JetBlue Airways' inability to control costs and misplaced capacity increases cost it dearly in the final quarter of 2005 as it suffered a net loss of $42.4 million--by far its worst quarterly performance since it started service in February 2000.JetBlue earned $1.5 million in the year-ago quarter. The surprising 2005 result plunged the carrier into the red for the fiscal year ended Dec. 31. It posted a $20.3 million annual loss compared to a $46.2 million profit in 2004. In addition, it is forecasting a loss in both the current quarter and for full-year 2006.

Chairman and CEO Dave Neeleman said, "A lot of this is our own doing" as the airline was unable to recover from a disastrous October when hurricanes drove fuel costs skyward and forced cancellations that sapped revenue. "It would be nice to have hedges like Southwest, because if we did we'd have a similar margin to theirs. But frankly, we don't," he said. "We are transitioning from an airline used to lower fuel prices that has to get used to higher fuel prices."

Fourth-quarter revenues rose 34% over the year-ago quarter to $446 million, but expenses increased 48.3% to $477.5 million. Included in that figure were one-time charges consisting of $6.9 million in noncash stock-based compensation expense related to the accelerated vesting of some employee stock options and $6.1 million for developmental costs related to a scrapped maintenance and inventory tracking system. Operating loss was $31.5 million compared to a $10.8 million profit in the fourth quarter of 2004.

Traffic increased 22% to 5.16 billion RPMs but capacity rose 24.7% to 6.36 billion ASMs, dropping load factor 1.8 points to 81.1%. "We were our own worst enemy by adding too much capacity in certain markets," Neeleman said. "Instead of adding capacity [on existing routes], we have to shift capacity to new markets. We're going to announce 8-10 new markets this year."

Yield jumped 8.1% to 8.16 cents and average fare rose 8.9% to $109.33. "We need to figure out how to get $115-$120," Neeleman said. "We feel our customers will pay us more to fly JetBlue because we deserve it, but we need to ask for it. Nobody's going to donate money to our cause."

Fourth-quarter operating RASM increased 7.4% to 7.02 cents as CASM leaped 18.9% to 7.51 cents. CASM excluding fuel still rose 7.9% to 5.12 cents. Fuel cost soared 89.5% to $152 million, or $1.87 per gallon. The carrier expects to pay an average of $1.98 in 2006 net of hedges, which will "drive a lot of activity, from maintaining cost discipline to finding ways to improve revenue," according to a spokesperson.

JetBlue's full-year results were shaped largely by the final quarter. It posted revenues of $1.7 billion, a 34.5% increase over 2004. Operating expenses jumped 43.3% to $1.65 billion and operating profit fell 57.1% to $47.6 million. Additional expenses, including a 99.2% increase in interest payments to $106.5 million, hurt the bottom line. It cited an expected CASM increase of 4%-6% excluding fuel in 2006 and capacity growth of 28%-30% when forecasting a loss for this year.