JetBlue Airways Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited results; dollar amounts are in millions unless otherwise stated. JetBlue provides air transportation across the U.S. and international markets.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Operating revenue | $2,562 | $1,972 | $6,743 | $4,203 |
| Operating income (loss) | $139 | $186 | $(341) | $39 |
| Net income (loss) | $57 | $130 | $(386) | $(53) |
| Diluted EPS | $0.18 | $0.40 | $(1.20) | $(0.17) |
| Operating margin | 5.4% | 9.4% | (5.1)% | 0.9% |
- Q3 revenue rose 30.0% year over year, reaching a company quarterly record; revenue was 22.8% above Q3 2019. Passenger revenue increased 30.1% year over year, supported by recovering demand, higher fares and passenger volume.
- Q3 adjusted net income was $69 million and adjusted diluted EPS was $0.21, excluding special items and specified investment gains or losses. These are non-GAAP measures; reported GAAP net income was $57 million.
- Nine-month revenue rose 60.4%, while operating expenses increased 70.1%. JetBlue reported a nine-month adjusted net loss of $332 million, versus an adjusted loss of $685 million in 2021.
- Q3 operating revenue per available seat mile (RASM) was 15.80 cents, up 29.6% year over year; operating expense per available seat mile (CASM) was 14.94 cents, up 35.3%. CASM excluding fuel, specified non-airline costs and special items was 9.69 cents, up 3.2% year over year.
- Fuel was a significant cost pressure: Q3 fuel expense was $825 million, and average fuel cost was $3.84 per gallon, up 84.0% year over year. JetBlue reported 27% of projected Q4 fuel use hedged as of September 30.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $321 million, down from $1.755 billion in 2021. Capital expenditures were $483 million and aircraft pre-delivery deposits were $116 million; reported free cash flow, a non-GAAP measure, was negative $278 million.
- Cash and cash equivalents were $1.401 billion at September 30, down $617 million from year-end 2021. Cash, cash equivalents and short-term investments totaled approximately $2.1 billion.
- Working capital was negative $1.3 billion, compared with a $170 million deficit at December 31, 2021. Management said available liquidity was sufficient to meet cash needs for at least 12 months, while noting uncertainty around operating conditions.
- Current and long-term debt and finance lease obligations totaled approximately $3.76 billion; long-term debt and finance lease obligations declined $416 million from year-end. Debt maturities include $557 million in 2023 and $929 million in 2026. Aircraft, engines, equipment and facilities with $6.3 billion net book value secured financing arrangements.
- JetBlue had committed, but undrawn, up to $3.5 billion under a senior secured bridge facility to finance the proposed Spirit acquisition. The facility contemplated pledges of specified aircraft, engines, airport slots, JetBlue brand assets and TrueBlue rights.
Changes, outlook and management commentary
- Q3 system capacity was nearly flat year over year (+0.3%); load factor improved to 86.1% from 79.9%. On-time performance was 67.2%, up from 63.5%; completion factor was 97.7% in both periods.
- The prior-year comparison is affected by substantial federal payroll-support grant credits: these reduced 2021 special-item expenses by $186 million in Q3 and $830 million in the first nine months, with an additional $11 million employee retention credit in the nine-month period. Grants were fully utilized by September 2021.
- 2022 special items included $32 million for a pilot ratification bonus, $18 million of Spirit acquisition costs, $5 million of E190 fleet impairment and $2 million of fleet retirement costs. Q3 included $11 million of Spirit costs and $2 million of E190-related costs.
- Management expected Q4 2022 unit revenue to increase 15%–19% and capacity 1%–4% versus Q4 2019. Full-year capacity was expected to rise 0%–2% versus 2019; full-year CASM ex-fuel was expected to increase 13%–14% versus 2019. JetBlue expected to be profitable again in Q4.
- Management targeted $250 million in savings through 2024 from structural cost initiatives and the E190 retirement plan; the structural program was expected to deliver approximately $150–$200 million of run-rate savings through 2024.
- The Spirit merger agreement was signed July 28, 2022; Spirit shareholders approved it on October 19, after quarter-end. JetBlue paid $272 million in prepayments on October 26. Closing remained subject to regulatory and other conditions. The agreement includes potential termination fees, including a $70 million additional parent regulatory fee in specified circumstances.
- The DOJ and several states’ antitrust case challenging JetBlue’s Northeast Alliance with American Airlines went to trial from September 27 through October 27, 2022. No decision had been issued in the filing. JetBlue said it could not estimate a reasonably possible loss or range.
Risks, commitments and unusual items
- Key risks include volatile fuel prices, economic and travel-demand uncertainty, substantial fixed obligations and debt, access to aircraft financing, operational disruption, labor costs and unionization, supplier delays, and competition.
- The Spirit transaction carries regulatory, financing, integration and synergy risks. If blocked on specified antitrust grounds, JetBlue could owe regulatory payments under the merger agreement; if the merger is terminated under other specified circumstances, Spirit may owe JetBlue a breakup fee.
- JetBlue had firm orders for 151 aircraft, with approximately $8.0 billion of flight-equipment purchase obligations. Airbus delivery delays were anticipated; the company expected 14 A220s and 8 A321neos to be delivered in 2023. Aircraft financing availability and terms were not assured.
- Potential aircraft tariffs could increase costs if applicable; the disclosed tariff suspension had been extended for five years from June 2021. JetBlue also cautioned that weather, infrastructure constraints, geopolitical events, public-health developments and economic conditions could affect results.
- Management reported effective disclosure controls as of September 30, 2022 and no material changes to internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether improved demand and Q4 guidance translated into sustained profitability, given the sharp fuel-cost exposure and rising unit costs.
- Cash generation, working-capital needs and the ability to fund aircraft commitments, debt maturities and Spirit-related payments without constraining liquidity.
- Regulatory outcome and final financing terms for the Spirit transaction, including bridge-facility collateral, potential fees and expected integration economics.
- Outcome of the DOJ case involving the Northeast Alliance and any resulting operational or financial consequences.
- Aircraft delivery timing, financing availability and the expected savings and costs associated with the E190 retirement and structural cost program.