Good morning, everyone. My name is Jillian. I would like to welcome everyone to the JetBlue Airways third quarter 2026 earnings conference call. As a reminder, today's call is being recorded. At this time, all participants are in a listen-only mode. I would now like to turn the call over to JetBlue's Director of Investor Relations, Koosh Patel. Please go ahead, sir.
Thanks, Jillian. Good morning, everyone, and thank you for joining us for our third quarter 2026 earnings call. Yesterday, 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 Joanna Geraghty, our Chief Executive Officer, Marty St. George, our President, and Ursula Hurley, our Chief Financial Officer. During today's call, we will make forward-looking statements about our outlook, strategies, and future performance. These statements are based on our current expectations and are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our earnings release and SEC filings for information about risk factors that could cause those differences. These statements speak only as of today, and we undertake no obligation to update them.
We may also discuss certain Non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in our earnings materials and are available on our investor relations website. Now I would like to turn the call over to Joanna Geraghty, JetBlue's CEO.
Thank you, Koosh. Good morning, everyone, and thank you for joining us today. I want to start by reinforcing the bigger picture and the progress that we are making. Despite significant fuel headwinds and a challenging summer operation, our revenue performance is among the strongest in the industry, with unit revenue up 18.4% in the third quarter and further acceleration expected in the fourth. Customer demand remains resilient, and we are seeing JetForward's benefits compounding with some of our largest opportunities still ahead. Importantly, we are already expanding margins year-over-year despite elevated fuel prices. We remain focused on operating profitability in 2027 and see multiple paths to at least $1 in earnings per share and positive free cash flow in 2028. Importantly, our liquidity and financing flexibility provide an important bridge as these benefits build.
The fuel challenges the industry faces are real, but so is our progress. JetBlue has a strong brand, a high-value network, customers who are loyal to our differentiated offering, great crew members, and a clear strategy to achieve sustained profitability. We are confident in our plan and focused on delivering the results that this airline is capable of achieving. Turning to the third quarter. I am very encouraged by the strength we saw in the underlying business this quarter. Revenue materially exceeded our initial expectations and strengthened as the quarter progressed, with momentum continuing into the fourth quarter. For me, two highlights stand out from the quarter. First, demand remained resilient even as industry fares moved higher in response to elevated jet fuel costs.
This revenue strength helped us recapture higher fuel faster than initially expected, and we achieved 87% recapture in the third quarter versus our initial expectation of 70%-80%. Second, Fort Lauderdale continues to demonstrate the strength of our network strategy, delivering strong unit revenue performance even as we significantly expanded our operation. At the same time, the quarter was impacted by an unusually challenging summer operating environment. Severe weather and air traffic control constraints across our core Northeast geographies reduced our completed capacity and increased our disruption in crew costs. Through it all, our crew members worked tirelessly to care for our customers and recover our operation, and I want to thank them for their tremendous dedication throughout such a demanding summer.
Even with elevated fuel prices and the air traffic control pressures we faced this summer, we still expect to deliver year-over-year adjusted operating margin expansion over the second half of this year. We saw modest margin expansion in the third quarter and expect 1 point- 2 points of further growth in the fourth quarter, even with fuel up 85%. We know there is still work ahead, particularly given elevated fuel prices and macroeconomic uncertainty. But our third quarter performance provides further evidence that JetForward is delivering results. We have now delivered four consecutive quarters of improving year-over-year RASM growth and are among the industry leaders for second-half revenue expansion. We remain on track to achieve our 2026 JetForward targets, with several important initiatives continuing to build into 2027 and beyond. We are already seeing that execution translate into results in Fort Lauderdale.
We expect our seat share to reach approximately 37% in the fourth quarter, up 14 points year- over- year, reflecting the scale that we are building as our operation expands. We are also deepening our engagement with local customers, and co-brand acquisitions in Broward County increased 55% year- over- year in the third quarter. These actions are driving strong RASM growth in Fort Lauderdale and illustrate the early success of our strategic capacity growth. BlueFirst is yet another important driver of our growth and is our largest JetForward initiative. Seats are now on sale, and we look forward to welcoming our first customers in early December. We are excited to offer customers a domestic first-class experience at an accessible price point.
At Runway, we expect BlueFirst to deliver nearly 5 points of RASM improvement, with its revenue and margin contributions building through 2028 and beyond. Turning to our financial position. We ended the quarter with $2.2 billion in liquidity and approximately $7 billion in unencumbered assets, including $2.8 billion in aircraft and engines. Together, these resources provide substantial financial flexibility and an important bridge as we execute JetForward and move toward a stronger earnings and cash flow profile. The progress that we are seeing across our business is real. Our revenue initiatives are delivering, we are beginning to expand margins year-over-year, and the benefits of JetForward are compounding as existing initiatives mature and new ones come online.
With the financial resources to support our plan, our focus is on building on that momentum to achieve sustained operating profitability in 2027 and achieve positive free cash flow and at least $1 of earnings per share in 2028. Let me be clear, that is where our attention is, and that is how we intend to create long-term value for our shareholders. With that, I will turn it over to Marty.
Thank you, Joanna. I also want to thank our crew members for their unwavering commitment to our customers and to JetBlue throughout the summer. Their efforts helped us navigate a challenging operating environment while continuing to deliver strong commercial results. Revenue was a clear highlight in the third quarter, and we are pleased that the strength we saw through September has carried into the fourth quarter. During Q3, revenue increased 18.4% year-over-year, roughly 4 points better than the midpoint of our initial guidance. That puts JetBlue among the industry leaders in year-over-year total and unit revenue growth this quarter, reinforcing the momentum that we have seen from our commercial initiatives. Higher yields, supported in part by our investments in revenue management technology, drove a majority of this outperformance.
