JetBlue Airways Corp (JBLU) 2002 Q4 法說會逐字稿

Welcome to the JetBlue fourth quarter conference call.

I will remind you the conference is being recorded.

Following the presentation we will conduct a live question and answer session.

If you would like to ask a question, press star one on the telephone key pad.

For opening remarks and introductions I will turn the call over to Amy Carpi (ph).

Thanks for joining us on the call today.

We have David Neeleman, Chief Executive Officer and John Owen, CFO.

As a reminder this call contains statements of a forward-looking nature, relating to future events or future financial results for JetBlue, but are based on management's beliefs and assumptions and on information currently available to JetBlue's management.

Forward-looking statements involve risks and uncertainties and assumptions.

Actual results may differ materially from those expressed in the forward-looking statements due to many factors, including without limitation the continually changing airline industry and regulatory environment following the recent terrorist attacks and threats.

Future terrorist attacks or fear of such attacks, our limited operating history, our ability to implement our strategy, our fixed obligations, our ability to establish lines of credit or obtain financing from third-parties, our dependence on the New York markets, our ability to renew or replace gate leases, our competitive environment, problems with aircraft, economic and other conditions in the markets in which we operate, reliance on third-parties and sole suppliers, governmental regulations, reliance on one type of aircraft and automated systems, increases in maintenance costs, fuel prices, insurance premiums and purchase prices of aircraft, our failure to properly integrate live TV, the loss of key personnel, potential problems with work force including work stoppages and seasonal fluctuations in our operating results.

Additional information containing these and other factors are contained in the company's Securities & Exchange Commission filings including but not limited to the company's registration statement on Form S1 as amended.

JetBlue undertakes no obligation to update any forward looking statements to reflect events or circumstances that may arrive.

With that out of the way, I will turn the call over to David.

Thank you, Amy.

Excuse me.

Thank you everybody for joining us.

This was a good quarter for us.

We are very pleased with the numbers and we are very pleased with the tremendous job that our crew members did.

Our men and women at JetBlue making a difference for our customers on a daily basis.

We are grateful for their continued fantastic customer service.

As you can see from the press release we were up 96 percent in year-over-year revenue growth in a very challenging year, obviously.

Probably arguably the worse year in aviation history.

We're up 96%.

We were successful on focusing on costs.

Able to bring our CASM back down to where we said it would be, the CASM for the quarter was 6.32 cents.

As we look at the drivers of CASM we have determined one of the highest growth areas in our Chasm is profit sharing.

People who are keeping score at home, had we not paid profit sharing, our CASM for the fourth quarter would have been 6.12 cents.

So that's a good place to have growth in the costs is through profit sharing.

Which will increase shareholders value.

Our operating margin for the fourth quarter was 16.8%.

Which was in line with the guidance we gave with a 16.5 percent for the year.

Obviously, we had 187 million in revenue during the quarter.

Of course, also during a challenging environment.

Operating expenses were up only 70%.

Pre-tax profit which we think is the best barometer because the differences in tax rates from one year to the next was up 89 percent to $27.2 million, pre-tax profit for the fourth quarter.

I think most importantly and another important barometer for the success of JetBlue going informed is for the year, we probably had the highest load factor ever recorded by an airline.

While we were growing 96 percent of 83% was our load factor and on time percentage during that year actually increased to 85.7%, which is obviously something that our customers appreciate a lot.

And we completed 99.8 percent of our departures, which is very, very important for us.

We do a lot of customer surveying inside the company and speak to our customers a lot and what we were very pleased with the recent results we got from our customer surveys. 95 percent of our customers rated their experience with JetBlue either much better or somewhat better compared to other airlines.

And I will tell you the much better category was significantly higher than the somewhat better.

So 95 percent of our customers believe they have better value.

And almost 99 percent of those folks would obviously refer us to a friend.

Almost 60 percent of our new business came through word of mouth, through recommendations.

That's really the power of the JetBlue company.

And it has to do with these on-time flights.

The few cancelled flights and the customer service that we give.

You know, we are in a commodity business here in the airline business.

There is very little differentiation between airlines and their products and the service that people get.

And to have 95 percent of our people say we are much better, somewhat better really bodes well for us going forward.

We have, obviously, the combination of the lowest cost on a unit bases basis in the industry, combined with the extremely high satisfaction from our customers.

That creates margin.

That is what is creating the margin and driving the margin.

If you keep your costs down and revenues are up and load factors are up, completion factors are up, that's really the strength of what is happening here at JetBlue.

We are very excited about it.

We are really excited about the growth prospects going forward.

There's a lot of talk, we have a lot of experiences being a young company.

We have a new fleet of aircraft.

A lot of people like to point out maintenance expenses.

That seems to come up a lot.

Obviously we have heard it said that if we had, you know, normalized maintenance costs that we wouldn't make a profit, which obviously is not true.

