Q2 2023 JetBlue Airways Corp Earnings Call

Participants

David C. Clark; Head of Revenue & Planning; JetBlue Airways Corporation

Joanna L. Geraghty; President & COO; JetBlue Airways Corporation

Robin N. Hayes; CEO & Director; JetBlue Airways Corporation

Unidentified Company Representative

Ursula L. Hurley; CFO; JetBlue Airways Corporation

Andrew George Didora; Director; BofA Securities, Research Division

Catherine Maureen O'Brien; Equity Analyst; Goldman Sachs Group, Inc., Research Division

Daniel J. McKenzie; Research Analyst; Seaport Research Partners

Duane Thomas Pfennigwerth; Senior MD; Evercore ISI Institutional Equities, Research Division

Helane Renee Becker; MD & Senior Research Analyst; TD Cowen, Research Division

Jamie Nathaniel Baker; U.S. Airline & Aircraft Leasing Equity Analyst; JPMorgan Chase & Co, Research Division

Michael John Linenberg; MD and Senior Company Research Analyst; Deutsche Bank AG, Research Division

Savanthi Nipunika Prelis-Syth; Airlines Analyst; Raymond James & Associates, Inc., Research Division

Scott H. Group; MD & Senior Analyst; Wolfe Research, LLC

Stephen Trent; Director; Citigroup Inc., Research Division

Presentation

Operator

Good morning. My name is Lara. I would like to welcome everyone to the JetBlue Airways' Second Quarter 2023 Earnings Conference Call. As a reminder, today's call is being recorded. (Operator Instructions)
I would now like to turn the call over to JetBlue's Director of Investor Relations, (inaudible) Patel. Please go ahead, sir.

Unidentified Company Representative

Thanks, Lara. Good morning, everyone, and thanks for joining our second quarter 2023 earnings call. This morning, we issued our earnings release and a presentation that we will reference during this call. All of those documents are available on our website at investor.jetblue.com and on the SEC's website at www.sec.gov. In New York to discuss our results are Robin Hayes, our Chief Executive Officer; Joanna Geraghty, our President and Chief Operating Officer; and Ursula Hurley, our Chief Financial Officer. Also joining us for Q&A are Dave Clark, our Head of Revenue and Planning; and Andres Barry, President of JetBlue Travel Products.
This morning's call includes forward-looking statements about future events. During today's call, we will make forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in these statements.
Please refer to our most recent earnings release and our most recent 10-K and other filings for a more detailed discussion of the risks and uncertainties that could cause the actual results to differ materially from those contained in our forward-looking statements including, amongst others, the COVID-19 pandemic, risks associated with execution of our strategic operating plans, our extremely competitive industry, fuel availability and pricing, our planned winddown of the Northeast Alliance, the outcome of the lawsuit filed related to our merger with Spirit Airlines and various other risks and uncertainties related to JetBlue's acquisition of Spirit.
The statements made during this call are made only as of the date of the call, and other than as may be required by law, we undertake no obligation to update the information. Investors should not place undue reliance on these forward-looking statements.
Also, during the course of our call, we may discuss certain non-GAAP financial measures. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. For an explanation and reconciliation of these non-GAAP measures to the corresponding GAAP measures, please refer to the tables at the end of our earnings release, a copy of which is available on our website and on sec.gov. Please note that our definition of these measures may differ from similarly titled measures presented by other companies.
And now I'd like to turn the call over to Robin Hayes, JetBlue's CEO.

