JETBLUE AIRWAYS CORPORATION OVERVIEW
In 2019, we experienced the persistent competitiveness of the airline industry and were challenged with unexpected revenue headwinds, particularly with an unusually volatile year in our Latin andCaribbean markets. Even with these external factors, we managed to generate operating revenue growth of 5.7% year-over-year. We remain committed to delivering a safe and reliableJetBlue Experience for our customers and increasing returns for our shareholders. We believe our continued focus on cost discipline, product innovation and network enhancements, combined with our commitment to service excellence, will drive our future success. 2019 Highlights •We generated$8.1 billion in operating revenue, an increase of$436 million compared to 2018, primarily due to a 1.4% increase in revenue passengers and a 4.1% increase in average fare. •Operating expense and operating expense per available seat mile (CASM) for 2019 decreased by 1.3% to$7.3 billion and 7.4% to11.43 cents , respectively. Our 2019 and 2018 operating expense included special items of$14 million and$435 million , respectively, related to the implementation and ratification of our pilots' collective bargaining agreement, and our Embraer E190 fleet transition. These special items contributed0.02 cents and0.73 cents to our unit costs in 2019 and 2018, respectively. Excluding fuel and related taxes, special items, as well as operating expenses related to our non-airline businesses, our cost per available seat mile (CASM ex-fuel)(1) increased by 0.8% to8.44 cents . In recent years, the benefits from our Structural Cost Program have slowed our unit cost growth. •In 2019, we reported net income of$569 million , operating income of$800 million , operating margin of 9.9%, and diluted earnings per share of$1.91 . This compares to reported net income of$189 million , operating income of$266 million , operating margin of 3.5%, and diluted earnings per share of$0.60 in 2018. •Our 2019 and 2018 reported results included the effects of special items. Adjusting for these one-time items(1), our adjusted net income was$568 million , operating income was$814 million , and our adjusted operating margin was 10.1% for 2019. This compares to adjusted net income of$488 million , operating income of$701 million , and operating margin of 9.2% for 2018. Excluding one-time items(1), diluted earnings per share were$1.90 and$1.55 for 2019 and 2018, respectively. •We generated$1.4 billion in cash from operations. The significant amount of cash we generated provided the opportunity to pay cash for all of our 2019 aircraft deliveries, buy out the lease of one aircraft, invest in our infrastructure and customer experience, and execute share repurchases. Company Initiatives Balance Sheet We ended 2019 with unrestricted cash, cash equivalents and short-term investments of$1.3 billion and undrawn lines of credit of approximately$750 million . InMarch 2019 , Fitch Ratings affirmed our Issuer Default Rating at BB with a positive outlook. AtDecember 31, 2019 , our unrestricted cash, cash equivalents and short-term investments was approximately 16% of trailing twelve months revenue. In 2019, we raised$981 million in secured aircraft debt and repaid$323 million of regularly scheduled debt. During 2019, we acquired approximately 28.1 million shares of our common stock for approximately$535 million under our share repurchase programs, returning excess capital to our shareholders. Our adjusted debt to capitalization ratio(1) was 34% atDecember 31, 2019 . Aircraft and Airport Infrastructure Investments We placed our first Airbus A321neo aircraft into service inSeptember 2019 . During 2019, we took delivery of six Airbus A321neo aircraft and bought out the lease on one Airbus A320 aircraft. We have made significant progress in our cabin restyle program which includes two iterations. Phase 1 of the program introduced our popular Airbus A321 interior to our Airbus A320 aircraft. Phase 2, which began in early 2019, includes enhancements to provide our customers with a cabin experience of the future. It features a new seat design with memory foam cushion comfort and adjustable headrests, a next generation inflight entertainment system with an expanded collection of on demand movies, television shows including full seasons and video content, plus new gaming features, and expanded Fly-Fi® coverage over water to support our growing network. As ofDecember 31, 2019 , Phase 2 of the restyling program was completed on 31 of our Airbus A320 aircraft, bringing the total number of restyled aircraft to 51.
(1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure.
33--------------------------------------------------------------------------------
Table of Contents
We continue to introduce self-tagging kiosks to our BlueCities in 2019.Quito, Ecuador became the 25th self-tagging lobby in our network and the first international BlueCity with our seamless lobby experience. Self-tagging kiosks were available at 28 of our BlueCities as ofDecember 31, 2019 . These kiosks reduce wait time for our customers during check-in and allow our crewmembers to deliver an even more personalized hospitality experience. Network As part of our ongoing network initiatives and route optimization efforts, we continued to make schedule and frequency adjustments throughout 2019. As a result, we added one new destination to our growing network as well as new routes and additional frequencies between existing BlueCities. Outlook for 2020 We plan to add new destinations and route pairings based upon market demand. We are continuously looking to expand our other ancillary revenue opportunities, improve our TrueBlue® loyalty program, and deepen our portfolio of commercial partnerships. As in the past, we intend to continue investing in infrastructure and product enhancements in 2020, which we believe will enable us to reap future benefits. We also plan to continue strengthening the balance sheet. For the full year 2020, we estimate our operating capacity will increase by approximately 5.5% to 7.5% over 2019 with the expected delivery of eleven Airbus A321neo aircraft and our first Airbus A220 aircraft. We are expecting our 2020 cost per available seat mile, excluding aircraft fuel and related taxes, operating expenses related to other non-airline businesses, and special items (CASM ex-fuel)(1) to decrease by between approximately (2.0)% to 0.0% year-over-year, carrying forward our achievements from 2019. We expect our CASM ex-fuel growth to be lower in the second half of 2020 driven by the timing of our capacity growth. We plan to offset carbon dioxide emissions from jet fuel for all domestic flights beginning inJuly 2020 . We anticipate contributing to emissions reduction projects around the globe which aim to reduce the amount of greenhouse gas in the atmosphere in at least one of three ways: avoiding greenhouse gas emissions in favor of renewable sources, removing emissions from the atmosphere, and destroying emissions when possible. In addition, we also plan to start flying with sustainable aviation fuel in mid-2020 on flights fromSan Francisco International Airport . InOctober 2019 , theOffice of the U.S. Trade Representative announced a 10% tariff on new commercial aircraft and related parts imported from certainEuropean Union member states, which include aircraft and other parts we are already contractually obligated to purchase, including those noted above. InFebruary 2020 , theU.S. Trade Representative announced an increase in the tariff to 15% which will become effective inMarch 2020 . We are working with our business partners, including Airbus, to evaluate the potential financial and operational impact of these announcements on our future aircraft deliveries. The imposition of the tariff could substantially increase the cost of new Airbus aircraft and parts. Continued imposition of the tariff, including continued escalation of the tariff, could adversely affect our aircraft supply chain, growth plans, and our business.
