Flight International online news 09:00GMT: JetBlue Airways is predicting one-off fourth quarter cost items and increased fuel costs will produce the first full year net loss for the US low-cost carrier.

This prediction indicates JetBlue will post over $22 million in net losses in the last three months of the year. The carrier generated $7 million net income in the first quarter, $12.2 million in the second quarter and today posted a $2.7 million net income for the three months to September 30.

Chairman and CEO David Neeleman, during a third quarter conference call today, said the carrier will still record a 2% to 4% positive margin in the final quarter of the year. However, unit costs excluding fuel are expected to increase 6% to 7% year-on-year.

The major concern for the low-cost carrier is the price of fuel. During the third quarter, the carrier’s cost per available seat mile (CASM) grew 13.8% to 6.93 cents, driven by a 57.9% rise in the per gallon cost of jet fuel to $1.70. This increase, added to the 28.2% year-on-year growth in capacity, resulted in a 91.8% jump in the quarter’s fuel cost to $335.9 million.

At the same time passenger revenue per available seat mile (RASM) increased 8.1% year-on-year to 6.82 cents, on a 30.7% rise in traffic to 5.48 billion revenue passenger miles.

“We are happy with our costs excluding fuel,” says Neeleman, adding: “We are predicting solid year-on-year RASM growth in November and December…and fourth quarter revenue should be up 10%.” However, he concedes that “obviously this is not enough to keep up with fuel”, which could average $2.00/gal in the last three months of the year, even with a 15 cent reduction from hedges.

This extra fuel expense will be compounded by additional costs, some of which are self-imposed. A major expense in the fourth quarter will be startup costs for JetBlue’s Embraer 190 operations, which will begin operations in November. “We have pilots in training not generating revenue…and we are going through the tests that every airline has to when they take a new aircraft,” says Neeleman.

“Our P&L [profit and loss balance sheet] shows an expense from the day we take delivery of each E-190…which began in October,” he adds without quantifying the expected fourth quarter cost.

JetBlue will also post up to $9 million in fourth quarter charges to cover its decision to accelerate a staff stock vesting program. This program, along with a three-for-two stock split, was announced late yesterday.

The low-cost carrier will attempt to limit its losses by extending a capacity reduction plan normally employed in off-peak periods. Few details were discussed today, but CFO John Owen indicates that the markets affected will only see a small drop in frequencies.

JetBlue’s expansion plan, which is based on the continuing delivery of new Airbus A320s and its more recently ordered of E-190s, will also be revised. “You are going to see us move into new markets rather than add new frequencies,” says Neeleman.

Despite JetBlue’s pessimism for the final quarter of the year, the carrier believes it is in a better position than its competitors, especially Delta Air Lines’ low-cost subsidiary Song, which Neeleman says has been conducting a fare war against its New York JFK rival. “There has been some increased pressure from Song and that has led to lower fares,” says JetBlue’s chairman and CEO.

However, Neeleman notes that, from data supplied to the US DOT, Song’s second quarter performance indicates that its unit revenue difference with JetBlue is worsening. This is a wide as 27 percentage points in Boston, and 32% in the key New York-Florida sector, says Neeleman.

This could be wider if JetBlue utilized an untapped revenue source, its LiveTV in-seat entertainment system. However, Neeleman says this service will remain free. “We could save $20 million to $30 million [if we charged for LiveTV] but research shows that only 40% of the passengers will pay for it. We want every passenger to enjoy the JetBlue experience,” he says.

The carrier’s chief, however, did recommend that passengers consider the new headset upgrade offer, which costs $1.

Source: Flight International