JetBlue Sees Costs Rising on Higher Labor Compensation

Jan 29, 2014 6:16 pm ET

(Corrects to show cost increases come from total compensation in first and second paragraph.)

Jan. 29 (Bloomberg) -- JetBlue Airways Corp. said more than half of a projected increase in unit costs in 2014 will come from higher compensation, including an agreement to raise pilot pay over three years.

The airline struck an accord with pilots to increase base rates by 20 percent, or $145 million, by 2017, it said today. Total labor costs will account for about 60 percent of the company’s growth in per-mile expenses, including hiring about 125 new pilots as the New York-based airline complies with changes in federal rules governing work and rest hours.

JetBlue employees aren’t represented by unions and work under five-year employment agreements that renew for an additional five years. The higher labor costs will make up most of JetBlue’s projected 3 percent to 5 percent growth in costs for each seat flown a mile, Chief Financial Officer Mark Powers said. So-called unit cost is a measure of efficiency.

“We’re committed to remaining peer competitive with respect to pilot compensation,” he said on a conference call. The base rate increase will add $30 million to JetBlue’s costs this year, $50 million in 2015 and $65 million in 2016.

The airline has about 2,500 pilots.

JetBlue fell 2.7 percent to $8.50 at 4 p.m. in New York trading. The shares rose 40 percent in the past 12 months.

Pilot duty and rest rules from the U.S. Federal Aviation Administration that took effect Jan. 4 were a “complicating factor,” and not a cause, of JetBlue’s decision to suspend flights at four northeastern U.S. airports during a winter storm earlier this month, the carrier said at that time.

Reduced Hours

The rule change, in some cases, reduced hours pilots could work per day in an attempt to limit fatigue, trimming maximum hours from as much as 16 to between 9 and 14. Pilots flying late at night, crossing multiple time zones or making numerous takeoffs and landings were restricted the most.

Fourth-quarter net income climbed to $47 million, or 14 cents a share, from $1 million, or break-even, a year earlier, the company said in a statement today. That compared with an average analyst estimate of 13 cents according to data compiled by Bloomberg.

Sales rose 14 percent to $1.37 billion, also exceeding forecasts averaging $1.35 billion. The early January storm reduced revenue by $45 million and operating income by $30 million, the airline said.

--Editors: Molly Schuetz, Niamh Ring