JETBLUE AIRWAYS CORP
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington
, D.C. 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30, 2018
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
__________
to
__________
Commission file number 000-49728
JETBLUE AIRWAYS CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
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87-0617894
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(State of Other Jurisdiction of Incorporation)
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(I.R.S. Employer Identification No.)
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27-01 Queens Plaza North, Long Island City, New York
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11101
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(Address of principal executive offices)
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(Zip Code)
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(718) 286-7900
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ
Yes
o
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
þ
Yes
o
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
þ
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Accelerated filer
o
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||
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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Emerging growth company
o
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
þ
As of
September 30, 2018
, there were
304,786,233
shares outstanding of the registrant’s common stock, par value $.01.
JETBLUE AIRWAYS CORPORATION
FORM 10-Q
INDEX
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Page
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PART I. FINANCIAL INFORMATION
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PART II. OTHER INFORMATION
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2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JETBLUE AIRWAYS CORPORATION
(unaudited, in millions, except per share data)
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September 30, 2018
|
December 31, 2017
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||||||
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ASSETS
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|||||||
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CURRENT ASSETS
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|||||||
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Cash and cash equivalents
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$
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454
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$
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303
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Investment securities
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483
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390
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|||
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Receivables, less allowance (2018-$2; 2017-$1)
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243
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245
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|||
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Inventories, less allowance (2018-$16; 2017-$14)
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75
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55
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|||
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Prepaid expenses and other
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252
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213
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|||
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Total current assets
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1,507
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1,206
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|||
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PROPERTY AND EQUIPMENT
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||||||
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Flight equipment
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9,176
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8,980
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|||
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Predelivery deposits for flight equipment
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260
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204
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|||
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Total flight equipment and predelivery deposits, gross
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9,436
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9,184
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|||
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Less accumulated depreciation
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2,366
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2,125
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|||
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Total flight equipment and predelivery deposits, net
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7,070
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7,059
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|||
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Other property and equipment
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1,049
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1,041
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|||
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Less accumulated depreciation
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448
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405
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|||
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Total other property and equipment, net
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601
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636
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|||
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Assets constructed for others
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561
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561
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|||
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Less accumulated depreciation
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224
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207
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|||
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Total assets constructed for others, net
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337
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354
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|||
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Total property and equipment
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8,008
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8,049
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|||
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OTHER ASSETS
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||||||
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Investment securities
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1
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2
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|||
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Restricted cash
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59
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56
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|||
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Other
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572
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468
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|||
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Total other assets
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632
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526
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|||
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TOTAL ASSETS
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$
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10,147
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$
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9,781
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See accompanying notes to condensed consolidated financial statements.
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JETBLUE AIRWAYS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in millions, except per share data)
|
September 30, 2018
|
December 31, 2017
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||||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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|||||||
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CURRENT LIABILITIES
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|||||||
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Accounts payable
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$
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490
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$
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378
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Air traffic liability
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1,113
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966
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|||
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Accrued salaries, wages and benefits
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336
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313
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|||
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Other accrued liabilities
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295
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293
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|||
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Current maturities of long-term debt and capital leases
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278
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196
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Total current liabilities
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2,512
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2,146
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LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
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1,290
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1,003
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CONSTRUCTION OBLIGATION
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428
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441
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DEFERRED TAXES AND OTHER LIABILITIES
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|||||
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Deferred income taxes
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998
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999
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Air traffic liability - loyalty non-current
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435
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385
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Other
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70
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75
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|||
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Total deferred taxes and other liabilities
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1,503
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1,459
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|||
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STOCKHOLDERS’ EQUITY
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|||||
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Preferred stock, $0.01 par value; 25 shares authorized, none issued
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—
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—
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Common stock, $0.01 par value; 900 shares authorized, 421 and 418 shares issued and 305 and 321 shares outstanding at September 30, 2018 and December 31, 2017, respectively
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4
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4
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Treasury stock, at cost; 116 and 97 shares at September 30, 2018 and December 31, 2017, respectively
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(1,272
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)
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(890
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)
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|||
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Additional paid-in capital
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2,170
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2,127
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Retained earnings
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3,511
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3,491
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|||
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Accumulated other comprehensive income (loss)
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1
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—
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|||
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Total stockholders’ equity
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4,414
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4,732
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|||
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
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$
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10,147
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$
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9,781
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See accompanying notes to condensed consolidated financial statements.
4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JETBLUE AIRWAYS CORPORATION
(unaudited, in millions, except per share amounts)
|
Three Months Ended September 30,
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Nine Months Ended September 30,
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||||||||||||||
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2018
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2017
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2018
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2017
|
||||||||||||
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OPERATING REVENUES
|
|||||||||||||||
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Passenger
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$
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1,941
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$
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1,753
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$
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5,490
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$
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5,075
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|||
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Other
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67
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65
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200
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179
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|||||||
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Total operating revenues
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2,008
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1,818
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5,690
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5,254
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|||||||
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OPERATING EXPENSES
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|||||||||||||||
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Aircraft fuel and related taxes
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515
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347
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1,423
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994
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|||||||
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Salaries, wages and benefits
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515
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466
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1,500
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1,397
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|||||||
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Landing fees and other rents
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114
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104
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323
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301
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|||||||
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Depreciation and amortization
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125
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114
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362
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328
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|||||||
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Aircraft rent
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27
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26
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75
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75
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|||||||
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Sales and marketing
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72
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69
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214
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198
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|||||||
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Maintenance materials and repairs
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168
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149
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498
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467
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|||||||
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Other operating expenses
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277
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229
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797
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691
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|||||||
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Special items
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112
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—
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431
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—
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|||||||
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Total operating expenses
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1,925
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1,504
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5,623
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4,451
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|||||||
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OPERATING INCOME
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83
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314
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67
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803
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|||||||
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OTHER INCOME (EXPENSE)
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|||||||||||||||
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Interest expense
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(23
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)
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(23
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)
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(67
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)
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(72
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)
|
|||||||
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Capitalized interest
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2
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3
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7
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7
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|||||||
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Interest income and other
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6
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3
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11
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5
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|
|||||||
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Total other income (expense)
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(15
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)
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(17
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)
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(49
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)
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(60
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)
|
|||||||
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INCOME BEFORE TAXES
|
68
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|
297
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18
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743
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|
|||||||
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Income tax expense (benefit)
|
18
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|
116
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|
(1
|
)
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273
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|
|||||||
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NET INCOME
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$
|
50
|
|
$
|
181
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|
$
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19
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$
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470
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|
|||
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EARNINGS PER COMMON SHARE:
|
|||||||||||||||
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Basic
|
$
|
0.16
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|
$
|
0.56
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|
$
|
0.06
|
|
$
|
1.42
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|
|||
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Diluted
|
$
|
0.16
|
|
$
|
0.55
|
|
$
|
0.06
|
|
$
|
1.41
|
|
|||
See accompanying notes to condensed consolidated financial statements.
5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JETBLUE AIRWAYS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in millions)
|
Three Months Ended September 30,
|
|||||||
|
|
2018
|
2017
|
|||||
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NET INCOME
|
$
|
50
|
|
$
|
181
|
|
|
|
Changes in fair value of derivative instruments, net of reclassifications into earnings (net of $0 and $1 of taxes in 2018 and 2017, respectively)
|
1
|
|
4
|
|
|||
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Total other comprehensive income
|
1
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4
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|
|||
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COMPREHENSIVE INCOME
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$
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51
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$
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185
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|
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Nine Months Ended September 30,
|
|||||||
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2018
|
2017
|
||||||
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NET INCOME
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$
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19
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$
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470
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Changes in fair value of derivative instruments, net of reclassifications into earnings (net of $0 and $(7) of taxes in 2018 and 2017, respectively)
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1
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(9
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)
|
|||
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Total other comprehensive income
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1
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(9
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)
|
|||
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COMPREHENSIVE INCOME
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$
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20
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|
$
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461
|
|
|
See accompanying notes to condensed consolidated financial statements.
6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JETBLUE AIRWAYS CORPORATION
(unaudited, in millions)
|
Nine Months Ended September 30,
|
|||||||
|
2018
|
2017
|
||||||
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CASH FLOWS FROM OPERATING ACTIVITIES
|
|||||||
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Net income
|
$
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19
|
|
$
|
470
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|||||||
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Deferred income taxes
|
(1
|
)
|
205
|
|
|||
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Depreciation
|
311
|
|
283
|
|
|||
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Impairment of long-lived assets
|
319
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|
—
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|
|||
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Amortization
|
51
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|
45
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|
|||
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Stock-based compensation
|
20
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|
22
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|
|||
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Changes in certain operating assets and liabilities
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216
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|
65
|
|
|||
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Other, net
|
1
|
|
(24
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)
|
|||
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Net cash provided by operating activities
|
936
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|
1,066
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|
|||
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CASH FLOWS FROM INVESTING ACTIVITIES
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|
||||||
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Capital expenditures
|
(538
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)
|
(705
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)
|
|||
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Predelivery deposits for flight equipment
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(123
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)
|
(90
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)
|
|||
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Purchase of held-to-maturity investments
|
(250
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)
|
(92
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)
|
|||
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Proceeds from the maturities of held-to-maturity investments
|
441
|
|
128
|
|
|||
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Purchase of available-for-sale securities
|
(702
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)
|
(223
|
)
|
|||
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Proceeds from the sale of available-for-sale securities
|
415
|
|
395
|
|
|||
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Other, net
|
(18
|
)
|
(8
|
)
|
|||
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Net cash used in investing activities
|
(775
|
)
|
(595
|
)
|
|||
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CASH FLOWS FROM FINANCING ACTIVITIES
|
|
||||||
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Proceeds from issuance of common stock
|
25
|
|
28
|
|
|||
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Proceeds from issuance of long-term debt
|
540
|
|
—
|
|
|||
|
Repayment of long-term debt and capital lease obligations
|
(178
|
)
|
(138
|
)
|
|||
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Acquisition of treasury stock
|
(382
|
)
|
(390
|
)
|
|||
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Other, net
|
(12
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)
|
(12
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)
|
|||
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Net cash used in financing activities
|
(7
|
)
|
(512
|
)
|
|||
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INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
|
154
|
|
(41
|
)
|
|||
|
Cash, cash equivalents and restricted cash at beginning of period
|
359
|
|
495
|
|
|||
|
Cash, cash equivalents and restricted cash at end of period
(1)
|
$
|
513
|
|
$
|
454
|
|
|
|
(1) Reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets:
|
|||||||
|
September 30, 2018
|
September 30, 2017
|
||||||
|
Cash and cash equivalents
|
$
|
454
|
|
$
|
394
|
|
|
|
Restricted cash
|
59
|
|
60
|
|
|||
|
Total cash, cash equivalents and restricted cash
|
$
|
513
|
|
$
|
454
|
|
|
See accompanying notes to condensed consolidated financial statements.
7
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1—Summary of Significant Accounting Policies
Basis of Presentation
JetBlue Airways Corporation, or JetBlue, provides air transportation services across the United States, the Caribbean and Latin America. Our condensed consolidated financial statements include the accounts of JetBlue and our subsidiaries which are collectively referred to as “we” or the “Company”. All majority-owned subsidiaries are consolidated on a line by line basis, with all intercompany transactions and balances being eliminated. These condensed consolidated financial statements and related notes should be read in conjunction with our
2017
audited financial statements included in our Annual Report on Form 10-K for the year ended
December 31, 2017
, or our
2017
Form 10-K.
These condensed consolidated financial statements are unaudited and have been prepared by us following the rules and regulations of the Securities and Exchange Commission, or the SEC. In our opinion they reflect all adjustments, including normal recurring items, that are necessary to present fairly the results for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the U.S., or GAAP, have been condensed or omitted as permitted by such rules and regulations; however, we believe that the disclosures are adequate to make the information presented not misleading. Due to seasonal variations in the demand for air travel, the volatility of aircraft fuel prices and other factors, our operating results for the periods presented herein are not necessarily indicative of the results that may be expected for other interim periods or the entire fiscal year. We recast financial information previously filed under Accounting Standards Codification, or ASC, Topic 605,
Revenue Recognition
for the periods presented to reflect the full retrospective method of transition to Accounting Standards Update, or ASU, 2014-09,
Revenue from Contracts with Customers
. Refer to Note 2 - Revenue Recognition for more information.
Investment securities
Investment securities consist of available-for-sale investment securities and held-to-maturity investment securities. We use a specific identification method to determine the cost of the securities when they are sold.
Held-to-maturity investment securities.
The contractual maturities of the held-to-maturity investments we held as of
September 30, 2018
were not greater than 24 months. We did
not
record any significant gains or losses on these securities during the
three and nine months ended
September 30, 2018
or
2017
. The estimated fair value of these investments approximated their carrying value as of
September 30, 2018
and
December 31, 2017
, respectively.