If we projected ahead four or five years what our maintenance costs would be and put them on to this year we would still have the highest margin in the industry.

So now, there are tradeoffs.

We will have higher maintenance costs going forward, no doubt about that.

We have acknowledged that.

But as we get bigger and we get better economies in other areas, we expect that over the long-term we will be able to keep our unit costs in the low sixes.

That will be better efficiencies in areas like sales and marketing as we become more mature in more markets, landing fees and other rents.

Obviously we can just generally as we spread the ASMs over the fixed cost, we will be able to keep the CASM low.

That's our goal and we are focused on making sure that that's the case.

That goes hand in hand with the success of JetBlue along with customer service.

We are a growth story.

John Owen, our CFO will give you the guidance.

We expect to grow about 50% this year.

We can't obviously sustain 100% growth every year.

We expect to grow 50% this year and we are committed to growth and we will continue to grow.

One thing I would like to mention and this goes along with the customer service is that we had a pretty difficult Christmas night in our operation in JetBlue.

It was probably the most difficult operating day that we had in our company's history.

The airport was closed for many hours and we made a decision to cancel as few flights as possible.

We flew through the night to try to put the schedule back together again.

The next day we had a large effect on our flights.

We chose at that point in time, there were about 8,000 of our customers affected.

We sent out an e-mail apologizing, explaining what happened.

And refunded or credited, gave credit vouchers for either round trip or future one way or other dollar amounts, which obviously had an effect on our earnings in the fourth quarter.

We would have actually made more money had we not done that.

We thought it was an important thing to do for our customers.

The reason I tell that story, the margin could have been higher.

Profits could have been higher.

But our commitment is to our customers and to our crew members and those that give such exceptional service on a daily basis.

We couldn't be more pleased with what they are doing.

Now let's talk a little bit about the competitive landscape.

First of all, we have some great news on the JFK open route this week.

We have four flights a day in that market.

We were planning ongoing to five.

And got word that American was pulling out of that market.

So we will be adding a sixth and we will have that in place by June.

We will have six flights a day.

That's a successful market for us.

We are happy about that.

It is very positive news for us.

Also I want to talk about the announcement yesterday by Delta.

First of all, I can't help but notice the coincidental timing of their announcement, but I think it's important that we understand some things about JetBlue.

I want to explain a couple things I think will put it in perspective.

Because obviously uncertainty leads people to speculate.

Obviously speculation isn't good.

But, first of all, competition is good for JetBlue.

We love competition, we embrace it and we become better.

Our crew members become more focused.

If it's possible that they can give better service, they will.

That's good for business.

And it's good for us.

But a lot of people ask me, what is the most surprising thing about JetBlue?

What would surprise you the most?

My answer is always the same: The amount of loyalty we have amongst our customers.

That loyalty has translated into really amazing build up in frequencies to the markets that we fly, mainly because we would rather add frequencies than add new markets.

That's our first choice because that keeps the cost low.

We started out in 2000 with six daily flights from JFK to Florida.

That went to 17 flights in 2001.

In 2002 at the peak, in the winter season we flew 28 flights.

This year we will have 42 at the peak.

If you take the total number of seats flown in the winter of last year and the winter of this year, we are going to be up 50 percent in the number of seats that we have.

And the reason that's the case is that as we have taken a look at the fares in the market to our competitors, and particularly Delta and their service out of JFK, the disparity between our fare and their fare is too great, too much.

I have instructed our schedule planning folks to continue to add frequency in those markets.

And we have, at the peak in this winter season, we will have 16 flights a day to Fort Lauderdale, which is an incredible amount.

There are hours where we will have two flights and times during the day that we have four planes in the air at the same time to Fort Lauderdale.

I would never have thought we would have 42 flights a day from JFK to Florida during the winter season.

And obviously the fare difference being Delta's average fare to Fort Lauderdale was $82 and our was $108 and that's not something we want to sustain so we just added more frequency.

With the 50% increase this year we are actually tracking ahead of last year in load factor and yield.

So it's doing very well with that significant increase of flights.

And like I said, we haven't been able to do a lot of things we had hoped to do at this time, three years into our business.

We haven't been able to go into cities in Florida we want to fly into and other major cities.

We had to basically sit here and add service to Florida.

So next year, whether we stay at 42 or go to 50 or you know -- the fact that Song (ph) is going to be adding 17% or whatever the number is.

I think it's interesting to note that if you took the non-JetBlue build up of seats in the New York to Florida market this year, it's 8%.

And with Delta's capacity being less than 50%.

So the build up to next year is equivalent to what happens this year, where we are still up 50%.

Of course, we can't add 50% every year.

Next year whether we have 42 flights to Florida or 50 flights to Florida or 44 flights to Florida and those extra six flights go to other cities that we have been dying to get into and serve, I don't think it will have a large effect on us either way because we have loyal customers and we have a great product and people love to fly JetBlue.