(1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure.
34--------------------------------------------------------------------------------
Table of Contents RESULTS OF OPERATIONS 2019 Compared to 2018 Overview We reported net income of$569 million , operating income of$800 million and operating margin of 9.9% for the year endedDecember 31, 2019 . This compares to net income of$189 million , operating income of$266 million , and operating margin of 3.5% for the year endedDecember 31, 2018 . Diluted earnings per share were$1.91 for 2019 compared to$0.60 for 2018. Our 2019 and 2018 reported results included the effects of special items. Adjusting for these one-time items(1), our adjusted net income was$568 million , operating income was$814 million , and our adjusted operating margin was 10.1% for 2019. This compares to adjusted net income of$488 million , operating income of$701 million , and operating margin of 9.2% for 2018. Excluding one-time items(1), diluted earnings per share were$1.90 and$1.55 for 2019 and 2018, respectively. Operating Revenues (revenues in millions; percent changes Year-over-Year Change based on unrounded numbers) 2019 2018 $ % Passenger revenue$ 7,786 $ 7,381 405 5.5 Other revenue 308 277 31 11.0 Operating revenues$ 8,094 $ 7,658 436 5.7 Average fare$ 182.23 $ 175.11 7.12 4.1 Yield per passenger mile (cents) 14.52 14.53 (0.01 ) (0.1 ) Passenger revenue per ASM (cents) 12.20 12.33 (0.13 ) (1.1 ) Operating revenue per ASM (cents) 12.68 12.79 (0.11 ) (0.9 ) Average stage length (miles) 1,140 1,096 44 4.0 Revenue passengers (thousands) 42,728 42,150 578 1.4
Revenue passenger miles (millions) 53,617 50,790 2,827
5.6
Available seat miles (ASMs) (millions) 63,841 59,881 3,960 6.6
Load factor 84.0 % 84.8 % (0.8 ) pts
Passenger revenue accounted for 96.2% of our total operating revenue for the
year ended December 31, 2019 . In addition to seat revenue, passenger revenue
includes revenue from our ancillary product offerings such as Even More® Space.
Revenue generated from international routes, including Puerto Rico , accounted
for 30.4% of our passenger revenue in 2019. 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 are 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. We measure capacity in terms of available seat
miles, which represents the number of seats available for passengers multiplied
by the number of miles the seats are flown. Yield, or the average amount one
passenger pays to fly one mile, is calculated by dividing Passenger revenue by
Revenue passenger miles. We attempt to increase Passenger revenue primarily by
increasing our yield per flight which produces higher revenue per available seat
mile. Our objective is to optimize our fare mix to increase our overall average
fare while continuing to provide our customers with competitive fares.
In 2019, the increase in Passenger revenue was mainly attributable to a 1.4%
increase in revenue passengers and a 4.1% increase in average fare. Fee revenue
increased by $76 million as a result of changes in our baggage and change fee
policies. Our largest ancillary product remains the Even More® Space seats,
generating approximately $301 million in revenue, an increase of 10% compared to
2018.
Other revenue is primarily comprised of the marketing component of the sales of
our TrueBlue® points. It also includes revenue from the sale of vacations
packages, ground handling fees received from other airlines, and rental income.
(1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure.
35--------------------------------------------------------------------------------
Table of Contents Operating Expenses (in millions; per ASM data in cents; percentages Year-over-Year Change per ASM based on unrounded numbers) 2019 2018 $ % 2019 2018 % Change Aircraft fuel and related taxes$ 1,847 $ 1,899 (52 ) (2.7 ) 2.89 3.17 (8.8 ) Salaries, wages and benefits 2,320 2,044 276 13.5 3.64 3.41 6.5 Landing fees and other rents 474 462 12 2.6 0.74 0.77 (3.7 ) Depreciation and amortization 525 469 56 12.1 0.82 0.78 5.2 Aircraft rent 99 104 (5 ) (5.1 ) 0.16 0.17 (11.0 ) Sales and marketing 290 294 (4 ) (1.1 ) 0.46 0.49 (7.3 ) Maintenance, materials and repairs 619 625 (6 ) (1.0 ) 0.97 1.04 (7.2 ) Other operating expenses 1,106 1,060 46 4.2 1.73 1.78 (2.2 ) Special items 14 435 (421 )
(96.7 ) 0.02 0.73 (96.9 )
Total operating expenses
Aircraft Fuel and Related Taxes Aircraft fuel and related taxes represented 25% of our total operating expenses in 2019 compared to 26% in 2018. The average fuel price decreased 6.7% in 2019 to$2.09 per gallon. This was partially offset by a 4.3% increase in our fuel consumption of approximately 36 million gallons. Additional fuel consumption was mainly due to our increase in the average number of operating aircraft. Based on our expected fuel volume for 2020, a 10% per gallon increase in the cost of aircraft fuel would increase our annual fuel expense by approximately$192 million . We recognized fuel hedge losses of$5 million and$2 million , in 2019 and 2018, respectively. These losses were recorded in Aircraft fuel and related taxes. We are unable to predict the potential loss from hedge accounting, which is determined on a derivative-by-derivative basis, due to the volatility in the forward markets for these commodities. Salaries, Wages and Benefits Salaries, wages and benefits represented 32% of our total operating expenses in 2019 compared to 28% in 2018. The increase in salaries, wages and benefits was primarily driven by the incremental costs of the new pilots' collective bargaining agreement which became effective onAugust 1, 2018 . Our crewmember headcount also increased year-over-year. During 2019, the average number of full-time equivalent crewmembers increased by 4% and the average tenure of our crewmembers was 7 years. We expect the increasing tenure of our crewmembers, rising healthcare costs, and efforts to maintain competitiveness in our overall compensation packages to continue to pressure our costs in 2020. Landing Fees and Other Rents Landing fees and other rents include landing fees, which are at premium rates in the heavily trafficked northeast corridor of theU.S. where approximately 76% of our operations resided in 2019. Other rents primarily consist of rent for airports in our BlueCities. Landing fees and other rents increased$12 million , or 2.6%, in 2019 primarily due to our increased number of departures. Depreciation and Amortization Depreciation and amortization primarily include depreciation for our owned and finance leased aircraft, engines, and inflight entertainment systems. Depreciation and amortization increased$56 million , or 12.1%, primarily driven by a 2.8% increase in the average number of aircraft operating in 2019 compared to the same period in 2018. We placed five Airbus A321 aircraft into service and bought out the lease of one Airbus A320 aircraft in 2019. In addition, we also completed the cabin restyle on 42 Airbus A320 aircraft. Maintenance, Materials and Repairs Maintenance, materials and repairs are generally expensed when incurred unless covered by a long-term flight hour services contract. The average age of our aircraft in 2019 was 10.6 years which is relatively young compared to our competitors. However, as our fleet ages our maintenance costs will increase significantly, both on an absolute basis and as a percentage of our unit costs, as older aircraft require additional, more expensive repairs over time. We had an average of 6.8 additional total operating aircraft in 2019 compared to 2018.
