JETBLUE AIRWAYS

In January 2012, Helena Morales was updating her JetBlue Airways (JetBlue) research report.
Morales, an equity analyst, followed major U.S. airline carriers. JetBlue was a low-cost airline that had
distinguished itself by offering in-flight entertainment and other amenities. JetBlue had started its operations
in 2000 and experienced a remarkable growth rate, leading the company to go public in 2002 (NASDAQ:
JBLU).

In 2005, JetBlue’s profits suffered a first hit due to rising jet fuel costs. Keeping an eye on jet fuel oil
prices was essential for an airlines analyst. Although airlines had applied fuel surcharges to the price of
tickets in the past, these surcharges were viable only when matched by competitors. Given the limited pass-
through to customers, fuel hedging protected the airline’s cost structure from spikes in jet fuel prices and
allowed airlines to follow their business plans. JetBlue entered into a variety of hedging instruments
including swaps, call options, and collar contracts with underlyings of jet fuel, crude, and heating oil. Some
of these derivatives could cost millions of dollars, however, and there was the risk that the airline would
suffer negative effects from a sharp decline in fuel prices.

Jet fuel prices passed the $3-per-gallon mark in 2011, the highest since 2008 (Exhibit 1 shows spot
jet fuel prices at a major trading hub: the U.S. Gulf Coast [USGC]). These levels were the result of a
dramatic year in the oil market due to the Arab Spring, civil war in Libya, and demand growth from China.
In its annual report, JetBlue reported that fuel costs were its largest operating expense, approaching nearly
40% of total operating costs in 2011. Table 1 shows fuel consumption and costs for the previous three years:

Table 1. Fuel consumption and costs for 2009–2011.

2009 2010 2011
Gallons consumed (millions) 455 486 525
Total cost ($ millions) $945 $1,115 $1,664
Average price per gallon $2.08 $2.29 $3.17
Percentage of operating expenses 31.4% 32.4% 39.8%
Source: JetBlue annual report, 2011.

Fuel costs had increased as a percentage of JetBlue’s operating expenses in the previous years
(Exhibit 2—Panel A). One reason for the increase was the airline’s expansion and the corresponding
increased fuel consumption (Exhibit 2—Panel B), but the main reason was the rise in the average price per
gallon of jet fuel.1

Morales took a detailed look at JetBlue’s Investor Update report released on October 26, 2011. The
company described hedging 45% of its fourth quarter 2011 consumption (Exhibit 3). She also looked at a
Bloomberg report that kept track of jet fuel hedging positions of other U.S., European, and Asian airlines
(Exhibit 4). With the exception of US Airways, all major U.S. airlines had hedged about half of their fuel
needs for the last quarter of the year; however, the situation was quite different for European and Asian
airlines. Many of these airlines relied on West Texas Intermediate (WTI) crude oil hedges. JetBlue had used
crude oil derivatives contracts for more than half of its 2011 hedging (Exhibit 3). But there were concerns
that airlines would suffer losses because of WTI’s hedge ineffectiveness, which had been caused by a major
development in the oil market: WTI, the main U.S. oil price benchmark, had become less well correlated
with the global crude oil market (Exhibits 5 and 6).

In 2011, WTI started trading at a discount to the leading global price European benchmark Brent
crude (Brent) due to an oil glut in Cushing, Oklahoma—the physical delivery hub for the WTI oil futures
contracts for the Chicago Mercantile Exchange Group (CME Group). Cushing was known as the “pipeline
crossroads of the world,” but it was facing a bottleneck. Brent’s premium to WTI reached a record level of
almost $30 per barrel in September 2011. Jet fuel prices had tracked the price of Brent, instead of WTI, for
much of 2011 (Exhibits 5 and 6). The WTI dislocation affected jet fuel hedging strategies because of basis
risk—i.e., that the jet fuel price would not change perfectly in tandem with the value of the WTI derivative
instrument used to hedge it.

Could the Brent-WTI premium be a temporary phenomenon? The oil glut in Cushing was due to
record crude oil production from the Bakken shale formation and Canadian oil sands. But in November, there
were signs that transportation constraints were easing after news of the coming reversal of the Seaway
Pipeline, and the price of the Brent-WTI premium fell almost $20 per barrel; however, the spread ended the
year close to $10 per barrel, still high by historical standards. Morales knew she had to cover JetBlue’s jet
fuel hedging strategy for 2012. Would JetBlue continue using WTI for its hedges, or would it switch to Brent
or heating oil?

Basics of Jet Fuel

Aircrafts were powered by kerosene-type jet fuel, which was distilled from crude oil. The petroleum
first extracted from the ground was crude oil that was transported by pipeline or ship to be refined closer to
consumers. Refineries used a process of distillation to separate crude oil into usable refined products. The
typical mix is shown in Figure 1. A 42-gallon barrel (bbl.) of U.S. crude oil provided about 45 gallons of
petroleum products, approximately 10% of which was jet fuel. In the spectrum, jet fuel was categorized as a
middle distillate between light distillates (e.g., gasoline) and heavy distillates and residuum (e.g., asphalt).

