By Rajesh Kumar Singh and Deborah Mary Sophia

(Reuters) -JetBlue Airways on Tuesday warned it no longer expects to break even on an adjusted operating margin basis this year as bloated industry capacity in Latin America has depressed its revenue.

The New York-based airline said it is also facing higher operating costs as ongoing inspections of Pratt & Whitney’s Geared Turbofan (GTF) engines have grounded a number of its aircraft.

JetBlue’s shares were down about 17% at $6.25 in afternoon trading.

Latin America accounts for 35% of JetBlue’s total capacity. The company has had to cut fares as industry capacity in Latin leisure markets has increased over 60% since 2019 and has been growing double digits a quarter since the second half of 2023.

It has cut some of its routes and markets that were unprofitable, including Bogota in Colombia and Lima in Peru, and reallocated resources to better-performing regions. The company is trying to drive up ancillary revenue and trimming capacity in the autumn to better match supply with demand.

Still, JetBlue expects revenue in the second quarter to fall as much as 10.5% from a year ago. Full-year revenue in 2024 is estimated to decline in the low-single-digit percentage range, compared with its prior forecast for revenue to be roughly flat.

It reported an adjusted loss of 43 cents per share in the March quarter. Analysts on average were expecting a loss of 52 cents, according to LSEG data.

ENGINE ISSUES

JetBlue said it is seeking compensation from Pratt & Whitney because of the engine issues, which are expected to keep an average of 11 aircraft out of service throughout the year. It called the situation “frustratingly fluid.”

Chief Executive Joanna Geraghty said the airline also needs to cut costs to the current operating environment.

“A key component of our work to return our business to profitability is ensuring we maintain a low cost base in a year where we are not growing,” she said on an earnings call.

As part of the cost-cut effort, JetBlue said it was reducing its real estate footprint at several airports such as LaGuardia in New York and LAX in Los Angeles.

It has deferred about $2.5 billion in aircraft capital expenditure and offered buyouts to employees in corporate, airport and customer support functions.

The measures are estimated to deliver savings of $175 million to $200 million by the end of the year.

Last year, Pratt & Whitney’s parent company RTX said a rare powder metal defect that can lead to cracks in some engine components could ground hundreds of Airbus jets in coming years.

To mitigate the impact of the issues with the Pratt & Whitney engines, JetBlue is purchasing 12 of its leased Airbus A320 aircraft that were set for return. It also has an option to defer the retirements of about 30 A320 jets, which make up about 10% of its total fleet.

JetBlue shifted its investor meeting from May to the autumn this year, saying it needed to make progress with Pratt & Whitney to feel confident about its growth plans.

(Reporting by Rajesh Kumar Singh in Chicago and Deborah Sophia in Bengaluru; Editing by Shounak Dasgupta, Vijay Kishore and Michael Erman)

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