JetBlue Airlines 2014 Annual Report Download - page 45

Download and view the complete annual report

Please find page 45 of the 2014 JetBlue Airlines annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 96

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96

JETBLUE AIRWAYS CORPORATION-2014Annual Report 39
PART II
ITEM 7AQuantitative and Qualitative Disclosures About Market Risk
ITEM 7A. Quantitative and Qualitative Disclosures
About Market Risk
The risk inherent in our market risk sensitive instruments and positions is the potential loss arising from adverse changes to the price of fuel and interest
rates as discussed below. The sensitivity analyses presented do not consider the effects such adverse changes may have on the overall economic
activity, nor do they consider additional actions we may take to mitigate our exposure to such changes. Variable-rate leases are not considered market
sensitive financial instruments and, therefore, are not included in the interest rate sensitivity analysis below. Actual results may differ. See Notes 1, 2 and 13
to our consolidated financial statements for accounting policies and additional information.
Aircraft fuel
Our results of operations are affected by changes in the price and availability of aircraft fuel. Market risk is estimated as a hypothetical 10% increase
in the December 31, 2014 cost per gallon of fuel. Based on projected 2015 fuel consumption, such an increase would result in an increase to aircraft
fuel expense of approximately $175 million in 2015. This is compared to an estimated $202 million for 2014 measured as of December 31, 2013. As
of December 31, 2014 we had hedged approximately 17% of our projected 2015 fuel requirements. All hedge contracts existing as of December 31,
2014 settle by December 31, 2015.
The financial derivative instrument agreements we have with our counterparties may require us to fund all, or a portion of, outstanding loss positions
related to these contracts prior to their scheduled maturities. The amount of collateral posted, if any, is periodically adjusted based on the fair value of
the hedge contracts.
Interest
Our earnings are affected by changes in interest rates due to the impact those changes have on interest expense from variable-rate debt instruments and
on interest income generated from our cash and investment balances. The interest rate is fixed for $1.7 billion of our debt and capital lease obligations,
with the remaining $0.5 billion having floating interest rates. If interest rates were on average 100 basis points higher in 2015 than they were during
2014, our interest expense would increase by approximately $7 million. This is determined by considering the impact of the hypothetical change in
interest rates on our variable rate debt.
If interest rates were an average 10% lower in 2015 than they were during 2014, our interest income from cash and investment balances would remain
relatively constant. This is similar to the relative constant level of interest income for 2014 measured as of December 31, 2013. These amounts are
determined by considering the impact of the hypothetical interest rates on our cash equivalents and investment securities balances as of December 31,
2014 and 2013.
Convertible Debt
On December 31, 2014, our $154 million aggregate principal amount of convertible debt had a total estimated fair value of $524 million, based on
quoted market prices. If there was a 10% increase in our stock price, the fair value of this debt would have been $576 million as of December 31, 2014.