Figure 1. Typical mix of usable refined products.

Data source: U.S. Energy Information Administration, “Oil: Crude and Petroleum Products
Explained,” http://www.eia.gov/energyexplained/index.cfm?page=oil_home.

As of 2011, there were no exchange-traded futures contracts directly on jet fuel, and trading was
concentrated in crude oil benchmarks (Exhibit 7). The first one was WTI oil produced in the United States
and traded in the CME Group.2 WTI futures were the world’s largest-volume futures contract on a
commodity, and the contracts were physically settled. The second major benchmark was Brent, produced in
the North Sea and the underlying for futures traded electronically in the Intercontinental Exchange (ICE).
Brent contracts were financially settled. Despite the small output compared to other grades such as Arab
Light, Urals, or Iranian Heavy, trading was concentrated in WTI and Brent because their pricing was
transparent. Exhibit 7 shows the exchange-traded futures contracts on other middle distillates such as heating
oil futures and light distillates such as gasoline, but these contracts had much lower trading volumes.

The process of distillation linked the prices of refined petroleum such as jet fuel to crude oil, as
shown in the high correlation in Exhibit 5. The refining margin or “crack spread” was defined as the
difference between the price of refined petroleum such as jet fuel less the price of crude oil. See Panel B of
Exhibit 5. At the end of December 2011, oil refiners were getting over $23 a barrel (or $0.5 a gallon) in
profit for refining crude oil into jet fuel. From 2007 to 2011, the crack spread had oscillated from $3.9 to a
maximum of $41.9 per barrel (from $0.09 to $1 per gallon). This variation constituted basis risk for any jet
fuel hedging strategy based on crude oil derivatives. The term “basis risk” was used to describe the risk that
the value of the commodity being hedged may not change perfectly in tandem with the value of the
derivative instrument used to hedge the price risk. In this case, basis risk occurred because there was a
mismatch in the quality of the underlying products because jet fuel and crude oil were different commodities.

The Divergence between WTI and Brent Oil Prices

Brent was a low-sulfur (sweet) crude oil used to price two-thirds of the world’s internationally traded
crude oil supplies, according to ICE. In contrast to Brent’s waterborne cargo market where crude oil arrived
in discrete quantities, WTI was a midcontinent pipeline market where crude oil flowed continuously at near-
constant rates. Exhibit 8 shows the location of Cushing—the physical settlement point for WTI oil futures—
and the Brent oilfield. As of 2011, Cushing was landlocked, and oil only flowed north to refineries in
Chicago, not south to the USGC. Brent was a more flexible waterborne market, but oil production from the
North Sea was expected to shrink.

In 2011, Brent traded well above WTI (Exhibit 5). The widening of the Brent price premium to WTI
was unusual. In the past, Brent was more likely to trade at a slight discount of $1 to $2 to WTI, due to WTI’s
relatively higher quality. The rising crude production from the Bakken shale formation and Canadian oil
sands that had created the oil glut in Cushing turned the typical discount of Brent over WTI into a premium,
and the Brent-WTI spread reached a record of $29.70 per barrel on September 22, 2011.

In October and November, there were signs that transportation constraints were beginning to ease,
and the Brent price premium to WTI narrowed. On November 16, ConocoPhillips agreed to sell its 50%
share of the Seaway crude oil pipeline to Enbridge Inc. The new ownership announced that it intended to
reverse oil flows to run north to south starting as early as the second quarter of 2012 to partially alleviate the
oil glut by allowing crude oil to move from the Cushing hub to refineries located on the USGC. Following
the announcement of the reversal, the difference between the spot price of Brent crude oil and WTI fell to
under $10 per barrel in December 2011. Yet in a report at that time, the U.S. Energy Information
Administration (EIA) had cast doubt on whether the situation could be resolved: The reversal of the Seaway
pipeline will not eliminate bottlenecks moving WTI’s crude oil to downstream markets. With crude oil
production increases from Canada and the Bakken and other shale formations in the coming years expected
to continue, the market will still be dependent on rail as the marginal mode of transportation, meaning some
discount will be required to account for the costs of moving inland U.S. crudes to the Gulf Coast.

Hedging Jet Fuel Price Risk at JetBlue

Fuel represented about 40% of JetBlue’s costs; thus the airline viewed its fuel hedging as an
insurance policy. Airlines found it hard to apply fuel surcharges to the price of tickets if these were not
matched by competitors. Given the limited pass-through to customers, fuel hedging protected the airline’s
cost structure. But purchasing the derivatives could be costly, and there was the risk that the airline would
suffer negative effects as a result of a sharp decline in fuel prices. In addition, there was the issue of basis
risk between jet fuel and the hedging instruments based on crude oil prices because the crack spread
fluctuated and added to airlines’ costs.