Customer volumes remained relatively resilient, and we saw no meaningful signs of elasticity despite higher fares as we responded to elevated fuel costs. Both premium and main delivered double-digit revenue growth, with the strength in main particularly encouraging. Demand strength remained broad-based across both peak and off-peak travel periods, with healthy booking trends continuing into the fall. Turning to Fort Lauderdale, we have seen continued acceleration in revenue growth throughout the year, even as we significantly expanded our operations. In the third quarter, revenue increased nearly 15% year-over-year on more than 65% capacity growth. This performance demonstrates strong customer response as we continue to rapidly build scale in the market. We are expanding travel options for Broward County residents and creating more connecting opportunities for customers throughout our network by adding destinations and frequencies and optimizing our weekly bank schedule.
With 15 new destinations and increased frequencies to others, we expect peak daily departures to exceed 150 this winter, up 39% year-over-year. We recently launched service to two new destinations in Colombia, bringing our international network from Fort Lauderdale to 18 destinations. Robust growth required close collaboration, and I want to personally thank Mark Gale and the team at Broward County Aviation Department for their ongoing partnership as we continue to expand our operations. While we plan to continue to grow, we believe the third quarter likely represents our peak year-over-year growth rate in Fort Lauderdale. This should support further revenue expansion as our growth moderates and new capacity matures. Turning to BlueFirst, our new domestic first-class experience is now on sale across more than 30 routes.
Service begins December 8th between Boston and Fort Lauderdale and will expand to additional routes in a phased rollout. We prioritize markets with strong premium demand, where BlueFirst can help us capture high-yield bookings and improve our revenue mix. We're encouraged by the early response to BlueFirst, which suggests that we are tapping a pent-up demand for a domestic first-class product among existing customers, particularly on leisure routes from New York and Boston. Approximately 35% of bookings so far are award redemptions, and Mosaic members account for nearly a quarter of the seats booked. While still early, this engagement reinforces our confidence in BlueFirst's ability to capture more premium travel demand from our existing loyal customer base. We're also pleased with the progress that we are making in modernizing our revenue management technology.
We've completed the transition to a new system that improves forecasting and enables more sophisticated revenue optimization across our network, including automated management of Mint and connecting itineraries for the first time. Early results are ahead of our expectations, and we're adding capabilities to better anticipate shifts in demand, respond more quickly to market conditions, and support further unit revenue improvement over time. Loyalty continues to deliver strong sequential growth driven by our premium and partner strategy, with revenue up 20% for the quarter, the highest level of growth since 2023. Acquisitions of the Premier Card grew eightfold year-over-year in the third quarter as customers responded positively to the benefits refresh and the opening of our latest BlueHouse in Boston. Card spend remained robust across our co-brand portfolio, growing double digits, and Flyte Loyalty cash remuneration solidly on track for mid-teens growth for the year.
Our investments in premium products and partnerships are driving deeper Flyte Loyalty and engagement, with record levels of active TrueBlue members and Elite status qualification this quarter. Our newest BlueHouse launch has been met by great reviews and outstanding NPS results since opening in August, and it's just another one of the many investments we are making in the premium customer experience. Our Blue Sky loyalty collaboration, which improves global access for TrueBlue members, has now passed more than 1.1 billion TrueBlue points redeemed on United flights since the loyalty reciprocity launched in February. We're also seeing encouraging progress at Paisly, which delivered its strongest financial results ever in Q3. Further, rental car bookings through MileagePlus Travel have outpaced United's previous provider on a per-day basis since launch. We're building on that early traction with plans to introduce additional offerings throughout 2026 and the first half of 2027.
Paisly is on track to deliver nearly $100 million in operating income this year, with that contribution expected to nearly double by 2028, driven by the maturation of our existing JetBlue business and the continued ramp of planned offerings with United. Importantly, this target does not assume any additional partners, which presents the potential source of further upside as we expand the platform. Looking forward, we expect fourth quarter RASM to increase 18%-22% year-over-year. This represents further acceleration from the third quarter, despite year-over-year comparisons that are 2 points-3 points more challenging as we begin to lap the demand improvements that started late last year. This is expected to be our fifth consecutive quarter of escalating year-over-year RASM growth, which provides further evidence that our JetForward initiatives are delivering results and strengthening our revenue performance.
Based on what our competitors have guided so far, we expect to continue to be among industry leaders in the fourth quarter as well. For the full year, we now expect RASM to increase 13.5%-14.5%. Even with this revenue momentum, we remain disciplined with our capacity deployment. Fourth quarter growth is concentrated in Fort Lauderdale, where the initial return and substantial opportunity continue to support additional investment. Capacity in the rest of the network is flat to down. We expect fourth quarter capacity growth of 3%-4% and full year growth of 1.5%-6.5% year-over-year. Our fourth quarter capacity guide reflects significant impact of weather and operational disruptions that reduced completed flying last year. Excluding the impact of those prior year disruptions, scheduled capacity growth is nearly 2 points lower.
Taken together, continued revenue strength, disciplined capacity deployment, and the growing contributions from our JetForward initiatives give us confidence in our revenue trajectory as we close out the year and head into 2027. With that, I'll turn it over to Ursula.
