JetBlue Airways (JBLU 3.82%) entered 2022 with plans to rapidly ramp up flying to capitalize on an expected surge in travel demand. Unfortunately, the company's ambitions outran its ability to execute. A combination of bad weather, tight staffing, and overly optimistic planning has forced JetBlue to cancel a huge number of flights this month, to the dismay of its customers. Now, the airline is responding by significantly reducing its schedule for the next several months. Let's take a look.
Too many flights on the schedule
In January, JetBlue told investors that it planned to increase capacity by 11% to 15% this year compared to 2019. Given that the company's first-quarter forecast called for capacity roughly in line with 2019 levels, this projection implied 15%-plus capacity growth beginning in the second quarter.
However, JetBlue began the year with roughly the same number of employees as it had two years earlier. Its flight attendant ranks actually shrank over that period: JetBlue reported having 5,055 full-time equivalent flight attendants as of Dec. 31, 2019 but only 4,833 as of Dec. 31, 2021.
Image source: JetBlue Airways.
To be fair, a 15% increase in capacity doesn't necessarily require a 15% increase in staff if the mix of flying changes. Additionally, JetBlue has gone on a hiring spree since the beginning of 2022, aiming to meet demand growth. Nevertheless, it's clear that the airline's near-term growth plans have been out of step with its staffing. The head of the union representing JetBlue's flight attendants estimates that the carrier is currently short 600 flight attendants.
One meltdown after another
Under ideal conditions, JetBlue might be able to cope with a staffing shortage of this magnitude. However, tight staffing leaves no margin for error when disruptions occur -- as they inevitably do in the airline industry.
In JetBlue's case, severe weather in Florida -- one of its biggest markets -- and air traffic control issues led to a rash of delays and flight cancellations in the first few days of April. The airline canceled 15% of its schedule on Saturday, April 2 and scrapped a third of its flights on Sunday, April 3 in an effort to get crews and aircraft back in position for normal operations.
Unfortunately, this operational reset didn't fix everything. Last weekend, JetBlue canceled 18% of its flights on Saturday and 13% on Sunday. Management expects the problems to continue throughout April. In an effort to mitigate the damage, JetBlue is offering bonuses to flight attendants for picking up open trips and for not calling out through May 31.
Cutting flights to get back on track
In the near term, JetBlue doesn't have any great options for addressing its reliability problems. It is proactively canceling some flights in April to reduce the stress on its operation, but that inconveniences the passengers already booked on those flights.
Image source: JetBlue Airways.
Looking further ahead, the company recognizes that it must adopt more conservative growth plans. JetBlue had already cut its capacity plan for May by 6 to 8 percentage points as fuel prices soared last month, but it has now reduced May capacity by 8% to 10% from its original plan. The company also plans similar cuts for its summer schedule. That will get JetBlue's growth rate down to a more manageable level.
Can management balance priorities?
Between these capacity cuts and flight attendants currently in training becoming available for duty, JetBlue's flight cancellation crisis should ease in the coming months. However, the airline's recent run of dreadful operational performance has already damaged its reputation.
The good news is that travelers tend to have short memories. Most U.S. airlines have experienced one crisis or another in recent years with little to no long-term reputational harm.
NASDAQ: JBLU
Key Data Points
That said, JetBlue can't expect customers to forgive and forget if it keeps making the same mistakes. JetBlue's on-time performance has typically lagged that of its main rivals. The carrier's big footprint in the overcrowded New York and Boston markets -- where delays are more common -- partially explains this underperformance. Still, the airline has to find ways to become more reliable or it will risk losing customers permanently.
This makes JetBlue's recent offer to buy Spirit Airlines especially risky. Spirit also has a shaky record for reliability. Moreover, integrating two airlines can lead to major operational miscues. If JetBlue's bid succeeds, investors will need to pay close attention to how management handles the integration process to ensure that the company doesn't sacrifice reliability in the name of growth again.
