JetBlue Airways Corporation reports first quarter net income of only $4 million

JetBlue Airways Corporation (JetBlue Airways) (New York) today reported its results for the first quarter 2014:

Operating income of $41 million in the first quarter. This compares to operating income of $59 million in the first quarter of 2013.

Pre-tax income of $6 million in the first quarter. This compares to pre-tax income of $23 million in the first quarter of 2013.

Net income for the first quarter was $4 million, or $0.01 per diluted share. This compares to JetBlue’s first quarter 2013 net income of $14 million, or $0.05 per diluted share.

“Today, we reported our sixteenth consecutive quarter of profitability,” said Dave Barger, JetBlue’s Chief Executive Officer. “While first quarter results were negatively impacted by severe winter weather in the Northeast, we believe our maturing network in high-value geography together with our differentiated product and service will help JetBlue expand margins and improve shareholder returns in 2014.”

Operational Performance

JetBlue reported record first quarter operating revenues of $1.3 billion despite severe winter weather in the Northeast. JetBlue cancelled 4,100 flights during the quarter, which reduced revenue by an estimated $50 million and reduced operating income by approximately $35 million. Revenue passenger miles for the first quarter increased 1.8% to 8.7 billion on a capacity increase of 2.7%, resulting in a first quarter load factor of 83.1%, a decrease of 0.8 points year over year.

Yield per passenger mile in the first quarter was 14.20 cents, up 1.8% compared to the first quarter of 2013. Passenger revenue per available seat mile (PRASM) for the first quarter 2014 increased 0.9% year over year to 11.80 cents and operating revenue per available seat mile (RASM) increased 1.1% year over year to 12.95 cents. The shift of the Easter and Passover holidays from March last year to April this year negatively impacted first quarter year over year PRASM by approximately three points.

“We achieved year over year improvements in yield and fare while growing capacity — demonstrating the core strength of our business,” said Robin Hayes, JetBlue’s President. “With a solid demand environment and continued focus on ancillary revenue initiatives, we expect year over year unit revenue growth to accelerate in the second quarter.”

Operating expenses for the quarter increased 5.5%, or $68 million, over the prior year period. Interest expense for the quarter declined 8.3%, or $4 million, due to JetBlue’s focus on debt reduction. JetBlue’s operating expense per available seat mile (CASM) for the first quarter increased 2.6% year over year to 12.55 cents. Excluding fuel and profit sharing, CASM increased 6.3% to 8.10 cents driven mainly by capacity reductions and higher non-fuel operating expenses associated with severe winter weather.

Fuel Expense and Hedging

JetBlue continued to hedge fuel to manage price volatility. Specifically, during the first quarter JetBlue hedged approximately 16% of its fuel consumption and managed approximately 8% of its fuel consumption using fixed forward price agreements (FFPs). This resulted in a realized fuel price of $3.14 per gallon, a 4.4% decrease over first quarter 2013 realized fuel price of $3.29. JetBlue recorded $1 million in losses on fuel hedges that settled during the first quarter.

JetBlue has managed approximately 22% of its second quarter projected fuel requirements using a combination of FFPs, jet fuel swaps and caps. Based on the fuel curve as of April 16th, JetBlue expects an average price per gallon of fuel, including the impact of hedges, FFPs and fuel taxes, of $3.11 in the second quarter.

Liquidity and Cash Flow

JetBlue ended the quarter with approximately $771 million in unrestricted cash and short term investments. In addition, JetBlue maintains $550 million in lines of credit.

During the first quarter, JetBlue repaid $237 million in debt and capital lease obligations. JetBlue plans to repay approximately $481 million in debt and capital lease obligations in 2014, including approximately $48 million in the second quarter.

JetBlue remains committed to improving its return on invested capital (ROIC) by an average of one percentage point per year. “We remain focused on growing unit revenues while maintaining our cost advantage and strengthening the balance sheet,” said Mark Powers, JetBlue’s Chief Financial Officer. “To that end, we plan to use the net proceeds from the pending sale of our wholly-owned subsidiary LiveTV to prepay debt and for other ROIC-accretive actions.”

Second Quarter and Full Year Outlook

For the second quarter of 2014, CASM is expected to be increase between 3.5% and 5.5% versus the year-ago period. Excluding fuel and profit sharing, CASM in the second quarter is expected to increase between 4.5% and 6.5% year over year.

CASM for the full year is expected to increase between 2.0% and 4.0% over full year 2013. Excluding fuel and profit sharing, CASM in 2014 is expected to increase between 3.5% and 5.5% year over year.

JetBlue expects approximately 1.5 points of this year over year unit cost increase to be driven by capacity reductions resulting from (1) reallocation of aircraft from longer haul routes to support new service in Washington Reagan National Airport and (2) first quarter weather-related cancellations.

Capacity is expected to increase between 5.5% and 7.5% in the second quarter. For the full year, capacity is expected to increase between 4.0% and 6.0%.

Copyright Photo: Mark Durbin/AirlinersGallery.com. Airbus A320-232 N615JB (msn 2461) in the FDNY special livery taxies at San Francisco International Airport (SFO).

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