JetBlue’s fuel hedging book combined swaps and options. The company disclosed details of
advanced fuel derivative contracts for each quarter in 2011 (Exhibit 9). Airlines preferred these over-the-
counter derivatives to exchange-traded futures because they were customizable. The hedge positions were
mostly negotiated with banks, which would normally offset their positions with contracts with other market
participants (e.g., oil producers) or directly using CME Group or ICE exchange-traded futures and options.

WTI calls were the right to buy a particular WTI asset (WTI) for a fixed strike price at a time until a
maturity date. There were some WTI exchange-traded options at the CME Group (previously called the
NYMEX), but it was likely that JetBlue was using over-the-counter options where the settlement price was
based on the average price over a given period (instead of the exact spot price at expiration). Buying the call
option would protect the airline against a rise in the price of WTI crude oil. Of course, this would be a cross-
market hedge involving some basis risk, as its natural position was in jet fuel, but it would work so long as
WTI and jet fuel price changes stayed highly correlated. JetBlue would have to pay an option premium for
these contracts, which were a form of insurance policy. For example, on October 26, 2011, the company had
reported that it had hedged the equivalent of 7% of its 2011Q4 jet fuel consumption at a price of $92 per
barrel (Exhibit 9). As the WTI spot price had increased and closed at $98.83 per gallon (Exhibit 6) at the
end of December 2011, JetBlue had a gain on this hedge, which would keep JetBlue’s cost at $92 per barrel
(not accounting for the premium).

A WTI (or heating oil) collar was the combination of a put and call option whose underlying asset
was the WTI crude oil (or heating oil) spot price. It involved the purchase of call options where a premium
was paid up front, but if prices increased, JetBlue would be protected. If prices decreased, then it lost the
premium cost. The cost of these call options was offset with the sale of put options. Using the collar strategy,
JetBlue would create a hedged position whereby it would have a minimum (floor) and maximum (cap) price
on the underlying commodity. For example, on October 26, 2011, the company had reported that it had
hedged the equivalent of 9% of its 2011Q4 jet fuel consumption at a price with a cap at $100 per barrel and a
floor at $81 per barrel (Exhibit 9). The WTI spot price had increased and closed at $98.83 per gallon
(Exhibit 6) at the end of December 2011, so it had not gained or lost from this hedge. This did not account
for the collar net premium. The relative cost of put and call options depended on strike prices and volatility
levels. A “zero-cost collar” could be structured so that the premium from selling the put option could offset
the premium for the call option.

USGC jet fuel swaps were agreements to exchange the floating price of spot USGC jet fuel for a
fixed price over a certain period of time. The differences between fixed and floating prices were typically
cash settled. A swap can be thought of as a package of forward purchase agreements. JetBlue would be
typically the fixed-price payer, thus allowing it to hedge the fuel price risk. For example, on October 26,
2011, the company had reported that it had hedged 12% of its 2011Q4 jet fuel consumption at a fixed price
of $3.00 per gallon (Exhibit 9). The spot price of USGC jet fuel had fallen to $2.917 per gallon (Exhibit 6)
by December 2011, so it had suffered a loss on this hedge.

JetBlue’s fuel hedging strategy had evolved over the years (Exhibit 3). The company’s approach to
fuel hedging was to enter into hedges on a discretionary basis without specific targets. It hedged less in 2009
when oil prices were low and increased the percentage hedged again in 2010 and 2011. Dynamic strategies
were based on the idea that oil prices followed a mean-reverting process. Ideally, airlines wanted to lock in
prices at the low point in the cycle while capping prices at the high end but take advantage of eventual price
declines. It was not clear whether the airline stood to gain from adjusting its strategy. Additionally, JetBlue
had switched between derivatives written on different oil products. It had moved its hedging from heating oil
between 2007 to 2009 to crude oil derivatives in 2010 and 2011, but it had recently reverted to heating oil
derivatives and directly to jet fuel swaps.

For derivative positions to be treated as cash flow hedges for accounting purposes, it was important
that the hedges were effective. Testing for hedge effectiveness was ruled by Statement of Financial
Accounting Standards. In its annual report, JetBlue stated its procedures in this respect (Exhibit 10). Morales
wondered whether hedge ineffectiveness of WTI derivatives contracts might become an issue for JetBlue’s
2012 fuel hedges and, if so, whether that would be another reason for JetBlue to consider switching to Brent
or heating oil derivatives.

