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JetBlue cuts intra-west flying in Q4 capacity cull

JetBlue Airways will reduce capacity growth by about two points in the fourth quarter and cull unprofitable flying, as part of an effort to lift margins amid higher fuel prices.

The capacity cuts will run through schedules in the "upcoming days" and will be effective September, says executive vice-president of commercial and planning Marty St George in an earnings call.

JetBlue will re-deploy less profitable intra-west flying from its Long Beach focus city to transcontinental markets, and also cut off-peak flights on multi-frequency routes, he adds.

The reallocation of the intra-west flying will drive about $30 to $40 million of incremental run rate earnings, says chief executive Robin Hayes, with the benefit making a meaningful impact beginning in the first quarter of 2019.

JetBlue's plans to reduce service within the US west coast is the latest step in a retreat in that market, following its disappointment at Long Beach where it failed to win city council approval in early 2017 to begin international flights.

This April, the airline announced it would slash a third of its flights out of the airport starting in early September.

St George, who says the airline had "great hopes" for Long Beach, calls the intra-west market a "very tough yield environment".

"As the number five player it wasn't really a place for us… We wish things would have worked out at the airport but unfortunately it didn't work out so we would just have to move on."

On the upside, the airline sees space to grow its focus cities in Boston and Fort Lauderdale, where it views its network as "relatively underdeveloped" with a 30% and 25% market share respectively, says St George.

The airline now expects capacity to grow 6.5-7.5% for the full year of 2018, with flown available seat miles to grow between 7.5-9.5% in the third quarter. Hurricanes in the third quarter of 2017 have distorted year-on-year comparisons, points out St George.

JetBlue previously forecast full year capacity growth of 6.5-8.5% in 2018.

The tougher comparables will contribute a 0.2 point impact to the airline's third quarter unit revenue, while a recent move to a new ancillary platform will contribute another one point of impact. JetBlue expects unit revenue in the third quarter to be flat or grow up to 3%, and sees close-in booking strength continuing throughout July.

The ancillary platform, which sells products like hotel rooms, offers more capabilities for the airline to sell and merchandise but the transition has been more challenging than expected, says St George. The carrier is planning ancillary changes in the coming weeks that are separate from the platform change, he adds.

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