JBLU

JetBlue Airways Corp. 10-Q Summary

Business Context and Reporting Period

This report covers the quarterly period ended September 30, 2009. JetBlue Airways Corporation operates as a low-cost carrier with a significant presence in the New York metropolitan area. The company reported a return to profitability for the quarter and the year-to-date period, driven primarily by significantly lower fuel costs compared to the prior year, despite a challenging economic environment and weakened demand for air travel.

Key Financial Metrics

Unit Metrics (Q3 2009 vs Q3 2008):

• Operating Expense per ASM: 9.40 cents (down 13.0%)
• Fuel Cost per Gallon: $2.07 (down 39.7%)
• Load Factor: 83.7% (down 0.3 points)
• Average Fare: $127.04 (down 10.9%)

Material Changes vs. Prior Period

• Profitability Turnaround: The company shifted from a net loss of $8 million in Q3 2008 to a net income of $15 million in Q3 2009. Operating income more than tripled to $66 million.
• Fuel Cost Reduction: Aircraft fuel expense decreased 38% ($148 million) in the quarter due to a 40% drop in average fuel prices. This was the primary driver of improved margins.
• Revenue Pressure: Total operating revenues declined 5% due to an 8% decrease in yield and a slight decline in load factor, reflecting a competitive pricing environment and soft demand.
• Liquidity Improvement: Cash and cash equivalents increased from $561 million at year-end 2008 to $951 million at September 30, 2009. Working capital improved from a deficit of $119 million to a surplus of $321 million.
• Capital Structure: In June 2009, the company raised approximately $300 million through a convertible debt offering and a common stock offering. In October 2009 (subsequent to period end), an agreement was reached to sell $158 million of auction rate securities for $120 million.

Guidance, Outlook, and Risks

Outlook: Management expects full-year 2009 operating capacity to remain relatively flat (growth between -1% and +1%). They project a full-year operating margin between 7% and 9% and a pre-tax margin between 2% and 4%, assuming fuel prices of $2.01 per gallon net of hedges.

Strategic Initiatives:

• Launched the "All-You-Can-Jet Pass" promotion to stimulate demand.
• Expanded route network in the Caribbean and Latin America.
• Secured DOT approval for a codeshare agreement with Deutsche Lufthansa AG.
• Deferred aircraft deliveries to manage cash flow; no aircraft deliveries are currently obligated for 2010.

Risks and Contingencies:

• Liquidity and Auction Rate Securities (ARS): A substantial portion of marketable securities remains in ARS. While an exit strategy is in place, failure to liquidate these could impact liquidity.
• Fuel Price Volatility: Despite hedging 61% of remaining 2009 fuel requirements, a 10% increase in fuel prices would increase expenses by approximately $90 million.
• Operational Risks: Heavy dependence on the New York market exposes the company to congestion and delays at JFK. The company is also transitioning to a new reservations system in 2010, which carries implementation risks.
• Economic Environment: Continued recessionary conditions and competitive fare sales pose risks to demand and yield.

Investor Verification Checklist

• Verify the status and valuation of the Auction Rate Securities (ARS) portfolio and the progress of the exit strategy with Citigroup and UBS.
• Monitor the fuel hedging program effectiveness as fuel prices fluctuate and the company adjusts its hedge coverage for 2010.
• Assess the impact of the new reservations system cutover scheduled for early 2010 on operational reliability and costs.
• Review the Deutsche Lufthansa codeshare performance and its contribution to revenue growth in international markets.
• Track labor cost trends, specifically pilot wages and benefits, which increased significantly in the current period.