JetBlue Airlines 2015 Annual Report Download - page 15

JETBLUE AIRWAYS CORPORATION-2015Annual Report 11
PART I
ITEM 1Business
Pemco, Haeco and Lufthansa Technik AG, and are subject to direct
oversight by JetBlue personnel. We outsource heavy maintenance as the
costs are lower than if we performed the tasks internally.
Component maintenance on equipment such as engines, auxiliary power
units, landing gears, pumps and avionic computers are all performed by
a number of different FAA-approved third party repair stations. We have
maintenance agreements with MTU Maintenance Hannover GmbH, or
MTU, for our Airbus aircraft engines and with GE Engine Services, LLC
for our Embraer E190 aircraft engines. We also have an agreement with
Lufthansa Technik AG for the repair, overhaul, modification and logistics of
certain Airbus components. Many of our maintenance service agreements
are based on a fixed cost per flying hour. These fixed costs vary based
upon the age of the aircraft and other operating factors impacting the
related component. Required maintenance not otherwise covered by
these agreements is performed on a time and materials basis. All other
maintenance activities are sub-contracted to qualified maintenance, repair
and overhaul organizations.
Aircraft Fuel
Aircraft fuel continues to be one of our largest expenses. Its price and availability has been extremely volatile due to global economic and geopolitical factors
which we can neither control nor accurately predict. We use a third party to assist with fuel management service and to procure most of our fuel. Our historical
fuel consumption and costs for the years ended December 31 were:
2015 2014 2013
Gallons consumed (millions) 700 639 604
Total cost (millions)(1) $ 1,348 $ 1,912 $ 1,899
Average price per gallon(1) $ 1.93 $ 2.99 $ 3.14
Percent of operating expenses 25.9% 36.1% 37.9%
(1) Total cost and average price per gallon each include related fuel taxes as well as effective fuel hedging gains and losses.
We attempt to protect ourselves against the volatility of fuel prices by entering into a variety of derivative instruments. These include swaps, caps, collars,
and basis swaps with underlyings of jet fuel, crude and heating oil.
Financial Health
We strive to maintain financial strength and a cost structure that enables
us to grow profitably and sustainably. In the first years of our history, we
relied upon financing activities to fund much of our growth. Starting in
2007, growth has largely been funded through internally generated cash
from operations. Since 2011, while we have invested approximately $3.8
billion in capital assets, we have also generated approximately $4.5 billion
in cash from operations, resulting in approximately $0.7 billion in free cash
flow. Our improving financial results have resulted in better credit ratings,
which in turn allows for more attractive financing terms. Since 2011, we
have also reduced our total debt balance by nearly $1.3 billion.
JetBlue Technology Ventures
In November 2015, JetBlue created a new wholly-owned subsidiary,
JetBlue Technology Ventures, LLC, or JTV. We anticipate that JTV will
invest in or partner with emerging technology companies within the travel,
hospitality and lifestyle industries. As of December 31, 2015, JTV had not
made any investments.
TWA Flight Center Hotel Development
In 2015, the Board of Commissioners of the Port Authority of New York &
New Jersey, or the PANYNJ approved a construction plan to redevelop
the TWA Flight Center at JFK on its nearly six-acre site into a hotel with
over 500 rooms, meeting spaces, restaurants, a spa and an observation
deck. The complex is planned to feature two six-story hotel towers. As
part of the plan, a 75-year lease agreement involves Flight Center Hotel
LLC, a partnership of MCR Development, LLC and JetBlue. We estimate
our ultimate ownership in the hotel to be approximately 5% to 10% of
the final total investment.
LiveTV
LiveTV, LLC, or LiveTV, was formerly a wholly owned subsidiary of JetBlue.
It provides in-flight entertainment and connectivity solutions for various
commercial airlines including JetBlue. In June 2014, we sold LiveTV and
its subsidiaries LTV Global, Inc, and LiveTV International, Inc., to Thales
Holding Corporation, or Thales. In September 2014, following the receipt
of regulatory approval, we sold LiveTV Satellite Communications, LLC, a
subsidiary of LiveTV, to Thales. Following the completion of these sales,
LiveTV operations ceased to be subsidiaries of JetBlue and are no longer
presented in our consolidated financial statements. JetBlue, ViaSat Inc. and
LiveTV have worked together to develop and support in-flight broadband
connectivity for JetBlue which is being marketed as Fly-Fi™. JetBlue
expects to continue to be a significant customer of LiveTV through its
in-flight entertainment and onboard connectivity products and services.
Culture
Our People
Our success depends on our Crewmembers delivering terrific customer
service experience in the sky and on the ground. One of our competitive
strengths is a service orientated culture grounded in our five key values;
safety, caring, integrity, passion and fun. We believe a highly productive
and engaged workforce enhances customer loyalty which in turn increases
shareholder returns. Our goal is to hire, train and retain a diverse workforce
of caring, passionate, fun and friendly people who share our mission to
inspire humanity.
Our culture is first introduced to new Crewmembers during the screening
process and then at an extensive new hire orientation program at JetBlue
University. The orientation focuses on the JetBlue strategy and emphasizes
the importance of customer service, productivity and cost control. We
provide continuous training for our Crewmembers including technical
training, a specialized captain leadership training program unique in the
industry, a leadership program for current company managers, an emerging
managers program, regular training focused on the safety value and front
line training for our customer service teams.