Jetblue Airways Corp Q2 FY2025 Earnings Call

Ladies and gentlemen, good morning. My name is Abbey and I would like to welcome everyone to the JetBlue Airways Second Quarter 2025 Earnings Conference Call. As a reminder, today's call is being recorded. I would now like to turn the call over to JetBlue's Director of Investor Relations, Koosh Patel. Please go ahead, sir.

Thanks, Abbey. Good morning, everyone, and thanks for joining us for our second quarter 2025 earnings call. This morning, we issued our earnings release and a presentation that we will reference during this call. All of those documents are available at our website at investor.jetblue.com and on the SEC's website at www.sec.gov. In New York to discuss our results are Joanna Geraghty, our Chief Executive Officer; Marty St. George, our President; and Ursula Hurley, our Chief Financial Officer. During today's call, we will make forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, without limitation, statements regarding our third quarter and full year 2025 financial outlook and our future results of operations and financial position, including long-term financial targets, industry and market trends, expectations with respect to tailwinds and headwinds, our ability to achieve operational and financial targets, our business strategy and plans for future operations and the associated impacts on our businesses. All such forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in these statements. Please refer to our most recent earnings release as well as our fiscal year 2024 10-K and other filings for a more detailed discussion of the risks and uncertainties that could cause the actual results to differ materially from those contained in our forward-looking statements. The statements made during this call are made only as of the date of the call and other than as may be required by law, we undertake no obligation to update the information. Investors should not place undue reliance on these forward-looking statements. Also, during the course of our call, we may reference certain non-GAAP financial measures. For an explanation of these non-GAAP measures and a reconciliation of the corresponding GAAP measures, please refer to our earnings release, a copy of which is available on our website and at sec.gov. And now, I'd like to turn the call over to Joanna Geraghty, JetBlue's CEO.

Good morning, and thank you for joining JetBlue's second quarter earnings call. During the second quarter, we made meaningful progress with JetForward and met or exceeded guidance across all key metrics. Despite facing an uncertain macro backdrop, I am pleased that we produced a modest operating profit. We ran a strong operation and once again saw significant gains in customer satisfaction, with second quarter Net Promoter Score up double digits year-over-year. I want to take a moment to thank our crew members. These results are a reflection of all of their hard work. As we entered the second quarter, demand stabilized and then accelerated as the quarter progressed. This resulted in a higher mix of close-in bookings. I'm encouraged that we also saw this close-in strength carry forward into July. However, I will note that weather and air traffic control related disruptions throughout the month of July have impacted operations. In May, we marked another JetForward milestone, introducing Blue Sky, our collaboration with United Airlines. I'm pleased to say that we received confirmation that the Department of Transportation has completed their review and we are now able to begin implementing Blue Sky. We'd like to thank Secretary Duffy, Assistant Secretary Edward, and the entire team at DoT for their engagement and thoughtful review of Blue Sky. As a reminder, this collaboration will benefit customers, increase the utility of TrueBlue, and further strengthen each airline's loyalty program. Blue Sky will enable JetBlue to sell nearly all of its flights on united.com via traditional interline agreements and vice versa, with the opportunity to earn and redeem loyalty points across each other's networks. United will also transition its distribution of non-flight ancillaries such as hotels, rental cars, and more to our travel product subsidiary, Paisly, turbocharging its high-margin growth. Blue Sky links two complementary networks with industry-leading products and services to increase customer choice and benefits while promoting healthy competition. The collaboration is expected to contribute an incremental $50 million in EBIT through 2027, accelerating JetForward. Including the benefit from Blue Sky, we are increasing our target for JetForward EBIT to a range of $850 million to $950 million through 2027. Marty will share more details on the individual drivers, but we are excited that Blue Sky will build on the tremendous progress we've made to date. We are also pleased to report that our aircraft on the ground forecast due to the Pratt & Whitney GTF issue has improved, and we now expect the cycle through grounding to happen much faster as a result. The revised forecast enables us to begin growing capacity again in 2026 through the end of the decade and achieve a more favorable unit cost growth trajectory. Ultimately, this will support our path back to restoring profitability. Turning to Page 4 of the earnings presentation. In 2024, we had a strong start to JetForward and realized $90 million of EBIT early due to the success of revenue initiatives launched last year that ramped faster than we anticipated, including preferred seating and enhancements to our Blue Basic offering. In the first half of 2025, we've continued building on that momentum, realizing an additional $90 million in EBIT across our four priority moves, despite a far more challenging macro environment. Cumulatively, we've achieved $180 million EBIT to date and remain on track to reach $290 million in JetForward EBIT benefit by year-end. Our efforts to drive a more reliable operation, part of our reliable and caring service priority move, have brought significant operational improvements in the first half of 2025. Our on-time performance was up 3 points year-over-year and completion factor was up 0.5 point, both industry-leading improvements. These improvements are also reflected in our customer satisfaction scores. And for the first half of 2025, our Net Promoter Score was up double digits year-over-year, building on improvements made in 2024. In all, efforts to run a more reliable operation have contributed approximately $15 million of incremental EBIT benefit over the first half of 2025. We realized cost benefits from reduced disruption-related spend such as lower overtime pay and fewer customer re-accommodation. Additionally, we are seeing indications that customers are choosing us more often, proof that the investments we are making in our operations, such as implementing increased schedule buffers and launching new tools to enable customer self-service, are having a positive impact. We believe that on-time performance and customer satisfaction are leading indicators for improved financial performance and that running a strong operation is essential. These investments are especially important when we face disruptive weather, which is often compounded by air traffic control challenges, as we have experienced across our network in July. Our efforts to adjust the network to our strengths and build the best East Coast leisure network are also maturing nicely. As you recall, in 2024, we closed 15 Blue Cities and redeployed over 20% of our network as we realigned to serve our core customer. These changes are ramping and are showing signs of relative improvement. For example, newer markets in secondary Northeast cities are exceeding expectations and are showing positive early traction. Overall, network optimization represents $15 million of incremental EBIT over the first half of the year. As part of our products and first priority move, preferred seating continues to outpace expectations and our new premium credit card is on track to double full-year projections for acquisitions, highlighting the tremendous amount of demand by customers for our premium products. Lounges slated to open in JFK during the fourth quarter and in Boston Logan in 2026 remain on track and will complement our premium card to enhance the overall value proposition of TrueBlue. We are also updating our onboard experience to better serve our premium customers. This includes the enhancement EvenMore launched earlier this year, and we also remain on track to begin rolling out domestic first-class in 2026. At the same time, we are reinvesting in our brand and living the fun value. 25 for 25, JetBlue's 25th birthday promotion, our partnership with Bad Bunny, and our newly released Dunkin' and Super Mario delivery are driving excitement and reinforcing our unique style and brand. Altogether, products and perks have generated $35 million of incremental EBIT during the first half of 2025. Lastly, our cost transformation is underway to secure our financial future with around 100 initiatives focused on technology enhancements throughout our business, supporting customer self-service, disruption management, and fuel savings. In total, cost savings have driven $25 million in EBIT and have contributed to our controllable cost outperformance, with the second quarter marking our seventh consecutive quarterly cost beat. JetForward is a comprehensive multiyear transformation, and we are making meaningful progress. Our operation is improving. We are building on our industry-leading in-flight experience, and we are getting back to our roots, reigniting JetBlue's spirit of innovation and disruption. We know there's more work ahead, but the momentum we've built gives us confidence that JetForward is the right plan, supported by the best crew members in the industry and a leadership team that is acting with urgency to meet the demands of a dynamic operating environment. With that, over to you, Marty.

