Jetblue Airways Corporation · NASDAQ:JBLU
Jetblue Airways — Investor Day (October 2018)
57 slides from Jetblue Airways's investor day presentation, Oct 2, 2018
Slide 1: JetBlue Investor Day
jetBlue INVESTOR DAY October 2, 2018
Slide 2: Safe Harbor
SAFE HARBOR This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Excha
Slide 3: Agenda: 2018 Investor Day
AGENDA: 2018 INVESTOR DAY 8:30 am – 9:20 am Robin Hayes, Chief Executive Officer • Introduction Marty St. George, EVP Commercial and Planning Andres Barry, President, JetBlue Travel Products • Our Competitive Advantage • Building Blocks: Network & Product Offering 9:20 am – 9:40 am Question & Answer
Slide 4: Robin Hayes, CEO
ROBIN HAYES CEO
Slide 5: Key Takeaways from Today
KEY TAKEAWAYS FROM TODAY 1. JetBlue’s differentiated business model and culture creates opportunities for accretive growth. 2. Since 2014 we’ve continued our journey to improve absolute and relative margins. 3. We believe our ‘Building Blocks’ will improve our margins and returns, and power meaningf
Slide 6: A Different Approach to the Traditional Low Cost Model
A DIFFERENT APPROACH TO THE TRADITIONAL LOW COST MODEL COMPETITIVE ADVANTAGE Differentiated Low High-Value Product & Costs Services Geography OUTCOME Produce Inspiring Create Returns for Culture for Value for Owners Crewmembers Customers SAFETY CARING INTEGRITY PASSION FUN 6
Slide 7: Taking the Next Steps in Our Journey to Superior Margins
TAKING THE NEXT STEPS IN OUR JOURNEY TO SUPERIOR MARGINS 20% 15% (1) 10% Peers Tax Margins Tax - Non-GAAP(2) A220, Mint, Pre 5% Ongoing Cost JetBlue Fare Options, Structural Cost 2018 Building Efforts, JetBlue BASELINE MACRO Restyling, Mint Program Blocks Travel Products ASSUMPTIONS* 0% • Oil: $2.33
Slide 8: Our Building Blocks Drive Significant EPS Growth
WE BELIEVE OUR BUILDING BLOCKS DRIVE SIGNIFICANT EPS GROWTH Product Network Fleet Cost Capital Offering Allocation 8
Slide 9: Marty St. George and Andres Barry
MARTY ST. GEORGE EVP COMMERCIAL AND PLANNING ANDRES BARRY PRESIDENT, JETBLUE TRAVEL PRODUCTS
Slide 10: JetBlue is the Low-Cost Carrier for the East Coast
JETBLUE IS THE LOW-COST CARRIER FOR THE EAST COAST 25% of US 31% of US 44% of US Revenue Revenue Revenue Unit Revenue* Percent of US ASMs on East Coast 12.97 100% +9% 80% 60% 11.95 40% 20% 0% JetBlue Leading West Coast LCC Sources: For US regions, all non-directional O&D revenue touching the US; DDS
Slide 11: Network and Product Offering Add Cents in 2020 EPS
WE BELIEVE NETWORK AND PRODUCT OFFERING ADD 65 - 95 CENTS IN 2020 EPS $ EPS Focused Growth Network Maturation 30 – 40 cents NETWORK Network Reallocation Customer Segmentation 35 – 55 cents Loyalty PRODUCT PRODUCT OFFERING JetBlue Travel Products 11
Slide 12: Building Blocks Drive Significant EPS Growth: Network
WE BELIEVE OUR BUILDING BLOCKS DRIVE SIGNIFICANT EPS GROWTH Product Network Fleet Cost Capital Offering Allocation Focused Network Network Growth Maturation Reallocation 12
Slide 13: Network: Focused Growth
NETWORK: FOCUSED GROWTH WE HAVE OPPORTUNITIES TO BUILD RELEVANCE AND IMPROVE RASM IN OUR FOCUS CITIES UNIT REVENUE* PREMIUM BY SEAT SHARE 50% • Targeted growth in our Focus Cities 40% increases utility, drives higher revenue performance, higher margins and EPS 30% 20% • Other carriers have achieved