(1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure.
36--------------------------------------------------------------------------------
Table of Contents
In 2019, Maintenance, materials and repairs decreased by$6 million , or 1.0% compared to 2018. The decrease is attributable to lower cost structures achieved through the Structural Cost Program and timing of heavy maintenance visits. Other Operating Expenses Other operating expenses consist of the following categories: outside services (including expenses related to fueling, ground handling, skycap, security, and janitorial services), insurance, personnel expenses, professional fees, onboard supplies, shop and office supplies, bad debts, communication costs, and taxes other than payroll and fuel taxes. In 2019, Other operating expenses increased by$46 million , or 4.2%, compared to 2018, primarily due to an increase in airport services and passenger onboard supplies resulting from an increased number of departures and customers flown. Special Items Special items in 2019 consisted of$6 million of one-time costs related to the Embraer E190 fleet transition and$8 million of one-time costs related to the implementation of our pilots' collective bargaining agreement. Special items in 2018 consisted of$362 million of impairment and one-time costs related to the Embraer E190 fleet transition, and$73 million of one-time costs related to the ratification of our pilots' collective bargaining agreement. Income Taxes Our effective tax rate was 25.9% in 2019, compared to 13.9% in 2018. Our 2018 effective tax rate included a benefit of$28 million related to implementation of various provisions of the Tax Cuts and Jobs Act of 2017. We estimate that our underlying tax rate in 2020 will be approximately 26%. 2018 Compared to 2017 Overview We reported net income of$189 million , operating income of$266 million and operating margin of 3.5% for the year endedDecember 31, 2018 . This compares to net income of$1.1 billion , operating income of$973 million and operating margin of 13.9% for the year endedDecember 31, 2017 . Diluted earnings per share were$0.60 for 2018 compared to$3.45 for 2017. Our 2018 and 2017 reported results included the effects of special items and the implementation of the Tax Cuts and Jobs Act of 2017. Adjusting for these one-time items(1), our net income was$488 million , operating income was$701 million , and our adjusted operating margin was 9.2%. for 2018. This compares to adjusted net income of$576 million , operating income of$973 million , and operating margin of 13.9% for 2017. Excluding one-time items(1), diluted earnings per share were$1.55 and$1.74 for 2018 and 2017, respectively. Operating Revenues (revenues in millions; percent changes Year-over-Year Change based on unrounded numbers) 2018 2017 $ % Passenger revenue$ 7,381 $ 6,761 620 9.2 Other revenue 277 251 26 10.5 Operating revenues$ 7,658 $ 7,012 646 9.2 Average fare$ 175.11 $ 168.88 $ 6.23 3.7 Yield per passenger mile (cents) 14.53 14.31 0.22 1.5 Passenger revenue per ASM (cents) 12.33 12.07 0.26 2.1 Operating revenue per ASM (cents) 12.79 12.52 0.27 2.1 Average stage length (miles) 1,096 1,072 24 2.2 Revenue passengers (thousands) 42,150 40,038 2,112 5.3 Revenue passenger miles (millions) 50,790 47,240 3,550 7.5
Available seat miles (ASMs) (millions) 59,881 56,007
3,874 6.9 Load factor 84.8 % 84.3 % 0.5 pts
(1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure.
37--------------------------------------------------------------------------------
Table of Contents
Passenger revenue accounted for over 96.4% of our total operating revenues for the year endedDecember 31, 2018 . In addition to seat revenue, passenger revenue includes revenue from our ancillary product offerings such as Even More® Space. Revenue generated from international routes, includingPuerto Rico , accounted for 29.7% of our passenger revenue in 2018. 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 are 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. We measure capacity in terms of available seat miles, which represents the number of seats available for passengers multiplied by the number of miles the seats are flown. Yield, or the average amount one passenger pays to fly one mile, is calculated by dividing Passenger revenue by Revenue passenger miles. We attempt to increase Passenger revenue primarily by increasing our yield per flight which produces higher Revenue per available seat mile. Our objective is to optimize our fare mix to increase our overall average fare while continuing to provide our customers with competitive fares. In 2018, the increase in Passenger revenue was mainly attributable to a 5.3% increase in revenue passengers and a 3.7% increase in average fare. Fee revenue increased by$60 million as a result of changes in our baggage and change fee policies. Our largest ancillary product was Even More® Space, generating approximately$274 million in revenue, an increase of over 14% compared to 2017. Other revenue is primarily comprised of the marketing component of the sales of our TrueBlue® points. It also includes revenue from the sale of vacations packages, ground handling fees received from other airlines, and rental income. Operating Expenses (in millions; per ASM data in Year-over-Year Change per ASM cents; percentages based on unrounded numbers) 2018 2017 $ % 2018 2017 % Change Aircraft fuel and related taxes$ 1,899 $ 1,363 536 39.4 3.17 2.43 30.4 Salaries, wages and benefits 2,044 1,887 157 8.3 3.41 3.37 1.3 Landing fees and other rents 462 438 24 5.4 0.77 0.78 (1.4 ) Depreciation and amortization 469 424 45 10.5 0.78 0.76 3.3 Aircraft rent 104 102 2 2.6 0.17 0.18 (4.0 ) Sales and marketing 294 271 23 8.4 0.49 0.49 1.4 Maintenance, materials and repairs 625 622 3 0.5 1.04 1.11 (6.0 ) Other operating expenses 1,060 932 128 13.7 1.78 1.66 6.3 Special items 435 - 435 - 0.73 - - Total operating expenses$ 7,392 $ 6,039 1,353 22.4 12.34 10.78 14.5 Aircraft Fuel and Related Taxes Aircraft fuel and related taxes represented 26% of our total operating expenses in 2018 compared to 23% in 2017. The average fuel price increased 30.2% in 2018 to$2.24 per gallon. This was coupled with an increase in our fuel consumption of approximately 57 million gallons. Additional fuel consumption was mainly due to our increase in the average number of operating aircraft. In 2018, we recognized fuel hedge losses of$2 million compared to$15 million of fuel hedge gains in 2017 and these were recorded in Aircraft fuel and related taxes. Salaries, Wages and Benefits Salaries, wages and benefits represented approximately 28% of our total operating expenses in 2018 compared to 31% in 2017. The increase in salaries, wages and benefits was primarily driven by the incremental costs of the new pilots' collective bargaining agreement which became effective onAugust 1, 2018 . Our crewmember headcount also increased year-over-year. During 2018, the average number of full-time equivalent crewmembers increased by 4% and the average tenure of our crewmembers was 7 years. Our profit sharing is calculated as 10% of adjusted pre-tax income excluding special items, and reduced by Retirement Plus contributions. Profit sharing decreased by$38 million in 2018 compared to 2017, primarily driven by higher fuel prices which negatively impacted our adjusted pre-tax income.
