Airlines Post Record Revenues But Costs Catch Up

0:00Jay Shabat: Hello and welcome to the Airline Weekly Lounge. I'm your host Gordon Smith and I'm joined as usual by co-host Jay Shabat. In this week's show we're discussing the industry's soaring costs and a little later on we'll fill you in on the latest news from JetBlue.

0:30Jay Shabat: Hi, Jay. How's it going?

0:31Gordon Smith: I'm doing great, Gordon.

0:32Jay Shabat: How are you? I'm just happy to have gone through that intro. Nobody will know because we've got our beautiful production team behind the scenes, but I really foolishly wrote a little later on, which looks great on paper, but trying to say that is not always the easiest thing to do. So more fool me, but we got there on the second take. We are talking inflation in this week's show, specifically the industry's soaring costs and also looking at some of the really impressive revenue numbers that are coming out. And anyone that's new to the show might be looking at revenue as sort of the sole metric for success of any company, really, nevermind an airline, and thinking, oh, record revenue, that sounds promising.

1:11Jay Shabat: But Jay, you don't need to be an economics grad to know that revenue is only one half of the balance sheet. You've got your cost as well. So give us a little bit of a scene set around why we're focusing so much on costs, inflation, right now, and specifically beginning this week's episode.

1:28Gordon Smith: Right. So the big theme of 2026, if you follow the airline industry and listen to airlines as they present their earnings and as they deliver speeches to the investment community, everything's going up. You've got the two rocket ships, I think we've called them, two rocket ships going to the moon. So yes, you have revenue in a very favorable position with with airlines reporting very strong revenue growth but at the same time also reporting very heavy inflation cost inflation and in most cases the inflation is out running the revenue gains so 2026 you know we'll see how things shape out shape up and in the you know remainder of the third quarter here and then into the fourth quarter.

2:20Gordon Smith: But it is looking like 2026 will be a worse year for the industry profit-wise than it was in 2025. Doesn't mean that the industry can't make money collectively, probably will. But yeah, the margins are under heavy pressure from this cost inflation. So I thought we'd talk in a little bit more detail about what exactly is going on on the cost side? What exactly are airlines facing? I kind of put this all into six buckets. If you think about an airline's cost base, you can divide it up in different ways, but I like to see it in six groups. And we can start with the obvious one being fuel. I mean, we all...

3:05Gordon Smith: Ding, ding, ding. Yeah, you can ring the bell on that. Yeah. Fuel prices are a real headache for airlines this year. And the year started out on a favorable note. I mean, fuel prices were rather tame for much of 2025 and into 2026. But when the Iran conflict began late February into March, we saw a sudden fuel spike. Like we then saw for beginning of the summer, we did see somewhat of a moderation. But now in recent weeks, we've seen another big inflection upward. And so not looking good on the fuel front. There are various reasons for that, again, related to events in the Middle East. I think some of the Saudi Arabian oil exports are now coming under pressure as well.

3:59Gordon Smith: So we have a very negative situation on the fuel front, but it's not just fuel. Another bucket, another one of those six buckets that I refer to, another probably a second biggest one for some airlines, the single biggest one is labor. That one's a little bit more difficult to talk about in a global context because that's going to vary from market to market, from region to region. I wouldn't say that labor costs are particularly under pressure this year globally, any more so than in recent years. There may be some markets where it is true that the labor costs are, that it is a rough year for labor inflation.

4:46Gordon Smith: Not so much here in 2026. But now when we get into the other four remaining buckets, it's more problematic than tame. And the third one I have on my list here is just the aircraft. Aircraft costs have nothing new. I mean, we've seen this for a couple of years now. But airlines continue to experience heavy aircraft cost inflation. And I'm not only talking about just the purchase of the aircraft or what it costs to lease an aircraft, but also what it costs to maintain an aircraft. and that has a lot to do with aerospace supply chains being really under pressure since really all decade and they've arguably improved somewhat since 2022, I think was 2023, you know, or even going back into COVID.