Slide 14: Network: Maturation
NETWORK: MATURATION GROWTH IN BOSTON AND FORT LAUDERDALE HAS IMPROVED OUR REVENUE PERFORMANCE BOSTON FORT LAUDERDALE 27% 22% 22% 18% 15% 12% PRASM vs Main Competitor JetBlue JetBlue PRASM vs Main -3% Seat Share Seat Share Competitor -11% • JetBlue’s PRASM has improved • JetBlue generates consistent,
Slide 15: Network: Reallocation
NETWORK: REALLOCATION NETWORK REALLOCATION EXPECTED TO ADD FURTHER BENEFIT TO RECENT WEST COAST ADJUSTMENTS NETWORK CHANGES IMPACT 2020 Run Rate Revenue Benefit • Limited relevance and low margins • Markets not meeting expected ramp • Intra-West and short haul flying REDUCTIONS • High margin existin
Slide 16: Building Blocks Drive Significant EPS Growth: Product Offering
WE BELIEVE OUR BUILDING BLOCKS DRIVE SIGNIFICANT EPS GROWTH Product Network Fleet Cost Capital Offering Allocation JetBlue Customer Loyalty Travel Segmentation Products 16
Slide 17: Product Offering: Value Proposition and Unit Revenue
PRODUCT OFFERING OUR VALUE PROPOSITION TRANSLATES INTO SOLID REVENUE PERFORMANCE VALUE PROPOSITION UNIT REVENUE* Differentiated Product & Services 14.37 12.97 11.94 8.99 JetBlue Legacies LCCs ULCC • Our value proposition, aligned to a high value geography, generates higher RASM *Total RASM, stage-ad
Slide 18: Product Offering: Customer Segmentation, Fare Options 2.0
PRODUCT OFFERING: CUSTOMER SEGMENTATION FARE OPTIONS 2.0 WILL PROVIDE DISTINCT OFFERINGS TARGETED AT SPECIFIC CUSTOMER SEGMENTS Highly Price Higher Spend Conscious Customers Customers Fare Options 1.0 BLUE BLUE PLUS BLUE FLEX • Standard JetBlue • Adds one checked • Greater flexibility offering bag •
Slide 19: Product Offering: Customer Segmentation
PRODUCT OFFERING: CUSTOMER SEGMENTATION GETTING THE RIGHT PRODUCT, AT THE RIGHT PRICE, TO THE RIGHT CUSTOMER, AT THE RIGHT TIME Improved Revenue • Developing better inventory and pricing tools Management • Improving forecasts of customer demand and willingness-to-pay Tools Dynamic Offer • Laying fou
Slide 20: Product Offering: Loyalty
PRODUCT OFFERING: LOYALTY WE ARE FURTHER DEVELOPING OUR LOYALTY BUSINESS AS OUR NETWORK MATURES LOYALTY REVENUE GROWTH US$ million ~ $125m 2016 2017 2018E Original Forecast Incremental • Co-brand: continued strength in US acquisition, Caribbean growth • Optimized no fee/fee card mix • Points transfe
Slide 21: JetBlue Travel Products: Growing and Expanding the Portfolio
PRODUCT OFFERING: JETBLUE TRAVEL PRODUCTS: GROWING AND JETBLUE TRAVEL PRODUCTS EXPANDING THE PORTFOLIO Significant upside potential in Set up to succeed leveraging today’s portfolio JetBlue’s assets Customer Attach JTP Products OTA attach Why We Can Succeed Spend Rate* rate on B6 flights ~14% Loya
Slide 22: JetBlue Travel Products: Capital-Light Earnings Growth
PRODUCT OFFERING: FOCUSING ON TRAVEL SPEND BEYOND AIR, JETBLUE TRAVEL PRODUCTS ENABLING CAPITAL-LIGHT EARNINGS GROWTH Incremental Operating Income Car rentals Lending 2018 Today Insurance Ride sharing 2020 +$20-30m (focus on customer growth) Hotels Ground Activities transport 2022 +~$100m 22
Slide 23: Our Ancillary Offerings Continue to Show Strong Growth
PRODUCT OFFERING: CUSTOMER SEGMENTATION OUR ANCILLARY OFFERINGS CONTINUE TO SHOW STRONG GROWTH HISTORICAL* CURRENT $ per Customer $30 2018E CAGR ‘13-18E $29 Baggage* + Change fees ~$11.50 8.4% $28 Loyalty ~$8.00 13.1% $27 Even More ~$6.50 2.6% $26 ~$1.50 9.3% $25 Vacations ~$2.00 (10.3)% $24 Other**
