JetBlue Airlines 2015 Annual Report Download - page 29

JETBLUE AIRWAYS CORPORATION-2015Annual Report 25
PART II
ITEM7Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Overview
In 2015, we experienced the continuation of uncertain economic conditions and the persistent competitiveness of the airline industry. Even with these
external factors, 2015 was the most profitable years in our history and is our fourth consecutive year of net income growth. We generated operating
revenue growth of almost 10.3% year-over-year and reported our highest ever net income which benefited significantly from a rapid decline in fuel prices.
We are committed to delivering a safe and reliable JetBlue Experience for our customers as well as increasing returns for our shareholders. We believe our
continued focus on cost discipline, product innovation and network enhancements, combined with our service excellence, will drive our future success.
2015 Financial Highlights
• We reported our highest ever net income of $677 million, an increase
of $276 million compared to 2014. This increase was principally driven
by higher passenger revenue and a reduction in aircraft fuel expenses,
partially offset by an increase in controllable costs.
• We generated over $6.4 billion in operating revenue, an increase of $599
million compared to 2014 due primarily to a9.4%increasein revenue
passengers as well as a0.8%increasein the average fare.
• Operating margin increased by 10.1 points to 19.0% and we improved
our return on invested capital, or ROIC, by 7.4 points to 13.7% primarily
driven by higher revenue, a reduction in aircraft fuel expenses and
continued balance sheet improvement.
•Our earnings per diluted share were $1.98, the highest in our history.
• We generated $1.6 billion in cash from operations. The significant
amount of cash we generated provided the opportunity to pay cash for
all 2015 aircraft deliveries, reduce existing debt balances and execute
share repurchases.
• Operating expenses per available seat mile decreased 10.4% to 10.56
cents, primarily driven by a reduction in aircraft fuel expenses. Excluding
fuel, profit sharing and related taxes our cost per available seat mile
increased 0.5% in 2015.
Company Initiatives
Strengthening of our Balance Sheet
Throughout 2015 we continued to focus on strengthening our balance
sheet. We ended the year with unrestricted cash, cash equivalents and
short-term investments of $876 million and undrawn lines of credit of
approximately $600 million. At year end 2015 unrestricted cash, cash
equivalents and short-term investments was approximately 14% of
trailing twelve months revenue. We reduced our overall debt and capital
lease obligations by $390 million which includes a prepayments of $100
million of outstanding principal relating to 10 Airbus A320 aircraft. As a
result,fouraircraft became unencumbered andsixhave lower principal
balances. During June 2015, we also prepaid the full$32 millionprincipal
outstanding on a special facility revenue bond for our hanger at JFK issued
by the New York City Industrial Development Agency in December 2006.
We have increased the number of unencumbered aircraft and spare
engines in 2015 bringing total unencumbered aircraft to 61 and spare
engines to 33 as of December31, 2015. In 2015, the holders of our 5.5%
Convertible Debentures due 2038 (Series B) converted their securities into
approximately 15.2 million shares of our common stock. During 2015,
we acquired approximately 9.8 million shares of our common stock for
approximately $227 million under our share repurchase program.
Aircraft
During 2015, we took delivery of 12 Airbus A321 aircraft. In November
2014, we amended our purchase agreement with Airbus deferring 13
Airbus A321 aircraft deliveries and eight Airbus A320 aircraft deliveries
from 2016-2020 to 2020-2023. Of these deferrals, ten Airbus A321 aircraft
deliveries were converted to Airbus A321 new engine option (A321neo) and
five Airbus A320neo aircraft deliveries were converted to Airbus A321neo
aircraft. We additionally converted three Airbus A320 aircraft deliveries in
2016 to Airbus A321 aircraft.
Airport Infrastructure Investments
In November 2015, we unveiled Phase I of our $50 million Terminal C
upgrade at Boston Logan International Airport. This upgrade included
new kiosks and ticket counters. Twenty-five kiosks and thirty check-in
counters are in use in the North Pod of the terminal. Phase II of the
upgrade has begun on the South Pod which is aimed to mirror the check-
in experience of the North Pod. Updated digital flight information displays
and a connector between Terminal C and international flights at Terminal
E are also expected to be completed by April 2016.
Network
As part of our ongoing network initiatives and route optimization efforts we
continued to make schedule and frequency adjustments throughout 2015.
We added six new BlueCities to our network: Cleveland, OH; Reno-Tahoe,
NV; St. George’s, Grenada; Mexico City, Mexico; Antigua and Barbuda;
and Albany, NY. We also added new routes between existing BlueCities.
Outlook for 2016
We believe we will improve our return for shareholders in 2016 as we
implement more of the revenue initiatives first outlined publicly at our
Investor Day in November 2014. Specifically, in 2016 we expect to derive
additional value from Fare Options, a new credit card agreement, and our
A321 Cabin Restyling program. We plan to add new destinations and route
pairings based upon market demand, having previously announced four
new BlueCities for the first half of 2016. We are continuously looking to
expand our other ancillary revenue opportunities, improve our TrueBlue®
loyalty program and deepen our portfolio of commercial partnerships. As in
the past, we intend to invest in infrastructure and product enhancements
which we believe will enable us to reap future benefits. We also remain
committed to strengthening the balance sheet.
For the full year 2016, we estimate our operating capacity will increase by
approximately 8.5% to 10.5% over 2015 with the addition of 10 Airbus A321
aircraft to our operating fleet. We are expecting our cost per available seat
mile, excluding fuel, profit sharing and related taxes, for 2016 to increase by
between approximately 0.0% to 2.0% over the level in 2015.