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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 reformulation regional airlines jetblue

Module 2: ReformulationRegional Airlines - jetBlue

Michelle Kelly


Background
Background

  • Low Budget Airline

  • Headquartered in Queens, NY

  • Major Airport: JFK

  • Market Share: 5.1%

  • Serve 84 destinations in 24 states


Background1
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
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.


Discussion1
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




Discussion2
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







Discussion3
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
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?