5:44Gordon Smith: They've gotten better, but still there is a worldwide aircraft shortage, and that's putting pressure on rates. We've also seen some of these engine engineering issues or engine inspection demands, the GTF engines being a good example of that, that have required a lot of manpower, a lot of maintenance infrastructure to address. that's also put a lot of pressure on the supply side of the industry as increased cost so i said fuel i said labor i said aircraft number four just the infrastructure that the the airline industry uses i'm talking here about airports uh there too um and you can you can add air traffic control air air navigation as well but airports being a big one there too there's been a lot of inflation There have been a lot of big projects and construction projects underway, expansion projects, modernization projects.

6:46Gordon Smith: And these have been very expensive if you consider the cost of labor. Of course, that kind of labor, construction labor, has been under a lot of pressure in a lot of markets. You could also think of the cost of materials has gone up a lot because of tariffs. Yeah, let me jump in there. I've been talking too much.

7:04Jay Shabat: No, Jay, just to highlight just how complex it is doing any sort of infrastructure project air site and airport. Even, you know, I speak to someone who's involved in one of the big London airports and they just wanted to open a new retail unit there. Super simple. It was an established chain. This is basically the cookie cutter store that they would have in other airports or in a train station or other travel environment. And the amount of paperwork that you've got to do, you know, you're thinking not just about getting the people back and forth, materials back and forth, but the individual tools.

7:34Jay Shabat: So they have to sign in and sign out every tool that they bring airside, which could, in the wrong hands, of course, be a threat in theory to passengers or an aircraft. But it just adds so much complexity. And then when you consider things like you said, labor costs are high across the board. Materials costs are high across the board. You throw on the complexities of working in and around an airport and it just goes sky high. Yeah.

7:59Gordon Smith: I was just happened to randomly listening to, I was listening to an earnings call from a manufacturing company. They happened to manufacture, I think it was like cardboard, paper, paper products, like cardboard boxes. And nothing to do with the airline industry, but I raise it here because they were talking about how 10 years ago when they built a factory, it cost X. And they were talking about how if they built that same factory today, it would cause vastly much more, much more than you'd expect over the course of just a 10-year rate of inflation. So they're definitely, the aviation industry is very much experiencing that as well, just as this collective inflationary burden across all sorts of different categories.

8:46Gordon Smith: And I mentioned before already, another fifth, I call it the service category. I mean, as airlines have leaned into or pivoted into premium investment, yes, that comes with more revenue, but it's not free. I mean, when you outfit your airplanes with these very expensive lie-flat business class seats, or if you install, you know, Starlink Wi-Fi on your airplanes, if you open, you know, fancy lounges, going back to your point, Gordon, about how just, you know, building anything inside an airport is expensive. Certainly, that's true for building an airport lounge. those airport infrastructure costs are one thing.

9:33Gordon Smith: But then in addition, just the added costs associated with premium services is another driver of industry inflation. So you can see there's just this vortex of different cost pressures pushing upward. I mentioned, so just recap, fuel, labor, aircraft, infrastructure, service. And then the final one would just be borrowing costs. You know, the interest burden of the industry is going up. That's obviously going to depend on the credit of the airline. It's, you know, going to depend on whether the airline has, you know, fixed borrowing rates or variable borrowing. There's, you know, going to be airline-specific repercussions that you have to consider.

10:16Gordon Smith: But just broadly, the entire economy and all companies within the economy are facing higher interest rates. We see that's true of the US government. It's true of people borrowing for home mortgages, people borrowing to buy an automobile. So that is very much true for airlines as well, that the borrowing market is more expensive. So that's kind of what airlines are facing here in 2026. And I'm not sure that there's any airline that would tell you with particular optimism that 2027, 2028 are going to be a whole lot better. You never know. But obviously, fuel is one that could swing wildly. But looks like we've had most of what I've described in terms of inflation, infrastructure inflation, even borrowing costs, a lot of that has sort of been defying the entire decade of the 2020s.

11:16Jay Shabat: Yeah, great points, Jay. And I think it was just last week's show we were discussing Air Canada and how they were paying down the decks with the aeroplan 25 % sell. And they're chasing that investment grade rating to ensure that when they do need to borrow, which is obviously quite often for a large airline, especially when you've got a large capex. When we're talking about levers that airlines can pull, and we're speaking generally here about the industry, there's going to be lots of nuance and many caveats. How do you address inflation, when you're sitting in your boardroom, wherever you may be, J Airways, Gordon Airlines, and you're thinking, right, we've got these coming at us pretty quickly.

