Business context and reporting period
JetBlue Airways Corporation’s Form 10-K covers the fiscal year ended December 31, 2019; the filing also provides unaudited fourth-quarter results. JetBlue carried 42.7 million revenue passengers, served 99 destinations and operated an average fleet of 253.6 aircraft. Its network is concentrated in the New York and Boston areas, Florida, the Caribbean and Latin America.
Financial and operating performance
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Operating revenue | $8.094 billion | $7.658 billion |
| Operating income / margin | $800 million / 9.9% | $266 million / 3.5% |
| Net income | $569 million | $189 million |
| Diluted EPS | $1.91 | $0.60 |
| Cash from operations | $1.449 billion | $1.200 billion |
| Free cash flow (non-GAAP) | $293 million | $86 million |
- Revenue grew 5.7%, driven mainly by a 1.4% increase in passengers and a 4.1% increase in average fare. Passenger revenue was $7.786 billion; other revenue was $308 million.
- Operating expenses declined 1.3% to $7.294 billion. Fuel expense fell 2.7% to $1.847 billion as average fuel price decreased to $2.09 per gallon; salaries, wages and benefits increased 13.5% to $2.320 billion.
- Load factor was 84.0%, down 0.8 percentage points; capacity (ASMs) grew 6.6%. Operating revenue per ASM decreased 0.9% to 12.68 cents. CASM ex-fuel, a non-GAAP measure, increased 0.8% to 8.44 cents.
- At year-end, cash and cash equivalents were $959 million and short-term investments were $369 million. Available undrawn credit lines totaled approximately $750 million. Working capital deficit was $877 million.
- Debt and finance lease obligations were $2.334 billion on the selected financial data basis. Adjusted debt-to-capitalization, including aircraft operating lease liabilities, was 34%, versus 29% in 2018. Total assets were $11.918 billion and stockholders’ equity was $4.799 billion.
- Capital expenditures were $932 million and aircraft pre-delivery deposits were $224 million. The company repurchased approximately 28.1 million shares for about $535 million. No cash dividend was paid, and management reported no current intention to pay one.
Fourth-quarter 2019 revenue was $2.031 billion, operating income $227 million, net income $161 million and diluted EPS $0.56. In fourth-quarter 2018, these were $1.968 billion, $216 million, $170 million and $0.55, respectively.
Material changes versus the prior comparable period
- Reported operating income rose to $800 million from $266 million, and net income to $569 million from $189 million. The comparison is materially affected by 2018 special charges of $435 million, primarily a $319 million Embraer E190 fleet impairment and transition costs, plus pilot contract costs. 2019 special items were $14 million.
- On management’s non-GAAP adjusted basis, operating income was $814 million versus $701 million, adjusted operating margin 10.1% versus 9.2%, and adjusted net income $568 million versus $488 million. 2019 also included a $15 million gain on an equity-method investment.
- Cash from operations increased $249 million. Year-end cash and cash equivalents increased from $474 million to $959 million, while debt and finance lease obligations increased from $1.670 billion to $2.334 billion.
- The company adopted the lease accounting standard in 2019, recognizing lease assets and liabilities; comparisons may be affected by the accounting change. The filing recast 2018 and 2017 lease information.
Guidance, outlook, risks and unusual items
- For 2020, management expected capacity growth of approximately 5.5%–7.5%, CASM ex-fuel to range from a 2.0% decrease to flat year over year, and capital expenditures of $1.35–$1.55 billion. It expected a 2020 underlying tax rate of approximately 26%.
- Plans included up to 11 A321neo deliveries and the first A220 delivery in 2020, continued product and infrastructure investment, and strengthening the balance sheet. Airbus delivery delays had already shifted seven planned 2019 A321neo deliveries to later periods.
- Aircraft purchase commitments were approximately $8.2 billion for 149 aircraft in the risk discussion; the contractual-obligations table lists $7.8 billion of flight-equipment purchase obligations and excludes seven delayed A321neo aircraft because delivery timing was uncertain. Management noted the figures may be affected by delivery schedules.
- U.S. tariffs on certain European aircraft and parts were 10% when announced in October 2019 and were raised to 15%, effective March 2020. JetBlue warned of potential higher aircraft costs and effects on deliveries, supply chain and growth plans.
- Key risks include intense fare competition; fuel-price volatility and limited hedge coverage (about 10% of projected 2020 requirements hedged at year-end); wage, benefits and maintenance cost pressure; aircraft delivery and supplier concentration; congestion and weather disruption, particularly in the Northeast; and dependence on New York-area operations. Management estimated a 10% fuel-price increase would raise 2020 fuel expense by approximately $192 million.
- Management also cited political and economic volatility in Caribbean and Latin American markets, cybersecurity and system outages, labor negotiations with inflight crewmembers, and the possibility that infectious disease outbreaks could reduce travel demand. The filing does not quantify the potential financial effect of these risks.
- Management reported approximately $314 million of structural cost savings secured against a $250–$300 million target by 2020. The auditor gave an unqualified opinion on the financial statements and internal controls; loyalty-point breakage estimation was identified as a critical audit matter.
Most important facts an investor should verify
- Whether 2020 capacity, CASM ex-fuel and capital-spending outlooks were achieved, and how subsequent events affected travel demand and liquidity.
- The actual cost and delivery consequences of the 15% aircraft tariff and continued Airbus delivery delays, including the distinction between the $8.2 billion purchase commitment disclosure and $7.8 billion contractual-obligation schedule.
- Debt, lease-adjusted leverage, cash availability and aircraft financing needs against scheduled debt service and capital commitments.
- Underlying cost trends, especially labor, maintenance and non-fuel unit costs, separating recurring performance from 2018 special charges and the 2019 investment gain.
- Changes in TrueBlue loyalty-point redemption and breakage assumptions; the associated loyalty air-traffic liability was $661 million at year-end.
- Exposure to fuel-price moves, congestion and disruption in key markets, labor negotiations, and any material developments in litigation or contingencies.