Thank you, Marty. We're encouraged by the progress we're making on margins. We delivered year-over-year adjusted operating margin improvement in the third quarter and expect further expansion in the fourth as continued revenue strength is complemented by a meaningful step-down in the growth of our CASM excluding fuel. This progression is an important step towards sustained operating profitability in 2027. We are also taking concrete steps to further enhance liquidity and maintain the financial flexibility needed to execute JetForward. On the cost side, third quarter CASM ex-fuel increased 7% year-over-year at the midpoint of our updated September guidance. As previously communicated, our underlying unit cost performance remained consistent with our initial 2.5%-4.5% guidance range, excluding approximately 4 points of pressure from summer operating disruptions. Our third quarter fuel price was $3.91 per gal, 57% higher year-over-year.
Looking to the fourth quarter, we expect fuel prices of approximately $4.64 per gallon, with continued revenue strength supporting further progress in recapturing higher fuel costs. Looking to the fourth quarter, we expect CASM ex-fuel between -1% and +1% year-over-year. This represents a meaningful step-down in unit cost growth and a return to the cost trajectory we guided at the beginning of the year. For the full year, we now expect CASM ex-fuel growth of 3.5%-4.5%. Turning to profitability, we now expect a full year adjusted operating margin of -4.5% to -6.5%. The revision primarily reflects higher fuel prices, which created 3.5 points of pressure relative to our July outlook. Stronger revenue performance has helped offset a significant portion of these headwinds.
We also expect 1 point- 2 points of year-over-year adjusted operating margin expansion in the fourth quarter, despite fuel prices expected to be 85% higher than last year. This reflects the strength of our revenue initiatives and continued improvement in our underlying cost trajectory. Turning to liquidity, our position remains strong, and we continue to take a disciplined and proactive approach to managing our balance sheet. Our quarter-end liquidity was $2.2 billion, including our $600 million undrawn credit facility. We also provided notice to draw the incremental $250 million available under our aircraft-backed accordion, with funding expected in the fourth quarter. We have recently completed updated appraisals across our fleet, positioning us well for potential additional aircraft-backed financing.
Higher appraised values, together with eight A220 aircraft purchased with cash this year through the third quarter, bring the value of our fully unencumbered aircraft and engines to $2.8 billion, up from roughly $2 billion previously. This brings our total unencumbered asset base to approximately $7 billion. Importantly, our portfolio of unencumbered aircraft and engines includes a similar mix of assets as those we successfully financed earlier this year. Together with our existing liquidity, our financing options give us confidence that we have the flexibility and runway to navigate a prolonged period of higher fuel prices while continuing to support our operations and advance JetForward. Turning to capital expenditures, third quarter CapEx was $189 million, below our prior outlook, primarily due to the timing of one aircraft delivery and LGA slot payments shifting into the fourth quarter. Our full-year CapEx outlook remains unchanged at approximately $850 million.
We continue to expect annual CapEx below $1 billion through the end of the decade, supporting our path towards positive free cash flow and balance sheet improvements. Looking ahead, we expect the benefits of JetForward to continue compounding as our existing commercial initiatives mature, BlueFirst begins to contribute, and cost efficiencies build. That growing contribution supports our goal of achieving operating profitability in 2027 and progressing towards positive free cash flow. Further out, we continue to target at least $1 of earnings per share in 2028. While the mix of drivers may differ from what we outlined in July, our strong revenue performance reinforces our confidence that there are multiple paths to achieving that target, including through stronger unit revenues that could help offset potentially higher fuel costs. Despite the challenging macro environment, we are starting to see financial progress and adjusted operating margin expansion.
We still have plenty of work to do, but the path is becoming clear. We expect positive free cash flow in 2028 and believe we have the liquidity and unencumbered asset base needed to get us there. We will remain focused on disciplined execution and capital management to drive sustainable earnings growth and create long-term value for our shareholders. With that, we are happy to take your questions. Over to you, Jillian.
Thank you. We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Jamie Baker with JPMorgan. Jamie, your line is open. Please go ahead.
Thank you very much. Good morning, everybody. Ursula, can you discuss liquidity options from here and maybe dig into what the pecking order for future raises might look like? We've been assuming that aircraft-related debt was probably, I don't know, first in the queue, but have you considered the carve-out in loyalty deal, that $400 million of forward mileage sale potential? With the Paisly disclosure, there's been a lot of focus on the Air Canada precedent, but that's loyalty. We hadn't really thought about Paisly and how the value of that business could hypothetically exceed your equity market cap. Perhaps that's a more realistic option than issuing debt tied to TrueBlue. Quite a bit in here, but I'll let you run with it from there, if you don't mind.
Yeah, thanks for the question, Jamie. We believe we ended the quarter with a really healthy liquidity position at the $2.2 billion, including the revolver. As I mentioned in my script, we are looking to potentially do some incremental aircraft financing in the back half of this year. We are very focused on cost of funding. I mentioned we had our assets reappraised, and we have the $2.8 billion in aircraft and engines. However, we do have other levers that can help bridge us to 2028 in terms of liquidity, so other potentials that exist. We are focused on cost of funding, so in the immediacy, we're focused on aircraft as we end 2026. Maybe Joanna, over to you, if you have any other comments.