11:49Jay Shabat: We might be slightly hedged here and there. We might have a good deal with the OEMs. We might have our labor contracts even in reasonably good shape, but no airline, as we've already established, is immune to these. What can we do to help mitigate these costs without spooking all of our customers?

12:08Gordon Smith: Right. It's not easy. I mean, there are always, you know, various things you can do to cut costs. I mean, if you're feeling really desperate, you can, you know, turn to labor where, you know, a lot of like for some airlines, that's 40 % of your cost base, 30, 40%. You know, you could ask for concessions from labor unions, but that doesn't come without repercussions. I mean, it has impact on employee morale. It may have impact on service. It, you know, may have impact on quality. you know, on-time performance could have, you know, that's not a freebie by any means.

12:42Jay Shabat: And it could also trigger labor unrest, you know, strikes, industrial election, you know, if there's the threat of compulsory redundancies coming through, that can be very messy in the years. We've seen it, Lufthansa, Finnair, British Airways going back a few years.

12:55Gordon Smith: Absolutely. Yeah, even Air Canada, you mentioned them, they had flight attendant unrest last summer. So that is, you know, one issue, but I wouldn't say that's an area, you know, a major lever that airlines are pulling on in 2026, you know, you could always invest in new technology that tends to have longer lead times. But, you know, for example, you may, I guess, I guess the most obvious and most powerful technological investment an airline can make in terms of or towards the goal of cutting costs or becoming more cost efficient is just replacing your older aircraft with your newer aircraft. You get a lot of mileage out of that.

13:37Gordon Smith: But as we just mentioned, you know, that also comes with a lot of upfront costs, you know, and there's a lot of inflation and the acquisition costs of aircraft now, too. So that's, you know, there's some things you can do on the technology side. you know I'm sure a lot of airlines are looking into using some AI models some AI technology to you know perhaps reduce the number of call center you know customer service agents they need or you know to cut costs in the maintenance area etc etc so there's definitely things being done how much of a needle you know how far the can they move that needle with just technology probably, you know, somewhat limited.

14:20Gordon Smith: Traditionally, you know, just the way airline economics are structured, carriers will often try to boost economies of scale, achieve unit cost growth through economies of scale by growing. You know, you just want to, you have a fixed amount of labor costs and you want to fly more so that you can spread all those costs over more revenue producing units or ASMs, which is basically the units that are used in the airline industry, so seat miles. So fly more seats, fly them longer, can get your unit costs down. Problem with that is that that works for fixed costs. A lot of labor is fixed. Maybe some aircraft is fixed.

15:03Gordon Smith: Some infrastructure is fixed. Maybe your airport airline, your airport gates, for example. Your fuel is not fixed. Your fuel is going to go more you fly, the more fuel you're going to burn. so if fuel is eating up more and more of your costs the more you grow the more you're going to burn fuel the more you know your your overall cost bill can grow so that's becoming uh much more difficult to do to achieve economies of scale through growth and what you'll see across the industry uh this summer going into this fall is a lot of airlines actually doing the opposite at their trimming capacity, getting those, you know, trying to reduce fuel consumption.

15:46Gordon Smith: And you can imagine, especially if you, you know, every airline has a network worth of routes and there's a hierarchy of, you know, you're, you have some routes that are performing really, really well. You have some routes at the bottom that are losing money. Well, when fuel is very expensive, you have more routes losing money. Those ones at the very bottom are getting worse and worse. so you're really under you know a lot of pressure to just shop the ones at the bottom you know get rid of those losses and yeah you're going to take a unit cost penalty but it's something it's got to

16:20Jay Shabat: be done it's got to be done um and jay what about the the obvious trick putting up fares yeah so so

16:27Gordon Smith: that in the end uh what ultimately airlines are doing their kind of number one weapon this summer this fall to battle the inflation demon is like you suggested to raise raise fares raise fees whatever new revenue you can get and that strategy for most airlines has been very very successful i think we talked that camera was last week or two weeks ago how there are some exceptions we talked about the chinese airlines in mainland china have been very much unable to do that that's an example where revenue, this sort of revenue offset strategy is not working and you see the losses just mounting and mounting.