Slide 24: Network and Product Offering: Timing
NETWORK AND PRODUCT OFFERING: TIMING NETWORK AND PRODUCT OFFERING CONTRIBUTION BUILDS THROUGH 2020 BEYOND BUILDING BLOCKS 2018 2019 2020 2020 Identified Network Network Reallocation changes Customer Recent Ancillary Fare Options Segmentation Changes 2.0 and Other Product Loyalty Offering JetBlue Tra
Slide 25: Question & Answer Session
QUESTION & ANSWER SESSION
Slide 26: Bonny Simi, President, JetBlue Technology Ventures
BONNY SIMI PRESIDENT, JETBLUE TECHNOLOGY VENTURES
Slide 27: JetBlue Tech Ventures: Investing in Tomorrow's Technology
JETBLUE TECH VENTURES WE ARE INVESTING IN TOMORROW’S TECHNOLOGY TO ENHANCE JETBLUE TODAY Silicon Valley 27
Slide 28: JetBlue Tech Ventures: Enhancing JetBlue's Ecosystem
JETBLUE TECH VENTURES … AND TO ENHANCE JETBLUE’S ECOSYSTEM INTO THE FUTURE 40% support JetBlue in 60% impact Increase < 2 years 2-10 years Revenue Technology- FutureFuture of of InnovationInnovation in Seamless Technology Evolving Powered MaintenanceMaintenance Distribution,Distribution, Customer to
Slide 29: Joanna Geraghty and Steve Priest
JOANNA GERAGHTY PRESIDENT AND CHIEF OPERATING OFFICER STEVE PRIEST EVP CHIEF FINANCIAL OFFICER
Slide 30: Fleet and Costs Could Add Cents of EPS Growth
WE BELIEVE FLEET AND COSTS COULD ADD 40 - 55 CENTS OF EPS GROWTH $ EPS A320 Restyling A321 Mint 10 - 15 cents FLEET A321 All-Core On-Time Performance 30 - 40 cents COST Structural Cost Program 30
Slide 31: Building Blocks: Fleet
WE BELIEVE OUR BUILDING BLOCKS DRIVE SIGNIFICANT EPS GROWTH Product Network Fleet Cost Capital Offering Allocation A320 A321 A321 Restyling Mint All-Core 31
Slide 32: Fleet: Overview
FLEET: OVERVIEW WE ARE RESHAPING OUR FLEET TO IMPROVE RETURNS 2000* 2005* 2013* 2019* 2020* & BEYOND A320 E190 A321 CEOs A321 NEOs A220s • Largest fleet • Helped build • Largest aircraft • Adds fuel • Flexible relevance in efficiency platform • Restyling BOS markets • New “Core” program to add produ
Slide 33: Fleet: A320 Restyling
FLEET: A320 RESTYLING WE EXPECT A320 RESTYLING WILL IMPROVE MARGINS AND RETURNS % A320 FLEET RESTYLED ASM CONTRIBUTION** ASM contribution is Program started late 2.3% back end loaded and 2017; ramping up 100% goes beyond 2020 according to schedule 78% 53% 1.1% 1.0% 25% 0.5% 8% 2% 1H18 2H18 1H19 2H19
Slide 34: Fleet: A321 Mint and All-Core
FLEET: A321 MINT AND ALL-CORE A321 IS A MARGIN BUILDER IN BOTH MINT AND ALL-CORE % OF SYSTEM ASMs MARGIN 35% All-Core Mint 30% Aircraft Aircraft 25% 20% 19% 16 pts 13% 15% 7% 10% 7% 15% 12% 14% 5% 2% 3% 5% 0% 2014 2015 2016 2017 2018E 2014 2015 2016 2017 All-Core Mint SystemA320s (ex-321)& E190s • A
Slide 35: Building Blocks: Cost
WE BELIEVE OUR BUILDING BLOCKS DRIVE SIGNIFICANT EPS GROWTH Product Network Fleet Cost Capital Offering Allocation On-Time Structural Performance Cost Program 35
Slide 36: Costs: On-Time Performance
COSTS: ON-TIME PERFORMANCE ON-TIME PERFORMANCE INITIATIVES HELP MANAGE THE COST OF COMPLEX AIRSPACE ON-TIME PERFORMANCE VS UNIT REVENUE ON-TIME PERFORMANCE INITIATIVES 86% OA* Hubs & JetBlue Northeast • Focus to preserve margins during peak Focus City Airports seasons: 84% - Partnering with the FAA