8
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The carrying values of investment securities consisted of the following at
September 30, 2018
and
December 31, 2017
(in millions):
|
September 30, 2018
|
December 31, 2017
|
||||||
|
Available-for-sale securities
|
|||||||
|
Time deposits
|
$
|
260
|
|
$
|
130
|
|
|
|
U.S. Treasury
|
155
|
|
—
|
|
|||
|
Debt securities
|
4
|
|
6
|
|
|||
|
Total available-for-sale securities
|
419
|
|
136
|
|
|||
|
Held-to-maturity securities
|
|||||||
|
U.S. Treasury
|
$
|
65
|
|
$
|
220
|
|
|
|
Corporate bonds
|
—
|
|
36
|
|
|||
|
Total held-to-maturity securities
|
65
|
|
256
|
|
|||
|
Total investment securities
|
$
|
484
|
|
$
|
392
|
|
|
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board, or FASB, issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
of the FASB Codification, or Codification, which supersedes existing revenue recognition guidance. Under the new standard, a company will recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. We adopted the requirements of ASU 2014-09 as of January 1, 2018 utilizing the full retrospective method of transition. We recorded a
$48 million
cumulative adjustment to retained earnings as of January 1, 2016, the beginning of the retrospective reporting period, for the impacts of the new accounting standard. The adoption of the new standard did not have a significant impact on our earnings.
For JetBlue, the most significant impact of the new standard relates to the accounting for our TrueBlue
®
Loyalty Program. The new standard eliminated the incremental cost method for loyalty program accounting which we previously used. As a result, we revalued the liability for points earned on qualifying JetBlue purchases using a relative fair value approach. The application of a relative fair value approach increased our air traffic liability by approximately
$286 million
, net of breakage, as of the beginning of the retrospective reporting period.
In addition, we had a liability for outstanding points that were earned in conjunction with our previous co-branded credit card agreement that had been recorded using the residual method. The new standard does not permit the use of the residual method for this contract and instead, the transaction price is now allocated to the performance obligations on a relative selling price basis. This change decreased the relative value allocated to the transportation performance obligation and resulted in a decrease of
$159 million
, net of breakage, to the liability as of the beginning of the retrospective reporting period.
The standard also resulted in a change in the timing and classification of our revenue recognition for certain ancillary fees directly related to passenger tickets. As a result, we reclassified
$124 million
and
$352 million
from other revenue under the prior presentation to passenger revenue for the three and
nine months ended September 30, 2017
, respectively. Refer to Note 2 - Revenue Recognition for more information.
During the first quarter of 2018, we adopted ASU 2016-18,
Statement of Cash Flows (Topic 230), Restricted Cash
of the Codification. The update clarified how entities should present restricted cash and restricted cash equivalents in the statement of cash flows. ASU 2016-18 requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. Our condensed consolidated statement of cash flows for the
nine months ended September 30, 2017
reflects retrospective application. Our cash and cash equivalents include short-term, highly liquid investments which are readily convertible into cash. These investments include money market securities and commercial paper with maturities of three months or less when purchased. Our restricted cash primarily consists of security deposits, funds held in escrow for estimated workers' compensation obligations and performance bonds for aircraft and facility leases.
9
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
During the first quarter of 2018, we adopted ASU 2016-01
, Financial Instruments-Overall (Topic 825)
of the Codification. The update made several changes, including the elimination of the available-for-sale classification of equity investments, and requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in earnings. For equity investments without readily determinable fair values, the standard provides an alternative which allows entities to measure these investments at cost, less any impairment, adjusted for changes from observable price changes in orderly transactions for identifiable or similar investments of the same issuer. Our wholly-owned subsidiary, JetBlue Technology Ventures, LLC, or JTV, has several equity investments in emerging companies which do not have readily determinable fair values. These investments were accounted for at cost during 2017. Under the updated standard, these investments are now accounted for using the measurement alternative. As of
September 30, 2018
, the carrying amount of these investments was
$23 million
.
In August 2017, the FASB issued ASU 2017-12,
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
. The update expands the activities that qualify for hedge accounting and simplifies the rules for reporting hedging relationships. ASU 2017-12 is effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted. We elected to early adopt this update prospectively as of January 1, 2018. Our adoption of this update had no impact to the Company's financial results.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
of the Codification. Under ASU 2016-02, a lessee will recognize liabilities for lease payments and right-of-use assets representing its right to use the underlying asset for the lease term. While we are still evaluating the full impact of adopting the amendments on our consolidated financial statements and disclosures, we believe the adoption will have a significant impact on our Consolidated Balance Sheets. However, we do not expect ASU 2016-02 to have a significant impact to our Consolidated Statements of Operations. The amendments are effective for fiscal years beginning after December 15, 2018 and include interim periods within those fiscal years. In July 2018, the FASB issued ASU 2018-10,
Codification Improvements to Topic 842, Leases
which clarifies, corrects or consolidates authoritative guidance issued in ASU 2016-02 and is effective upon adoption of ASU 2016-02. In July 2018, the FASB issued ASU 2018-11,
Targeted Improvements
, which provides an optional transition method that allows entities to elect to apply the standard prospectively at its effective date, versus recasting the prior periods presented. If elected, an entity would recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. We are currently evaluating the transition method.
In August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
. The update eliminates, adds, and modifies certain disclosure requirements for fair value measurements. ASU 2018-13 is effective for annual reporting periods beginning after December 15, 2019, with early adoption permitted of the entire standard or only the provisions that eliminate or modify disclosure requirements. We are still evaluating the full impact of adopting the amendments on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15,
Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.
The update provides guidance for determining if a cloud computing arrangement is within the scope of internal-use software guidance, and would require capitalization of certain implementation costs. ASU 2018-15 is effective for annual reporting periods beginning after December 15, 2019, with early adoption permitted. We are still evaluating the full impact of adopting the amendments on our consolidated financial statements.
Note 2— Revenue Recognition
Passenger Revenue
Passenger ticket and ancillary services are sold in advance of the performance of the travel and related services. We initially defer ticket sales, including deferred revenue on future travel and related services and for TrueBlue
®
points issued when travel services are provided, as air traffic liability. We allocate the transaction price to each performance obligation identified in a passenger ticket on a relative standalone selling price basis. Directly observable selling prices are available for travel segments and ancillary services. Standalone selling price for TrueBlue
®
points issued are discussed in the Loyalty Program section below.
10
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Passenger revenue, including certain ancillary fees directly related to passenger tickets, is recognized when the transportation is provided. Passenger revenue from unused tickets and passenger credits will be recognized in proportion to flown revenue based on estimates of expected expiration or when the likelihood of the Customer exercising his or her remaining rights becomes remote. Taxes that we are required to collect from our Customers, including federal transportation taxes, security taxes and airport facility charges, are excluded from the measurement of the transaction price.
During the
nine months ended September 30, 2018
and
2017
, we recognized revenue of
$593 million
and
$620 million
, respectively, that was included in contract liabilities at the beginning of the respective periods.
We expect the remaining balance of the December 31, 2017 liability to be recognized during 2018.
The practical expedient in ASC 606-10-50-14 allows entities to not disclose the amount of the remaining transaction price and its expected timing of recognition for passenger tickets if the contract has an original expected duration of one year or less or if certain other conditions are met. We elected to apply this practical expedient to our contract liabilities relating to passenger travel and ancillary services as our tickets or any related passenger credits expire one year from the date of issuance.
Loyalty Program
Customers may earn points under our customer loyalty program, TrueBlue
®
, based on the value paid for a trip. We identified two performance obligations for passenger ticket sales earning TrueBlue
®
points: future travel discussed in the Passenger Revenue section above; and services when the Customers redeem TrueBlue
®
points. We allocate the transaction price to each performance obligation on a relative standalone basis. As a directly observable selling price for TrueBlue
®
points is not available, we determine the standalone selling price of TrueBlue
®
points issued using the redemption value approach adjusted to reflect fulfillment discount, or breakage. To maximize the use of observable inputs, we utilize the actual ticket value of the tickets purchased with TrueBlue
®
points. We record a deferred liability in the amount of the transaction price allocation to TrueBlue
®
points as they are issued which is included in our air traffic liabilities. The air transportation element is deferred and recognized as passenger revenue when the points are utilized.
TrueBlue
®
points can be sold to participating companies, including credit card and car rental companies. Co-branded credit card partnerships have the following identified performance obligations: air transportation; use of the JetBlue brand name and access to our frequent flyer customer lists; advertising; and other airline benefits. In determining the estimated selling price, JetBlue considered multiple inputs, methods and assumptions, including: discounted cash flows; estimated redemption value, net of fulfillment discount; points expected to be awarded and redeemed; estimated annual spending by cardholders; estimated annual royalty for use of JetBlue's frequent flyer customer lists; and estimated utilization of other airline benefits. The overall consideration received is allocated to each performance obligation based on their standalone relative selling prices. The air transportation element is deferred and recognized as passenger revenue when the points are utilized. The other elements are recognized as other revenue when earned.
Points earned by TrueBlue
®
members never expire. We estimate breakage for the portion of points not expected to be redeemed based on historical points redemptions. TrueBlue
®
members earn points based on the value paid for a trip rather than the length of the trip, and TrueBlue
®
members can pool points between small groups of people, branded as Family Pooling™. Breakage is recorded using points redemption patterns to determine a breakage rate. We periodically update breakage rates used to estimate breakage revenue.
TrueBlue
®
points are combined in one homogeneous pool and are not separately identifiable. As such, the revenue is comprised of the points that were part of the air traffic liability balance at the beginning of the period as well as points that were issued during the period.
11
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The table below presents the activity of the current and non-current air traffic liability, and includes points earned and sold to participating companies (in millions).
|
Balance at December 31, 2017
|
$
|
502
|
|
|
TrueBlue
®
points redeemed
|
(113
|
)
|
|
|
TrueBlue
®
points earned and sold
|
175
|
|
|
|
Balance at September 30, 2018
|
$
|
564
|
|
|
Balance at December 31, 2016
|
$
|
417
|
|
|
TrueBlue
®
points redeemed
|
(75
|
)
|
|
|
TrueBlue
®
points earned and sold
|
134
|
|
|
|
Balance at September 30, 2017
|
$
|
476
|
|
The timing of our TrueBlue
®
point redemptions can vary; however, the majority of our points are redeemed within approximately
three
years of the date of issuance.
Disaggregation of Revenue
We disaggregate revenue from contracts with Customers by revenue source as we believe it best depicts the nature, amount, timing and uncertainty of our revenue and cash flow. The following tables provide the disaggregation disclosure by type of service for the three and
nine months ended September 30, 2018
and
2017
(in millions):
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||
|
2018
|
2017
|
2018
|
2017
|
||||||||||
|
Passenger revenue
|
|||||||||||||
|
Passenger travel
|
$
|
1,906
|
|
$
|
1,729
|
|
$
|
5,377
|
|
$
|
5,000
|
|
|
|
Loyalty revenue - air transportation
|
35
|
|
24
|
|
113
|
|
75
|
|
|||||
|
Other Revenue
|
|||||||||||||
|
Loyalty revenue
|
42
|
|
32
|
|
122
|
|
96
|
|
|||||
|
Other revenue
|
25
|
|
33
|
|
78
|
|
83
|
|
|||||
|
Total revenue
|
$
|
2,008
|
|
$
|
1,818
|
|
$
|
5,690
|
|
$
|
5,254
|
|
|
Contract Liabilities
Our contract liabilities consist of advance payments received prior to the transfer of services to the Customer. Net contract liabilities consist of the following (in millions):
|
September 30, 2018
|
December 31, 2017
|
||||||
|
Contract liabilities
|
|||||||
|
Air traffic liability - passenger travel
|
$
|
975
|
|
$
|
836
|
|
|
|
Air traffic liability - loyalty program (air transportation)
|
564
|
|
502
|
|
|||
|
Deferred revenue
|
9
|
|
13
|
|
|||
|
Total contract liabilities
|
$
|
1,548
|
|
$
|
1,351
|
|
|
Note 3—Long Term Debt, Short Term Borrowings, and Capital Lease Obligations
During the
nine months ended September 30, 2018
, we made scheduled principal payments of
$178 million
on our outstanding long-term debt and capital lease obligations.
12
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
During the
nine months ended September 30, 2018
, we issued
$445 million
in fixed rate equipment notes due through 2028, which are secured by
eight
Airbus A320 aircraft and
nine
Airbus A321 aircraft; we also issued
$95 million
in floating rate equipment notes due through 2028, which are secured by
four
Airbus A320 aircraft and
one
Airbus A321 aircraft.