Thank you, Joanna, and thank you all of our crew members. As Joanna noted, improvements to our operational performance and customer satisfaction are true testaments to the work that you do day in and day out. It does not go unnoticed. I'm thrilled to share that during the quarter, JetBlue was recognized by J.D. Power as the top airline for first and business class customer satisfaction in The 2025 North America Airline Satisfaction Study. Our core experience also rose three spots, the second place in the economy and basic economy segments and two spots to second place in the premium economy segment compared to 2024. JetForward and your commitment to the plan are driving real results and recognition. Over the quarter, we saw encouraging signs of an improving demand environment as the number of close-in bookings accelerated as the quarter progressed. Before we review quarterly results, I want to take a moment to talk more about BlueSky. I'm very excited we announced this new collaboration with United. As we evolve our network, it is even more important to provide customers with more choices to earn and redeem TrueBlue points. BlueSky features three primary value drivers. First, it will greatly increase choice for TrueBlue members through the implementation of our traditional interline agreement, which expands our distribution reach and customer choice by cross-merchandising flights on one of those websites and apps. Second, the collaboration promotes the growth of our loyalty business by offering reciprocal earnings and recognition, increasing the utility of our points and the breadth and value of our program. Lastly, the collaboration will supercharge our high-margin, high-growth, and capital-light Paisly business, which is JetBlue's white label platform for the distribution of hotels, railcars, cruises, travel insurance, and packages on the brands such as United and others. These EBIT benefits are split between our network priority move for interline benefits and a product priority move for loyalty and Paisly benefits. BlueSky is accelerating our transformation while bringing demonstrable benefits to customers across our system. Further, while the partnership is expected to begin generating value as soon as the fourth quarter, we are already seeing promising early traction. Since announcing BlueSky at the end of May, new credit card sign-ups accelerated in June. In fact, we have seen a double-digit increase in average daily card acquisitions in geographies outside JetBlue's core markets. This is early evidence that the collaboration is increasing our relevance and making the TrueBlue program more attractive. On Slides 8 and 9, we discuss the details of our second quarter revenue results and our unit revenue progression moving into the third quarter. We ran a strong operation during the second quarter and achieved a completion factor of 99.6%. Weather was generally favorable during the quarter despite the typical conductive weather challenges we saw during the back half of June. We ended the second quarter with capacity down 1.5% year-over-year towards the better end of our initial range of down 3.5% to down 0.5%. Demand trends for the first quarter continued into the second with bookings characterized by strong feeds and relatively weaker troughs. As the quarter progressed, we saw significant strength in bookings within 14 days of travel. The close-in bookings were especially apparent for peak travel and throughout June. In addition to close-in strength, our second quarter RASM results were supported by matching supply with demand. Early in the quarter, we took significant capacity action in the troughs, and we removed almost 8 points of our peak capacity for May and 3 points in June compared to the plan at the beginning of the year. Both the Easter and Memorial Day weekend peaks performed well. The Easter shift added almost 1.5 points to the second quarter RASM. Peak RASM for the quarter was positive on more capacity year-over-year. We also experienced nearly 1 point on RASM benefit from Newark book away as air travel disruptions caused customers to temporarily shift travel to alternate airports and multiple neighboring states. That benefit was transitory, as the runway reopened in early June. Overall, unit revenue declined 1.5% year-over-year in the second quarter, 2 points above the top end of our guidance range. The nature of close-in bookings made forecasting challenging, even within the quarter. And in May and June, revenue generated within 14 days of travel increased 7% year-over-year. Premium Cabin, loyalty, and transatlantic continue to demonstrate resilience. Premium unit revenues were up mid-single digits year-over-year during the quarter, and loyalty remuneration was up 9% year-over-year. International continued to perform well with transatlantic unit revenues up low single digits for the quarter. As you look to the third quarter, we have seen the close-in strength carry into July, including the 4th of July holiday peak. We expect year-over-year unit revenue to be down between 6% and down 2% on ASMs ranging between down 1% and up 2%. As Joanna mentioned, we had to face more weather challenges than usual and elevated air traffic control delays throughout July, which have pressured the operation and our completion factor thus far in the third quarter. Our third quarter capacity guidance assumes a more typical operating environment for August and September, and we'll continue to monitor our operations closely as the quarter progresses. We anticipate a similar demand environment in the third quarter compared to the second, with a continuation of strong peaks, elevated close-in bookings, and weaker troughs. Notably, while demand is improving, there are a few one-time considerations that are impacting our sequential RASM progression. In the second quarter, we benefited from both the Easter shift and Newark, representing roughly 2 points of RASM uplift. During the third quarter, we will be lapping 1 point of CrowdStrike benefit or unlike many of our peers, we realized a revenue gain from peer book away during the event last year. Additionally, the midpoint of our guidance for the third quarter translates to a roughly 2-point sequential increase in year-over-year capacity. Adjusting for these considerations, our third quarter RASM guidance implies continued demand and unit revenue improvement as we head into the second half of the year. Further out at the end of the fourth quarter, we are optimistic that demand will continue to improve, and we're using this as our overarching planning assumption. However, revenue forecast remains challenging given elevated levels of close-in bookings and an improving but still choppy macro environment. Therefore, we will not be providing revenue guidance beyond Q3. Thank you. And now over to Ursula for an update on our balance sheet and cost outlook.