Slide 37: Costs: Structural Cost Program
COSTS: STRUCTURAL COST PROGRAM STRUCTURAL COSTS: BALANCING PRODUCT AND COST SAVINGS COMPLETED INITIATIVES WORK IN PROGRESS AIRPORTS • Deployed self-service technology in 20 lobbies • Converting additional lobbies $55-65m • Implementing new catering business partner • Deploying insource strategy • Re
Slide 38: Costs: Structural Cost Program, Tech Ops and Corporate
COSTS: STRUCTURAL COST PROGRAM STRUCTURAL COSTS: ADDRESSING TECH OPS COST PRESSURES AND TARGETED CORPORATE SPENDING COMPLETED INITIATIVES WORK IN PROGRESS TECH OPS • Signed multiyear NEO engine deal • Negotiating V2500 RFP $100-125m • Signed enhanced CF34 LLPs – E190s • Negotiating heavy MX RFP – A3
Slide 39: Costs: Maintenance Largest Area of CASM Under-Performance
COSTS: STRUCTURAL COST PROGRAM MAINTENANCE HAS HISTORICALLY BEEN LARGEST AREA OF CASM UNDER-PERFORMANCE CASM EX-FUEL CAGR 2010-2016* CASM EX-FUEL CAGR 2010-2016* JetBlue LCCs 2.8% 2.6% SW&B, PS 3.6% 0.2% 2.4% Ownership** -1.0% -0.7% 1.7% Landing fees, other 0.3% -0.5% Sales & Marketing -1.0% -1.1% M
Slide 40: Costs: Initiatives to Tackle Maintenance Inflation
COSTS: STRUCTURAL COST PROGRAM BROAD INITIATIVES TO TACKLE OUTSIZED MAINTENANCE INFLATION MAINTENANCE CASM CAGR STRUCTURAL CHANGES TO ADDRESS HEADWINDS 2010-2016* • Long term contract on heavy maintenance: mutual Airframe 8% incentives for JetBlue + business partner to Repairs -1% become more effici
Slide 41: Costs: Long Term Effort on Engine Maintenance Cost
COSTS: STRUCTURAL COST PROGRAM LONG TERM EFFORT TO ADDRESS ENGINE MAINTENANCE COST PW GTF: A321NEO + A220 CF34: E190 V2500: A320 + A321 CEO Secure Predictability at Decision to Exit Contain Cost Competitive Cost Facilitate Transition Status: Status: Status: Active RFP • NEO deal / A220 MOU in
Slide 42: Costs: Summary, 0-1% CASM CAGR Goal
COSTS: SUMMARY WE EXPECT TO BE ON TARGET TO HIT OUR 0-1% CASM CAGR GOAL 0.5% - 2.0% 0.0% - 2.0% Structural Cost Structural Cost Program Program ASM Additional ASM Growth (lower) Growth (restyle) 0.0% - 1.0% ALPA A220 (2.5)% - (0.5)% 2018E 2019E 2020E 2018-2020 CAGR TARGET KEY ASSUMPTIONS • JetBlue A
Slide 43: Reshaping JetBlue Economics Beyond 2020
WE ARE ALSO RESHAPING JETBLUE ECONOMICS BEYOND 2020 Differentiated Revenue Cost Products and Enhancing Reducing Services Loyalty PRODUCT PRODUCT OFFERING JetBlue Travel Products A321 NEO FLEET A220 JetBlue Technology Ventures 43
Slide 44: Building Blocks: Capital Allocation
WE BELIEVE OUR BUILDING BLOCKS DRIVE SIGNIFICANT EPS GROWTH Product Network Fleet Cost Capital Offering Allocation Balance Capital Sheet Deployment 44
Slide 45: Capital Allocation: One of the Strongest Balance Sheets
CAPITAL ALLOCATION: WE HAVE ONE OF THE STRONGEST BALANCE SHEETS BALANCE SHEET IN THE AIRLINE INDUSTRY ADJ. DEBT/CAP; DEBT REPAYMENT BALANCE SHEET METRICS Trailing 12 months, as of 06/30/2018 Trailing 12 months, as of 06/30/2018 800 60% 55% 700 1.94x 50% 46% 600 40% 500 35% 29% 30% 400 30% US$ millio
Slide 46: Capital Allocation: Strong Balance Sheet, Return Excess Capital
CAPITAL ALLOCATION: WE MAINTAIN A STRONG BALANCE SHEET AS WE CAPITAL DEPLOYMENT RETURN EXCESS CAPITAL CAPITAL DEPLOYED SHARE REPURCHASES vs MARKET CAP* Trailing 12 months, as of 06/30/2018 Trailing 12 months, as of 06/30/2018 6.7% 6% 6.2% 27% 17% 8% 4.1% 73% 70% 2.0% JetBlue Peers JetBlue Legacy LCC
