JetBlue Airways Corp. Q1 2009 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2009. JetBlue Airways Corporation operates as a large accelerated filer. The reporting period reflects a challenging economic environment characterized by a weakening global economy, softening demand for air travel, and aggressive fare sales by competitors. The company responded by cutting capacity and focusing on cost discipline.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Total Operating Revenues | $793 million | $816 million |
| Operating Income | $73 million | $17 million |
| Net Income (Loss) | $12 million | $(10) million |
| Diluted EPS | $0.05 | $(0.05) |
| Operating Cash Flow | $124 million | $49 million |
| Cash and Cash Equivalents | $634 million | $713 million |
| Total Debt (Long-term + Current) | $3,224 million | $3,144 million |
| Working Capital | $(35) million | $(119) million |
Note: Working capital deficit is customary for airlines due to the classification of air traffic liability as a current liability.
Material Changes vs. Prior Period
- Profitability Turnaround: The company reported a net income of $12 million, a significant improvement from a net loss of $10 million in Q1 2008. Operating income surged to $73 million from $17 million.
- Fuel Cost Reduction: Aircraft fuel expense decreased 30% ($94 million) to $214 million, driven by a 26% drop in average fuel cost per gallon ($1.96 vs. $2.65) and reduced consumption.
- Revenue Decline: Total operating revenues fell 3% ($23 million), primarily due to a 6% decrease in passenger revenues caused by a 5% reduction in capacity. However, yield increased 2%.
- Non-Fuel Cost Increases: Excluding fuel, cost per available seat mile (CASM) increased 9% year-over-year. Salaries, wages, and benefits rose 4%, while depreciation and amortization increased 22% due to Terminal 5 depreciation and a larger owned fleet.
- Accounting Change: Effective Jan 1, 2009, the company adopted FSP APB 14-1 for convertible debt, resulting in higher interest expense recognition ($2 million additional in Q1 2009) and a retrospective reduction of $26 million to prior year retained earnings.
Guidance, Outlook, and Risks
- 2009 Outlook: Management expects full-year operating capacity to remain relatively flat (growth between -1% and +1%). Assuming fuel prices of $1.90 per gallon (net of hedges), full-year CASM is expected to decrease 8% to 10% over 2008.
- Margin Guidance: Full-year operating margin is projected between 11% and 13%, with a pre-tax margin between 4% and 6%.
- Liquidity: The company holds $634 million in cash and cash equivalents. Management believes working capital will be sufficient for the next 12 months, utilizing available credit lines and predelivery borrowing facilities.
- Key Risks:
- JFK Construction: Major runway closures at JFK (April 2009 and March-June 2010) may adversely impact operations.
- Auction Rate Securities (ARS): $207 million in ARS are classified as long-term investments due to market illiquidity. An unrealized holding loss of $8 million was recorded in Q1 2009.
- Leadership Transition: President and COO Russell Chew announced his resignation effective June 1, 2009, with CEO David Barger assuming the President role.
Investor Verification Checklist
- Verify the impact of the new accounting standard (FSP APB 14-1) on future interest expense and debt carrying values.
- Monitor the liquidity status and fair value adjustments of the $207 million in Auction Rate Securities (ARS).
- Assess operational performance during the scheduled JFK runway closures in April 2009.
- Track the execution of the leadership transition and its effect on operational strategy.
- Confirm the realization of the projected 8-10% decrease in full-year CASM, given the 9% increase in non-fuel CASM in Q1.