Thank you, Marty. During the second quarter, we generated a modest operating profit, a small step on our road to sustaining profitability. We also adjusted our fleet plan, remained disciplined with our balance sheet, and continued executing on our cost goals. These actions are grounded in our overarching objectives to enable capital-efficient, long-term growth, drive profitability, and generate free cash flow. Turning to Slide 11 for an update on our fleet. At the onset of the year, we shared that our Pratt & Whitney GTF-related aircraft groundings were expected to average mid- to high teens for the duration of 2025 and to peak 1 to 2 years into the future. I'm very pleased to announce that the forecast for aircraft on the ground has improved materially, and we now expect to average fewer than 10 AOGs this year and believe that 2025 represents the peak, with the number set to reduce as we progress into 2026 and fully resolve by the end of 2027. The improved AOG forecast is primarily driven by the extension of required maintenance intervals due to better-than-expected GTF durability performance and aggressive self-help we have undertaken to source spare engines. As a result of geared turbofan challenges, we have not grown capacity since 2023, which has put meaningful pressure on unit costs and significantly impacted profitability. The revised forecast now positions us to return to long-term capacity growth beginning next year. Since these aircraft are returning to service and are not new deliveries, they represent an extremely capital-light source of growth. This will allow us to return to a more favorable unit cost growth trajectory, supporting our return to profitability and free cash flow generation. Growing sustainably is important to our JetForward strategy, and we have pursued various initiatives to balance growth, optimize earnings, and preserve capital across our fleet types. With our A320 fleet, we had planned to restyle all 10 of our remaining A320 classes to mitigate AOG capacity pressure. Given the improved AOG forecast, we have decided to pause the restyling of 4 aircraft and will instead park them after the summer peak as previously communicated to our crew members. As we manage growth and balance sheet health, we have also decided to sell our two upcoming XLR deliveries. As a reminder, last year, we deferred roughly $3 billion worth of aircraft deliveries into the 2030s, including the majority of our A321 order book. Inducting these XLR deliveries would result in a costly orphan fleet of two aircraft for the remainder of the decade. Lastly, as previously announced, we will officially end E190 flying at the end of this summer, simplifying our fleet from three to two types, the Airbus A220 and A320 families. The A220 replaces our E190s and offers higher gauge with 90% greater premium seat exposure and better fuel efficiency, resulting in a 25% to 30% improvement in direct operating cost per seat. We took delivery of our 50th A220 earlier this month, and the fleet type represents the majority of our order book through 2029. For our E190 fleet, I'm pleased to announce we now have binding sale agreements for all 25 owned E190 aircraft and engines. The transition began in the third quarter and will continue through the first half of 2026. Altogether, our revised fleet plan will enable sustainable and capital prudent capacity growth through the remainder of the decade. Starting in 2026, we anticipate CapEx will decline steadily through the end of the decade, commensurate with our delivery schedule, and trend below $1 billion annually. The fleet actions will also help to preserve liquidity in the short term. And in the second quarter, we ended with $3.4 billion in liquidity, excluding our $600 million undrawn revolver. This represents 37% of trailing 12-month revenue compared to our liquidity target of approximately 20%, and we remain on track to end 2025 in excess of our target. Turning to Slide 12 for our second quarter cost results and third quarter outlook. The second quarter was another strong quarter for cost performance, driven by our operational execution and the progress of our JetForward cost transformation program. The team successfully mitigated pressures from closing capacity adjustments to end the quarter with CASM ex-fuel up 6% year-over-year, better than our initial guidance of up 6.5% to 8.5%. This marks the seventh consecutive quarter we have achieved or beaten our cost guidance. The beat is primarily from a better-than-expected completion factor for the quarter as well as timing shifts in fleet transactions. In addition to reducing capacity, we assessed our organizational structure and combined or restructured certain roles for greater efficiency at the leadership level. We also implemented across-the-board budget reductions at support centers and are closely assessing all spending. A portion of the beat was attributable to these cost actions during the quarter, as we took steps to respond to the evolving demand environment. As part of our efforts to return focus to our core business, we also announced the sale of assets from JetBlue Ventures to Sky Leasing. This unique transaction allows us to retain the upside of the investment portfolio and other benefits, including continued access to cutting-edge companies with greatly reduced costs. We expect to begin realizing these savings over the second half of this year. For the third quarter, we expect CASM ex-fuel to be up 4% to 6%, with approximately 3 points driven by maintenance and roughly 2 points from crew member wages, as we fully lap the pilot wage increases from last August. Additionally, our third quarter CASM ex has been pressured by a difficult operation in July, representing a 1-point CASM ex headwind from overtime premium wages and other disruption-related expenses. Our guidance assumes a more typical operating environment for August and September. Also for the third quarter, there are roughly 2 points of CASM ex benefit driven by fleet transactions, the majority of which is the gain on sale from a portion of our E190s. We expect jet fuel to be in the range of $2.50 to $2.65 per gallon over the quarter, and we currently have no fuel hedges in place. For the full year, we remain focused on controlling what we can, and I'm pleased to announce we expect full year CASM ex-fuel of up 5% to 7% year-over-year on 1.5 fewer points of ASMs at the midpoint of our guidance. This reinstates our initial unit cost guidance from the onset of the year despite lower capacity, illustrating the benefits of our strong operations and cost reduction programs. At the same time, our full-year interest expense remains unchanged at $600 million, and our new capital expenditure forecast for 2025 is $1.2 billion, down slightly from our prior guidance. We are working tirelessly to deliver value to our owners, customers, and crew members. And we remain confident that JetForward is the right plan to get us there. We have the team, the strategy, and the runway in place to drive transformational change, and we're already seeing clear tangible results in our operations, in customer satisfaction, and on our path back to profitability. Thank you, and we will now open it up for questions. Back to you, Abbey.

