JetBlue Cost-reduction Push Eyes Maintenance Savings

Engine MRO spending among key areas targeted by growing carrier.

Reducing maintenance expenses and making them more predictable are key parts of JetBlue's long-term cost-cutting strategy, with several initiatives expected to help keep total annual unit-cost growth flat or slightly up in the next few years, the airline's executive say.

The New York-based carrier's management used its recent investor day to reiterate average annual cost-per-available seat mile excluding fuel (CASM-ex) growth targets of 0-1% through 2020. Annual projections are 0.5-2% CASM growth this year, flat to 2% growth in 2019, and a CASM decline of 0.5-2% in 2020. Its CASM-ex for the first half of 2018 was 8.40 cents, up 2.5% year-over-year.

While many of its maintenance-cost initiatives will not kick in that soon, a few are expected to help it rein in near-term unit costs. JetBlue spends about $800 million on technical operations each year--80% of which, or $640 million, is external. Annual maintenance unit cost compound annual growth rates (CAGRs) have been eye-opening: 16% for its Embraer E190 fleet and 13% for its Airbus A320-family aircraft from 2010-2016, the carrier said. Engine-maintenance CAGRs led the way, jumping 29% for the E190s and 24% for the A320s. JetBlue spends about $325 million per year on engine MRO.

One result of the carrier's runaway maintenance costs: a major increase in overall unit costs. JetBlue's CASM-ex rose 2.8% annually from 2010-2016. Factoring out maintenance, JetBlue's CASM-ex annual growth was 1.7%. U.S. legacy carriers, by contrast, saw maintenance costs fall slightly during that period, JetBlue said.

Part of the reason for the rapid maintenance-cost escalation in recent years: the growing carrier did not have the scale to secure favorable long-term maintenance agreements. With 250 aircraft in service and commitments for 150 more--including 60 Airbus A220-300s that are slated to replace the carrier's 60 E190s once a memorandum of understanding is finalized--that is no longer the case.

JetBlue has long-term engine-service agreements in place for the Pratt & Whitney PW1000G geared turbofan variants that will power its Airbus A321neo and A220 fleets. It is putting together deals for overhauling the International Aero Engines V2500s that power its 190 A320ceo-family aircraft, as well as airframe heavy-maintenance agreements for its entire A320ceo and neo-family fleet.

"The 85 [A321neos], they start arriving in March of next year, and you think about the A220s that start arriving in August 2020, the engine maintenance contracts we put in place are safeguarding JetBlue for the long term," said Steve Priest, the carrier's CFO.

The carrier also is also taking steps to reduce E190 costs, even as the fleet is slated to be phased out by 2025. Among the changes: a revamped engine-services agreement with GE that targets CF34 engine life-limited parts (LLPs) costs, factoring in JetBlue's plans to retire the fleet.

JetBlue has targeted annual maintenance-related cost-savings initiatives of $100-125 million by 2020 as part of a broader structural cost-reduction program that has touched everything from catering contracts to the carrier's headquarters headcount. Deals completed to date, notably the CF34 agreement and renegotiation of several "key sourcing contracts" are expected to deliver about 70% of the projected annual technical operations-related savings, the carrier said.

Longer-term, new service contracts on the entire fleet as well as the major efficiency gains the A220 brings compared to the E190 are expected to help keep maintenance costs down. 

"The E190 [replacement] decision, it wasn't just about the overall CASM of the aircraft but the engine maintenance cost on the E190s was very prohibitive," Priest said. "We look forward in terms of what that would mean as the aircraft continue to age, and that was a pivotal thought process in terms of the decision to migrate to the A220 and the fantastic economics that we're looking forward to as that comes into the fleet."

JetBlue projects its A220 maintenance costs to be 40% below its E190s on a per-seat basis.

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