Slide 47: Capital Allocation: Capex Focused on Fleet Reinvestment
CAPITAL ALLOCATION: OUR CAPEX IS FOCUSED ON FLEET REINVESTMENT CAPITAL DEPLOYMENT CAPITALORDER DEPLOYED BOOK GROWTH-ACCRETIVE CAPEX US$ 34 33 $1.4 – 1.6 b $1.3 – 1.5 b $1.0 – 1.2 b 23 19 22 20 20 8 5 4 13 16 15 15 14 4 13 12 2 4 2 2018 2019 2020 2021 2022 2023 2024 2025 2018 2019 2020 A321 CEO/NEO A
Slide 48: Building Blocks Touch Nearly Every Aspect of JetBlue
OUR BUILDING BLOCKS TOUCH NEARLY EVERY ASPECT OF JETBLUE Product Network Fleet Cost Capital Offering Allocation Focused Customer A320 On-Time Balance Capital Maturation Loyalty Growth Segment Restyling Performance Sheet Deployment JetBlue Structural A321 A321 Re- Travel Cost Allocation Products Mint
Slide 49: Building Blocks Will Drive EPS Growth Over Time
WE EXPECT OUR BUILDING BLOCKS WILL DRIVE EPS GROWTH OVER TIME NETWORK PRODUCT FLEET COST CAPITAL OFFERING ALLOCATION 35 - 55c 30 - 40c 30 - 40c 10 - 15c > 7c Focused Customer A320 Structural Cost Capital Growth Segmentation Restyling Program Deployment Network Loyalty A321 On-Time Balance Maturation
Slide 50: Base Case Assumptions Translate to EPS Range of $2.50-$3.00
WE EXPECT OUR BASE CASE ASSUMPTIONS WILL TRANSLATE TO AN EPS RANGE OF $2.50 - $3.00 Optimistic $3.00 Macro NETWORK PRODUCT FLEET COST CAPITAL OFFERING ALLOCATION Consensus > 7c Midpoint $2.75 Macro 30 - 40c 10 - 15c Macro 35 - 55c $2.50 Headwinds 30 - 40c Consensus Macro Assumptions Average 2019-202
Slide 51: Building Blocks Will Improve Return on Capital
CAPITAL ALLOCATION: WE BELIEVE OUR BUILDING BLOCKS WILL IMPROVE OUR RETURN ON CAPITAL MARGINS AND PRODUCE HIGHER RETURNS NOPAT MARGIN ASSET TURNS ROIC ~10% 13.0% 1.13x ~1.1X 11.0% 7.3% 8.2% 2018 2020E 2018 2020E 2018 2020E NOPAT: Net Operating Profit after Taxes* Asset Turns: Revenue / Invested Capi
Slide 52: Recap of Our Investor Day
RECAP OF OUR INVESTOR DAY 1. JetBlue’s differentiated business model and culture creates opportunities for accretive growth. 2. Since 2014 we’ve continued our journey to improve absolute and relative margins. 3. We believe our ‘Building Blocks’ will improve our margins and returns, and power meaning
Slide 53: Question & Answer Session
QUESTION & ANSWER SESSION
Slide 54: Appendix: Note on Non-GAAP Financial Measures
APPENDIX: NOTE ON NON-GAAP FINANCIAL MEASURES JetBlue sometimes uses non-GAAP measures that are derived from the Consolidated Financial Statements, but that are not presented in accordance with generally accepted accounting principles ("GAAP"). JetBlue believes these non-GAAP measures provide a mean
Slide 55: Appendix: Macro Assumptions
APPENDIX: MACRO ASSUMPTIONS Variable 2019 2020 Average GDP 2.6 2.0 2.3 CPI 2.2 2.3 2.3 Jet Fuel ($/gallon) 2.32 2.34 2.33 SOURCES: GDP and CPI: • 2019: Blue Chip Average consensus (July 2018) • 2020: Bloomberg Jet Fuel: • 2019 Brent consensus (as of 09/10/2018) + Heating Oil/Brent Crack + US Gulf Co
Slide 56: Appendix: Definitions
APPENDIX: DEFINITIONS NOPAT: Net Operating Profit After Tax: [Operating Income + Interest Related to A/C Rent (@7.5% interest) + Interest Income] x (1-Tax Rate) Invested Capital: Shareholder's Equity + Long Term Debt & Capital Leases + Current Maturities/Short-Term Borrowings + 7x A/C Rent 56
Slide 57: 5757
5757