The Way Forward

Most U.S. airlines used WTI as the basis for their fuel hedges; however, for most of 2011, jet fuel
prices had been tracking Brent more closely than WTI, and the increase in the jet- fuel-to-WTI refining
margin was disrupting hedging programs. Several airlines reported large markdowns for fuel hedge
ineffectiveness in the third quarter of 2011. United Continental reported a $56 million markdown. “During
the quarter, WTI crude oil prices decreased while jet fuel prices remained high,” United Continental declared
in a statement accompanying its quarterly results. Southwest Airlines had been a pioneer in fuel hedging.
From 2000 to 2010, it saved an estimated $3.5 billion in fuel costs due to hedging. In 2011, however, it took
a $227 million noncash markdown related to the hedge ineffectiveness of its hedge portfolio in large part due
to the Brent-WTI divergence. The company was more optimistic for 2012. “To the extent we see WTI and
Brent coming together, I think that the hedges we have in place will really give us much better protection
than they were when WTI was trading at a discount,” said Southwest Airlines CFO Laura Wright.

Delta Air Lines decided to switch its hedges from WTI to Brent in the spring of 2011. “We’ve needed
to restructure our hedge position,” said Delta Air Lines President Ed Bastian. “Given the fact that jet fuel is
now being prompted and priced off of those Brent prices, we’ve needed to go in and reorient our hedge book
toward Brent and heating oils, as compared to WTI,” Bastian told an investor conference in March 2011. For
2012, many market participants expected the Brent-WTI spread to narrow. As the spread tightened, it could
hurt Delta Air Lines and others pricing against Brent. But another bottleneck could emerge at Cushing,
depending on what happened to projects in Canada and North Dakota. There was, of course, the risk that
these analysts were wrong, and WTI would continue to decouple from global oil markets. Increasing
Canadian supplies and a lack of export pipelines to the USGC would lead to inventory buildup around
Cushing, and pipelines were unlikely to be reversed. The poor infrastructure of a land-locked delivery
location could lead to the demise of WTI as the main oil benchmark. Heating oil prices, such as WTI, were
also too domestically driven. Brent, on the other hand, was a water-borne contract and could potentially start
fulfilling the key index role for oil prices. Morales wondered whether JetBlue would continue to stick with
WTI as a basis for its 2012 fuel hedges or switch to an alternative such as Brent or heating oil.
 Exhibit 1
2012 FUEL HEDGING AT JETBLUE AIRWAYS
USGC Kerosene-Type Jet Fuel Spot Prices, 1990–2011 (End-of-Month)

Data source: “Petroleum & Other Liquids, Spot Prices,” U.S. Energy Information Administration website,
http://www.eia.gov/dnav/pet/pet_pri_spt_s1_d.htm.
 Exhibit 2
2012 FUEL HEDGING AT JETBLUE AIRWAYS
JetBlue Airways—Jet Fuel Cost and Consumption (2007–2011, Quarterly) Panel A: JetBlue
Airways—Jet fuel cost as percentage of operating expense (quarterly)

Data source: Research and Innovative Technology Administration, U.S. Department of

Transportation, “Air Carrier Financial: Schedule P-6
http://www.transtats.bts.gov/DL_SelectFields.asp?Table_ID=291&DB_Short_ Name=Air Carrier
Financial.

Panel B: JetBlue Airways—jet fuel consumption in millions of gallons (quarterly)

Data source: U.S. Department of Transportation, “Airline Fuel Cost and Consumption (U.S.
Carriers—Scheduled) January 2000–February 2013,”
http://www.transtats.bts.gov/fuel.asp?pn=1.
 Exhibit 3
2012 FUEL HEDGING AT JETBLUE AIRWAYS
JetBlue—Fuel Percentage Hedged (2007–2012, Quarterly)
 Exhibit 3 (continued)

JetBlue—Fuel Percentage Hedged (2007–2012, Quarterly)

% Est. Consumption Hedged - current quarter

Millions of Gallons Hedged Jet Fuel
% Hedged—Crude Oil (WTI) % Hedged—Heating Oil % Hedged—Jet Fuel % Not Hedged
(in current quarter) ($ per gal.)
2007Q1 67% 72 33% 2.02
2007Q2 11% 42% 11% 73 36% 2.09
2007Q3 11% 40% 60 49% 2.29
2007Q4 47% 53 53% 2.67
2008Q1 35% 41 65% 3.06
2008Q2 46% 54 54% 4.02
2008Q3 46% 53 54% 3.02
2008Q4 40% 43 60% 1.32
2009Q1 9% 10 91% 1.34
2009Q2 9% 10 91% 1.79
2009Q3 9% 10 91% 1.79
2009Q4 9% missing data 91% 2.09
2010Q1 15% 5% 44% 76 36% 2.19
2010Q2 18% 5% 19% 52 58% 1.99
2010Q3 18% 5% 19% missing data 58% 2.24
2010Q4 19% 24% 54 57% 2.53
2011Q1 29% 5% 3% 44 63% 3.16
2011Q2 36% 5% 2% 57 57% 3.00
2011Q3 32% 9% 7% 67 52% 2.84
2011Q4 21% 10% 14% 60 55% 2.92
2012Q1* 7% 7% 9% 31 (est.) 77%
2012Q2* 6% 7% 9% 31 (est.) 78%
2012Q3* 4% 6% 8% 31 (est.) 82%
2012Q4*

