JetBlue Airways Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. The interim financial statements are unaudited. JetBlue provides passenger air transportation in the U.S. and internationally.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 |
|---|---|---|
| Operating revenue | $2.610 billion | $2.445 billion |
| Operating income (loss) | $235 million | $(113) million |
| Net income (loss) | $138 million | $(188) million |
| Operating margin | 9.0% | (4.6)% |
| Diluted EPS | $0.41 | $(0.58) |
- Q2 revenue increased 6.7% year over year. Passenger revenue rose 6.9%; capacity (ASMs) grew 5.8%, passenger count rose 7.8%, and load factor improved 0.2 percentage points to 85.3%.
- Fuel expense fell 34.2% in Q2 as average fuel cost declined 37.9% to $2.63 per gallon, partly offset by higher fuel consumption. Salaries, wages and benefits increased 11.2%, primarily reflecting wage increases, including the new pilot contract.
- Operating expense per ASM fell 12.2% to 13.68 cents, while CASM excluding fuel, special items and non-airline expenses—a non-GAAP measure—increased 3.2% to 10.00 cents. Adjusted Q2 net income was $152 million and adjusted EPS was $0.45; these non-GAAP figures exclude specified special items and investment gains or losses.
- For the six months, revenue rose 18.1% to $4.937 billion; net loss narrowed to $54 million from $443 million. Adjusted net income was $29 million versus an adjusted net loss of $408 million in the prior-year period.
- Six-month operating cash flow was $663 million, versus $299 million. Capital expenditures were $439 million and aircraft pre-delivery deposits were $18 million; reported free cash flow, as defined by JetBlue, was $206 million versus $(40) million.
- At June 30, cash and cash equivalents were $1.462 billion; total assets were $13.481 billion and stockholders’ equity was $3.554 billion. Debt and finance lease obligations totaled approximately $3.757 billion, including current maturities. Working capital deficit was $1.7 billion.
- Management reported approximately $1.8 billion of unrestricted cash, cash equivalents and short- and long-term marketable securities, and said liquidity should meet needs for at least the next 12 months. The company was in compliance with debt and lease covenants.
Material changes and commitments
- Revenue growth and lower fuel prices supported the return to Q2 profitability. Capacity increased, while labor, airport, maintenance and other operating costs also rose.
- Six-month special items totaled $136 million: $95 million of union contract costs and $41 million of Spirit acquisition costs. Q2 special items were $24 million, all related to the Spirit acquisition.
- JetBlue reported $7.481 billion in flight-equipment purchase commitments as of June 30, including estimated price escalations and deposits. Airbus delivery delays affected its 2023 capacity planning assumptions.
- During the first half, JetBlue generated $228 million from sale-leaseback transactions that did not qualify as sales for accounting purposes; related assets remain on the balance sheet and liabilities are classified with debt and finance lease obligations.
Outlook, commentary and risks
- Management forecast Q3 2023 revenue down 4%–8% year over year and full-year 2023 revenue up 6%–9%. Capacity was expected to increase 5.5%–8.5% for both Q3 and full-year 2023.
- CASM excluding fuel was forecast to rise 2.5%–5.5% in Q3 and 1.5%–4.5% for full-year 2023. Management stated it could not reconcile this forward-looking non-GAAP guidance to GAAP CASM without unreasonable effort.
- Management cited robust travel demand but warned that air-traffic-control and weather disruptions, especially in the Northeast, constrained operations and prompted summer capacity reductions. Supply-chain disruptions, aircraft delivery delays, spare-parts availability and engine reliability issues were also causing delays, cancellations and grounded aircraft.
- A 10% increase in fuel cost, based on projected next-12-month consumption and hedges, was estimated to increase fuel expense by about $216 million. JetBlue had hedged approximately 30% of projected fuel usage in each of Q3 and Q4 2023.
- Following a May 2023 court decision permanently enjoining the Northeast Alliance (NEA) with American Airlines, JetBlue said it would not appeal and began winding it down. The wind-down could disrupt operations, add costs and adversely affect results. A final injunction issued after quarter-end was effective August 18, 2023; related class-action claims seek damages, and JetBlue said it could not estimate a reasonably possible loss.
- The proposed Spirit acquisition remained subject to litigation brought by the DOJ and state attorneys general alleging antitrust violations; trial was scheduled for October 16, 2023. JetBlue had made $363 million in prepayments to Spirit shareholders through June 30, recorded in other assets. The filing cautions that the merger could be blocked and that expected benefits are uncertain.
- JetBlue disclosed a July 2023 announcement requiring removal of certain Pratt & Whitney engines for inspection due to contaminated metal parts; the operational and financial impact was not yet determinable. The filing also highlights fuel-price volatility, labor and maintenance costs, concentrated suppliers, and substantial fixed obligations as risks.
Important facts for investors to verify
- Whether Q3 and full-year revenue, capacity and CASM-ex-fuel guidance is achieved, and how fuel prices and non-fuel costs affect GAAP results.
- The operational and financial effects of the NEA wind-down and the outcome of related antitrust claims.
- The outcome and timing of the Spirit merger litigation, and any resulting termination, financing or integration costs.
- The duration and effects of engine inspections, aircraft grounding, supply-chain constraints and delivery delays on capacity and reliability.
- How JetBlue funds its substantial aircraft commitments while maintaining liquidity and servicing debt and lease obligations.