JetBlue Airways Corporation — 2015 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2015; fourth-quarter figures are unaudited. JetBlue operated 215 aircraft, served 93 destinations and carried 35.1 million passengers. Its network is concentrated in the New York and Boston areas, with significant Florida and Caribbean and Latin American operations.
Financial results and key metrics
| Metric | 2015 | 2014 |
|---|---|---|
| Operating revenue | $6.416 billion | $5.817 billion |
| Operating income / margin | $1.216 billion / 19.0% | $515 million / 8.9% |
| Net income | $677 million | $401 million |
| Diluted EPS | $1.98 | $1.19 |
| Operating cash flow | $1.598 billion | $912 million |
| Free cash flow (non-GAAP) | $657 million | $(21) million |
| Cash and short-term investments | $876 million | $708 million |
| Total debt and capital lease obligations | $1.843 billion | $2.233 billion |
- Revenue rose 10.3%, primarily as revenue passengers increased 9.4% and average fare increased 0.8%. Load factor improved to 84.7% from 84.0%.
- Fuel expense declined 29.5% to $1.348 billion as average fuel cost fell 35.6% to $1.93 per gallon; consumption increased by 61 million gallons. Fuel represented 25.9% of operating expense, versus 36.1% in 2014.
- Excluding fuel, profit sharing and related taxes, operating expense per available seat mile (CASM) increased 0.5% to 7.51 cents. Total operating expense fell 1.9% despite capacity growth of 9.5%.
- At year-end, current assets were $1.373 billion and current liabilities $2.275 billion, a $902 million working capital deficit. JetBlue also reported approximately $600 million of undrawn credit lines and 61 unencumbered aircraft.
- Fourth quarter: revenue was $1.594 billion, operating income $330 million, net income $190 million and diluted EPS $0.56, compared with $1.446 billion, $169 million, $88 million and $0.26, respectively, in fourth-quarter 2014.
Material changes versus the prior period
- Net income increased $276 million, but 2014 included a $241 million pre-tax gain on the LiveTV sale ($169 million after tax). Excluding that gain, 2014 net income was $232 million and diluted EPS was $0.70; 2015 results therefore improved substantially even against that adjusted comparison.
- Operating cash flow increased $686 million. Management attributed the improvement chiefly to lower fuel prices, increased capacity and higher fares.
- Debt and capital lease obligations declined by $390 million. JetBlue paid cash for 12 A321 deliveries, repaid debt and bought out six A320 leases for approximately $110 million.
- Compensation and benefits rose 19.1% to $1.540 billion, including a $126 million increase in profit-sharing expense. Maintenance expense rose 17.3% to $490 million.
- Share repurchases totaled approximately $241 million for 9.8 million shares. Holders converted $68 million of 5.5% debentures into approximately 15.2 million shares. No cash dividend was paid.
Outlook, commentary, risks and unusual items
- For 2016, management expected capacity growth of approximately 8.5%–10.5% and CASM excluding fuel, profit sharing and related taxes to increase approximately 0.0%–2.0%. Planned capital expenditures were $820–$920 million. Management cited Fare Options, a new co-branded credit card and A321 cabin restyling as initiatives to support returns.
- Management said lower fuel prices materially benefited 2015 results. A 10% increase in fuel price was estimated to raise 2016 fuel expense by approximately $120 million; only about 5% of projected 2016 fuel needs were hedged at year-end.
- Fuel hedge losses recorded in 2015 were $126 million. Other identified items included a $9 million insurance recovery for a damaged engine, a $6 million gain on an engine sale, a $6 million legal settlement expense and a $6.4 million litigation recovery benefit.
- Major disclosed risks include intense fare competition; volatile fuel prices and potential hedge collateral calls; substantial debt, lease obligations and aircraft commitments; rising labor and maintenance costs; weather, congestion and dependence on the New York market; pilot labor negotiations; and operational, technology, cybersecurity, regulatory and international-market risks.
- Contractual obligations totaled $13.881 billion, including $6.910 billion of flight-equipment commitments through 2023. Scheduled debt and capital lease maturities peaked at $448 million in 2016. Operating lease obligations are not recorded on the balance sheet.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- How much of 2015’s earnings improvement persists if fuel prices rise, and how fuel hedging losses or collateral requirements could affect cash and earnings.
- Whether 2016 capacity growth and revenue initiatives deliver returns while unit costs, labor expense and maintenance costs increase.
- The company’s ability to fund aircraft commitments and 2016 debt maturities while maintaining liquidity and meeting credit-facility covenants.
- The economic impact and timing of pilot contract negotiations, aircraft cabin modifications and other fleet investments.
- The full potential exposure from legal matters, lease obligations, operating disruptions and other contingencies; the filing states that outcomes of pending legal matters may differ materially from current estimates.