Whether somebody goes and puts more seats in an airplane and talks about the product advantages, you know, tries to put TVs in seat backs, whatever they do, JetBlue will remain a great company and a great -- our customers will still love us the same.

I want to -- I think this whole TV thing has been a little bit overblown.

We started flying to San Juan last summer and for those of you who may have flown that San Juan service, you may know for the great majority of that journey there are no TVs available because the DirecTV satellite doesn't cover that area.

So the screens are dark during most of that flight.

Yet when we started flying to San Juan, it quickly became our most profitable market in the summer months and really had nothing to do with television.

When you add up the advantages of flying JetBlue, they far outweigh the advantages of television.

It's a little bit overblown and it's an important part of what we do, but obviously we're not concerned about it.

We will continue to run our business for profitability and for success.

And like I said, whether we fly 55 a day to Florida or 42, it doesn't matter.

We will size the demand to where our customers want to fly and at a fair price.

Just one more thing.

Another question that may come up and so I want to deal with it first.

It has to do with the live TV acquisition and then the assertions that were made yesterday from song (ph) as to the products they are going to have and all that stuff.

First of all, live TV, I want to remind everybody and we can go back to the transcripts of the Live TV call.

We purchased Live TV because we were in effect buying out our existing contract.

We said that there would be very little effect on EPS in these years and that EPS, it would actually become accretive to our earnings going forward.

Now, a side benefit of that -- also, we would could control the company and control the products and the offerings.

And we have done a tremendous job of really improving the programming and we have some other exciting changes in mind this that we haven't announced yet, but we will announce in the future, the technology continues to improve.

Now, a side benefit from that is that we bought some intellectual properties and some patents that may or may not in the future prevent someone from doing the same thing.

We said the patents are as good as the work around for those patents.

And whether in the time frame described Delta's partners are able to get live television into their aircraft or not, we are going to watch it very closely.

We are going to watch to see the processes that they are using to do so and make sure they aren't violating any of our patents or intellectual properties.

We will be following that carefully.

The other thing is that nobody knows how difficult it is to do that more than our team at Live TV.

They spent years working on this technology.

As I say, we are skeptical that they are able to accomplish this by October.

That may be a built of an under statement.

I wouldn't say that their ability to do what they are saying they can do for the time frame they are saying, I wouldn't necessarily say that's for sure.

It may be, but may not be.

Keep that in mind as well.

Even if it was and even if it is, or even if it's there, we have a tremendous company an we have a tremendous brand.

We have loyal customers, the best crew members in the industry.

They are going to redouble their efforts to give great customer service and JetBlue is going to soar.

The fact that we were able to accomplish the 16 and a half percent margin in the worst year in aviation history is a tremendous accomplishment.

This market I think can only get better.

If it gets any worse we will have fewer competitors, I think.

Because it is completely unsustainable obviously what is going on today with our competitors and the losses they are suffering.

And the last thing I'll say about Song is that I don't think they are going to all this trouble to keep their $82 fare to Fort Lauderdale.

They are spending a fortune trying to figure out how to better their product.

Even at their stated goal for cost, they couldn't make money at the fares they are charging today.

To the extent they try to improve their product, treat people better, get their fare up, from where it is today, they can't do better than us.

I'll turn it over to John Owen our CFO for more detail on the numbers.

Thank you, David.

As David noted at the beginning we are delighted with the results for the quarter.

It was a very strong performance all around financially.

Revenue performance was good in all three months of the quarter, although like just about every other airline that reported so far we had a very strong December.

Helped by the fact that the return traffic from Thanksgiving fell into the early days of December this year.

As David alluded to earlier we did have the Christmas Day snowstorm and the service recovery in its aftermath on the two days following Christmas.

And we were quite generous in giving out credit vouchers for future travel on JetBlue.

The total impact on the P&L for us of the Christmas Day snowstorm between the added costs of our operation in over time, extra hours worked and even in chartering a couple airplanes to fulfill some of the flights we needed to fulfill.

We are were running so full, there was no way to accommodate customers on other flights once you canceled some things.

Principally, on the revenue side the total impact of P&L of the Christmas snow storm was under $2 million on a pre-tax basis.

As a result of that snowstorm, our performance numbers for the quarter were not as good as we would have liked.

We were up 99.7 as a completion factor for the quarter.

On time performance fell slightly to 81.5 and our mishandled bags increased slightly to 2.88 per thousand.

Again, all three of the degradations of all three of those numbers were almost exclusively tied to that storm.

Nevertheless, those numbers compare very favorably with the industry overall.

And we still had great numbers for the year.

During the quarter, as we indicated, revenue grew -- RPMs grew -- I'm sorry shall revenue passengers, let's start that again, grew 87 percent to 1.7 million patterns passengers for the quarter.

We passed the 10 million cumulative passenger mark for the history of the airline.

