JetBlue Airways Corporation (JetBlue Airways) (New York) today reported its results for the second quarter 2013:

• Operating income for the quarter was $102 million, resulting in a 7.6% operating margin, compared to operating income of $130 million and a 10.2% operating margin in the second quarter of 2012.
• Pre-tax income of $60 million in the second quarter.  This compares to pre-tax income of $86 million in the second quarter of 2012.
• Net income for the second quarter was $36 million, or $0.11 per diluted share.  This compares to JetBlue’s second quarter 2012 net income of $52 million, or $0.16 per diluted share.

“Today, we reported our thirteenth consecutive quarter of profitability,” said Dave Barger, JetBlue’s President and Chief Executive Officer.  “Although second quarter results were negatively impacted by a sluggish economic environment and continued maintenance cost pressures, our crewmembers remained focused on running a safe, reliable airline and delivering excellent service to our customers.  We believe we are well positioned to expand margins in the second half of the year as we expect maintenance cost pressures to lessen and unit revenue performance to improve.”

Operational Performance

JetBlue reported record second quarter operating revenues of $1.3 billion.  Revenue passenger miles for the second quarter increased 7.3% to 9.12 billion on a capacity increase of 7.8%, resulting in a second quarter load factor of 84.9%, a decrease of 0.4 points year over year.

Yield per passenger mile in the second quarter was 13.40 cents, down 2.8% compared to the second quarter of 2012.  Passenger revenue per available seat mile (PRASM) for the second quarter 2013 decreased 3.3% year over year to 11.37 cents and operating revenue per available seat mile (RASM) decreased 3.1% year over year to 12.42 cents.  The calendar shift of the Easter and Passover holidays in March this year compared to April last year negatively impacted second quarter year over year PRASM by approximately two points.

“While we are disappointed to report a decline in year over year unit revenue performance during the quarter, we are encouraged by recent revenue trends and the success of our initiatives to attract and retain high-value customers,” said Robin Hayes, JetBlue’s Chief Commercial Officer.

Operating expenses for the quarter increased 7.5%, or $86 million, over the prior year period.  JetBlue’s operating expense per available seat mile (CASM) for the second quarter decreased 0.3% year over year to 11.48 cents.  Excluding fuel and profit sharing, CASM increased 3.3% to 7.15 cents.

Fuel Expense and Hedging

JetBlue continued to hedge fuel to manage price volatility.  During the second quarter JetBlue hedged approximately 17% of its fuel consumption and managed approximately 21% of its fuel consumption using fixed forward price agreements (FFPs), resulting in a realized fuel price of $3.06 per gallon, a 4.8% decrease over second quarter 2012 realized fuel price of $3.22.  JetBlue recorded $4 million in losses on fuel hedges that settled during the second quarter.  In addition, JetBlue recorded $2 million in non-cash fuel hedging ineffectiveness losses during the quarter, which is included in non-operating income/expense.

JetBlue has managed approximately 44% of its third quarter projected fuel requirements using a combination of FFPs, collars, swaps and call options.  Based on the fuel curve as of July 26th, JetBlue expects an average price per gallon of fuel, including the impact of hedges, FFPs and fuel taxes, of $3.10 in the third quarter.

Balance Sheet Update

JetBlue ended the second quarter with approximately $867 million in unrestricted cash and short term investments.  In addition, JetBlue maintains a $200 million line of credit and a revolving credit facility for up to $350 million.

“We continue to maintain a strong balance sheet with healthy liquidity,” said Mark Powers, JetBlue’s Chief Financial Officer.  “We expect to continue to use cash from operations to reduce debt, which we believe will help us achieve our return on invested capital goals and generate long-term returns for our shareholders.”

Third Quarter and Full Year Outlook

For the third quarter of 2013, CASM is expected to increase between 1.0% and 3.0% compared to the year-ago period.  Excluding fuel and profit sharing, CASM in the third quarter is expected to increase between 3.0% and 5.0% year over year.  JetBlue expects roughly half of this year over year increase to be driven by maintenance expense.

CASM for the full year is expected to increase between 0.5% and 2.5% over full year 2012.  Excluding fuel and profit sharing, CASM in 2013 is expected to increase between 2.5% and 4.5% year over year.

Capacity is expected to increase between 3.5% and 5.5% in the third quarter and to increase between 5.5% and 7.5% for the full year.

In other news, JetBlue Airways and South African Airways (SAA) today announced a bilateral codeshare agreement to connect the carriers’ networks via New York’s John F. Kennedy International Airport (JFK) and Washington’s Dulles International Airport (IAD). The agreement is pending U.S. DOT regulatory approval and subject to receipt of foreign government operating authority.

Copyright Photo: Michael B. Ing/AirlinersGallery.com. Airbus A320-232 N605JB (msn 2368) in the special Boston Red Sox color scheme prepares to depart from focus city Long Beach, CA.

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