JetBlue Airways Corporation — FY2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. Although the request references 2018 Q4, this 10-K reports full-year results; Q4 figures are separately noted below. JetBlue carried 42.2 million passengers and served 105 destinations.
Financial and operating performance
| Metric | FY2018 | FY2017 |
|---|---|---|
| Operating revenue | $7.658 billion | $7.012 billion |
| Operating income / margin | $288 million / 3.8% | $993 million / 14.2% |
| Net income | $188 million | $1.125 billion |
| Diluted EPS | $0.60 | $3.41 |
| Cash from operations | $1.217 billion | $1.396 billion |
| Free cash flow (company-defined, non-GAAP) | $103 million | $194 million |
| Fuel expense | $1.899 billion | $1.363 billion |
| Operating expense per ASM | 12.31 cents | 10.75 cents |
- Revenue increased 9.2%, reflecting 5.3% more revenue passengers and a 3.7% increase in average fare. Load factor rose to 84.8% from 84.3%; operating revenue per ASM increased 2.1% to 12.79 cents.
- Fuel cost per gallon rose 30.2% to $2.24, while fuel consumption also increased. Reported operating expense per ASM rose 14.5%. Excluding fuel, non-airline expenses and special items, CASM increased 1.1% to 8.34 cents.
- FY2018 included $435 million in special charges: $362 million for the Embraer E190 fleet transition, including a $319 million impairment, and $73 million for the pilots’ contract. Excluding special items and tax-reform effects, management reported net income of $487 million, diluted EPS of $1.55, operating income of $723 million and operating margin of 9.5%. These are non-GAAP measures.
- Q4 2018: Revenue was $1.968 billion, operating income $221 million, net income $169 million and diluted EPS $0.55. Q4 2017 revenue was $1.758 billion, operating income $190 million, net income $654 million and diluted EPS $2.03; the 2017 quarter included a $551 million tax-reform benefit.
Liquidity, debt and capital commitments
- At year-end, unrestricted cash and cash equivalents were $474 million and short-term investments $413 million, for total unrestricted liquidity of approximately $887 million (about 12% of trailing revenue). Available undrawn credit lines totaled approximately $625 million.
- Debt and capital lease obligations totaled $1.680 billion, including $309 million of current maturities; adjusted debt-to-capitalization was 34%. JetBlue issued $687 million of secured aircraft debt and repaid $222 million of debt and capital lease obligations during 2018.
- Working capital deficit was $944 million, which the company describes as customary in the airline industry in part because advance ticket sales are current liabilities. Management stated liquidity was adequate for at least 12 months.
- Capital expenditures were $908 million, with a further $206 million of aircraft pre-delivery deposits. JetBlue repurchased 19.1 million shares for approximately $375 million. The company paid no cash dividends.
- Contractual obligations totaled $14.4 billion, including $8.4 billion for aircraft and related flight equipment, $1.9 billion of debt and capital lease obligations, $1.0 billion of lease commitments and $3.1 billion of other obligations. The 2019 capital expenditure outlook was $1.2–$1.4 billion.
Changes, outlook and material items
- Reported profitability fell sharply year over year, primarily reflecting the 39.4% increase in fuel expense, higher labor costs, and the $435 million of special charges. The prior-year comparison also included a major tax benefit; reported 2017 net income is therefore not directly comparable without adjustment.
- For 2019, JetBlue forecast capacity growth of approximately 5%–7% and CASM excluding fuel, related taxes, non-airline expenses and special items growth of approximately 0%–2%. It expected higher CASM growth in the first half, with structural cost savings and A320 cabin-restyling benefits contributing more in the second half. No full-year earnings guidance is provided in the filing text.
- JetBlue’s structural cost program targets $250–$300 million of savings by 2020; approximately $199 million had been secured by year-end 2018. Management also cited continued investment in network growth, products, ancillary revenue and the balance sheet.
- The company ordered 60 Airbus A220-300 aircraft, with deliveries expected from 2020 through 2025 and an option for 60 more. It plans to phase out its 60 E190s over approximately 2020–2025 and expects additional transition costs. Airbus delivery delays reduced expected 2019 A321neo deliveries to at least six, versus 13 in the stated order schedule.
- Fuel sensitivity is significant: a 10% increase in fuel price was estimated to add approximately $180 million to 2019 fuel expense. Only about 4% of projected 2019 fuel use was hedged at year-end, with contracts settling by June 30, 2019.
- Other key risks include intense fare competition, dependence on New York and other congested focus-city operations, weather disruption, labor costs and negotiations with inflight crew represented by TWU, aircraft and engine supplier concentration, cybersecurity, and the availability and cost of financing. About 44% of full-time-equivalent crew were union-represented at year-end.
- JetBlue adopted revenue standard ASC 606 retrospectively in 2018; it materially changed loyalty-point liability accounting and reclassified certain ancillary fees between revenue categories, but management said adoption did not significantly affect earnings. The company expected adoption of the new lease standard in 2019 to add $1.0–$1.4 billion of lease assets and liabilities to the balance sheet, without a material effect on operating results or cash flows.
- Auditors issued unqualified opinions on the financial statements and internal controls; management and the auditor reported effective internal control over financial reporting as of December 31, 2018. Ordinary-course legal matters are disclosed; the filing states outcomes may differ from estimates, but does not identify a currently pending matter as having had a material operational or financial impact.
Important facts for investors to verify
- Reconcile the $435 million special-charge total, especially the E190 impairment and any additional transition costs, against future fleet plans and cash requirements.
- Track fuel prices, hedging coverage, fare recovery and unit revenue against the forecast fuel sensitivity and 2019 CASM outlook.
- Review aircraft delivery timing, 2019–2025 purchase commitments, financing terms and the effect of lease-accounting adoption on leverage and liquidity measures.
- Assess whether structural cost savings, capacity growth and product/network investments translate into improved margins and returns.
- Monitor labor negotiations and contract costs, operational reliability in congested markets, and any developments in legal, regulatory, cybersecurity or credit-card reserve exposures.