(1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure.
38--------------------------------------------------------------------------------
Table of Contents
Landing Fees and Other Rents Landing fees and other rents include landing fees, which are at premium rates in the heavily trafficked northeast corridor of theU.S. where approximately 75% of our operations resided in 2018. Other rents primarily consisted of rent for airports in our BlueCities. Landing fees and other rents increased$24 million , or 5.4%, in 2018 primarily due to our increased number of departures. Depreciation and Amortization Depreciation and amortization primarily include depreciation for our owned and finance leased aircraft, engines, and inflight entertainment systems. Depreciation and amortization increased$45 million , or 10.5%, primarily driven by a 5.7% increase in the average number of aircraft operating in 2018 compared to 2017. Maintenance, Materials and Repairs Maintenance, materials and repairs are generally expensed when incurred unless covered by a long-term flight hour services contract. The average age of our aircraft in 2018 was 9.8 years which was relatively young compared to our competitors. We had an average of 13.3 additional total operating aircraft in 2018 compared to 2017. In 2018, Maintenance, materials and repairs increased by$3 million , or 0.5% compared to 2017. The marginal increase was primarily driven by a change in the pricing structure of our Airbus A320 engine maintenance program which became effective inSeptember 2017 and the timing of engine overhauls. Other Operating Expenses Other operating expenses consist of the following categories: outside services (including expenses related to fueling, ground handling, skycap, security, and janitorial services), insurance, personnel expenses, professional fees, onboard supplies, shop and office supplies, bad debts, communication costs, and taxes other than payroll and fuel taxes. In 2018, Other operating expenses increased by$128 million , or 13.7%, compared to 2017, primarily due to an increase in airport services and passenger onboard supplies resulting from an increased number of passengers flown and additional Mint® offerings. Special Items Special items in 2018 consisted of$362 million of impairment and one-time transition costs related to our Embraer E190 fleet exit, and$73 million of one-time costs related to the ratification of our pilots' collective bargaining agreement. Income Taxes Our effective tax rate was 13.9% in 2018, compared to a benefit of 24.2% in 2017. Our 2018 and 2017 effective tax rates included a benefit of$28 million related to implementation of various provisions of the Tax Cuts and Jobs Act of 2017, or The Act, and$564 million benefit in 2017 related to the remeasurement of our deferred taxes at the time The Act was enacted. LIQUIDITY AND CAPITAL RESOURCES The airline business is capital intensive. Our ability to successfully execute our profitable 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, our unencumbered assets could be an additional source of liquidity, if necessary. We believe a healthy liquidity position is a crucial element of 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, maintaining financial flexibility, and allowing for prudent capital spending. As ofDecember 31, 2019 , we had unrestricted cash and cash equivalents of$959 million and short-term investments of$369 million . We believe our current level of unrestricted cash, cash equivalents and short-term investments of approximately 16% of trailing twelve months revenue, combined with our approximately$750 million in available lines of credit and our portfolio of unencumbered assets, provides us with a strong liquidity position. We believe we have taken several important steps during 2019 in solidifying our strong balance sheet and overall liquidity position. Our adjusted debt to capitalization ratio(1) atDecember 31, 2019 was 34%.
(1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure.
39--------------------------------------------------------------------------------
Table of Contents
Analysis of Cash Flows We had unrestricted cash and cash equivalents of$959 million as ofDecember 31, 2019 . This compares to$474 million and$303 million as ofDecember 31, 2018 and 2017, respectively. We held both short and long-term investments in 2019, 2018 and 2017. Our short-term investments totaled$369 million as ofDecember 31, 2019 compared to$413 million and$390 million as ofDecember 31, 2018 and 2017, respectively. Our long-term investments totaled$3 million as ofDecember 31, 2019 compared to$3 million and$2 million as ofDecember 31, 2018 and 2017, respectively. Operating Activities Cash flows provided by operating activities totaled approximately$1.4 billion in 2019, compared to$1.2 billion and$1.4 billion in 2018 and 2017, respectively. There was a$249 million increase in cash flows from operating activities in 2019 compared to 2018 principally driven by an increase in operating margin. The$179 million decrease in cash flows from operations in 2018 compared to 2017 was primarily due to lower earnings principally driven by an increase in aircraft fuel expenses, partially offset by higher operating revenues. We rely primarily on cash flows from operations to provide working capital for current and future operations. Investing Activities During 2019, capital expenditures related to our purchase of flight equipment included$478 million for the purchase of six new Airbus A321neo aircraft and the buyout of one Airbus A320 aircraft lease,$224 million for flight equipment deposits,$249 million for flight equipment work-in-progress, and$48 million for spare part purchases. Other property and equipment capital expenditures included ground equipment purchases and facilities improvements for$158 million . Investing activities also included the net purchase of$40 million in investment securities. During 2018, capital expenditures related to our purchase of flight equipment included$519 million for the purchase of 10 new Airbus A321 aircraft and the buyout of two aircraft leases,$206 million for flight equipment deposits,$163 million for flight equipment work-in-progress, and$130 million for spare part purchases. Other property and equipment capital expenditures included ground equipment purchases and facilities improvements for$97 million . Investing activities also included the net purchase of$28 million in investment securities. During 2017, capital expenditures related to our purchase of flight equipment included$759 million for the purchase of 16 new Airbus A321 aircraft, and the buyout of three aircraft leases,$128 million for flight equipment deposits,$156 million for flight equipment work-in-progress, and$61 million for spare part purchases. Other property and equipment capital expenditures included ground equipment purchases and facilities improvements for$98 million . Investing activities also included the net purchase of$236 million in investment securities. We currently anticipate 2020 capital expenditures to be between$1.35 billion and$1.55 billion . Financing Activities Financing activities during 2019 consisted of the net issuance of$981 million of debt,$764 million of which relates to the offering of our Enhanced Equipment Trust Certificates, Series 2019-1 ("2019-1 EETC") in November, partially offset by the scheduled repayment of$323 million in debt and finance lease obligations. In addition, we acquired$542 million in treasury shares of which$535 million related to our accelerated share repurchases during 2019. During this period, we received$51 million in proceeds from the issuance of stock related to employee share-based compensation. Financing activities during 2018 consisted of the net issuance of$687 million of debt partially offset by the scheduled repayment of$222 million relating to debt and finance lease obligations. In addition, we acquired$382 million in treasury shares of which$375 million related to our accelerated share repurchases during 2018. During this period, we received$48 million in proceeds from the issuance of stock related to employee share-based compensation. Financing activities during 2017 consisted of the scheduled repayment of$194 million relating to debt and finance lease obligations. In addition, we acquired$390 million in treasury shares of which$380 million related to our accelerated share repurchases during 2017. During this period, we received$48 million in proceeds from the issuance of stock related to employee share-based compensation. In the future we may issue, in one or more offerings, debt securities, pass-through certificates, common stock, preferred stock, and/or other securities. InMarch 2019 , we filed an automatic shelf registration statement with theSEC . Under this shelf registration statement, we may offer and sell from time to time common stock, preferred stock, debt securities, depositary shares, warrants, stock purchase contracts, stock purchase units, subscription rights, and pass-through certificates. We may utilize this shelf registration statement, or a replacement filed with theSEC , in the future to raise capital to fund the continued development of our products
(1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure.
