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JetBlue Airways Corp. (JBLU) Q2 2020 Earnings Call Transcript

JBLU Earnings Call - Final Transcript

JetBlue Airways Corp. (NASDAQ: JBLU) Q2 2020 earnings call dated July 28, 2020

Corporate Participants:

David Fintzen — Vice President, Investor Relations

Robin Hayes — Chief Executive Officer

Joanna Geraghty — President and Chief Operating Officer

Steve Priest — Chief Financial Officer

Scott Laurence — Head of Revenue and Planning

Analysts:

Jamie Baker — J.P. Morgan — Analyst

Duane Pfennigwerth — Evercore ISI — Analyst

Catherine O’Brien — Goldman Sachs — Analyst

Darryl Genovesi — Vertical Research Partners — Analyst

Helane Becker — Cowen and Company — Analyst

Brandon Oglenski — Barclays — Analyst

Savanthi Syth — Raymond James & Associates — Analyst

Joseph DeNardi — Stifel — Analyst

Myles Walton — UBS — Analyst

Michael Linenberg — Deutsche Bank — Analyst

Presentation:

Operator

Good morning, my name is Nora. I would like to welcome everyone to the JetBlue Airways Second Quarter 2020 Earnings Conference Call. As a reminder, today’s call is being recorded. At this time, all participants are in a listen-only mode. I would now like to turn the call over to JetBlue’s Vice President of Investor Relations, David Fintzen. Please go ahead.

David Fintzen — Vice President, Investor Relations

Thanks, Nora. Good morning everyone. Thanks for joining us for our second quarter 2020 earnings call. This morning we issued our earnings release, our investor update, and a presentation we’ll reference during this call. All of those documents are available on our website at investor.jetblue.com and have been filed with the SEC. Joining me here in New York to discuss our results are Robin Hayes, our Chief Executive Officer; Joanna Geraghty, our President and Chief Operating Officer; and Steve Priest, our Chief Financial Officer. Also joining us for Q&A are Scott Laurence, Head of Revenue and Planning; and Dave Clark, VP of Sales and Revenue Management.

This morning’s call includes forward-looking statements about future events. Actual results may differ materially from those expressed in the forward-looking statements due to many factors and therefore, investors should not place undue reliance on these statements. For additional information concerning factors that could cause results to differ from the forward-looking statements, please refer to our press release, 10-Q, and other reports filed with the SEC. Also during the course of our call, we may discuss several non-GAAP financial measures. For a reconciliation of these non-GAAP measures to GAAP measures, please refer to the tables at the end of our earnings release, a copy of which is available on our website. And now, I’d like to turn the call over to Robin Hayes, JetBlue’s CEO.

Robin Hayes — Chief Executive Officer

Thanks, Dave and good morning everyone and thank you for joining us. Our thoughts are with all of our crew members who have been impacted by the ongoing pandemic especially the families, friends, and loved ones of those we have lost at JetBlue. I’m sorry to say that we are deeply saddened to have lost two more crew members to coronavirus both on July the 16th. We remember Brittney Jones from our airport operations team at Fort Lauderdale who joined JetBlue just over a year ago. She was known for her kindness and optimism with customers and her colleagues alike.

We also remember Orlando Tavarez, who was a quality control inspector in technical operations, and he most recently served on the temporary duty assignment in Fort Lauderdale. During his eight-year career with JetBlue, he exhibited our values, working with passion and pride in everything he did and considered himself quote unquote JetBlue 100%. Losing two beloved members of our JetBlue family on the same day is a painful reminder of this pandemic’s reach and severity.

In the last quarter, we’ve also seen issues of racial equality come to the forefront and prompted the long overdue dialog around racial equality and justice in this country. At JetBlue, we were born with a mission to inspire humanity and there is no more opportune time for us to show exactly what this means than through our actions. We are looking inwards, addressing our own processes and policies at JetBlue.

We have started to work with our crew members to prioritize meaningful changes that they would like to see in support of inclusiveness and racial equality. Leading with our values, we are committed to ensuring that we look at our business practices through the lens of diversity, equality, and inclusion.

As a company, we are also faced with a historic decline in demand and the reality of needing to be a smaller company for the time being. I want to take a moment to acknowledge the sacrifice made by our crew members who have decided to take voluntary opt-outs or participate in our voluntary time-off programs, which helps us adjust our staffing to the incredible drop in demand that our industry is facing.

By stepping up, they have protected many jobs at JetBlue, helping us to navigate the most difficult period in our history. We wholeheartedly thank them for their amazing contribution to JetBlue and to those of you who are leaving, we wish you all the very best in your next chapter.

Turning to Slide 4 of our presentation. For the second quarter, we reported a GAAP loss of $1.18 per share. Despite reporting a truly staggering loss that reflects the steep fall in demand that started in late February, we have been decisive in taking actions to protect JetBlue and to emerge stronger as we manage through recovery. In the past two months, we’ve made progress in reducing our cash burn and have been quick to re-size operations in this dynamic demand environment. Despite a recent softening in demand, we are still on track to take our cash burn to between $7 million to $9 million a day in the third quarter.

Since April, we raised nearly $1 billion in liquidity and our balance sheet remains among the strongest in the industry. While demand has improved materially from the historic lows we saw in April, bookings remain choppy and we remain focused on addressing changing trends as we progress through the summer. Our network continues to be impacted by spikes in COVID cases and quarantine measures, but we have seen that customers are willing to travel to see their family and friends. It is highly likely that this recovery will not be linear, but our smaller size allows us to respond quickly to changes in demand. We are confident that our low-cost, low-fare leisure model coupled with our trusted brand will be instrumental and central in navigating recovery.

Let’s move on to Slide 5 of our presentation. We recognize that recovery starts with rebuilding customers confidence in flying again. At the onset of this crisis, we created a comprehensive approach we call safety from the ground up. Our focus has been on taking all precautions with health and safety protocols that our crew members and customers are safe on the ground and, of course, in the air.

We have laid out a three-step recovery framework to set JetBlue up for success and to emerge stronger over the coming years. The first is to reduce our cash burn. Despite the challenged and volatile revenue environment, we have been nimble taking capacity actions to add revenue and minimize variable costs and continue to make progress in reducing our daily cash burn.

The second step is to rebuild our margins. On the revenue front, we are working on a series of initiatives that we believe will accelerate revenue recovery and strengthen our relevance in our focus cities. We are seizing on unique network opportunities, repurposing our assets, and entering into strategic partnerships. These actions will make us stronger and make us more competitive and ultimately bring our superior product and service to more customers.

On the cost front, we are re-sizing JetBlue meaningfully to mitigate the impact of lower demand and Steve shortly will provide details about our efforts to double down on our low-cost model. We believe that executing on our costs will again be pivotal to rebuilding our margins.

The third and last is to repair our balance sheet. Although we have raised a substantial amount of liquidity in a short period, we are committed to returning to pre-COVID leverage metrics. I want to briefly touch upon our network strategy to position JetBlue for recovery, continuing the work we’ve put in place prior to the start of the pandemic. We recently announced a significant reallocation of our assets in our network, flying to 13 [Phonetic] new markets launching between July and October. In the near-term, we believe this move will support our efforts to generate cash and respond to demand. In the longer-term, it will strengthen our New York focus city with more flying out of Newark, including our award-winning Mint transcon service.

