JetBlue to double share buyback as checked bag fees boost revenue

NEW YORK (Reuters) - JetBlue Airways Corp JBLU.O on Tuesday said it was earning more than expected from checked bag fees and higher-priced fares and it plans to double the money it will return to shareholders via stock buybacks.

JetBlue Airways aircrafts are pictured at departure gates at John F. Kennedy International Airport in New York June 15, 2013. REUTERS/Fred Prouser/File Photo

The New York-based airline said new fares and fees for add-ons it rolled out last year, including a $20 checked bag charge for its lowest-fare customers, generated an expected $260 million in 2016, compared with a prior forecast of $200 million.

As part of the windfall, the carrier is expanding its share repurchase program to $500 million from $250 million through 2019.

JetBlue also said it planned to increase flight capacity between 6.5 percent and 8.5 percent in 2017, down slightly from 2016’s growth.

“We are able to grow at a rate higher than the industry average and also deliver (pre-tax profit) margins that are above industry average,” Chief Executive Officer Robin Hayes said in an interview.

When asked about potentially buying CSeries jets from Bombardier Inc BBDb.TO, Hayes said. "As an aviation buff, I'm a fan of the plane," he said, but added that JetBlue is not actively looking to order aircraft after a recent deal with Airbus Group SE AIR.PA.

JetBlue’s shares were up 4.6 percent in mid-afternoon trading, partly on better-than-expected unit revenue guidance reported on Monday.

The company said it would generate up to $300 million in annual cost savings by 2020, including up to $65 million from evaluating suppliers and spending at airports as well as automating more of the customer experience.

Staff, once constrained to stay behind a counter, will be free to approach customers who need help most, interim Chief Financial Officer Jim Leddy said in the interview.

The change is not about headcount and will “not necessarily” result in fewer hours or lower pay for employees, he said.

Cost savings also include about $20 million per year from reviewing agreements with online travel agencies, JetBlue said.

“There’s just no way to get across the real value of a JetBlue experience versus flying any of our competitors,” Marty St. George, JetBlue’s executive vice president of commercial and planning, said in the interview. “Getting back towards a direct model is probably a better solution for us.”

For months, airlines have tried to draw passengers to their homepages to upsell add-ons like extra legroom. This effort has put airlines at odds with some websites, which only display the base airfare and has drawn the ire of consumer advocates who say it hampers comparison shopping.

Reporting by Jeffrey Dastin and Alana Wise in New York; editing by Alan Crosby, G Crosse and Meredith Mazzilli