*Information as of 2011Q4, at which time the hedging programs for 2012 were still not fully put in place.
Notes: “% Hedged” is the percentage of fuel consumption hedged using derivatives for the current quarter as reported in each quarter.
Source: “JBLU Investor Relations—Investor Update,” JetBlue website, http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol-investorUpdate.
Jet fuel spot prices are from: “Petroleum & Other Liquids, Spot Prices,” U.S. Energy Information Administration website,
http://www.eia.gov/dnav/pet/pet_pri_spt_s1_d.htm.
 Exhibit 4
2012 FUEL HEDGING AT JETBLUE AIRWAYS
Jet Fuel Hedging Positions for Major U.S. Airlines

Region Company Disclosure Date % Hedged Hedging Period

U.S. Alaska Air Group Inc. 10/20/2011 50% Fourth quarter
American Airlines 10/19/2011 52% Fourth quarter
Delta Air Lines Inc. 10/25/2011 40% First half 2012
Hawaiian Airlines 10/18/2011 56% Fourth quarter
JetBlue Airways
10/26/2011 45% Fourth quarter
Corporation
Southwest Airlines Co. 10/20/2011 hedged* Fourth quarter
United Continental
10/27/2011 56% Fourth quarter
Holdings Inc.
US Airways Group Inc. 10/27/2011 0% Fourth quarter
WestJet Airlines 11/9/2011 24% Fourth quarter
Air France-KLM October to
Europe November 2011 57%
Group December 2011
January to March
Aer Lingus Group Plc. February 2012 86%
2012
Deutsche Lufthansa
March 2012 74% 2012
AG
Year to September
EasyJet Plc. March 2012 75%
2012
Year to March
Ryanair Holdings Plc. January 2012 90%
2012
SAS Group May 2012 50% April to June 2012
Asia Air China March 2012 20% FY11/12
Cathay Pacific March 2011 27% FY11/12
China Airlines March 2011 0% FY11/12
China Eastern Airlines March 2011 0% FY11/12
China Southern
March 2011 0% FY11/12
Airlines
EVA Airways
March 2011 10% FY11/12
Corporation
Jet Airways March 2011 0% FY11/12
Korean Air March 2011 8% FY11/12
Qantas Airways March 2011 27% FY11/12
Singapore Airlines March 2011 10% FY11/12

*Exact percentage not disclosed in the earnings release.

Data source: Bloomberg, “Jet Fuel Hedging Positions for U.S., Canadian Airlines,” November 10, 2011; “Jet Fuel Hedging
Positions for Europe-Based Airlines,” May 3, 2012; HSBC Global Research, “Asian Airlines— Fuelling a Shift to
Premium Carriers,” March 3, 2011.
 Exhibit 5
2012 FUEL HEDGING AT JETBLUE AIRWAYS
Jet Fuel, Heating Oil, and Crude Oil (WTI and Brent) Spot Prices (2007–2011, Monthly) Panel A:

Spot Prices

Data source: “Petroleum & Other Liquids, Spot Prices,” U.S. Energy Information Administration website,
http://www.eia.gov/dnav/pet/pet_pri_spt_s1_d.htm.
 Exhibit 5 (continued)

Jet Fuel, Heating Oil, and Crude Oil (WTI and Brent) Spot Prices (2007–2011, Monthly) Panel B:

Difference in Prices between Jet Fuel and Crude Oil (Crack Spread) and Heating Oil

Source: Author calculations based on prices in Panel A.

 Exhibit 6
2012 FUEL HEDGING AT JETBLUE AIRWAYS
Jet Fuel, Heating Oil, WTI, and Brent Crude Oil Spot Prices, 2007–2011 (Monthly)

JET FUEL HEATING OIL

WTI BRENT
(U.S. Gulf Coast (New York Harbor
(Cushing, OK WTI (Europe Brent Spot
Year Kerosene-Type Jet No. 2 Heating Oil
Spot Price FOB, Price FOB, Dollars
Fuel Spot Price FOB, Spot Price FOB,
Dollars per Barrel) per Barrel)
Dollars per Gallon) Dollars per Gallon)
Jan-2007 1.759 58.17 56.52 1.681
Feb-2007 1.853 61.78 59.39 1.781
Mar-2007 2.017 65.94 68.47 1.871
Apr-2007 2.049 65.78 67.23 1.897
May-2007 2.044 64.02 68.18 1.892
Jun-2007 2.09 70.47 72.22 2.023
Jul-2007 2.198 78.2 77.01 2.095
Aug-2007 2.135 73.98 72.29 2.037
Sep-2007 2.288 81.64 80.97 2.199
Oct-2007 2.592 94.16 89.87 2.506
Nov-2007 2.568 88.6 88.71 2.499
Dec-2007 2.673 95.95 93.68 2.648
Jan-2008 2.572 91.67 91.58 2.523
Feb-2008 2.915 101.78 100.9 2.806
Mar-2008 3.061 101.54 102.33 3.078
Apr-2008 3.329 113.7 111.12 3.195
May-2008 3.736 127.35 127.85 3.647
Jun-2008 4.02 139.96 138.4 3.89
Jul-2008 3.554 124.17 124.1 3.435
Aug-2008 3.296 115.55 113.49 3.15
Sep-2008 3.022 100.7 93.52 2.851
Oct-2008 2.094 68.1 60 2.085
Nov-2008 1.76 55.21 47.72 1.696
Dec-2008 1.32 44.6 35.82 1.314
Jan-2009 1.416 41.73 44.17 1.437
Feb-2009 1.265 44.15 44.41 1.271
Mar-2009 1.341 49.64 46.13 1.336
Apr-2009 1.294 50.35 50.3 1.299
May-2009 1.672 66.31 64.98 1.636
Jun-2009 1.788 69.82 68.11 1.715
Jul-2009 1.831 69.26 70.08 1.793
Aug-2009 1.781 69.97 69.02 1.773
Sep-2009 1.794 70.46 65.82 1.805
Oct-2009 1.976 77.04 74.91 1.965
Nov-2009 2.004 77.19 77.77 1.984
Dec-2009 2.088 79.39 77.91 2.109
 Exhibit 6 (continued)