On the West Coast, moving our primary base of operations from Long Beach to LAX will bring new competition to the airport and position JetBlue strategically to grow in the future, including international service that was just not possible at Long Beach. I’d like to take a moment and thank Los Angeles World Airports for their continued support of our [Phonetic] efforts to grow our presence in LA.

Lastly, we have entered into a strategic partnership with American Airlines. This new and unique partnership will accelerate our recovery from the impact of the coronavirus and strengthen our ability to compete with our peers in the Northeast offering our low fares and improved service to more routes to customers in both New York and Boston. For the past 20 years, we have succeeded against the odds and we firmly believe that we are laying the foundation and repositioning JetBlue to come out of this crisis as a stronger global player in the years to come. Once again, thanks to all our incredible crew members for playing such an incredibly vital role for JetBlue during these most challenging times. With that, I’d like to pass over to Joanna.

Joanna Geraghty — President and Chief Operating Officer

Thank you, Robin. I’ll start with a heartfelt thank you to our crew members. These past few months have been the most challenging in our 20-year history and we cannot be more thankful and proud of their kindness and professionalism, caring for one another and caring for our customers. I’d also like to give them a special shout out for their amazing work which was recently recognized by Travel and Leisure magazine. For the second year in a row, JetBlue was rated the number one domestic airline in the 2020 world [Technical Issues]. During this unique time, this award speaks to the hard work and exceptional service that our crew members deliver every day.

In addition, we are also very pleased to see our industry-leading and record high net promoter scores, reflecting how well JetBlue is meeting the commitments of our Safety from the Ground Up program. Customers historically chose JetBlue for our fares, great service, and product. Choice drivers have shifted to cleanliness, physical distancing, and facial covering compliance, and customers are telling us what is working and how well we are performing against our own plans. JetBlue already offers a leading differentiated and preferred experience and I cannot be more proud of our crew members who are delivering on our safety promise, which matters now more than ever.

Moving on to Slide 7, as Robin mentioned, we are laser focused on managing the current volatile demand environment due to increasing case counts and shifting government quarantine and international entry requirements. In the short-term, we are managing and shifting capacity with a focus on operating only those flights that cover our variable costs. In the long-term, we are solidifying our network strategy to build and consolidate our focus cities.

We are taking advantage of unique opportunities presented by the pandemic that will allow us to rebuild our margins when demand returns. Starting with Newark, our added flying solidifies our relevance in the New York metro area by bringing low fares and our industry leading product and service including Mint to more customers. This will ultimately bring our Newark operations to 60 daily flights post recovery.

In South Florida, we remain steadfast in our long-term plan to grow Fort Lauderdale to 140 flights per day bringing our product and our service to more customers. With the addition of two international gates, our focus is on connectivity to promote origin and destination traffic between our domestic and Latin networks. We believe that improving schedule connectivity will enhance our already successful point-to-point strategy in this high-value geography.

On the West Coast, we announced the closure of Long Beach due to performance and are moving the operation to LAX, one of the strongest markets in our network. This consolidation in an otherwise gate constrained airport will help us reduce costs and improve our margins with more profitable flying. It will also set us up longer-term to expand both domestically and internationally. Longer-term, think 2025, we envision taking LAX to 70 flights per day. We look forward to growing in the future with the support of Los Angeles World Airports.

Moving on to our recently announced Northeast partnership with American Airlines. We’ve built a strategic relationship that combines the strengths of both airlines, positions JetBlue as a global player, and we believe creates a faster path to recovery. By adding more routes to our network, our customers will have access to more destinations and frequencies. This partnership includes 130 new routes for American customers and 60 new non-stops for JetBlue customers. Our combined networks will also significantly strengthen our Boston and New York focus cities.

In Boston, this partnership will allow us to bring our low fares to more markets quicker. In the case of New York, we will be able to compete more effectively with larger airlines, overcoming the current limitations to grow in the slot constrained airspace. While we are currently working through the regulatory process, we anticipate entering into reciprocal code share and loyalty agreements offering low fares, improved schedules, and options for connectivity. Loyalty members for both airlines will also be able to earn and burn miles on both airlines networks. Driving loyalty is a significant focus for JetBlue and these enhancements will go a long way toward making TrueBlue even more beneficial to our customers. We look forward to bringing the JetBlue effect to more customers and more markets in the near future.

Turning to Slide 8 and the current demand environment. Bookings and traffic volumes improved revenue sequentially during May and June from down 93% to down 83% year-over-year. Volumes have increased since demand bottomed out in April and during the second quarter, our revenue broadly tracked to our L-shaped recovery forecast. Although we saw some demand recovery, the COVID resurgence in late June and the Tri-state quarantine has not surprisingly pressured demand. We expect demand will continue to be volatile and recovery will not be perfectly linear as customers’ willingness to travel evolves as regions re-open for business and as infection rates change over time.

In terms of geography, during the second quarter, traffic between the Northeast and South Florida held up relatively better throughout the back half of the quarter and we saw a relative strengthening of our transcon markets. Both of these regions have traditionally been strong profit drivers for JetBlue, supported by the strong VFR and leisure demand. Due to the Tri-state quarantine and increasing case counts in much of the south, we continue to experience near-term volatility. When these regions stabilize, we expect they will support our recovery given the pent-up demand we saw for travel.

Latin VFR demand remained strong through the quarter, especially in Puerto Rico and the Dominican Republic where we have tactically added back capacity in response to demand. We have resumed service to 15 Latin destinations during the month of July with more coming online in the later portion of the summer, as always, driven by demand strength. The situation in the region continues to evolve as foreign governments are starting to re-open their borders to international flying. Our government affairs team and international stations have done a great job managing a concerted effort to bring this important region back online. Subject to restrictions, we expect more than 50% of our Latin capacity to be in place by the end of the summer and we remain committed to this region as a long-term source of superior margins.

Based on forward bookings and current planning assumptions, we are estimating our third quarter revenue to decline approximately 80% year-over-year. In some markets, industry capacity has returned faster than demand putting downward pressure on fares and creating a headwind to revenue even as more customers travel. Given the choppiness in demand, we will continue to take a conservative approach in planning capacity.

We recently extended our middle seat blocking policy through Labor Day, continuing our efforts to instill confidence in customers and deliberately making an investment to protect our revenue base. The cost of our policy is relatively small and less than 10% of our flights are currently reaching the lids we put in place to maintain physical distance in the cabin. We believe that this is the right decision at present because our customers continue to tell us that this policy is important for them as they choose JetBlue among many carriers. We continue to evaluate our seat policy balancing the needs of our customers with our efforts to reduce cash burn and rebuild our margins.

Moving to capacity on Slide 9. We’ve managed our capacity to safeguard the financial security of JetBlue. Since the start of the pandemic, we have been among the most aggressive carriers to make scheduled reduction while also putting into place a process for close-in cancellations to avoid costs and mitigate cash burns. As a result of our actions, our second quarter capacity declined 85% year-over-year.