17:12Gordon Smith: But in the U.S., for example, in Europe where the airlines are a little bit advantaged because a lot of them have fuel hedges, very substantial fuel hedges, you see the pain is a little bit less. So we'll talk about JetBlue in our next part, but JetBlue and other U.S. airlines are good examples of carriers that have raised fares and raised revenues a lot. And that's not fully offset the fuel pain, the inflation pain, but it has to a substantial degree. So, you know, that goes and, you know, how are they able to do that? How are airlines able to raise fares so much? I mean, it's pretty substantial.

17:57Gordon Smith: We're going to talk about jet blue in a minute but jet blues total second quarter revenues were up like 15 percent on three percent more capacity i may have that that number wrong but it's not not a lot i mean that's some that's some big big fair fair hiking and fee hiking how are they able to get away with it well the answer is both demand and supply related i think i mean it's demand related in the sense that there legitimately is a strong u.s economy right now or at least uh parts of the u.s economy that are applicable to, or that are relevant for air travel are very strong. If you think about just, yeah, retired people, you know, watching their stock market gains grow and they're sitting on, you know, valuable real estate and they, you know, people that have jobs that are related to the AI tech build out and -

18:50Jay Shabat: Oh, to be 75, Jay.

18:52Gordon Smith: Yeah, well, I'm almost there.

18:53Jay Shabat: Well, not quite, but I'm on my way.

18:56Gordon Smith: A little gray. But so it is demand related. I mean, there are legitimately lots of people who are I mean, we've talked about this. There's so many reasons why people are traveling, not even just that their stock market, their stocks are up and their housing values are up or that the job market in certain areas are good. but also just we've talked about shifts like people prioritizing spending on, hey, I want to go to vacation in Italy this year rather than, you know, buy a fancy new TV for, you know, so I could watch the, I was going to say World Cup.

19:29Jay Shabat: The airline weekly lounge on YouTube.

19:31Gordon Smith: Yeah, well, I mean, that's, I would prioritize that over going to Rome, but, you know, everybody's different. But it's also, it is demand driven. It's also supply driven as well. I think one reason why airlines have been able to raise fares so much is you do have this aircraft shortage out there. There's not a lot of seats flying around. There's not as many seats as would be flying around if airlines had, you know, the option to acquire more. In which case, you know, they just haven't been able to because Boeing hasn't been able to deliver on time. Airbus hasn't been, et cetera. We also have some carriers like Spirit, which is, you know, completely gone.

20:12Gordon Smith: That wasn't a small airline. What are the other supply issues? You know, you think of some bankruptcies. We just had Air Baltic go bankrupt last week. Small airlines are not going to move the needle a ton, but you do have, you know, situations like that. So as fuel, and just what I said before, you know, as fuel prices keep going up and up and up, airlines are going to be tempted to cut and cut and cut. And that's going to remove some more supply from the system. Also create some more enabling capacity for airlines to raise fares. So both a supply and a demand reason behind that ability to raise fares.

20:51Jay Shabat: Love that analysis, Jay. It's a very complex topic, but I think we got there in just over 20 minutes. So if you do want more detail, it's something that we come to time and time again in the airline weekly issue. I know you've got something to add just before the break, but go ahead.

21:02Gordon Smith: Sorry, Gordon. I just can't stop talking, can I? One more thing to add because I just thought it was an interesting question. So it's not just the airlines facing this inflationary pressure. It's also Boeing and Airbus. And you have to consider that as they have a very, very big decision to make. at some point it's going to come time where the 737 max the a320 neo you know these are uh getting a little mean these are relatively you know young aircraft right now but because of such a long long lead times you have to think that it won't be too long now before these airlines before these manufacturers have to make a decision on okay what are we going to uh provide the market to replace these in the, maybe it's the mid-20, mid-late 2030s, maybe 2040s, as Ryanair says, we could wait until the 2040s.