Our first question comes from Dan McKenzie with Seaport Global.

Great job on the second quarter. A couple of questions here. If I could just start with growth from diminishing AOG starting in 2026. Wondering if you can just help us size the pace of that growth that we should expect? And just related to this, how much larger could JetBlue be today without adding pilot headcount?

Thanks for the question. Given all the puts and takes with the fleet, we tried to lay out all the transactions that essentially are delivering us to be able to grow low single digits starting in 2026 through the end of the decade. So we're extremely pleased with the improvement in the AOG forecast, which we will complete and be through by the end of 2027. And then, we've been trying to optimize the rest of the fleet, whether it be retiring E190s, simplifying it by selling the two XLRs, and then deferring just some resales. So we landed on this low single digit. Obviously, we're willing and able to respond to the macro backdrop over that time frame and increase capacity slightly or decrease capacity to better match the outlook based on the demand environment. So that's the trajectory. Obviously, we're extremely pleased to be able to see the light at the end of the tunnel in terms of the AOGs, because this has been a material headwind for JetBlue. And I do believe that when the macro environment continues to improve, this will be a tailwind for us.

If I could just add on the pilot question, we have a sufficient number of crews. We've been managing the challenges with AOG through a series of voluntary programs across both our pilots and our in-flight and our airports. And so the benefit of the voluntary program is that because we knew the AOG issue was transient in nature, we will be able to sort of adjust our staffing levels appropriately as these aircraft come back into service.

Yes. Very good. Marty, if I could go to JetBlue's 51 Partners. I remember when JetBlue first began adding partners, the stat you would share with us all was that these partnerships were filling the equivalent of two to three planes per day. I'm just wondering, where is that stat today? And then related to that, is there less international inbound today that you would expect to come back in 2026 and '27? And roughly how many percentage points of RASM can that increase connectivity typically drive?

We currently have 51 partners and operate in several key cities, and we're pleased with our partner portfolio. The partnership with United is particularly significant for us, and we're excited about the value it will bring to TrueBlue and Paisly. I see a lot of potential in this development. Daniel, I recall your earlier comments regarding the number of flights filled, and at that time, there was skepticism about low-cost airlines forming partnerships. Now, it's a widely accepted concept, even among ultra-low-cost carriers. We no longer view it in the same light since we've demonstrated that partnerships effectively benefit us. Our advantage lies in being the preferred option for international airlines seeking access to the U.S. interior, especially if they are not part of SkyTeam. JetBlue remains their best choice for entering the interior of the U.S. Many of our partnerships are a reflection of our strong presence in the marketplace. We're also enthusiastic about collaborating with Star Alliance partners, who will value our connectivity into the East via New York and Boston. Overall, the JetBlue model has evolved since I first joined in 2006, and aspects that were once questioned are now standard practice among low-cost airlines. We're proud of our partnerships and enjoy working with our partners, and I see a lot of potential ahead.

Our next question comes from the line of Tom Fitzgerald with TD Cowen.

I'm just kind of curious, just looking at the different buckets for JetForward, the four priorities. Are you able to provide any color about how, as you go from the 180 to the 290, which are the four buckets, what you expect the contributions to be?

