JetBlue Airlines 2003 Annual Report Download - page 52

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The risk inherent in our market risk sensitive instruments and positions is the potential loss arising
from adverse changes to the price of fuel and interest rates as discussed below. The sensitivity analyses
presented do not consider the effects that such adverse changes may have on the overall economic
activity, nor do they consider additional actions we may take to mitigate our exposure to such changes.
Variable-rate leases are not considered market sensitive financial instruments and, therefore, are not
included in the interest rate sensitivity analysis below. Actual results may differ. See Notes 1, 2 and 13
to our consolidated financial statements for accounting policies and additional information.
Aircraft fuel. Our results of operations are affected by changes in the price and availability of
aircraft fuel. To manage the price risk, we use crude oil option contracts and swap agreements. Market
risk is estimated as a hypothetical 10% increase in the December 31, 2003 cost per gallon of fuel,
including the effects of our fuel hedges. Based on projected 2004 fuel consumption, such an increase
would result in an increase to aircraft fuel expense of approximately $14 million in 2004, compared to
an estimated $7 million for 2003 measured as of December 31, 2002. As of December 31, 2003, we had
hedged approximately 40% of our projected 2004 fuel requirements. All existing hedge contracts settle
by the end of 2004.
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. At December 31, 2003, all of our debt, other than our
31⁄2% convertible notes, had floating interest rates. If interest rates average 10% higher in 2004 than
they did during 2003, our interest expense would increase by approximately $1.2 million, compared to
an estimated $1.3 million for 2003 measured as of December 31, 2002. If interest rates average 10%
lower in 2004 than they did during 2003, our interest income from cash and investment balances would
decrease by approximately $0.5 million, compared to $0.5 million for 2003 measured as of
December 31, 2002. These amounts are determined by considering the impact of the hypothetical
interest rates on our variable-rate debt, cash equivalent and short-term investment balances at
December 31, 2003 and 2002.
Fixed Rate Debt. On December 31, 2003, our $175 million 31⁄2% convertible notes due in 2033
had an estimated fair value of $184.4 million, based on quoted market prices. If interest rates were
10% higher than the stated rate, the fair value of this debt would have been $164.2 million as of
December 31, 2003.
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