JetBlue Airways Corporation — Q1 2016 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2016, compared with Q1 2015. JetBlue provides air transportation across the United States, the Caribbean and Latin America.
Financial and operating performance
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Operating revenue | $1.616 billion | $1.523 billion |
| Operating income / margin | $349 million / 21.6% | $253 million / 16.6% |
| Net income | $199 million | $137 million |
| Diluted EPS | $0.59 | $0.40 |
| Operating cash flow | $585 million | $528 million |
| Operating expense per ASM | 9.73 cents, down 12.6% | 11.13 cents |
- Revenue rose 6.1%. Passenger revenue increased 4.9%, while other revenue rose 20.0%, including revenue from bag fees introduced in 2015.
- Capacity (ASMs) and revenue passenger miles each grew 14.1%; load factor was 84.2%, down 0.1 percentage point. Average fare fell 6.8% and yield per passenger mile fell 8.0%.
- Fuel expense decreased $120 million, or 35.8%, as average fuel cost fell 43.1% to $1.17 per gallon. Fuel consumption increased 12.7%.
- Operating expenses were nearly flat at $1.267 billion. Higher salaries, wages and benefits (+$60 million) and maintenance (+$22 million) partly offset fuel savings. Profit-sharing and related expense was $53 million versus $28 million.
- Cash and cash equivalents were $757 million; investment securities were $530 million. JetBlue reported about $1.3 billion of unrestricted cash, cash equivalents and short-term investments, plus approximately $600 million of undrawn credit lines.
- Current and long-term debt and capital lease obligations totaled approximately $1.78 billion on the balance sheet. The company repaid $51 million during the quarter. Working capital was negative $700 million, which management describes as customary in the airline industry in part because advance ticket sales are recorded as current air traffic liabilities.
Changes, outlook and notable items
- Operating income increased $96 million year over year, driven mainly by lower fuel expense and higher passenger revenue, partly offset by increased profit sharing. Q1 2015 operating income was estimated to have been reduced by about $10 million by winter storms.
- For Q2 2016, management expected capacity growth of 9.5%–11.5% and CASM excluding fuel and profit sharing to range from a 0.5% decrease to a 1.5% increase year over year. For full-year 2016, it expected capacity growth of 8.5%–10.5% and that non-GAAP cost measure to increase 0%–1.5%.
- JetBlue planned to expand its premium Mint service and had converted nine of ten A321 aircraft scheduled for 2017 to Mint configuration. It also shifted planned capacity away from Bogota and San Juan toward domestic markets.
- Firm flight-equipment purchase obligations totaled $6.841 billion, including approximately $523 million due for the remainder of 2016. Total disclosed contractual obligations were $13.913 billion. Management expected 2016 non-aircraft capital expenditures of approximately $150–$200 million.
- At March 31, fuel hedges covered approximately 5% of projected 2016 requirements; subsequent April transactions increased expected coverage to about 10% for 2016 and hedged about 5% of projected 2017 fuel needs. A hypothetical 10% increase in fuel cost was estimated to raise annual fuel expense by approximately $93 million.
- Management said liquidity should be sufficient for at least 12 months and reported compliance with debt and lease covenants. Risks include fuel-price volatility, competition, financing availability, labor costs, Northeast congestion, weather, and substantial fixed obligations. Pending legal matters could result in material losses, although the company reported no material impact to date.
- The board had authorized up to $250 million of share repurchases over three years beginning in 2016; no shares were repurchased in Q1.
Key investor verification points
- Check whether capacity growth and CASM-ex-fuel-and-profit-sharing guidance were achieved; these are forward-looking and the cost measure is non-GAAP.
- Track fare, yield and revenue per ASM against capacity growth, and assess whether passenger demand can sustain margins as fuel prices or competitive conditions change.
- Review liquidity and financing plans against aircraft commitments, scheduled debt maturities, and the $700 million working-capital deficit.
- Monitor fuel prices, hedge coverage and potential collateral requirements; the filing notes that counterparties may require funding of hedge losses before contract maturity.
- Assess labor and operating-cost trends, aircraft delivery financing, and any developments in legal contingencies or other disclosed risks.