40--------------------------------------------------------------------------------
Table of Contents
and services, the commercialization of our products and services, to repay indebtedness, or for other general corporate purposes. None of our lenders or lessors are affiliated with us. Capital Resources We have been able to generate sufficient funds from operations to meet our working capital requirements and we have historically paid cash or financed our aircraft through either secured debt or lease financing. Approximately 50% of our property and equipment is pledged as security under various loan arrangements. We believe our current level of unrestricted cash, cash equivalents, and short-term investments, combined with our available lines of credit and portfolio of unencumbered assets provide us with a strong liquidity position. Dependent on market conditions, we anticipate using a mix of cash and debt financing for our expected aircraft deliveries in 2020. 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. Although we believe debt and/or lease financing should be available to us if needed, we cannot give assurances we will be able to secure financing on terms attractive to us, if at all. Working Capital We had a working capital deficit of$877 million as ofDecember 31, 2019 compared to a deficit of$1.1 billion as ofDecember 31, 2018 . Working capital deficits can be customary in the airline industry since air traffic liability is classified as a current liability. In 2012, we entered into 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 borrowing amount may vary accordingly. This line of credit bears interest at a floating rate based upon the London Interbank Offered Rate, or LIBOR, plus a margin. We did not borrow under this facility in 2019 or 2018 and the line was undrawn as ofDecember 31, 2019 . InAugust 2019 , we amended and restated our revolving Credit and Guaranty Agreement withCitibank N.A . as the administrative agent. The amendment increased our borrowing capacity by$125 million to$550 million and extended the term of the facility throughAugust 2023 . Borrowings under the Credit and Guaranty Agreement bear interest at a variable rate equal to LIBOR, plus a margin. The Amended and Restated Facility is secured by Slots at JFK, LaGuardia, and Reagan National, and 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 customary 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. During 2019 and 2018, we did not borrow on this facility and the line was undrawn as ofDecember 31, 2019 . 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, as they 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 we are operating in or from events beyond our control, such as volatile fuel prices, economic conditions, weather-related disruptions, the spread of infectious diseases, the impact of airline bankruptcies, restructurings or consolidations,U.S. military actions, or acts of terrorism. We believe there is sufficient liquidity available to us to meet our cash requirements for at least the next 12 months. Debt and Finance Leases 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 versus 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 of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure.
41--------------------------------------------------------------------------------
Table of Contents
CONTRACTUAL OBLIGATIONS Our contractual obligations atDecember 31, 2019 include the following (in billions): Payments due in Total 2020 2021 2022 2023 2024 Thereafter
Debt and finance lease obligations(1)$ 2.7 $ 0.4 $ 0.4 $ 0.4 $ 0.3 $ 0.2 $ 1.0 Operating lease obligations 1.1 0.1 0.1 0.1 0.1 0.1 0.6 Flight equipment purchase obligations(2) 7.8 1.1 1.5 1.3 1.7 1.6 0.6 Other obligations(3) 2.6 0.3 0.3 0.3 0.3 0.4 1.0 Total$ 14.2 $ 1.9 $ 2.3 $ 2.1 $ 2.4 $ 2.3 $ 3.2 (1) Includes actual interest and estimated interest for floating-rate debt based onDecember 31, 2019 rates. (2) Amounts represent obligations based on the current delivery schedule set
forth in our Airbus order book as of
delays, we only took delivery of six A321neo aircraft in 2019 with the
remaining seven to be delivered beyond their contractual delivery year. The
committed expenditures for these seven backlogged A321neo aircraft are not
included in the amounts above due to uncertainties in the timing of these
deliveries.
(3) Amounts include noncancelable commitments for the purchase of goods and
services.
The interest rates are fixed for$2.2 billion of our debt and finance lease obligations, with the remaining$0.2 billion having floating interest rates. The floating interest rates adjust either quarterly or semi-annually based on LIBOR. The weighted average maturity of all of our debt was eight years as ofDecember 31, 2019 . As ofDecember 31, 2019 , we believe we were in compliance with the covenants of our debt and lease agreements and approximately 50% of our owned property and equipment were pledged as security under various loan agreements. As ofDecember 31, 2019 , we had operating lease obligations for 41 aircraft with lease terms that expire between 2020 and 2026. Our aircraft lease agreements contain termination provisions which include standard maintenance and return conditions. Our policy is to record these lease return conditions when they are probable and the costs can be estimated. We also lease airport terminal space and other airport facilities in each of our markets, as well as office space and other equipment. We have approximately$26 million of restricted assets pledged under standby letters of credit related to certain of our leases which will expire at the end of the related leases. As ofDecember 31, 2019 , the average age of our operating fleet was 10.6 years. Our firm aircraft order book as ofDecember 31, 2019 was as follows: Year Airbus A321neo Airbus A220 Total 2019 7 - 7 2020 14 1 15 2021 17 6 23 2022 15 8 23 2023 14 19 33 2024 12 22 34 2025 - 12 12 2026 - 2 2 Total 79 70 149 The table above represents the current delivery schedule set forth in our Airbus order book as ofDecember 31, 2019 . InOctober 2018 andMay 2019 , we received notice from Airbus of anticipated delivery delays of the A321neo aircraft. Due to these delays, we only took delivery of six A321neo aircraft in 2019 with the remaining seven to be delivered beyond their contractual delivery year. We expect to take delivery of a maximum of 11 A321neo aircraft in 2020.
(1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure.