After making deep cuts in our forward schedules during March, we adjusted our flying following demand. In May and June, we added capacity back to generate cash when demand was improving. As we saw signs of demand trends stalling, we shifted back to reducing capacity and have recently pulled 15 points to 20 points from our August schedules. Overall, we will continue to monitor demand trends and will adjust capacity to reflect the current demand environment.

For the third quarter, our current planning assumption is for capacity to decline at least 45% year-over-year. Our guiding criteria is cash generation and we will continue to react to changes in demand trends, rationalizing and pulling capacity as needed before each scheduled month is flown. Our teams have done an outstanding job in strategically managing our fleet to minimize maintenance and fuel costs.

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While we have started to bring some aircraft back from temporary storage, we will remain flexible supporting our goals to generate cash. We have a firm grip on cash breakeven economics and a solid process to manage capacity toward cash generation. Thank you again to our crew members for continuing to serve our customers and maintaining a safe operation. Steve, over to you.

Steve Priest — Chief Financial Officer

Thank you, Joanna and good morning everyone. I would like to add my thanks to our crew members. Even with the challenges presented in their personal lives, they have continued to live our values and worked tirelessly to protect the financial sustainability of JetBlue. I’ll start on Slide 11 with a brief overview of our financial results for the quarter.

Revenue was $215 million, down 90% year-over-year. Operating expenses were down 66% year-over-year. Excluding the benefit from CARES Act on salaries, wages, and benefits, operating expenses were down 50% year-over-year. GAAP loss per diluted share was $1.18 and adjusted loss per diluted share was $2.02. Our effective tax rate for the quarter was 27% on a non-GAAP basis. We continue to manage through this fluid environment with a near-term focus on preserving liquidity. Just as importantly, we are positioning JetBlue to thrive as we emerge from the pandemic. We are putting JetBlue back on a path to long-term success following a three-step framework that Robin introduced: first, reducing our cash burn; second, rebuilding our margins; and third, repairing our balance sheet.

Moving to Slide 12, our treasury team has done an exceptional job executing capital raises and exceeded our goal to raise at least $750 million of additional liquidity. Last month, we raised just under $750 million with a new term loan backed by JFK, LaGuardia, and Washington Reagan slots as well as our JetBlue brand. This is the first time in the industry that an airline has used its brand as collateral. We also entered into a sale and leaseback transaction that raised nearly $120 million during the quarter. Our total liquidity including restricted and unrestricted cash equates to $3.4 billion at the close of June or 42% of our 2019 revenue. In July, we have executed further sale leasebacks that will add an additional $200 million to our liquidity, bringing the total amount raised since April to roughly $1 billion.

We are now shifting our focus to re-financing the 364 term loan that we executed back in March. The team has also been working closely with the U.S. government and its advisers, PJT, on our application for the CARES Act loan. As a reminder, we are eligible for up to $1.14 billion. Over the forthcoming weeks, we will assess our needs to access the loan. Our daily cash burn improved every single month since April to under $8 million at the end of June. The improvement during the quarter came mainly from our efforts to manage capacity, reduce our cost base, and manage payment terms. Small improvements in revenue trends during the quarter also contributed to our progress in cash burn.

Looking into the third quarter, we continue to estimate our daily cash burn between $7 million and $9 million, mainly driven by a continuation of our work to reduce our cost base and capacity actions to respond to the changes in demand. Where we fall within the range will depend on the revenue environment during the third quarter. Our expectation is to further reduce our daily cash burn in the four quarter, but are mindful of the continued uncertainty in the revenue environment.

Turning to Slide 13, while we are focused on the near-term and reducing our cash burn, we are also laying down the foundation to rebuild our margins. We are in the midst of a company-wide effort to re-size JetBlue to our demand assumptions. Cost is one of the most important levers that we can control to emerge stronger from the crisis. During the second quarter, our operating expenses in our P&L declined 50% year-over-year. This figure excludes the benefit from the CARES Act.

This impressive achievement is a result of a concerted effort of our teams who have been relentless to protect the financial viability of JetBlue. In the short-term, we succeeded at reducing our variable costs by taking aggressive capacity actions and quickly reducing the size of our operation. Our focus has shifted to restructuring our fixed cost base by making the organization even better to respond to rapid changes in demand.

We continue to focus on external spend with our business partners and to make our support centers more efficient. We are pleased to announce that we have entered into a long-term maintenance agreement for our SelectOne engines helping us manage through one of the largest items of our external spend. We have also added flexibility in staffing for most of our frontline work groups through time-off programs. This added flexibility will serve us well when we need to dial down capacity and will give us the ability to ramp up quickly when demand returns.

We are truly thankful to all of our crew members who have stepped up to protect the financial future of JetBlue. Given the uncertainty of recovery, we are managing headcount needs in this fluid environment through voluntary programs. We’ve already had around 25% of our crew members sign up for voluntary time-off program or opt-out package and we expect to see these numbers increase as we continue to offer additional voluntary programs.

Our goal has been to make it through this period without furloughing crew members, if at all possible. With the CARES Act Payroll Support that gets us through September and our voluntary programs under way, we believe we have a path to protecting many jobs. Our crew members willingness to take voluntary actions speaks very highly of our culture and the resilience as a team.

For the third quarter, we expect total operating expenses to decline by nearly 35% year-over-year, in line with capacity adds that respond to demand trends we saw during the second quarter. Based upon the recent execution of our structural cost program, we are confident that we will again succeed in reaching our cost goals. We believe that our network actions coupled with our cost restructuring efforts will help us rebuild our margins.

Moving to Slide 14, in early July, we took delivery of one A321neo taking our fleet to 263 aircraft. We are currently managing the economics of bringing back aircraft into our network and have the ability to start retiring some aircraft early. As we move through recovery, we will continue to evaluate the size and shape of our fleet to support our goals to reduce cash burn and execute our network plans to rebuild our margins.

We expect our total capex for 2020 to be in the range of $800 million to $850 million and we expect to finance the remaining deliveries this year through sale leasebacks. We view our future capex as an investment to rebuild our margins given the economics of adding newer and more fuel-efficient aircraft into our fleet. We are mindful of the financial commitments tied to our current order book and we will continue to revisit our capex forecast as we navigate the crisis.

Moving to Slide 15, at the end of June, our debt to cap ratio was 55%, which reflects our recent financing transactions. Given our current debt level, we anticipate cash, principal and interest payments through the end of 2020 of approximately $130 million per quarter. We remain committed to working again towards reaching investment grade metrics, similar to those that we proudly exhibited not too long ago. Over the next couple of years, we expect to approach our capital structure by balancing our goal of repairing our balance sheet while making accretive investments that create value for our stakeholders.

We remain optimistic about the future of JetBlue. As in past crises, we believe we can emerge stronger as an airline. We certainly have the best crew members in the industry and have brands that customers truly love. We operate in high value geography with a low-cost leisure model that positions us well for future success. On behalf of the JetBlue leadership team, I want to again thank all of our crew members as well as our business partners and our communities for all of their tremendous support during the past few months. We will now take your questions.