Robin N. Hayes

Thanks, Kush, and good morning, everyone. Thank you for joining us today. I'd like to start by offering a resounding and heartfelt thank you to our 25,000 crew members for their incredible dedication, patience and perseverance. I've been at JetBlue now nearly 15 years, and this is the most exceptionally difficult summer that I can remember, and our crew members have worked tirelessly to serve our customers as air traffic control challenges and weather issues have affected tens of thousands of flights industry-wide. Our crew members have gone above and beyond in helping our customers deal with this summer's problems, and we very much appreciate their efforts every day, but especially during this very challenging period.
For the second quarter, we delivered revenue and cost performance within our guided ranges. I am particularly pleased that we delivered all-time record quarterly revenues, including record revenues in each month of the quarter as well as our sixth consecutive quarter of meeting or exceeding our cost expectations. As a result, we reported adjusted pretax income of $236 million, adjusted pretax margin of 9.1% and adjusted earnings per share of $0.45, which was at the top of top end of our guidance range. These strong results demonstrate our momentum in this post-COVID era.
Turning to Slide 5. On our first quarter earnings call in April, we predicted the summer would be very challenging. To prepare, we made significant investments to build resiliency into operation, which helped us to manage costs related to unexpected schedule disruptions and enabled us to deliver our second quarter results. We also received a very disappointing NEA decision during the quarter and have been working to adjust for the loss of that agreement. And finally, as you've heard from others, the transitory shifts in post-COVID customer demand are also affecting our results. Therefore, as we look ahead, we've recalibrated our expectations for the remainder of the year. While the current environment is extremely dynamic, we are executing plans to offset these challenges, as we'll discuss.
Firstly, and as previously disclosed, we made the difficult decision not to appeal the unfavorable NEA court ruling. This allows us to turn our full focus to our combination with Spirit, which we believe is the best and most effective way to increase competition in the industry and bring the JetBlue effect to more customers across the country.
However, our decision to terminate the NEA will result in a near-term drag on margins as we lose key codeshare revenue. But certain NEA costs will linger due to the necessary gradual wind down of our NEA-driven capacity growth. We expect a $0.20 to $0.25 EPS headwind to our full year outlook and we expect to see the biggest impact in Q4.
As we head into 2024, we will be able to mitigate the impact as we are increasingly able to redeploy capacity currently underperforming in NEA markets to high-margin leisure opportunities throughout our network. We have already begun to reflect this initial capacity redeployment in our selling schedules, and we are planning an orderly but gradual wind down of the NEA driven capacity growth through next summer to ensure that we continue to support our customers.
As I mentioned, we are facing headwinds from weather and ATC in the Northeast which have been much, much worse than we planned for when we reduced our New York departures by 10% for this summer. And we are seeing ATC programs stay in place longer than we've ever seen before for similar weather events, which is driving hundreds of delayed flights a day for JetBlue alone. To put it in perspective, when we look at the FAA's data on the worst industry cancellation events for thunderstorms at JFK, the worst 4 events since 2014 happened in late June and early July of this year. And while we don't know what the ATC impact will be in August, we have assumed that they will be similar to July.
These real-time disruptions generate cost pressures beyond our initial planned investments and also impact revenue due to higher cancellations, which drive refunds and reduce sellable capacity. Taken together, we expect ATC constraints through Q3 to result in a $0.20 to $0.25 headwind to our full year EPS outlook.
Our Q2 results, though, do show the investments we made are making a difference as our June completion factor in New York outperformed the average of other airlines with a more significant footprint in the market. But it is coming at an incredible cost that is not sustainable over the long term, and as we are pulling all the levers under our control to help drive improvement. As we look to next summer, while the wind down of the NEA driven growth in New York will help reduce our Northeast exposure, we will also need to see substantial improvements in ATC performance and additional industry slot relief to ensure we can deliver the operational experience our customers deserve.
Finally, we've seen a greater-than-expected geographic shift in pent-up COVID demand as the strength in demand for long international travel this summer has pressured demand for shorter-haul travel. We estimate this shift away from domestic travel is negatively impacting our full year EPS by $0.15 to $0.20. However, we expect this trend to improve as we move out of the peak summer travel period and into Q4, particularly around the winter holidays when demand typically favors VFR travel, which is not as susceptible to these shifting trends.
As we head into 2024, we will be more aggressive in redeploying capacity to expected pockets of future demand, areas where our VFR and leisure orientation give us an advantage in the marketplace.
Given these revenue headwinds, we are updating our full year earnings outlook to $0.05 to $0.40 of EPS. Let me be clear. We are not satisfied with this change, and as I've described we are taking action on all of these issues. I also want to emphasize that our first -- that our full year unit cost outlook remains intact as our team has been successful in offsetting the incremental costs associated with these challenges. We consider the coming quarters a reset as we adjust for the loss of the NEA and for the overall shift we and others are seeing in post-COVID demand.
Over the longer term, we continue to believe we have the right building blocks in place, and we remain laser focused on rebuilding our earnings power and adding incremental value to our shareholders.
Moving to Slide 6. I want to spend a few moments reviewing these building blocks that are positioning JetBlue for long-term success. First and foremost, it's a transformational nature of our planned acquisition of Spirit. Combining with Spirit will not only turbocharge our organic growth plan, creating a truly national low fare challenger to bring more competition to the industry, but it also adds geographic diversity to our network, which will improve our network relevance and increase our operational resilience. We look forward to bringing more of JetBlue's low fares and award-winning service to more customers and more markets.
Next, our large footprint in the slot-constrained New York market is a substantial long-term asset for JetBlue. And even as we wind down the NEA, New York will still remain our largest focus city with well over 200 departures per day. While New York was significantly impacted by COVID and therefore has taken longer to recover, it has historically produced long above system average margins and is now improving faster than our network average. The closing of the gap will drive continued improvement of our net revenue and margin performance.
We're also driving long-term structural improvements in our profitability from our redesigned TrueBlue program, which continues to see double-digit membership growth and, of course, JetBlue Travel Products.
Finally, we continue to deliver outstanding progress on cost execution. We have seen great success from our structural cost program, which is on track to deliver $150 million to $200 million in savings by the year-end 2024. We also continue to make strides in our ongoing fleet modernization program as we replace our E190 fleet with the margin-accretive A220s.
I'd like to close by again thanking our crew members for delivering our second quarter results. While we face near-term headwinds, we remain focused on controlling what we can control and work towards improving margins and driving profitable growth. I remain optimistic about our future as our unique combination of low fares and great service continues to distinguish us in the market.
With that, over to you, Joanna.

