WEBVTT - JetBlue CEO Joanna Geraghty Talks Travel Demand, Prices

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. We're here in Rio

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<v Speaker 1>di Jinnaro, and I am here with the CEO of

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<v Speaker 1>Jet Blue, Joanna Garrity. Here alive at the annual IADA Meeting. Joanna,

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<v Speaker 1>great to see you. Thank you so much for being

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<v Speaker 1>make this. I think we were last in our lounge together,

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<v Speaker 1>I know, and that's a big part of the whole story.

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<v Speaker 1>I want to start with demand for the lounge, but

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<v Speaker 1>more broadly from customers. Whether you've seen it really hang

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<v Speaker 1>in there the way that we've heard from some of

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<v Speaker 1>the other airlines, despite some of the concerns and the

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<v Speaker 1>higher costs that we're seeing.

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<v Speaker 2>Yeah, I mean, we're very pleased with the demand environment.

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<v Speaker 2>Customers are still flying. I think it speaks to the

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<v Speaker 2>importance of air travel and particularly going to the summertime.

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<v Speaker 3>Customers still want to have.

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<v Speaker 2>That vacation and so we're very pleased with that. Obviously,

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<v Speaker 2>the fuel environment is very challenging. We're passing on about

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<v Speaker 2>forty percent of the cost of fuel right now within

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<v Speaker 2>the chicket price, which isn't great. Obviously, you want customers

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<v Speaker 2>to really see affordable air travel, but we're seeing demand strong.

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<v Speaker 2>We're hoping it keeps up through the summer into the

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<v Speaker 2>end of.

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<v Speaker 1>The year with the forty percent increase to customers, Are

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<v Speaker 1>you seeing any pushback or people pretty okay with it?

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<v Speaker 1>Kind of hang in there.

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<v Speaker 2>I think everybody understands given the current environment where fuel

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<v Speaker 2>prices are, that airfares are going.

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<v Speaker 3>To be a bit higher.

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<v Speaker 2>Since twenty nineteen, before the fuel crisis, airfares, you know,

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<v Speaker 2>really hadn't kept up with the cost of inflation, and

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<v Speaker 2>so there's a little bit of catchup happening, and then

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<v Speaker 2>you add the increased fuel price on top of things,

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<v Speaker 2>and you know, I think we've got to make sure

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<v Speaker 2>that we're covering our cost. Spirit is a great example

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<v Speaker 2>of an airline that just couldn't cover its cost. Everybody

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<v Speaker 2>loves twenty nine dollars fares, but when your costs and

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<v Speaker 2>put cost are a lot more than twenty nine dollars

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<v Speaker 2>a customer, you know, it makes it makes it challenging.

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<v Speaker 1>At this point, it is it's sustainable with forty percent

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<v Speaker 1>passed on to customers.

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<v Speaker 3>If the prices of oil stay.

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<v Speaker 1>Where they are current lar or even inflect higher for

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<v Speaker 1>a prolonged period of time.

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<v Speaker 2>We need to continue to see prices stay where they are,

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<v Speaker 2>so that we can ensure that the full of at

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<v Speaker 2>the full cost of the incremental fuel costs are being

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<v Speaker 2>passed on. As we think about this year, I mean

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<v Speaker 2>it's it's close to a billion dollar incremental expensive.

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<v Speaker 3>Jet Blue fuel.

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<v Speaker 2>So we're really focused on how do we make sure

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<v Speaker 2>that we're driving great value for customers and the product

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<v Speaker 2>offering and the surface we provide, but also making sure

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<v Speaker 2>that we recapture those fuel costs.

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<v Speaker 3>You talked about Spirit.

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<v Speaker 1>Have you seen any pick up in business that you've

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<v Speaker 1>taken on from Spirit as a result of the bankruptcy.

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<v Speaker 2>We're definitely seeing some positive trends in Fort Lauderdale. It's

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<v Speaker 2>one of the opportunities for Jet Blue. Spirit obviously had

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<v Speaker 2>a big footprint down there. We're the largest carrier down there.