David Fintzen — Vice President, Investor Relations

Thanks everyone. Nora, we’re ready for the question-and-answer session with the analysts. Please go ahead with the instructions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Jamie Baker of J.P. Morgan. Your line is open.

Jamie Baker — J.P. Morgan — Analyst

Hey, good morning to the team. So my first question relates to the pilot deal that was announced at the beginning of the month. It appears that the primary impetus from management’s perspective was being able to announce the American relationship partnership, but there do appear to be some other smaller tweaks in the deal. Should we be thinking about any temporary or even permanent cost reductions or efficiencies or is the pilot deal really best viewed as something you needed in order to proceed with the American announcement?

Joanna Geraghty — President and Chief Operating Officer

Hi, Jamie. This is Joanna. I’ll take that question. First, I’d just like to say our pilots have been great partners over the past several months, particularly given the challenges that the business is facing. The work we’ve done with pilots provides JetBlue a level of relief insofar as there are minimum hour schedule requirements that have been reduced and we also achieved a level of scope relief.

The scope clause in the pilot contract required us to grow and hire a certain number of new pilots and obviously in this environment, that’s not something that’s happening. So there was a level of scope relief in there and then also a level of commitment to no furloughs through the end of April. So we are really pleased with the partnership over the past few months and they along with our other work groups have been absolutely committed to making JetBlue successful as we navigate through this crisis.

Jamie Baker — J.P. Morgan — Analyst

But do you consider the scope component to be the most relevant?

Joanna Geraghty — President and Chief Operating Officer

I think they all work together and all were important to both JetBlue and to our pilots.

Jamie Baker — J.P. Morgan — Analyst

Okay. And then, Steve, could you run down the incremental sources of liquidity remaining. What you envision pledging for the loan should you draw it. The brand was pledged already, but is there other intellectual property/ Where are we with unencumbered aircraft? Just an update in that regards would be helpful. Thank you.

Steve Priest — Chief Financial Officer

All right, good morning, Jamie and thank you for the question. I have to say as a starting point, I couldn’t be happier with A, the fact that we came into this crisis with probably the second strongest balance sheet in the industry and then, secondly, the incredible levels of urgency and focus and execution that the team has gone through over the last few months. In fact, we’ve raised a total of $3.7 billion since we started the crisis and our debt to cap is only sort of sitting at 55%, which candidly is pretty strong when you relate that to the competitive set.

With regards to additional liquidity sources that we have, I would describe this as a sort of continued focus which is one: we continue to have north of $1 billion of unencumbered assets available to us on the balance sheet and that excludes our loyalty program and also excludes our subsidiaries within JetBlue. The key areas of focus for us will be one, as I mentioned in the prepared remarks, will be the refi of 364 facility that we took out in March and then in terms of the focus of additional liquidity raises, one, we’ve got some sale and leaseback activity that is under contract and we view at the moment.

Secondly, we will continue to use the balance sheet for any additional debt raises depending how we navigate the storm. And then thirdly, we’re working on a close focus with the government on the CARES Act loan facility. We continue to propose that we’ll use the loyalty program associated with that and we are also parallel passign that in the capital markets just to make sure we will end up with the best return on that investment as we think about our liquidity going forward. So that’s how I’m thinking about navigating the next few months.

Jamie Baker — J.P. Morgan — Analyst

Any recent third-party appraisal of the program, the loyalty program?

Steve Priest — Chief Financial Officer

We have sort of gone through that recent appraisal and that’s been part of our work that we’ve been going through the government and we continue to work through that facility as we go forward.

Jamie Baker — J.P. Morgan — Analyst

Thank you very much.

Steve Priest — Chief Financial Officer

Thank you, Jamie.

Operator

Your next question is from Duane Pfennigwerth of Evercore ISI. Your line is open.

Duane Pfennigwerth — Evercore ISI — Analyst

Hey, good morning. Thanks for the time. Just in terms of the sequential drivers of your cash burn improvement. High level, it looks like your planning assumptions call for opex down less sequentially by about 15 percentage points and revenue down less by about 10 percentage points, capex slightly higher sequentially 3Q versus 2Q. So, not a question unique to JetBlue, it’s one I’ve asked most of the airlines, what is the driver of sequential cash burn improvement?

Steve Priest — Chief Financial Officer

Thank you, Duane and good morning. I’ll pick that up, it’s Steve here. So first, I would say, I think the work we’ve done sequentially on month-on-month just as a reminder to everyone, we left March with a cash burn of $18 million a day and we ended June at $7.7 million. So absolutely tremendous progress that we’ve made in terms of hammering our fixed costs, going very, very deep on our variable costs, and obviously, we saw some revenue recovery in June.

The biggest thing, Duane, I would really focus on, the coordination between the finance team and the planning team has been exceptional and obviously, in this CARES environment, we are brutally focused on making sure that all of our flying is cash positive. And so as you look at that, that’s really the sort of core driver of the continued focus going forward in this CARES Act environment as I mentioned.

In terms of thinking about the sequential move from June at $7.7 million to the re-affirmed range of Q3 from $7 million to $9 million. it’s candidly a reflection on the revenue environment and I say that because we’re looking at sort of sequential capacity growth in Q3 versus Q2 as a result of some of what we saw as we came into that and obviously, as a result of sequential capacity growth, you are sort of seeing some slight increase in our variable cost structure. And obviously as I mentioned, through our strategic and tactical process, Joanna, Scott and the team are incredibly focused on making sure that we align the schedule to cash positive flying and so the 15% to 20% reduction in our — recent reduction in our August schedule will show that.

In terms of the capex side, we have been doing a lot of work on sale and leasebacks. It’s a little choppy, but I wouldn’t suggest it’s material. When I look at our combination of capex and cost of financing on a quarter-to-quarter basis, it’s relatively flat. And so it’s really a function of the revenue environment coming off the back of June and into Q3 and our sort of marginal sort of operating costs as we navigate this through. And the big driver, that’s why we’ve ranged it, Duane, between $7 million and $9 million that will really be a reflection of the prevailing revenue environment that we see as we navigate through the quarter.

Duane Pfennigwerth — Evercore ISI — Analyst

Okay, thanks for that. And then on intermediate term demand, maybe 4Q and into 2021, what baseline do you think and this is a follow-up maybe from Jamie’s question, what baseline do you think JetBlue needs to align its cost structure to. As we look into 2021 relative to 2019, how much smaller do you think the airline needs to be or is it simply a hope that things get better over time and certainly appreciate the difficulty of this question. Thanks for your thoughts.

Steve Priest — Chief Financial Officer

It’s an excellent question, Duane. It’s probably one of the sort of top three questions that sorts of go through my mind and the leadership team’s minds as we go through that. Let me just give you a little bit of a flavor about what our planning assumption is. We’ve mentioned our capacity assumption of Q3, which will be a reduction of at least the 45%. And as I said, we’ll be very nimble and quick to sort of think about that.

We were expecting from a planning standpoint to a position where in Q4 we’re thinking about operating around two-thirds of the schedule. So that will give you a sort of sense in terms of how we sort of go forward and obviously that will have its impact on sort of the revenue environment. When I step back and think about how we leave this year and go forward, it’s all about our cost structure and making sure we’re sized correctly.

