Sunday, 27 January 2019

JetBlue's 2018 fourth quarter results

Photo BusinessWire
JetBlue Airways Corporation reported its results for the fourth quarter 2018 last week,  here's the highlights of the company's performance.

Reported diluted earnings per share of $0.55 in the fourth quarter of 2018 compared to $2.03 in the fourth quarter of 2017. Adjusted diluted earnings per share was $0.50 in the fourth quarter of 2018 versus $0.32 in the fourth quarter of 2017. Fourth quarter 2018 results benefited from solid non-fuel cost control and revenue performance through the quarter. Note A to this earnings release includes the GAAP to Non-GAAP reconciliation between reported and adjusted diluted earnings per share.
GAAP pre-tax income of $200 million. Excluding the one-time costs, adjusted pre-tax income of $204 million(1), an increase of 19.9% from the fourth quarter of 2017.
Pre-tax margin of 10.2%, inclusive of the one-time costs. Adjusted pre-tax margin of 10.4%(1), a 0.7 point increase year over year.

Fourth quarter 2018 revenue per available seat mile (RASM) increased 2.4%, year over year, driven by strong close-in demand trends across the network. RASM for the quarter ended above the mid-point of our initial guidance range of 1.0% to 4.0% excluding a 0.3 point impact from strong completion factor during the quarter.
Operating expenses per available seat mile, excluding fuel (CASM ex-fuel) (1) declined 3.6%, below the low end of our initial guidance range of down (3.5%) to down (1.5%). This decline includes a small benefit of approximately 0.3 points from improved completion factor.
Key Guidance for the First Quarter and Full Year 2019:

Capacity is expected to increase between 7.5% and 9.5% year over year in the first quarter 2019. For the full year 2019, JetBlue expects capacity to increase between 5.0% and 7.0%.
RASM growth is expected to range between down (2.0%) and plus 1.0% for the first quarter 2019 compared to the same period in 2018. Our guidance includes two points of negative impact related to the calendar placement shift of Easter and Passover between the first and second quarters of 2019. In addition our guidance includes a net 0.75 point headwind related to a more active winter that impacted trough weeks during the first quarter of 2018.
CASM ex-fuel is expected to increase between 1.5% and 3.5% for the first quarter of 2019, principally driven by engine maintenance timing and the year-over-year impact of the pilot contract effective on August 1st, 2018. For the full year 2019, JetBlue continues to expect year over year CASM ex-fuel to be between flat and 2.0%.

Executing our Plan to Reach our EPS Commitments

“I’d like to thank our 22,000 Crewmembers across our network for all their hard work throughout 2018. I’d also like to congratulate our Crewmembers for operating the airline at 100 percent completion from December 10 through January 11. This is an impressive achievement as we safely delivered our Customers to their destinations during one of the busiest times of the year,” said Robin Hayes, JetBlue’s Chief Executive Officer.

“During 2018 we continued to work on our plan to strengthen the foundation of JetBlue and position the company to thrive. In bringing this very busy year to a close, I could not be prouder of our accomplishments. 2018 was a year of significant fuel volatility, and our team has remained relentlessly focused on executing our plan laid out in Investor Day. We are pleased with the progress we’ve made to-date on our building blocks. We are mindful of the external environment, but remain focused on executing on the initiatives we control, which we believe will create value and drive returns for our Owners.”

“We expect 2019 will be a stepping stone year to deliver on our 2020 goals, and to further improvements beyond 2020. We expect to see margin expansion resulting from our network reallocation, ancillary revenue initiatives, improvements to our fleet and our progress in better controlling our costs. We remain confident in our ability to execute on our building blocks and achieve our $2.50 to $3.00 EPS target in 2020,” said Joanna Geraghty, JetBlue’s President and Chief Operating Officer.

Revenue Performance and Outlook

Fourth quarter RASM increased 2.4%. Excluding the 0.3 point headwind from improved completion factor, RASM was above the mid-point of our original guidance range 1.0% to 4.0%. During the quarter we saw strong close-in demand across the network, with strong peaks and continued improvement in trough periods,” said Marty St. George, JetBlue’s EVP Commercial and Planning.

“We are broadly seeing fourth quarter demand trends carry into the first quarter. Our 'clean' RASM is expected to fall between 0.75 and 3.75 percent during the first quarter, which adds back the impact of the calendar shift and weather to our guidance.”

Cost Performance, Outlook and Balance Sheet

Fourth quarter CASM ex-fuel declined 3.6%, below the low end of the updated guidance of down (3.5%) to down (1.5%), driven by execution of our Structural Cost Program. “I am delighted to say we exceeded our plan, and reported underlying CASM ex-fuel growth below the mid-point of our full year guidance, despite the added pressure from lower capacity in three of four quarters,” said Steve Priest, JetBlue’s EVP Chief Financial Officer.

“Excluding the 2018 impact from our pilot deal of 1.3 points, we achieved a small decline in underlying CASM ex-fuel for the year. This is an important accomplishment in improving our cost control as we have now achieved $199 million dollars in 2020 run rate savings from our $250 to 300 million dollar Structural Cost Program, and we are on track to execute on our cost commitments through 2020.

