JetBlue Airways Corporation — Q2 2021 Form 10-Q
Business context and period: Unaudited results for the three and six months ended June 30, 2021. JetBlue operates air transportation services across the United States, the Caribbean and Latin America. COVID-19 continued to weigh on results, although management reported improving travel demand. Comparisons with Q2 2020 are unusually distorted by the pandemic-related collapse in travel.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Operating revenue | $1.499 billion | $215 million | $2.232 billion | $1.803 billion |
| Operating income (loss) | $147 million | ($410 million) | ($147 million) | ($744 million) |
| Net income (loss) | $64 million | ($320 million) | ($183 million) | ($588 million) |
| Diluted earnings (loss) per share | $0.20 | ($1.18) | ($0.58) | ($2.14) |
- Q2 reported operating margin was 9.8%, but excluding special items it was a loss margin of 14.6%; adjusted net loss was $206 million and adjusted diluted loss per share was $0.65. For the first half, adjusted net loss was $665 million and adjusted loss per share was $2.10.
- Special items were primarily federal payroll support grants recognized as contra-expense: $357 million in Q2 and $644 million in the first half, plus employee retention credits of $9 million and $11 million, respectively. The reported Q2 profit therefore does not reflect earnings excluding this support.
- Q2 revenue rose 597.7% year over year, while capacity rose 465.6%; revenue remained 28.8% below Q2 2019. Load factor was 79.2%, versus 33.8% in Q2 2020. Average fare was $174.90, down 36.7% year over year.
- Q2 operating expense was $1.352 billion, including special-item credits; excluding special items it was $1.718 billion. Fuel expense was $336 million, with average fuel price of $1.91 per gallon. Six-month operating expense was $2.379 billion, also reduced by special-item credits.
- Operating cash flow was $1.658 billion for the first half, versus $223 million a year earlier. Free cash flow, a company-defined non-GAAP measure after capital expenditures and aircraft predelivery deposits, was $1.118 billion versus negative $211 million. Cash flow benefited materially from government support and changes in operating assets and liabilities.
Liquidity, debt and balance sheet
- At June 30, cash and cash equivalents were $2.409 billion and investment securities were $1.318 billion; management cited approximately $3.7 billion of cash, cash equivalents and short-term investments.
- Working capital was $223 million, down from $671 million at December 31, 2020, principally as air traffic liabilities increased with customer bookings. Current liabilities totaled $3.973 billion and current assets $4.196 billion.
- Long-term debt and finance lease obligations were $3.998 billion, with $432 million of current maturities, compared with $4.413 billion and $450 million, respectively, at year-end. JetBlue repaid approximately $1.5 billion of debt and finance lease obligations in the first half, including repayment of its $722 million term loan and $550 million revolving facility borrowing. Contractual debt and finance lease payments, including estimated interest, totaled $5.1 billion.
- First-half capital expenditures were $524 million, with a further $16 million of aircraft predelivery deposits. The company had 132 firm Airbus A321neo and A220 orders scheduled through 2027, with approximately $7.4 billion of flight-equipment purchase obligations.
Changes, outlook and risks
- Management said leisure demand rebounded from February and expected improvement to continue, subject to vaccination rates, COVID-19 variants and changes in travel restrictions. Domestic demand was expected to recover ahead of international demand.
- For Q3 2021, JetBlue expected capacity to be flat to down 3% and revenue down 4% to 9% versus Q3 2019. Operating expenses were expected to rise approximately 11% to 13% versus Q3 2019. These are management expectations, not guarantees.
- The company expanded routes, advanced its Northeast Alliance with American Airlines, and began placing A220 and A321neo aircraft into service. It expected to begin London Heathrow service in August 2021 and Gatwick service in September 2021. Management cited the A220’s lower direct cost per seat relative to the E190 fleet and planned to delay some E190 retirements.
- In March 2021, JetBlue issued $750 million of 0.50% convertible senior notes due 2026, with net proceeds of approximately $734 million. Federal payroll support programs provided $845 million of grants and $276 million of loans in the first half; they also entailed warrants and operating, compensation and capital-allocation restrictions. Share repurchases and common dividends were restricted under the programs.
- JetBlue had no fuel hedges outstanding at June 30. A hypothetical 10% rise in fuel cost was estimated to increase fuel expense by approximately $166 million over the next 12 months. Other risks include uncertain pandemic recovery, fuel and labor costs, airport fees, substantial fixed obligations and debt, aircraft financing availability, and potential aircraft tariff costs. The tariff suspension was extended for five years in June 2021; costs after its expiration remain a risk.
- The filing describes ordinary-course legal matters and says an adverse resolution could be material, although none had materially affected operations or financial condition to date. Management reported disclosure controls were effective as of June 30, 2021.
Important facts for investors to verify
- How much of reported profitability and operating cash flow depends on payroll grants, tax credits, customer advance bookings and other working-capital movements; compare GAAP results with adjusted results.
- Whether demand, fares, load factors and capacity meet management’s Q3 expectations, and how performance compares with 2019 rather than the disrupted 2020 period.
- Whether cash and investment securities remain adequate as working capital has declined and aircraft deliveries, debt service and other contractual obligations continue.
- The effect of higher fuel prices, airport charges, labor and maintenance costs, and the absence of fuel hedges on margins and cash needs.
- Progress in funding the aircraft order book, planned route and alliance expansions, and the effect of any financing constraints, tariff changes or pandemic-related disruptions.