JET FUEL HEATING OIL

WTI BRENT
(U.S. Gulf Coast (New York Harbor
(Cushing, OK WTI (Europe Brent Spot
Year Kerosene-Type Jet No. 2 Heating Oil
Spot Price FOB, Price FOB, Dollars
Fuel Spot Price FOB, Spot Price FOB,
Dollars per Barrel) per Barrel)
Dollars per Gallon) Dollars per Gallon)
Jan-2010 1.91 72.85 71.2 1.894
Feb-2010 2.055 79.72 76.36 2.02
Mar-2010 2.188 83.45 80.37 2.162
Apr-2010 2.324 86.07 86.19 2.265
May-2010 2.039 74 73 2.006
Jun-2010 1.993 75.59 74.94 1.975
Jul-2010 2.093 78.85 77.5 2.038
Aug-2010 2.01 71.93 75.51 1.966
Sep-2010 2.239 79.95 80.77 2.239
Oct-2010 2.253 81.45 82.47 2.211
Nov-2010 2.291 84.12 86.02 2.288
Dec-2010 2.528 91.38 93.23 2.546
Jan-2011 2.742 90.99 98.97 2.723
Feb-2011 2.998 97.1 112.27 2.928
Mar-2011 3.161 106.19 116.94 3.098
Apr-2011 3.368 113.39 126.59 3.263
May-2011 3.134 102.7 117.18 3.049
Jun-2011 2.996 95.3 111.71 2.936
Jul-2011 3.161 95.68 115.93 3.086
Aug-2011 3.113 88.81 116.48 3.068
Sep-2011 2.844 78.93 105.42 2.781
Oct-2011 3.028 93.19 108.43 3.04
Nov-2011 3.001 100.36 111.22 3.012
Dec-2011 2.917 98.83 108.09 2.917

Data source: “Petroleum & Other Liquids, Spot Prices,” U.S. Energy Information Administration website,
http://www.eia.gov/dnav/pet/pet_pri_spt_s1_d.htm.
 Exhibit 7
2012 FUEL HEDGING AT JETBLUE AIRWAYS
Most Heavily Traded Energy Futures Contracts (October 2011)

CME Group Futures—

Monthly Volume of Contracts
Light sweet crude oil (WTI) 14,785,297
Natural gas futures (Henry Hub) 7,199,901
Heating oil 2,964,162
RBOB gasoline 2,791,760
PJM financially settled electricity 211,304
Data source: CME Group, “CMEG Exchange Volume Report—Monthly October 2011,”
http://www.cmegroup.com/wrappedpages/web_monthly_report/Web_Volume_Report_CME G.pdf.

ICE Europe Futures—

Monthly Volume of
Contracts
Brent 12,454,684
Gas oil 6,655,441
WTI 4,132,829
Heating oil 77,063
RBOB gasoline 79,862
Coal 117,818
EU natural gas 577,605
Electricity 915
Emissions 561,522
Data source: IntercontinentalExchange, “ICE Futures Europe—Futures Monthly Volume,”
https://www.theice.com/marketdata/reports/ReportCenter.shtml#report/7.
 -

Exhibit 8
2012 FUEL HEDGING AT JETBLUE AIRWAYS
Physical Location of WTI versus Brent Crude Oil Panel A:

Location of Cushing, OK (settlement point for WTI)

Panel B: Location of the Brent Oilfield

Source: International Energy Agency, “Oil Supply Security 2007,”

http://www.iea.org/publications/freepublications/publication/oil_security.pdf.
 Exhibit 9
2012 FUEL HEDGING AT JETBLUE
AIRWAYS
JetBlue—Fuel Hedges (2011Q1 to 2011Q4)