Joanna L. Geraghty

Thank you, Robin. I would also like to thank our crew members for their continued commitment to our customers as we navigate this difficult operating environment. Although the summer has proven challenging, your hard work is making a difference.
Through early June, we saw nice operational improvements year-over-year. Our completion factor and on-time performance were middle of the industry and we were beginning to see improved productivity. However, as we stepped into June, despite meaningful structural investments including substantially more pilot and in-flight reserves, more spare aircraft and more -- and improved SSC tools, in addition to our 10% schedule reduction in the New York area airports, it was still not enough to overcome the combined weather and more restrictive ATC programs. Of course, we know how to manage extreme weather conditions and are performing as well as others in the Northeast during these events. But the sheer number of these events and their duration is among the most challenging that we've ever seen.
Our teams are doing an excellent job navigating this environment and our investments are enabling us to recover more quickly. This, in turn, allows us to better protect completion factor coming out of these events. However, the fact remains our network exposure to this challenged geography is the highest in the industry.
Turning to Slide 7 -- sorry, Slide 8. For the second quarter of 2023, capacity grew 5.8% year-over-year, around the midpoint of our guidance. This capped a strong first half in which we delivered a 3 point year-over-year improvement in our completion factor and a 6-point improvement in our on-time performance.
Our strong operational performance in the first half of the year helped offset the more than 0.5 point of adverse impact from the severe ATC-led restrictions beginning in mid-June. While our proactive operational investments in anticipation of a challenging environment this summer enabled us to mitigate 30 days in a row of a regular operations during the month of June into July, they have not been enough to overcome even greater challenges in July, which reduced our July completion factor by 4 points. We are assuming a similar level of operational disruption will continue in August and now expect third quarter capacity to be up 5.5% to 8.5% year-over-year.
We'd like to thank our colleagues with the FAA for the close partnership and transparency as we work to plan for the operation on challenging ATC days and better understand what is behind decisions to implement severe ATC restrictions on certain days. While we are not alone and expect these delays to ease in the coming years as the FAA works to rebuild staffing and experience to more appropriate levels, our Northeast-centric footprint makes us disproportionately exposed to these challenges.
Turning to revenue. In the second quarter, we grew revenue by 6.7% year-over-year, above the midpoint of our guidance range and driven by strength in [Latin] leisure, VFR and transatlantic demand. The demand environment remains healthy overall, characterized by double-digit growth in RASM compared to 2019. Our transatlantic service, in particular, has performed extremely well and driven the strongest year-over-year revenue of all geographies in our network. We look forward to continuing to diversify geographically by expanding our transatlantic network. And later this month, we will launch service to our third transatlantic Blue City, Amsterdam. We expect to continue on this path in the coming years as we take additional deliveries of our A321LR aircraft.
We also continue to see healthy demand across much of our domestic network. However, the demand recovery in our largest market of New York City, while showing sequential improvement, continues to lag that of other geographies, in line with the area's slower economic recovery compared to the rest of the country. This slower recovery, coupled with our NEA-driven capacity growth and reduced schedule flexibility due to slots, has pressured our New York margins. While the gap is improving, our New York margins are still lagging 2019 levels by high single digits. This is a sharp contrast from the rest of our network, which exceeded 2019 margins during the second quarter. To be clear, we do have many attractive opportunities and we'll redeploy capacity into these higher-performing geographies as we unwind our NEA growth in New York.
As we head into the third quarter, we continue to see many of the same trends, including strong demand during peak periods. However, during off-peak periods, we are now seeing demand trends normalize. This contrasts with the same period last year when we saw extremely strong pent-up COVID demand across our entire network during both peak and off-peak periods.
As a result, while load factors remain very strong, we've seen fares normalizing back towards 2019 levels. In the third quarter, we expect revenues to be down 4% to 8% year-over-year. In addition to the revenue pressures from the NEA unwind process, ATC challenges and demand shift to long-haul international travel, we are also cycling against a very difficult revenue comparison as last year in Q3, we delivered revenue 23% above 2019 levels, more than double the industry average. For the full year, we are now forecasting revenue to be up 6% to 9% year-over-year.
Finally, our loyalty program is an area of continued strength as loyalty revenue hit a record level, up 21% year-over-year in the second quarter, and continues to become a bigger piece of our revenue story. In the second quarter, we relaunched our redesigned TrueBlue program, which offers even more ways for our customers to engage with us and earn points. And we saw double-digit year-over-year increases in active members, enrollments and co-brand acquisitions.
Co-brand spend had its best quarter ever, and we expect to reach record contributions from our Barclays co-brand portfolio this year as member engagement continues to grow and as we continue to expand our loyalty ecosystem. We're excited by the growth these enhancements are delivering as part of our multiyear journey in evolving our TrueBlue program and closing the gap to our peers.
I'd like to close by once again thanking our crew members for everything they have done to serve our customers in very stressful situations. While we are facing near-term headwinds amid a challenging operational backdrop, we are focused on taking action and pulling all levers at our disposal to minimize the impact to our customers and to our crew members. Together, we will build a better and stronger JetBlue for all stakeholders.
With that, over to you, Ursula.

Ursula L. Hurley

Thank you, Joanna. I'd like to add my thanks to our crew members for all their hard work and dedication. Our second quarter results are a testament to the impact their efforts are having on the operation and on the cost side.
Turning to Slide 10. As Robin mentioned, I am pleased that this quarter marks the sixth consecutive quarter where we met or exceeded our quarterly cost guidance, an outcome I am particularly proud of given the increased cost pressures we faced as we navigated an exceptionally challenging operational environment in June. Specifically, the second quarter faced 1 point of CASM ex fuel pressure from the significant investments we made across our operation to boost resiliency as well as an incremental 1 point of CASM ex pressure as the ATC challenges we faced in June were more severe than expected, which resulted in lengthier delays, increased cancellations and a lower completion factor.
Despite these headwinds, our team's laser focus and execution enabled us to deliver second quarter CASM ex in line with our expectations as our investments to enhance operational planning and build resiliency into our schedule successfully enabled us to exert greater control over variable costs such as labor premiums and disruption-related costs. We also continue to successfully implement our structural cost program, supporting efforts to mitigate cost pressures related to maintenance and rents and landing fees. We remain on track to drive approximately $70 million in cost reduction this year and $150 million to $200 million in cumulative cost savings through 2024.
We expect structural cost program savings in the second half of 2023 and throughout 2024 to be driven by 3 main areas: enterprise planning initiatives, technology-based solutions aimed at enhancing frontline productivity and maintenance optimization of our midlife aircraft. Additionally, we continue to expect our fleet modernization program to generate $75 million of cost savings through 2024 as we replace our E190 fleet with margin-accretive A220s. We have already achieved over half of the expected savings from this program with 12 E190s retired to date, including 7 currently parked and 5 that we have sold.
Looking to the third quarter, we are forecasting CASM ex fuel to increase 2.5% to 5.5% year-over-year. As Robin noted, unwinding the NEA will result in a near-term drag on margins as the cost benefit will lag the immediate loss of codeshare revenues. As we gradually redeploy our NEA related capacity and optimize our schedules for this new normal, we expect to see a corresponding improvement in costs. For the full year, we remain on track to execute on our CASM ex fuel target of up 1.5% to 4.5% despite an additional 1.5 points of CASM ex headwinds for the full year from the ATC challenges versus our original expectation. We are seeing exceptional cost headwinds, but we are working hard to find offsets and to ensure we are delivering on the cost guidance we've set out at the start of the year.
As a reminder, our full year cost outlook implies a step-up in year-over-year CASM ex in the second half of the year, primarily driven by 2 factors: an additional step up tied to our pilot agreement, which is about 3 points total year-over-year in the third quarter and 4 points in the fourth quarter; and the timing of maintenance, which is about 2 points of year-over-year in the fourth quarter. As Robin mentioned, we now expect to generate earnings per share between $0.05 and $0.40. This is not an outcome we are satisfied with. And I want to reiterate that we are taking action to offset these temporary headwinds as we work towards restoring our long-term earnings power and delivering profitable growth for our shareholders.
Turning to Slide 11. We closed the second quarter with $2.4 billion in liquidity, including our $600 million revolving credit facility, which remains undrawn. We continue to take a conservative approach to managing liquidity as we step up our fleet modernization efforts. We have been financing recent aircraft deliveries and have committed financing in place for approximately $550 million year-to-date, of which approximately $300 million was raised in the first half of the year. We took delivery of 4 new aircraft in the second quarter and 1 in July, bringing our year-to-date total to 7 new aircraft. We expect to take delivery of 12 additional aircraft through the end of the year for a total of 19 new deliveries this year.
Finally, we continue to look at hedging opportunities to manage risk. In the second quarter, we took advantage of renewed price weakness to layer on some additional protection for the fourth quarter of 2023. And as of today, we have hedged approximately 30% of our expected fuel consumption for the second half of the year.
Turning to Slide 12. Our updated earnings outlook reflects the near-term headwinds we are facing: the NEA termination, ATC constraints and a temporary shift to long-haul international travel this summer. However, we are not standing still. We are focused on controlling what we can control and executing our plans to address these challenges. On the revenue side, we are leveraging the strength of our network to shift capacity from New York in the near term where we can. On the cost side, we remain acutely focused on pulling every lever at our disposal: efficient utilization and planning, technology upgrades, fleet modernization and our structural cost program. And we are also working closely with the FAA to identify solutions to help ease disruptions next summer.
Despite the headwinds, I'm optimistic about the trajectory of the business. Our team's ability to continue to execute under these very challenging circumstances, coupled with the Spirit combination, puts us solidly on a path towards creating significant long-term value for our owners and all our stakeholders.
With that, we will now take your questions.