ASMs grew 80 percent year-over-year to almost two and a half billion.

And we continue to maintain a high load factor at 81.8 for the quarter and as David alluded to earlier, 83 for the year, which as near as we can determine is the highest yearly load factor we can find for any significant airline.

As far as distribution of available seat miles in the quarter, 50 percent were in markets going east-west. 42% were to the south, which we define as Florida, San Juan, and New Orleans. 4% were short haul in the northeast and 4% were short haul on the west coast.

We saw continued growth in the quarter in membership, in TrueBlue, our flight gratitude program.

Up to 480,000 members.

Again we launched that last June 13th. 89 percent of the bookings by those members are occurring on-line, which is, of course, helping our on-line percentage of sales.

Moving to the P&L, we had operating revenues up 96 percent to 187.3 million for the quarter.

I would take a moment to remind you that the year-over-year comparison is not necessarily apt in that we were still suffering in the fourth quarter of 2001 from the after effects of September 11.

And also to point out in the P&L that in the year-over-year comparisons there is $12 million worth of compensation that we recorded under the stabilization act during the fourth quarter 2001.

Resin (ph) was up 9 percent year-over-year on a two and a half percent increase in length of haul.

It was 759 for the quarter.

Yield was 9 cents even up 2.7 percent year-over-year.

We took delivery of six new aircraft from Airbus.

One was actually an accelerated delivery that was scheduled for January of '03.

But we were able to take it from Airbus in the last week of December.

As a result, we ended the year with 37 aircrafts compared to the 36 that we had given guidance on and, therefore, in this year we are looking at an addition of 13 aircraft versus the 14 that we previously said, simply because that aircraft moved from one year to the next.

Of the aircraft that we took delivery of in the fourth quarter, four were financed with mortgages and two were financed with sale lease backed transactions.

On the cost side, operating expenses were up 70 percent year-over-year to $155.8 million.

That's a CASM of 6.32 cents, a 5.4% decrease year-over-year and 1.4% decrease from the third quarter of 2002.

On a fuel neutral basis, CASM declined 9 percent year-over-year as fuel price fourth quarter this year was up 18 cents compared to fourth quarter of 2001.

Our year-over-year improvement in CASM can be attributed to a number of things.

It's partly an increase in stage length at 4.7 percent and partly increased capacity and gaining efficiency in the operation, particularly being able to scale down the amount of money we spend on sales an marketing.

The CASM improvement over the third quarter of 2002 is principally due to an improvement in utility expenses at the JFK terminal as we -- that's principally seasonally driven, headed into the winter versus the summer.

And a significant decrease in the level of credit charge backs that we saw in the third quarter.

Within the expense lines, salaries, wages and benefits increased 74 percent year-over-year.

And as David alluded to before, the profit sharing number which is one of our larger negative budget variances, in the negative budget variance we are pleased to have is embedded in that salaries, wages and benefits line.

Sales and marketing expense increased 25 percent year-over-year.

As a result of increased advertising and higher credit card fees but on a unit cost basis sales and marketing expense decreased 32.3%.

That was partly due to the increase in capacity and not raising our total sales and marketing budget in conjunction with capacity and partly due to the elimination of travel agency commissions.

Sales on JetBlue.com were 68.6 percent of sales during the quarter which is up 17 percentage points over the same quarter a year ago, and 3.5 points higher than the third quarter of 2002.

Again, this number continues to be the highest percentage by far in the U.S. airline industry.

We are continuing to offer $5 discounts each direction for flights booked on-line an are still continuing to do double points through the TrueBlue program for booking on-line.

Other operating expenses were up 62% due primarily to increased capacity and more passengers.

As a reminder, contractual payments for Live TV have historically been in the other operating expense line.

Now that we own the company, here in the fourth quarter those items wash out in consolidation.

So that they will not appear in other operating expenses, but rather will appear in depreciation, amortization, and salaries, wages and benefits, principally.

Interest expense increased 60 percent year-over-year because we added debt financing for nine aircraft during the course of the year.

In early December, we completed the documentation required to designate most all of our fuel hedges.

As hedges under FAS 133.

So going forward we are no longer going to see the quarterly volatility resulting from having to mark to market all of our fuel hedges.

So we are pleased to have that one behind us.

Income tax expense totaled $12 million for the quarter.

And as we pointed out in the press release, the effective tax rate for the quarter was 44.3% compared to a 23.4% effective facts rate in the fourth quarter of last year.

The fourth quarter of last year was an abnormally low number as we were still working off the deferred tax asset allowance in the tax provision.

And again, we have one of the higher tax rates, I think, in the industry for the full year, it was 42.2.

That principally comes from operating in high tax locations, which is obviously New York City and state, California, and San Juan.

Finally, we ended the quarter with 68.19 million diluted shares outstanding which of course reflects the effects of the stock split 3:2 which occurred on December 12.Turning to the balance sheet, we ended with 258 million in cash and short-term investments and positive working capital of 13.4 million.

