JetBlue Airways Corporation — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited results. JetBlue provides air transportation across the U.S., Caribbean, Latin America, Canada, and the U.K.
Financial performance and liquidity
| Metric | Q2 2022 | Prior-year comparison |
|---|---|---|
| Operating revenue | $2.445 billion | Up 63.1% from $1.499 billion |
| Operating income (loss) | $(113) million; margin (4.6)% | $147 million; margin 9.8% |
| Net income (loss) | $(188) million; diluted EPS $(0.58) | $64 million; diluted EPS $0.20 |
| Adjusted net income (loss) and EPS (non-GAAP) | $(153) million; $(0.47) | $(206) million; $(0.65) |
| Operating revenue per ASM | 14.90 cents | Up 35.7% |
| Operating expense per ASM | 15.59 cents | Up 57.4% |
For the first half of 2022, revenue was $4.181 billion, up 87.4%; operating loss was $480 million, versus $147 million; and net loss was $443 million, versus $183 million. Diluted loss per share was $1.38, compared with $0.58. Management’s adjusted first-half net loss was $408 million, or $1.27 per share, versus an adjusted loss of $665 million, or $2.10 per share, in 2021.
Revenue recovery reflected higher fares and passenger volumes: Q2 average fare rose 26.6%, passengers increased 31.0%, and load factor improved to 85.1% from 79.2%. Capacity increased 20.2%. Fuel was a major cost pressure: Q2 fuel expense rose 170.7% to $910 million, with average fuel cost up 121.6% to $4.24 per gallon.
Six-month operating cash flow was $299 million, down from $1.658 billion. Capital expenditures and aircraft pre-delivery deposits totaled $339 million; reported free cash flow, a non-GAAP measure, was negative $40 million. Cash and cash equivalents were $1.611 billion at June 30, down $407 million from year-end; cash, cash equivalents, and short-term investments were approximately $2.5 billion. Working capital deficit was $1.1 billion, versus $170 million at December 31, 2021. Management said available liquidity was sufficient for at least the next 12 months.
Total current and long-term debt and finance lease obligations were approximately $3.822 billion, including $428 million of current maturities. Long-term debt and finance lease obligations declined $257 million from year-end. Debt and finance lease contractual payments, including interest, totaled $4.5 billion. Assets with a net book value of $6.5 billion secured financing arrangements.
Material changes and unusual items
- Q2 special items totaled $44 million: a $32 million pilot ratification bonus and related payroll taxes, $7 million of Spirit acquisition proposal expenses, and a $5 million E190 fleet impairment. In Q2 2021, special items instead included $366 million of federal payroll grant and employee retention credit contra-expense, materially affecting comparisons.
- Operating costs excluding fuel, special items, and non-airline expenses (CASM ex-fuel, non-GAAP) declined 3.5% year over year in Q2 to 9.69 cents, but management’s comparable 2022 level was 14.7% above Q2 2019. GAAP operating expense rose 89.2% year over year.
- On-time performance fell to 63.2% from 73.8%; completion factor declined to 95.6% from 99.2%. Management cited operating pressures and increased operations.
- Air traffic liability increased to $1.984 billion from $1.618 billion at year-end, reflecting customer bookings for future travel. Total contract liabilities were $3.188 billion.
- JetBlue recorded an $8 million net unrealized loss on publicly traded equity investments during the first half.
Outlook, transactions, and risks
- For Q3 2022, management expected unit revenue to rise 19%–23% versus Q3 2019, capacity to decline 0%–3% versus Q3 2019, and CASM ex-fuel to increase 15%–17%. Full-year capacity was expected to increase 0%–3% versus 2019, revised down from the prior 11%–15% range. Full-year CASM ex-fuel was expected to increase 11%–14% versus 2019, with a return to profitability in the second half. Outlook was prepared without accounting for the proposed Spirit transaction.
- On July 28, 2022, after quarter-end, JetBlue entered a merger agreement to acquire Spirit for cash consideration with stated per-share terms of $33.50, subject to specified adjustments and conditions. JetBlue arranged commitments for a senior secured bridge facility of up to $3.5 billion; no amount was drawn at June 30. Completion depends on stockholder and regulatory approvals, including antitrust review. The agreement includes potential termination fees and regulatory payments, including a potential $70 million fee payable by JetBlue in specified antitrust termination circumstances.
- The DOJ and several states’ lawsuit challenging JetBlue’s Northeast Alliance with American Airlines survived a motion to dismiss; trial was scheduled for September 2022. JetBlue said it could not estimate any reasonably possible loss.
- Fuel exposure is significant: JetBlue had not hedged projected fuel requirements for the remainder of 2022. A hypothetical 10% fuel-price increase was estimated to raise fuel expense by approximately $347 million over the next 12 months.
- Other risks include operational disruptions, labor availability and costs, aircraft delivery delays, substantial aircraft purchase commitments, financing availability and cost, economic and travel-demand uncertainty, and the proposed Spirit merger’s approval, financing, integration, leverage, and synergy risks. Airbus delays meant JetBlue expected no more than nine A220 deliveries in 2022.
Investor verification priorities
- Track revenue and fare trends against fuel expense, CASM ex-fuel, and operational reliability; assess whether stated second-half profitability expectations were achieved.
- Review cash generation, aircraft spending, working capital, and liquidity needs alongside the $4.5 billion of debt and finance lease contractual payments and aircraft commitments.
- Verify subsequent developments in the Spirit transaction, including final consideration, financing drawn, regulatory outcomes, fees, and potential effects on leverage and operations.
- Monitor the Northeast Alliance litigation and any resulting regulatory, financial, or network consequences.
- Assess A220 delivery timing, fuel-price exposure, and progress on improving on-time performance and completion factor.