42--------------------------------------------------------------------------------
Table of Contents
Committed expenditures for our firm 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 generally 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. Our Terminal at JFK, T5, is governed by a lease agreement we entered into with the PANYNJ in 2005. We are responsible for making various payments under the lease. This includes ground rents for the terminal site which began at the time of the lease execution in 2005 and facility rents commenced inOctober 2008 upon our occupancy of T5. The facility rents are based on the number of passengers enplaned out of the terminal, subject to annual minimums. The PANYNJ reimbursed us for construction costs of this project in accordance with the terms of the lease, except for approximately$76 million in leasehold improvements provided by us. In 2013, we amended this lease to include additional ground space for our international arrivals facility, T5i, which we opened inNovember 2014 . Minimum ground and facility rents at JFK totaling$788 million are included in the commitments table above as operating lease obligations. We enter into individual employment agreements with each of our non-unionizedFAA -licensed crewmembers, inspectors, and air traffic controllers. Each employment agreement is for a term of five years and automatically renews for an additional five-year term unless the crewmember is terminated for cause or the crewmember elects not to renew it. Pursuant to these agreements, these crewmembers can only be terminated for cause. In the event of a downturn in our business requiring a reduction in flying and related work hours, we are obligated to pay these crewmembers a guaranteed level of income and to continue their benefits. As we are not currently obligated to pay this guaranteed income and benefits, no amounts related to these guarantees are included in the contractual obligations table above. OFF-BALANCE SHEET ARRANGEMENTS 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. The 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 are not obligated to provide 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. Each trust maintains a liquidity facility 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 consolidated balance sheets, 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. See Notes 3, 4, and 12 to our consolidated financial statements for a more detailed discussion of our variable interests and other contingencies, including guarantees and indemnities. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of our consolidated financial statements in conformity with generally accepted accounting principles inthe United States , or GAAP, requires management to adopt accounting policies as well as make estimates and judgments to develop amounts reported in our financial statements and accompanying notes. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the estimates that are required to prepare our financial statements. We believe our estimates and judgments are reasonable; however, actual results and the timing of recognition of such amounts could differ from those estimates. In addition, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information. Critical accounting policies and estimates are defined as those that are reflective of significant judgments and uncertainties that could potentially result in materially different results under different assumptions and conditions. The policies and estimates discussed below have been reviewed with our independent registered public accounting firm and with the Audit Committee of our Board of Directors. For a discussion of these and other significant accounting policies, see Note 1 to our consolidated financial statements.
(1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure.
43--------------------------------------------------------------------------------
Table of Contents
Passenger Revenue Ticket sales and the fees collected for related ancillary services are initially deferred in air traffic liability. Air traffic liability represents tickets sold but not yet flown, credits which can be used for future travel, and a portion of the liability related to our TrueBlue® loyalty program. We allocate the transaction price to each performance obligation identified in a passenger ticket on a relative standalone basis. Passenger revenue, including certain ancillary fees directly related to passenger tickets, is recognized when the transportation is provided. Taxes that we are required to collect from our customers, including foreign andU.S. federal transportation taxes, security taxes, and airport facility charges, are excluded from passenger revenue. Those taxes and fees are recorded as a liability upon collection and are relieved from the liability upon remittance to the applicable governmental agency. The majority of the tickets we sell are non-refundable. Non-refundable fares may be canceled prior to the scheduled departure date for a credit for future travel. Refundable fares may be canceled at any time prior to the scheduled departure date. Failure to cancel a refundable fare prior to departure will result in the cancellation of the original ticket and an issuance of a credit for future travel. Passenger credits can be used for future travel up to a year from the date of issuance. Passenger breakage revenue from unused tickets and passenger credits will be recognized in proportion to flown revenue based on estimates of expected expiration when the likelihood of the customer exercising his or her remaining rights becomes remote. Breakage revenue consists of non-refundable tickets that remain unused past the departure date, have continued validity, and are expected to ultimately expire unused, as well as passenger credits that are not expected to be redeemed prior to expiration.JetBlue uses estimates based on historical experience of expired tickets and credits and considers other factors that could impact future expiration patterns of tickets and credits. Tickets which do not have continued validity past the departure date are recognized as revenue after the scheduled departure date has lapsed. Passenger ticket costs primarily include credit card fees, commissions paid, and global distribution systems booking fees. Costs are allocated entirely to the purchased travel services and are capitalized until recognized when travel services are provided to the customer. Loyalty Program Customers may earn points under our customer loyalty program, TrueBlue®, based on the fare paid and fare product purchased for a flight. Customers can also earn points through business partners such as credit card companies, hotels, car rental companies, and our participating airline partners. Points Earned From a Ticket Purchase. When a TrueBlue® member travels, we recognize a portion of the fare as revenue and defer in air traffic liabilities the portion that represents the value of the points net of spoilage, or breakage. We allocate the transaction price to each performance obligation on a relative standalone basis. We determine the standalone selling price of TrueBlue® points issued using the redemption value approach. To maximize the use of observable inputs, we utilize the actual ticket value of the tickets purchased with TrueBlue® points. The liability is relieved and passenger revenue is recognized when the points are redeemed and the free travel is provided. Points Sold to TrueBlue® Partners. Our most significant contract to sell TrueBlue® points is with our co-branded credit card partner. 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 considers 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 ofJetBlue's frequent flyer customer lists; and estimated utilization of other airline benefits. Payments are typically due monthly based on the volume of points sold during the period, and the terms of our marketing contracts are generally from one to seven years. 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 the performance obligation related to those services are satisfied, which is generally the same period as when consideration is received from the participating company. Amounts allocated to the air transportation element which are initially deferred include a portion that are expected to be redeemed during the following twelve months (classified as a component of Air traffic liability), and a portion that are not expected to be redeemed during the following twelve months (classified as Air traffic liability - loyalty non-current). We periodically update this analysis and adjust the split between current and non-current liabilities as appropriate. Points earned by TrueBlue® members never expire. TrueBlue® members can pool points between small groups of people, branded as Points Pooling™. Breakage is estimated using historical redemption patterns to determine a breakage rate. Breakage rates used to estimate breakage revenue are evaluated annually. Changes to breakage estimates impact revenue recognition prospectively.
(1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure.