One other item on Live TV I would like to mention is that while we have a contract with Frontier and installations began during the fourth quarter, no installation was fully complete under the definitions of the contract until early in January.

So there was no revenue recognized through the Frontier contract for Live TV at all in the fourth quarter.

From a guidance perspective, we will look forward here to a first quarter and full year of '03.

I would point out that the guidance we are about to give does not account for any kind of exogenous event like war with Iraq.

But preliminary booking trends are quite good, particularly in February in our southern markets and both January and February at this point look like we will significantly exceed our budget plan on both revenue and capacity.

We expect ASMs in the first quarter to be up between 70 and 75% compared to the first quarter of 2002.

Assuming the aircraft delivery schedule that I will be outlining in a moment.

For the full year we expect capacity to grow between 50 and 55%.Average stage length is projected at around 1150 miles in the first quarter and around 1200 miles for the balance of the year.

We currently expect our CASM based on our budget on a fuel neutral basis on the first quarter to remain more or less flat for the full year compared to the CASM that we reported in the fourth quarter.

We estimate that a one cent change in fuel price would impact the P&L for the year by about $1.7 million in fuel expense.

This does not account, by the way, for any gains or losses on fuel hedges.

That's just the raw fuel number.

We are in an excellent hedge position right now at 50 percent of our fuel requirements for the balance of the first half of '03 and 40% hedged for the second half.

All done in the form of crude collars.

The collars for the first half are between 37 and $31 the collars in the second half are between 25 and $28 and we do have some hedging out in the first quarter of 04 at around $26.

As I mentioned earlier, under FAS 133, most of the gains in these hedges will be recorded in fuel expense going forward in the time period to which the hedges apply as opposed to the mark to market that we have had.

Operating margin - we are expecting to be in the range of 15 to 17 percent for the first quarter and in the same range for the year as a whole for 2003.Utilization for aircraft is still expected to be in the high 12s, budget has us at 12.9 for the year.

Delivery schedule looks like this - As I said earlier we took our January delivery in December.

We will take three deliveries in February.

One in March.

One in May.

Two in June, and then one each month from July through December.

We've got financing committed for the first six aircraft delivering up through June.

Five of those are sale lease back transactions and one is an operating lease, an aircraft that we committed two years ago to take from ILFC

All the numbers I gave you on aircraft represent our existing contractual commitments with Airbus.

We have been in discussions recently with Airbus and think there's an opportunity to take one or two additional deliveries in the fourth quarter of '03.And if that turns into a contractual commitment, obviously we will announce it.

It would have some minor effects on capacity and expense out in the fourth quarter.

All our debt and cash investments are floating rate and our average debt rate at the end of the fourth quarter was 3.47% and average cash investment return rate was 1.85%.

Estimated shares outstanding for first quarter '03 and for year end are based on the following assumptions.

First assumption, no additional shares assumed upon exercise of stock option.

Second, 9 million options outstanding at an average strike price of $11.81.

We assumed an underlying market appreciation in the stock throughout 2003 of 20% and the result of all those conclusions is first quarter of 2003 weighted average diluted shares outstanding of 68.66 million and for the year 69.39 million.

Total aircraft capex for the year is expected to be $510 million based on the existing contractual commitments.

Obviously that will go up if we were to sign on with Airbus for more aircraft toward the end of the year.

That does include pre-delivery deposits.

Non-aircraft capex including Live TV capex is expected to be between 70 and $80 million for the year.

With all that summary out of the way, I think we are ready to take questions.

Operator?

We are prepared to take those questions

Thank you.

The question and answer session will be conducted will electronically.

If you would like to ask a question you may do so by pressing the star key followed by digit one on the touch-tone phone.

Star one to ask a question.

First question will come from Jamie Baker with JP Morgan.

Hi, David.

Given the somewhat younger page age of the pilots, do you have any exposure to the craft program?

This is John, no, we don't.

There's two different things.

There's craft and having reserves called up.

More likely the latter I'm referring to.

We have figured out every crew member that we've got who flew airplanes and is in the reserves.

And based on the types of airplanes that they flew in the military made our own estimates.

We think the maximum exposure for call up in Iraq is about 20 pilots.

That's helpful.

For the current facility at JFK, where are you in terms of gate utilization as a percentage of max utilization and similarly the same question for Long Beach?

How much growth can you expect to manage there?

I think for JFK, Jim, we have a facility that has 13 gates in it.

We are utilizing nine gates today, but not completely efficiently, we can tighten things up a little bit.

We said all along, the existing facility there, we think we can grow to about 110 - 120 departures a day without any changes.

Obviously, we are, as we've said before, we are in discussions with the port authority of New York and New Jersey about expanding into that facility or building a new one or, we have terminal five right next door to us that has ample number of gates.