Unidentified Company Representative

Thanks, everyone. Lara, we're now ready for the question-and-answer session. Please go ahead with the instructions.

Question and Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Mike Linenberg from Deutsche Bank.

Michael John Linenberg

Two here. Can you just -- how many of your A321neos with the GTF are potentially subject to the issues that, that fleet is now facing. And is there any risk that this is an A220 issue as well? Just your thoughts. I realize it's very early so you may not have much information on it, but whatever you can. And then I have a follow-up.

Ursula L. Hurley

Mike, thanks for the question. So we have had 2 A321neo aircraft on the ground for the last few months due to various engine issues. We have been notified by Pratt & Whitney over the last few weeks that we have a handful of engines that will be impacted and have to come off-wing by mid-September. So we expect the number of aircraft that we have on the ground through the end of the year to approximately double from what we have today. As of note, we did not include any of that impact in our guidance today given that we're still assessing the longer-term impact with Pratt & Whitney. In regards to the A220, we're still working through potential, if any, impact on that GTF engine with Pratt & Whitney.

Joanna L. Geraghty

Yes, if I could just add. This is Joanna. So we are trying to take whatever self-help measures are available to attain additional engines on the leasing market. But as you know, that supply is pretty constrained at this point.

Michael John Linenberg

Great. And then just my follow-up is, as you wind down the NEA, obviously the schedules will change. But when I do look in the forward schedule going all the way out next year, it does seem like you are planning to operate, or at least in the schedule, that a good amount of LaGuardia, additional LaGuardia flights. Is that the plan? Or are we going to just see everything wind down and you'll be back to, I don't know, it was about a dozen departures a day from LaGuardia. Just any insight you can give on that, if possible.

David C. Clark

Sure. Thanks, Mike, for the question. This is Dave. With regards to the NEA wind down, we've already made some initial adjustments in Boston where we don't have to work through slot issues and constraints there. So we've been able to move a bit more quickly. On New York, we have a plan coming together but have not yet changed it in our selling schedule. Just as a reminder, LaGuardia, we flew before the NEA 16 round trips a day for LaGuardia.
That went up to 52 during the NEA, so an incremental 36. As we go into this winter season, you'll see us step down by about a handful of flights in LaGuardia. And then next summer, so beginning in the mid-spring for the summer season, you'll see us flying less than half of those 36 gross roundtrips at LaGuardia. So it will be an orderly wind down. We'll take the first step down late October this year and second step down in late March of '24.

Operator

Your next question comes from the line of Dan McKenzie from Seaport Global.

Daniel J. McKenzie

Going back to the script and the commentary about having the right building blocks in place for better earnings power. You referenced some of the moats that JetBlue has. But one, are they enough to get the airline back to 2019 margins, I guess, first? And then secondly, how quickly can you turn things around? Do -- is it reasonable to assume you can get close in 2024, for example, all else equal?