44--------------------------------------------------------------------------------
Table of Contents
Accounting for Long-Lived Assets In accounting for long-lived assets, we make estimates about the expected useful lives, projected residual values, and the potential for impairment. In estimating useful lives and residual values of our aircraft, we have relied upon actual industry experience with the same or similar aircraft types and our anticipated utilization of the aircraft. Changing market prices of new and used aircraft, government regulations, and changes in our maintenance program or operations could result in changes to these estimates. Our long-lived assets are evaluated for impairment when events and circumstances indicate the assets may be impaired. Indicators include operating or cash flow losses, significant decreases in market value, or changes in technology. To determine whether impairment exists for aircraft used in operations, we group assets at the fleet-type level (the lowest level for which there are identifiable cash flows) and then estimate future cash flows based on projections of capacity, passenger yield, fuel costs, labor costs, and other relevant factors. If an impairment occurs, the impairment loss recognized is the amount by which the fleet's carrying amount exceeds its estimated fair value. We estimate aircraft fair value using published sources, appraisals, and bids received from third parties, as available. In 2018, we recorded an impairment charge of flight equipment and other property and equipment related to the Embraer E190 fleet transition. Refer to Note 18 to our consolidated financial statements for details. Lease Accounting We operate airport facilities, office buildings, and aircraft under operating leases with minimum lease payments. We recognize the costs associated with these agreements as rent expense on a straight-line basis over the expected lease term. Within the provisions of certain leases, there are minimum escalations in payments over the base lease term. There are also periodic adjustments of lease rates, landing fees, and other charges applicable under such agreements, as well as renewal periods. The effects of the escalations and other adjustments have been reflected in rent expense on a straight-line basis over the lease term. This includes renewal periods when it is deemed to be reasonably assured at the inception of the lease that we would incur an economic penalty for not renewing. The amortization period for leasehold improvements is the term used in calculating straight-line rent expense or their estimated economic life, whichever is shorter. Derivative Instruments used for Aircraft Fuel We utilize financial derivative instruments to manage the risk of changing aircraft fuel prices. We do not purchase or hold any derivative instrument for trading purposes. Fair values are determined using commodity prices provided to us by independent third parties. When possible, we designate these instruments as cash flow hedges for accounting purposes, as defined by the Derivatives and Hedging topic of the Codification which permits the deferral of the effective portions of gains or losses until contract settlement. The Derivatives and Hedging topic is a complex accounting standard. It requires us to develop and maintain a significant amount of documentation related to: (1) our fuel hedging program and fuel management approach, (2) statistical analysis supporting a highly correlated relationship between the underlying commodity in the derivative financial instrument and the risk being hedged, i.e. aircraft fuel, on both a historical and prospective basis, and (3) cash flow designation for each hedging transaction executed, to be developed concurrently with the hedging transaction. This documentation requires us to estimate forward aircraft fuel prices since there is no reliable forward market for aircraft fuel. These prices are developed through the observation of similar commodity futures prices, such as crude oil and/or heating oil, and adjusted based on variations to those like commodities. Historically, our hedges have settled within 24 months; therefore, the deferred gains and losses have been recognized into earnings over a relatively short period of time.
(1) Refer to our ''Regulation G Reconciliation of Non-GAAP Financial Measures" at the end of this section for more information on this non-GAAP measure.
45--------------------------------------------------------------------------------
Table of Contents
REGULATION G RECONCILIATION OF NON-GAAP FINANCIAL MEASURES We sometimes use non-GAAP financial measures in this report. Non-GAAP financial measures are financial measures that are derived from the consolidated financial statements, but that are not presented in accordance with generally accepted accounting principles inthe United States , or GAAP. We believe these non-GAAP financial 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. The information below provides an explanation of each non-GAAP financial measure and shows a reconciliation of non-GAAP financial measures used in this filing to the most directly comparable GAAP financial measures. Operating Expense per Available Seat Mile, excluding fuel and related taxes, other non-airline operating expenses, and special items ("CASM Ex-Fuel") Operating expenses per available seat mile, or CASM, is a common metric used in the airline industry. We exclude aircraft fuel and related taxes, operating expenses related to other non-airline businesses, such as our subsidiaries,JetBlue Technology Ventures and JetBlue Travel Products, and special items from operating expenses to determine CASM ex-fuel, which is a non-GAAP financial measure. During the periods presented below, special items include one-time costs related to the Embraer E190 fleet transition as well as one-time costs related to the ratification and implementation of our pilots' collective bargaining agreement. We believe that CASM ex-fuel is useful for investors because it 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, 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. NON-GAAP FINANCIAL MEASURE RECONCILIATION OF OPERATING EXPENSE PER ASM, EXCLUDING FUEL (in millions; 2019 2018 2017 2016(1) 2015(1) per ASM data in cents) $ per ASM $ per ASM $ per ASM $ per ASM $ per ASM Total operating expenses$ 7,294 11.43$ 7,392 12.34$ 6,039 10.78$ 5,324 9.93$ 5,200 10.56 Less: Aircraft fuel and related taxes 1,847 2.89 1,899 3.17 1,363 2.43 1,074 2.00 1,348 2.74 Other non-airline expenses(2) 46 0.08 44 0.07 35 0.06 26 0.05 - - Special items 14 0.02 435 0.73 - - - - - - Operating expenses, excluding fuel$ 5,387 8.44$ 5,014 8.37$ 4,641 8.29$ 4,224 7.88$ 3,852 7.82 (1) Amounts prior to 2017 do not reflect the impact of the adoption of ASU 2016-02, Leases (Topic 842) of the Codification, adopted as ofJanuary 1, 2019 . Refer to Note 1 to our consolidated financial statements for details. (2) Other non-airline expenses for 2016 includes operating expenses related toJetBlue Technology Ventures only. With respect toJetBlue's CASM Ex-Fuel guidance, we are not able to provide a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP financial measure because the excluded items have not yet occurred and cannot be reasonably predicted. The reconciling information that is unavailable would include a forward-looking range of financial performance measures beyond our control, such as fuel costs, which are subject to many economic and political factors. Reconciliation of Operating Expense, Income before Taxes, Net Income and Earnings per Share, excluding special items, gain on equity method investments, and impact of tax reform Our GAAP results in the applicable periods were impacted by the following: (a) the 2017 tax reform, (b) gain on equity method investments, and (c) charges that are deemed special items. We believe the impact of these items make our results difficult to compare to prior periods as well as future periods and guidance, and, as a result, we exclude these items from the calculation of adjusted operating expense, adjusted income before taxes, adjusted net income, and adjusted earnings per share, which are non-GAAP financial measures. During the periods presented below, special items include one-time costs related to the Embraer E190 fleet transition, as well as one-time costs related to the implementation of our pilots' collective bargaining agreement. We believe the impacts of these items distort our overall trends and that our metrics and results are more comparable with the presentation of our results excluding the impact of these items and therefore is more useful for investors. 46
--------------------------------------------------------------------------------
Table of Contents
The table below provides a reconciliation of our GAAP reported amounts to the non-GAAP amounts excluding the impacts of these items.