We really don't have any -- we are not gate constrained at this point in time.

We don't see that we will be.

We have about 75 departures out of Kennedy now.

So maybe 7.5, eight departures a day per gate which I think is good.

And hopefully we can get that number up as we get more efficient going forward.

OK

Long Beach we are more constrained by slots than we are with gates out there.

We only are utilizing today, we will be by May 23 flights a day out of there.

Based on the 27 slots that we bargained for.

So that's pretty well -- we can take some short haul flying out of there and put them into long haul.

We do have the ability to grow that on an ASM but not on a flight departure basis.

The facility works well for us now with the counter space and hold room space and that works fine.

The shift from short to long haul or gradual migration, that would be a mid year event, then?

Yeah, by this summer we will see additional New York flights, additional Washington and [inaudible] out of there too.

So it's more of a medium range.

We have some shifts going on there that we will be announcing shortly.

A new city for Long Beach or JetBlue?

Long Beach or JetBlue, I can't tell you which.

Could be either one.

Fair enough.

Thanks, gentlemen.

: We will hear from Susan Donofrio.

With Deutsche Bank.

Can you give for the rest of the quarters, the capacity for Q2-Q4.

We are not prepared to do that at this juncture, no.

We are going to make you do the math by working through the aircraft delivery schedule and working it out yourself.

Okay, Thanks.

: Moving on we will hear from Mike Linenberg from Merrill Lynch.

Great quarter, by the way.

Two quick questions.

David, you alluded to one city, you know, possibly out of Long Beach.

As we look at the amount of capacity that is coming on line this year, you know, is it one city?

Two cities?

Three cities?

Is it more frequency?

You know, connecting the dots?

Any additional color on that would be helpful.

Yeah.

Michael, it's mainly new frequencies.

Some connecting of the dots.

You know, we have possibly one city, new city this year.

That's still open.

I mean, we wanted two, but we've already pulled the planes for the second one to do something else, just to increase frequency.

Like I said in my comments, opening comments, it's just amazing at how we have to feed airplanes into the existing operation just to keep the load factors.

We still have the highest load factors last year and probably in the history of U.S. aviation.

We are committed to making sure that our existing markets are well fed first and secondary connecting the dots.

Lastly if we have planes we will look at opening cities this year.

Second question, with respect to the mix, as you increased frequencies, especially in some of the big markets like New York to Long Beach and Oakland, are you seeing a higher percentage of let's call it walk up?

The 299 fares or 219 type fares?

Any color on that versus maybe what you were seeing a year ago?

You know, there hasn't been a huge difference.

I think it's more, you have the competitive landscape out there.

It's very, very difficult.

You have perma-sell on everybody.

Southwest is 99, seems like continually.

So we are very, we manage the business to load factor and we are seeing that -- we are not getting a lot of average fares, not that great.

That's pause the market is so lousy.

We have a lot outside of it, if the market were to improve, because of the numbers of customers that we have going to these markets.

Okay.

I.

I would also point out anecdotally we are seeing a lot more suits on those airplanes.

Very good, thank you.

: Our next question comes from William Greene with Morgan Stanley.

: Good morning, guys.

Good quarter.

Wow, William, that's cool.

: You talked a little bit on the opening comments, David, maybe you can add color, how much more stimulation do you think there is in the New York to Florida markets?

In other words, if Delta came in and even pulled just a few passengers, would we expect as to see CASM come down or can you stimulate more demand there?

I think this market is insatiable at this point in time.

It will level out at some point and we'll say this is the capacity.

But Bill, just keep in mind, we had a 50% increase of seats year-over-year and we are one of the largest players in this market.

If you said ex-JetBlue what was the increase in the market?

It's not like people are pulling service out of these markets.

I think it's like 8%.

We had an 8% increase non-JetBlue in the market from other airlines like Delta and American and Continental and Spirit (ph) or whatever that have added capacity.

We added 50 on top of that.

And our first quarter is, you know, looking great.

So you know, the fact that I guess we are trying not to get to -- obviously we never take anything for granted.

But if you look at whatever Delta's number is, somebody pegged it at 17% increase with the size of the airplanes.

And you know, if you take their percentage of the market, you probably have a similar increase on a general market or a little bit less, than we even had this year and we grew 50%.

Next year we'll grow 50 percent again, though, but if you -- if we don't grow a couple of flights here or there, I don't -- this doesn't really have a big effect.

This is a huge market.

You know, I think New Yorkers treat these markets like the subway.

They all own places down there.

What we found when we came into this market, because airlines couldn't make money in it based on our cost structures, which is still the case, but they could make money based on the cost structures, they basically held back the capacity.

The people, the markets really needed more capacity.

We put those in there and they've taken it all up.

I think there's more growth in there.

A lot of people live in New York who love Florida and also have homes in Florida and they go back and forth like they do a cab to the Broadway show.