We have pledged aircraft, engines, other equipment and facilities as security under various loan agreements with a net book value of
$2.7 billion
at
September 30, 2018
. As of
September 30, 2018
, we owned, free of encumbrance,
70
Airbus A320 aircraft,
40
Airbus A321 aircraft,
one
Embraer E190 aircraft, and
44
spare engines. At
September 30, 2018
, scheduled maturities of all of our long-term debt and capital lease obligations were
$43 million
for the remainder of
2018
,
$279 million
in
2019
,
$246 million
in
2020
,
$234 million
in
2021
,
$210 million
in
2022
and
$556 million
thereafter.
The carrying amounts and estimated fair values of our long-term debt at
September 30, 2018
and
December 31, 2017
were as follows (in millions):
|
September 30, 2018
|
December 31, 2017
|
||||||||||||||
|
Carrying Value
|
Estimated Fair Value
|
Carrying Value
|
Estimated Fair Value
|
||||||||||||
|
Public Debt
|
|||||||||||||||
|
Fixed rate special facility bonds, due through 2036
|
$
|
42
|
|
$
|
44
|
|
$
|
42
|
|
$
|
46
|
|
|||
|
Non-Public Debt
|
|||||||||||||||
|
Fixed rate enhanced equipment notes, due through 2023
|
$
|
151
|
|
$
|
155
|
|
$
|
169
|
|
$
|
178
|
|
|||
|
Floating rate equipment notes, due through 2028
|
230
|
|
237
|
|
152
|
|
159
|
|
|||||||
|
Fixed rate equipment notes, due through 2028
|
1,035
|
|
1,067
|
|
712
|
|
771
|
|
|||||||
|
Total
(1)
|
$
|
1,458
|
|
$
|
1,503
|
|
$
|
1,075
|
|
$
|
1,154
|
|
|||
(1) Total excludes capital lease obligations of $110 million for September 30, 2018 and $124 million for December 31, 2017.
The estimated fair values of our publicly held long-term debt are classified as Level 2 in the fair value hierarchy. The fair values of our enhanced equipment notes and our special facility bonds were based on quoted market prices in markets with low trading volumes. The fair value of our non-public debt was estimated using a discounted cash flow analysis based on our borrowing rates for instruments with similar terms and therefore classified as Level 3 in the fair value hierarchy. The fair values of our other financial instruments approximate their carrying values. Refer to Note 8 - Fair Value for an explanation of the fair value hierarchy structure.
We have financed certain aircraft with Enhanced Equipment Trust Certificates, or EETCs. One of the benefits of this structure is being able to finance several aircraft at one time, rather than individually. The structure of EETC financing is that we create pass-through trusts in order to issue pass-through certificates. The proceeds from the issuance of these certificates are then used to purchase equipment notes which are issued by us and are secured by our aircraft. These trusts meet the definition of a variable interest entity, or VIE, as defined in the
Consolidations
topic of the Codification, and must be considered for consolidation in our condensed consolidated financial statements. Our assessment of our EETCs considers both quantitative and qualitative factors including the purpose for which these trusts were established and the nature of the risks in each. The main purpose of the trust structure is to enhance the credit worthiness of our debt obligation through certain bankruptcy protection provisions, liquidity facilities and lower our total borrowing cost. We concluded that we are not the primary beneficiary in these trusts because our involvement in them is limited to principal and interest payments on the related notes, the trusts were not set up to pass along variability created by credit risk to us and the likelihood of our defaulting on the notes. Therefore, we have not consolidated these trusts in our condensed consolidated financial statements.
13
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Short-term Borrowings
Citibank Line of Credit
We have a revolving Credit and Guaranty Agreement with Citibank, N.A. as the administrative agent for up to approximately
$425 million
. The term of the facility runs through April 2021. Borrowings under the Credit and Guaranty Agreement bear interest at a variable rate equal to
LIBOR, plus a margin
. The Credit and Guaranty Agreement is secured by Slots at John F. Kennedy International Airport, LaGuardia Airport and Reagan National Airport as well as certain other assets. Slots are rights to take-off or land at a specific airport during a specific time period and are a means by which airport capacity and congestion can be managed. The Credit and Guaranty Agreement includes covenants that require us to maintain certain minimum balances in unrestricted cash, cash equivalents, and unused commitments available under revolving credit facilities. In addition, the covenants restrict our ability to, among other things, dispose of certain collateral, or merge, consolidate, or sell assets. As of and for the periods ended
September 30, 2018
and December 31, 2017, we did
not
have a balance outstanding or borrowings under this line of credit.
Morgan Stanley Line of Credit
We have a revolving line of credit with Morgan Stanley for up to approximately
$200 million
. This line of credit is secured by a portion of our investment securities held by Morgan Stanley and the amount available to us under this line of credit may vary accordingly. This line of credit bears interest at a floating rate based upon
LIBOR, plus a margin
. As of and for the periods ended
September 30, 2018
and December 31, 2017, we did
not
have a balance outstanding under this line of credit.
Note 4—Earnings Per Share
Basic earnings per share is calculated by dividing net income by the weighted average number of shares outstanding during the period. Diluted earnings per share is calculated similarly but includes potential dilution from restricted stock units, the Crewmember stock purchase plan, the exercise of stock options and any other potentially dilutive instruments using the treasury stock method.
The following is a reconciliation of weighted average shares and a calculation of earnings per share (in millions, except per share amounts):
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
|
2018
|
2017
|
2018
|
2017
|
|||||||||||
|
Net income
(1)
|
$
|
50
|
|
$
|
181
|
|
$
|
19
|
|
$
|
470
|
|
|||
|
Weighted average basic shares
|
308.7
|
|
326.1
|
|
314.8
|
|
330.8
|
|
|||||||
|
Effect of dilutive securities
|
1.6
|
|
1.7
|
|
1.6
|
|
1.6
|
|
|||||||
|
Weighted average diluted shares
|
310.3
|
|
327.8
|
|
316.4
|
|
332.4
|
|
|||||||
|
Earnings per common shares
|
|||||||||||||||
|
Basic
|
$
|
0.16
|
|
$
|
0.56
|
|
$
|
0.06
|
|
$
|
1.42
|
|
|||
|
Diluted
|
0.16
|
|
0.55
|
|
0.06
|
|
1.41
|
|
|||||||
(1)
As discussed in Note 1, we adopted ASC 606,
Revenue from Contracts with Customers
during the first quarter of 2018. The adoption of this standard impacted previously reported net income by approximately
$2 million
and
$(5) million
for the three and
nine months ended September 30, 2017
, respectively.
On March 1, 2018, JetBlue entered into an accelerated share repurchase, or ASR, agreement with Goldman, Sachs & Co. ("GS&Co.") paying
$125 million
. The term of the ASR concluded on March 23, 2018. A total of
5.8 million
shares, at an average price of
$21.49
per share, were repurchased under the agreement.
14
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
On
May 24, 2018
, JetBlue entered into an ASR agreement with Citibank, N.A. ("Citibank"), paying
$125 million
for an initial delivery of
5.3 million
shares. The term of the ASR concluded on
July 23, 2018
with Citibank delivering
1.3 million
additional shares to JetBlue on
July 25, 2018
. A total of
6.6 million
shares, at an average price of
$18.85
per share, were repurchased under the agreement.
On
August 1, 2018
, JetBlue entered into an ASR agreement with Barclays Bank PLC ("Barclays") paying
$125 million
. The term of the ASR concluded on
September 28, 2018
. A total of
6.7 million
shares, at an average price of
$18.69
per share, were repurchased under the agreement.
On March 6, 2017, JetBlue entered into an ASR agreement with Barclays paying
$100 million
for an initial delivery of
4.1 million
shares. The term of the Barclays ASR concluded on April 24, 2017 with Barclays delivering
0.8 million
additional shares to JetBlue on April 27, 2017. A total of
4.9 million
shares, at an average price of
$20.23
per share, were repurchased under the agreement.
On April 27, 2017, JetBlue entered into an ASR agreement with GS&Co., paying
$150 million
for an initial delivery of
5.4 million
shares. The term of the GS&Co. ASR concluded on July 24, 2017 with GS&Co. delivering
1.4 million
additional shares to JetBlue on July 27, 2017. A total of
6.8 million
shares, at an average price of
$21.99
per share, were repurchased under the agreement.
Note 5—Crewmember Retirement Plan and Profit Sharing
We sponsor a retirement savings 401(k) defined contribution plan, or the Plan, covering all of our Crewmembers where we match
100%
of our Crewmembers' contributions up to
5%
of their eligible wages. The contributions vest over
five
years and are measured from a Crewmember's hire date. Crewmembers are immediately vested in their voluntary contributions.
Another component of the Plan is a Company discretionary contribution of
5%
of eligible non-management Crewmember compensation, which we refer to as
Retirement Plus.
Retirement Plus
contributions vest over
three
years and are measured from a Crewmember's hire date.
Certain Federal Aviation Administration, or FAA, licensed Crewmembers receive an additional contribution of
3%
of eligible compensation, which we refer to as
Retirement Advantage.
Our non-management Crewmembers are eligible to receive profit sharing, calculated as
10%
of adjusted pre-tax income before profit sharing and special items up to a pre-tax margin of
18%
with the result reduced by
Retirement Plus
contributions and the equivalent of
Retirement Plus
contributions for pilots. If JetBlue's resulting pre-tax margin exceeds
18%
, non-management Crewmembers will receive
20%
profit sharing above an
18%
pre-tax margin.
Effective August 1, 2018, pilots receive a non-elective Company contribution per the terms of the finalized collective bargaining agreement, in lieu of the above 401(k) Company matching contribution,
Retirement Plus
, and
Retirement Advantage
contributions. Refer to Note 6—Commitments and Contingencies for additional information. The Company's non-elective contribution of
15%
of eligible pilot compensation vests after
three
years of service.
Total 401(k) company match,
Retirement Plus, Retirement Advantage
, pilot retirement contribution, and profit sharing expensed for the
three months ended September 30, 2018
and
2017
was
$43 million
and
$49 million
, respectively, while the total amount for the
nine months ended September 30, 2018
and
2017
was
$122 million
and
$143 million
, respectively.
Note 6—Commitments and Contingencies
Flight Equipment Commitments
As of
September 30, 2018
, our firm aircraft orders consisted of
4
Airbus A321 aircraft and
85
Airbus A321 new engine option (A321neo) aircraft scheduled for delivery through 2024.
On July 7, 2018, we entered into a memorandum of understanding, or MOU, with C Series Aircraft Limited Partnership (CSALP) to purchase
60
A220-300 aircraft, previously called the Bombardier CS300, and
60
options for the same aircraft type. The aircraft deliveries are expected in 2020 through 2025, with options through 2028.
15
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Expenditures for these aircraft and related flight equipment and engines, including estimated amounts for contractual price escalations and predelivery deposits, will be approximately
$308 million
for the remainder of
2018
,
$1.2 billion
in
2019
,
$1.4 billion
in
2020
,
$1.3 billion
in
2021
,
$1.3 billion
in
2022
and
$3.1 billion
thereafter
.
We are scheduled to receive
4
new Airbus A321 aircraft during the remainder of 2018. During the third quarter of 2018, we also reshaped our Airbus order book by converting our order of
25
A320neo aircraft to A321neo and adjusting the timing of future deliveries.
Other Commitments
We utilize several credit card processors to process our ticket sales. Our agreements with these processors do not contain covenants, but do generally allow the processor to withhold cash reserves to protect the processor from potential liability for tickets purchased, but not yet used for travel. While we currently do not have any collateral requirements related to our credit card processors, we may be required to issue collateral to our credit card processors, or other key business partners, in the future.
As of
September 30, 2018
, we had approximately
$31 million
in assets serving as collateral for letters of credit relating to a certain number of our leases. These are included in restricted cash and expire at the end of the related lease terms. Additionally, we had approximately
$28 million
pledged related to our workers compensation insurance policies and other business partner agreements which will expire according to the terms of the related policies or agreements.
In April 2014, the Air Line Pilots Association, or ALPA, was certified by the National Mediation Board, or NMB, as the representative body for JetBlue pilots after winning a representation election. We reached a final agreement for our first collective bargaining agreement which was ratified by the pilots in July 2018. The agreement is a four-year, renewable contract effective August 1, 2018 which included compensation, benefits, work rules and other policies. During the third quarter of 2018, we recorded one-time ratification bonus totaling
$50 million
to be allocated amongst the pilots as determined by ALPA. Refer to Note 10 - Special Items for additional information.
In April 2018, JetBlue Inflight Crewmembers elected to be solely represented by the Transport Workers Union of America, or TWU. The NMB certified the TWU as the representative body for JetBlue Inflight Crewmembers and we are working with the TWU to reach a collective bargaining agreement.
Except as noted above, our Crewmembers do not have third party representation.
