JetBlue Airlines 2014 Annual Report Download - page 23

JETBLUE AIRWAYS CORPORATION-2014Annual Report 17
PART I
ITEM1ARisk Factors
Our results of operations fluctuate due to seasonality, weather and
other factors.
We expect our quarterly operating results to fluctuate 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 fluctuations 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. In Q1 2014, for example,
Winter Storm Hercules and other winter weather resulted in approximately
4,100 flight cancellations. Our Florida and Caribbean operations are subject
to hurricanes. 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 analysis 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 our Fly-Fi™ product.
Our current dependence on three types of aircraft and engines for all of
our flights makes us vulnerable to significant problems associated with the
International Aero Engines, or IAE V2533-A5 engine on our AirbusA321
fleet, the International Aero Engines, or IAE V2527-A5 engine on our
Airbus A320 fleet and the General Electric Engines CF-34-10 engine on
our EMBRAER 190 fleet. This could include design defects, mechanical
problems, contractual performance by the manufacturers, or adverse
perception by the public which would result in customer avoidance or in
actions by the FAA resulting in an inability to operate our aircraft. Carriers
operating a more diversified fleet are better positioned than we are to
manage such events.
Our Fly-Fi™ service uses technology and satellite access through our
agreement with LiveTV, LLC. An integral component of the Fly-Fi™ system
is the antenna, which is supplied to us by LiveTV. If LiveTV were to stop
supplying us with its antennas for any reason, we would have to incur
significant costs to procure an alternate supplier. Additionally, if the satellites
Fly-Fi™ uses were to become inoperable for any reason, we would have
to incur significant costs to replace the service.
Our reputation and financial results could be harmed in the event of an
accident or incident involving our aircraft.
An accident or incident involving one of our aircraft could involve significant
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 financial 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 operating loss
carryforwards for U.S. income tax purposes.
As of December 31, 2014, we had approximately $446 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
limitations 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 significant resources to promoting and protecting them. Adverse
publicity, whether or not justified, 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 financial
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 fleet order book.
At present, we have existing aircraft commitments through 2023. 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 fleet commitments that would prohibit us from
adopting new technologies on an expedited basis.
Risks Associated with the Airline Industry
The airline industry is particularly sensitive to changes in economic
condition.
Fundamental and permanent changes in the domestic airline industry have
been ongoing over the past several years as a result of several years of
repeated losses, among other reasons. These losses resulted in airlines
renegotiating or attempting to renegotiate labor contracts, reconfiguring flight
schedules, furloughing or terminating employees, as well as considering
other efficiency and cost-cutting measures. Despite these actions, several
airlines have reorganized under Chapter 11 of the U.S. Bankruptcy Code
to permit them to reduce labor rates, restructure debt, terminate pension
plans and generally reduce their cost structure. Since 2005, the U.S. airline
industry has experienced significant consolidation and liquidations. The
global economic recession and related unfavorable general economic
conditions, such as higher unemployment rates, a constrained credit
market, housing-related pressures, and increased business operating costs
can reduce spending for both leisure and business travel. Unfavorable
economic conditions could also impact an airline’s ability to raise fares to
counteract increased fuel, labor, and other costs. It is possible that further
airline reorganizations, consolidation, bankruptcies or liquidations may
occur in the current global economic environment, the effects of which
we are unable to predict. We cannot assure you the occurrence of these
events, or potential changes resulting from these events, will not harm
our business or the industry.
A future act of terrorism, the threat of such acts or escalation of U.S.
military involvement overseas could adversely affect our industry.
Acts of terrorism, the threat of such acts or escalation of U.S. military
involvement overseas could have an adverse effect on the airline industry.
In the event of a terrorist attack, whether or not successful, the industry
would likely experience increased security requirements and significantly
reduced demand. We cannot assure you these actions, or consequences
resulting from these actions, will not harm our business or the industry.