Yeah, I'll just add, I think Ursula did a nice job. She's laid out sort of the liquidity levers that we have on the debt side, and I think you correctly point out that we do have opportunities beyond traditional debt financing that could drive meaningful value without adding additional interest. I think the broader point I'd like to make is we have multiple avenues to strengthen liquidity beyond the current balance we have in the unencumbered assets to support our plan and bridge us to 2028, where we remain committed to the goal of $1 of EPS. That includes everything from, as you point out, Paisly. We have venture investments. Are there opportunities with the co-brand credit card? We're just not in a position today to further elaborate on those.
Okay.
But I think, point being, we've got a healthy liquidity balance and opportunities beyond what you see on the paper.
Okay, that's helpful. Thank you. Then just to follow up on the ex-fuel CASM, obviously fourth quarter capacity is going to be down to third quarter. Ex-fuel CASM is going to be meaningfully better. I know third quarter had 4 points of pressure in there. But even if we adjust for that, the sequential change looks pretty good. Are there any line items in particular that drive the planned outcome, or is it just sort of everything? Thanks in advance.
Yeah. So extremely pleased with the guide for the fourth quarter on controllable costs. The team has been executing exceptionally well. So the team had executed over $30 million of controllable cost savings in the third quarter. We're really focused on driving efficiencies, whether that's productivity, whether that's just in the technology that we're using, or even how we source it and procure with business partners. So super proud of the team. We always knew that this was going to be the trajectory and the cadence of this CASM ex-fuel performance this year. As a reminder, last year we did face 2 points of headwinds. We had some weather, we had the government shutdown.
Those contributed last year. That is making the comp year-over-year look a little better. What I will say, as we enter 2027, we have provided previous guidance that if we are growing mid-single digits, we expect to print a low single-digit controllable cost growth next year. That just speaks to the continued execution of the team.
Yeah
In regards to the JetForward cost initiatives.
That is great. Thanks, everybody.
Thanks, Jamie.
Your next question comes from the line of Brandon Oglenski with Barclays. Brandon, your line is open. Please go ahead.
Yeah, good morning, and thanks for taking the question. Ursula, maybe if we can come back to liquidity, because I think that's been the focus here with investors recently, especially with rumors of a creditor group forming or something here. I don't know if you can speak directly to that, but then maybe specifically as you look out, it looks like you will be burning through a pretty sizable amount of cash in the fourth quarter. I think seasonally, 1Q is a little bit soft for you as well. What would be the right amount of incremental capital that you'd be looking to raise here?
Yeah, appreciate the question, Brandon. Since we launched JetForward, we've used this 17%-20% as a percent of trailing 12 months revenue range as kind of guidance. We thought that this level would provide us the appropriate runway to execute JetForward through a volatile environment. I would still use that as a reference point. I think as the business continues to improve and we get to consistent profitability, that metric could evolve. Clearly, we're not managing the business to a percent in isolation. To your point, we're definitely managing our uses of cash, including fuel, working capital, obviously our debt obligations, and our capital spending. I do find comfort in the fact that we do have a CapEx profile that will be below $1 billion through the end of the decade.
As I mentioned in my prepared remarks, I do believe that we have a very healthy unencumbered asset base, like $2.8 billion being aircraft and engines, that I believe can be a really strong bridge to get us 14 months until 2028, when we're going to deliver the U.S. dollar EPS and positive free cash flow. I feel comfortable about where we're at to get us to a point where the business is generating healthy levels of cash going forward.
I appreciate that, Ursula. Joanna, maybe a bigger question here. Just how much debt do you think this company can sustain long term? JetForward appears to be working here. You guys have the bridge to get to 2028, but I guess longer term, where do you want to see leverage for this business? Thank you.
Yeah. At this point, we're focused on driving operating profit next year and delivering the U.S. dollar of EPS and a return to free cash flow in 2028. There are multiple paths to that goal. I think one point just worth mentioning, the fuel assumptions behind those commitments or those projections, we assume fuel is slightly above $4 for 2027, which I think is important. Then we assume consensus for 2028, which is around $3. Listen, our focus is on continued execution. We recognize we need to get to a position where we're repairing the balance sheet. Fuel obviously presents a challenging headwind. Again, I think there's a significant disconnect between the narrative and the bond market and what our financial results are demonstrating, but also the financial flexibility we have over the foreseeable future to bridge us to that 2028 EPS goal.
Marty, I just want to say one thing. When we gave that 2028 goal, we were doing that on second quarter 2026 revenues. Now, obviously, the pricing environment has changed pretty dramatically since then. I think what we're excited about is we have a lot of different paths to get to at least $1 EPS in 2028. I'll remind everybody, 2028 is 14 months away. This is a bridge, but it's not a very long bridge.
Yeah. Just the last thing I would add is when we deliver at least U.S. dollar EPS in 2028, we're producing positive free cash flow. The number one priority is going to be de-levering the business. I think it's important to note that we have a very manageable CapEx profile through the end of the decade, both sub-$1 billion, so all positive free cash flow, what will be going to improve the leverage metrics. I would also highlight that the most important part is driving margin expansion and helping the business de-lever. In the fourth quarter, we're expanding margins to the tune of 1 point-2 points, even with fuel up like 85%.
What that tells you is the underlying initiatives, if JetForward, are compounding and driving margin expansion, which is going to get us on a path where we are generating significant free cash flow so that we can delever and improve the credit metrics.
Thank you all.
Your next question comes from the line of Michael Linenberg with Deutsche Bank. Michael, your line is open. Please go ahead.