Legal Matters
Occasionally, we are involved in various claims, lawsuits, regulatory examinations, investigations and other legal matters arising, for the most part, in the ordinary course of business. The outcome of litigation and other legal matters is always uncertain. The Company believes it has valid defenses to the legal matters currently pending against it, is defending itself vigorously and has recorded accruals determined in accordance with GAAP, where appropriate. In making a determination regarding accruals, using available information, we evaluate the likelihood of an unfavorable outcome in legal or regulatory proceedings to which we are a party and record a loss contingency when it is probable a liability has been incurred and the amount of the loss can be reasonably estimated. These subjective determinations are based on the status of such legal or regulatory proceedings, the merits of our defenses and consultation with legal counsel. Actual outcomes of these legal and regulatory proceedings may materially differ from our current estimates. It is possible that resolution of one or more of the legal matters currently pending or threatened could result in losses material to our consolidated results of operations, liquidity or financial condition.
To date, none of these types of litigation matters, most of which are typically covered by insurance, has had a material impact on our operations or financial condition. We have insured and continue to insure against most of these types of claims. A judgment on any claim not covered by, or in excess of, our insurance coverage could materially adversely affect our financial condition or results of operations.
16
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 7—Financial Derivative Instruments and Risk Management
As part of our risk management techniques, we periodically purchase over the counter energy derivative instruments and enter into fixed forward price agreements, or FFPs, to manage our exposure to the effect of changes in the price of aircraft fuel. Prices for the underlying commodities have historically been highly correlated to aircraft fuel, making derivatives of them effective at providing short-term protection against sharp increases in average fuel prices. We also periodically enter into jet fuel basis swaps for the differential between heating oil and jet fuel, to further limit the variability in fuel prices at various locations. We do not hold or issue any derivative financial instruments for trading purposes.
Aircraft Fuel Derivatives
We attempt to obtain cash flow hedge accounting treatment for each fuel derivative that we enter into. This treatment is provided for under the
Derivatives and Hedging
topic of the Codification which allows for gains and losses on the effective portion of qualifying hedges to be deferred until the underlying planned jet fuel consumption occurs, rather than recognizing the gains and losses on these instruments into earnings during each period they are outstanding. The effective portion of realized fuel hedging derivative gains and losses is recognized in aircraft fuel expense in the period during which the underlying fuel is consumed.
Ineffectiveness occurs, in certain circumstances, when the change in the total fair value of the derivative instrument differs from the change in the value of our expected future cash outlays for the purchase of aircraft fuel. As discussed in Note 1 - Summary of Significant Accounting Policies, we early adopted ASU 2017-12
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
as of January 1, 2018. This update eliminated the requirement for companies to separately measure and record ineffectiveness after initial qualification. If a hedge does not qualify for hedge accounting, the periodic changes in its fair value are also recognized in interest income and other. When aircraft fuel is consumed and the related derivative contract settles, any gain or loss previously recorded in other comprehensive income is recognized in aircraft fuel expense. All cash flows related to our fuel hedging derivatives are classified as operating cash flows.
Our current approach to fuel hedging is to enter into hedges on a discretionary basis without a specific target of hedge percentage needs. We view our hedge portfolio as a form of insurance to help mitigate the impact of price volatility and protect us against severe spikes in oil prices, when possible.
The following table illustrates the approximate hedged percentages of our projected fuel usage by quarter as of
September 30, 2018
related to our outstanding fuel hedging contracts that were designated as cash flow hedges for accounting purposes.
|
Jet fuel call option spread agreements
|
Jet fuel call option agreements
|
Total
|
||||||
|
Fourth Quarter 2018
|
7
|
%
|
—
|
%
|
7
|
%
|
||
|
First Quarter 2019
|
—
|
%
|
7
|
%
|
7
|
%
|
||
|
Second Quarter 2019
|
—
|
%
|
7
|
%
|
7
|
%
|
||
17
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The table below reflects quantitative information related to our derivative instruments and where these amounts are recorded in our financial statements (dollar amounts in millions):
|
Fuel derivatives
|
September 30,
2018 |
December 31,
2017 |
|||||
|
Asset fair value recorded in prepaid expense and other
(1)
|
$
|
6
|
|
$
|
—
|
|
|
|
Longest remaining term (months)
|
9
|
|
—
|
|
|||
|
Hedged volume (barrels, in thousands)
|
1,140
|
|
—
|
|
|||
|
Estimated amount of existing (gains) losses expected to be reclassified into earnings in the next 12 months
|
$
|
(1
|
)
|
$
|
—
|
|
|
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
Fuel derivatives
|
2018
|
2017
|
2018
|
2017
|
|||||||||||
|
Hedge effectiveness (gains) losses recognized in aircraft fuel expense
|
$
|
1
|
|
$
|
(4
|
)
|
$
|
1
|
|
$
|
(8
|
)
|
|||
|
Hedge (gains) losses on derivatives recognized in comprehensive income
|
—
|
|
(9
|
)
|
—
|
|
8
|
|
|||||||
|
Percentage of actual consumption economically hedged
|
7
|
%
|
10
|
%
|
3
|
%
|
10
|
%
|
|||||||
(1) Gross asset of each contract prior to consideration of offsetting positions with each counterparty and prior to the impact of collateral paid.
Any outstanding derivative instrument exposes us to credit loss in connection with our fuel contracts in the event of nonperformance by the counterparties to our agreements, but we do not expect that any of our counterparties will fail to meet their obligations. The amount of such credit exposure is generally the fair value of our outstanding contracts for which we are in a receivable position. To manage credit risks we select counterparties based on credit assessments, limit our overall exposure to any single counterparty and monitor the market position with each counterparty. Some of our agreements require cash deposits from either JetBlue or our counterparty if market risk exposure exceeds a specified threshold amount.
We have master netting arrangements with our counterparties allowing us the right of offset to mitigate credit risk in derivative transactions. The financial derivative instrument agreements we have with our counterparties may require us to fund all, or a portion of, outstanding loss positions related to these contracts prior to their scheduled maturities. The amount of collateral posted, if any, is periodically adjusted based on the fair value of the hedge contracts. Our policy is to offset the liabilities represented by these contracts with any cash collateral paid to the counterparties.
The impact of offsetting derivative instruments is depicted below (in millions):
|
Gross Amount of Recognized
|
Gross Amount of Cash Collateral
|
Net Amount Presented on Balance Sheet
|
|||||||||||||||||
|
Fuel derivatives
|
Assets
|
Liabilities
|
Offset
|
Assets
|
Liabilities
|
||||||||||||||
|
As of September 30, 2018
|
$
|
6
|
|
$
|
—
|
|
$
|
—
|
|
$
|
6
|
|
$
|
—
|
|
||||
|
As of December 31, 2017
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
||||
18
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 8—Fair Value
Under the
Fair Value Measurements and Disclosures
topic of the Codification, disclosures are required about how fair value is determined for assets and liabilities and a hierarchy for which these assets and liabilities must be grouped is established, based on significant levels of inputs as follows:
Level 1
quoted prices in active markets for identical assets or liabilities;
Level 2
quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or
Level 3
unobservable inputs for the asset or liability, such as discounted cash flow models or valuations.
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following is a listing of our assets and liabilities required to be measured at fair value on a recurring basis and where they are classified within the fair value hierarchy as of
September 30, 2018
and
December 31, 2017
(in millions):
|
September 30, 2018
|
|||||||||||||||
|
Assets
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||
|
Cash equivalents
|
$
|
279
|
|
$
|
—
|
|
$
|
—
|
|
$
|
279
|
|
|||
|
Available-for-sale investment securities
|
155
|
|
264
|
|
—
|
|
419
|
|
|||||||
|
Aircraft fuel derivatives
|
—
|
|
6
|
|
—
|
|
6
|
|
|||||||
|
December 31, 2017
|
|||||||||||||||
|
Assets
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||
|
Cash equivalents
|
$
|
173
|
|
$
|
—
|
|
$
|
—
|
|
$
|
173
|
|
|||
|
Available-for-sale investment securities
|
—
|
|
136
|
|
—
|
|
136
|
|
|||||||
Refer to Note 3 for fair value information related to our outstanding debt obligations as of
September 30, 2018
and
December 31, 2017
.
Cash Equivalents
Our cash equivalents include money market securities and commercial paper which are readily convertible into cash, have maturities of 90 days or less when purchased and are considered to be highly liquid and easily tradable. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy.
Available-For-Sale Investment Securities
Included in our available-for-sale investment securities are U.S. Treasury bills, time deposits and debt securities. The U.S. Treasury bills are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within the fair value hierarchy. The fair value of these instruments are based on observable inputs in non-active markets, which are therefore classified as Level 2 in the hierarchy. We did
not
record any significant gains or losses on these securities during the
three and nine months ended
September 30, 2018
and
2017
.
Aircraft Fuel Derivatives
Our aircraft fuel derivatives include call option spreads and call options which are not traded on public exchanges. Heating oil and jet fuel are the products underlying these hedge contracts as they are highly correlated with the price of jet fuel. Their fair values are determined using a market approach based on inputs that are readily available from public markets for commodities and energy trading activities. Therefore, they are classified as Level 2 in the hierarchy. The data inputs are combined into quantitative models and processes to generate forward curves and volatilities related to the specific terms of the underlying hedge contracts.
19
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 9—Accumulated Other Comprehensive Income (Loss)
Comprehensive income (loss) includes changes in fair value of our aircraft fuel derivatives which qualify for hedge accounting. A rollforward of the amounts included in the accumulated other comprehensive income (loss), net of taxes for the
three months ended September 30, 2018
and
September 30, 2017
are as follows (in millions):
|
Aircraft Fuel Derivatives
(1)
|
Total
|
||||||
|
Balance of accumulated income at June 30, 2018
|
$
|
—
|
|
$
|
—
|
|
|
|
Reclassifications into earnings (net of $0 of taxes)
|
1
|
|
1
|
|
|||
|
Change in fair value (net of $0 of taxes)
|
—
|
|
—
|
|
|||
|
Balance of accumulated income at September 30, 2018
|
$
|
1
|
|
$
|
1
|
|
|
|
Balance of accumulated income at June 30, 2017
|
$
|
—
|
|
$
|
—
|
|
|
|
Reclassifications into earnings (net of $(2) of taxes)
|
(2
|
)
|
(2
|
)
|
|||
|
Change in fair value (net of $3 of taxes)
|
6
|
|
6
|
|
|||
|
Balance of accumulated income at September 30, 2017
|
$
|
4
|
|
$
|
4
|
|
|
(1) Reclassified to aircraft fuel expense
A rollforward of the amounts included in accumulated other comprehensive income (loss), net of taxes for the
nine months ended September 30, 2018
and
September 30, 2017
are as follows (in millions):
|
Aircraft Fuel Derivatives
(1)
|
Total
|
||||||
|
Balance of accumulated income at December 31, 2017
|
$
|
—
|
|
$
|
—
|
|
|
|
Reclassifications into earnings (net of $0 of taxes)
|
1
|
|
1
|
|
|||
|
Change in fair value (net of $0 of taxes)
|
—
|
|
—
|
|
|||
|
Balance of accumulated income at September 30, 2018
|
$
|
1
|
|
$
|
1
|
|
|
|
Balance of accumulated income at December 31, 2016
|
$
|
13
|
|
$
|
13
|
|
|
|
Reclassifications into earnings (net of $(3) of taxes)
|
(5
|
)
|
(5
|
)
|
|||
|
Change in fair value (net of $(4) of taxes)
|
(4
|
)
|
(4
|
)
|
|||
|
Balance of accumulated income at September 30, 2017
|
$
|
4
|
|
$
|
4
|
|
|
(1) Reclassified to aircraft fuel expense
20
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 10—Special Items
The following is a listing of special items presented on our consolidated statements of operations:
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
Special Items
|
2018
|
2017
|
2018
|
2017
|
|||||||||||
|
Embraer E190 fleet transition costs
(1)
|
$
|
43
|
|
$
|
—
|
|
$
|
362
|
|
$
|
—
|
|
|||
|
Union contract costs
(2)
|
69
|
|
—
|
|
69
|
|
—
|
|
|||||||
|
Total
|
$
|
112
|
|
$
|
—
|
|
$
|
431
|
|
$
|
—
|
|
|||
(1) Embraer E190 fleet transition costs include a
$319 million
impairment charge of flight equipment and other property and equipment related to our June 2018 fleet review. The impairment was triggered by our decision to exit the Embraer E190 fleet and order
60
Airbus A220-300 aircraft, formerly known as the Bombardier CS300, for expected deliveries beginning in
2020
through
2025
, with the option for
60
additional aircraft through
2028
. We expect to transition owned Embraer E190 aircraft starting in 2020, with leased Embraer E190 aircraft expected to be returned as leases expire starting in 2023. We expect the transition to be completed by 2025. We believe this decision will provide financial and network advantages over the current Embraer E190 aircraft. We assessed our Embraer E190 asset group by comparing projected undiscounted cash flows over the remaining time period we expect to utilize the aircraft to the book value of the asset group and determined the book value was in excess of the cash flows. We estimated the fair value of our Embraer E190 asset group using third party valuations and considering specific circumstances of our fleet such as aircraft age, maintenance requirements and condition and therefore classified as Level 3 in the fair value hierarchy. We reassessed our Embraer E190 assets and adjusted the depreciable lives and salvage value to align with our expected transition dates. For the three months ended September 30, 2018, Embraer E190 fleet transition costs include certain contract termination costs associated with the transition. Recorded amounts represent our best estimate of these costs and are based upon current facts and assumptions; actual amounts may be materially different. Additional expenses may be recorded in future periods as we continue to work through the transition of the Embraer E190 fleet.
