JetBlue Airways Corporation — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; comparisons are with Q1 2016 unless stated otherwise. JetBlue provides air transportation across the United States, the Caribbean and Latin America. Amounts are in U.S. dollars; financial statement figures are in millions unless otherwise noted.
Financial performance and liquidity
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Operating revenue | $1.604 billion | $1.616 billion; down 0.8% |
| Operating income / margin | $147 million / 9.2% | $349 million / 21.6% |
| Net income | $85 million | $207 million |
| Diluted earnings per share | $0.25 | $0.61 |
| Operating cash flow | $432 million | $585 million |
| Capital expenditures and aircraft deposits | $285 million | $166 million |
| Cash and cash equivalents at quarter end | $438 million | $433 million at Dec. 31, 2016 |
Passenger revenue fell 1.8% to $1.451 billion, as average fare decreased 7.8% to $149.41; revenue passengers increased 6.5% and capacity (ASMs) increased 4.2%. Other revenue rose 10.4% to $153 million, primarily reflecting loyalty revenue under the co-brand credit-card agreement. Load factor was 83.9%, down 0.3 percentage points.
Operating expenses increased 15.0% to $1.457 billion. Fuel expense rose 50.2% to $323 million; average fuel cost increased 44.1% to $1.69 per gallon. Total operating expense per ASM rose 10.3% to 10.73 cents, while expense per ASM excluding fuel and specified non-airline expense rose 3.3% to 8.35 cents. Interest expense was $25 million; income tax expense was $41 million.
Net cash provided by operating activities was $432 million. Investing activities used $267 million and financing activities used $160 million, including $109 million for treasury-stock purchases and $49 million of debt and capital-lease repayments. Cash and cash equivalents increased $5 million during the quarter.
At March 31, unrestricted cash, cash equivalents and investment securities totaled approximately $1.046 billion. JetBlue reported a $953 million working-capital deficit, versus $811 million at year-end, and said such deficits are customary in the airline industry in part because air traffic liability is current. It reported approximately $600 million of undrawn credit lines, 103 unencumbered aircraft and 32 unencumbered spare engines. Balance-sheet current maturities of debt and capital leases were $197 million and long-term debt and capital-lease obligations were $1.140 billion. The company said it expected available liquidity and operations to meet cash requirements for at least the next 12 months.
Changes, outlook and management commentary
- Profitability declined materially year over year: operating income fell $202 million and diluted EPS declined from $0.61 to $0.25. Management attributed the operating-income decline principally to higher fuel expense and lower passenger revenue.
- Management cited winter storms in the Northeast. Systemwide on-time performance improved to 75.0% from 73.3%, while completion factor fell to 96.5% from 97.9%.
- Q2 2017 outlook: capacity growth of 4.0%–6.0%, revenue per ASM growth of 3.0%–6.0%, and cost per ASM excluding fuel growth of 4.5%–6.5%, each versus the comparable 2016 period.
- Full-year 2017 outlook: capacity growth of 5.5%–7.5% and cost per ASM excluding fuel growth of 1.5%–3.5%. JetBlue expected 12 Airbus A321 deliveries during the remainder of 2017.
- The company had hedged approximately 10% of projected 2017 fuel requirements as of March 31. A hypothetical 10% increase in fuel cost was estimated to raise next-12-month fuel expense by approximately $138 million. Fuel prices, competition, operating costs, weather, congestion and financing availability were among the stated risks.
- Aircraft purchase obligations totaled $7.897 billion as of March 31, before reflecting subsequent delivery deferrals. JetBlue warned that financing for post-2017 aircraft deliveries was not assured on attractive terms; fixed costs would rise regardless of financing method.
- JetBlue repurchased shares under a $100 million accelerated share-repurchase agreement initiated in March; the agreement was completed after quarter-end, with approximately 4.9 million shares repurchased at an average $20.23 per share. A further $150 million ASR was entered into on April 27, 2017.
- Legal proceedings were described as ordinary-course matters; the company cautioned that outcomes could differ from estimates and potentially be material. It reported no material change in previously disclosed risk factors. Disclosure controls were concluded effective as of March 31, 2017.
Important facts for investors to verify
- Whether fare trends, passenger revenue and unit revenue improve as capacity expands, including the effect of Easter timing and competitive conditions.
- Fuel-price exposure, hedge coverage and the extent to which higher fuel costs can be passed through to fares.
- Delivery timing and financing of aircraft commitments, and the impact of fleet growth on capital spending, debt, leases and fixed costs.
- Liquidity and working-capital trends, including the composition and seasonality of air traffic liability and availability of credit facilities.
- Cash deployment and share repurchases, including the completed March ASR and the subsequent $150 million ASR.
- Potential outcomes of legal matters and other risks described in the filing; the company states that actual results may differ materially from forward-looking statements.