21:59Gordon Smith: I don't know what it is, but at some point, you have to start working on that now. And an announcement may come in the next couple of years. Imagine what it's going to cost, just a development program, to introduce this new narrowbody into the market. it's going to be a rather hefty investment it sure is it sure is um we do have robin hayes

22:25Jay Shabat: from airbus america the chairman and ceo he's one of our latest additions to the speaker lineup at the skiff aviation forum that's in new york city november 11th is the opening reception in sort of the evening and then we've got the full day event on november 12th if you're an airline weekly subscriber you should have a discount code looking in your inbox or you'll find that in the latest issue go to live.skift.com for the full agenda the latest speaker lineup and the ability to join Jay and I in New York City as well as Meghna and the wider airline weekly team we look forward to it you mentioned Jay there as well Baltic filing for chapter 11 bankruptcy protection in the US earlier this week as we're recording here on the 15th September more detail about that on skift.com as well and of course as an airline weekly subscriber you get access to all the airline news on skift to fill you in there before that quick reminder to send any questions or comments that you might have for us to podcasts at skiff.com that's podcasts with an s at the end and please don't forget to follow or subscribe to the podcast whether you're listening or watching and if you are enjoying the show please remember to rate us five stars leave us a positive review so we can continue to spread the word about the airline weekly lounge don't go now we'll be right back hello and welcome back to the airline weekly lounge i'm gordon smith joined as usual by co-host jay shabbat at the very end of part one there jay i was mentioning the skiff aviation forum but it It would be foolish of me not to mention the Skift Global Forum, which, like I said, we're recording here on the 15th of September.

23:46Jay Shabat: It is just a week away now. There are so many highlights here. If you're listening to this podcast and you're interested in the broader travel industry, it doesn't really get bigger than this. You've got the CEOs of Uber, Airbnb, Booking.com, Expedia Group, Hilton. It's unreal just the level. You're Wyndham. I'm that high yet. It's just that every time I look at this screen, there's another CEO there. I don't want to pretend that I'm naming the list in full because there are so many people and I don't want to feel like anyone's left out. Go to live.skips.com for the latest speaker lineup. But there will be two, three names from an aviation point of view that are particularly relevant.

24:22Jay Shabat: Hamado Kata, the new-ish CEO of the Kata Airways Group, and also Cornel Kosta, the CEO of Virgin Atlantic. Both of them, I think, making their first onstage, meaningful onstage debuts in their respective roles. So really looking forward to that. It will be me doing the talking on stage. We've also got Mark Gallardo, who is the Chief Commercial Officer at Air Canada. So really looking forward to getting his insights there. It's only a few days away. I know there are literally a handful of tickets left. So go to live.skiff.com if you want to secure one of those last remaining tickets. All right, Jay, we're going to be in New York in a few days' time.

25:00Jay Shabat: What's also in New York, JetBlue's headquarters. How's that for a segue?

25:03Gordon Smith: Oh, good one. Yeah, we're going to talk about JetBlue. Yeah. And I should add, I was just going to say, you mentioned all the headline speakers at the Skift Forum. There's also just a lot of, you'll run into a lot of airline people in the audience as well. Absolutely. So it's, you can, yeah, I've been many times in the past, and I can tell you there's a lot of just airline people floating around a room. So if you could be there, be there, be square, as my mom would have said.

25:41Jay Shabat: It's a great point, and it's a testament to the quality of the event. No disrespect to those people that are on stage, but it's also the people in the audience that are really influential.

25:50Gordon Smith: Sometimes you get the most, you just, I've learned, I've always, at conferences, I always learn so much as talking to people, you know, just over lunch or, yeah, during breaks and things like that. So, yeah.

26:01Jay Shabat: Quality everywhere. Quality everywhere.

26:04Gordon Smith: Yep. Yep. And Gordon, you will be there as well. So that's number one for quality. So quality people.

26:11Jay Shabat: The way you, the cadence of your words there, it made it sound like quality everywhere. And Gordon, you will also be there.

26:19Gordon Smith: And Gordon also. Yeah. Okay. Well. That may have come out wrong, but no, on the quality scale, you're right up at the top there.

