It’s generally pretty hard to turn around to business by making cuts. Yes, there is always some excess and fat that needs to be cut, but when you start getting rid of service, you simply have less to sell.
You can see this as retailers brag about cutting their inventory. It’s possible they had too much inventory or the wrong items in their warehouses, but you need merchandise to sell.
Related: Southwest Airlines sets date for new charges, changed policies
As Sears has been slowly dying, the chain had less and less to sell in its stores. That does cut expenses, but it also eliminates revenue opportunities.
When an airline struggles, there are certain things it cannot cut. Airlines have a lot of fixed costs and you can’t, say, do less maintenance on your planes or use fewer pilots to save money.
Generally, you can trim some executives, and maybe cut some other minor costs, but then you have to start cutting routes.
💵💰Don’t miss the move: Subscribe to TheStreet’s free daily newsletter 💰💵
In some cases, those routes are unprofitable, and may never become profitable. Most of the time, however, routes that are cut could be profitable, but simply have not yet gained enough traction.
JetBlue Airlines (JBLU) has struggled since its merger with Spirit was denied. Now, the company’s CEO has shared a deep list of cuts that might save the company in the short term, but will greatly hurt its long-term prospects.
Image source: JetBlue Airlines
JetBlue plans deep cuts
JetBlue plans to abandon Miami and cut service back to seasonal in Seattle. That makes some sense, as Miami is a more expensive airport to operate out of than Fort Lauderdale, where the airline has a strong presence.
CEO Joanna Geraghty sent a memo to employees this week laying out plans for further cuts:
- Reduced flying during low-demand periods such as Tuesdays and Wednesdays and flying fewer flights in some markets.
- Dropping unprofitable routes.
- Parking 4 Airbus A320s in the desert.
- Laying off some of the airline’s leadership.
- Across-the-board budget cuts.
- Reducing business travel.
This memo was first reported on by View From the Wing. In the memo, Geraghty makes it clear that these cuts are needed.
More on travel:
- US government issues sudden warning on Switzerland travel
- United Airlines places big bet on new flights to trendy destination
- Government issues new travel advisory on popular beach destination
“We’re hopeful demands and bookings will rebound, but even a recovery won’t fully offset the ground we’ve lost this year, and our path back to profitability will take longer than we’d hoped. That means we’re still running on borrowed cash to keep the airline running,” she wrote.
JetBlue needs a turnaround
An analysis of JetBlue’s financial picture by MacroAxis suggests it’s in a dangerous position, but it does have room to turn things around.
“JetBlue Airways’ likelihood of distress is under 26% at this time. It has slight risk of undergoing some form of financial hardship in the near future. Probability of bankruptcy shows the probability of financial torment over the next two years of operations under current economic and market conditions. All items used in analyzing the odds of distress are taken from the JetBlue balance sheet, as well as cash flow and income statements available from the company’s most recent filings,” it shared.
Geraghty explained the company’s JetForward turnaround plan (which includes saving money by leaving out spaces between words) during its first-quarter earnings call.
“JetForward is a multi-year plan, and as we continue to make progress, we are also acting expeditiously to manage near-term uncertainty. We were the first carrier to make meaningful capacity adjustments in response to changes in the environment, pulling two-and-a-half points of trough capacity from March and making early changes to April. Since then, we’ve executed similar reductions across the second quarter, and we’ll continue to make adjustments to better match supply with demand throughout 2025,” she said.
Consumers appear to have responded well to some of the changes.
“We’re proud to have entered 2025 with industry-leading net promoter score performance, and for the first quarter, NPS improved double digits year-over-year, marking the fourth consecutive quarter of year-over-year growth,” she added. “NPS is a strong indicator of customer retention and brand loyalty, which will be important as we navigate through the uncertainty.”
(The Arena Group will earn a commission if you book a trip.)
Make a free appointment with TheStreet’s Travel Agent Partner, Postcard Travel, or email Amy Post at amypost@postcardtravelplanning.com or call or text her at 386-383-2472.