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<v Speaker 2>Now we look forward to continuing to serve South Florida.

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<v Speaker 2>We're adding flights this summer. We'll be up to one

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<v Speaker 2>hundred and thirty flights in Fort Lauterlo the summer, hopefully

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<v Speaker 2>growing tw one hundred and fifty through the peak next year.

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<v Speaker 2>And customers are responding very well to our product, to

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<v Speaker 2>our service down there, and we look forward to continuing

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<v Speaker 2>to serve that market.

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<v Speaker 1>A lot of people said it was a mistake retroactively

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<v Speaker 1>post factough it was a mistake that the anti trust

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<v Speaker 1>officials did not sign off on the merger between Jet

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<v Speaker 1>Blue a Spirit. I'm sure this is like a dagger

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<v Speaker 1>through your heart. You don't want to revisit this in anyway.

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<v Speaker 1>It was incredibly painful. There is a feeling though that

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<v Speaker 1>there would be a more kind of openness to consolidation

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<v Speaker 1>in the sector going forward. Would you want to try

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<v Speaker 1>again with something or are you just like absolutely not

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<v Speaker 1>by putting that aside.

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<v Speaker 2>Where public try company, So we're always going to do

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<v Speaker 2>with in the best interests of our shareholders, you know.

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<v Speaker 3>With that said, companies need to focus on the organic plan.

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<v Speaker 2>And when we think about all the time we spent

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<v Speaker 2>with Spirit trying to get that transaction done, we have

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<v Speaker 2>a great plan. Our Jet four plan is working. We're

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<v Speaker 2>looking forward to bringing first class on by the end

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<v Speaker 2>of the year across our domestic domestic fleet. We've got

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<v Speaker 2>our lounges opening up, We've got our great partnership with

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<v Speaker 2>Blue Sky. So you can obviously never say never as

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<v Speaker 2>a publicly traded company, but we really need to be

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<v Speaker 2>focused on getting Jet Blue healthy again, and all the

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<v Speaker 2>moves we're making are working in the right direction. Now

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<v Speaker 2>we just need the macro environment to cooperate with us.

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<v Speaker 1>You talk about the upgrades to some of your offerings,

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<v Speaker 1>in particular some of your premium your lounge for example,

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<v Speaker 1>which I had tended with you. I'm curious about how

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<v Speaker 1>much you've been able to meet that demand for upgrades

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<v Speaker 1>with supply of say Airbus planes coming in. We've heard

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<v Speaker 1>just some rumblings about delays. Has that been a problem

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<v Speaker 1>for you.

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<v Speaker 2>Yeah, there's definitely delays out there. Obviously, the supply chain

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<v Speaker 2>is still challenged even following COVID across whether it's engines

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<v Speaker 2>or aircraft. You know, we've got the right fleet that

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<v Speaker 2>we're operating now. We're going to be adding a first

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<v Speaker 2>class seat on through the end of the year. That's

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<v Speaker 2>you know, that's on track. That's largely on track, and

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<v Speaker 2>so we'll be able to meet that desire for a

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<v Speaker 2>premium seat that customers have today as we introduce that

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<v Speaker 2>product and then our loungees we bring Boston on at

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<v Speaker 2>the at the end of the summer, looking forward to

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<v Speaker 2>delivering that. Our goal is to have no lines in

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<v Speaker 2>our lounges we all walk by an airport lounge and

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<v Speaker 2>there's a line and people have you know, buzzers like

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<v Speaker 2>the old restaurants and whatnot. You know, the only line

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<v Speaker 2>we've seen in our lounge or lines to sign up

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<v Speaker 2>for the Premier card so that you can get into

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<v Speaker 2>the lounge. So, you know, I'm excited about the new

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<v Speaker 2>product offerings. We're going to have to deliver that experience

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<v Speaker 2>to customers.