NON-GAAP FINANCIAL MEASURE
RECONCILIATION OF OPERATING EXPENSE, INCOME BEFORE TAXES, NET INCOME AND EARNINGS PER SHARE
EXCLUDING SPECIAL ITEMS, GAIN ON EQUITY METHOD INVESTMENTS, AND IMPACT OF TAX REFORM
Year Ended December 31,
(in millions except per share amounts) 2019 2018 2017
Total operating revenues $ 8,094 $ 7,658 $ 7,012
Total operating expenses $ 7,294 $ 7,392 $ 6,039
Less: Special items 14 435 -
Total operating expenses excluding special
items $ 7,280 $ 6,957 $ 6,039
Operating income $ 800 $ 266 $ 973
Add back: Special items 14 435 -
Operating income excluding special items
Operating margin excluding special items 10.1 % 9.2 % 13.9 % Income before income taxes$ 768 $ 219 $ 918 Add back: Special items 14 435 - Less: Gain on equity method investments 15 - -
Income before income taxes excluding special
items and gain on equity method investments
Pre-tax margin excluding special items 9.5 %
8.5 % 13.1 %
Income before income taxes excluding special items and gain on equity method investments$ 767 $ 654 $ 918 Less: Income tax expense (benefit) 199 30 (222 ) Less: Income tax benefit related to special items 4 108 - Less: Income tax (expense) related to gain on equity method investments (4 ) - - Less: Income tax benefit related to tax reform - 28 564 Net Income excluding special items, gain on equity method investments, and tax reform impact$ 568 $
488
Earnings Per Common Share: Basic$ 1.92 $ 0.60 $ 3.47 Add back: Special items, net of tax 0.04 1.05 - Less: Gain on equity method investments, net of tax 0.04 - - Less: Tax reform impact - 0.09 1.72
Basic excluding special items, gain on equity
method investments, and tax reform impact
Diluted$ 1.91 $ 0.60 $ 3.45 Add back: Special items, net of tax 0.03 1.04 - Less: Gain on equity method investments, net of tax 0.04 - - Less: Tax reform impact - 0.09 1.71 Diluted excluding special items, gain on equity method investments, and tax reform impact$ 1.90 $ 1.55 $ 1.74 47
--------------------------------------------------------------------------------
Table of Contents
Return onInvested Capital Return on invested capital, or ROIC, is an important financial metric which we believe provides meaningful information as to how well we generate returns relative to the capital invested in our business. Our ROIC in 2019 was 9.5% compared to 8.6% in 2018, primarily due to an increase in adjusted operating income driven by cost savings realized from the execution of our Structural Cost Program and lower fuel prices. We are committed to taking appropriate actions which will allow us to produce returns greater than our cost of capital while adding capacity and continuing to grow. We believe this non-GAAP financial measure provides a meaningful comparison of our results to the rest of the airline industry and our prior year results. Investors should consider this non-GAAP financial measure in addition to, and not as a substitute for, our financial performance measures prepared in accordance with GAAP. NON-GAAP FINANCIAL MEASURE RECONCILIATION OF RETURN ON INVESTED CAPITAL (in millions) Twelve Months Ended December 31, 2019 2018 Operating Income $ 800 $ 266 Add: Interest income 19 11 Add: Interest component of aircraft lease commitments (1) 17 22 Add: Special items (2) 14 435 Subtotal 850 734 Less: Income tax expense impact 219 186 Operating Income After Tax, Adjusted $ 631 $ 548 Average stockholders' equity $ 4,710 $ 4,660 Average total debt 1,735 1,389 Average aircraft lease commitments 229 287 Invested Capital $ 6,674 $ 6,336 Return on Invested Capital 9.5 % 8.6 %
(1) Interest component of aircraft lease commitments Average aircraft lease commitments
$ 229 $ 287
Interest component of aircraft lease commitments
(Imputed interest at 7.5%) 17 22
(2) During the periods presented above, special items include one-time costs
related to the Embraer E190 fleet transition as well as one-time costs related
to the ratification and implementation of our pilots' collective bargaining
agreement.
48--------------------------------------------------------------------------------
Table of Contents
Free Cash Flow
The table below reconciles cash provided by operations determined in accordance
with GAAP to Free Cash Flow, a non-GAAP financial measure. We believes that Free
Cash Flow is a relevant metric in measuring our financial strength and is useful
in assessing our ability to fund future capital commitments and other
obligations. Investors should consider this non-GAAP financial measure in
addition to, and not as a substitute for, our financial measures prepared in
accordance with GAAP.
NON-GAAP FINANCIAL MEASURE
RECONCILIATION OF FREE CASH FLOW
(in millions) Year Ended December 31,
2019 2018 2017 2016(1) 2015(1)(2)
Net cash provided by operating
activities $ 1,449 $ 1,200 $ 1,379 $ 1,632 $ 1,598
Less: Capital expenditures (932 ) (908 ) (1,074 ) (850 ) (837 )
Less: Predelivery deposits for
flight equipment (224 ) (206 ) (128 ) (161 ) (104 )
Free Cash Flow $ 293 $ 86 $ 177 $ 621 $ 657
(1) Amounts prior to 2017 do not reflect the impact of the adoption of ASU
2016-02, Leases (Topic 842) of the Codification, adopted as of January 1, 2019 .
Refer to Note 1 to our consolidated financial statements for details.
(2) Amounts in 2015 do not reflect the impact of the adoption of ASU 2014-09,
Revenue from Contracts with Customers (Topic 606) of the Codification, adopted
as of January 1, 2018 .
Adjusted Debt to Capitalization Ratio
Adjusted debt to capitalization ratio is a non-GAAP financial measure which we
believe is relevant in assessing the Company's overall debt profile. Adjusted
debt includes aircraft operating lease liabilities, in addition to total debt
and finance lease obligations. Adjusted capitalization represents total equity
plus adjusted debt. Investors should consider this non-GAAP financial measure in
addition to, and not as a substitute for, our financial measures prepared in
accordance with GAAP.
NON-GAAP FINANCIAL MEASURE
ADJUSTED DEBT TO CAPITALIZATION RATIO
(in millions) December 31,
2019 2018
Long-term debt and finance lease obligations $ 1,990 $ 1,361
Current maturities of long-term debt and finance lease obligations
344 309
Operating lease liabilities - aircraft 183
256
Adjusted debt$ 2,517 $
1,926
Long-term debt and finance lease obligations$ 1,990 $
1,361
Current maturities of long-term debt and finance lease obligations
344 309
Operating lease liabilities - aircraft 183 256 Stockholders' equity 4,799 4,685 Adjusted capitalization$ 7,316 $ 6,611 Adjusted debt to capitalization ratio 34 % 29 % 49
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
