JetBlue Airways Corporation — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. JetBlue provides air transportation across the United States, the Caribbean, Latin America, Canada and Europe. Financial statements are unaudited.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Operating revenue | $2.353 billion | $2.562 billion | $7.290 billion | $6.743 billion |
| Operating income (loss) | $(156) million | $139 million | $(163) million | $(341) million |
| Net income (loss) | $(153) million | $57 million | $(207) million | $(386) million |
| Diluted EPS | $(0.46) | $0.18 | $(0.63) | $(1.20) |
| Operating margin | (6.6)% | 5.4% | (2.2)% | (5.1)% |
- Revenue and demand: Q3 revenue fell 8.2% year over year. Passenger revenue declined 8.9%; a 13.9% drop in passenger yield outweighed 3.9% growth in revenue passengers. Capacity rose 7.1%, while load factor eased to 85.1% from 86.1%. For the first nine months, revenue grew 8.1%, supported by 11.1% more passengers and a 2.5-point improvement in load factor.
- Costs and margins: Q3 operating expenses increased 3.5% to $2.509 billion, despite fuel expense falling 17.8% as average fuel cost per gallon declined 23.3% to $2.94. Salaries and benefits rose 17.0%, and landing fees and rents rose 34.4%. CASM was 14.45 cents, down 3.3%; CASM excluding fuel, special items and specified non-airline costs increased 5.9% to 10.27 cents. Q3 adjusted operating loss was $123 million and adjusted operating margin was (5.2)%, excluding special items.
- Cash flow: Nine-month operating cash flow was $486 million, compared with $321 million in 2022. Capital expenditures were $750 million and aircraft predelivery deposits were $23 million, producing reported non-GAAP free cash flow of $(287) million, versus $(278) million.
- Liquidity: At September 30, cash and cash equivalents were $973 million; unrestricted cash, cash equivalents and investments were approximately $1.5 billion. Management stated this was sufficient for expected liquidity needs over the next 12 months. Working capital was in deficit by $1.8 billion.
- Debt and commitments: Long-term debt and finance lease obligations totaled approximately $4.0 billion, including $272 million of current maturities; this compares with approximately $3.65 billion of long-term debt at year-end 2022, excluding finance leases. Nine-month debt and finance lease principal repayments were $254 million. Contractual commitments included $7.215 billion for flight equipment and $15.319 billion in total listed obligations, including estimated interest on debt and finance leases.
Material changes and unusual items
- Q3 results shifted from profit to loss as lower passenger yields and higher labor, airport and disruption-related costs outweighed lower average fuel costs. Nine-month losses improved from 2022 but remained losses.
- Special items were $33 million in Q3 and $168 million for the first nine months, primarily Spirit acquisition expenses and union contract costs. The nine-month union costs included $95 million recorded in Q1 for pilot ratification payments and pay-related paid-time-off adjustments; further adjustments were recorded in Q3.
- JetBlue recorded $523 million of sale-leaseback proceeds in the first nine months. The transactions did not qualify as sales for accounting purposes; related aircraft remained on the balance sheet and liabilities were classified with debt and finance lease obligations.
- JetBlue had paid Spirit shareholders a cumulative $395 million in merger-related prepayments through September 30; the amount was recorded in other assets.
Outlook, management commentary and risks
- 2023 outlook: Q4 revenue was expected to decline 6.5%–10.5% year over year, with full-year revenue growth of 3%–5%. Q4 capacity was expected to grow 0.5%–3.5%, and full-year capacity 5%–7%. CASM ex-fuel was expected to rise 8.5%–10.5% in Q4 and 4.5%–5.5% for full-year 2023. Management stated this outlook did not include the Spirit merger.
- Management cited ATC delays, weather disruptions, aircraft delivery delays, supply-chain constraints and engine reliability issues as operational challenges; these contributed to lower on-time performance (58.5%, versus 67.2%) and completion factor (96.3%, versus 97.7%) in Q3. It also noted that engine inspections and potential remediation could affect operations.
- The court permanently enjoined the Northeast Alliance with American Airlines; the injunction took effect August 18, 2023, and JetBlue began winding down the arrangement. American appealed the ruling. JetBlue warned that the wind-down could disrupt business, raise costs and adversely affect results.
- The proposed Spirit acquisition faced federal and private antitrust litigation. The filing warned that an adverse ruling could prevent the merger or its intended benefits. The $3.5 billion committed bridge facility for the acquisition had no borrowings outstanding at quarter-end.
- Other material exposures include fuel-price volatility, labor and fixed obligations, aircraft and engine supplier concentration, fleet aging, financing needs and substantial aircraft purchase commitments. A hypothetical 10% fuel-price increase was estimated to raise fuel expense by approximately $312 million over the next 12 months, after considering hedges; about 31% of projected Q4 2023 fuel use was hedged.
Key facts for investors to verify
- Whether revenue yields stabilize and cost growth—particularly labor, airport and CASM ex-fuel—tracks the company’s outlook.
- Whether management’s liquidity estimate remains adequate given negative free cash flow, the working-capital deficit and aircraft purchase commitments.
- Developments in the Spirit merger litigation and the Northeast Alliance wind-down, including related costs and potential effects on JetBlue’s network.
- Aircraft delivery schedules, engine inspection and reliability impacts, and the availability and cost of financing future fleet commitments.
- The precise comparability of adjusted/non-GAAP results with GAAP results; these measures exclude specified items and should not be treated as substitutes for GAAP metrics.