As we’ve said, we expect to be a smaller carrier as we exit COVID. And when I think about our cost structure and you know the more relevant cost structure is around cash. So if you take D&A out of the equation, we are currently in a sort of prior to the COVID crisis on a cash basis, 70% of our costs including fuel were variable and about 30% were fixed. As we come out of CARES Act as a smaller business, around 60% of our cash costs are variable versus 70% pre-COVID. So our whole philosophy as we go forward here is how do we hammer our cost structure back to the sort of 70% variability so that we can very clearly manage our cost structure in line with the capacity and ultimately the revenue.

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And that’s really around things, one, the work we’ve been doing on eliminating our fixed cost structure, thinking about things like our support footprint, thinking about things like IT infrastructure, and our architecture. Secondly, which is incredibly important, transitioning fixed costs to variable. We’ve gone very, very deep on our business partner contracts and brought variability into those contracts and obviously more recently, made the difficult decisions in some of our smaller airports to transition from our crew members to outsourced provision.

And then thirdly, really hammering down our variable unit costs. Think about things like the maintenance agreements including the sort of V2500 deal that we’ve just done. And secondly, a good example of this is our distribution cost structure where we are driving more and more direct distribution and also driving down our cost of indirect distribution. So I think at the top level, its getting fixed costs out, turning more fixed costs to variable, going into 2021 understanding post CARES Act that we’re going to be a smaller business and making sure that as much of our cost structure is variable as possible so that we can continue to focus on driving our margins going forward.

Duane Pfennigwerth — Evercore ISI — Analyst

Appreciate the thoughts.

Steve Priest — Chief Financial Officer

Thanks, Duane.

Operator

Next question comes from Catherine O’Brien of Goldman Sachs. Your line is open.

Catherine O’Brien — Goldman Sachs — Analyst

Good morning, everyone. Thanks for the time. Maybe just a question on capex, so some aircraft leasing companies have shared that after an aircraft is 12 months or more late, you can cancel an order and get all your PDPs back, so basically no penalty. With this in mind, I guess first, do you have the same conditions in your contract with Airbus and then second, how much flexibility do you have in your future capex and how are you thinking about capex over the next couple of years and then I have one more after that.

Steve Priest — Chief Financial Officer

Good morning, Catie, I heard your question about what’s the contract with Airbus and how much flexibility you have going forward, but I’m sorry, I didn’t hear you particularly well for the first half of your question. Could you repeat it please?

Catherine O’Brien — Goldman Sachs — Analyst

Yeah, sure. Sorry about that. Can you hear me now?

Steve Priest — Chief Financial Officer

Yes, it’s much better.

Catherine O’Brien — Goldman Sachs — Analyst

Okay, great. Yeah, so I was just noting some aircraft leasing companies have shared that after an aircraft is 12 months or more late, you can cancel, get all your PDPs back, so basically no penalty. And so I was just wondering, is this the case with your contract with Airbus. I know you’ve been running late on deliveries for a couple of years now. So I’m just wondering what the flexibility in your future capex looks like and how you’re thinking about capex over the next couple of years?

Steve Priest — Chief Financial Officer

Great question, Catie. I think the first thing I would say, I think the sort of commentary and the market data you’re talking about is really pertaining to some of the challenges of the 737 MAXs and some of the stuff that’s out in the market. I mean, you obviously you wouldn’t expect me to get here today in terms of any details about our contractual arrangements with Airbus. What I would say is that as we’ve been in this crisis, as ever, for 20 years, they’ve been a good partner.

Particularly since we’ve come into this crisis, they’ve continued to sit side by side with us to the tune where, as you’ll remember, last quarter, we announced a deferral of $1.3 billion of capex between last earnings call and 2022. Obviously, as you go a little bit further out with regards to the order book, naturally, you would expect to have deferral rights, the closer in you are, it’s just generally between the OEMs and the airlines, it’s a sort of commercial discussion, but we continue to engage with Airbus. Again, they are a good partner and we are very conscious about balancing our capex needs, our aircraft needs, the new and improved aircraft that drive not only better sustainability from a financial and environmental standpoint and we’re getting that balance right and we’ll continue to update the markets as we navigate the next few months.

Catherine O’Brien — Goldman Sachs — Analyst

Okay, great. And then for my follow-up, actually a bit of a follow-up to Duane’s question. So, you noted that revenue is the driver of better 3Q versus 2Q cash burn and revenue is declining less quarter-to-quarter, but cost will be relatively less negative year-over-year, quarter-to-quarter. So are those top line projections masking a better net sales improvement with refunds falling off. Is there something going on with aircraft financing. I know you’re talking about sale leasebacks, just trying to better understand that sequential improvement given the mix of the change in revenue and costs there.

Steve Priest — Chief Financial Officer

I think the thing I would say, Catie, our size helps us and so JetBlue in a position that we’re able to be very nimble. I think from the competitive earnings calls, everybody is aware of what we saw as we navigated June and think about JetBlue’s geography in terms of where we are. So I was particularly pleased with our cash burn that we sort of came out of June with thinking about our geography. It does continue to be choppy.

I think the balance you’ve got to sort of think about is, it’s really around getting our capacity right and as we sort of, that’s why we’ve arranged the sort of $7 million to $9 million as we sort of came into Q3 because it is a reflection on demand and where we are with our variable cost structure. I don’t really think from when you look at where we are and we look at Q3 and Q4. Obviously, the CARES Act rolls off in Q4, but there’s nothing material that’s moving us some from a cost structure standpoint, except the sort of capacity side of things as we sort of go forward. So the reflection of cash burn is really a product of the capacity that we fly and the sort of the revenue that we sort of are bringing into the business.

Catherine O’Brien — Goldman Sachs — Analyst

Thank you.

Steve Priest — Chief Financial Officer

Thank you, Catie. Have a good day.

Operator

Your next question comes from Darryl Genovesi of Vertical. Your line is open.

Darryl Genovesi — Vertical Research Partners — Analyst

Hi guys, thanks for the time. I just wanted to follow-up on what Duane and Catie just asked. You’re planning for a 45% capacity decline in the third quarter, which is a reduction of 7.3 billion ASMs. On that reduction, you’re talking about a 35% opex decline, which is about $650 million or $0.09 per ASM on the reduction. This is incredibly strong cost performance.

You’re demonstrating a much more variable cost structure than I would have thought you’d achieve going into the crisis, especially with no furloughs and what I assume is probably higher rent expense in Q3, but this also makes for a very high hurdle to put capacity back in sequentially and so I’m trying to understand how your marginal flight can be cash flow positive as you suggest because you’re implying Q3 total RASM in kind of the $0.045 range and correct me if I’m wrong, but I’d imagine that your marginal RASMs are even lower than that. So if that’s the case and if you save $0.09 for every ASM that you pull down, then why isn’t capacity down a lot more versus the 45% that you’re talking about. Thanks and sorry for the long question.

Steve Priest — Chief Financial Officer

No worries, Darryl. I’ll kick this one off and I’ll give it to Joanna and Scott if they’ve got any additional thoughts on the revenue environment. I am very, very pleased with the work we’ve done from an opex standpoint. Our crew members have really stepped up and so we’ve got a tremendous amount of voluntary time off during the quarter and that sort of continues to go forward into quarter three and that really gives us despite we’re in a sort of CARES Act environment, we’ve been able to not only rationalize our business partners’ spend and continue to push things on a variable basis.

