JetBlue Announces Third Quarter Results

JetBlue Airways Corporation (NASDAQ: JBLU) today reported its results for the third quarter 2011:

Operating income for the quarter was $108 million, resulting in a 9.0% operating margin, compared to operating income of $140 million and a 13.6% operating margin in the third quarter of 2010.

Pre-tax income of $56 million in the third quarter, which includes a one-time loss related to the early extinguishment of portions of JetBlue’s convertible debt. Excluding this one-time item, JetBlue’s pre-tax income for the quarter was $61 million. This compares to pre-tax income of $97 million in the third quarter of 2010.

Net income for the third quarter was $35 million, or $0.11 per diluted share. Excluding the one-time item, JetBlue reported net income of $38 million, or $0.12 per diluted share. This compares to JetBlue’s third quarter 2010 net income of $59 million, or $0.18 per diluted share.

“We are pleased to report another profitable quarter, particularly in light of a $162 million year over year increase in fuel expense,” said Dave Barger, JetBlue’s President and Chief Executive Officer. “Despite challenging economic conditions and severe weather, we generated record revenues while reducing non-fuel unit costs. These results demonstrate that our business plan is working and are a testament to the outstanding efforts of our crewmembers.”

Operational Performance

JetBlue’s third quarter operations were negatively impacted by Hurricane Irene, which resulted in approximately 1,400 flight cancellations and reduced JetBlue’s third quarter operating income by approximately $8 million.

JetBlue reported record third quarter operating revenues of $1.2 billion, an increase of 16.0% versus last year. Revenue passenger miles for the third quarter increased 8.2% to 8.33 billion on a capacity increase of 8.3%, resulting in a third quarter load factor of 84.5%, a decrease of 0.1 points year over year.

Yield per passenger mile in the third quarter was 13.04 cents, up 7.7% compared to the third quarter of 2010. Passenger revenue per available seat mile (PRASM) for the third quarter 2011 increased 7.7% year over year to 11.03 cents and operating revenue per available seat mile (RASM) increased 7.1% year over year to 12.12 cents.

“Our focus on improving revenue performance during shoulder periods by, among other actions, better accommodating business traffic in Boston drove solid unit revenue growth during the third quarter,” said Robin Hayes, JetBlue’s Chief Commercial Officer.

Operating expenses for the quarter increased 22.1%, or $197 million, over the prior year period driven primarily by $162 million in additional fuel expense. JetBlue’s operating expense per available seat mile (CASM) for the third quarter increased 12.8% year-over-year to 11.03 cents. Excluding fuel, CASM decreased 2.2% to 6.43 cents.

Fuel Expense and Hedging

JetBlue continued to hedge fuel to manage price volatility. Specifically, JetBlue hedged approximately 48% of its fuel consumption during the third quarter, resulting in a realized fuel price of $3.25 per gallon, a 43% increase over third quarter 2010 realized fuel price of $2.26. JetBlue’s fuel expense reflects $4 million in losses on fuel hedges that settled during the third quarter. In addition, JetBlue recorded $3 million in non-cash fuel hedging ineffectiveness losses during the quarter, which is included in non-operating income/expense.

JetBlue has hedged approximately 45% of its fourth quarter projected fuel requirements and 21% of its 2012 projected fuel requirements using a combination of collars, crude call options, and jet fuel swaps. Based on the fuel curve as of October 21, JetBlue expects an average price per gallon of fuel, including the impact of hedges and fuel taxes, of $3.23 in the fourth quarter and $3.19 for the full year 2011.

Balance Sheet Update

JetBlue ended the third quarter with approximately $1.2 billion in unrestricted cash and short term investments. In addition, JetBlue announced it has obtained a new $125 million corporate purchasing line with American Express to be used exclusively for jet fuel purchases.

During the quarter, JetBlue also prepaid approximately $32 million par value of its 6.75% convertible notes putable in 2014. JetBlue recorded a $5 million loss during the third quarter in connection with the extinguishment of this debt. “With our strong cash position, we were able to prepay a portion of our higher-priced debt and lower interest expense, which we believe will be accretive to earnings,” said Mark Powers, JetBlue’s Treasurer and CFO. “In addition, the prepayment of this debt eliminates the potential issuance of 6.6 million shares, which will no longer have a dilutive effect on EPS.”

Fourth Quarter and Full Year Outlook

For the fourth quarter of 2011, CASM is expected to increase between 11 and 13 percent over the year-ago period. Excluding fuel, CASM in the fourth quarter is expected to range from negative one to positive one percent year over year.

CASM for the full year is expected to increase between 13 and 15 percent over full year 2010. Excluding fuel, CASM in 2011 is expected to range from zero to positive two percent year over year.

Capacity is expected to increase between eight and ten percent in the fourth quarter and to increase between six and eight percent for the full year.

JetBlue will conduct a conference call to discuss its quarterly earnings today, October 26, at 10:00 a.m. Eastern Time. A live broadcast of the conference call will be available via the internet at http://investor.jetblue.com.