: Makes sense.

In the event that you find that there was enough stimulation already shall does it make sense to say we could simply put quite a bit more into the east-west markets?

I assume there's a lot of demand unfilled there as well.

Not just east-west.

There's so many markets we haven't even started yet that we want to fly, like in the southeast.

A lot of places on our list that we can't seem to ever get to.

There's a lot of things that we can do.

We are plane constrained.

And as we look out and say -- we pretty well have the planes mapped out to the end of the year.

We say wow, we would love to do more of this, new city here, more cities there.

We were very, very good at meeting capacity to demand.

We are very good at that.

We move planes around, seasonality.

During the holidays here, I don't think there's any amount of flights you could fly that would take care of the demand.

We do a really good job of meeting that.

We actually took a plane in the fourth quarter that was flying short haul on the west coast and brought it back for the holiday season in December and put an extra section on, brought it back and flew it to Florida a bunch of times and sent it back to Long Beach.

We do a lot of that stuff.

That's why you see consistent margins quarter to quarter because we're really good at that.

: Good.

John, one last question in terms of if there were a UAL or U.S.

Air liquidation, how would you deal with a bunch of A320s coming onto the market.

Would that mean you have to put more equity into getting your planes refinanced?

I don't like speculating on the fate of competitors of ours.

If you took the hypothetical and said that one of them did deposit a lot of A 320s on the market, then that should have the effect of decreasing appraised values because of the market clearing price would drop.

That would probably mean that we would not be able to finance aircraft at as high a value.

We would probably have to put a little bit more cash into each aircraft.

What that number would be, I don't know.

If you look at the cash, this business of ours is generating a lot of cash.

Our cash from just the third quarter and fourth quarter was up obviously significantly.

We, that's why you have, you know, the cash balances that we have.

We have a projection for this year's cash and don't see that even if those values dropped quite a bit, obviously we could still -- we still have cash on the airplanes.

It won't affect our ability to do it.

So we have really positive working capital, which is -- which a lot of airlines can't say.

We are generating cash from our operations.

Certainly if there was less money -- more money than we needed to finance each airplane, we have that money to put down.

That's why we have rainy day money like we have.

Probably more cash for ourselves than just about anyone else except Southwest.

We are well prepared for that eventuality if that does happen.

: Thank you very much.

Thank you for your help.

: Next question will come from Brian Harris with Salomon Smith Barney.

: I wonder if you can comment to the best of your ability to track this how your yield premium, which is unusual for a startup carrier to have any yield premium, higher yield premium versus your competitors in various markets if you can comment on the east-west markets versus the north-south markets?

Brian, the latest information we have is in the second quarter, DOT is late on getting out the third quarter for whatever reason.

We hoped to have it by now, but we don't.

It was supposed to be out this had week.

It depends on the market but what we find is that if you take apples-to-apples, obviously J F K to Oakland or J F K to Long Beach or J F K to the Florida cities, Florida is a different example because we, with the exception of Newark and Continental we have a yield premium say in the Fort Lauderdale market with every competitor from LaGuardia or Kennedy.

So it's more pronounced there.

That's why we have up to 16 flights a day there.

We hope that gap gets narrower this year.

We don't like that.

West Palm beach is the same.

Orlando, Delta express was 87, 85 last second quarter.

We wore we were 101.54.

So its about 15 percent.

If you take the Oakland market, last year and we don't have the full year quarter that American was in there, but they were 148-dollar average fare and we were 160-dollar average fare.

But the difference is, we had an average of 3.5 flights because we are adding one that had two.

But our load factor was 85 percent compared to their 68%.

So obviously the RASM was enormously different.

The same thing, Long Beach had higher load factors and average fares.

Once you get frequency, we had 91% load factor in Long Beach with 3.3 average flights.

And average fare of 170 compared to one 143 for American.

So it's, I think you manage to get more frequencies.

We are selling a sixth flight to New York-Long Beach starting in March and another flight starting soon.

As you get more frequency, that actually helps you on the differential even more.

: Do you see a yield premiums on markets that don't touch JFK?

Which one, for example?

: Well, for example like --

Person Dulles and Fort Lauderdale?

If you took the Washington, Dulles to Fort Lauderdale, our average fare in the mart was $95.75.

We just started service in there.

Southwest was $90 and AirTran was $84.

We had a yield premium in that market as well.

Well, obviously Southwest and AirTran were out of Baltimore.

We took it as a full market if in the whole area.

I think it's, you know, we see it kind of across the board.

If you took it -- let's see, Washington, San Francisco, united started in that market.

We were $130 average fare.

Theirs was higher in that market, but we had about 30 more passengers or customers per flight than we did.

How about short haul on the West Coast?

Anything interesting there?

That one is improving.

That's not the business we are in.

We are basically holding slots there .

As you can see by the margin in the fourth quarter obviously if those planes, it wasn't our first choice to fly in there.