Investor Update:
1/27/2011 2011Q1
Gallons (in millions) 44
(est. % of consumption) 37%
18% in crude call options with
Hedge 1
the average cap at $92/bbl.
11% in crude collars with the
Hedge 2 average cap at $99/bbl. and the
average put at $82/bbl.
5% in heat collars with the
average cap at $2.61/gal. and
Hedge 3 the average put at $2.21/gal.
3% in USGC jet fuel swaps at
Hedge 4
an average of $2.29/gal.
Estimated fuel gallons
119
consumed (in millions)
Estimated average fuel
price per gallon, net of $2.84
hedges
2011Q2
50
38%
21% in crude call options with the average
cap at $93/bbl.
10% in crude collars with the average cap
at $100/bbl. and the average put at
$80/bbl.
5% in crude 3-way collars with the
average purchased call at $100/bbl., the
average sold call at $110/bbl. and the
average put at $85/bbl.
2% in USGC jet fuel swaps at an average
of $2.32/gal.
2011Q3 2011Q4
45 28
31% 21%
18% in crude call options with the 7% in crude call options with
average cap at $94/bbl. the average cap at $92/bbl.
9% in crude collars with the 9% in crude collars with the
average cap at $100/bbl. and the average cap at $100/bbl. and
average put at $80/bbl. the average put at $81/bbl.
4% in crude 3-way collars with the 5% in crude 3-way collars
average purchased call at with the average purchased
$100/bbl., the average sold call at call at $100/bbl., the average
$110/bbl. and the average put at sold call at $110/bbl. and the
$83/bbl. average put at $80/bbl.
 Exhibit 9 (continued)

JetBlue—Fuel Hedges (2011Q2 to

2012Q1)

Investor Update:
4/21/2011 2011Q2 2011Q3 2011Q4 2012Q1
Gallons (in millions) 57 51 35 9
(est. % of
43% 36% 26%
consumption) 8%
21% in crude call options with 18% in crude call options with the 7% in crude call options with the 3% in crude call options
Hedge 1 the average cap at $93/bbl. average cap at $94/bbl. average cap at $92/bbl. with the average cap at
$99/bbl.
10% in crude collars with the 9% in crude collars with the average cap 10% in crude collars with the 5% in crude collars with
average cap at $100/bbl. and at $100/bbl. and the average put at average cap at $100/bbl. and the the average cap at
Hedge 2
the average put at $80/bbl. $80/bbl. average put at $81/bbl. $98/bbl. and the average
put at $78/bbl.
5% in crude 3-way collars with 5% in crude 3-way collars with the 5% in crude 3-way collars with the
the average purchased call at average purchased call at $100/bbl., the average purchased call at
Hedge 3 $100/bbl., the average sold call average sold call at $110/bbl. and the $100/bbl., the average sold call at
at $110/bbl. and the average average put at $83/bbl. $110/bbl. and the average put at
put at $85/bbl. $80/bbl.
5% in heat collars with the 4% in heat collars with the average cap at 4% in heat collars with the average
Hedge 4 average cap at $3.24/gal. and $3.27/gal. and the average put at cap at $3.31/gal. and the average
the average put at $2.84/gal. $2.87/gal. put at $2.91/gal.
2% in USGC jet fuel swaps at
Hedge 5
an average of $2.32/gal.
Estimated fuel
gallons consumed 133
(in millions)
Estimated average
fuel price per gallon, $3.37
net of hedges
 Exhibit 9 (continued)

JetBlue—Fuel Hedges (2011Q3 to

2011Q2)

Investor Update:
7/26/2011 2011Q3 2011Q4 2012Q1 2012Q2
Gallons (in
67 51 22 22
millions)
(est. % of
48% 38% 18%
consumption) 16%
18% in crude call options with the 7% in crude call options with the 3% in crude call options with the 2% in crude call options with
Hedge 1
average cap at $94/bbl. average cap at $92/bbl. average cap at $99/bbl. the average cap at $99/bbl.
9% in crude collars with the average 9% in crude collars with the 5% in crude collars with the 5% in crude collars with the
Hedge 2 cap at $100/bbl. and the average put at average cap at $100/bbl. and the average cap at $98/bbl. and the average cap at $97/bbl. and
$80/bbl. average put at $81/bb average put at $78/bbl. the average put at $78/bbl.
5% in crude 3-way collars with the 5% in crude 3-way collars with the 8% in heat collars with the 7% in heat collars with the
average purchased call at $100/bbl., average purchased call at average cap at $3.31/gal. and the average cap at $3.27/gal. and
Hedge 3 the average sold call at $110/bbl. and $100/bbl., the average sold call at average put at $2.91/gal. the average put at $2.87/gal.
the average put at $83/bbl. $110/bbl. and the average put at
$80/bbl.
9% in heat collars with the average cap 9% in heat collars with the average 2% in USGC jet fuel swaps at an 2% in USGC jet fuel swaps
Hedge 4 at $3.26/gal. and the average put at cap at $3.30/gal. and the average average of $3.15/gal. at an average of $3.14/gal.
$2.86/gal. put at $2.90/gal.
7% in USGC jet fuel swaps at an 8% in USGC jet fuel swaps at an
Hedge 5
average of $3.03/gal. average of $3.03/gal.
Estimated fuel
gallons consumed 142
(in millions)
Estimated average
fuel price per
$3.33
gallon, net of
hedges
 Exhibit 9 (continued) JetBlue—Fuel Hedges (2011Q4 to 2012Q3)

