JetBlue Airlines 2006 Annual Report Download - page 42

Aircraft fuel expense increased 54%, or $264 million, due to 74 million more gallons of aircraft
fuel consumed resulting in $119 million of additional fuel expense and a 24%increase in average fuel
cost per gallon, or $145 million. Aircraft fuel prices remained at or near historically high levels in
2006, with our average fuel price per gallon at $1.99 compared to $1.61 for the year ended
December 31, 2005. Our fuel costs represented 34%and 30%of our operating expenses in 2006 and
2005, respectively. Our fuel consumption per block hour decreased 5%due to utilization of the lighter
EMBRAER 190 aircraft and various fuel conservation initiatives. Based on our expected fuel volume
for 2007, a $.10 per gallon increase in the cost of aircraft fuel would increase our annual fuel expense
by approximately $45 million. Cost per available seat mile increased 28%primarily due to the increase
in average fuel cost per gallon.
Landing fees and other rents increased 41%, or $46 million, due to a 42%increase in departures
over 2005 and increased airport rents associated with opening 16 new cities in 2006. Cost per available
seat mile increased 17%due to ground rents associated with our new terminal under construction at
JFK.
Depreciation and amortization increased 32%, or $36 million, primarily due to having an average
of 67 owned and capital leased aircraft in 2006 compared to 52 in 2005 and the associated
depreciation of our seven-gate temporary facility at JFK, which was placed into service in June 2006.
Cost per available seat mile increased 9%primarily due to our temporary facility at JFK, partially
offset by a lower percentage of our fleet being owned or under capital lease.
Aircraft rent increased 39%, or $29 million, due to 16 new EMBRAER 190 aircraft leases. Cost
per available seat mile increased 15%due to a higher percentage of our fleet being leased.
Sales and marketing expense increased 27%, or $23 million, primarily due to $16 million in higher
credit card fees resulting from increased passenger revenues and $6 million in increased advertising
expenses. On a cost per available seat mile basis, sales and marketing expense increased 5%primarily
due to higher credit card fees resulting from higher average fares. We book the majority of our
reservations through a combination of our website and our agents (79%and 19%in 2006,
respectively).
Maintenance materials and repairs increased 36%, or $23 million, due to 29 more average
operating aircraft in 2006 compared to 2005 and a gradual aging of our fleet. Cost per available seat
mile increased 13%year-over-year due primarily to operating under airframe parts maintenance
third-party contracts in 2006, one-time warranty coverage on our engines in 2005 and outsourced line
maintenance for the 16 new cities we opened in 2006. Maintenance costs are expected to increase
significantly as our fleet ages.
Other operating expenses increased 13%, or $37 million, due to higher variable costs associated
with increased capacity and number of passengers served. Cost per available seat mile decreased
7%due primarily to $12 million in gains related to the sale of five Airbus A320 aircraft in 2006 and
the write-off of $6 million in development costs related to a maintenance and inventory tracking
system in 2005.
Other Income (Expense). Interest expense increased 62%primarily due to having 12 additional
debt or capital lease financed aircraft, financing related to new maintenance and training facilities,
financing of previously unsecured property and interest on our 3
3
⁄ 4 %convertible debentures, resulting
in $40 million of additional interest expense, and higher interest rates, which resulted in $19 million of
additional interest expense. Interest expense also includes $7 million related to our construction
obligation for our new terminal at JFK and represented the majority of the $11 million increase in
capitalized interest, with the remainder attributable to higher interest rates.
Interest income and other increased 44%, or $9 million, primarily due to higher interest rates and
higher average cash and investment balances in 2006, offset by fuel hedge losses of $5 million. We are
unable to predict the amount of accounting ineffectiveness related to our crude and heating oil
derivative instruments each period, or the potential loss of hedge accounting, which is determined on
a derivative-by-derivative basis, due to the volatility in the market for these commodities.
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