Yes. I can take that. I think, in general, it's kind of spread evenly across the four buckets. I think as you think about the back half of the year, network ramping continues to be a meaningful driver. Most of the change we made in the network relapsed Q3 last year, and they're nicely in ramp, but we've got a ways to go. So pleased with the progress. As we mentioned, we've realized $180 million of EBIT cumulatively, $90 million in the first half. We'll see another $110 million through the year-end for a total of $290 million by the end of this year. And we have very clear proof points across each one of the priority moves that JetForward is working. But it is a multi-year plan, and it's going to take some time to realize the full benefits of it.

Okay. Great. That's really helpful. And then just as a follow-up, I'm just wondering if you mind providing any more color on just kind of customer trends like by the different segments over the course of 2Q and then just quarter-to-date, what you have kind of on the books, whether by core leisure, VFR, TrueBlue loyalty members, corporates?

Tom, I'll take that one. Thanks for the question. As far as what we're seeing, a lot of what we're seeing is similar to what we've heard from other airlines in their calls, definitely doing better for international than domestic, definitely doing better for premium versus the basic-type customers. So I think we're sort of consistent with what we're seeing. We continue to see good numbers at TrueBlue. And we talked about some of the numbers as far as the growth of the credit card, our remuneration. I think overall, the trends are actually good. I think the most important trend is one that I give all the credit to our crew members for is our Net Promoter Score. The last report we had done for Net Promoter Score, we were at the top of the industry for NPS. And frankly, we've come a long way in the last 3 years. So from that perspective, I sort of look at that as the front third of the drink, so to speak, if we can use the baseball analogy. Because without a great customer experience, we can get these customers on board once but they may not come back. But I had great gratitude for our crew members providing just amazing service so that the customers who do fly JetBlue are really happy and hopefully come back. And frankly, I'm looking forward to having our partnership customers, whether United or Lufthansa or whoever ends up being a partner, come to fly JetBlue because, again, I feel like once you try us, once you'll recognize how much better JetBlue is, and you will very much appreciate the JetBlue experience and look for us in the future. I should have mentioned, you asked about business customers. In general, we have taken a pretty big hit to our business customer network year-over-year, because we've closed a lot of the business routes we flew at LaGuardia. Notwithstanding, our business revenue is basically flat quarter over year for the quarter. So I actually see it as a very good sign.

And our next question comes from the line of Jamie Baker with JPMorgan.

Marty, a question on JetBlue. Do you have a view on where they fly with their 7 daily frequencies? I mean, I'm assuming it's Transcon as opposed to, I don't know, flying at Dallas or something like that from JFK. So if it is Transcon flying, have you modeled for that increased competition as part of your overall Blue Sky estimate?

Jamie, this is Joanna. I'll take that. So as you know, it will be illegal for us to discuss with our partner where they may intend to fly the JFK slot. So we have not had those conversations, nor do we intend to. Obviously, we've made certain assumptions in our model as to what the impact of United flying those slots may be and that is included in the value of the overall deal. There's obviously a series of puts and takes. United was obviously addressed in the slots, and there is an impact to JetBlue if they operate those slots to a variety of different markets. At the same time, selling the JetBlue network over United.com has a very important revenue benefit for JetBlue. Likewise, the utility of the TrueBlue program and giving our customers global access, as you know, we sort of focused our own network on trying to drive scale in the Northeast. This is about trying to give scale to our customers to a global network. And then Paisly is sort of the real upside here in terms of the unique opportunity for us to basically provide a white-label platform for United to sell its non-air ancillaries in the future.

Okay. Perfect. And then maybe, Marty, this is one for you. And maybe it's too early to ask this question, but you're obviously aware that certain struggling discounters are trying to lean into premium. I mean, it's more of a legroom exercise really. But in any case, in overlap markets, have any of those new products that have begun being sold by your competitors having any impact on your results?

Jamie, that's a great question. I can assure you that we have not felt any impact from these so-called premium products that our competitors are offering. When you consider our 15 to 20 years of experience, including providing more legroom in our premium offerings, we have built strong credibility with our customers. While some may attempt to replicate this in a low-cost carrier environment, I genuinely believe they don't come close to what we've delivered for the past two decades. To paraphrase Harry Truman, when customers choose between a genuine premium product and an imitation, the genuine products will prevail, and that's exactly what we are observing now. We recently announced growth in Fort Lauderdale, where our primary competitor is a low-cost carrier, which exemplifies our strong performance in that market. We are essentially the only non-low-cost carrier option in Fort Lauderdale, and we compete very well with the hub airport just a few miles away. Additionally, I want to bring attention back to JetForward. We are continuously improving our premium offerings; we have relaunched EvenMore with an enhanced customer experience, and importantly, we are set to introduce our domestic first-class product next year. Despite our success in the premium segment and the positive revenue outcomes, we are not complacent. We are excited about the upcoming domestic first-class product, and I believe the timing is ideal. We are seeing a significant demand at both ends of the spectrum, and we are well-positioned to capture that interest at the higher end of the market.

I appreciate that. It actually was some of those Fort Lauderdale ads that you announced that actually got me wondering about it. And I obviously share your skepticism.

Maybe you went to the lounge. Maybe we'll let you into the lounge the same day.

And our next question comes from the line of Savi Syth with Raymond James.

If I might follow up on Dan's earlier question on the capacity growth in 2026, a little bit more. Just how much of that growth is coming from reversals of AOG and even in 2027? I'm just trying to get a sense of just how much of this, at least the very near-term growth in the next couple of years might be highly efficient from a cost perspective?