(2) Union contract costs include the one-time
$50 million
ratification bonus and other negotiated contractual provisions related to our pilots collective bargaining agreement.
21
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Third Quarter
2018
Results
|
•
|
We had a
$190 million
increase
in revenue compared to the
third quarter
of
2017
due primarily to an
8.7%
increase
in capacity.
|
|
•
|
Operating expense per available seat mile
increase
d by
17.8%
to
12.38 cent
s, primarily due to an increase in aircraft fuel expenses, an increase in the average number of aircraft, and
$112 million
of one-time costs associated with the ratification of our pilots collective bargaining agreement and the transition of our Embraer E190 fleet. Excluding fuel and related taxes, special items, as well as operating expenses related to our non-airline businesses, our cost per available seat mile
(1)
increased
3.2%
.
|
|
•
|
Operating income was
$83 million
, a
decrease
of
$231 million
from the comparable period in 2017. This decrease was principally driven by higher fuel cost and
$112 million
of one-time costs associated with the ratification of our pilots collective bargaining agreement and the transition of our Embraer E190 fleet. Excluding these special items
(1)
, operating income was
$195 million
.
|
|
•
|
Our operating margin
decrease
d by
13.2
points to
4.1%
due primarily to higher fuel costs and
$112 million
of one-time costs associated with the ratification of our pilots collective bargaining agreement and the transition of our Embraer E190 fleet. Our operating margin excluding special items
(1)
decreased 7.6 points to 9.7%.
|
|
•
|
We generated
$936 million
in cash from operations and
$275 million
in free cash flow for the
nine months ended September 30, 2018
.
|
Balance Sheet
We ended the
third quarter
of 2018 with unrestricted cash, cash equivalents and short-term investments of
$937 million
and undrawn lines of credit of approximately $625 million. Our unrestricted cash, cash equivalents and short-term investments are approximately
13%
of trailing twelve months revenue. We issued
$260 million
of debt on
14
previously unencumbered aircraft and paid cash for our two deliveries during the three months ended September 30, 2018. We have
111
unencumbered aircraft and
44
unencumbered spare engines as of
September 30, 2018
.
Fleet
In July 2018, we announced an order for 60 Airbus A220-300 aircraft, previously called the Bombardier CS300 for expected deliveries beginning in 2020 through 2025, with the option for 60 additional aircraft through 2028. The order followed our intensive review aimed at ensuring the best financial performance of the airline’s fleet while providing maximum flexibility to execute our network strategy and enhance the customer experience. In conjunction with the new order, we also reshaped our Airbus order book, including converting our order for 25 A320neos to the A321neo and adjusting our delivery schedule.
We plan to phase in the A220-300 as a replacement for our existing fleet of 60 Embraer E190 aircraft from 2020 to 2025. We believe the A220-300 range and seating capacity will add flexibility to our network as we target growth in our Focus Cities, including options to schedule it for transcontinental flying. We expect to incur incremental one-time costs as we work to transition the Embraer E190 aircraft out of our fleet.
While the Embraer E190 has played an important role in our network since 2005, we determined during our fleet review that the A220-300’s economics would allow us to lower costs in the coming years. The A220-300 was designed by the previous manufacturer Bombardier to seat between 130 and 160 passengers, enabling financial and network advantages over the current 100-seat Embraer E190 configuration.
JetBlue plans to take delivery of the first five aircraft in 2020, the airline’s 20th year of service, with deliveries to continue through 2025. JetBlue expects it will begin to reduce flying with its existing fleet of Embraer E190 aircraft beginning in 2020. The phase out would continue gradually through approximately 2025.
Options for 60 additional A220 aircraft deliveries are anticipated to begin in 2025 and we would retain the flexibility to convert certain aircraft to the smaller A220-100 model. Both members of the A220 family share commonality in more than 99 percent of their replaceable parts and utilize the same family of engines.
(1)
Refer to our ''Regulation G Reconciliation" at the end of this section for more information on this non-GAAP measure.
22
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Outlook for
2018
For the fourth quarter of 2018, cost per available seat mile, excluding fuel
(1)
is expected to decrease between 3.5% and 1.5% over the comparable 2017 period. In addition, we expect revenue per available seat mile to range between 1.0% and 4.0% on an operating capacity increase between 7.5% and 9.5% over the comparable 2017 period.
For full year 2018, cost per available seat mile, excluding fuel
(1)
is expected to range between 0.75% and 1.75% over the comparable 2017 period. In addition, we expect operating capacity to increase between 6.5% and 7.0% over the comparable 2017 period.
(1)
Refer to our ''Regulation G Reconciliation" at the end of this section for more information on this non-GAAP measure.
23
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended September 30,
2018
vs.
2017
Overview
We reported a net income of
$50 million
, an operating income of
$83 million
and an operating margin of
4.1%
for the
three months ended September 30,
2018
. Excluding special items
(1)
, our adjusted net income was
$134 million
, our adjusted operating income was
$195 million
and our adjusted operating margin was
9.7%
. This compares to net income of
$181 million
, operating income of
$314 million
and an operating margin of
17.3%
for the
three months ended September 30,
2017
. Diluted earnings per share was
$0.16
for the
third quarter
of
2018
compared to
$0.55
for the same period in
2017
. Excluding special items
(1)
, diluted earnings per share were
$0.43
for the
third quarter
of
2018
.
On-time performance, as defined by the Department of Transportation, or DOT, is arrival within 14 minutes of scheduled arrival time. In the
third quarter
of
2018
, our systemwide on-time performance was
71.7%
compared to
68.8%
for the same period in
2017
. Our on-time performance remains challenged by our concentration of operations in the northeast of the U.S., one of the world's most congested airspaces. Runway closures at John F. Kennedy International Airport and Boston Logan International Airport had a negative impact on our on-time performance in the third quarter of 2017. Our completion factor was
98.1%
in the
third quarter
of
2018
and
95.3%
in the same period in
2017
. Hurricanes Irma and Maria resulted in over 3,000 canceled flights, or about 3% of departures in the third quarter of 2017.
Operating Revenues
|
(Revenues in millions; percent changes based on unrounded numbers)
|
Three months ended September 30,
|
Year-over-Year Change
|
|||||||||||||
|
2018
|
2017
|
$
|
%
|
||||||||||||
|
Passenger revenue
|
$
|
1,941
|
|
$
|
1,753
|
|
$
|
188
|
|
10.8
|
|
||||
|
Other revenue
|
67
|
|
65
|
|
2
|
|
3.5
|
|
|||||||
|
Total operating revenues
|
$
|
2,008
|
|
$
|
1,818
|
|
$
|
190
|
|
10.5
|
|
||||
|
Average Fare
|
$
|
175.66
|
|
$
|
171.36
|
|
$
|
4.30
|
|
2.5
|
|
||||
|
Yield per passenger mile (cents)
|
14.53
|
|
14.39
|
|
0.14
|
|
1.0
|
|
|||||||
|
Passenger revenue per ASM (cents)
|
12.48
|
|
12.25
|
|
0.23
|
|
1.9
|
|
|||||||
|
Operating revenue per ASM (cents)
|
12.91
|
|
12.70
|
|
0.21
|
|
1.7
|
|
|||||||
|
Average stage length (miles)
|
1,093
|
|
1,069
|
|
24
|
|
2.2
|
|
|||||||
|
Revenue passengers (thousands)
|
11,050
|
|
10,227
|
|
823
|
|
8.0
|
|
|||||||
|
Revenue passenger miles (millions)
|
13,362
|
|
12,180
|
|
1,182
|
|
9.7
|
|
|||||||
|
Available Seat Miles (ASMs) (millions)
|
15,551
|
|
14,306
|
|
1,245
|
|
8.7
|
|
|||||||
|
Load Factor
|
85.9
|
%
|
85.1
|
%
|
0.8
|
|
pts.
|
||||||||
Passenger revenue is our primary source of revenue, which includes seat revenue as well as revenue from our ancillary product offerings such as EvenMore™ Space. The
increase
in passenger revenue of
$188 million
, or
10.8%
, for the
three months ended September 30,
2018
compared to the same period in
2017
, was primarily attributable to a
8.0%
increase
in revenue passengers and a
2.5%
increase
in average fare.
(1)
Refer to our ''Regulation G Reconciliation" at the end of this section for more information on this non-GAAP measure.
24
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating Expenses
In detail, our operating costs per available seat mile, or ASM, were as follows:
|
(in millions; per ASM data in cents; percent changes based on unrounded numbers)
|
Three Months Ended September 30,
|
Year-over-Year Change
|
Cents per ASM
|
||||||||||||||||||||
|
2018
|
2017
|
$
|
%
|
2018
|
2017
|
% Change
|
|||||||||||||||||
|
Aircraft fuel and related taxes
|
$
|
515
|
|
$
|
347
|
|
$
|
168
|
|
48.4
|
%
|
3.31
|
|
2.42
|
|
36.5
|
%
|
||||||
|
Salaries, wages and benefits
|
515
|
|
466
|
|
49
|
|
10.5
|
|
3.31
|
|
3.26
|
|
1.7
|
|
|||||||||
|
Landing fees and other rents
|
114
|
|
104
|
|
10
|
|
9.7
|
|
0.73
|
|
0.73
|
|
0.9
|
|
|||||||||
|
Depreciation and amortization
|
125
|
|
114
|
|
11
|
|
10.4
|
|
0.81
|
|
0.79
|
|
1.6
|
|
|||||||||
|
Aircraft rent
|
27
|
|
26
|
|
1
|
|
7.8
|
|
0.18
|
|
0.18
|
|
(0.8
|
)
|
|||||||||
|
Sales and marketing
|
72
|
|
69
|
|
3
|
|
4.6
|
|
0.46
|
|
0.49
|
|
(3.8
|
)
|
|||||||||
|
Maintenance materials and repairs
|
168
|
|
149
|
|
19
|
|
12.9
|
|
1.08
|
|
1.04
|
|
3.9
|
|
|||||||||
|
Other operating expenses
|
277
|
|
229
|
|
48
|
|
20.5
|
|
1.78
|
|
1.60
|
|
10.8
|
|
|||||||||
|
Special items
|
112
|
|
—
|
|
112
|
|
n/a
|
|
0.72
|
|
—
|
|
n/a
|
|
|||||||||
|
Total operating expenses
|
$
|
1,925
|
|
$
|
1,504
|
|
$
|
421
|
|
28.1
|
%
|
12.38
|
|
10.51
|
|
17.8
|
%
|
||||||
|
Total operating expenses excluding special items
(1)
|
$
|
1,813
|
|
$
|
1,504
|
|
$
|
309
|
|
20.6
|
%
|
11.66
|
|
10.51
|
|
11.0
|
%
|
||||||
Aircraft Fuel and Related Taxes
Aircraft fuel and related taxes
increase
d by
$168 million
, or
48.4%
, for the
three months ended September 30,
2018
compared to the same period in
2017
. The average fuel price for the
three months ended September 30,
2018
increase
d by
36.6%
to
$2.32
per gallon. Our fuel consumption
increased
by
8.6%
, or
17 million
gallons, due to an
increase
in the average number of aircraft operating during the
three months ended September 30,
2018
as compared to the same period in
2017
.
Salaries, Wages and Benefits
Salaries, wages and benefits
increase
d
$49 million
, or
10.5%
, for the
three months ended September 30,
2018
compared to the same period in
2017
, primarily driven by higher full-time equivalent Crewmembers and the incremental costs of the new pilots collective bargaining agreement which became effective on August 1, 2018.
Depreciation and Amortization
Depreciation and amortization
increase
d
$11 million
, or
10.4%
, for the
three months ended September 30,
2018
compared to the same period in
2017
, primarily driven by a
5.6%
increase
in the average number of aircraft operating during the third quarter of 2018 as compared to the same period in
2017
. The quarter ended September 30, 2018 also included $2 million relating to the disposal of software.
Maintenance Materials and Repairs
Maintenance materials and repairs
increase
d
$19 million
, or
12.9%
, for the
three months ended September 30,
2018
compared to the same period in
2017
, primarily driven by the timing of engine maintenance and the additional aircraft in our fleet.
Other Operating Expenses
Other operating expenses
increase
d
$48 million
, or
20.5%
, for the
three months ended September 30,
2018
compared to the same period in
2017
, primarily due to an increase in airport services.
