JetBlue defends committment to costs control

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JetBlue Airways has reiterated its commitment to cost control and shareholder returns, even as skepticism from Wall Street analysts continues to cloud investors' opinions of the airline.

The airline's president Robin Hayes, who was promoted to the position on 1 January from chief commercial officer, acknowledges that JetBlue faces criticism on how its unit costs excluding fuel are going up faster than that at the carrier's competitors.

"Maintaining that gap is critical," says Hayes, speaking at the Bank of America Merrill Lynch Transportation conference in Boston today.

JetBlue chief financial officer Mark Powers, speaking at the same conference, cites long-term fleet initiatives that will bring down the airline's costs in the long run. These include the deployment of the larger Airbus A321 variant and the retrofitting of fuel-saving sharklets on the carrier's existing A320 fleet.

"By 2018, 25% of our fleet will be sharklet-equipped A321s, which is very exciting," he says.

The sharklets are expected to reduce fuel consumption by up to 3%, and Powers notes that they have been "everything that Airbus is promising". JetBlue has said the A321 offers 10-15% lower unit costs than the A320.

JetBlue operated four A321s as of 31 March and took delivery of a fifth in the first quarter which it will place into service in the second quarter. The carrier will take delivery of eight A321s in total this year, 12 in 2015, 12 in 2016, 15 in 2017 and one in 2018, according to its latest fleet plan.

Aviation analysts have repeatedly questioned JetBlue's costs and business model in an US airline industry that is mostly polarised by legacy airlines and ultra low-cost carriers. JetBlue has reiterated that its "hybrid" model has a place in the business.

JP Morgan analyst Jamie Baker, in the financial firm's upgrade of the carrier to overweight from neutral earlier this month, says the airline is not JP Morgan's "favourite name in the space". "Its management doesn't appear as committed to capital returns," he had said.

Powers, however, today defends JetBlue's plans to hit its return on invested capital goal (ROIC) of 7% for 2014. "We have a game plan to get there," he says, noting that the 7% goal does not take into account the carrier's sale of its LiveTV unit which is expected to result in over $300 million in net proceeds.

JetBlue posted a ROIC of 5.3% in 2013.