Yes. Thanks for the question, Savi. I mean, the majority of the projected growth is driven by the improvements in AOGs. I mean, if you take a step back, our original guidance for this year was that we would have mid- to high teens number of aircraft on the ground, and we're now trending lower than 10 on average for the full year. We believe that this year is the peak. So as we navigate through 2026, that will come down over time and be complete by the end of 2027. I think one of the major benefits here is gaining some efficiency on the unit cost growth trajectory. Obviously, we've been pressured in not being able to grow over the last 2 years. And so this should give us a level of efficiency on the cost side of the equation. So again, I'm hopeful that the macro backdrop is going to continue to improve. And when that does, this is going to be a tailwind for us, not only on the growth side, the cost side but just from a true profitability perspective.

I appreciate that. I would like to ask if you could discuss what you’re observing in the competitive landscape and whether the current environment is leading to any changes in the behavior of your competitors.

It's a good question. Honestly, I wouldn't consider it anything unusual in the competitive landscape right now. We are closely monitoring the pull downs we're observing in the ULCC sector, and we have responded with some of the recent growth reports. It's also important to understand the potential trajectory of industry capacity because we're still unclear about the growth rate for the rest of the year, which is crucial for setting expectations. Overall, I'm not noticing any significant changes in behavior that I would highlight. Joanna, do you see something different?

No.

No. I think we're focused on the changes that we are implementing in the original JetForward and all the network changes we've been working on. We're really concentrating on that right now.

And our next question comes from the line of Mike Linenberg with Deutsche Bank.

I want to revisit your point about the increase in close-in bookings and whether this trend is temporary or more permanent. As JetBlue introduces a first-class product next year, it seems likely that you will regain your share of the corporate market. Are we recognizing a significant shift here?

Mike, that’s an insightful question. We reflect on this daily as we analyze the booking reports, especially since we noticed the uptick. However, I don’t think any of us are ready to label this as a lasting change, which is why we are exercising caution with our guidance. From our research, I believe a significant part of this is related to consumer sentiment, with customers being more cautious due to the broader uncertainties surrounding tariffs and other issues. I can’t pinpoint the exact factors driving this, but it does seem like people are waiting longer before finalizing their bookings. It’s interesting to note that we didn’t really observe this trend in April; it was more around mid-May when Memorial Day bookings began to rise. We experienced a much better than expected Memorial Day, and that momentum continued into June. It appears that consumers took their time before making their final choices, but I wouldn't categorize this as a permanent shift in booking behavior.

Okay. Great. And then just my second question, Joanna mentioned the $50 million incremental EBIT from the United partnership. What was the initial amount you had for partnerships in the original JetForward plan? I'm trying to understand the total size of the United contribution.

Yes, thanks, Mike. Yes, we haven't broken out the total amount. As we've said before and JetForward, there's a number of puts and takes that we're only focused on kind of the contribution of each of the priority moves as a whole. So the $50 million incremental EBIT is largely associated with the benefits from Paisly as part of the United partnership, but we haven't broken it out. You should expect kind of full run rate by 2028 for BlueSky. It takes some time to implement it, and it will be staged with benefits coming over the course of the next couple of years.

And our next question comes from the line of Catherine O'Brien with Goldman Sachs.

Marty, maybe just one more on the revenue environment. Can you just talk about RASM between the months of the second quarter? And then what's underlying the monthly progression for the third quarter guide? Anything you can provide on book yields or loads? And with bookings fairly close in, as you've been talking about, how are you going about your September forecast?

Catie, I appreciate your questions. They were insightful. Regarding our progression, we saw acceleration, particularly from Memorial Day onward, which was quite significant. As you noticed, we exceeded expectations in the second quarter. If you had asked me that on April 30, I doubt anyone would have anticipated such a strong performance. However, by mid-May, we started to see positive developments that continued through July and August. This period represents one of the longest peak seasons of the year. Many airlines have pointed out the substantial gap between peak and trough demand. While we do experience troughs, our load factor will be lower in the third quarter compared to the previous year, and the troughs are weaker than the peaks. Overall, though, we are experiencing strong peak demand. In September, we've actively managed our capacity and reduced off-peak availability. With the voluntary leave programs Joanna mentioned, we are doing our best to control costs this month. I'm proud that we've consistently met our cost guidance for seven consecutive quarters despite changes and challenges, which speaks to our effective cost management even with last-minute schedule adjustments. I believe we are well-prepared for the third quarter guidance we've provided. Currently, September is projected to have the highest year-over-year RASM increase among the three months in the third quarter, indicating successful capacity management. I'm feeling very optimistic about that.

That's great. Maybe one for you, Ursula. With all the fleet updates driving low single-digit growth through the end of the decade, how should we be thinking about your historical comments on low single-digit growth, driving mid-single-digit CASM ex? Should that be better over the next couple of years as JetForward initiatives ramp?

Yes. Thanks for the question. Yes, previously we've highlighted mid- to high single-digit growth will result in a flattish CASM ex-fuel. So if you just triangulate low single-digit growth rate. Obviously, the unit cost performance will be higher than flattish. I'm extremely pleased with the cost performance that the team has been executing to. I mean, at the highest level, we've maintained the unit cost growth guide that we gave last in January despite pulling capacity over 1.5 points. So we're finding ways to take cost out of the business. And some of these decisions have not been easy, between divesting the JetBlue Tech Ventures assets as well as additional budget targets and going through a corporate headcount support center review, like these are tough decisions, but we need to continue to deliver on cost. We've executed for 7 quarters in a row. And I do think the AOG outlook will provide us the improvements that we're seeing here on the AOG outlook will provide us further efficiencies as we build the unit cost growth target for 2026 and beyond.

