JetBlue Airlines 2009 Annual Report Download - page 38

maintenance than they will in the future. Our maintenance costs will increase significantly, both on an
absolute basis and as a percentage of our unit costs, as our fleet ages. Other operating expenses consist of
purchased services (including expenses related to fueling, ground handling, skycap, security and janitorial
services), insurance, personnel expenses, cost of goods sold to other airlines by LiveTV, professional fees,
passenger refreshments, supplies, bad debts, communication costs, gains on aircraft sales and taxes other than
payroll and fuel taxes.
During 2009 we experienced lower fuel prices than we did in 2008, helping to offset the weaker demand
environment for air travel. In the fourth quarter of 2008, we effectively exited a majority of our 2009 fuel
hedges then outstanding and prepaid a portion of our liability thereby limiting our exposure to additional cash
collateral requirements. As a result, we benefited from the lower fuel prices in 2009. In the second and third
quarters of 2009, fuel prices began to rise although they remain much lower than the record high prices of
2008. In response, we began to rebuild our fuel hedge portfolio by entering into a variety of fuel hedge
contracts covering a portion of our consumption in the fourth quarter 2009 through the first half of 2011. In
total, we effectively hedged 23% of our total 2009 fuel consumption. As of December 31, 2009, we had
outstanding fuel hedge contracts covering approximately 60% of our forecasted consumption for the first
quarter of 2010, 40% for the full year 2010, and 6% for the first half of 2011. Additionally, in January 2010
we entered into a jet fuel swap agreement covering another 5% of our total 2010 forecasted consumption. We
will continue to monitor fuel prices closely and take advantage of fuel hedging opportunities in order to
mitigate our liquidity exposure and provide some protection against significant volatility and increases in fuel
prices.
The airline industry is one of the most heavily taxed in the U.S., with taxes and fees accounting for
approximately 16% of the total fare charged to a customer. Airlines are obligated to fund all of these taxes
and fees regardless of their ability to pass these charges on to the customer. Additionally, if the TSA changes
the way the Aviation Security Infrastructure Fee is assessed, our security costs may be higher.
The airline industry has been intensely competitive in recent years due in part to persistently high fuel
prices and the adverse financial condition of many of the domestic airlines, leading to significant
consolidation, bankruptcies and liquidation in recent years. In 2009 numerous smaller airlines around the
world ceased operations and other larger international carriers faced bankruptcy. At the same time, the merger
of Delta and Northwest created the world’s largest airline.
We continue to focus on maintaining adequate liquidity. In June 2009, we successfully accessed the
capital markets raising net proceeds of approximately $300 million through a $201 million convertible debt
financing and a $112 million common stock offering. In October 2009, we entered into an agreement with
Citigroup Global Markets, Inc. under which they agreed to purchase our auction rate securities, or ARS, which
had a par value of approximately $158 million, for approximately $120 million. We also had approximately
$117 million in collateral posted for our fuel hedges as of December 31, 2008 returned to us during 2009. Our
goal is to continue to be diligent with our liquidity. We have manageable scheduled debt maturities in 2010
totaling approximately $390 million, which we believe will enable us to achieve this liquidity goal.
Our ability to be profitable in this competitive environment depends on, among other things, operating at
costs equal to or lower than those of our competitors, continuing to provide high quality customer service and
maintaining adequate liquidity levels. Although we have been able to raise capital and continue to grow, the
highly competitive nature of the airline industry and the impact of the current economic conditions could
prevent us from attaining the passenger traffic or yields required to be profitable in new and existing markets.
The highest levels of traffic and revenue on our routes to and from Florida are generally realized from
October through April and on our routes to and from the western United States in the summer. Our Visiting
Friends and Relatives (or VFR) markets continue to complement our leisure-driven markets from both a
seasonal and day of week perspective. Many of our areas of operations in the Northeast experience bad
weather conditions in the winter causing increased costs associated with de-icing aircraft, cancelled flights and
accommodating displaced customers. Our Florida and Caribbean routes experience bad weather conditions in
the summer and fall due to thunderstorms and hurricanes. As we enter new markets we could be subject to
additional seasonal variations along with competitive responses to our entry by other airlines. Given our high
proportion of fixed costs, this seasonality may cause our results of operations to vary from quarter to quarter.
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