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<v Speaker 1>So none of the airbus delays have really affected.

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<v Speaker 2>We're all seeing modest delays, but we're managing through it.

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<v Speaker 1>Meanwhile, the United partnership has been deepening, and I'm wondering

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<v Speaker 1>is it expected to deep it even further or some

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<v Speaker 1>of the regulators okay with that.

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<v Speaker 2>With this partnership really increasing, Yeah, we're still very much

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<v Speaker 2>in the sort of mid innings of actually implementing the

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<v Speaker 2>existing partnership. So we're focused on that. We introduce forcimplcal

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<v Speaker 2>Earn and Burn with our loyalty program. At the end

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<v Speaker 2>of last year, we just started selling interline flights on

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<v Speaker 2>each other's websites. We're also in the process of integrating Paisley,

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<v Speaker 2>which is our vacation and ancillary platform, into United dot

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<v Speaker 2>Com so that they can sell all their ancillaries on Paisley,

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<v Speaker 2>and that's where our focus is right now, is really

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<v Speaker 2>focusing on how do we continue to bring that partnership

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<v Speaker 2>to life. So we still got quite a bit of

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<v Speaker 2>runway to go with the existing partnership.

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<v Speaker 1>You know, there's a lot of existential discussion around the

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<v Speaker 1>model for low cost airlines. This idea of catering to

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<v Speaker 1>people with affordable air travel is getting somewhat difficult for

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<v Speaker 1>people just because the margins are so snarrow at a

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<v Speaker 1>time of crisis, it becomes really difficult. How do you

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<v Speaker 1>convince people that it's a viable model given all the turmoil.

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<v Speaker 2>Yeah, I mean, at the end of the day, we've

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<v Speaker 2>got to make sure we're covering our costs, and that's

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<v Speaker 2>an important component of this. If you look at what

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<v Speaker 2>happened with Spirit, there were many things that went went

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<v Speaker 2>sideways for them. You know, they had an engine issue,

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<v Speaker 2>so at one point, you know, a third of their

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<v Speaker 2>fleet was grounded. The product that they offered, the basic

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<v Speaker 2>economy product was matched by other carriers. We've matched that

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<v Speaker 2>as well, so their product offering didn't keep up.

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<v Speaker 3>You know.

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<v Speaker 2>Then you look at the regulatory landscape and being a

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<v Speaker 2>smaller airline. So what we're really focused on is how

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<v Speaker 2>can we leverage our partnership United to build scale. We've

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<v Speaker 2>got to make sure our cost day in check, and

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<v Speaker 2>we've got to make sure as we think about that

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<v Speaker 2>premier customers willing to pay a little more for a

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<v Speaker 2>better experience, that we really redouble our efforts there. But

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<v Speaker 2>also the customer that flies and coach, the customer that

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<v Speaker 2>flies an economy, they're equally important. So we've got to

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<v Speaker 2>make sure that we don't tinker too much with the

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<v Speaker 2>premier experience, that we really compromise that customer who needs

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<v Speaker 2>affordable air travel.

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<v Speaker 3>But affordability it's relative. If you look.

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<v Speaker 2>At you know, customers that take a taxi from say

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<v Speaker 2>midtown Manhattan to JFK, it's one hundred and fifty dollars

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<v Speaker 2>in an uber to take an uber.

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<v Speaker 3>Nobody complains about that.

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<v Speaker 2>But when an airfare is one hundred and fifty dollars

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<v Speaker 2>from JFK to Fort Lauderdale, you know, you got a

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<v Speaker 2>lot of folks saying air travel is very expensive, and

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<v Speaker 2>you know, I would submit air travel actually remains highly affordable. Yes,

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<v Speaker 2>it's a bit more expensive because of the cost of fuel,

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<v Speaker 2>but we have a lot of input costs and they've

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<v Speaker 2>only gone up since COVID.