26:29Jay Shabat: Wow. Well, I'm looking forward to it and looking forward to seeing many of you in New York in a few days' time, Jay. Let's pivot across to JetBlue because, like I said, we're recording here on the 15th of September. We've got the Morgan Stanley Laguna Conference, which is a big event in California, not just aviation-related, but we've got Southwest United American, I think Kelly Oldberg from Boeing is also going to be there. So we're going to save that for next week's show. But we did get a little sort of insight into what's going on at JetBlue. They're not going to be, as far as I understand, at the Morgan Stanley event.

27:02Jay Shabat: But this was almost like a sort of a warm-up act. Tell us what JetBlue shared with investors in the broader market just a few days ago.

27:09Gordon Smith: Yeah, thanks, Gordon. So they did provide an investor disclosure last week. We're speaking on Tuesday, September 15th. So this was a week prior. And the update was essentially what we were talking about before, Gordon, where the cost situation is worse than they originally forecasted, but the revenue situation is better than they originally foresaw. So just give you some numbers here. So back in July, I think it was, I think it was late July, they gave, this is when they announced their second quarter financial results. They provided some third quarter guidance. And they said, look, we're, you know, we expect at this point that our third quarter unit revenues, revenue per available seat mile, will be up about between 13 and 70%.

28:03Gordon Smith: 13 and 17 percent um that's impressive right i mean it's that that's it takes takes a lot of fare and fee hiking to get to get to that um and and they're they're still growing too they're not you know don't think of it like oh we're just pushing up the the yields by shrinking they're they're growing not a lot but they said that they were going to grow three percent to six percent so that's actually is kind of a lot i mean if you always uh you know if you can sort of uh for context, consider that alongside GDP growth. GDP growth is, I don't know, somewhere between two to three percent. So three to six percent is kind of a lot.

28:41Gordon Smith: And we'll talk about their Fort Lauderdale expansion, whatever.

28:44Jay Shabat: Yeah, it's not a small airline, Jay. You might sometimes see those numbers. And it's not a small airline. You might see those numbers in a very small airline that's growing very, very quickly. But for a mature airline, relatively mature airline like JetBlue, particularly one that isn't flush with cash, that is pretty nautical.

28:59Gordon Smith: Yeah. And again, to be clear, that was what I was talking about. That was their previous guidance back in July. But what they said last week is that, no, no, no, our unit revenues are not going to be growing between 13 % and 17%. They're going to be growing between 17 % and 20%. That's the range. Wow. 17 and 20. And of course, there's a range there because we're not done with the quarter yet. I mean, we've still got a couple of weeks of September. So they're not sure how it's going to pan out exactly. That revenue rocket really is getting to the moon quickly. Now, here's the cost picture. So it's takeout fuel.

29:35Gordon Smith: And they said that their unit cost, cost per available seat mile, originally back in July, they said it's going to grow 2.5 to 4.5. Now they say 6 to 8. Again, some of that is because they're getting, you know, diseconomies of scale as they grow more slowly than they expected. You know, they're getting, they're just, you know, taking out those unit cost advantages or that growth advantage, economy of scale advantage. So they're getting penalized on that. But some of that is just, you know, our costs are coming in higher than expected because of whatever aircraft. And, you know, I'm not sure that they actually specify.

30:14Gordon Smith: They will specify when they announce their earnings once the quarter is complete, and that'll be in late October. So we're still a little more than a month away from that. But, you know, very much they're feeling it on the non-fuel cost side of their business. Now fuel, they said back in July, fuel would be an estimated$3.49 per gallon. Now$3.96 per gallon. That's not a small difference. You know, we're talking about one gallon here. So multiply that, however many gallons they use during the quarter. So very, very big cost pressures to my point earlier. Revenues are up, but costs are up a lot as well.

30:58Gordon Smith: So that is JetBlue's situation in a nutshell.

31:01Jay Shabat: And you just arrived it perfectly in the most recent issue of Airline Weekly, Jay. You said JetBlue's revenue conditions, fantastic. JetBlue's cost concerns, drastic.

31:11Gordon Smith: Yeah, there you go.

31:12Jay Shabat: You put it nicely. You mentioned Fort Lauderdale there, Jay. Tell us why that's so significant. I guess Spirit might have a little role to play.