As I said in my comments to Duane, I feel like the company is really got a hold of this fixed to variable shift, but I think some of the markets are thinking that your labor in essence is very, very fixed. We’ve continued to see some of that’s a VTO standpoint coming through. Again, we’ll continue to hammer that home. In terms of the steps that we go through with regards to our cost to revenue standpoint, I’ll sort of hand over to Joanna just to see if she wants to add any color from a revenue standpoint.

Joanna Geraghty — President and Chief Operating Officer

Yeah, sure, thanks. I think what I would say is we’re very focused on ensuring our capacity is in line with demand and picking up on Steve’s point about being nimble, our planning process has become much closer in and we lock our capacity decisions just a few months out. This is enabling us to really adjust quickly to that changing demand environment. It’s been somewhat disruptive obviously to crew members, but they’ve been unbelievably supportive given the current environment. We understand our cash breakeven economics for flights. We will not operate flights that are not cash positive and I think that’s what’s factoring into what you’re seeing in terms of the numbers.

Darryl Genovesi — Vertical Research Partners — Analyst

I guess just to push back a little bit. I mean if total RASM is $0.045, which is just the math of what you said on revenue and capacity versus last year and $0.045 is clearly below the $0.09 per ASM marginal CASM that you guys were talking about, I mean is it that the marginal flight actually has higher RASM than the average flight? I mean, is this a — I mean I’ve heard you tell stories like that during good times, but I guess I just have a hard time believing that that’s the case today that you’d probably deploy your capacity in sort of the good markets first and each incremental market that you’re entering or each additional frequency that you’re adding is likely to be RASM dilutive or is that not the case?

Scott Laurence — Head of Revenue and Planning

Hey, Darryl, it’s Scott. I’ll give this one a try here because I think I know where you’re going with this. Look, I think when Joanna and Steve talk about how we make these incremental decisions and how we’re planning versus variable cost, sort of take it up a level and think about it as — again the first piece, the governing piece there is the variable breakeven load factor [Phonetic] between about 20% and 30%. The other portion of that is the potential to recapture in a market with multiple frequencies.

So as we plan the network, what we look at is what’s the appropriate frequency count, what can we actually fly and then as Joanna talked about, this process we’ve got to sort of move closer in has got a couple of fail safes in it. So we plan the schedule. We then take a scrub of it a couple of weeks out and then we take a scrub of it a couple of days out and that allows us to move in and obviously try to cancel and combine if necessary. That’s sort of the tricky part of this is making sure that the frequencies we’re flying and the incremental frequencies and markets makes sense. Now across our network of course, we’re relatively low frequency. A lot of places, we got one flight a day, but that’s the goal and if you sort of look at the bottom line associated with that, that allows us to drive a better cash result at the end of the day.

Darryl Genovesi — Vertical Research Partners — Analyst

Okay, thanks very much guys. Appreciate the time.

Operator

Next question comes from Helane Becker of Cowen. Your line is open.

Helane Becker — Cowen and Company — Analyst

Thank you very much, operator. So I appreciate all the information. Thank you very much. I just have a question about moving from Long Beach to LAX. So I guess the driver there was the fact that Long Beach isn’t allowing or didn’t allow international flights and you have international opportunities at LAX, which I think you talked about. So just kind of wondering if you could talk about the — because LA seems like a very competitive market, I guess I’m interested in the fact that LAX had better margins. Is that better margins relative to Long Beach or relative to the whole network or maybe you could just talk a little bit about that? Thank you.

Joanna Geraghty — President and Chief Operating Officer

Hi, Helane. This is Joanna. I’ll take that one. There’s a few reasons why we consolidated Long Beach into Los Angeles. I think I’d look at it through two lenses, short-term, relocating our operation out of Long Beach has enabled us to consolidate our capacity into a single station. This creates efficiencies and cost savings in the short-term. And you’re correct, yes, we were disappointed years ago when Long Beach — when the City Council didn’t approve the airport to move forward with a customs facility thereby not permitting international flights in Long Beach and that was part of our plan longer-term for Long Beach. So that was absolutely one of the reasons behind consolidating those operations.

In terms of LA, this is a really great opportunity for JetBlue. Our transcon flying has performed extremely well. Los Angeles outperforms Long Beach by quite a wide margin. As we think about international, we have that opportunity. In Los Angeles, you should think longer-term obviously for international flying and that’s something that we’re really looking forward to and the West Coast move, it allows us to take advantage of reduced capacity from our peers in Los Angeles, So, yes, it’s a competitive airport, but we compete extremely well against the legacy carriers currently out of Los Angeles and we expect to continue to do so moving forward.

Helane Becker — Cowen and Company — Analyst

And then, would you be able to through the American — I guess the code share is just on the — in the Northeast, right? It’s not going to include West Coast, so you couldn’t necessarily hookup with them or Alaska Air out of [Speech Overlap].

Joanna Geraghty — President and Chief Operating Officer

It won’t include intra-west, it would include flights that touch the New York area. So a JFK, LA flight, a Boston, LA flight would be covered.

Helane Becker — Cowen and Company — Analyst

Got you. And then just for my follow-up. Has there been any movement on the E190s? Any decision there?

Steve Priest — Chief Financial Officer

Hi Helane, it’s Steve here, good morning. We continue to work through that. I mean, it goes back to sort of a Catie’s sort of question about the order book and going through. Obviously, we are expecting to come out of this crisis a smaller airline. This does enable us to give some thought to potential retirements of the fleet and we’re going through that analysis and we’ll give that continued thought over the next few months and once we make any specific decisions as we go through this, then we’ll go forward.

Helane Becker — Cowen and Company — Analyst

Thank you.

Operator

Next question comes from Brandon Oglenski at Barclays. Your line is open.

Brandon Oglenski — Barclays — Analyst

Hey, good morning everyone and thank you for taking my question. Steve, I hate to come back to that chain of questions, but I guess should investors expect that JetBlue should be managing to earnings outcomes before we get any sort of cure to this virus. I’ve asked to this other airline management teams too, but is that even the right outcome for JetBlue to manage to cutting costs so much with revenue down where it is today or are you making longer-term plans to get that margin recovery once we get things quote unquote back to normal?

Steve Priest — Chief Financial Officer

Hi, Brandon, good morning. Our number one focus is cash. Cash, cash, cash, cash, cash as you would expect it to be in this environment and so the point we made earlier in terms of the coordination we’re flying, the capacity which is cash positive. And as you can imagine in the CARES Act environment, with a higher level of our cost structure being fixed, the work we’re doing as Scott outlined earlier is really about that, but if you think about managing the short-term and then migrating to the longer-term, we are resetting our cost structure.

