JetBlue Airlines 2005 Annual Report Download - page 24

ITEM 1A. RISK FACTORS
Risks Related to JetBlue
We operate in an extremely competitive industry.
The domestic airline industry is characterized by low profit margins, high fixed costs and
significant price competition. We currently compete with other airlines on all of our routes and, in the
future, may face greater competition on our existing as well as our new routes. Many of our
competitors are larger and have greater financial resources and name recognition than we do.
Following our entry into new markets or expansion of existing markets, some of our competitors have
chosen to add service or engage in extensive price competition. Unanticipated shortfalls in expected
revenues as a result of price competition or in the number of passengers carried would negatively
impact our financial results and harm our business. As we continue to grow, the extremely competitive
nature of the airline industry could prevent us from attaining the level of passenger traffic or
maintaining the level of fares required to maintain profitable operations in new and existing markets
and could impede our growth strategy, which would harm our business.
Continued high fuel costs or a fuel supply shortage would harm our business.
Fuel costs, which have been at unprecedented high levels, comprise a substantial portion of our
total operating expenses and, in 2005, became our single largest operating expense. Our average fuel
price increased 52.0%in 2005, which has adversely affected our operating results. Historically, fuel
costs have been subject to wide price fluctuations based on geopolitical issues and supply and demand.
The availability of fuel is dependent on oil refining capacity. When even a small amount of the
domestic or global oil refining capacity becomes unavailable, as was experienced during the 2005
hurricane season, supply shortages can result for extended periods of time. Availability is also affected
by demand for home heating oil, gasoline and other petroleum products. Because of the effect of
these factors on the price and availability of fuel, the cost and future availability of fuel cannot be
predicted with any degree of certainty.
Our aircraft fuel purchase agreements do not protect us against price increases or guarantee the
availability of fuel. Additionally, some of our competitors may have more leverage than we do in
obtaining fuel. To partially protect against significant increases in fuel prices, we utilize a fuel hedging
program under which we enter into crude oil and heating oil option contracts and swap agreements;
however, our fuel hedging program does not completely protect us against price increases and is
limited in fuel volume and duration.
Due to the competitive nature of the domestic airline industry, we have not been able to increase
our fares substantially, and in some markets not at all, when fuel prices have risen and we may not be
able to do so in the future. Continued high fuel costs or further price increases or fuel supply
shortages may result in a curtailment of scheduled services and would harm our financial condition
and results of operations.
If we fail to successfully implement our growth strategy, our business could be harmed.
Our growth strategy involves increasing the frequency of flights to markets we currently serve,
expanding the number of markets served and increasing flight connection opportunities. Achieving our
growth strategy is critical in order for our business to achieve economies of scale and to sustain or
increase our profitability. Increasing the number of markets we serve depends on our ability to access
suitable airports located in our targeted geographic markets in a manner that is consistent with our
cost strategy. We will also need to obtain additional gates at some of our existing destinations. Any
condition that would deny, limit or delay our access to airports we seek to serve in the future will
constrain our ability to grow. Opening new markets requires us to commit a substantial amount of
resources, even before the new services commence. Expansion is also dependent upon our ability to
maintain a safe and secure operation and will require additional personnel, equipment and facilities.
An inability to hire and retain personnel, timely secure the required equipment and facilities in a
cost-effective manner, efficiently operate our expanded facilities, or obtain the necessary regulatory
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