JetBlue Airways Corporation — 2016 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2016. The filing also reports unaudited fourth-quarter results. JetBlue is a U.S. passenger airline serving 100 destinations in the United States, Caribbean and Latin America; it carried 38.3 million passengers in 2016.
Financial performance and position
| Metric | 2016 | 2015 |
|---|---|---|
| Operating revenue | $6.632 billion | $6.416 billion |
| Operating income / margin | $1.312 billion / 19.8% | $1.216 billion / 19.0% |
| Net income | $759 million | $677 million |
| Diluted EPS | $2.22 | $1.98 |
| Operating cash flow | $1.632 billion | $1.598 billion |
| Free cash flow, company-defined non-GAAP | $621 million | $657 million |
| Cash and cash equivalents | $433 million | $318 million |
| Short-term investments | $538 million | $558 million |
| Debt and capital lease obligations | $1.395 billion | $1.843 billion |
- Unrestricted cash, cash equivalents and short-term investments totaled approximately $971 million; available credit lines were approximately $600 million. Working capital remained negative at $656 million, which management says is customary in the airline industry in part because of air traffic liability.
- Fuel expense fell 20.3% to $1.074 billion as average fuel cost declined 26.9% to $1.41 per gallon. Salaries, wages and benefits rose 10.2% to $1.698 billion; maintenance expense rose 14.9% to $563 million.
- Operating expenses per available seat mile (CASM) fell 6.0% to 9.92 cents, primarily because of lower fuel costs. Excluding fuel, profit sharing and related taxes, CASM rose 1.1% to 7.59 cents.
- For the fourth quarter, revenue was $1.641 billion, operating income $296 million and net income $172 million, versus $1.594 billion, $330 million and $190 million, respectively, in fourth-quarter 2015. Diluted EPS was $0.50 versus $0.56.
Material changes versus the prior comparable period
- Annual revenue increased 3.4%; passenger revenue rose 2.0% and other revenue 18.5%. Passenger growth reflected 9.0% more revenue passengers, partly offset by a 6.4% decline in average fare. Load factor improved to 85.1% from 84.7%, while passenger revenue per ASM declined 6.3%.
- Net income increased $82 million to a company record, supported principally by lower fuel expense and higher passenger revenue, partly offset by higher controllable costs. JetBlue reported its fifth consecutive year of net income growth.
- Debt and capital lease obligations declined $443 million; the adjusted debt-to-capitalization ratio improved from 46% to 35%. The company paid cash for aircraft, bought out nine aircraft leases, repaid debt and repurchased approximately $120 million of shares under its program.
- Capacity grew 8.9% and available seat miles reached 53.6 billion. Higher passenger volumes and ancillary revenue, including bag fees under the Fare Options program, helped offset weaker fares.
Outlook, commentary, risks and unusual items
- For 2017, management forecast capacity growth of approximately 5.5%–7.5% and CASM excluding fuel and related taxes to increase approximately 1.5%–3.5%. Planned capital expenditures were $1.2–$1.4 billion, including aircraft and predelivery deposits.
- JetBlue launched a structural cost initiative targeting $250–$300 million in savings by 2020. It planned to add 15 Airbus A321 aircraft in 2017 and continue network expansion, including Atlanta service.
- As of year-end, the company had approximately $8.1 billion of commitments for 135 aircraft and related equipment through 2023. Total disclosed noncancelable contractual obligations were $14.9 billion, including debt and capital leases, leases, aircraft commitments and other obligations.
- Fuel remains a major exposure: a 10% fuel-price increase was estimated to add approximately $133 million to 2017 fuel expense; only about 10% of projected 2017 fuel needs were hedged at year-end. Fuel derivatives can also require collateral or margin funding.
- Key risks include intense fare competition, dependence on fuel and the New York/Boston markets, congestion and weather disruption, substantial fixed obligations and aircraft commitments, rising labor and maintenance costs, pilot contract negotiations with ALPA, supplier concentration, and cybersecurity, regulatory and international-market risks. Credit-card processors could require reserves that management says might materially affect liquidity.
- JetBlue disclosed routine legal matters and contingencies; it recorded accruals where appropriate but noted outcomes may differ from estimates and some resolutions could be material. No specific material loss value is clearly stated in the supplied filing text.
- Unusual or relevant items: 2016 profit included an $8 million income-tax benefit from early adoption of share-based-payment accounting. The 2014 comparison included a $241 million pretax gain on the LiveTV sale, so reported 2014 earnings are not directly comparable. The filing states there were no material long-lived asset impairment charges identified.
Important facts for investors to verify
- Whether fare and unit-revenue trends stabilize as capacity expands: average fare fell 6.4% and passenger revenue per ASM fell 6.3% in 2016.
- Whether the 2017 capacity, unit-cost and capital spending forecasts are achieved, and whether the $250–$300 million structural cost-savings target is delivered.
- How fuel-price changes, limited hedge coverage and potential collateral calls affect earnings and liquidity.
- How aircraft purchase commitments, lease obligations and debt repayments affect funding needs and balance-sheet flexibility.
- Progress and potential cost implications of the pilots’ first collective bargaining agreement, as well as labor availability and compensation pressures.
- Fourth-quarter performance relative to the full year: operating income, net income and diluted EPS were all below the year-earlier quarter despite higher revenue.