Oh, yeah. Hey, good morning, everyone. Marty, earlier you mentioned that you just were not seeing any signs of elasticity. I know there was a fare increase, I believe, that actually you led a day, not you personally, but JetBlue led a day or two ago. It looked like it did not go through. Is that a sign that maybe the consumer is, we are sort of at the limit? We have had, I do not know, somewhere between 15 and 20 fare increases since earlier this year. What is the appropriate read on that?
Hey, Mike. Thanks for the question. First of all, I will take credit for leading the fare increases because we have to get to compensatory pricing. We are still in a situation where prices in 2026 are still lower than the real prices in 2019. We have still not gotten back to 2019 pricing on a real basis. Second thing is, don't believe everything you read. I do not consider that fare increase failed.
Okay.
There was one airline that did not come along on a relatively limited number of days. 93% of our seats have been subject to that fare increase. So yes, 7% of the seats we actually pulled back on because one of our competitors didn't match for whatever reason. But notwithstanding, I do see resilience in pricing right now. Again, if you look at the inputs and let's take fuel out of it, let's just talk about rents and landing fees, let's talk about labor, let's talk about maintenance. There are a lot of cost inputs in this business that have gone up by big numbers since 2019, and we still have not caught up to those increases in real pricing.
So Mike, nobody looks at the environment and says that we've reached an equilibrium as far as pricing, but if you look at where cost is right now, we still have not, as an industry, caught up to the cost input changes.
Okay, great. Then just as a second question, Ursula, when we look at your aircraft that are delivering, I think you have a few more A220s this year, then I think another seven next year, nine in 2028. Should we assume that those are all going to just be paid for out of cash? If that's the case, at what point does your net debt peak? Is that 2028? I know you've talked about hitting free cash flow and de-leveraging, but there's always a bit of a lag, and so I'm just trying to go through the timing here. At what point does that net debt position peak before it starts coming down? Thanks for taking my question.
Yeah. So appreciate the question, Mike. As you mentioned, that is our go-forward delivery schedule. We have the $2.8 billion in unencumbered aircraft and engines today. That obviously is going to continue to build as we take deliveries. In regards to funding the business for 2027, it's our job to evaluate all markets, all assets, and basically run the analysis to say, what is the most efficient way to finance the business?
Based on where we sit today, I do believe that that's going to continue to be aircraft, but we will do the appropriate analysis at that point in time. What I will say is that I have zero concerns about being able to finance in the market.
The vintage and age of these aircraft are similar to what we financed earlier this year, and so I have all the confidence that we have a lot of flexibility and a lot of options as we go forward. But it's our job to make sure we're evaluating using the entirety of the unencumbered pool, all markets at that point in time. Joanna also mentioned that there could be some other non-debt opportunities for us to bring cash on the balance sheet that could also help bridge us to 2028 when we're delivering positive free cash flow.
Great. Thanks for that. Thanks, everyone.
Your next question comes from the line of Savi Syth with Raymond James. Savi, your line is open. Please go ahead.
Hey, good morning. Just maybe on BlueFirst. I was curious, any early learnings? Then just how many aircraft a month can you reconfigure as you get through next year? I am just trying to figure out how we should think about the cadence there.
Okay. Thanks, Savi. First of all, in terms of early learnings, I think by far our favorite fact is seeing how many of the seats being sold are being sold to our existing customers. I think there is a lot of speculation that this is a business model that was predicated on stealing customers from our competitors. It is just not what we are seeing at all. We are seeing our current customers flocking to fill these seats. I think that is actually a very good finding for us, number one. Number two, as far as the pace of installation, we will not be done installing until later in 2028. Frankly, the issue right now is supply chain. We can absolutely go faster. In fact, I was with Colin on Friday and had this exact conversation.
I am like, "We would love to get these seats in faster," but unfortunately, as is the situation with so many products in the industry right now, supply chain is a critical path factor. I would gladly take seats faster if we could.
The majority of the fleet will be complete in 2027.
End of 2027, yeah.
Got it. Appreciate that. Then just as you mentioned Fort Lauderdale, that growth should peak here in the third quarter and then you annualize into next year. Curious how some of your other focus cities are performing here and to where you would like to see growth next year.
We do not get into too much detail as far as performance by focus city. I would say that I think that we are much more even as far as profitability across cities than we have had historically, and I think we have had a lot of progress as far as right-sizing capacity. We have shrunk pretty significantly in Boston, New York, and Orlando temporarily to fund Fort Lauderdale, but we are expecting to backfill a lot of that capacity as deliveries come in. Overall, I would say that we love where this network has shaken out, and I would go back to the original conversation of the four key initiatives in JetForward, one of which being East Coast, best East Coast leisure network. We did not forecast Fort Lauderdale becoming available for a significantly larger focus city and a connecting operation when we wrote JetForward.
But at the core, it is completely consistent with what we originally said we wanted to be, which is the best East Coast leisure network. We are excited we have that opportunity. I am actually very optimistic of what we are seeing in San Juan right now. I think that we have a lot of opportunity across the system, which to me is a sort of high-class problem to have. It is one of the points I made in the script was we have reached a peak year-over-year growth in Fort Lauderdale, and now I think it is going to normalize to more typical growth, and I think that is going to give us the opportunity to backfill other places where we had to take capacity out.
Appreciate the color. Thank you.
Your next question comes from the line of Atul Maheswari with UBS. Atul, your line is open. Please go ahead.
Good morning. Thanks a lot for taking my question. You have $2.2 billion in liquidity, and you mentioned about the 17%-20% target of trailing 12-month revenues. Your covenants have a much lower requirement. My question is, what is the thought process on keeping liquidity at these high levels and whether it would make sense to lower the threshold internally so that you can manage through the near-term cash burn posed by the higher jet fuel prices without raising too much more debt?
