JBLU

Business Context and Reporting Period

Company: JetBlue Airways Corporation
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: JetBlue operates as a "value airline" focusing on service, style, and cost. As of year-end 2009, the company operated a fleet of 151 aircraft (110 Airbus A320s and 41 Embraer 190s), serving 60 destinations across 20 states, Puerto Rico, and 11 Caribbean/Latin American countries. The company is the largest carrier at New York's JFK airport and operates primarily on point-to-point routes.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability Turnaround: The company returned to profitability with $58 million in net income, reversing an $85 million loss in 2008. Operating income increased by $170 million year-over-year.
• Fuel Cost Reduction: Aircraft fuel expense decreased 32% to $945 million, driven by a 33% drop in the average fuel price per gallon ($2.08 in 2009 vs. $3.08 in 2008). Fuel represented 31.4% of operating expenses in 2009, down from 42.6% in 2008.
• Revenue Decline: Total operating revenues decreased 3% ($102 million) primarily due to a 4% decrease in passenger revenues caused by lower yields and a slight decline in load factor.
• Cost Increases: Despite lower fuel costs, salaries, wages, and benefits increased 12% ($82 million) due to pilot pay increases and a 5% increase in full-time equivalent employees. Maintenance costs rose 18% as the fleet aged.
• Liquidity Improvement: Cash and cash equivalents increased by $335 million to $896 million, aided by the return of $132 million in collateral from derivative instruments and a $109 million common stock offering.

Guidance, Outlook, and Risks

2010 Outlook:

• Capacity: Expected to increase 5% to 7% over 2009.
• Revenue per ASM (RASM): Expected to improve 5% to 8%.
• Cost per ASM: Expected to increase 5% to 7% (assuming fuel at $2.26/gallon) due to higher salaries, maintenance, and system transition costs.
• Strategy: Focus on positive free cash flow, disciplined cost control, and expanding Caribbean presence.

• System Implementation: A new integrated customer service system was implemented on January 29, 2010. Management anticipates potential service disruptions and one-time implementation costs in the near term.
• JFK Runway Closure: A major runway at JFK (JetBlue's primary hub) is scheduled for closure from March 1 to June 30, 2010, for rehabilitation. This is expected to cause operational challenges and requires flight schedule reductions.

• Fuel Volatility: Fuel remains the single largest operating expense. The company has hedged approximately 40% of its 2010 fuel requirements.
• Debt Obligations: Total debt of $3.3 billion accounts for 68% of total capitalization. Significant fixed obligations exist for aircraft leases and purchases.
• Regulatory Changes: New DOT rules effective April 2010 limit tarmac delays to three hours, potentially increasing costs and operational complexity.
• Unionization: The company currently has a non-union workforce but faces risks of unionization which could increase labor costs.

Investor Verification Checklist

• Fuel Hedging Effectiveness: Verify the extent of fuel price protection for 2010 and potential margin calls if oil prices fluctuate significantly.
• JFK Runway Impact: Monitor Q1 and Q2 2010 operational metrics (on-time performance, cancellations) during the March-June runway closure.
• System Transition Costs: Track the actual financial and operational impact of the new customer service system implemented in late January 2010.
• Debt Maturities: Review the schedule of debt maturities ($390 million due in 2010) and the company's ability to service fixed obligations given the high leverage ratio.
• Auction Rate Securities (ARS): Confirm the status of remaining ARS holdings and the settlement agreements with brokers (e.g., Citigroup, UBS) regarding repurchases.