Robin N. Hayes

Yes, I'll take that. Thanks, Dan. It's Robin. I think when I think about our progress against 2019, on the revenue side, I think that quarter 2 was very important because we were -- other than New York, we were above system margins, 2019 system margins and all of our other focused cities. And so the ramp-up in New York is extremely important to our recovery to 2019 margins.
And whilst this summer has been a significant setback for reasons that we've described, we were continuing to see recovery in New York. And I believe as we go into next year, we're going to continue to see that recovery. So I think overall, the New York recovery has to deliver. As Dave and Joanna mentioned or one of them mentioned -- Joanna mentioned earlier, I'm sorry, The fact that we have such a strong presence in New York even post-NEA in a slotted environment, we believe, becomes a tailwind at some point.
Then on the other revenue side, I think continuing rolling out of the revenue initiatives, very pleased with TrueBlue, very pleased with JetBlue Travel Products. One of the areas that's been constrained with our fleet delays is Mint. I'm pleased to say that the airplanes that we are now taking from Airbus to 321s are Mint-configured airplanes, so we can catch up. That continues to be part of our business that's not performing. I think continuing to develop more geographic diversity, I think, is important.
So you're going to continue to see ramp-up to European markets next year, very -- I mean, other airlines have talked about how strong Europe is. We're seeing that, too. We just don't have very much of it. And then on the cost side, I'm really pleased with the progress on the structural cost program. This is a different JetBlue 2 years ago. And the fact that we can take the punches that we're taking both in Q2 and Q3 around very, very significant operational costs and headwinds.
I mean, when you are flying 1-day schedule with hundreds of flights that are running significantly late due to ATC programs and you have -- a lot of that flying has to be recrewed, we're absorbing all of that. And so I'm very confident that continued execution on the structural cost program is underway.
And of course, the last thing I mentioned, Dan, is the fleet transition. This has been a much longer fleet transition that we would like. But 2024 is game time. We take the most 220s next year, we retire most 190s next year. And by the time we get to end to 2024, we'll really be left, I think, with maybe a dozen 190s that would then sort of start to retire by summer 2025. So we're really now getting into that part of the fleet transition that other airlines have demonstrated is a significant tailwind to unit cost improvement. So overall, I think we've got the right building blocks in place. We do have some challenges to work in the near term. We do have actions to take to mitigate some of the challenges in the near term, and that's what we're doing.

Daniel J. McKenzie

Yes. Very good. And then, I guess, for the second question here, the full year revenue guide implies a pretty strong reversal of revenue trends in the fourth quarter versus the third quarter. And you guys did touch on that in the script a little bit, but I wonder if you can just elaborate a little bit more. What is it that snaps back in sort of a seasonally weaker quarter?

David C. Clark

Dan, thanks for the question. This is Dave. It really ties to the timing of these 3 big headwinds we've called out, Two of them improved markedly as we head out of the third quarter into the fourth. So first, with ATC. We expect that entire impact to be limited to the third quarter and we're expecting no ATC impact in the fourth quarter. So that's a full 3-plus points of revenue in the third quarter that dissipates before the fourth. And then secondly, the geographic shift is much more pronounced in the summer, especially as Europe is in their peak season. As we head into the winter travel, we expect 1 point or more of improvement as we go from the third quarter to the fourth quarter of that geographic demand shift.
The one piece that does get worse is the NEA headwind will grow from about 1 point -- a bit more than 1 point, but roughly 1 point in the third quarter to 2 points in the fourth quarter. And that's just getting the full impact of sort of the ramp-up since codeshare sales turned off in late July. We did get a partial quarter in Q3. And then that will begin to improve with the capacity to redeploy as we go through the winter and into 2024.

Operator

Your next question comes from the line of Savi Syth Raymond James.

Savanthi Nipunika Prelis-Syth

Just on -- it looks like you're only expecting about 30 of the kind of 60 contractual kind of aircraft next year and GTF issues seem to be continuing. I was just kind of curious what your early thoughts on 2024 capacity are, and if you'd still lean a little bit more international or how you're thinking about it?

Ursula L. Hurley

Thanks, Savi, for the question. It's still really early given the fluidity of Airbus and the Pratt & Whitney conversations and evolutions. So contractually, we technically had over 40 deliveries expected in 2024. Our current planning assumptions are using 30 deliveries, and that does not include any impact to the recent GTF issue.
So we are still working with Airbus and Pratt & Whitney identifying 2024 impact. As Robin highlighted in one of his answers, a good portion of those deliveries are 220s but also Mint-configured aircraft to help support our European aspiration. So more to come on 2024 capacity. There's just a lot of puts and takes right now. Obviously, we strive to the mid- to high single-digit and we'll continue to work with our partners to refine what we think that growth rate will be.

Savanthi Nipunika Prelis-Syth

No, that's helpful. And just if I might, on the New York region commentary, is that more of a kind of -- is that more short-haul business markets that are lagging? Or I was just kind of curious if there was any kind of smoking gun or whatever that's driving the slower recovery in New York margins versus the rest of the system. I was just curious how much your business demand has recovered and if that's driving it.

David C. Clark

Yes, Savi. This is Dave. Great question. And you're spot on. We're seeing the largest impact in terms of revenue recovery in 2 areas. One is the business markets, which are recovering much more slowly than leisure and second is short haul. So a short-haul business market is sort of the most impacted type of market. And obviously, we fly some of those and then the industry fly some of those and has been redeploying some capacity out of those and into other leisure markets that adds competitive capacity to us. So that's sort of the general type of market that's most at risk. And whether it's something we fly or a competitor is redeploying capacity out of and into our markets, we feel the impact both ways.

Operator

Your next question comes from the line of Jamie Baker from JPMorgan.

Jamie Nathaniel Baker

So when you think about more aggressively redeploying capacity to expected pockets of future demand, your words, I mean, that's pretty much what Southwest is also planning to try. And I suspect we may hear something similar from Frontier and Spirit. I realize your networks aren't carbon copies of one another, but if everyone is trying to optimize their network and shifting capacity to peak days, I mean, does that factor into your expected returns? I'm not saying you shouldn't try to optimize. I'm just thinking if everybody tries the same thing, well, then that really doesn't drive much optimization.

David C. Clark

No, it's a great question, Jamie. This is Dave. A couple of things. One, we think about not only what's underperforming and what is performing better today, but then we think a lot about what our natural sort of model advantages are -- business model advantages are versus these other carriers. So for example, we know JetBlue does well, especially on longer-haul flying because the onboard product is excellent and certainly far superior to the ULCC. So as we redeploy, we not only think about current capacity but competitive capacity and how structurally advanced we are over the long term.

