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JetBlue shares jump after airline surpasses cost-cutting target

By Tracy Rucinski

CHICAGO (Reuters) - JetBlue Airways Corp said on Thursday it had shaved $314 million from its cost base over the past three years, delivering on a cost-cutting drive designed to enable budget-friendly airfares over the next decade.

Curbing costs is a priority for many companies, but particularly for airlines like JetBlue, where costs have been rising faster than for many peers and whose business model depends on fares that can compete with legacy airlines.

The savings surpassed the company's $250 million to $300 million target, thanks in part to renegotiated engine maintenance contracts as it transitions to an all-Airbus fleet.

JetBlue, which spends $325 to $350 million a year on engine maintenance alone, signed a new contract for half of the 400 engines that power its A321 and A320 fleet this summer and is in the final contract phase for the other half.

Shares were up 4.7% at $20.72, outperforming stocks of other U.S. airlines.

The balance between product and cost for JetBlue - which sets itself apart from rivals by offering perks like extra legroom in coach, seatback Live TV and free Wi-Fi - had become a concern for investors.

Operating expenses per available seat mile, excluding fuel - a key performance metric - were flat in the fourth quarter thanks to the savings program and are expected to decline up to 2% in 2020 after a slight spike in the first quarter, JetBlue said.

"We've been able to get the balance right," Chief Financial Officer Steve Priest told Reuters.

JetBlue expects to receive its first A220 jet at the end of this year and a total of 70 by late 2024 or early 2025 to replace its Embraer fleet, a move that will provide an extra 30% reduction in operating seat cost compared to the Embraer E190.

Aside from the engine deals, Priest said the company has 160 different cost initiatives including new technology and a productivity drive that will continue to bear fruit over the decade.

JetBlue also plans to take delivery of 11 A321neo jets in 2020.

The airline, which currently flies to 102 cities in the United States, Caribbean and Latin America, is seeking to grow its capacity by between 5.5% and 7.5% this year. It plans to launch service to London in 2021.

Larger competitors like Southwest Airlines Co are having to scale back their growth plans due to the prolonged grounding of the Boeing 737 MAX. JetBlue does not operate the 737 MAX, which was grounded worldwide in March after two fatal crashes within five months.

However, JetBlue could still be hampered by a 10% tariff the U.S. government has imposed on European-made Airbus planes following a long trade dispute.

While most of JetBlue's Airbus orders will be made in Alabama and thus exempt from the tariff, it has still warned of a negative hit to its business and U.S. travel.

"We're concerned about the detrimental impact aircraft tariffs will have on the ability for low-cost carriers like ourselves to grow and compete," Priest said.

Total operating revenues rose 3.2% to $2 billion in the fourth quarter from a year earlier.

(Reporting by Tracy Rucinski; Editing by Bernadette Baum and Paul Simao)

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