Looking into the first quarter, similar to our progression in 2018, we expect the quarter over quarter variations during 2019 to also include scheduled engine maintenance events that may shift between quarters as we remain on a time and material basis for our Airbus engines. For 2019 we continue to expect our ex-fuel unit costs growth to range between 0 and 2 percent. We anticipate CASM ex-fuel growth to be higher in the first half of this year, largely as a result of the pilot contract effective on August 1 of 2018. In the second half of 2019 we expect to see further benefits from the ramp of the Structural Cost Program and the greater impact of our A320 fleet restyling efforts.”

Capital Allocation and Liquidity

JetBlue ended the quarter with approximately $887 million in unrestricted cash and cash equivalents, and short term investments, or about 11.6% of trailing twelve month revenue. In addition, JetBlue maintains approximately $625 million in undrawn lines of credit.

JetBlue repaid $44 million in regularly scheduled debt and capital lease obligations for the fourth quarter and $222 million for the full year 2018, and raised $147 million in net proceeds in secured aircraft debt for the fourth quarter. JetBlue anticipates maintaining a 30-40% adjusted debt to cap range and liquidity between 10% and 12%.

Fuel Expense and Hedging

The realized fuel price in the quarter was $2.24 per gallon, a 18.5% increase versus fourth quarter 2017 realized fuel price of $1.89.

JetBlue entered into forward fuel derivative contracts to hedge approximately 7% of its fuel consumption for the first half of 2019. Based on the fuel curve as of January 11th, JetBlue expects an average price per gallon of fuel of $2.01 in the first quarter of 2019.

(in millions, except per share amounts)
Three Months EndedTwelve Months Ended
December 31,PercentDecember 31,Percent
Other 77  72 8.8 277  251 10.5
Total operating revenues1,9681,75812.07,6587,0129.2
Aircraft fuel and related taxes47636829.41,8991,36339.4
Salaries, wages and benefits54349010.92,0441,8878.3
Landing fees and other rents97960.74203975.8
Depreciation and amortization1291198.24914469.9
Aircraft rent282511.71031002.6
Sales and marketing79738.82942718.4
Maintenance, materials and repairs128155(17.6)6256220.5
Other operating expenses2632428.41,05993313.5
Special items 4  - - 435  - -
Total operating expenses1,7471,56811.47,3706,01922.4
OPERATING INCOME22119016.5288993(71.0)
Operating margin11.2%10.8%0.4pts.3.8%14.2%(10.4)pts.
Interest expense(26)(22)12.9(92)(95)(2.3)
Capitalized interest327.31010(1.9)
Interest income and other 2  1 107.2 13  6 127.5
Total other income (expense)(21)(19)9.2(69)(79)(11.5)
INCOME BEFORE INCOME TAXES20017117.3219914(76.1)
Pre-tax margin10.2%9.7%0.5pts.2.9%13.0%(10.1)pts.
Income tax expense (benefit) 31  (483)(106.4) 31  (211)(114.4)
NET INCOME$169 $654 (74.1)$188 $1,125 (83.3)
Basic$0.55 $2.04 $0.60 $3.42 
Diluted$0.55 $2.03 $0.60 $3.41 
(1) Prior period results have been recast to reflect the adoption of ASC 606 Revenue from Contracts with Customers.
Three Months EndedTwelve Months Ended
December 31,PercentDecember 31,Percent
Revenue passengers (thousands)10,2969,7875.242,15040,0385.3
Revenue passenger miles (millions)12,51911,5278.650,79047,2407.5
Available seat miles (ASMs) (millions)15,16813,8769.359,88156,0076.9
Load factor82.5%83.1%(0.6)pts.84.8%84.3%0.5pts.
Aircraft utilization (hours per day)11.511.22.711.811.70.9
Average fare(2)$183.62$172.336.6$175.11$168.883.7
Yield per passenger mile (cents)(2)15.1014.633.214.5314.311.5
Passenger revenue per ASM (cents)(2)12.4612.152.512.3312.072.1
Revenue per ASM (cents)(2)12.9812.672.412.7912.522.1
Operating expense per ASM (cents)(2)11.5211.301.912.3110.7514.5
Operating expense per ASM, excluding fuel (cents)(1)(2)8.278.58(3.6)8.348.251.1
Average stage length (miles)1,1051,0713.21,0961,0722.2
Average number of operating aircraft during period250.2239.04.7246.8233.55.7
Average fuel cost per gallon, including fuel taxes$2.24$1.8918.5$2.24$1.7230.2
Fuel gallons consumed (millions)2121949.28497927.2
Average number of full-time equivalent crewmembers17,76617,1183.8
(1) Refer to Note A, Consolidated operating cost per available seat mile, excluding fuel (CASM Ex-Fuel) at the end of our Earnings Release for more information on this non-GAAP measure. CASM Ex-Fuel excludes fuel and related taxes, special items, and operating expenses related to other non-airline businesses.
(2) Recast to reflect the adoption of ASC 606 Revenue from Contracts with Customers.

Three Months EndedTwelve Months Ended
December 31,December 31,
$per ASM$per ASM$per ASM$per ASM
Total operating expenses(1)$1,747$11.52$1,568$11.30$7,370$12.31$6,019$10.75
Aircraft fuel and related taxes4763.143682.651,8993.171,3632.43
Other non-airline expenses120.0880.07440.07350.07
Special items 4 0.03 - - 435 0.73 - -
Operating expenses, excluding fuel$1,255$8.27$1,192$8.58$4,992$8.34$4,621$8.25
(1) Recast to reflect the adoption of ASC 606 Revenue from Contracts with Customers.