Because as you come out of this as a smaller airline, not only do you have to have a smaller cost structure, but in order to A, preserve cash in the short-term and restructure for the margins in the longer-term, it’s pivoting the fixed costs to the variable cost structure. So I don’t view this as like one or the other. There is a complete alignment with the short-term to long-term and that’s what you’re seeing the leadership team at JetBlue do is A, conserve cash and as I’ve said earlier. I’ve been very, very pleased with our sequential improvement in the cash burn in the short-term, but we are also setting ourselves up for success as we come out the other side of the crisis to make sure that strategically we’re in a good place with our margins to then ultimately repair the balance sheet as Robin alluded to in his prepared comments. So, I suppose it’s not one or the other, but in the short-term, we’re absolutely focused on cash.

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Brandon Oglenski — Barclays — Analyst

Yeah, I definitely appreciate that response. And maybe, Joanna, could you just talk to us about where you see JetBlue, the smaller size of the network and the flexibility you maybe have with some of your unencumbered assets. How do you get to a smaller JetBlue, what are you willing to share today?

Joanna Geraghty — President and Chief Operating Officer

Yeah, I mean I think what I will say is there remains a lot of uncertainty around the timing of recovery and so we talked at the last earnings call about planning to an L-shaped recovery. That assumes a slow yet steady ramp-up of revenue through the rest of the year. That said, as you look toward ’21, we’re planning for a wide range of assumptions. Right now, our focus is entirely on building customer confidence in flying again, remaining nimble as capacity needs to change, as Steve mentioned, getting cost out of the business. So shifting fixed to variable, our resource plans around crew members, reducing our capital spending.

We feel that we’re well positioned for recovery when it does happen, a trusted brand, superior product, a much lower cost structure. So we’re planning for a variety of scenarios. I’m not going to get into how much smaller we are. I mean for Q3, we expect revenue to be down by 80%; Q4, we’re looking at 60% to 70%, but this is all what we are planning currently and it’s an incredibly volatile environment and things could change, which is why I’ll flip back to Steve and say, we are focused on cash preservation at the moment.

Brandon Oglenski — Barclays — Analyst

Thank you.

Operator

All right. Next question comes from Savi Syth of Raymond James. Your line is open.

Savanthi Syth — Raymond James & Associates — Analyst

Hey, good morning everyone. Just on the capex side, I realize things are very fluid, but I was wondering what a realistic range might be for 2021?

Steve Priest — Chief Financial Officer

Hi. Savi. Good morning, Steve here. We’ve talked about, I mean we haven’t gone as you can imagine super deep yet, but we’ve said several [Phonetic] billion. Now, there’s obviously a headline capex number, but we’ve also got to think about cash basis and I think it’s probably useful just to sort of share with you how effective we’ve been as we think about the sort of cash in the short-term.

So when I think about Q4 this year, there’s obviously the headline capex number that we’ve talked about, but because of the activities and the success we’ve had with sale and leasebacks and thinking about the order book, you’re only sort of seeing about $100 million to $150 million leave the business from a cash standpoint in Q4. So when we pivot to 2021 and we think about our capex, at a macro level, it’s basically several [Phonetic] billion, but we are obviously going to be turning our attention to what our capex profile looks like as we navigate the recovery and we see what the next few months bring.

Savanthi Syth — Raymond James & Associates — Analyst

That makes sense. And then just on the voluntary programs. I wonder if you could provide a little bit more detail particularly with what portion of the 25% is related to kind of opt-outs versus time-offs and also the time-offs like how long that goes through that you have that flexibility to work with?

Robin Hayes — Chief Executive Officer

Hey, Savi, it’s Robin. I’ll take that and good morning. I think just a comment on philosophy before I get into some of the details. What we really tried to do is align a resourcing philosophy that mirrors the sort of uncertainty that we see in terms of the future. I think that we keep using the word choppy. It is, we can see changes in the course of two or three weeks and so just as we need to take costs down and in an environment where the demand isn’t there, we also need to be able to move quickly to capture it when it is there and there are always some flickers. I mean our vacations business for example over the last seven days has sold as many vacations as they did in the same seven days as they did last year. Now, the timing was shifted. So it was sort of less in August than we would have expected and so we have to remain extremely flexible in this environment.

So the way we approached it, we said look we know we’re going to be smaller, we know that there is a number of roles here that we can take out of the business permanently and so we had a number of long-term opt-outs. We also created long-term time-off programs that varied for most work groups between — there was a nine and a 12-month option and we had a significant amount of take up in other work groups like in-flight, we created time-off programs that vary between one month and nine months and so what we’ve really tried to do, the operation planning team, the people team, the resourcing team kind of monitoring that and then as we get closer in and we have line of sight on the schedule two or three months out, we then roll out more short-term programs to kind of if you like fill up the gap we have between what the schedule is calling for and the amount of interest we’ve had in opt-out and longer-term programs.

So that 25% that we shared, which is to date [Phonetic], is a combination of opt-outs, long-term time-off programs and also some of the shorter time-off programs in work groups where we’ve got them. It excludes a number of short-term programs that we hadn’t gone out with yet for the last quarter of the year. So that number actually will go higher and a quote I gave on the last call was when we put similar programs out in the summer, we had 60% of our crew members take some form of time-off either short-term or long-term. So we’re not sharing specific numbers because it’s constantly in flux here. We have programs going out all the time but bottom line is, we’ve already had 25% out on medium, long-term and opt-out programs and that excludes additional medium time programs and short-term programs that we will be going out with into the future.

Savanthi Syth — Raymond James & Associates — Analyst

I appreciate the detail. Thank you.

Operator

Your next question comes from Joseph DeNardi of Stifel. Your line is open.

Joseph DeNardi — Stifel — Analyst

Thanks, good morning, Steve, is the $150 million from the Barclays point purchase, is that all the cash you are getting from Barclays or is that kind of a combination of an advanced purchase plus the normal cash transactions?

Steve Priest — Chief Financial Officer

Hi, good morning, Joe. That was just the advanced transaction. So obviously we sort of have the steady state loyalty activity that goes on with that. That was a one-off sort of liquidity transaction that we executed back in April.

Joseph DeNardi — Stifel — Analyst

Okay and that’s the second transaction, there was $150 million first quarter or that’s the only one?

Steve Priest — Chief Financial Officer

No, it’s the only one and we executed it back in April for $150 million.

Joseph DeNardi — Stifel — Analyst

Got it. Robin, in an environment where an industry is capital-intensive as airlines and one with margins as relatively low as they are, one where the revenue environment is structurally lower for a multi-year period. Why shouldn’t investors assume that there will be a period of consolidation on the other side of this as there has been in prior cycles? Thank you.

Robin Hayes — Chief Executive Officer

No. A great question and obviously, I can’t tell what investors should or shouldn’t assume, but what I will say is I think the difference this time is that whilst the severity of this event is clearly more than we’ve ever seen — certainly in my memory of this industry that goes quite a way back. Every U.S. airline came into this with a strong balance sheet or liquidity position and so our ability I think to weather this I think is significant and I think as we come out of this, I’m still optimistic that in the leisure markets and in the VFR markets, most of which is what we do and when I think about the routes that we announced, most of that was just sort of acknowledging I think some of the business flying we do is likely to stay suppressed for a while. So moving that more into leisure and VFR markets.