And our next question comes from the line of Duane Pfennigwerth with Evercore ISI.

Just on the Travel Products business or Paisly business. Can you expand on how you kind of generate a margin in that business on your own bundle? What shape does that take? Is it commission-based? Is it kind of a third-party clearing house? Do you have negotiated agreements on room inventory? And then, maybe you could contrast again, high-level broad strokes the margin you make on one of your own customers versus the margin you'd make on a third-party airline customer like United?

Thank you for the question, Duane. It's a great topic to discuss Paisly, which has proven to be a fantastic product for both us and our customers. As indicated in our guidance, it will play a significant role in our recovery program moving forward and is crucial to BlueSky. To clarify how the financials work, Paisly focuses on selling our non-air ancillary products. This includes hotel packages through JetBlue vacations, stand-alone rental cars, travel insurance, and cruises, among others. We even sell theme park tickets connected to flight bookings. Interestingly, we have customers booking through Paisly without flights attached; for instance, we've sold cruises starting from Asia due to competitive pricing and the ability to earn TrueBlue points. The revenue model for Paisly is commission-based. We earn commissions from hotels, rental car companies, and insurance providers. We have a substantial number of hotel contracts, although we don't disclose exact figures, and we maintain a unique agreement with Airbus for rental cars. Overall, Paisly has been a strong profit generator for us, with EBIT margins in the 50s and approaching 60s. Moreover, it’s a low-capital business, primarily requiring minimal IT-related capital expenditures. We're especially enthusiastic about scaling this product with access to United customers. The airline contributes around 40 million leads annually to Paisly, and we will soon add a significant number from United's customer base. While we don't know United's margins with their current partners, they have determined that we can generate more profit for them than those partners. We will share the commission earnings with United but won't disclose the exact split publicly. We're confident in our expertise in this area. Our dedicated team operates separately in Fort Lauderdale, distinct from our New York headquarters, and our structure is designed to allow for a white-label service for various brands. We are also engaged in discussions with other airlines beyond United, and even some non-airline entities. We believe this team is highly capable and look forward to its continued contribution to our profitability.

And our next question comes from the line of Atul Maheswari with UBS.

In the fourth quarter, I understand you're not providing RASM guidance yet, but if demand remains at current levels, should we expect RASM to improve compared to the third quarter on a year-over-year basis? Specifically, will the fourth quarter show an improvement year-over-year versus the third quarter, assuming that demand stays constant? Or could it decline since it would be relative to the strength seen last December? Any directional insight based on your third quarter guidance would be appreciated, assuming fourth quarter demand aligns with your third quarter expectations.

Okay. Atul, thanks for the question. I'm not even going to come close to approximately on the guide. So I'm going to answer your question very carefully because we've deliberately chosen not to guide the fourth quarter. And there's really two reasons. One of them is that when so much of the strength we're seeing in the third quarter is coming from close-in bookings, which is a new pattern for us, I don't know that we want to call that as a permanent change in the booking curve, number one. Number two, there's a lot of uncertainty as far as the ASMs that are going to be out there in the industry. I think if you look at what airlines have reported their growth was, that would give you one assumption on RASM. If you look at what's actually out there loaded and what practice has been as far as people are actually flying, that would give you a different number. And frankly, we are still offering a little bit too many ASMs in the fourth quarter. If you look at our annual guide for ASMs and look what's out there selling, it's right very easy to do the math that we have probably a little under 1 point of ASMs to pull in the fourth quarter that are still out there selling. So I think with the lack of visibility on both the pace of how permanent this change in booking patterns will be and also on whether the capacity cuts in the fourth quarter will go forward for the rest of the industry, I think it's too early to tell. That being the case, I think that what we've seen as far as the bigger performance in the second quarter and then on top of that, the progression in the third quarter, we're feeling very confident about where the revenue environment is as far as recovery. But I think it's way too soon to call the specifics of what you're asking for in the fourth quarter.

Yes. We have less than 20% booked for Q4. And so as we get a bit closer, we'll be in a position to provide an update.

Okay. Fair enough. And then as my follow-up, as you return to growth next year, where will this growth be concentrated, like what markets, geographies that you believe you're underserving today that could benefit from this growth? And related to that, how do you ensure that this growth does not cause any meaningful RASM dilution next year that could maybe offset some of the CASM ex benefit that you might get?

Yes. Thanks for the question. So we're not going to open the playbook and tell our competitors where we're flying next year. So I think we'll keep that close to the vest until we're ready to communicate more carefully what we're going to be doing with that flying. I think, in terms of your second question around how we're thinking about ensuring that the growth doesn't erode RASM and/or impact sort of that low single-digit cost trajectory. A few things, the growth is very capital-efficient. We already own these aircraft that are coming back into service. So there's very small costs associated with that as we think about it. If the environment doesn't improve or further degrades, we have a number of different levers we can pull to manage that growth. And I think if you look at what we've been doing this year, we've been doing just that. So we've reduced capacity, we've looked at making actions with the fleet, so we've taken 4 of our 10 classics and we're not going to be restyling those. We've also sold two XLRs, and then we can obviously adjust utilization up and down as the case may be. So I think we've got a track record of being pretty aggressive with the fleet to manage the demand environment, whether it's the sales that we've done or as we think about going forward, needing to manage capacity closer in. So we'll adjust as we need to. But the goal is this is very efficient growth because we already own these aircraft, and it should drive improvements to unit costs.