Special Items
Special items for the
three months ended September 30,
2018
include
$69 million
of one-time costs related to the ratification of our pilots collective bargaining agreement and
$43 million
of one-time transition costs related to the Embraer E190 fleet exit.
(1)
Refer to our ''Regulation G Reconciliation" at the end of this section for more information on this non-GAAP measure.
25
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine Months Ended September 30,
2018
vs.
2017
Overview
We reported net income of
$19 million
, an operating income of
$67 million
and an operating margin of
1.2%
for the
nine months ended September 30,
2018
. Excluding special items
(1)
, our adjusted net income was
$343 million
, adjusted operating income was
$498 million
and adjusted operating margin was
8.8%
for the
nine months ended September 30,
2018
. This compares to net income of
$470 million
, operating income of
$803 million
and an operating margin of
15.3%
for the
nine months ended September 30,
2017
. Diluted earnings per share was
$0.06
for the
nine months ended September 30, 2018
compared to
$1.41
for the same period in
2017
. Excluding special items
(1)
, diluted earnings per share were
$1.08
for the
nine months ended September 30,
2018
.
Operating Revenues
|
(Revenues in millions; percent changes based on unrounded numbers)
|
Nine Months Ended September 30,
|
Year-over-Year Change
|
|||||||||||||
|
2018
|
2017
|
$
|
%
|
||||||||||||
|
Passenger revenue
|
$
|
5,490
|
|
$
|
5,075
|
|
$
|
415
|
|
8.2
|
|
||||
|
Other revenue
|
200
|
|
179
|
|
21
|
|
11.2
|
|
|||||||
|
Total operating revenues
|
$
|
5,690
|
|
$
|
5,254
|
|
$
|
436
|
|
8.3
|
|
||||
|
Average Fare
|
$
|
172.36
|
|
$
|
167.77
|
|
$
|
4.59
|
|
2.7
|
|
||||
|
Yield per passenger mile (cents)
|
14.35
|
|
14.21
|
|
0.14
|
|
0.9
|
|
|||||||
|
Passenger revenue per ASM (cents)
|
12.28
|
|
12.05
|
|
0.23
|
|
1.9
|
|
|||||||
|
Operating revenue per ASM (cents)
|
12.73
|
|
12.47
|
|
0.26
|
|
2.0
|
|
|||||||
|
Average stage length (miles)
|
1,093
|
|
1,072
|
|
21
|
|
2.0
|
|
|||||||
|
Revenue passengers (thousands)
|
31,854
|
|
30,251
|
|
1,603
|
|
5.3
|
|
|||||||
|
Revenue passenger miles (millions)
|
38,271
|
|
35,712
|
|
2,559
|
|
7.2
|
|
|||||||
|
Available Seat Miles (ASMs) (millions)
|
44,713
|
|
42,131
|
|
2,582
|
|
6.1
|
|
|||||||
|
Load Factor
|
85.6
|
%
|
84.8
|
%
|
0.8
|
|
pts.
|
||||||||
The
increase
in passenger revenue of
$415 million
, or
8.2%
for the
nine months ended September 30,
2018
, compared to the same period in
2017
, was primarily due to a
5.3%
increase
in revenue passengers and a
2.7%
increase
in average fare. The
increase
in other revenue of
$21 million
, or
11.2%
, for the
nine months ended September 30,
2018
, compared to the same period in
2017
, was primarily due to our loyalty program.
(1)
Refer to our ''Regulation G Reconciliation" at the end of this section for more information on this non-GAAP measure.
26
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating Expenses
In detail, our operating costs per available seat mile, or ASM, were as follows:
|
(in millions; per ASM data in cents; percent changes based on unrounded numbers)
|
Nine Months Ended September 30,
|
Year-over-Year Change
|
Cents per ASM
|
||||||||||||||||||||
|
2018
|
2017
|
$
|
%
|
2018
|
2017
|
% Change
|
|||||||||||||||||
|
Aircraft fuel and related taxes
|
$
|
1,423
|
|
$
|
994
|
|
$
|
429
|
|
43.1
|
%
|
3.18
|
|
2.36
|
|
34.8
|
%
|
||||||
|
Salaries, wages and benefits
|
1,500
|
|
1,397
|
|
103
|
|
7.4
|
|
3.36
|
|
3.32
|
|
1.2
|
|
|||||||||
|
Landing fees and other rents
|
323
|
|
301
|
|
22
|
|
7.4
|
|
0.72
|
|
0.71
|
|
1.2
|
|
|||||||||
|
Depreciation and amortization
|
362
|
|
328
|
|
34
|
|
10.6
|
|
0.81
|
|
0.78
|
|
4.2
|
|
|||||||||
|
Aircraft rent
|
75
|
|
75
|
|
—
|
|
(0.4
|
)
|
0.17
|
|
0.18
|
|
(6.2
|
)
|
|||||||||
|
Sales and marketing
|
214
|
|
198
|
|
16
|
|
8.2
|
|
0.48
|
|
0.46
|
|
2.0
|
|
|||||||||
|
Maintenance materials and repairs
|
498
|
|
467
|
|
31
|
|
6.6
|
|
1.11
|
|
1.11
|
|
0.4
|
|
|||||||||
|
Other operating expenses
|
797
|
|
691
|
|
106
|
|
15.3
|
|
1.78
|
|
1.64
|
|
8.7
|
|
|||||||||
|
Special items
|
431
|
|
—
|
|
431
|
|
n/a
|
|
0.97
|
|
—
|
|
n/a
|
|
|||||||||
|
Total operating expenses
|
$
|
5,623
|
|
$
|
4,451
|
|
$
|
1,172
|
|
26.3
|
%
|
12.58
|
|
10.56
|
|
19.0
|
%
|
||||||
|
Total operating expenses excluding special items
(1)
|
$
|
5,192
|
|
$
|
4,451
|
|
$
|
741
|
|
16.7
|
%
|
11.61
|
|
10.56
|
|
9.9
|
%
|
||||||
Aircraft Fuel and Related Taxes
Aircraft fuel and related taxes
increase
d by
$429 million
, or
43.1%
, for the
nine months ended September 30,
2018
compared to the same period in
2017
, and represented approximately
25.3%
of our total operating expenses. The
increase
was primarily driven by an
increase
in average fuel cost per gallon from
$1.66
in
2017
to
$2.23
in
2018
. Our fuel consumption increased by
39 million
gallons or
6.6%
mainly due to a
6.0%
increase
in the average number of operating aircraft during the third quarter
2018
compared to the same period in
2017
as well as a
3.3%
increase
in departures.
Depreciation and Amortization
Depreciation and amortization
increase
d
$34 million
, or
10.6%
, for the
nine months ended September 30,
2018
compared to the same period in
2017
, primarily driven by a
6.0%
increase
in the average number of aircraft operating during the
nine months ended September 30,
2018
as compared to the same period in
2017
. The nine months ended September 30, 2018 also included $2 million relating to the disposal of software.
Other Operating Expenses
Other operating expenses
increase
d
$106 million
, or
15.3%
, for the
nine months ended September 30,
2018
compared to the same period in
2017
, primarily due to an increase in airport services, as well as passenger on-board supplies resulting from an increased number of passengers flown.
Special Items
Special items during the
nine months ended September 30,
2018
include
$362 million
of impairment and one-time transition costs related to our the Embraer E190 fleet exit, and
$69 million
of one-time costs related to the ratification of our pilots collective bargaining agreement.
(1)
Refer to our ''Regulation G Reconciliation" at the end of this section for more information on this non-GAAP measure.
27
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth our operating statistics for the
three and nine months ended
September 30, 2018
and
2017
:
|
Three Months Ended September 30,
|
Year-over-Year Change
|
Nine Months Ended September 30,
|
Year-over-Year Change
|
||||||||||||||||||||
|
(percent changes based on unrounded numbers)
|
2018
|
2017
|
%
|
2018
|
2017
|
%
|
|||||||||||||||||
|
Operational Statistics
|
|||||||||||||||||||||||
|
Revenue passengers (thousands)
|
11,050
|
|
10,227
|
|
8.0
|
|
31,854
|
|
30,251
|
|
5.3
|
|
|||||||||||
|
Revenue passenger miles (RPMs) (millions)
|
13,362
|
|
12,180
|
|
9.7
|
|
38,271
|
|
35,712
|
|
7.2
|
|
|||||||||||
|
Available seat miles (ASMs) (millions)
|
15,551
|
|
14,306
|
|
8.7
|
|
44,713
|
|
42,131
|
|
6.1
|
|
|||||||||||
|
Load factor
|
85.9
|
%
|
85.1
|
%
|
0.8
|
|
pts
|
85.6
|
%
|
84.8
|
%
|
0.8
|
|
pts
|
|||||||||
|
Aircraft utilization (hours per day)
|
12.0
|
|
11.8
|
|
1.7
|
|
11.8
|
|
11.9
|
|
(0.8
|
)
|
|||||||||||
|
Average fare
|
$
|
175.66
|
|
$
|
171.36
|
|
2.5
|
|
$
|
172.36
|
|
$
|
167.77
|
|
2.7
|
|
|||||||
|
Yield per passenger mile (cents)
|
14.53
|
|
14.39
|
|
1.0
|
|
14.35
|
|
14.21
|
|
0.9
|
|
|||||||||||
|
Passenger revenue per ASM (cents)
|
12.48
|
|
12.25
|
|
1.9
|
|
12.28
|
|
12.05
|
|
1.9
|
|
|||||||||||
|
Operating revenue per ASM (cents)
|
12.91
|
|
12.70
|
|
1.7
|
|
12.73
|
|
12.47
|
|
2.0
|
|
|||||||||||
|
Operating expense per ASM (cents)
|
12.38
|
|
10.51
|
|
17.8
|
|
12.58
|
|
10.56
|
|
19.0
|
|
|||||||||||
|
Operating expense per ASM, excluding fuel
(1)
|
8.27
|
|
8.02
|
|
3.2
|
|
8.36
|
|
8.14
|
|
2.7
|
|
|||||||||||
|
Departures
|
95,119
|
|
90,021
|
|
5.7
|
|
274,853
|
|
265,980
|
|
3.3
|
|
|||||||||||
|
Average stage length (miles)
|
1,093
|
|
1,069
|
|
2.2
|
|
1,093
|
|
1,072
|
|
2.0
|
|
|||||||||||
|
Average number of operating aircraft during period
|
247.5
|
|
234.3
|
|
5.6
|
|
245.7
|
|
231.7
|
|
6.0
|
|
|||||||||||
|
Average fuel cost per gallon, including fuel taxes
|
$
|
2.32
|
|
$
|
1.69
|
|
36.6
|
|
$
|
2.23
|
|
$
|
1.66
|
|
34.2
|
|
|||||||
|
Fuel gallons consumed (millions)
|
222
|
|
205
|
|
8.6
|
|
637
|
|
598
|
|
6.6
|
|
|||||||||||
|
Average number of full-time equivalent crewmembers
|
17,767
|
|
17,051
|
|
4.2
|
|
|||||||||||||||||
Although we experienced revenue growth throughout 2017 as well as in the first
nine months
of
2018
, this trend may not continue. Except for uncertainty related to the cost of aircraft fuel, we expect our expenses to continue to increase as we acquire additional aircraft, as our fleet ages and as we expand the frequency of flights in existing markets as well as enter into new markets. In addition, we expect our operating results to significantly fluctuate from quarter-to-quarter in the future as a result of various factors, many of which are outside of our control. Consequently, we believe quarter-to-quarter comparisons of our operating results may not necessarily be meaningful; you should not rely on our results for any one quarter as an indication of our future performance.
LIQUIDITY AND CAPITAL RESOURCES
The airline business is capital intensive. Our ability to successfully execute our growth plans is largely dependent on the continued availability of capital on attractive terms. In addition, our ability to successfully operate our business depends on maintaining sufficient liquidity. We believe we have adequate resources from a combination of cash and cash equivalents, investment securities on hand and two available lines of credit. Additionally, as of
September 30, 2018
, we had
111
unencumbered aircraft and
44
unencumbered spare engines, which we believe could be an additional source of liquidity, if necessary.
We believe a healthy liquidity position is crucial to our ability to weather any part of the economic cycle while continuing to execute on our plans for profitable growth and increased returns. Our goal is to continue to be diligent with our liquidity and to maintain financial flexibility to allow for prudent capital spending.
(1)
Refer to our ''Regulation G Reconciliation" at the end of this section for more information on this non-GAAP measure.
28
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of
September 30, 2018
, we had unrestricted cash and cash equivalents of
$454 million
and short-term investments of
$483 million
. We believe our current level of unrestricted cash, cash equivalents and short-term investments of approximately
13%
of trailing twelve months revenue, combined with our available lines of credit and portfolio of unencumbered assets provides us with a strong liquidity position and the potential for higher returns on cash deployment.
