JetBlue Airways Corporation — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; comparisons are with Q1 2011 unless otherwise noted. JetBlue is an airline focused on growth in Boston, New York, the Caribbean and Latin America.
Financial and operating performance
- Revenue: $1.203 billion, up 19%. Passenger revenue rose 21% to $1.096 billion; other revenue was $107 million.
- Profit: Operating income was $89 million versus $45 million. Net income was $30 million versus $3 million; diluted EPS was $0.09 versus $0.01. Operating margin was approximately 7.4%, compared with 4.4%; management reported a 3.0-point increase.
- Costs and margins: Operating expenses increased 15% to $1.114 billion. Fuel expense rose 23% to $433 million, while maintenance expense rose 68% to $88 million. Operating expense per available seat mile increased 2.8% to 11.69 cents; excluding fuel, it declined 1% to 7.15 cents.
- Operating indicators: Capacity increased 12%; yield rose 5.9%, average fare rose 6.6% to $159.93, and load factor improved 1.5 points to 82.9%. On-time performance was 81.9%, versus 67.5%; completion factor was 99.8%, versus 96.5%.
- Cash flow: Operating cash flow was $292 million, up from $231 million. Investing cash outflow was $171 million and financing cash outflow was $142 million. Cash and cash equivalents declined $21 million to $652 million.
- Liquidity: Cash and short-term investment securities totaled $1.225 billion at quarter-end. Working capital was $185 million, versus $216 million at year-end 2011. The $125 million fuel-purchasing credit line was undrawn.
- Debt: Balance-sheet current maturities of long-term debt and capital leases were $205 million, with $2.798 billion of long-term debt and capital lease obligations. Long-term debt and lease principal declined by $45 million during the quarter. Weighted-average long-term debt interest rate was 4.7%.
Material changes and notable items
- Revenue growth and stronger fares more than offset higher fuel prices; management attributed the improved results to pricing, capacity growth and network performance.
- Average fuel cost increased 10% to $3.25 per gallon. Fuel expense also reflected higher consumption; fuel-hedge settlement gains were $9 million, versus $2 million in Q1 2011.
- Maintenance expense increased $36 million, reflecting fleet growth and aging, heavier maintenance checks and more-than-expected E190 engine removals. Average fleet age rose to 6.2 years from 5.5 years a year earlier.
- Other operating expenses included an $8 million gain from termination of a LiveTV customer contract.
- JetBlue repaid $88 million outstanding on its American Express fuel-purchasing line; no balance remained at March 31. It made no new long-term debt issuance during the quarter.
Outlook, risks and contingencies
- Management expected 2012 capacity growth of approximately 6%–8% versus 2011. Assuming fuel at $3.30 per gallon, including taxes and net of effective hedges, it forecast 2012 cost per available seat mile to increase 3.5%–5.5%, primarily due to maintenance costs.
- Management expected resilient travel demand and positive working capital from operations, and believed available working capital would meet cash needs for at least 12 months. It also emphasized profitable, sustainable growth and positive free cash flow; the filing does not provide a specific free-cash-flow forecast.
- Aircraft and related equipment commitments totaled approximately $5.555 billion, including $310 million for the remainder of 2012. Total listed contractual obligations were $13.649 billion. Debt maturities were expected to peak in 2014; the filing reports $576 million of scheduled principal maturities for that year, excluding interest.
- Fuel prices remain volatile. The filing gives different hedge-coverage measures and scopes: Q1 consumption hedged, remaining-year forecast coverage, and coverage by hedge type. A 10% fuel-price increase was estimated to raise fuel expense by approximately $190 million for projected nine-month consumption.
- Maintenance-provider liquidation was expected to increase costs during much of 2012. Management also warned that aging aircraft, growth, competition, economic conditions, weather and financing availability could affect results.
- The DOT was investigating five October 2011 flights held on the tarmac for more than three hours; potential penalties were approximately $15 million, but JetBlue could not estimate whether or how much would be assessed. A California call-recording class-action matter remained unresolved; class certification and ultimate outcome were uncertain.
- Seven E190 deliveries had been deferred to 2018. JetBlue could reinstate earlier delivery dates or cancel subject to fees if it did not amend the purchase agreement by July 31, 2012. Financing for future aircraft deliveries was not assured on attractive terms.
- Disclosure controls were assessed as effective as of March 31, 2012; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- How maintenance costs and the alternative-provider arrangements develop, especially for E190 engines and the aging fleet.
- Actual fuel prices and hedge coverage; reconcile the filing’s differing coverage measures and monitor hedge effectiveness.
- Aircraft delivery, financing and cancellation decisions, and the resulting capital requirements and fixed obligations.
- Outcomes of the DOT tarmac-delay investigation and the call-center litigation, including any potential financial exposure.
- Whether fare, yield and load-factor gains persist as capacity expands, and whether operating cash flow supports planned investment and debt obligations.