Robin N. Hayes

And I think, Jamie, to give you an example, we touched on Mint a little bit. Mint continues to perform very well, and it's both the front of the airplane and the back of the airplane. And what we haven't been able to really do in the last year or 2 is add any Mint capacity because we -- those airplanes have really not been coming at us in any volume, and the ones we've had have been flying to Europe.
And so I think we expect next summer to be a very strong seasonal -- another strong European summer. We think transcon will continue to perform sort of with both the Mint franchise and the products at the back of the airplane. And again, I think that New York slots is going to have to look different, but New York is coming back and will continue to come back.
And those are markets, of course, because they're slot-constrained, are going to be tough to get into. But also, we don't know what the FAA is going to have to do next year on New York slots. I mean, as you know, there was a 10% slot waiver this year. If you want [Robin's] personal opinion, that was not enough. from what we've seen. And so how should we think about New York capacity going forward in terms of total industry capacity as well. So I feel really good that given the number of airplanes that we have, we have a lot of good options. But I take your point, everyone's going to be looking for that pot of gold. But we're going to focus on our plan on improving our network returns.

Jamie Nathaniel Baker

That's helpful. And obviously, part of JetBlue's challenge is market concentration, the exposure in New York, you talked about this in your prepared remarks, Robin. And the merger will obviously help with that. But just for argument's sake, if the merger doesn't close for some reason, have you started to develop a plan B, which I assume would include trying to find an additional hub or focus city somewhere else, presumably not in the Northeast?

Robin N. Hayes

Yes, Jamie. Look, how I'd add to that is we're very focused on getting the Spirit deal done. It is our #1 priority. It's going to turbocharge organic growth. Having said that, the network team is always looking at opportunities that might be out there. And they've done that in the past, they'll continue to do that.

Operator

Your next question comes from the line of Andrew Didora from Bank of America.

Andrew George Didora

So just, I guess, historically, you've targeted sort of that mid- to high single-digit type of capacity growth. When we think about the continued unwind of the NEA, I think you said it goes through sort of next summer. Does it change your growth expectations for 2024 at all? And just as a follow-up to that question, based on your answer to that question, I guess, what are the puts and takes on CASM ex next year, particularly the additional pilot flow through? Any color there would be helpful.

David C. Clark

Sure. Thanks, Andrew. This is Dave. I'll start it off and then kick it over to Ursula. In terms of the NEA wind down, given the strength we're seeing in our non-New York geography, as mentioned in Q2, our non-New York flying significantly outperformed 2019 in terms of profit margin. We feel good about our redeploy options in sort of the larger ability to profitably deploy the fleet. So from that perspective, no impact on 2024 capacity. Obviously, as Ursula mentioned, delivery schedule, engines, ATC, those things may have an impact. But from a pure customer demand perspective, we feel good. And then over to you, Ursula.

Ursula L. Hurley

On the CASM ex side, so as we ramp down the NEA, you will start to see some CASM relief in 2024, depending on how quickly and at what rate we ramp down. We're going to, as Dave mentioned, redeploy that capacity. And obviously, the average rent and landing fee across the country is typically lower outside of New York. So you will see some benefit there. In regards to the pilots, so we actually have a step up in pilot rates here in the third quarter and the fourth quarter of 2023. So in the third quarter, it's a 3-point impact to CASM ex and a 4-point in the fourth quarter. Those obviously will impact 1H of 2024, and then we'll lap it in the back half of next year.

Operator

Your next question comes from the line of Catherine O'Brien from Goldman Sachs.

Catherine Maureen O'Brien

Maybe just a bit of a follow-up to Jamie's question. So on the leisure routes you're reallocating to, are these routes JetBlue historically served and had to pull down to feed the NEA? If historical to JetBlue, how has the competitive landscape changed since you last served them? Or maybe it hasn't. And then -- or are there some new markets? I'm just trying to get a sense of how we can expect these routes to ramp versus system performance.

Joanna L. Geraghty

Yes, thanks. This is Joanna. So it's a combination of routes we previously served but also new routes, exploring some of the seasonal markets, really refining our day of week flying as well to target specific demand pockets that may be there for vacation and high (inaudible) peak periods. So it's a combination of both.

Catherine Maureen O'Brien

Okay. Got it. And...

Robin N. Hayes

Yes, I think, what I'd say is just historically, leisure markets have ramped up more quickly. And we know that there is a -- in many months a year, there is a demand that can't be satisfied. So I think the question is going to be in terms of the off-peak capacity. And in a world where corporate travel is 20% down, how do airlines sort of meet that off-peak need? And I think it's far broader the network. I think it's resourcing strategy, I think it's maintenance planning. I think there's a whole number of things that in a world where business travel may not be coming back, we're going to have to work through and think through. And just rest assured, we have a lot of actions and focus on that area. So it's far broader than just network in terms of how we manage these off-peak periods.

Catherine Maureen O'Brien

Got it. Super interesting. And maybe just -- the last FAA outlook on air traffic controller headcount, I saw it didn't show a big improvement anytime soon. Just given your geography and a more constrained operational environment and the investments you've had to make to deal with that, should we expect the headwind you're pointing to in the slides, I think the entirety of your 2.5% to 5.5% year-over-year growth for the full year driven by that. Is that just part of the base now and like into next year and going forward? Or we got to wait until there's more air traffic controllers? Or do you see a path to any relief into next year?

Joanna L. Geraghty

Yes. Let me -- I just want to make sure I'm answering the right question if you're talking about capacity or CASM in terms of what's baked into the...

Catherine Maureen O'Brien

CASM ex.

