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JetBlue Airways stitches sustainability into its growth strategy

Highlights

JetBlue Q3 capacity flat to down

US international travel restrictions remain in place

Recovery includes energy transition

As JetBlue Airways works to recover from lower air travel demand resulting from the coronavirus pandemic, it seeks to optimize operations by adding international flights, creating alliances with bigger airlines, and bolstering its commitment to energy transition.

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In the third quarter, JetBlue expects pre-coronavirus capacity of close to 2019 levels as it expands operations with international flights and an alliance with American Airlines.

"For the third quarter of 2021, our planning assumption is for capacity to be down between flat to down 3%," said Joanna Geraghty, JetBlue's chief operation officer on the July 27 results call.

Despite the recovery in VFR travel – Visiting Friends and Relatives – demand for business and international travel still lags – something JetBlue hopes to improve with its Northeast Alliance inked earlier this month with American.

Through the deal, JetBlue expects "significant growth" at four northeast airports – Newark, La Guardia, Boston, and JFK – due to a ramp up in business flights, JetBlue's senior vice president Scott Laurence said on the call.

Travel restrictions remain

Anticipated growth in international travel this summer is being stymied by White House which has said the United States will keep in place the travel restrictions set in 2020 that have barred most of the world from entering the country.

"We are disappointed with the continued restrictions on travel between the US and the UK and urge regulators to safely reopen borders for travel," JetBlue's CEO Robin Hayes said on the call.

Despite the restrictions, Jet Blue will continue with its plans launch its first transatlantic flight to the UK's Heathrow scheduled for Aug. 11.

JetBlue also expects to pay more for fuel in the third quarter than in the second -- $2.09/gal compared with $1.91/gal. JetBlue used 176 million gallons of fuel in the second quarter.

Also, the company said it has not entered into any fuel hedging contracts for the third quarter.

Energy transition push continues

As JetBlue continues rebound from the impact of the coronavirus on its operations, the company is building into its recovery the lowering of its carbon footprint.

"We continue on our path to achieve net zero carbon emissions by 2040 and we are pleased to report that we recently signed an agreement to purchase sustainable aviation fuel, or SAF, at LAX [Los Angeles Airport] and took our first delivery earlier this month," said Hayes.

Under the offtake agreement with World Energy and World Fuel Services, JetBlue will use 1.5 million gallons of blended SAF for three years at LAX – accounting for about 5% of its Los Angeles fuel demand.

This is not JetBlue's first foray into SAF. In 2020, JetBlue began fueling flights out of San Francisco with SAF, after inking a contract with Finland's Neste Oy, the world's largest producer of SAF.

Increased demand for SAF, planned work underway at Neste's Singapore renewables facility and rising renewable feedstock costs have increased the price of SAF around the world, with the spread between SAF on Northwest Europe and the US West Coast narrowing.

According to S&P Global Platts, so far in the third quarter, USWC SAF is holding a $15.43/mt discount to NWE barrels, compared with the second quarter's $212.99/mt.

The USWC prices include the $1/gal federal blenders' tax credit, credits from California's Low Carbon Fuel Standard, and value of the renewable credits – biomass-diesel D4 RINs – generated by producing SAF.

However, according to S&P Platts Global Analytics, out of a total of 396.2 million D4 RINs produced in May, only 460,000 RINs were generated by SAF, supporting higher RINs prices.

This contributed to the rising value of the price of USWC SAF with credits to an average of $6.49/gal so for in the third quarter from the $5.83/gal in the second, Platts data shows.

In 2020, JetBlue became the first US airline to become carbon neutral on its domestic flights through the purchase of carbon offsets. And earlier this month, the airline said it was investing in Joby Aviation, which is developing all-electric aircraft powered by green electricity and hydrogen.

"I will say it's an important part of our strategy moving forward, particularly around electric takeoff and landing," said JetBlue's Geraghty on the call.