JetBlue posts profits in 4Q and 2010

This performance, which executives called one of the best years in its history, was despite major challenges during 2010 as the airline moved to a new reservations system with Sabre and endured a three-month closure of the Bay runway at its home base at Kennedy International Airport.

The airline cited improved demand, its efforts to gain more business travellers and the revenue improvement brought by Sabre. CEO David Barger reported the average fare reached USD141, up 8% from 2010 as unit revenue grew 6.2%, particularly impressive given the 6.7% capacity growth.

JetBlue also had significant ancillary revenue growth. "We you combine the ancillary revenues that flow into both passenger revenues and other revenues we are getting USD20 per passenger," said Mr Barger. "We grew ancillary revenues USD35 million or 8% despite the fact we waived fees during the Sabre transition in the first quarter 2010. We expect revenues to increase 20% this year as a result of that."

Barger rejected adding first-bag fees citing the strengthening fares and fuel surcharges as well as the importance of the programme to the brand. The company is working on new business-oriented products including an express security lane citing the strength of its early boarding product launched last autumn.

Boston, Caribbean remain focus

The headline continues to be its focus on Boston and the Caribbean along with the affect of its transition to Sabre which occurred in 1Q2010. While distribution costs rose 23%, JetBlue executives indicated that was more than offset by a yield premium resulting from the growing role of business travellers. The airline would not say what percentage is booked on JetBlue.com and how it has shifted with the Sabre participation. Unit growth, said Mr Barger, was outstripping capacity in Boston at 30% and expected to be up another 20% this year. Boston and Latin America are its strongest markets reflecting the emphasis it has put on its expansions there.

JetBlue is continuing to take advantage of the opportunity left by American when it began decreasing service to Puerto Rico. JetBlue will increase departures there by 30% beginning in April.

Chief Commercial Officer Robin Hayes indicated that the company has yet to decide on its participation with online travel agencies. "The jury still out," he told analysts. "We're not sure how much truly incremental revenues will come from that. If we do participate, a lot of focus will be the right level of cost. While our share of distribution through GDS channels has significantly grown, it is still a small slice of the pie. We continue to be a largely consumer-direct business so we don't have the same skin in the game as some others. The GDS delivers a strong yield premium and we have added some corporate agency channels. We also have the capability to add EML and can do that within the GDS infrastructure."

Mr Barger emphasised its direct distribution model remains part of the company's DNA. "We've seen shifts over a period of time but that is not going to change," he said.

The year also included several new codeshare arrangements with international partners as well as major expansions at Boston and in the Caribbean. JetBlue also declined to quantify the impact of the codesharing relationships in terms of either connecting passengers or revenue but expects to add another international partner next month and perhaps six in 2011. Mr Barger indicated that interline sales on JetBlue.com will drive additional revenue.

Interestingly, it is not restricting codesharing to Kennedy and is considering adding such relationships at Boston and the West Coast. Its relationship with American only extends to Kennedy and Boston and would require a new agreement with the Dallas-based carrier to expand to Los Angeles. Mr Hayes already has an eye on a number of partners he thinks would make good codeshare partners on the West Coast. In addition, JetBlue has moved its Orlando operations to afford easier international connections.

The carrier posted operating margins of 6.2% in the quarter, down 1.5 points, and 8.8% for the year, up 0.2 points.

"Clearly, 2010 was an excellent year for JetBlue," said Mr Barger. "As we look ahead into 2011, we believe we are taking the right steps to continue to strengthen our airline and improve our competitive position."

Results

JetBlue reported record fourth quarter operating revenues of USD940 million despite severe weather in the north-east, which reduced revenue by an estimated USD30 million. For the full year, operating revenues totalled USD3.78 billion, representing an increase of 14.8% over 2009.

For the fourth quarter, revenue passenger miles increased 10.1% year on year to 6.98 billion on a capacity increase of 6.8% to 8.5 billion, resulting in a fourth quarter load factor of 81.9%, an increase of 2.5 points year over year.

For the year, revenue passenger miles jumped 9% to 28.7 billion on a 6.7% capacity increase to 34.7 billion.

Yield per passenger mile in the fourth quarter was 12.11 cents, up 4.1% compared with the fourth quarter of 2009. Passenger revenue per available seat mile (PRASM) for the fourth quarter 2010 increased 7.4% year-over-year to 9.91 cents and operating revenue per available seat mile (RASM) increased 5.9% year-over-year to 11.03 cents.

Mr Barnes reported that October PRASM was up 9% on 13% more capacity. However, its strategy to push for higher yields over the Thanksgiving holiday did not work. Even so, it reported November PRASM at 10%, the best in the industry on a stage-length-adjusted basis even with additional capacity. Prior to the December storm, the airline was tracking to reach its 10-12% PRASM guidance but the storm foiled its plans.

For the year, yield rose 6.8% to 12.07 while PRASM rose 9% to 9.62 cents while RASM increased 7.6% to 10.88 cents.

Operating expenses for the quarter increased 14.9%, to USD883 million, over the previous corresponding period. JetBlue's operating expense per available seat mile (CASM) for the fourth quarter increased 7.6% year-over-year to 10.34 cents. Excluding fuel, CASM increased 3.6% to 6.95 cents.

JetBlue is trying to recover rising fuel costs and is encouraged over the fare increases that have occurred in the past several weeks. The airline imposed one-way fuel surcharges in Puerto Rico and in Latin America at USD35 and USD45, respectively.

CFO Ed Barnes indicated that the December storms cost the airline USD35 million on its USD57 million operating income in the fourth quarter, which declined of USD8 million from 4Q2010 and was also impacted by a USD58 million increase in fuel for the quarter.

For the year operating expenses increased 14.6% to USD3.4 billion while CASM rose 7.4% to 9.92 cents. CASM ex fuel rose 5.9% to 6.71 cents.

JetBlue ended the year with approximately USD1 billion in unrestricted cash and short-term investments.

"During 2010, we made several strategic investments in our infrastructure and network," Mr Barnes said. "We believe our strong financial foundation coupled with a continued focus on improving our balance sheet and managing costs position us for continued success in 2011 and beyond."

Guidance

Capacity will be up only 1-3% in the first quarter to accommodate pilot training on new aircraft but will rise for a full year estimate of 7-9%. Despite rising fuel "we are going to continue to pound on Boston and the Caribbean", said Mr Barnes.

For the first quarter of 2011, CASM is expected to increase between 11 and 13% over the year-ago period. Excluding fuel, CASM in the first quarter is expected to increase between 3-5% year over year. For the full year, CASM ex fuel is expected to be down 1% to up 2%. CASM for the full year is expected to increase between 8-10% over full-year 2010.

The airline said January PRASM was tracking at 11% year on year, while February was expected to grow by 9-11%. March and quarterly guidance will come in March.

Capacity is expected to increase between 1-3% in the first quarter and to increase between 7-9% for the full year.