JetBlue Airways Corporation — Q1 2011 Form 10-Q
Reporting period: Three months ended March 31, 2011; balance-sheet amounts are as of March 31, 2011. Dollar figures below are in millions unless noted. Financial statements are unaudited.
Financial performance
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Operating revenue | $1,012 | $871 | +16% |
| Operating income | $45 | $43 | +$2 |
| Net income (loss) | $3 | ($1) | Improved by $4 |
| Diluted earnings (loss) per share | $0.01 | ($0.00) | Improved |
| Operating cash flow | $231 | $229 | +$2 |
| Capital expenditures | $116 | $40 | +$76 |
Passenger revenue rose 15% to $906; other revenue rose 26% to $106. Operating expenses increased 17% to $967, leaving operating income slightly higher, but operating margin declined to about 4.4% from 4.9%. Fuel was the main pressure: expense increased 39% to $353, with average fuel cost rising to $2.94 per gallon from $2.19. Maintenance expense rose 36% to $52, reflecting fleet growth, aging and aircraft coming off warranty. Operating expense per available seat mile (ASM) increased 15.6% to 11.37 cents; excluding fuel, it rose 6.1% to 7.22 cents.
Operating revenue per ASM increased 15.1% to 11.89 cents. Average fare rose 5.5% to $150.02 and load factor increased 4.6 percentage points to 81.4%. On-time performance fell to 67.5% from 72.7%; completion factor was 96.5% versus 97.0%.
Liquidity, debt and cash flow
Cash and cash equivalents were $550, versus $465 at year-end 2010; current investment securities were $559, versus $495. Working capital was $278, compared with $275 at December 31, 2010. Operating cash flow was $231; investing activities used $185, principally including $116 of capital expenditures, and financing activities provided $39. Cash increased $85 to $550 during the quarter.
Balance-sheet current maturities of long-term debt and capital leases were $188, and long-term debt and capital lease obligations were $2,890. The debt note reports total long-term debt carrying value of $2,951 and estimated fair value of $2,982; the filing does not clearly reconcile this note total to the balance-sheet debt-and-lease amounts. Weighted-average interest rate on long-term debt was 4.5%. The company issued $86 of equipment notes and made $42 of debt and lease principal repayments. It reported no financial debt covenants, but failed to meet minimum collateral ratios on spare-parts certificates and planned to post $6 of collateral in Q2.
Committed contractual obligations totaled $13,013, including $4,200 for flight equipment, $3,825 for debt and capital lease payments, and $1,707 for lease commitments. The company said available liquidity should be sufficient for at least the next 12 months.
Management outlook, material developments and risks
- Management expected 2011 capacity growth of approximately 6%–8% versus 2010, after slightly reducing planned growth in response to rising fuel prices. At an assumed $3.32 per gallon, including taxes and net of effective hedges, 2011 cost per ASM was expected to rise 15%–17%.
- Management cited encouraging demand, revenue and pricing trends entering Q2, while noting intense competition, fuel volatility, severe winter weather and increasing maintenance costs. It emphasized cost control, capital discipline, positive free cash flow and adequate liquidity.
- Approximately 35% of expected remaining 2011 fuel requirements were hedged as of March 31. A hypothetical 10% fuel-price increase was estimated to raise fuel expense by approximately $167 over a projected 12-month period.
- JetBlue cancelled orders for two EMBRAER 190 aircraft scheduled for 2013. It had 104 firm aircraft orders and 14 spare-engine orders scheduled through 2018; committed aircraft expenditures were $270 for the remainder of 2011. Management warned that financing may not be available on attractive terms and that fleet commitments will increase fixed costs.
- New commercial partnerships with LAN and Virgin Atlantic were announced. JetBlue also entered a seven-year agreement with ViaSat to develop in-flight broadband, with minimum commitments of $9 through 2017 plus $22 for hardware and software purchases.
- Severe winter storms increased costs and affected operating reliability. The fleet’s average age was 5.5 years, up from 4.6 years a year earlier; management expected maintenance costs to continue increasing as the fleet ages.
- Risks include fuel-price and availability volatility, competition, economic weakness, weather disruption, financing access, significant fixed obligations, operational and technology-system reliability, and dependence on the New York market. Management reported effective disclosure controls and no material change in internal control over financial reporting. Ordinary-course legal proceedings were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether fare, yield and load-factor improvements can offset fuel, labor and maintenance cost increases.
- Actual 2011 capacity and cost-per-ASM outcomes versus management’s 6%–8% capacity and 15%–17% cost outlook, including the fuel-price assumption.
- Liquidity and financing capacity relative to aircraft orders, contractual obligations and scheduled debt maturities.
- Progress in restoring spare-parts collateral compliance and the planned $6 collateral posting.
- Fuel-hedge coverage, hedge effectiveness and the impact of any change in fuel prices or derivative valuations.
- The effect of aging-fleet maintenance needs, winter-related reliability, and technology-system performance on costs and customer service.