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<v Speaker 1>Well, this is the issue, and I think that this

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<v Speaker 1>is where people are struggling. That there's a lot of

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<v Speaker 1>hangover debt. Jet Blue has a bunch of debt. To

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<v Speaker 1>service that debt, to invest in premiere experience to keep

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<v Speaker 1>up with some of the major the big three that

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<v Speaker 1>have these deep pockets is incredibly challenging. What's the pathway

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<v Speaker 1>to do that, to pay down debt, to free yourself

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<v Speaker 1>up while also tackling some of these other areas of growth.

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<v Speaker 2>Yeah, I mean the focus is generating an operating profit

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<v Speaker 2>to begin with, and we're not there yet. So first

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<v Speaker 2>step is generating an operating profit, which we were on

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<v Speaker 2>track to do this year until the war, and so

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<v Speaker 2>that's a bit of a step back obviously, given you

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<v Speaker 2>know the cost of fuel and so much money is

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<v Speaker 2>just being directed towards that. The hope is that that

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<v Speaker 2>moderates and that comes to an end and fuel comes

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<v Speaker 2>down over time, and then we'll be back to focusing on.

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<v Speaker 3>Gendering and offer and operating profit. That's the first step.

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<v Speaker 2>The second step is then free cash flow and you

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<v Speaker 2>start paying off your debt, but we need to be

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<v Speaker 2>very mindful of that. We do have a pretty heavy

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<v Speaker 2>debt burden, but we also have a lot of liquidity.

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<v Speaker 2>We also have a lot of unencumbered assets. So you know,

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<v Speaker 2>as I think about Jet Blue, the debt is a challenge,

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<v Speaker 2>but we are focused on doing all the right things

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<v Speaker 2>in terms of investing in that premium customer so that

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<v Speaker 2>we can drive and improve revenue environment for the company.

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<v Speaker 1>Where do oil prices have to go to get it

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<v Speaker 1>profitable once again.

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<v Speaker 2>Yeah, I mean I'm not going to put a number

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<v Speaker 2>out there. They need to go down. That's our focus

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<v Speaker 2>is they need to go down and moderate. We're not

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<v Speaker 2>planning even if the war were to end. We're not

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<v Speaker 2>planning for oil prices to snap back overnight. We think

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<v Speaker 2>it's going to be a longer protracted sort of unwind

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<v Speaker 2>of the escalated fuel prices.

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<v Speaker 3>You know, and at the end of the day, you know, our.

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<v Speaker 2>Focus needs to be I'm really not losing sight of

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<v Speaker 2>our plan. We see it working when you strip out

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<v Speaker 2>all of the macro noise. We do see that Jet Forward,

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<v Speaker 2>which is our turnaround plan, is working. We just need

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<v Speaker 2>the macro environment to cooperate with us and that's been

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<v Speaker 2>challenging the fuel environment.

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<v Speaker 3>Shut downs.

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<v Speaker 2>You know, it's kind of hit the customer, hit the

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<v Speaker 2>airline industry, I think in a disproportionate way to some

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<v Speaker 2>other industries.

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<v Speaker 1>I just want to finish by asking.

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<v Speaker 3>Are there any new routes coming up that you want.

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<v Speaker 1>To talk about.

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<v Speaker 2>It's all about Fort Lauderdale, so I'd say keep your

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<v Speaker 2>eyes focused there, and we're actually building a connecting operation there,

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<v Speaker 2>so if you have a need to go to the

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<v Speaker 2>Caribbean into Latin America for lauderd it's me a great

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<v Speaker 2>way to get there, even if you're not originating there.

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<v Speaker 3>And we're known for point to point. We're building a bit.

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<v Speaker 2>Of a different model down there and excited to see

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<v Speaker 2>how that brings value to customers and really helps drive

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<v Speaker 2>our profitability.

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<v Speaker 1>Joanna, thank you so much for being with us. Thank

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<v Speaker 1>thanks so much atuay here with us at the ADA

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<v Speaker 1>General Conference in Rio Dejaneira.