JetBlue Airways Corporation — 2011 Form 10-K Summary
Business context and reporting period
JetBlue is a passenger airline operating primarily point-to-point routes, with a focus on New York, Boston, Florida, Puerto Rico, the Caribbean and Latin America. Its 2011 fiscal year ended December 31, 2011; the filing also reports fourth-quarter results. At year-end, it served 70 destinations and operated a fleet of 169 aircraft. Passenger transportation generated 91% of 2011 operating revenue.
Financial and operating performance
| Metric | 2011 | 2010 |
|---|---|---|
| Operating revenue | $4.504 billion | $3.779 billion |
| Operating income | $322 million | $333 million |
| Operating margin | 7.1% | 8.8% |
| Net income | $86 million | $97 million |
| Diluted EPS | $0.28 | $0.31 |
| Operating cash flow | $614 million | $523 million |
| Cash and cash equivalents at year-end | $673 million | $465 million |
| Short-term investments at year-end | $553 million | $495 million |
| Working capital at year-end | $216 million | $267 million |
| Total debt, including short-term borrowing | $3.136 billion | $3.033 billion |
2011 capacity rose 7%; average fare and yield each increased 10%, and load factor improved to 82.4% from 81.4%. Operating revenue per available seat mile rose 11%. Operating expense per available seat mile increased 13% to 11.23 cents, while unit expense excluding fuel increased 0.9% to 6.76 cents. Fuel expense was $1.664 billion, about 39.8% of operating costs; average fuel cost rose to $3.17 per gallon from $2.29.
Fourth-quarter 2011 revenue was $1.146 billion, operating income $83 million and net income $23 million; operating margin was 7.3%. In fourth-quarter 2010, revenue was $938 million, operating income $55 million and net income $8 million.
Cash flows were $614 million provided by operations, $502 million used in investing and $96 million provided by financing. Management reported a third consecutive year of positive free cash flow, defined as operating cash flow less capital expenditures.
Material changes versus the prior comparable period
- Revenue increased 19%, primarily from higher passenger revenue, reflecting 7% capacity growth and 10% higher yield. Other revenue increased 15%.
- Operating expenses increased 21%; fuel costs rose 49% and maintenance materials and repairs rose 32%, partly reflecting higher fuel prices, increased operations and an aging fleet.
- Net income fell from $97 million to $86 million and operating margin declined 1.7 percentage points, despite revenue growth. Operating cash flow increased by $91 million.
- Cash and cash equivalents increased by $208 million during the year. Debt, including short-term borrowing, rose modestly; the company financed aircraft additions and repurchased $39 million principal of convertible debentures for about $45 million, recording a $6 million loss.
Outlook, management commentary, risks and unusual items
- For 2012, management forecast capacity growth of approximately 5.5%–7.5% and unit costs (CASM) growth of 1.5%–3.5%, assuming fuel at $3.17 per gallon, including taxes and net of hedging. It aimed for improved year-over-year margins while controlling costs and growing unit revenue.
- At December 31, 2011, hedges covered approximately 27% of projected 2012 fuel requirements. Management estimated that a 10% fuel-price increase would add about $175 million to 2012 fuel expense.
- JetBlue had approximately $5.96 billion of aircraft and flight-equipment purchase commitments through 2021, including 126 aircraft on firm order. It cited aircraft financing availability, debt service and substantial fixed obligations as important constraints; scheduled debt maturities peak in 2014.
- Key operating risks include fuel-price volatility, fare competition, economic weakness, weather and congestion—especially in the Northeast—maintenance costs as the fleet ages, and dependence on the New York market. On-time performance declined to 73.3% from 75.7%; Hurricane Irene caused about 1,400 cancellations over three days.
- The DOT was investigating five flights diverted to Bradley International Airport in October 2011 that exceeded the three-hour tarmac limit. The company disclosed possible fines of up to approximately $15 million; the outcome and any penalty were undetermined in the filing.
- Other exposures include potential labor organizing, regulatory and environmental costs, technology or information-security disruptions, and possible credit-card processor reserve requirements. The company reported no material adverse outcome expected from ordinary-course legal proceedings generally.
- JetBlue acquired LaGuardia and Reagan National Airport slots and planned expanded service in 2012. It also revised aircraft orders, including 40 A320neo aircraft scheduled for delivery from 2018 to 2021. LiveTV received $16 million following termination of a customer contract and expected to recognize a gain in first-quarter 2012 upon completing deactivation obligations.
Important facts for investors to verify
- Whether revenue and fare growth can offset fuel and maintenance inflation, and whether the 2012 capacity, unit-cost and margin expectations were achieved.
- The DOT investigation’s final determination and any fine related to the 2011 tarmac delays.
- Liquidity, covenant compliance, financing terms for aircraft deliveries and the ability to manage the 2014 maturity peak and long-term commitments.
- Actual 2012 fuel prices, hedge coverage and any associated cash-collateral or hedge-accounting effects.
- Subsequent fleet-order changes, fleet aging and maintenance expense trends; the filing says maintenance costs are expected to rise as warranties expire.
Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting as of December 31, 2011.