In July 2018, JetBlue Airways (JBLU 1.23%) ordered 60 A220-300s from Airbus (EADSY 0.95%) as part of a plan to modernize its fleet and reduce unit costs by retiring its less-efficient Embraer E190s. Less than a year later, the airline exercised options to buy another 10 A220s.

JetBlue began operating its first A220-300 last year, and it seems very pleased with how its newest jets are performing. This week, the low-fare airline announced that it has exercised another 30 options, putting it on track to have 100 A220s in its fleet by the end of 2026. Let's take a look at what this means for the company.

Waffling on E190 retirements

JetBlue Airways has operated the E190 since 2005. While the 100-seat jet has helped the airline expand its service into smaller markets, unit costs have been significantly higher than anticipated, due to high maintenance costs and the model's subpar fuel efficiency. As a result, JetBlue has been considering the future of its E190 fleet for many years.

An Embraer E190 in JetBlue's livery on the airport tarmac.

Image source: JetBlue Airways.

In 2018, the airline decided to accelerate the retirement of its E190 fleet and chose the Airbus A220-300 as its replacement. The A220-300 has per-trip operating costs similar to the E190 but holds 140 seats in JetBlue's configuration. That translates to a 29% reduction in direct operating costs per seat.

The initial plan called for retiring all of the carrier's E190s by 2025. However, last summer, JetBlue told investors that it would delay the retirement of the 30 E190s it owns outright, while returning its 30 leased E190s as scheduled beginning in 2023. The goal was to provide incremental near-term capacity to support additional flights (mainly from the New York area) as part of JetBlue's new partnership with American Airlines.

Even as it delayed the E190 retirement schedule, JetBlue's management maintained that the airline would "eventually" replace those planes with A220s. However, until this week, the company hadn't specified its new fleet replacement timeline.

JetBlue clarifies its plans

On Tuesday, JetBlue said that it has exercised 30 of its 50 remaining A220 options. That will allow it to complete the retirement of its E190 fleet by 2026 -- just one year later than the original schedule -- without compromising its growth plans.

JetBlue ended 2021 with eight A220s in its fleet, and it expects to take delivery of 10 more this year. The bulk of its A220s (68, to be exact) will arrive between 2023 and 2025, with the final 14 deliveries scheduled for 2026.

A JetBlue Airbus A220-300 on the ground in front of a JetBlue hangar.

Image source: JetBlue Airways.

The E190 replacements will unlock hundreds of millions of dollars of annual cost savings for JetBlue. The savings should ramp up quickly beginning in 2024, helping the carrier reduce its unit costs, despite the inflationary headwinds that airlines face.

More than just an E190 replacement

JetBlue's initial order for 60 A220s was designed to replace its 60 E190s on a one-for-one basis. Today, it has far more A220s on order than E190s in need of replacement. This highlights how the A220 will function as far more than an E190 replacement for JetBlue.

First, with 140 seats, the A220-300 isn't much smaller than JetBlue's aging Airbus A320s. Over the past few years, JetBlue has invested in cabin upgrades for most of its A320 fleet, but it ultimately decided not to modify 11 of its older A320s. Those aircraft will exit the fleet starting in 2023. Some of JetBlue's new A220s will effectively replace these planes.

Second, the A220-300 offers a unique combination of size, range, and operating costs, allowing it to profitably operate on routes that wouldn't work with any other aircraft. Adding this versatile jet to the fleet will unlock new growth opportunities for JetBlue. Some of the carrier's A220 deliveries over the next few years will likely be used to capitalize on these opportunities.

Thus, JetBlue's expanded A220 order should help the airline continue to grow while improving its profitability compared to pre-pandemic levels over the next five years. That's great news for shareholders, and it could pave the way for big share-price gains in the years ahead.