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Module 2: Reformulation Regional Airlines - jetBlue. Michelle Kelly. Background. Low Budget Airline Headquartered in Queens, NY Major Airport: JFK Market Share: 5.1% Serve 84 destinations in 24 states. Background. Started in 1998 by former Southwest employees Modeled after Southwest
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Module 2: ReformulationRegional Airlines - jetBlue Michelle Kelly
Background • Low Budget Airline • Headquartered in Queens, NY • Major Airport: JFK • Market Share: 5.1% • Serve 84 destinations in 24 states
Background • Started in 1998 by former Southwest employees • Modeled after Southwest • Difference: jetBlue aims to be low cost but high quality. • One of the only airlines to make a profit after 9/11 • Since, fuel costs have severely hurt profits
Discussion • Restricted Cash • Restricted cash primarily consists of security deposits and performance bonds for aircraft and facility leases and funds held in escrow for estimated workers’ compensation obligations • Not available for use in operations, therefore classified as Financial Asset.
Discussion • Asset Constructed for Other • Built new Terminal 5 at JFK • Technically lease the ground the terminal sits on from Port Authority of New York and New Jersey (PANYNJ) • Considered the owner for financial reporting purposes • Used in operations, therefore considered an Enterprise Asset
Discussion • Air Traffic Liability • Tickets Sold but not yet used • Liabilities related to “True Blue” loyalty program and jetBlue credit cards • Related to operations, therefore Enterprise Liability • Construction Obligation • Related to building Terminal 5 at JFK • jetBlue has to pay back the PANYNJ the portion of the terminal they helped to pay for • Financial Liability
Discussion • Depreciation and Amortization/Capitalized Interest • Capitalized Interest is the interest the company must by paid on the debt owed to the PANYNJ • Occurs due to building of Terminal 5 (similar to depreciation) • Capitalized Interest increases the value of asset and is not deductible for tax purposes • Like Depreciation, included in calculation of EPAT
Unanswered Questions • Should the agreement jetBlue has with PANYNJ be considered a capital lease? • Even after paying back Construction Obligation, jetBlue still doesn’t own terminal • Is including capitalized interest in EPAT appropriate? • Why was there negative interest income in 2011? • Should taxes related to fuel costs be separated and added to the total tax expense when calculating EPAT to get a better idea of the true tax burden?