Yeah, it's a really good question, Atul, and that's kind of what I referenced in my earlier response is we believe given the volatility in oil right now, and the business is still on a path to getting to positive op margin. 17% and 20% has been the target range. I think as we get the business to consistent profitability and churning out free cash flow, you could see us revise that target to be lower, especially if and when the oil environment settles down. So I think it's just a matter of time by which we adjust that target, but we got to get the business to a place where we're delivering $1 EPS in 2028 and generating positive free cash flow.
Okay, that makes sense. Then as a quick follow-up, you mentioned about the $2.8 billion unencumbered aircraft and engine base that you have. Is that an end of third quarter number? If so, what would be the unencumbered asset base after you raise the additional $250 million in the fourth quarter?
The $2.8 billion is as of quarter close Q3. Obviously that number, there are some puts and takes that will occur in the fourth quarter. So we will fund the $250 million aircraft-backed accordion in the fourth quarter. But we will also be taking four incremental aircraft deliveries within the quarter. So I expect at year-end the $2.8 billion to be roughly in the same ballpark that it was at the end of Q3 a nd another seven aircraft next year. So we're going to continue to add to that unencumbered asset base.
Great. That is a very helpful color. Good luck with the rest of the year.
Thank you.
Your next question comes from the line of Dan McKenzie with Seaport Global. Dan, your line is open. Please go ahead.
Oh, hey, thanks. Good morning, guys. Going back to the commentary in the release about meaningful runway for further growth as the commercial initiatives mature here. Just curious, what percent of the network is less than 12 months mature? Historically, when new routes have matured, can you just remind us what that RASM uplift looks like? I know you guys have pulled down pretty sharply in Newark and obviously the 85% growth at Fort Lauderdale.
Right now, great question. Right now for Q4 2026, 4% of the system is at less than one year, and only 5% less than two years. It is basically a mature network right now. We are really, really excited what we are seeing in Fort Lauderdale as far as the pace of growth on RASM, even with all the capacity increases, which we are really excited about.
Mm-hmm. Yeah. Okay.
I think the second issue is, again, we have hit peak growth in Fort Lauderdale, so we actually think that is actually a great launching point for a continued increase of revenue going forward in Fort Lauderdale. Then finally, we have barely scratched the surface as far as what we can do as far as revenue management capabilities, especially on connecting itineraries. I mean, this is something that we have only done manually for the history of JetBlue, because we carried so few connections.
We made this investment in a revenue management system before we realized that connecting itineraries would be so important. But we knew that we would be in a situation where it is good to have that capability, and then a year later, Spirit ends up creating opportunity for us in Fort Lauderdale. So we did prepare ourselves for this, and we are just barely starting to take advantage of it.
Mm. Very good. Then Marty, I noticed the basic first-class product that is out there that is competitive with peers. But can you just help us understand what percent of the revenue you would characterize as upsell and is that revenue pool outpacing system unit revenue trends today?
I actually don't have that exact number, and I'm not going to try to make one up on the spot. Right now we're very happy with the ability to put the Mint Base product in there. That was something we've been looking at for a while, but we wanted to wait until we had our second lounge open to do that, because we do think that the lounge access is a pretty big hook as far as having people want to get the opportunity to pay a little fare so they can have a lounge access. We just added a bigger partner called Plusgrade working on an upgrade product, which we are extremely happy with.
We may eventually build that product ourselves, but given that IT is always a constraint as far as, we want to do more than can actually get done, we're very happy to work with a business partner that can do that for us. It's been very effective so far. We've got a lot of stuff in the pipeline as far as better upgrade performance, obviously very important with the BlueFirst product coming in, as far as trying to make sure that we optimize unit revenue in that cabin. One thing that I think people are not getting much attention to is we're also using the upgrade products to better fill the EvenMore cabins.
We recognize that it's very important to maximize unit revenue premium seating, and we've got a lot of initiatives going on to make sure we get there.
Mm. Great. Thanks so much, you guys.
Your next question comes from the line of Catherine O'Brien with Goldman Sachs. Catherine, your line is open. Please go ahead.
Hey, good morning, everyone. Thanks for the time. Marty, can you dig in to what drove the 3Q RASM beat versus that initial July guidance? I know you noted broad-based strength, but any particular part of the network or cabin, a bright spot in particular? Could you share some color on the geographical or cabin-level assumptions underlying your 4Q outlook?
Okay. Great, Catherine. Thanks. First of all, I think the big surprise for us in third quarter was actually the strength of the trough. Historically, at JetBlue forever, we've had a pretty big drop off from August to September when kids go back to school. I think our original expectation was that we'd see a similar drop off. But the results we saw in September in sort of a pricing environment where we had some pretty significant fare increases due to the spike in fuel in August, which surprised us a lot. We did not have the expectations of the performance in September we did. The one fun fact that I think we all have been very surprised by, our average fare in September was higher than our average fare in July, which has never happened in the history of JetBlue.
I think the overall strength we're seeing, and I think it's what has resulted also in such a great fourth quarter guide, is that we're seeing troughs perform very well, which historically we have not seen. I think that's actually a very good sign of the underlying resilience. I will also say, we have pulled a little bit of capacity out of fourth quarter. Even with strong demand at this higher fuel environment, the marginal flying, there's definitely marginal flying that's not as accretive as we would like it to be. So we pulled that capacity out. I'd say for 2027, we gave a guide of low to mid-single digits. We're not guiding 2027 on this call. That'll be next call. But I think you'd expect that number to be more to the low end than the high end of that guide.