Analysis of Cash Flows
Operating Activities
We rely primarily on operating cash flows to provide working capital for current and future operations. Cash flows from operating activities were
$936 million
and
$1.1 billion
for the
nine months ended
September 30, 2018
and
2017
, respectively. Lower earnings, principally driven by an increase in aircraft fuel expenses, partially offset by higher operating revenues, contributed to the reduction in operating cash flows.
Investing Activities
During the
nine months ended
September 30, 2018
, capital expenditures related to our purchase of flight equipment included $287 million related to the purchase of six Airbus A321 aircraft and one Airbus A321 lease buyout, $97 million for spare part purchases, $88 million in work-in-progress relating to flight equipment and
$123 million
for flight equipment deposits. Other property and equipment capital expenditures also included ground equipment purchases and facilities improvements for $67 million. Investing activities also included the net purchase of $
96 million
in investment securities.
During the
nine months ended
September 30, 2017
, capital expenditures related to our purchase of flight equipment included $476 million related to the purchase of nine Airbus A321 aircraft and three Airbus A320 lease buyouts, $114 million in work-in-progress relating to flight equipment, $90 million for flight equipment deposits, and $47 million for spare part purchases. Other property and equipment capital expenditures also included ground equipment purchases and facilities improvements for $68 million. Investing activities also included the net proceeds of $208 million from the sale of investment securities.
Financing Activities
Financing activities for the
nine months ended
September 30, 2018
primarily consisted of acquisitions of treasury shares of
$382 million
of which
$375 million
related to our accelerated share repurchases, and scheduled maturities of
$178 million
relating to debt and capital lease obligations, partially offset by the issuance of
$540 million
of debt.
Financing activities for the
nine months ended
September 30, 2017
primarily consisted of payments relating to share repurchase activities which totaled $380 million and scheduled maturities of $138 million relating to debt and capital lease obligations.
Working Capital
We had a working capital deficit of
$1 billion
and
$940 million
at
September 30, 2018
and
December 31, 2017
, respectively. Working capital deficits can be customary in the airline industry because a significant portion of air traffic liability is classified as a current liability. Our working capital deficit increased by
$65 million
due to several factors, including an overall increase in our air traffic liability.
We expect to meet our obligations as they become due through available cash, investment securities and internally generated funds, supplemented, as necessary, by financing activities which may be available to us. We expect to generate positive working capital through our operations. However, we cannot predict what the effect on our business might be from the extremely competitive environment in which we operate or from events beyond our control, such as volatile fuel prices, economic conditions, weather-related disruptions, airport infrastructure challenges, the spread of infectious diseases, the impact of other airline bankruptcies, restructurings or consolidations, U.S. military actions or acts of terrorism. We believe the working capital available to us will be sufficient to meet our cash requirements for at least the next 12 months.
As part of our efforts to effectively manage our balance sheet and improve Return on Invested Capital, or ROIC, we expect to continue to actively manage our debt balances. Our approach to debt management includes managing the mix of fixed and floating rate debt, annual maturities of debt and the weighted average cost of debt. Additionally, our unencumbered assets allow some flexibility in managing our cost of debt and capital requirements.
(1)
Refer to our ''Regulation G Reconciliation" at the end of this section for more information on this non-GAAP measure.
29
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Contractual Obligations
Our contractual obligations at
September 30, 2018
include the following (in millions):
|
Payments due in
|
|||||||||||||||||||||||||||
|
Total
|
2018
|
2019
|
2020
|
2021
|
2022
|
Thereafter
|
|||||||||||||||||||||
|
Debt and capital lease obligations
(1)
|
$
|
1,828
|
|
$
|
57
|
|
$
|
341
|
|
$
|
295
|
|
$
|
273
|
|
$
|
239
|
|
$
|
623
|
|
||||||
|
Lease commitments
|
1,105
|
|
42
|
|
156
|
|
136
|
|
121
|
|
110
|
|
540
|
|
|||||||||||||
|
Flight equipment purchase obligations
|
8,613
|
|
308
|
|
1,186
|
|
1,373
|
|
1,346
|
|
1,307
|
|
3,093
|
|
|||||||||||||
|
Other obligations
(2)
|
2,971
|
|
197
|
|
317
|
|
313
|
|
246
|
|
244
|
|
1,654
|
|
|||||||||||||
|
Total
|
$
|
14,517
|
|
$
|
604
|
|
$
|
2,000
|
|
$
|
2,117
|
|
$
|
1,986
|
|
$
|
1,900
|
|
$
|
5,910
|
|
||||||
(1) Includes actual interest and estimated interest for floating-rate debt based on
September 30, 2018
rates
(2) Amounts include noncancelable commitments for the purchase of goods and services
As of
September 30, 2018
, we believe we are in compliance with the covenants of our debt and lease agreements. We have approximately
$31 million
of restricted cash pledged under standby letters of credit related to certain leases that will expire at the end of the related lease terms.
As of
September 30, 2018
, we operated a fleet of
59
Airbus A321 aircraft,
130
Airbus A320 aircraft and
60
Embraer E190 aircraft. Of our fleet,
200
are owned by us, of which
111
are unencumbered,
43
are leased under operating leases and
six
are leased under capital leases. As of
September 30, 2018
, the average age of our operating fleet was
9.8
years and our aircraft order was as follows:
|
Year
|
Airbus A321
|
Airbus A321neo
|
Airbus A220*
|
Total
|
||||
|
2018
|
4
|
—
|
—
|
4
|
||||
|
2019
|
—
|
13
|
—
|
13
|
||||
|
2020
|
—
|
15
|
5
|
20
|
||||
|
2021
|
—
|
16
|
4
|
20
|
||||
|
2022
|
—
|
15
|
8
|
23
|
||||
|
2023
|
—
|
14
|
19
|
33
|
||||
|
2024
|
—
|
12
|
22
|
34
|
||||
|
2025
|
—
|
—
|
2
|
2
|
||||
|
Total
|
4
|
85
|
60
|
149
|
||||
* Expected delivery schedule subject to finalization in a purchase agreement
In July 2018, we entered into a memorandum of understanding (MOU) for 60 Airbus A220-300 aircraft, previously called the Bombardier CS300, for delivery beginning in 2020, and the option for 60 additional aircraft beginning in 2025.
Expenditures for our aircraft and spare engines include estimated amounts for contractual price escalations and predelivery deposits. We expect to meet our predelivery deposit requirements for our aircraft by paying cash or by using short-term borrowing facilities for deposits required six to 24 months prior to delivery. Any predelivery deposits paid by the issuance of notes are fully repaid at the time of delivery of the related aircraft.
Depending on market conditions, we anticipate using a mix of cash and debt financing for aircraft scheduled for delivery in 2018. For deliveries after 2018, although we believe debt and/or lease financing should be available to us, we cannot give any assurance that we will be able to secure financing on attractive terms, if at all. While these financings may or may not result in an increase in liabilities on our balance sheet, our fixed costs will increase regardless of the financing method ultimately chosen. To the extent we cannot secure financing on terms we deem attractive, we may be required to pay in cash, further modify our aircraft acquisition plans or incur higher than anticipated financing costs.
Capital expenditures for non-aircraft such as facility improvements and various infrastructure refreshes are expected to be between approximately $105 million and $125 million for full year
2018
.
(1)
Refer to our ''Regulation G Reconciliation" at the end of this section for more information on this non-GAAP measure.
30
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Off-Balance Sheet Arrangements
None of our operating lease obligations are reflected on our balance sheet. Although some of our aircraft lease arrangements are with variable interest entities, as defined by the
Consolidations
topic of the Codification, none of them require consolidation in our financial statements. Our decision to finance these aircraft through operating leases rather than through debt was based on an analysis of the cash flows and tax consequences of each financing alternative and a consideration of liquidity implications. We are responsible for all maintenance, insurance and other costs associated with operating these aircraft; however, we have not made any residual value or other guarantees to our lessors.
We have determined that we hold a variable interest in, but are not the primary beneficiary of, certain pass-through trusts. The beneficiaries of these pass-through trusts are the purchasers of equipment notes issued by us to finance the acquisition of aircraft. They maintain liquidity facilities whereby a third party agrees to make payments sufficient to pay up to 18 months of interest on the applicable certificates if a payment default occurs.
We have also made certain guarantees and indemnities to other unrelated parties that are not reflected on our balance sheet, which we believe will not have a significant impact on our results of operations, financial condition or cash flows. We have no other off-balance sheet arrangements.
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates included in our
2017
Form 10-K.
Forward-Looking Information
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which represent our management's beliefs and assumptions concerning future events. When used in this document and in documents incorporated herein by reference, the words “expects,” “plans,” “anticipates,” “indicates,” “believes,” “forecast,” “guidance,” “outlook,” “may,” “will,” “should,” “seeks,” “targets” and similar expressions are intended to identify forward-looking statements. Forward-looking statements involve risks, uncertainties and assumptions, and are based on information currently available to us. Actual results may differ materially from those expressed in the forward-looking statements due to many factors, including, without limitation, our extremely competitive industry; volatility in financial and credit markets which could affect our ability to obtain debt and/or lease financing or to raise funds through debt or equity issuances; volatility in fuel prices, maintenance costs and interest rates; our ability to implement our growth strategy; our significant fixed obligations and substantial indebtedness; our ability to attract and retain qualified personnel and maintain our culture as we grow; our reliance on high daily aircraft utilization; our dependence on the New York and Boston metropolitan markets and the effect of increased congestion in these markets; our reliance on automated systems and technology; our being subject to potential unionization, work stoppages, slowdowns or increased labor costs; our reliance on a limited number of suppliers; our presence in some international emerging markets that may experience political or economic instability or may subject us to legal risk; reputational and business risk from information security breaches or cyber-attacks; changes in or additional government regulation; changes in our industry due to other airlines' financial condition; acts of war or terrorism; global economic conditions or an economic downturn leading to a continuing or accelerated decrease in demand for air travel; the spread of infectious diseases; adverse weather conditions or natural disasters; and external geopolitical events and conditions. It is routine for our internal projections and expectations to change as the year or each quarter in the year progresses, and therefore it should be clearly understood that the internal projections, beliefs and assumptions upon which we base our expectations may change prior to the end of each quarter or year.
Given the risks and uncertainties surrounding forward-looking statements, you should not place undue reliance on these statements. You should understand that many important factors, in addition to those discussed or incorporated by reference in this Report, could cause our results to differ materially from those expressed in the forward-looking statements. Potential factors that could affect our results include, in addition to others not described in this Report, those described in Item 1A of our
2017
Form 10-K under "Risks Related to JetBlue" and "Risks Associated with the Airline Industry" and our other filings with the SEC. In light of these risks and uncertainties, the forward-looking events discussed in this Report might not occur.
(1)
Refer to our ''Regulation G Reconciliation" at the end of this section for more information on this non-GAAP measure.
31
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Where You Can Find Other Information
Our website is
www.jetblue.com
. Information contained on our website is not incorporated into this Report. Information we file or furnish with the U.S. Securities and Exchange Commission, or SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to or exhibits included in these reports are available for download, free of charge, on our website soon after such reports are filed with or furnished to the SEC. Our SEC filings, including exhibits filed therewith, are also available at the SEC’s website at
www.sec.gov
. You may obtain and copy any document we file or furnish with the SEC at the SEC’s public reference room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at 1-800-SEC-0330. You may request copies of these documents, upon payment of a duplicating fee, by writing to the SEC at its principal office at 100 F Street, NE, Room 1580, Washington, D.C. 20549.
(1)
Refer to our ''Regulation G Reconciliation" at the end of this section for more information on this non-GAAP measure.
