Does JetBlue Have Enough Cash To Support Losses In 2020?

by Trefis Team
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JetBlue Airways
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JetBlue Airways stock (NASDAQ: JBLU) has lost nearly 36% of its value since the beginning of the year. While there has been some uptick in passenger numbers at TSA checkpoints in recent weeks, the overall passenger demand is down by more than 80%. Trefis explores the impact of various demand recovery scenarios on JetBlue’s revenues, margins, and cash flows in the interactive dashboard analysis, Can JetBlue Survive The Covid-19 Recession? At $5 million of daily cash burn and gradual demand recovery possibly in Q3, the company has a strong liquidity position to cover fixed costs and repay its short-term debt obligations. Even in the pessimistic scenario, where demand recovery happens by October and the cash burn rate remains the same, the $3 billion of liquidity can address operating losses. However, if the demand does not recover by October, the daily cash burn rate would surge by $6 million just from employee costs. While the company can raise $1 billion in additional debt under the CARES Act, it would have to re-negotiate with all stakeholders to further reduce the cash outflow.

Scenario 1: Recovery Around June/July 2020

  • In 2019, JetBlue Airways generated $8 billion in revenues with 64 billion available seat miles (capacity), 84% occupancy rate, and $0.15 of passenger yield (ticket price).
  • Assuming the air travel demand to recover by July, JetBlue’s revenues would decline by 40% to $5 billion for the full year, including the negative impact of lower ticket prices and a gradual increase in occupancy rates.
  • As the maintenance costs, aircraft rent, and certain other operating expenses are necessary for base operations, the quarterly cash outgo towards these expense heads is likely to be $450 million, which roughly translates into a $5 million daily cash burn rate.
  • Despite low fuel expenses from a 90% reduction in capacity and the CARES Act grant for employee expenditure, JetBlue’s net margins are expected to slide into negative territory (ignoring impairments).
  • The company would be short by just $0.3 billion, which can be covered with the available liquidity of $3 billion.
  • Moreover, the company will be in a good position to repay the $1 billion of term loan, $550 million credit revolver, and $220 million of long-term debt obligations.

Scenario 2: Recovery Around September/October 2020

  • While such a scenario is expected to have a structural impact on the overall airline industry, the company would require the full $936 million of CARES act grant to cover employee costs.
  • The revenues would slide by more than 60% to $3 billion and net margins would deteriorate further.
  • However, the company’s cash reserves of $3 billion would be sufficient to address the $1 billion of operating cash outflow along with some part of near-term debt obligations.
  • JetBlue reduced its cash burn rate from $18 million per day in March to $10 million per day in May, by saving on fuel costs. Our calculations consider a $5 million daily cash burn rate, excluding fuel and salary costs.
  • As such a scenario would have a sizeable impact on margins due to high employee expenses, we expect the company to further reduce its cash burn rate by re-negotiating with contractors, employees, and other stakeholders.

While JetBlue has a strong cash position to cover losses until October, but Does American Airlines Have Enough Liquidity To Survive the Covid-19 Demand Shock?

Our dashboard forecasting US Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. Additionally, the complete set of coronavirus impact and timing analyses is available here.

 

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