JetBlue Airways Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; comparative figures are for Q1 2014 unless otherwise stated. Amounts are in U.S. dollars. JetBlue primarily provides air transportation in the United States, the Caribbean and Latin America.
Financial performance and position
| Metric | Q1 2015 | Q1 2014 / prior date |
|---|---|---|
| Operating revenue | $1.523 billion | $1.349 billion; up 13.0% |
| Operating income / margin | $253 million / 16.6% | $41 million / 3.1% |
| Net income | $137 million | $4 million |
| Diluted EPS | $0.40 | $0.01 |
| Operating cash flow | $528 million | $322 million |
| Cash and cash equivalents | $599 million | $341 million at Dec. 31, 2014 |
| Unrestricted cash, cash equivalents and short-term investments | $998 million | About 17% of trailing-twelve-month revenue |
| Debt and capital lease obligations | About $2.181 billion on balance sheet | $264 million current; $1.917 billion long-term |
| Working capital | Deficit of $692 million | Deficit of $736 million at Dec. 31, 2014 |
Operating expenses were $1.270 billion, down 2.9%. Operating expense per available seat mile (CASM) fell 11.3% to 11.13 cents; excluding fuel and profit sharing, the non-GAAP measure fell 1.9% to 7.95 cents. The filing reports $600 million of undrawn credit lines. JetBlue had 41 unencumbered aircraft and 33 unencumbered spare engines at quarter-end.
Investing activities used $237 million, including $148 million of capital expenditures and net purchases of investment securities. Financing activities used $33 million, including $55 million of debt and lease repayments, partly offset by $30 million from stock issuance. Cash increased $258 million during the quarter.
Material changes and operating drivers
- Passenger revenue rose $178 million, or 14.5%, supported by 10.4% more revenue passengers, a 3.7% increase in average fare and a 1.2-point increase in load factor to 84.3%. Capacity, measured in ASMs, increased 9.6%.
- Fuel expense fell $129 million, or 27.8%; average fuel cost per gallon declined 34.4% to $2.06, partly offset by 10.1% higher fuel consumption and $35 million of losses on settled effective fuel hedges.
- Salaries, wages and benefits rose $46 million, or 14.0%, reflecting pay increases and increased staffing; average full-time equivalent employees increased 7.5%. Maintenance expense rose $19 million, including higher maintenance checks and engine repair rates.
- Q1 2014 other revenue included about $16 million from LiveTV, sold in 2014. LiveTV’s operations are no longer consolidated. The 2014 sale generated a pre-tax gain of about $241 million in that prior fiscal year, not in Q1 2015.
- JetBlue recorded a $9 million gain in other operating expenses related to insurance recovery for a damaged engine. Winter storms were estimated to reduce operating income by about $10 million in Q1 2015 versus $35 million in Q1 2014; cancellations fell about 37% year over year.
Outlook, risks and contingencies
- Q2 2015 outlook: CASM excluding fuel and profit sharing expected to increase 1%–3% year over year; capacity expected to increase 5.5%–7.5%.
- Full-year 2015 outlook: Capacity expected to rise 7%–9%; CASM excluding fuel and profit sharing expected to rise 0%–2%. JetBlue expected to add 10 Airbus A321 aircraft later in the year. Management said it anticipated repurchasing shares over the year to offset dilution, although none were repurchased in Q1.
- Committed aircraft and related flight-equipment expenditures total about $6.54 billion, including $500 million for the remainder of 2015. Total contractual obligations were reported at $14.96 billion. JetBlue said financing for deliveries after 2015 was expected to be available but could not be assured on attractive terms; cash funding, revised acquisition plans or higher financing costs could result.
- Management believed liquidity would be sufficient for at least the next 12 months and said it was in compliance with debt and lease covenants. Scheduled debt maturities were expected to peak at $464 million in 2016. Working-capital deficits are described as customary in the airline industry, in part because air traffic liability is current.
- Fuel-price sensitivity: a hypothetical 10% increase in fuel cost per gallon, considering hedges and projected consumption, would increase fuel expense by approximately $148 million over the next 12 months. JetBlue had hedged approximately 17% of projected 2015 fuel requirements; all contracts outstanding at quarter-end settle by year-end.
- Debt interest-rate sensitivity: a 100-basis-point increase would raise annual interest expense by approximately $6 million. About $1.6 billion of debt and lease obligations had fixed rates and $0.5 billion had floating rates.
- JFK subsurface petroleum contamination had an estimated remediation range of $1 million–$3 million; $2 million was accrued. JetBlue said insurance was expected to mitigate some exposure and did not expect a material adverse effect, but scope and costs remained uncertain.
- A pilot employment dispute award of approximately $4.4 million was confirmed by a New York court; claimants appealed. JetBlue accrued an amount it considered probable and said reasonably possible additional losses were not material. WestJet’s LiveTV-related claims and counterclaims were dismissed in March 2015 without financial impact to JetBlue.
- Management cited competitive conditions, fuel and maintenance cost volatility, financing availability, growth execution, labor and staffing, reliance on the congested Northeast, weather, regulation, technology and information-security risks, economic conditions, disease outbreaks, and geopolitical events. Q1 on-time performance was 71.8%; the filing notes ongoing operational exposure from Northeast congestion.
Key facts investors should verify
- Whether revenue, fares and load-factor gains continue to offset capacity growth and operating-cost increases, especially labor and maintenance.
- Actual fuel prices, hedge settlements and collateral requirements relative to the disclosed fuel sensitivity and hedge coverage.
- Funding plans and financing terms for the $6.54 billion aircraft-related commitments and scheduled debt maturities, particularly in 2016.
- Progress against capacity and CASM guidance; CASM excluding fuel and profit sharing is a non-GAAP measure, and the filing says projected amounts cannot be reconciled because excluded items are estimates.
- Resolution and final cost of the JFK environmental matter and pilot arbitration appeal, and any material developments in other legal or regulatory proceedings.