Joanna L. Geraghty

CASM ex, yes. You should expect that we will continue to carry an elevated number of resources as we go into the summer. You should think of air traffic control sort of through the lens of high-volume and convective weather. So summertime is when we see the most challenging time. That abates in the fall and it abates in the winter. So in terms of the longer-term trajectory, it will improve. It just won't improve in the next couple of years.
There are a few things that we're focused on with the FAA. They've been a very collaborative transparent partner this summer in terms of collaborating with us and letting us know when there are staffing challenges going into events. But what that has translated to is longer events and more restrictive events. And that has impacted obviously, as we mentioned in the prepared remarks, July completion factor by 4 points.
As you think about the other things that we can do to help mitigate some of the near-term challenges given our exposure, additional slot relief next summer is going to be something that we're working on with the FAA. Obviously, the sooner the better on that slot relief because it will enable us to pull costs out. The way the slot relief came in this year was too close in and we'd already hired pilots and in-flight and we just kind of reabsorbed those in as additional operational protections.
But if we can address the slot relief earlier, that will enable us to pull capacity more efficiently. And then we're going to have a smaller footprint in LaGuardia next summer as we think about stepping down the NEA. And so that should provide some relief as well. And then hopefully, with Spirit, that will help us diversify the network longer term out of the Northeast in New York more quickly.

Operator

Your next question comes from the line of Shaleen Becker from TD Cowen.

Helane Renee Becker

It's Helane. Just a question on the weather-related issues. They've been getting worse every summer for the past decade. And I heard your answer to Catherine's question about ATC, and I appreciate that. But as you think about whether in 3 of your biggest markets, Boston, New York and Fort Lauderdale, how should we -- how should you think about adjusting capacity for summer months to not get into a situation where you're continually having 3 days in a row of irregular operations.
And then the other question I have, unrelated a little bit. I'm just kind of trying to figure out when you figured out that Europe was going to be the strong place this summer because as part of the Northeast Alliance, you should have seen where your passengers -- the passengers you were putting on American flights were going. So kind of trying to rationalize this to Europe being so strong, yes, but shouldn't you have seen it?

Joanna L. Geraghty

Helane, I'll grab those and then Robin might have some additional commentary on the weather as he's been spending quite a bit of time studying it on the weekends. So in terms of capacity reductions in the Northeast to address potentially more challenging weather environment, as a reminder, new York is slotted. And so reducing capacity without FAA relief is going to be a challenge for us. And as we've mentioned, New York was an incredible margin producer for JetBlue pre-COVID. And so New York continues to be a very strategically important part of our network. And even in the face of weather, we need to operate within that environment.
We know weather. It has been worse this summer. But in terms of the magnitude of the challenges, and this really requires the FAA to continue to pursue its plan to hire more controllers and also address the inexperience issue. During COVID, as we know, they lost a number of experienced controllers. And so that plays into events on the weekends when weather typically hits. And the FAA has done a number of things over the last few weeks to try to address that experience gap issue so that we hopefully can avoid some of these more restrictive programs when you have weather that maybe slightly worse than years prior, but not the magnitude that we're seeing this summer in terms of the restrictive ATC programs.
And then with regard to Europe, as you think about last summer and our revenue performance last summer, demand was incredibly strong in our domestic and our Caribbean franchise. Our belief was that some of that would come out and we address that and how we planned the year, but that some of it would actually spill over into this summer. If you remember, April, we had a very strong Easter break. We had a very strong spring break.
And we believe this summer, we would see some of the extra COVID pent-up demand play out for those customers who were limited in being able to fly last year because fares were higher and capacity was more limited. Obviously, that hasn't played out quite as we expected. But hindsight is [20-20]. And while they're all in, in Europe and Asia this summer, we expect that to cycle through as well just as that extra COVID pent-up demand we saw last summer cycles to a different geography this summer. And Robin, I don't know if you want to answer the...

Robin N. Hayes

Yes. Helane, the other point I would just add on the demand, what we've seen is -- I mean, I'll give you some examples. I mean, markets like New York, Nantucket, Martha's Vineyard and markets like that have always been extremely strong performers for us in the summer. People look at the ATC environment, they look at the weather and they drive and get on the ferry.
And so I think these things are, also to a certain degree, co-mingle. So people may take less trips or they want to do one trip and it's a longer trip. I think Joanna's point, I mean, the demand -- I mean, there's a lot of people traveling. Our load factor today is well into the 90s. So it's not that people aren't traveling. It's just -- on the domestic system, as you know, the fares this summer have come in lower than I think everyone in the industry had expected.
I mean, on the weather that you asked, I mean, we have a team of metrologists. I think we are really good at this, given how important it is to JetBlue being so focused in the Northeast. We spend time -- and actually, we work with a company called [Tomorrow IO], which was one of the original JetBlue Ventures investments that we made as well, and it's been amazing to see how that business has evolved over 10 years.
But we look at varying measures in terms of the synoptic analysis, the participation, the service analysis, the pressure. And there is no doubt that the conditions this year have set us up, at least for July, for a more challenging environment. Having said that, it still compares, in terms of severe weather, 2016 was worse. So it's been worse than recent years.
However, as Joanna said, it's not just the weather. We are seeing -- when weather comes in, we're seeing programs earlier, we're seeing them lasting for longer. If you look at LaGuardia last Friday night, for anyone who was flying, I think we had -- there were 50 industry airplanes out there. And it gets very challenging to recover from those events and then it bleeds into the next day.
So I think we made a good call on the amount of disruption that we would see this summer. What we underestimated is the ATC impact to these weather delays. And again, Joanna stressed the important point, the FAA, they accept the challenge they've got. They've been extremely collaborative. No one is interested in finger-pointing. People just want a system that works. That's what we want, too.
And I'm confident that as we get to 2024, whatever, how will we do it, whether it's more controllers, whether it's different work resources, whether it's a slot waivers again, that we have to get, as an industry, an FAA to a better operating solution for the flying public. And at JetBlue, we will be vocal in making sure that, that happens.

Helane Renee Becker

That's really helpful. Hopefully, we get a budget. And I think it was actually 61 planes at the peak last Friday night at LaGuardia.

Operator

Your next question comes from the line of Duane Pfennigwerth from Evercore ISI.

Duane Thomas Pfennigwerth

Just taking a step back, can you remind us how much of your revenue and your capacity touched the NEA at peak? And is there any potential fleet implication here? In other words, could some of this capacity get parked? Or will it all be transitioned to markets away from New York and Boston?