32
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REGULATION G RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
We sometimes use non-GAAP measures that are derived from the consolidated financial statements, but that are not presented in accordance with generally accepted accounting principles in the U.S., or GAAP. We believe these non-GAAP measures provide a meaningful comparison of our results to others in the airline industry and our prior year results. Investors should consider these non-GAAP financial measures in addition to, and not as a substitute for, our financial performance measures prepared in accordance with GAAP. Further, our non-GAAP information may be different from the non-GAAP information provided by other companies. We believe certain charges included in our operating expenses on a GAAP basis make it difficult to compare our current period results to prior periods as well as future periods and guidance. The tables below show a reconciliation of non-GAAP financial measures used in this filing to the most directly comparable GAAP financial meas
Operating Expenses per Available Seat Mile, excluding fuel
Operating expenses per available seat mile, or CASM, is a common metric used in the airline industry. Our CASM for the periods are summarized in the table below. We exclude aircraft fuel and related taxes, special items and operating expenses related to other non-airline businesses, such as JetBlue Technology Ventures and JetBlue Travel Products, and special items from operating expenses to determine CASM ex-fuel. During the periods presented below, special items include the impairment and one-time transition costs related to the Embraer E190 fleet exit as well as one-time costs related to the ratification of our pilots collective bargain agreement. We believe that CASM ex-fuel provides investors the ability to measure financial performance excluding items beyond our control, such as fuel costs which are subject to many economic and political factors beyond our control, or not related to the generation of an available seat mile, such as operating expense related to other non-airline businesses. We believe this non-GAAP measure is more indicative of our ability to manage airline costs and is more comparable to measures reported by other major airlines.
|
Reconciliation of Operating Expense per ASM, excluding fuel
|
|||||||||||||||||||||||||||||||
|
(in millions; per ASM data in cents; percentages based on unrounded numbers)
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||||||||||||||||
|
2018
|
2017
|
2018
|
2017
|
||||||||||||||||||||||||||||
|
$
|
per ASM
|
$
|
per ASM
|
$
|
per ASM
|
$
|
per ASM
|
||||||||||||||||||||||||
|
Total operating expenses
|
$
|
1,925
|
|
$
|
12.38
|
|
$
|
1,504
|
|
$
|
10.51
|
|
$
|
5,623
|
|
$
|
12.58
|
|
$
|
4,451
|
|
$
|
10.56
|
|
|||||||
|
Less:
|
|||||||||||||||||||||||||||||||
|
Aircraft fuel and related taxes
|
515
|
|
3.31
|
|
347
|
|
2.42
|
|
1,423
|
|
3.18
|
|
994
|
|
2.36
|
|
|||||||||||||||
|
Other non-airline expenses
|
12
|
|
0.08
|
|
10
|
|
0.07
|
|
32
|
|
0.07
|
|
28
|
|
0.06
|
|
|||||||||||||||
|
Special items
|
112
|
|
0.72
|
|
—
|
|
—
|
|
431
|
|
0.97
|
|
—
|
|
—
|
|
|||||||||||||||
|
Operating expenses, excluding fuel
|
$
|
1,286
|
|
$
|
8.27
|
|
$
|
1,147
|
|
$
|
8.02
|
|
$
|
3,737
|
|
$
|
8.36
|
|
$
|
3,429
|
|
$
|
8.14
|
|
|||||||
33
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reconciliation of Operating Expense, Income before Taxes, Net Income and Earnings per Share, excluding special items
Our GAAP results in the applicable periods include charges that are deemed special items that we believe make our results difficult to compare to prior periods as well as future periods and guidance. During the periods presented below, special items include the impairment and one-time transition costs related to the Embraer E190 fleet exit as well as one-time costs related to the ratification of our pilots collective bargaining agreement. We believe our special items distort our overall trends and that our metrics and results are enhanced with the presentation of our results excluding the impact of special items. The table below provide a reconciliation of our GAAP reported amounts to the non-GAAP amounts excluding special items.
|
Reconciliation of Operating Expenses, Income before taxes, Net Income and Earnings Per Common Share excluding special items
|
|||||||||||||||
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||||
|
(in millions except per share amounts)
|
2018
|
2017
|
2018
|
2017
|
|||||||||||
|
Total operating expenses
|
$
|
1,925
|
|
$
|
1,504
|
|
$
|
5,623
|
|
$
|
4,451
|
|
|||
|
Less: Special items
|
112
|
|
—
|
|
431
|
|
—
|
|
|||||||
|
Total operating expenses excluding special items
|
$
|
1,813
|
|
$
|
1,504
|
|
$
|
5,192
|
|
$
|
4,451
|
|
|||
|
Operating income
|
$
|
83
|
|
$
|
314
|
|
$
|
67
|
|
$
|
803
|
|
|||
|
Add back: Special items
|
112
|
|
—
|
|
431
|
|
—
|
|
|||||||
|
Operating income excluding special items
|
$
|
195
|
|
$
|
314
|
|
$
|
498
|
|
$
|
803
|
|
|||
|
Income before income taxes
|
$
|
68
|
|
$
|
297
|
|
$
|
18
|
|
$
|
743
|
|
|||
|
Add back: Special items
|
112
|
|
—
|
|
431
|
|
—
|
|
|||||||
|
Income before income taxes excluding special items
|
$
|
180
|
|
$
|
297
|
|
$
|
449
|
|
$
|
743
|
|
|||
|
Income before income taxes excluding special items
|
$
|
180
|
|
$
|
297
|
|
$
|
449
|
|
$
|
743
|
|
|||
|
Less: Income tax expense (benefits)
|
$
|
18
|
|
$
|
116
|
|
$
|
(1
|
)
|
$
|
273
|
|
|||
|
Less: Income tax related to special items
|
28
|
|
—
|
|
107
|
|
—
|
|
|||||||
|
Net Income excluding special items
|
$
|
134
|
|
$
|
181
|
|
$
|
343
|
|
$
|
470
|
|
|||
|
Earnings Per Common Share:
|
|||||||||||||||
|
Basic
|
$
|
0.16
|
|
$
|
0.56
|
|
$
|
0.06
|
|
$
|
1.42
|
|
|||
|
Add back: Special items, net of tax
|
0.27
|
|
—
|
|
1.03
|
|
—
|
|
|||||||
|
Basic excluding special items
|
$
|
0.43
|
|
$
|
0.56
|
|
$
|
1.09
|
|
$
|
1.42
|
|
|||
|
Diluted
|
$
|
0.16
|
|
$
|
0.55
|
|
$
|
0.06
|
|
$
|
1.41
|
|
|||
|
Add back: Special items, net of tax
|
0.27
|
|
—
|
|
1.02
|
|
—
|
|
|||||||
|
Diluted excluding special items
|
$
|
0.43
|
|
$
|
0.55
|
|
$
|
1.08
|
|
$
|
1.41
|
|
|||
34
There have been no material changes in market risks from the information provided in Item 7A. Quantitative and Qualitative Disclosures About Market Risk included in our
2017
Form 10-K, except as follows:
Aircraft Fuel
Our results of operations are affected by changes in the price and availability of aircraft fuel. Market risk is estimated as a hypothetical 10% increase in the
September 30, 2018
cost per gallon of fuel. Based on projected fuel consumption for the next 12 months, including the impact of our hedging position, such an increase would result in an increase to aircraft fuel expense of approximately $212 million. As of
September 30, 2018
, we had hedged approximately 7% of our projected fuel requirement for the remainder of
2018
. All hedge contracts existing at
September 30, 2018
settle by
June 30, 2019
. The financial derivative instrument agreements we have with our counterparties may require us to fund all, or a portion of, outstanding loss positions related to these contracts prior to their scheduled maturities. The amount of collateral posted, if any, is periodically adjusted based on the fair value of the hedge contracts. Refer to Note 7 - Financial Derivative Instruments and Risk Management in our unaudited condensed consolidated financial statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q, for additional information.
Interest
Our earnings are affected by changes in interest rates due to the impact those changes have on interest expense from variable-rate debt instruments and on interest income generated from our cash and investment balances. The interest rate is fixed for $1.3 billion of our debt and capital lease obligations, with the remaining $0.3 billion having floating interest rates. As of
September 30, 2018
, if interest rates were on average 100 basis points higher in
2018
our annual interest expense would increase by approximately $3 million. This is determined by considering the impact of the hypothetical change in interest rates on our variable rate debt and capital leases.
If interest rates were to average 10% lower in
2018
than they did during
2017
, our interest income from cash and investment balances would remain relatively constant. These amounts are determined by considering the impact of the hypothetical interest rates on our cash equivalents and investment securities balances at
September 30, 2018
and
December 31, 2017
.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer, or CEO, and our Chief Financial Officer, or CFO, to allow timely decisions regarding required disclosure. Management, with the participation of our CEO and CFO, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of
September 30, 2018
. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of
September 30, 2018
.
Changes in Internal Control Over Financial Reporting
Except as discussed below, there were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our controls performed during the fiscal quarter ended
September 30, 2018
, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
During the
nine months ended September 30,
2018
, we implemented changes to our processes in response to the adoption of ASC 606
Revenue from Contracts with Customers
that became effective January 1, 2018. This resulted in a material change to our process for accounting for and reporting of our loyalty program and air traffic liability. The operating effectiveness of the controls related to these changes will be evaluated as part of our annual assessment of the effectiveness of internal controls over financial reporting.
35
In the ordinary course of our business we are party to various legal proceedings and claims which we believe are incidental to the operation of our business. Refer to Note 6 - Commitments and Contingencies in our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.
Part I, Item 1A "Risk Factors" of our 2017 Form 10-K, includes a discussion of our risk factors which are incorporated herein. The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in our Form 10-K. Except as presented below, there have been no material changes from the risk factors associated with our business previously disclosed in our Form 10-K.
We may be subject to unionization, work stoppages, slowdowns or increased labor costs and the unionization of the Company’s pilots could result in increased labor costs.
Our business is labor intensive and the unionization of any of our Crewmembers could result in demands that may increase our operating expenses and adversely affect our financial condition and results of operations. Any of the different crafts or classes of our Crewmembers could unionize at any time, which would require us to negotiate in good faith with the Crewmember group’s certified representative concerning a collective bargaining agreement. In addition, we may be subject to disruptions by unions protesting the non-union status of our other Crewmembers. Any of these events would be disruptive to our operations and could harm our business.
In general, unionization has increased costs in the airline industry. On April 22, 2014, approximately 74% of our pilots voted to be represented by the Airlines Pilot Association, or ALPA. In July 2018, we reached a final agreement for our first collective bargaining agreement which was ratified by the pilots and became effective on August 1, 2018. In April 2018, JetBlue Inflight Crewmembers elected to be solely represented by the Transport Workers Union of America, or TWU. The NMB certified the TWU as the representative body for JetBlue Inflight Crewmembers and we anticipate working with the TWU to reach a collective bargaining agreement. If we are unable to reach agreement on the terms of a collective bargaining agreement, or we experience wide-spread Crewmember dissatisfaction, we could be subject to adverse actions.
On December 8, 2017, the Board of Directors approved a two year share repurchase authorization starting on January 1, 2018, of up to $750 million worth of JetBlue common stock. The authorization can be executed through repurchases in open market transactions pursuant to Rules 10b-18 and/or 10b5-1 of the Securities and Exchange Act of 1934, as amended, and/or one or more privately-negotiated accelerated stock repurchase transactions. We may adjust or change our share repurchase practices based on market conditions and other alternatives.
During the
three months ended September 30, 2018
, the following shares were repurchased under the program (in millions, except for per share data):
|
Period
|
Total Number of Shares Purchased
|
Average Price Paid Per Share
|
Total Number of Shares Purchased as Part of Publicly Announced Plans
|
Approximate Dollar Value of Shares that May Yet be Purchased Under the Plan or Program
|
||||||||
|
July 2018
|
1.3
|
|
(1)
|
1.3
|
|
$
|
500
|
|
||||
|
August 2018
|
5.7
|
|
(2)
|
5.7
|
|
375
|
|
|||||
|
September 2018
|
1.0
|
|
(2)
|
1.0
|
|
375
|
|
|||||
|
Total
|
8.0
|
|
|
8.0
|
|
|||||||
(1) On May 24, 2018, JetBlue entered into an accelerated share repurchase, ASR, agreement with Citibank, N.A. ("Citibank"), paying
$125 million
for an initial delivery of
5.3 million
shares. The term of the ASR concluded on July 23, 2018 with Citibank delivering 1.3 million additional shares to JetBlue on July 25, 2018. A total of
6.6 million
shares, at an average price of
$18.85
per share, were repurchased under the agreement.
36
(2) On
August 1, 2018
, JetBlue entered into an ASR agreement with Barclays Bank PLC ("Barclays") paying
$125 million
. The term of the ASR concluded on
September 28, 2018
. A total of
6.7 million
shares, at an average price of
$18.69
per share, were repurchased under the agreement.
Exhibits: See accompanying Exhibit Index included after the signature page of this Report for a list of the exhibits filed or furnished with this Report.
37
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
JETBLUE AIRWAYS CORPORATION
|
||||||
|
|
|
(Registrant)
|
||||||
|
Date:
|
October 26, 2018
|
|
|
By:
|
|
/s/ Alexander Chatkewitz
|
||
|
|
Vice President, Controller, and Chief Accounting Officer (Principal Accounting Officer)
|
|||||||
38
EXHIBIT INDEX
|
Exhibit Number
|
Exhibit
|
|
|
10.1*
|
||
|
12.1
|
||
|
31.1
|
||
|
31.2
|
||
|
32
|
||
|
101.INS
|
XBRL Instance Document
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document
|
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
101.LAB
|
XBRL Taxonomy Extension Labels Linkbase Document
|
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
|
*
|
Pursuant to 17 CFR 240.24b-2, confidential information has been omitted and has been provided separately to the Securities and Exchange Commission pursuant to a Confidential Treatment Request filed with the Commission.
|
|
39
TABLE OF CONTENTS
Part I. Financial InformationItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Financial InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibits