JetBlue Airways Corporation — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; unaudited consolidated results. Comparisons are with Q1 2012 unless noted. JetBlue reported its 12th consecutive quarter of net income.
Financial performance and liquidity
| Metric | Q1 2013 | Q1 2012 / prior date | Change or context |
|---|---|---|---|
| Operating revenue | $1.299 billion | $1.203 billion | Up 8.0% |
| Operating income / margin | $59 million / 4.5% | $89 million / 7.4% | Income down $30 million; margin down 2.9 percentage points |
| Net income | $14 million | $30 million | Diluted EPS was $0.05 versus $0.09 |
| Operating expenses | $1.240 billion | $1.114 billion | Up 11.3%; expense per available seat mile rose 4.6% to 12.23 cents |
| Operating cash flow | $205 million | $292 million | Lower primarily due to working capital |
| Cash and short-term investments | $849 million | $731 million at Dec. 31, 2012 | Includes $346 million cash and $503 million short-term investments; about 17% of trailing-12-month revenue |
| Debt and capital lease obligations | $2.826 billion | $2.851 billion at Dec. 31, 2012 | Balance-sheet current and long-term amounts combined; company said overall debt fell $25 million in the quarter |
| Working capital | Deficit of $676 million | Deficit of $508 million at Dec. 31, 2012 | Includes air traffic liability and near-term debt maturities |
Net cash used in investing activities was $2 million, including capital expenditures of $74 million and $9 million of aircraft predelivery deposits, alongside investment-security transactions. Net cash used in financing was $39 million. Cash and cash equivalents increased by $164 million to $346 million.
Operating trends and changes versus prior year
- Capacity, measured in available seat miles, increased 6.3%; revenue passengers rose 6.5%, load factor improved to 83.9% from 82.9%, and average fare increased 1.6% to $162.53.
- Passenger revenue increased 8.3%; passenger revenue per available seat mile rose 1.8%. Management cited stronger Boston business markets and transcontinental markets, while noting that canceled Northeast school vacations over the President’s Day travel period hurt revenue.
- Fuel expense rose 8% to $467 million. Average fuel cost per gallon was $3.29 versus $3.25, and consumption increased 6.6%. Fewer effective hedge gains also affected the comparison: gains were insignificant in Q1 2013 versus $9 million in Q1 2012.
- Maintenance expense increased 29.8% to $114 million, including approximately $20 million of unexpected EMBRAER 190 engine removals and performance-restoration expense. Other operating expenses increased partly because of colder Northeast weather and the prior-year $8 million LiveTV contract-termination gain.
- On-time performance declined to 73.3% from 81.9%, and completion factor fell to 98.5% from 99.8%. JetBlue cited cold weather and its concentration in congested Northeast airports.
- The company recorded $3 million of maintenance expense in Q1 2013 that should have been recorded in 2012.
Outlook, risks and notable items
- For 2013, management estimated capacity growth of approximately 6%–8%. It expected full-year CASM to increase 1.5%–3.5% over 2012, assuming fuel at $3.20 per gallon net of hedging. Management cited aging-fleet maintenance, E190 engine work and higher labor costs. The filing did not provide a clear full-year earnings or revenue forecast.
- Fuel-price exposure remains significant: a hypothetical 10% increase in fuel prices was estimated to add approximately $199 million to 2013 fuel expense. As of March 31, about 23% of remaining 2013 fuel requirements were hedged through derivatives; another 11% were covered by fixed forward-price agreements.
- Aircraft and other commitments are substantial: contractual obligations totaled $12.945 billion, including $4.965 billion of flight-equipment purchase obligations. Aircraft commitments include 114 firm aircraft and 10 spare engines scheduled through 2021. The JFK T5i international arrivals project is expected to cost $175 million, funded by JetBlue, with completion expected in early 2015.
- JetBlue was out of compliance at quarter-end with collateral-ratio requirements on certain spare-parts and spare-engine financings. Subsequent to quarter-end, it pledged a spare engine with a carrying value of about $7 million and elected to redeem $2 million of notes. The company reported compliance with its other covenants.
- On April 23, 2013, JetBlue entered into a $350 million secured revolving credit and letter-of-credit facility, terminating in 2016; it reported no outstanding credit-facility borrowings at March 31. The facility has covenants, including minimum liquidity requirements. Management believed available liquidity would cover requirements for at least 12 months, while noting the working-capital deficit and rising debt maturities, including a scheduled peak near $575 million in 2014.
- Contingencies include a DOT investigation of five 2011 tarmac delays, with potential penalties of approximately $15 million; a pilot employment-agreement arbitration with unspecified damages and a decision expected in the near term; and JFK-site contamination, for which JetBlue accrued $2 million against a preliminary remediation estimate ranging from less than $1 million to approximately $3 million. Management said the ultimate scope and cost remain uncertain.
- In April 2013, LiveTV sold spectrum-related assets for $9 million; JetBlue expected to recognize a $7 million gain in Q2. FAA staffing furloughs in April caused industry delays and cancellations for about a week; the filing warned that extended budget-related constraints could adversely affect operations.
Important facts for investors to verify
- Whether revenue and load-factor gains can outpace higher operating costs, particularly maintenance, labor and fuel.
- Progress on the 2013 capacity plan, aircraft deliveries and financing, and the funding needs associated with aircraft orders and the JFK T5i project.
- Liquidity and covenant compliance after the spare-engine collateral pledge and note redemption; also the timing and funding of 2014 debt maturities.
- Developments and potential financial exposure from the DOT tarmac-delay investigation, pilot arbitration and environmental remediation.
- Fuel prices, hedge coverage and operating reliability, including E190 engine performance and on-time service in the Northeast.