Investor Update:
10/26/2011 2011Q4 2012Q1 2012Q2 2012Q3
Gallons (in millions) 60 31 31 31
(est. % of
45% 23% 22%
consumption) 18%
7% in crude call options with the 2% in crude call options 2% in crude call options with the 4% in crude collars with the
Hedge 1 average cap at $92/bbl. with the average cap at average cap at $99/bbl. average cap at $97/bbl. and
$99/bbl. the average put at $78/bbl.
9% in crude collars with the average 5% in crude collars with the 4% in crude collars with the average 6% in heat collars with the
Hedge 2 cap at $100/bbl. and the average put at average cap at $98/bbl. and cap at $97/bbl. and the average put at average cap at $3.28/gal. and
$81/bbl. the average put at $78/bbl. $78/bbl. the average put at $2.87/gal.
5% in crude 3-way collars with the 7% in heat collars with the 7% in heat collars with the average 6% in USGC jet fuel swaps
average purchased call at $100/bbl., average cap at $3.27/gal. and cap at $3.27/gal. and the average put at an average of $3.05/gal.
Hedge 3
the average sold call at $110/bbl. and the average put at $2.87/gal. at $2.87/gal.
the average put at $80/bbl.
10% in heat collars with the average 7% in USGC jet fuel swaps 7% in USGC jet fuel swaps at an 2% in USGC jet fuel collars
cap at $3.30/gal. and the average put at at an average of $3.03/gal. average of $3.02/gal. with the average cap at
Hedge 4
$2.90/gal. $3.02/gal. and the average
put at $2.72/gal.
12% in USGC jet fuel swaps at an 2% in USGC jet fuel collars 2% in USGC jet fuel collars with the
average of $3.00/gal. with the average cap at average cap at $3.01/gal. and the
Hedge 5
$3.04/gal. and the average average put at $2.71/gal.
put at $2.74/gal.
2% in USGC jet fuel collars with the
Hedge 6 average cap at $3.04/gal. and the
average put at $2.74/gal.
Estimated fuel gallons
133
consumed (in millions)
Estimated average fuel
price per gallon, net of $3.23
hedges

Source: “JBLU Investor Relations—Investor Update,” JetBlue website, http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol-investorUpdate.

 Exhibit 10
2012 FUEL HEDGING AT JETBLUE AIRWAYS
JetBlue Airways—Disclosure on Accounting Treatment of
Fuel Hedges

“The Derivatives and Hedging topic is a complex accounting standard and requires
that we develop and maintain a significant amount of documentation related to (1)
our fuel hedging program and strategy, (2) statistical analysis supporting a highly
correlated relationship between the underlying commodity in the derivative financial
instrument and the risk being hedged (i.e. aircraft fuel) on both a historical and
prospective basis and (3) cash flow designation for each hedging transaction
executed, to be developed concurrently with the hedging transaction. This
documentation requires that we estimate forward aircraft fuel prices since there is
no reliable forward market for aircraft fuel. These prices are developed through the
observation of similar commodity futures prices, such as crude oil and/or heating
oil, and adjusted based on variations to those like commodities. Historically, our
hedges have settled within 24 months; therefore, the deferred gains and losses have
been recognized into earnings over a relatively short period of time.

(…) We attempt to obtain cash flow hedge accounting treatment for each aircraft
fuel derivative that we enter into. This treatment is provided for under the
Derivatives and Hedging topic of the Codification, which allows for gains and losses
on the effective portion of qualifying hedges to be deferred until the underlying
planned jet fuel consumption occurs, rather than recognizing the gains and losses on
these instruments into earnings during each period they are outstanding. The
effective portion of realized aircraft fuel hedging derivative gains and losses is
recognized in fuel expense in the period the underlying fuel is consumed.

Ineffectiveness results, in certain circumstances, when the change in the total fair
value of the derivative instrument differs from the change in the value of our
expected future cash outlays for the purchase of aircraft fuel and is recognized
immediately in interest income and other. Likewise, if a hedge does not qualify for
hedge accounting, the periodic changes in its fair value are recognized in the period
of the change in interest income and other. When aircraft fuel is consumed and the
related derivative contract settles, any gain or loss previously recorded in other
comprehensive income is recognized in aircraft fuel expense. All cash flows related
to our fuel hedging derivatives are classified as operating cash flows.”

Source: JetBlue annual report, 2011.