JetBlue TrueBlue - JetBlue Airways Reports January Traffic

JetBlue Airways Reports January Traffic
NEW YORK, Feb. 5 /PRNewswire-FirstCall/ -- JetBlue Airways Corporation (Nasdaq: JBLU) reported today that its traffic in January decreased 7.1 percent from January 2008, on a capacity decrease of 5.1 percent.

Load factor for January 2009 was 74.0 percent, a decrease of 1.6 points from January 2008. JetBlue's preliminary completion factor was 98.4 percent and its on-time (1) performance was 74.7 percent. JetBlue's preliminary passenger revenue per available seat mile for the month of January increased 15 percent year over year.


JetBlue Airways Reports January Traffic (http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol-newsArticle&ID=1252694&highlight=)

Exceptional PRASM numbers. Even more unbelievable considering the current economy.

Exceptional PRASM numbers. Even more unbelievable considering the current economy.Not surprising given the heavy increase in B6's fares over the past year...

Not surprising given the heavy increase in B6's fares over the past year...

I think it reflects the cuts in ASMs rather notably, too. Fewer, shorter flights makes for higher RASM in many cases. But was it enough to actually be profitable? The CASMs are going up because fixed costs cannot be spread across as many flights. That hurts them.

I think it reflects the cuts in ASMs rather notably, too. Fewer, shorter flights makes for higher RASM in many cases. But was it enough to actually be profitable? The CASMs are going up because fixed costs cannot be spread across as many flights. That hurts them.Excellent point, although clearly the variable cost factor of fuel is going to be in their favor.

Excellent point, although clearly the variable cost factor of fuel is going to be in their favor.

But will that be enough? As ASMs have been dropping the CASMs have been increasing at a pace greater than fuel costs have been increasing. I'm not sure that the dropping fuel prices will be sufficient to offset the other costs. I also believe that Barger mentioned something about the increased operating costs associated with shorter stage lengths in the last quarterly call, but I don't have the transcripts handy to find out.

But will that be enough? As ASMs have been dropping the CASMs have been increasing at a pace greater than fuel costs have been increasing. I'm not sure that the dropping fuel prices will be sufficient to offset the other costs. I also believe that Barger mentioned something about the increased operating costs associated with shorter stage lengths in the last quarterly call, but I don't have the transcripts handy to find out.Please excuse me if you already explained it in another post, but what is driving this meteoric increase in CASM's?

Please excuse me if you already explained it in another post, but what is driving this meteoric increase in CASM's?My understanding is that there are a number of fixed costs, like airplane leases, gate leases, etc. that get amortized over the entirety of fleet operations as part of the CASM calculation. With fewer flights there are fewer ASMs to amortize those costs over, so the CASM goes up, even though some costs (fuel, in-flight crew pay) goes down overall.

For simplicity of math let's assume 100 flights a day that each seat 100 passengers and that each flies a 1000 mile route. That is 10,000,000 ASMs. If you cut 15% of the capacity (now down to 8,500,000 ASMs) you still have a very high fixed cost structure that you have to account for. And those fixed costs haven't really changes. That raises part of your CASM pretty significantly. If fuel and crew are ~40% of the operating costs (and that is probably close based on fuel prices these days) that other 60% of the costs are now borne by 15% lower ASMs and that drives those CASMs up.

Using my same fictitious ASM numbers from above, let's extend it with a 10 cent CASM split 60/40. That's a $1MM operational cost daily when at full capacity. When running at 85% I have 8.5MM * 4 cents and 10MM * 6 cents as the non-operating expenses haven't decreased. So that's $600K on the non-operational side and $340K on the operational side, for a total of $940K operational cost. Amortized over 8.5MM ASMs you actually end up with a CASM of just over 11 cents, a 10% increase.

Again, the numbers I'm using are fictitious, but the concept is generally sound, I believe.

Also, the longer the flight the lower the CASM (to a point) as take-off and landing burn more fuel than cruising. So shorter segment lengths cost more. And B6 is shrinking their segment lengths as they shift from transcons to the Caribbean market. I know that this adjustment was mentioned in the last quarterly call as increasing costs.