two-years in the period.

Leisure travelers are forecast to continue to make up the bulk of flyers through Labor Day after which business travelers are expected to begin returning in significant numbers, said JetBlue President Joanna Geraghty. And the airline has yet to see any negative impact from the rapid spread of the Covid-19 Delta variant, she added.

One big boost for JetBlue was the implementation of its controversial Northeast Alliance with American Airlines. Geraghty cited a “positive initial response” from customers, including corporate clients, to the pact though neither she nor other executives would put a specific number on the revenue benefit. However, the partnership was described as being in the “very initial stages” of implementation with the suggestion that many more benefits are yet to come.

But those benefits come with added costs, which piqued the interest of Wall Street analysts on the call. Unit costs excluding fuel and special items are forecast to continue rising at an elevated rate into 2022 — including 11-13 percent in the third quarter — in part because of expenses and fleet changes related to the implementation of the alliance.

“Most of the drivers of the higher cost outlook should lead to higher revenue, but this negatively impacts the pre-crisis narrative that JetBlue would be breaking away from its history of disappointing cost execution,” wrote Raymond James Analyst Savanthi Syth in a report on Tuesday. She noted that previously the airline forecast unit costs would fall below 2019 levels next year but not expects them to rise in the single digits.

The Cost of Doing Business

The premise for American and JetBlue’s tie-up in Boston and New York is the idea that together the airlines are stronger against competitors like Delta Air Lines and United Airlines. American lost ground in the northeast after its merger with US Airways in 2013, while JetBlue found its growth stymied by its lack of long-haul options for lucrative business travelers. The alliance was presented as a way to rectify both airlines’ weaknesses and create a stronger competitor through growth.

To date, American and JetBlue have unveiled 58 new routes from Boston and New York including the latter’s first-ever service to places like Asheville, N.C., and Kansas City. American plans or has added new flights to long-haul destinations like Athens and Tel Aviv from New York.

But that growth comes with a price. JetBlue will delay retiring the 30 Embraer E190s that it owns to operate all the new flights, Chief Financial Officer Ursula Hurley said. While she did not provide a timeline, previous expectations were that they jets would leave on a one-for-one basis as the carrier took delivery of new Airbus A220s. Now, it appears JetBlue will hold off retiring its E190s until 2023 when it begins returning its 30 leased aircraft to lessors with the entire fleet potentially gone by 2026.

JetBlue did not specify the cost of keeping the E190s longer than planned but Hurley acknowledged that it will result in additional maintenance expenses. The airline recorded a $202 million impairment charge related to its plans to retire the planes in 2020.

The airline’s rapid growth at Newark and New York LaGuardia is also driving up expenses. Both are among the most expensive airports — but also the most sought after — to operate at in the U.S. This includes higher landing fees and terminal rents that airlines pay per flight they operate. In other words, more JetBlue departures from LaGuardia will also mean more of these higher airport expenses.

Combined, JetBlue estimates 2-4 percentage points in added unit cost growth from the alliance next year. The airline did not provide growth guidance for 2022.

“This will allow us to capitalize on the meaningful growth opportunities from the [Northeast Alliance] in a capital light and flexible way,” said Hurley on the benefits that will follow the added costs.

And The Numbers

JetBlue posted a pre-tax profit of $57 million including the benefit of $366 million in federal payroll relief during the second quarter. Without the government aid, the airline lost $309 million. Revenues decreased nearly 29 percent to $1.5 billion and expenses 27 percent to $1.35 billion including the benefit of special items compared to 2019. The airline reported positive cash flow during the quarter and a focus on returning to pre-crisis margin levels in the future.

For the third quarter, JetBlue forecasts revenues down 4-9 percent and capacity flat to down 3 percent compared to 2019. The airline expects the arrival of five new aircraft — four A220s and one Airbus A321LR needed for its new London flights — during the period.

The carrier, like its partner American, notably did not forecast a profit in the third quarter. Executives did not say when they expect JetBlue to return to the black absent the federal aid that expires September 30. Alaska Airlines, Delta, Southwest Airlines and United all expect profits excluding any relief funds in the second half of the year.

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https://skift.com/2021/07/27/jetblue-pares-back-on-new-london-flights-as-u-s-uk-travel-restrictions-persist/