JetBlue Airlines 2009 Annual Report Download - page 36

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
We are an award winning airline with a differentiated product and a commitment to customer service that
offers competitive fares primarily on point-to-point routes. Our value proposition includes operating a young,
fuel efficient fleet with more legroom than any other domestic airline’s coach product, free in-flight
entertainment, pre-assigned seating, unlimited snacks, and the airline industry’s only Customer Bill of Rights.
At December 31, 2009, we served 60 destinations in 20 states, Puerto Rico, and eleven countries in the
Caribbean and Latin America and operated over 600 flights a day with a fleet of 110 Airbus A320 aircraft and
41 EMBRAER 190 aircraft.
In 2009, we reported net income of $58 million and an operating margin of 8.5%, as compared to a net
loss of $85 million and an operating margin of 3.2% in 2008. The year-over-year improvement in our financial
performance was primarily a result of a 33% decrease in our realized fuel price and a net $53 million holding
loss related to the valuation of our auction rate securities, or ARS, in 2008.
Our goal is to become “Americas’ Favorite Airline” — for our employees (whom we refer to as
crewmembers), customers and shareholders. Our plan in achieving this goal is dependent upon continuing to
provide superior customer service and delivering the JetBlue Experience. Our financial strategy currently
includes a commitment to positive free cash flow and long-term sustainable growth while also maintaining an
adequate liquidity position. Our commitment to these goals drives a focus on controlling costs, maximizing
unit revenues, managing capital expenditures, and disciplined growth.
Our disciplined growth begins with managing the growth, size and age of our fleet. In 2009, in response
to continuing uncertain economic conditions, we continued to carefully manage the size of our fleet. As a
result, aircraft capital expenditures were significantly reduced from previous years. We modified our Airbus
A320 purchase agreement in July resulting in the deferral of three aircraft previously scheduled for delivery in
2010 to 2011 and canceling six options to purchase aircraft at a future date. We also modified our EMBRAER
190 purchase agreement three times rescheduling deliveries and options originally scheduled for delivery
between 2010 and 2016 to 2010 through 2018. During the year, we increased the size of our A320 operating
fleet by three aircraft and our EMBRAER 190 operating fleet by six aircraft. In February 2010, as part of
broader ongoing discussions, we further amended our Airbus purchase agreement, deferring six aircraft
previously scheduled for delivery in 2011 and 2012 to 2015. This amendment had the effect of reducing our
2010 capital expenditures by $40 million in related pre-delivery deposits. We are currently scheduled to take
delivery of four aircraft in 2010. We may further slow our fleet growth through additional aircraft sales,
leasing of aircraft, returns of leased aircraft and/or deferral of aircraft deliveries.
Our disciplined growth has also allowed us to optimize our route network. The growth of our route
network in 2009 was primarily through the addition of new destinations in the Caribbean and Latin America,
markets which have historically matured more quickly than mainland flights of a comparable distance. We
have approximately 21% of our capacity in the Caribbean and Latin America; we expect this number to
continue to grow in 2010. We added eight new destinations in 2009, six of which were in the Caribbean and
Latin America, compared to two new destinations that were added in 2008 and five that were added in 2007.
We have also strengthened our position as the largest carrier at Boston’s Logan International Airport in terms
of number of seats offered and destinations served. In 2010, we plan to continue to focus on our Boston and
Caribbean expansion.
In November 2009, we launched a commercial agreement with Deutsche Lufthansa AG, or Lufthansa,
providing our customers with convenient connections at 12 of our domestic locations to Lufthansa’s network
of over 400 locations overseas and providing Lufthansa’s customers access to our growing network.
In November 2009, we also launched an improved version of our customer loyalty program, TrueBlue.
The program was re-designed based on customer feedback, and is aimed at making our frequent flyer benefits
more robust, rewarding, and flexible. TrueBlue points are earned based on the value paid for a flight as
opposed to the length of travel. Under the enhanced program, there are no blackout dates for award flights and
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