And our next question comes from the line of Ravi Shanker with Morgan Stanley.

Just a couple of follow-ups here. I think you said earlier in the call that you expect BlueSky to be implemented in stages. So how do you think about that kind of ramping in the next 2, 3 years? Is that going to be pretty lumpy? And kind of if you could give us some color on kind of when the next stage is going in? Or is it still going to be pretty linear?

Yes, maybe I'll just grab at a high level. So we're still working on the implementation plan with United. So I don't want to get into a ton of specifics. I will say the NEA has set us up pretty well; the Northeast Latin America and the technology we did behind that has set us up pretty well from a technology perspective. So you'll start seeing kind of earn and burn and interline sales come sooner. There's very little contemplated this year. Those will kind of layer in into '26, and then Paisly would come after that. There's some more technology needed to implement Paisly. Ultimately, we will not achieve, as I mentioned, kind of full year run rate until 2028.

Understood. And Marty, I think you were talking about next quarter and kind of how a lot of capacity has come out and you've taken a lot of trough capacity. But again, just going back to the kind of a little bit of a blindsiding the industry got in February and March and a lot of that came from close-in weakness. Is that a risk that after a pretty decent kind of peak season with summer that close-in continues to kind of resume that drop off, if you will, in the third quarter? And if so, kind of, do you think the industry is taking out enough?

Ravi, we understand the historical patterns of seasonality. The key question is whether economic sentiment and customer sentiment will decline, but I don't see any signs of that happening. We find the close-in nature to be somewhat different, which makes us a bit cautious, but we're not anticipating a significant downturn. We've reviewed past major downturns in demand, like the world financial crisis and 9/11, and they've followed a fairly predictable pattern. We previously expected demand to rebound in the fourth quarter based on historical trends, but we are already seeing signs of recovery in the third quarter. Therefore, I don't have major concerns at this stage, though I'm more worried about capacity than demand. We're monitoring the situation closely. We have a solid base of bookings for the fourth quarter, but there's still a lot to secure, so I don't want to jump ahead too quickly.

Yes, if I could just add. I mean, I think we were the first to call it this year when we saw it, and we made very, very quick steps to try to drive cost savings out of the business and reduce capacity. And so we've got a playbook so that we can try to make the business as flexible as possible when we do see step backs in demand. And so I think if you look at what we did in kind of Q1 and into Q2 around reducing capacity, reducing discretionary spending, and other cost savings measures, I think we're always focused on how we can try to keep the business as agile as possible in an industry that is more difficult to pull some of those costs out closer in.

And our final question comes from the line of Conor Cunningham with Melius Research.

I appreciate that you're not providing fourth-quarter guidance due to the dynamic nature of the situation. However, I would like your thoughts on the capacity setup for the fourth quarter, especially considering that last year was unusual because of the election. Reflecting on last year's progression, October and November were quite weak, but December experienced a significant rebound post-election. My main concern is that many people fear an oversupply in the fall, particularly with RASM showing some signs of improvement. Could you please discuss the expected supply situation as we approach the end of this year and how you anticipate everything will unfold?

Thanks, Conor. This is a significant concern for us as we approach the fourth quarter. I can only share my perspective, as I'm not privy to our competitors' plans. While I’m aware of their statements, their actions often differ. We aim to be consistent in what we communicate and deliver. Currently, we have increased capacity for the fourth quarter, which will be available soon. We’ve provided guidance for ASMs for the year, which allows for calculating the fourth quarter's figures; that's our plan. Assuming demand remains stable, our ASM planning reflects the anticipated demand. Over the past year, we have made impressive strides in our network, especially with changes related to JetForward and targeting peak versus trough times aggressively. I am truly appreciative of how our team has met our cost targets despite significant ASM adjustments on some midweek days. We now feel confident in pursuing margin-enhancing activities while managing costs. The fourth quarter tends to be a low-demand period, especially in October, mid-November, and mid-December. We are focused on maximizing capacity during these times. I’m not hinting at specifics, but we have effectively managed our troughs. If the current peak demand trends continue, I'm eager to see how this shapes the fourth quarter. However, we must recognize that we are a smaller airline, and our ASMs won’t significantly affect industry-wide RASM compared to the major players. We'll need to observe their actions before drawing any conclusions.

That's really helpful. I have a question for clarification. Ursula, regarding the 2-point benefit to CASM excluding from the fleet changes, is that related to a sale? Are you recording a gain that will eventually be considered a contract expense? I want to understand the transition as we move from the third quarter to the fourth quarter. I assume there is also some sort of simplification benefit, but any insights on that would be useful.

Yes. So here's some color on the fleet transaction. So on a full year basis, we're actually going to have a gain across all these asset sales to the tune of 1.25 points of CASM ex benefit on a full-year basis, okay? And so then you back up. And in the second quarter, we actually outperformed on the CASM ex guidance, and about 0.5 point was driven by a gain on sale of these assets. So when I say assets, we got a multitude of different assets that we've been selling, right? It sees XLR two aircraft, it's the E190s. And then we've also been doing some sale leasebacks on engines as well. So quite frankly, those assets are being pretty well received by the market. And so we're hence booking gains above and beyond what we had anticipated. So it was 0.5 points in the second quarter, we've obviously got 2 points in the third quarter. And then on a full-year basis, to round it out, at 1.25 points.

And ladies and gentlemen, that will conclude today's call, and we thank you for your participation. You may now disconnect.