JetBlue Airlines 2013 Annual Report Download - page 22

JETBLUE AIRWAYS CORPORATION-2013Annual Report16
PART I
ITEM1ARisk Factors
Our salaries, wages and benefits costs will increase as our workforce ages.
As our employees’ tenure with JetBlue matures, our salaries, wages and
benefits costs increase. Our pilot pay structure, for example, is based on
an industry derived average and to the extent our competitors continue
consolidating and/or begin raising their pilot salaries in the face of a possible
pilot shortage, or if overall pilot wages increase across the industry due to
regulatory changes, we may have to address increased salary cost pressure
to retain our pilots in an environment where our capacity is also forecast
to continue to grow. As our work force ages, we expect our medical and
related benefits to increase as well, despite an increased corporate focus
on Crewmember wellness.
There are risks associated with our presence in some of our international
emerging markets, including political or economic instability and failure
to adequately comply with existing legal requirements.
Expansion to new international emerging markets may have risks due to
factors specific to those markets. Emerging markets are countries which
have less developed economies and are vulnerable to economic and political
problems, such as significant fluctuations in gross domestic product, interest
and currency exchange rates, civil disturbances, government instability,
nationalization and expropriation of private assets, trafficking and the
imposition of taxes or other charges by governments. The occurrence of
any of these events in markets served by us and the resulting instability
may adversely affect our business.
We have expanded and expect to continue to expand our service to countries
in the Caribbean and Latin America, some of which have less developed legal
systems, financial markets, and business and political environments than the
United States, and therefore present greater political, legal, economic and
operational risks. We emphasize legal compliance and have implemented and
continue to implement and refresh policies, procedures and certain ongoing
training of employees with regard to business ethics, anti-corruption policies
and many key legal requirements; however, there can be no assurance our
employees will adhere to our code of business ethics, anti-corruption policies,
other Company policies, or other legal requirements. If we fail to enforce our
policies and procedures properly or maintain adequate record-keeping and
internal accounting practices to accurately record our transactions, we may
be subject to sanctions. In the event we believe or have reason to believe
our employees have or may have violated applicable laws or regulations, we
may be subject to investigation costs, potential penalties and other related
costs which in turn could negatively affect our reputation, and our results
of operations and cash flow.
In addition, to the extent we continue to grow our business, opening new
markets requires us to commit a substantial amount of resources even
before the new services commence. Expansion is also dependent upon
our ability to maintain a safe and secure operation and requires additional
personnel, equipment and facilities.
We may be subject to risks through the commitments and business of
LiveTV, our wholly-owned subsidiary.
LiveTV has agreements to provide in-flight entertainment products and
services with JetBlue and six other airlines. At December 31, 2013, LiveTV
services were available on 461 aircraft under these agreements, with firm
commitments for 196 additional aircraft through 2015 and with options for 9
additional installations through 2016. Performance under these agreements
requires LiveTV to hire, train and retain qualified employees, obtain
component parts unique to its systems and services from their suppliers
and secure facilities necessary to perform installations and maintenance
on those systems. Should LiveTV be unable to satisfy its commitments
under these third party contracts, our business could be harmed.
We may be subject to unionization, work stoppages, slowdowns or
increased labor costs; recent changes to the labor laws may make
unionization easier to achieve.
Our business is labor intensive and, unlike most other airlines, we have
a non-union workforce. The unionization of any of our employees could
result in demands that may increase our operating expenses and adversely
affect our financial condition and results of operations. Any of the different
crafts or classes of our employees could unionize at any time, which
would require us to negotiate in good faith with the employee group’s
certified representative concerning a collective bargaining agreement. In
February 2014, the Airline Pilots Association filed a petition with the National
Mediation Board, or NMB, seeking to become the collective bargaining
representative of our pilots. The NMB will hold an election from March
through April, 2014. In 2010, the NMB changed its election procedures
to permit a majority of those voting to elect to unionize (from a majority
of those in the craft or class). These rule changes fundamentally alter the
manner in which labor groups have been able to organize in our industry
since the inception of the Railway Labor Act. Ultimately, if we and a newly
elected representative were unable to reach agreement on the terms of a
collective bargaining agreement and all of the dispute resolution processes
of the Railway Labor Act were exhausted, we could be subject to work
stoppages. In addition, we may be subject to other disruptions by organized
labor groups protesting our non-union status. Any of these events would
be disruptive to our operations and could harm our business.
Our high aircraft utilization rate helps us keep our costs low, but also
makes us vulnerable to delays and cancellations in our operating regions;
such delays and cancellations could reduce our profitability.
We maintain a high daily aircraft utilization rate (the amount of time our
aircraft spend in the air carrying passengers). High daily aircraft utilization
allows us to generate more revenue from our aircraft and is achieved in
part by reducing turnaround times at airports so we can fly more hours on
average in a day. Aircraft utilization is reduced by delays and cancellations
from various factors, many of which are beyond our control, including
adverse weather conditions, security requirements, air traffic congestion and
unscheduled maintenance. The majority of our operations are concentrated
in the Northeast and Florida, which are particularly vulnerable to weather
and congestion delays. Reduced aircraft utilization may limit our ability to
achieve and maintain profitability as well as lead to customer dissatisfaction.
Our business is highly dependent on the New York metropolitan market
and increases in competition or congestion or a reduction in demand
for air travel in this market, or governmental reduction of our operating
capacity at JFK, would harm our business.
We are highly dependent on the New York metropolitan market where we
maintain a large presence with approximately one-half of our daily flights
having JFK, LaGuardia, Newark, Westchester County Airport or Newburgh’s
Stewart International Airport as either their origin or destination. We have
experienced an increase in flight delays and cancellations at these airports
due to airport congestion which has adversely affected our operating
performance and results of operations. Our business could be further
harmed by an increase in the amount of direct competition we face in the
New York metropolitan market or by continued or increased congestion,
delays or cancellations. Our business would also be harmed by any
circumstances causing a reduction in demand for air transportation in the
New York metropolitan area, such as adverse changes in local economic
conditions, negative public perception of New York City, terrorist attacks
or significant price or tax increases linked to increases in airport access
costs and fees imposed on passengers.
We rely heavily on automated systems to operate our business; any
failure of these systems could harm our business.
We are dependent on automated systems and technology to operate our
business, enhance customer service and achieve low operating costs.
The performance and reliability of our automated systems and data center
is critical to our ability to operate our business and compete effectively.
These systems include our computerized airline reservation system, flight
operations system, telecommunications systems, website, maintenance
systems, check-in kiosks, in-flight entertainment systems and our primary
and redundant data centers. Our website and reservation system must be
able to accommodate a high volume of traffic and deliver important flight
information. These systems require upgrades or replacement periodically,
which involve implementation and other operational risks. Our business
may be harmed if we fail to operate, replace or upgrade our systems or
data center infrastructure successfully.