JetBlue Airways Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. JetBlue provides air transportation in the U.S., Caribbean, Latin America and between New York and London. Comparisons with 2020 are affected by the pandemic-driven collapse in travel during that period.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Operating revenue | $1.972 billion | $492 million | $4.203 billion | $2.295 billion |
| Operating income (loss) | $186 million | $(516) million | $39 million | $(1.260) billion |
| Net income (loss) | $130 million | $(393) million | $(53) million | $(981) million |
| Diluted EPS | $0.40 | $(1.44) | $(0.17) | $(3.58) |
- Q3 operating margin was 9.4%; nine-month operating margin was 0.9%. Excluding special items and 2021 equity-investment gains, Q3 adjusted net loss was $39 million, or $0.12 per diluted share; nine-month adjusted net loss was $682 million, or $2.15 per diluted share. These are non-GAAP measures.
- Q3 revenue rose 300.8% year over year, while capacity (ASMs) rose 134.1%. Versus Q3 2019, revenue was down 5.5% and capacity down 0.8%. Q3 load factor was 79.9%, versus 42.6% a year earlier.
- Q3 RASM was 12.20 cents and CASM was 11.04 cents per ASM. CASM excluding fuel, specified non-airline expenses and special items was 9.39 cents, up 12.7% versus Q3 2019.
- Fuel expense was $443 million in Q3, up 335.3% year over year; average fuel price rose 69.7% to $2.08 per gallon. Salaries, wages and benefits were $620 million, up 28.6%.
Cash flow, liquidity and debt
- Nine-month operating cash flow was $1.755 billion, compared with cash use of $223 million in 2020. Capital expenditures were $770 million and aircraft pre-delivery deposits were $33 million; company-defined free cash flow was $952 million. Cash generation included a $1.438 billion contribution from changes in certain operating assets and liabilities, as well as federal payroll support and new co-branded card payments.
- At September 30, cash and cash equivalents were $2.193 billion, short-term investment securities were about $1.100 billion, and management reported approximately $3.3 billion of cash, cash equivalents and short-term investments. Working capital was $124 million, down from $671 million at year-end 2020.
- Balance-sheet current and long-term debt and finance lease obligations totaled about $4.151 billion, including current maturities; the debt-note table reports $4.124 billion excluding finance leases. Debt and finance lease payments were $1.8 billion during the first nine months, partly offset by $1.0 billion of debt issuance, including $750 million of 0.50% convertible notes due 2026. The company repaid its term loan, revolving facility and CARES Act secured loan.
- Management said liquidity was adequate and that it intended to maintain elevated cash. Debt and finance lease obligations, operating leases, aircraft purchase commitments and other obligations totaled $16.5 billion in disclosed contractual payments, including $7.7 billion of flight-equipment purchase obligations.
Changes, outlook and material risks
- Recovery in travel demand improved results from 2020, but adjusted Q3 results remained near break-even. Reported results benefited from $186 million of federal payroll support grant recognition as a contra-expense and a $54 million equity-investment gain. The grants were fully utilized by September 30, 2021; nine-month special items also included an $11 million employee retention credit.
- JetBlue forecast Q4 2021 capacity down 4%–7% and revenue down 8%–13% compared with Q4 2019. Management expected demand recovery to continue but highlighted COVID-19 variants, vaccination rates and travel restrictions as uncertainties, and planned to manage capacity with demand.
- Management cited near-term cost pressures from fuel, airport rents and landing fees, labor, and aircraft maintenance as operations recover. Fuel was unhedged at quarter-end; a hypothetical 10% fuel-price increase was estimated to raise fuel expense by approximately $190 million over the next 12 months.
- The DOJ and multiple state and district authorities sued JetBlue and American Airlines over the Northeast Alliance, seeking to block it. JetBlue considers the case without merit, but could not estimate a possible loss. An adverse outcome could prevent anticipated alliance benefits and require unrecoverable implementation costs.
- Other risks include pandemic-related demand and staffing disruption, labor negotiations and costs, substantial fixed obligations and financing needs, aircraft delivery and financing risks, possible aircraft tariffs after the announced five-year suspension, and operational concentration in the New York and Boston markets. JetBlue had 128 Airbus A321neo and A220 aircraft on order, scheduled through 2027.
- Systemwide on-time performance was 63.5% in Q3, down from 88.9% in Q3 2020; completion factor was 97.7%. JetBlue launched New York–London service during the quarter and expected Boston–London service in summer 2022.
Important facts for investors to verify
- How much of reported profitability and operating cash flow reflects temporary payroll support, equity gains, working-capital movements and co-branded card cash payments.
- Whether demand, fares and load factors support the Q4 outlook, and how results compare with pre-pandemic periods.
- Fuel-price exposure, unhedged fuel requirements, and the pace of fuel, labor, airport and maintenance cost increases.
- Available liquidity after aircraft investment and debt service, and the company’s ability to finance its $7.7 billion aircraft purchase commitments on acceptable terms.
- Developments in the DOJ case concerning the Northeast Alliance, including any operational, financial or legal consequences.