But again, we'll talk about that three months from now. But overall, I think that the way that the pricing environment has reacted and the customer demand environment has basically not significantly dropped, I think it's given us an incredible amount of optimism. I would say that we've seen a marginally better performance in international than domestic, but it is double-digit basis points. It's not that big. I think part of that is that Fort Lauderdale has been so incredibly strong, and that may be biasing it a little bit because Fort Lauderdale international has been outstanding. But overall, this is very broad-based, the strength we're seeing right now.
How does that flow for JetForward as well? So I mean, yes, broad-based strength across the network, demand remains resilient, industry pricing is constructive. But at the end of the day, we've also been at JetForward for two years working on a series of initiatives, as you know, that we believe are now driving a compounding effect. Which by the way, BlueFirst really still yet to come. I mean, we just went out for sale two weeks ago, I think. So whether it's Fort Lauderdale, the new revenue management system, our loyalty program with lounges and the Premier Card. I mean, co-brand sign-ups in South Florida are up 55%. Paisly, we just launched cards with MileagePlus. We've got all of that yet to come. Just really proud that this is not just
You know, industry phenomenon. This is JetBlue's strategy working underneath all of this, and it's beginning to deliver tangible benefits with a lot still yet to come.
Yeah, I would put on the fourth quarter, we are basically at the top of the industry, guidance as far as our unit revenue. The other airline in there is Southwest. Southwest is still lapping the change in bags and seats. We're producing those numbers without having done bags and seats year-over-year. I think that's a real testimony to JetForward.
Thank you.
Question comes from the line of John Godyn with Citigroup. John, your line is open. Please go ahead.
I was just hoping to have a broader dialogue about capacity growth. Can we revisit what the pros and cons are of a more substantial adjustment to your capacity outlook versus what is stopping you from reducing capacity more dramatically in order to improve profitability?
I guess I will take Do you want to take that?
Let me start. We are deploying capacity where the returns are the strongest. If you look at where we are today, all the growth is Fort Lauderdale, which is a generational opportunity for us, so that is where the focus is. We are not actually growing really elsewhere outside of Fort Lauderdale. At the end of the day, as you think about an elevated fuel environment, we are always managing capacity for the strongest returns. So, we are pleased with where demand is. We are pleased with our revenue performance. If you look at 4Q and into next year, the competitive supply environment is constructive overall. We will continue to manage our capacity for profit.
We are growing slower than the rest of the industry by a pretty good number. I am sort of surprised at the question. I think if you look at the network as it is developed, I think we have actually gotten to the point where we have got a very well-rounded network, especially with the opportunity we are taking advantage of in Fort Lauderdale. So, obviously, we will continue to adjust the network supply based on the fuel price and the revenue environment. As I look at our unit revenue right now, look at the revenue environment in general, I do not think we are in a situation where significant hacks at the growth plan would make any sense.
Sounds good. That is helpful. Thank you. Just as a follow-up, just tapping into loyalty a little bit. You mentioned that this was the highest level of revenue growth you have seen this quarter since 2023. You saw growth across revenue, co-brands, brand, and Premier Card acquisitions. I just wanted to double-click on that. Hear some of the puts and takes of that across the loyalty and any insight into the longer-term strategy there that you can provide. I would appreciate that. Thanks.
Yeah. Thanks, John. I will say a couple of things. First of all, if you look at the percentage of our revenue that we are getting from loyalty, versus our competitors, we are actually above multiple of our competitors as far as how much revenue we are generating. We have a very well-placed loyalty program as far as its contribution to the entire picture of JetBlue. What we are most excited about as far as loyalty is concerned are two. First is the Premier Card and what the launches are doing for us. That is an important part of JetForward, and we are really happy with the numbers we are seeing so far with respect to the Premier Card. We gave some stats about the Premier Card earlier. The second is Blue Sky.
We are now in a situation where the JetBlue co-brand credit card for a resident in any one of our cities, it will take you anywhere you want to go in the world with our partnership with United. That has been a shortcoming of the program historically. I think even with that shortcoming, we have, multiple quarters had revenue contribution higher than Delta's, even though that is a very competitive credit card. Now that we've taken that, the Blue Sky capabilities of getting customers access worldwide into the card, we're really positive about the future growth going forward. We could not be happier with Barclays as a partner. I think we do benefit by having a partner that does not have their own proprietary credit card, because we are fully aligned as far as our objectives versus their objectives. We're actually very bullish on loyalty.
It's been a strong contributor to JetForward, and I think as you know, every other quarter, we update JetForward. I think we'll be talking more about Barclays going forward in our next update.
Great. Thank you, guys.
Thanks.
Your next question comes from the line of Michael Goldie with BMO Capital Markets. Michael, your line is open. Please go ahead.
Morning, and thank you for the question. System load factors came off 150 basis points year-over-year. Can you discuss how much of that reflects the broader environment where we are seeing some airlines trade loads for yield versus the impact of Fort Lauderdale and Florida? If you exclude Fort Lauderdale, what does that look like?
That is a great question, Michael. First of all, I think, yes, there has been. We said there has been no meaningful increase in elasticity. We have seen a little bit of reductions, and I think the industry has reacted by pulling down capacity, and we pulled down capacity in the fourth quarter versus what we originally loaded in the first quarter. I think the reaction has been very appropriate to what we are seeing.