David C. Clark

Duane, this is Dave. I'll take that. As noted, we are very exposed to the Northeast and concentrated there. Our New York and Boston is 75% to 80% of our capacity, just to sort of put it in terms of order of magnitude. So it's the vast majority of what we do. As mentioned, though, we see certainly opportunity for redeploy. We've already started to execute that, and we'll be continuing to execute that over the coming periods. But with the non-New York part of our network driving above 2019 margins in the second quarter, we feel confident that we've got a number of good options to redeploy this capacity into. So don't expect it to impact the overall level of capacity, but certainly the geographic deployment of where it (inaudible).

Duane Thomas Pfennigwerth

I guess not the 75% to 80% that needs to be redeployed, but what percentage touched the NEA specifically, if you had there. And then just for my follow-up, can you remind us what JetBlue committed to with respect to labor to be able to implement the NEA? Was there a rate bump specifically tied to that?

Robin N. Hayes

Yes. So there was. I would say that was before the last extension that we did. So to a certain extent, that's sort of in the past, Duane, because that's kind of just kind of where we started from in terms of where we got to. And that was for the pilot group.
And the other thing I just wanted to add to what Dave said is that a lot of the LaGuardia flying that we talked about getting redeployed is very -- is short-stage flying. So what you're going to probably see is that get deployed to longer stage markets, 190s are disappearing, A220s arriving.
So you're going to see a [stage and gauge] bump on that. So it might be a larger number of flights being redeployed to a fewer number of flights in the stage and those flights are going to go up. So it's not -- and from an ASM perspective, it won't be that material. It will be from a sort of a New York flight count and exposure to flight -- per flight costs in New York and the ATC issues that are obviously per flight in New York.

Operator

Your next question comes from the line of Stephen Trent from Citi.

Stephen Trent

Most of them have been answered, but I was curious if you wouldn't mind providing any color on what sort of competitive dynamics you're seeing southbound into the Caribbean and LatAm, for example. We hear, for instance, a carrier called Arajet that recently started. And I'm wondering to what extent you guys are bumping shoulders with them.

Joanna L. Geraghty

Yes, I'll take that. I think in terms of industry capacity, there's most certainly industry -- increased industry capacity into Latin and Caribbean but it's also a market that tends to be quite resilient. And as you think about last summer and just the sheer volume of pent-up demand to go to some of these VFR markets, we're most certainly seeing that translate into the summer.
That's where our capacity has largely been. We're around flat capacity for domestic but up in the Latin leisure markets. In terms of competitive new entrants and whatnot, I think JetBlue has a strong franchise down there. We do Latin and VFR traffic very well. We do leisure very well. It's sort of our bread and butter and one that we will continue to grow and redouble our efforts with that segment.

Stephen Trent

Super. Appreciate that. And actually, just one quick follow-up to Duane's (inaudible) question. When you think about the shift from E190s to A220s, I believe, definitely going with a bit of a bigger plane. But should we also assume that you'll also be maybe getting rid of some of those smaller destinations or have those routes that were adequate for E190s 20 years ago, have they now kind of spooled up to accommodate the larger gauge flying?

David C. Clark

Yes, thanks. Stephen, it's a great question. All the cities we serve today with the E190 can be served at the 220 from an operational perspective. And from a demand perspective, we believe the same. So I would not expect any market exits as we go through the transition.

Robin N. Hayes

And just to add, I think in one sense here, the reduction in some of the short-haul business line, which I think everyone recognizes, and certainly, we will do from the trips that we used to do and don't do now, that are ones most under pressure. To a certain extent, that has coincided with the replacement of the 190s with the 220s. And the 220s, of course, are capable to a lot more mission in terms of length than the 190. So I think to a certain extent, that as we -- whether this was the NEA or not, we may be looking to redeploy from business markets into other markets. The 220 actually gives us much more flexibility to do that.

Operator

Your next question comes from the line of Scott Group from Wolfe Research.

Scott H. Group

So the maintenance step-up in Q4, I'm just wondering, does that continue into '24? I'm just -- you said for first half we'll have pilots, maybe we get some benefit from NEA coming down. But just overall, do you see a path to CASM ex being down next year?

Ursula L. Hurley

Thanks for the question, Scott. In regards to CASM ex fuel for 2024, a meaningful input to that is the actual capacity growth expectations, which I kind of highlighted earlier, is pretty fluid given the Airbus delivery delays as well as Pratt & Whitney. So if we were targeting mid- to high single-digit capacity, the goal would be to deliver flattish CASM ex fuel over the next few years.
Specific to your question on Q4, this is just the timing of maintenance spend specific to the year-over-year comp. What we have highlighted that maintenance will continue to be a headwind over the next few years just given the V2500 fleet, but that's also why we have the structural cost program in place. which I'm very pleased on the progress that we're making on that program in order to continue to mitigate maintenance pressures over the next few years.

Scott H. Group

Okay. And then, Robin, the NEA ruling and then your decision to withdraw, how does that, in your mind, bolster or not your confidence around getting the Spirit deal done?

Robin N. Hayes

Well, the -- first of all, folks on the Spirit deal -- but also if you read the complaint, there's -- they talk about -- the DOJ talks about the NEA. And certainly, it came up a lot during the course of the last year. And so we've completely taken that off the table. When we went into this at the beginning, we felt the NEA was pro-competitive.
We still do. We lost the case. And as such, we're moving on. And so this is now -- and I think if you look at the strength of the legacy airlines at the moment and just the benefit of the scale and the geographic diversity, I think this plays extremely well into our argument about creating a pro-consumer national low-fare, high-quality airline as the best catalyst the competition that we have. And so we're going to focus on now making that case.

Operator

Thank you.. There are no further questions at this time. I'd now like to turn the call back over to Mr. [Kush] Patel for any closing remarks.

Unidentified Company Representative

Thanks, Lara. And that concludes our second quarter 2023 conference call. Thank you for joining us.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask you please disconnect your lines. Have a lovely day.