JetBlue Airlines 2012 Annual Report Download - page 21

JETBLUE AIRWAYS CORPORATION-2012 10K 17
PART I
ITEM1ARisk Factors
Any such loss, disclosure or misappropriation of, or access to, customers’,
employees’ or business partners’ information or other breach of our
information security can result in legal claims or legal proceedings, including
regulatory investigations and actions, may have a negative impact on our
reputation and may materially adversely affect our business, operating
results and fi nancial condition. Furthermore, the loss, disclosure or
misappropriation of our business information may materially adversely
affect our business, operating results and fi nancial condition.
Our liquidity could be adversely impacted in the event one or more of our
credit card processors were to impose material reserve requirements
for payments due to us from credit card transactions.
We currently have agreements with organizations that process credit card
transactions arising from purchases of air travel tickets by our customers.
Credit card processors have fi nancial risk associated with tickets purchased
for travel which can occur several weeks after the purchase. Our credit
card processing agreements provide for reserves to be deposited with the
processor in certain circumstances. We do not currently have reserves
posted for our credit card processors. If circumstances were to occur
requiring us to deposit reserves, the negative impact on our liquidity
could be signifi cant which could materially adversely affect our business.
If we are unable to attract and retain qualifi ed personnel or fail to maintain
our company culture, our business could be harmed.
We compete against the other major U.S. airlines for pilots, mechanics and
other skilled labor; some of them offer wage and benefi t packages exceeding
ours. As more pilots in the industry approach mandatory retirement age, the
U.S. airline industry may be affected by a pilot shortage, to some extent.
We may be required to increase wages and/or benefi ts in order to attract
and retain qualifi ed personnel or risk considerable employee turnover. If
we are unable to hire, train and retain qualifi ed employees, our business
could be harmed and we may be unable to implement our growth plans.
In addition, as we hire more people and grow, we believe it may be increasingly
challenging to continue to hire people who will maintain our company culture.
One of our competitive strengths is our service-oriented company culture
that emphasizes friendly, helpful, team-oriented and customer-focused
employees. Our company culture is important to providing high quality
customer service and having a productive workforce in order to help keep
our costs low. As we continue to grow, we may be unable to identify, hire
or retain enough people who meet the above criteria, including those in
management or other key positions. Our company culture could otherwise
be adversely affected by our growing operations and geographic diversity.
If we fail to maintain the strength of our company culture, our competitive
ability and our business may be harmed.
Our results of operations fl uctuate due to seasonality and other factors.
We expect our quarterly operating results to fl uctuate due to seasonality
including high vacation and leisure demand occurring on the Florida
routes between October and April and on our western routes during the
summer. Actions of our competitors may also contribute to fl uctuations
in our results. We are more susceptible to adverse weather conditions,
including snow storms and hurricanes, as a result of our operations being
concentrated on the East Coast, than some of our competitors. As we
enter new markets we could be subject to additional seasonal variations
along with any competitive responses to our entry by other airlines. Price
changes in aircraft fuel as well as the timing and amount of maintenance
and advertising expenditures also impact our operations. As a result of
these factors, quarter-to-quarter comparisons of our operating results
may not be a good indicator of our future performance. In addition, it is
possible in any future period our operating results could be below the
expectations of investors and any published reports or analyses regarding
JetBlue. In such an event, the price of our common stock could decline,
perhaps substantially.
We are subject to the risks of having a limited number of suppliers for
our aircraft, engines and a key component of our in-fl ight entertainment
system.
Our current dependence on two types of aircraft and engines for all of
our fl ights makes us vulnerable to signifi cant problems associated with
the Airbus A320 aircraft or the IAE International Aero Engines V2527-A5
engine and the EMBRAER 190 aircraft or the General Electric Engines CF-
34-10 engine, including design defects, mechanical problems, contractual
performance by the manufacturers, or adverse perception by the public
would result in customer avoidance or in actions by the FAA resulting in
an inability to operate our aircraft. Carriers operating a more diversifi ed
fl eet are better positioned than we are to manage such events.
One of the unique features of our fl eet is every seat in each of our aircraft
is equipped with free in-fl ight entertainment including DirecTV®. An
integral component of the system is the antenna, which is supplied to
us by KVH Industries Inc, or KVH. If KVH were to stop supplying us with
its antennas for any reason, we would have to incur signifi cant costs to
procure an alternate supplier.
Our reputation and fi nancial results could be harmed in the event of an
accident or incident involving our aircraft.
An accident or incident involving one of our aircraft, or an aircraft containing
LiveTV equipment, could involve signifi cant potential claims of injured
passengers or others in addition to repair or replacement of a damaged
aircraft and its consequential temporary or permanent loss from service.
We are required by the DOT to carry liability insurance. Although we
believe we currently maintain liability insurance in amounts and of the type
generally consistent with industry practice, the amount of such coverage
may not be adequate and we may be forced to bear substantial losses
from an accident. Substantial claims resulting from an accident in excess
of our related insurance coverage would harm our business and fi nancial
results. Moreover, any aircraft accident or incident, even if fully insured,
could cause a public perception we are less safe or reliable than other
airlines which would harm our business.
An ownership change could limit our ability to use our net operation
loss carryforwards.
As of December31, 2012, we had approximately $371 million of federal
net operating loss carryforwards for U.S. income tax purposes that begin
to expire in 2025. Section382 of the Internal Revenue Code imposes
limitation on a corporation’s ability to use its net operating loss carryforwards
if it experiences an “ownership change”. Similar rules and limitations may
apply for state income tax purposes. In the event an “ownership change”
were to occur in the future, our ability to utilize our net operating losses
could be limited.
Our business depends on our strong reputation and the value of the
JetBlue brand.
The JetBlue brand name symbolizes high-quality friendly customer
service, innovation, fun, and a pleasant travel experience. JetBlue is a
widely recognized and respected global brand; the JetBlue brand is one
of our most important and valuable assets. The JetBlue brand name and
our corporate reputation are powerful sales and marketing tools and we
devote signifi cant resources to promoting and protecting them. Adverse
publicity (whether or not justifi ed) relating to activities by our employees,
contractors or agents could tarnish our reputation and reduce the value of
our brand. Damage to our reputation and loss of brand equity could reduce
demand for our services and thus have an adverse effect on our fi nancial
condition, liquidity and results of operations, as well as require additional
resources to rebuild our reputation and restore the value of our brand.
We may be subject to competitive risks due to the long term nature of
our fl eet order book.
At present, we have existing aircraft commitments through 2021. As
technological evolution occurs in our industry, through the use of composites
and other innovations, we may be competitively disadvantaged because
we have existing extensive fl eet commitments that would prohibit us from
adopting new technologies on an expedited basis.