It is very clear that the truly price-sensitive, the $39, $49 customers on Spirit, a lot of them have disappeared as prices have gone up. I will remind you that Spirit had a negative 40%, 50% margin. Those are prices that are nowhere near compensatory with the cost environment of the industry right now. We actually look at the trade-off right now as far as price versus demand and supply is actually pretty well in equilibrium.
We will continue to adjust our capacity going forward based on customer demand. So far, I would say that with, again, with prices lower than. Real prices lower than 2019, I do not look at the pricing environment right now as being specifically problematic.
I appreciate we are in a period of just exceptional volatility, but can you share some thoughts about fuel hedging and is this something you would ever revisit again?
Yeah, it's a good question. We revisit that question often internally, and we debate it. Obviously, no one in the U.S., actually, in terms of our competitors, hedge. So just one consideration is being at a disadvantage or an advantage, I guess. Number two, right now it's very costly to enter the fuel hedge market. So, we'll continue to evaluate if it's a tool in the toolkit we want to start utilizing again to mitigate volatility going forward.
Thank you.
Your next question comes from the line of Catherine O'Brien with Goldman Sachs. Catherine, your line is open. Please go ahead.
Hey, I will try not to take it personally that you cut off my question. Glad you're back. It was all me, I know. I was on hold for a little bit, so I apologize if this has already been asked, but I just had a follow-up to the response we were talking about earlier on the 2027 guide. You said you're assuming fuel is over $4 a gal in that, which I'm guessing is higher than when you first guided back in July. I think it's absolutely prudent to be thinking lower end of capacity at these fuel prices, but thinking that might drive some incremental unit cost pressure versus your earlier plan. Can you just walk us through high level how your revenue outlook has changed to maintain that breakeven operating outlook? Is that rolling forward with the 4Q pricing environment?
Does that assume some incremental fare hikes from here? Or just how should we think about it?
Katie, thanks for the question. We gave a very high-level guide for 2027. We really didn't guide in too much detail. We gave a much better guide for 2028. I'm going to answer the 2028 question and then back it into 2027. When we originally guided 2028, we were guiding at consensus fuel and we're also guiding with the pricing environment that we saw in second quarter of 2026. Obviously, the pricing environment has changed dramatically. This is one of the reasons why, if you look at 2028, we don't know what fuel or the pricing environment are going to be in 2028. I think if you look at the various paths that we have to get to the $1 EPS, we still remain very confident that we have multiple paths to get there.
I think if you look at what we laid out as far as expectation, as far as industry capacity, GDP, fuel, et cetera, for 2028, those numbers have certainly changed. No matter how we look at it, we feel very good about getting the U.S. dollar EPS. I think that's because we are in a very good pricing environment now with respect to the increased fuel, number one. Number two, we have had very resilient customer response to the pricing as it exists. Again, I'm going to keep saying this because people don't fully get it. We do continue to have real prices that are lower than 2019 still. Given the current pricing environment, obviously, I think when we get to the next quarter, we get into a full 2027 guide and we update the 2028. We give more details.
Obviously, the unit revenue increases from second quarter 2026 are obsolete. Fundamentally, looking at consensus for 2028 and the current revenue environment, we feel much more confident about the U.S. dollar than we even did then, and we felt great at the time. I think we feel very good as far as where we stand right now. As it affects 2027, we are going to react to the environment as we see it right now and the pricing environment. We know we can get to a positive OP margin in 2027, even with fuel over $4. We feel very good about that, and we're going to give you a better guide for that next quarter as we normally would on a regular cadence for the upcoming year guide.
But we are extremely bullish, and I think it is one of the things that if you looked at the foolishness of the last week, we just get not much more confused because we look at the underlying business and say, we feel like we are in a fantastic spot.
Okay, great. Thanks, Marty.
As a reminder, if you would like to ask a question, please press star one to raise your hand. Your next question comes from the line of Ravi Shanker with Morgan Stanley. Ravi, your line is open. Please go ahead.
Hi, great, good morning, everyone. Apologies if I missed this with the gap in call, but just on fuel recovery, I think you said you had recaptured 87% of fuel in the third quarter. And Marty, you had mentioned about how, in the most recent round, maybe one of your peers in follow. Are you still confident that you can recover 100% of jet in 2027 if fuel stays here?
Yeah, we are absolutely confident getting it in 2027. I'd say even early 2027. Frankly, if you look at the original path for fourth quarter 2026, I think the biggest challenge was we had a big fuel increase in August, and we had a lot of revenue on the books. One of the things I think as an industry we are quite aware of, and I think as analysts you're aware of too now, there's a pretty big lag when you have big spike in fuel prices because everything you have on the books was priced at the previous fuel. I don't look at this delay as being anything other than an issue of timing and spikes. We still feel very confident. I think you heard earlier, the last fare increase did go through with the exception of one airline, which is relatively limited overlap with us.
We're actually very confident about the environment as it exists right now and getting to 100% next year. Again, we'll have more detail on that in our fourth quarter call.
Got it. Just to follow up, is the current focus on liquidity impacting any JetForward initiatives, either in terms of order of investment or if you're putting anything out?
Absolutely not.
You got a double no on that one.
I love it. Pretty emphatic. Thank you for that.
No, and I will say again, referring to Colin, if they can get us seats faster, we will take them. We are very bullish about the first.
This concludes our question and answer session and concludes today's conference. Thank you for your participation. You may now disconnect.