JetBlue Airlines 2012 Annual Report Download - page 31

JETBLUE AIRWAYS CORPORATION-2012 10K 27
PART II
ITEM7Management’s Discussion and Analysis of Financial Condition and Results of Operations
Ancillary Revenue Initiatives
Our ancillary revenue initiatives are focused on increasing high margin
revenue streams. Our EvenMore
™
product continued to be successful
throughout 2012. We reconfi gured our EMBRAER 190 fl eet, converting
eight seats per aircraft to EvenMore™ Space seats. Additionally, we began
selling EvenMore
™
Speed, our expedited security option, on a standalone
basis in most of our U.S. domestic locations.
During 2012, we introduced a new badge to our TrueBlue frequent fl yer
program called Mosaic, which is designed to recognize and reward our
most loyal customers. The program’s enhancements include early boarding
and a free second checked bag, among many others. We also launched
a new co-branded credit card exclusively for residents of Puerto Rico,
where we are the largest carrier, which will allow residents to enjoy the
full benefi ts of our TrueBlue loyalty program.
Outlook for 2013
As we enter 2013, we believe we are well positioned to build upon our
2012 performance. We aim to deliver improved year over year margins
and increased returns for our shareholders. Our 2013 plan aims to achieve
these goals and assumes we are able to maintain our competitive cost
advantage and build upon our high-value network. We plan to introduce new
service as well as expand our portfolio of commercial airline partnerships
during 2013. We continuously look to expand our other ancillary revenue
opportunities, including our EvenMore
™
product offering and improving
our TrueBlue loyalty program. We also remain committed to strengthening
our balance sheet and prudently investing in infrastructure and product
enhancements to enable us to reap future benefi ts.
For the full year, we estimate our operating capacity to increase approximately
5.5% to 7.5% over 2012 with the net addition of three Airbus A320 aircraft
and seven EMBRAER 190 aircraft to our operating fl eet. We will also take
delivery of our fi rst four Airbus A321 aircraft in the latter part of 2013. The
entry into service date of the Airbus A321 will depend on the timing and
successful completion of the FAA certifi cation process. Assuming fuel
prices of $3.24 per gallon, net of our fuel hedging activity, our cost per
available seat mile for 2013 is expected to increase by 1.5% to 3.5% over
2012. This expected increase is primarily a result of continued maintenance
cost pressures associated with the aging of our fl eet. Additionally, salaries,
wages and benefi ts are expected to increase due to the increasing tenure
of our Crewmembers combined with efforts to maintain competitiveness
of our compensation packages.
Results of Operations
Year 2012 Compared to Year 2011
We reported net income of $128 million in 2012 compared to net income
of $86 million in 2011. In 2012, we had operating income of $376 million,
an increase of $54million over 2011, and an operating margin of 7.5%,
up 0.4 points from 2011. Diluted earnings per share were $0.40 for 2012
compared to diluted earnings per share of $0.28 for 2011.
During 2012, despite uncertain economic conditions, a severe hurricane
hitting the core of our operations and the persistent competitiveness of the
airline industry, we managed to produce solid fi nancial results. We generated
consistent unit revenue growth throughout the year by continuing to manage
the structure and mix of our network. We further complemented our historically
leisure focused travel markets with higher yielding business markets. Our
efforts to capitalize on key growth regions were primarily focused in Boston
and the Caribbean region, which resulted in increased capacity during 2012.
Our on-time performance, defi ned by the DOT as arrivals within 14
minutes of schedule, was 79.1% in 2012 compared to 73.3% in 2011.
While improved in 2012, our on-time performance throughout the year
and on a year-over-year basis remained challenged by our concentration
of operations in the northeast United States, which contains some of the
most congested and delay-prone airports in the U.S.
2012 vs. 2011 Highlights
•
During the fourth quarter of 2012, Hurricane Sandy directly and signifi cantly
impacted our operations, closing many East Coast airports for several
days. We canceled approximately 1,700 fl ights over a six day period.
• Operating capacity increased approximately 8% to 40.08billion available
seat miles in 2012.
• Average fares for the year increased 2% to $157, which also resulted in
an increase of $4 million in associated credit card fees.
• Operating expenses per available seat mile increased 2% to 11.49 cents.
Excluding fuel, our cost per available seat mile increased 3% in 2012.
• Invested in four new owned EMBRAER 190 aircraft and seven new
owned Airbus A320 aircraft. Eight of these aircraft were debt fi nanced.
• Commenced service to fi ve new cities during 2012. Total departures
increased 9%.
•Extended the leases on three aircraft during 2012 at lower rates.
• The average age of our fl eet increased to 6.7 years, and as of December31,
2012, our oldest operating aircraft had an age of 13.1 years.
•Early extinguishment of approximately $220 million in principal of long-
term debt resulted in a net of $1 million in losses recorded in interest
income and other.