31:20Gordon Smith: Very much so. Yeah. So I was looking just now in a Syrian schedule data for the first quarter coming up in 2027. Fort Lauderdale is actually going to be the busiest airport in the entire JetBlue network. I don't think it's ever happened before. It was always New York. It's currently New York. Number one. I think JetBlue is I think Fort Lauderdale is actually number two this current quarter. Maybe it was for fourth quarter. But I think it's kind of crept ahead of Boston. So, you know, it was always JFK Boston where there were two big ones. But Fort Lauderdale in Q1, obviously that's Florida peak season, so they're going to push it up a little bit more.

32:01Gordon Smith: But I think for the first time ever, as far as I'm aware, Fort Lauderdale is now going to be their number one market in terms of the number of seats that they're putting into it. So they are really betting the house on that South Florida market. will it um and and if you look uh another thing i noticed from the schedules they if you look at their fourth quarter schedules there are about uh 60 i'm looking at it now there are about 64 airports where they're where they've actually where they're going to be cutting capacity so this q4 versus last q4 they're going to be flying fewer seats um and that ranges from everything you know a bunch of Florida markets.

32:42Gordon Smith: They're going to be flying 10 % less in New York. And I think they completely pulled out of Newark and a few other Florida markets. A lot of these New England markets where they tried to increase Providence, Manchester either didn't work or they just decided, hey, we need the planes for the Fort Lauderdale growth. Because as you mentioned Spirit, one of the big reasons for the JetBlue Fort Lauderdale growth is that Spirit is no longer there. So, yeah.

33:13Jay Shabat: It's a great point, Jay. And you speak to everyone in the revenue side of things. I know quite a few guys and girls who work in the airport business, the route development business, and they get really offended when an airline cools out or reduces a route. They're like, guys, I thought we were making money together. I thought this was working. And they say, the airline often says, yes, we are making money, but not enough. We can get more bang for our buck on another route. And HQ is telling us to divert the resources elsewhere. So it isn't always a case that that route is necessarily a flop it's just there's more uh there's better riches to be had elsewhere and particularly when you've got the costs rising as quickly as they are in many areas you want your best routes where you can get them they are taking a lot of steps

33:53Gordon Smith: for lauderdale expansion just being one of them they're also you mentioned the united partnership there's also you know they're investing heavily heavily in premium so they have this new domestic first-class product now, new lounges now, premium credit card. But even think about that domestic first-class product. As fuel prices, they're going up day by day. Tomorrow, fuel price can go up 10 % to get the benefits of a new first-class product. That's going to take years. You may start seeing at the end of next year, mid-next year, I don't know. But that's a long-term investment. So I think a lot of the situation with JetBlue is, and again, contacts, we've talked about this before, if they lose money this year, which they're on track to, and I think they'll tell you they probably will, it's going to be the seventh straight year of operating losses for JetBlue.

34:50Gordon Smith: So it is a carrier that is experiencing a lot of distress. And you've heard that, you know, the B words swirling around, the bankruptcy, and not saying that they're close to that. And they certainly say they have plenty of cash on hand and all that. But, you know, a carrier that loses money for seven straight years, obviously there's going to be liquidity pressures at some point. I don't know when. And with fuel where it is now, those concerns only get, though they only intensify. They only make me believe, you know, as an outside observer, the pressure dialer's got to be going up. It's got to be even more intense than ever.

35:31Gordon Smith: So that's why, you know, I wonder if maybe if fuel doesn't start to taper, fuel prices don't, if fuel inflation doesn't start to taper off over the next couple of weeks, months, quarters, do they have to do something even more drastic? and does that mean looking for a merger partner? I think there have been some reports in Bloomberg or whatever that JetBlue has in fact been picking up the phone and trying to find maybe someone that would be interested in merging with it, investing in it. I don't think we know the details about that. They've never said, but you could sort of see why they might look to do something like that.

36:11Gordon Smith: So who potentially could be a marriage partner for JetBlue? I know, Gordon, you're thinking, don't go there. You're going to, we're already running over time, but I'm going to go there. Sorry. I'm going to ask your permission. It'll be nice and ask your permission. Do I have five minutes to talk about JetBlue's merger prospects?