I’m still confident that a significant amount of that will recover by 2021. We saw strong and quick recovery as we were in June and it was really only suppressed again once the case counts went up and once the quarantine came in. And so I think once case counts get under control, once people get more comfort either with a vaccine or better therapeutics or sort of herd immunity that may even exist in some places after a while, I think that demand is going to come back quickly and so I think that as we exit this, we’ll be focusing on reducing our cost structure, improving our balance sheet, delevering, but I think our ability as an industry over the next two or three years to recover from this should be pretty strong especially for those of us focused on the leisure side.

And I think I’m excited about our partnership with American Airlines, because I think it’s a very innovative way for us to grow organically. What we know that what JetBlue does is bring low fares and competition to more markets, but we sometimes lack scale. That I think in many ways, this gives us the ability to continue to do what we do really well, but also partner with American to build some of the benefits of a larger network.

Joseph DeNardi — Stifel — Analyst

Thank you.

Operator

Next question comes from Myles Walton of UBS. Your line is open.

Myles Walton — UBS — Analyst

Thanks, good morning. Maybe just the first one, I want to take the other side of Joe’s question, why should investors not assume that airlines are getting more than enough liquidity, ample liquidity different than prior downturns and could this be a situation where M&A and natural restructuring actually doesn’t take place and we’re in a prolonged fare war situation?

Steve Priest — Chief Financial Officer

So, Myles, so I’ll pick that up. I think from a liquidity standpoint, we are just raising cash to weather the storm. I think the uncertainty around this as we sort’ve seen, you don’t want anyone being sort of proverbially asleep at the wheel and so we’ve all gone out. JetBlue has gone out and done some significant work around making sure we’ve got the balance sheet and the cash to weather this storm.

So it’s nothing to do with the perspective in terms of M&A sort of from Robin’s perspective, it’s really just about making sure we’ve got the cash to weather the storm, get to the other side of this and we will be quick as feasibly as possible to start paying that back to get ourselves back to sort of the position we were pre-COVID. So I don’t see this a cash position as anything beyond protecting the balance sheets and the viability of the airlines in the U.S. sector.

Myles Walton — UBS — Analyst

Okay and then the follow-up on the delta of $7 million to $9 million burn per day and getting to breakeven. Should we think about that as formulaic from the top line and the incremental accretion from revenue or to kind of the conversation around cost, how much more is left on the cost side below this $7 million to $9 million burn.

Steve Priest — Chief Financial Officer

It’s a good question. So on the $7 million to $9 million basis, again, we’ve given sort of a perspective around the capacity where we’ve said like at least a sort of 45% reduction. It’s a combination of the two. We’ve been incredibly focused as you can imagine, Myles, on our cost structure, but it is going to be a question about what the prevailing revenue environment is and obviously, I don’t have a crystal ball at this point, but I think the $7 million to $9 million based on the work we’ve done on our variable cost structure and cash breakeven load factors give us a good range to look at for Q3 and the prevailing revenue environment will determine whether we’re at the top end of that range or towards the bottom of that range.

Myles Walton — UBS — Analyst

All right, thank you.

Steve Priest — Chief Financial Officer

Thanks, Myles.

Operator

Next question comes from Michael Linenberg of Deutsche Bank. Your line is open.

Michael Linenberg — Deutsche Bank — Analyst

Yeah, hey, good morning everyone. Joanna, a question for you just on the American agreement. You did talk about code sharing and connections and the like. I know it’s been reported in the press that there was also the transaction would include a slot swap and there’s been sort of differing reports out there about what that actually entails. I’m not sure if that’s LaGuardia and Kennedy or if that’s gate space at Newark. Any color that you can share on that?

Joanna Geraghty — President and Chief Operating Officer

Yeah, I’ll ask Scott to step in and answer that question.

Michael Linenberg — Deutsche Bank — Analyst

Hey, Scott.

Scott Laurence — Head of Revenue and Planning

Thanks for the question. So as we continue to work through this, we’ve talked a bit about what we’re going to do. I think the first part of this is, there is obviously for us we’re excited about this because there’s a ton of benefit, right? There is low fares, there’s great service. So it’s going to come to new markets and as we look at slots and we, if we look at how we move forward, American has talked about things like LaGuardia where they’re going to be removing 50-seat airplanes. That creates some room for JetBlue at LaGuardia as slots are freed up.

There is also potential for us to look at other opportunities certainly in the afternoon at JFK, not only does that allow our transcon network to come in and arrive and feed American’s long haul network, but it also brings competition to some of those long haul markets. So again we’re working through this. Right now, we obviously are talking to regulators and we want to be respectful of their ability to look at this, but again, I think we look at the benefits here, we look at the ability to move forward and recover faster because of this and we’re certainly excited about it.

Michael Linenberg — Deutsche Bank — Analyst

Great. And then just the second question, and this is either Joanna or Robin. I believe I think it was a day or two ago, it looks like the House is proposing an extension of the PSP and I’m curious where as a company you stand acknowledging the fact that it looks like you already have a deal with your pilots that takes you into next year. So it looks like you’re protected there and if others, if competitors in the industry do take up an extension of the PSP, are you as a company compelled for competitive reasons to do the same knowing that there could be strings attached, right? More debt and maybe warrant dilution. So sort of a multi-pronged question but sort of where you stand as a company? Thank you.

Robin Hayes — Chief Executive Officer

Sure. Yeah, I’ll take the CARES, what I’ll call CARES 2. I’m not sure that’s a technical term of it, but you know what I mean. I think that — the way I think about it is CARES 1 saved the industry and CARES 2 is about jobs and so we have a planning assumption going into Q4. We have some planning assumptions going into next year as Joanna mentioned. There is a high level of uncertainty around that. So as a team, we’re having to play a lot of scenarios and one of the hardest things planning to scale up or down is our people, and so we make certain assumptions and we push hard on voluntary programs, but voluntary programs will only get you so far and if we take a view and some of those sort of more pessimistic outcomes as to where demand could go is you get to a point where it’s hard to bridge that gap without considering furloughs.

And so, we are confident right now based on what we see in front of us over the next few months that we can get there through voluntary means, but there is a high level of uncertainty. Well, I think you can mirror that across the industry and some airlines who perhaps have a different business mix to us look at that and kind of see the more concerning forecast. And so when we look at it as an industry, there is no doubt that CARES 2 would be a significant game changer in protecting jobs and giving the industry more time to recover.

And so that’s how I think about it. I mean, we can certainly manage through this as JetBlue as an industry, but I think the ability to protect a significant number of jobs if CARES 2 were to happen I think is there and if we think about the alternative of furloughs or other things, that too has a cost and so that’s how I think about it. We’ll see how it plays out. Certainly, if CARES 2 is offered on similar terms as CARES 1, I think that would be of interest, but let’s just see how it plays out. I think this is going to be a very difficult negotiation in the House and in the Senate and with the administration and we’ll see where we sit at the end of it.

Michael Linenberg — Deutsche Bank — Analyst

Very good. Thanks, Robin. Thanks everyone.

David Fintzen — Vice President, Investor Relations

All right. That concludes our second quarter 2020 conference call. Thanks for joining us. Have a great day.

Operator

[Operator Closing Remarks]

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