36:30Jay Shabat: Let me ask all the listeners. Yeah, all the listeners say yes.

36:34Gordon Smith: Okay, yeah. I can't say no. So you mentioned United being one of them, but that's, United itself has said that we're not interested. I mean, you know, that could change, but I think they have bigger fish to fry. They're not really focused on getting more exposure in Florida or whatever. That's I don't think that's they have their JFK slots from the partnership deal. And I think they'll be happy with that. You know, Southwest, could they use more real estate in the Northeast? Sure. Could they, you know, that is that is a kind of a weak spot in their network. Could they use JetBlue as a springboard to turbocharge their push into the premium segment?

37:21Gordon Smith: Sure. I mean, that makes logical sense, right? So you can sort of see some logic of why Southwest might be interested in JetBlue. At the same time, Southwest is extremely busy doing a lot of organic moves into the premium market and, you know, doing all sorts of different changes. And the other one that comes to mind would be American. I think the American JetBlue partnership was working pretty well. And unfortunately, for their sakes, they had to break it apart because of that judicial ruling back in 22, 23, whatever it was. but you know different administration now could could be different you know judicial conditions they who knows maybe american could get a deal like that done obviously americans finances they have their own distress uh that they have to deal with so you know there's some questions

38:18Jay Shabat: right there thank you jay um obviously jet blue isn't here to defend itself and we did mention that the B word have been swelling around. I just want to just for a mini right of reply, hark back to Meghna, Meghna Maharishi, our Skift Airlines reporter, P. Shiro back in mid-April this year. And it was JetBlue CEO Joanna Geraghty's staff note. The headline here, no bankruptcy now, but quote, decks are stacked against smaller carriers like us. This is a message that we've heard from Geraghty, both on the Skift stage and elsewhere. She was at our aviation firm last year, the global form the year before that.

38:50Jay Shabat: She says in the staff memo, quote, it's no secret that we believe that in today's airline industry, the decks are stacked against smaller carriers like us. She continued, I know how distracting and even scary all the noises in periods like this. It's important that we stay informed, but not distracted. Our focus needs to remain on what we can control and how we continue to execute. So very much keeping the heads down and making sure that everything that they can do is being done. But like you said, Jay, that hasn't stopped the rumor mill running red hot in recent weeks around possible fresh consolidation talk.

39:23Gordon Smith: I'm sorry, Gordon. I just want to say that point you made right there about JetBlue feeling like that could stack against them, that point is most apparent, most visible in the transatlantic market where they just have competing against these big joint ventures, these three giant joint ventures where they're essentially colluding with European carriers, their U.S. raffle. So that's just an example.

39:50Jay Shabat: Yeah. And just full context, Garrity was responding to a video of JetBlue co-founder and current Breeze Airways CEO, David Nealman, that went viral online in which he believes JetBlue may need to file for bankruptcy. This is obviously earlier in the year, but we do have, as luck would have it, David Nealman joining us on stage in New York in November. So we are really between the SCIFT Global Forum and the Aviation Forum piecing together the industry here, Jay. One massive event at a time. We are, speaking of time, out of time, but really appreciative to you, Jay, for running through JetBlue. And obviously much more detail to come, hopefully, from the CFOs and others at the Morgan Stanley Laguna event, which is happening tomorrow as we're recording here.

40:27Jay Shabat: Much more detail on that in the next issue of Airline Weekly and also on the next edition of the Airline Weekly podcast. Great. Okay. Thanks to Jay for joining me this week. Thanks, as always, to our producers, John, Monica, Kelsey, and Will. Look forward to seeing many of you at the Global Forum in New York next week. But wherever you are in the world, thanks for listening, and we'll catch you next time. Bye for now. Whether you're listening to us on Spotify, Apple, or wherever you get your podcasts, please remember to subscribe, rate us five stars, or leave us a positive review. This really helps us get the word out about the Airline Weekly Large, so we can continue to bring you this podcast every week, absolutely free of charge.

41:02Jay Shabat: And if you're watching us on YouTube, be sure to subscribe to the Skift channel and hit the notification bell to find out whenever a new video drops.