If they weren't flying there, possibly we wouldn't even have a higher margin because they weren't profitable.

It's a small percentage of our ASM.

It wouldn't have an effect on us all the way.

: Fair point.

Congratulations on the quarter.

Thanks, Brian.

: Moving on, we will hear from Ray Neidl with Blaylock .

: I don't know, what was the total debt at the end of the year including temp wise leases and what was the debt to capitalization ratio?

We don't actually have any capitalized leases.

So it's just the straight debt that is on the balance sheet, which is in the press release.

: And with the advent of Song going from all three New York airports, is that going to put JetBlue in a competitive disadvantage operating out of Kennedy?

I don't think so.

We have service out of all those airports today.

It doesn't change.

They are changing the 767 out of LaGuardia and putting em on the 757 so you are actually seeing a decrease of seats in certain markets.

So again its easy to get up in a press conference and say how great you are going to be an how much people are going to love you.

It's a whole different thing to actually deliver on that.

We will be watching with interest.

But you know, it shouldn't affect us.

You know, we haven't precluded, you know, -- we are big New York to Florida.

Maybe some day, some gates or slots become available we can do other airports as well.

But we haven't wanted to thus far because it's working fine out of Kennedy.

: As far as the competition goes, it is shrinking, offering low cost airlines like JetBlue growth opportunities.

But what if things reverse?

I know it's a big if, but what if the other carriers work with the unions to get the costs down and successfully start low cost operations?

Will that put a crimp on your growth going out in the future?

I don't think so.

Obviously the airline within an airline thing has been a miserable failure.

They had concessions from unions to fly that kind of stuff.

I kind of see it, it's something this they need to do to lose less money and stay in business and what happens on a JetBlue flight is, I can't even explain it.

Every time I go to dinner and talk to people, they are glowing about the fantastic service our crew members give on a daily basis.

It's clear they will never get to our costs.

It's probably even more clear they are not going to get to our levels of customer service.

Not when you are cutting someone's salary and laying em off - I don't think that breeds for happy people taking care of customers.

I think that combination and the endless possibilities that we have for additional service, I think overall it balances out well.

And I think we don't want destabilization in this industry.

We don't want people shutting down.

We want, we like what is going on today and our business is doing well.

And we don't want massive liquidations and if the costs come down, we've looked at the costs they are proposing and we are certainly below that.

We certainly have a better product.

I think our future is very bright.

: David, finally Live TV, you made an acquisition for two reasons.

One you want to own the product and you saw it as a growth company but you weren't going to sell the product to competitors.

Now it seems there's a lot of new technologies.

It's questionable the timing when they come on board.

Seems like there's a lot of new technologies coming on board.

Coming in at a later date they have more advanced following.

Is that going to slow the growth of your small profit center of Live TV which I assume you were going to uses a profit center?

We were not aggressively out marketing it, I'll say that.

I don't see it as a growth business.

It was something that was good for us.

It was good for us to take under our wing an to foster.

We have new technologies like I mentioned that we haven't announced yet that we will be announcing that will be exciting new additions to our customers.

In addition programming improvements that we are doing.

And to the extent that someone is able to come out with something and customers are willing to buy it, we are well positioned to offer that if we choose to do so.

If airline "X" is going to get it from another company or from us, then maybe that would make us get back in that business, it's an area that we can make some money doing.

Those are all elements out there.

They have this term in the software business is "vapor wear" (ph).

Let's see what they come up with.

We are skeptical about the promises being made.

It could happen

: Great quarter, keep up the good work.

: Next question comes from Kurt Moller with CRCM

Good morning, ladies and gentlemen.

Could you help me out what in terms of fuel are you guys paying right now and what should we expect that to be going forward?

I missed the first half of the question.

: Sure.

The price of fuel you're paying right now an the price going forward?

The price we're paying right now is in the low 90s.

We knew we were what it would be going forward we would all be rich.

We are in the market.

That's where everybody every airline buys.

You take what the market gives you and you hedge as best you can.

We are in the best hedge position we of ever been.

We went to the spike like 24 months ago and it's -- we are, I think, in the best position of just about anybody, because our fuel burn per mile or per customer has to be the lowest in the industry.

I think it affects us, you know, disproportionately less than everyone else.

Certainly we use a lot of fuel on a daily basis.

You know, we don't see, whatever its worth, we don't see the level that it is trading at today.

There's uncertainty with the war.

Will the war be short or long and will it happen?

We see that probably going down over time, but who knows.

It could be, it could happen either way.

: Right.

Also just on the tax rate, should we expect a 42.2 going forward?

And how much in deferred cash taxes should we expect?

In answer to the first part of the question, you should plan on something around the 42.2 number going forward.

And as far as the deferred tax, we have so much accelerated depreciation we are not a federal tax payer.

So that entire provision, the federal portion of it is completely deferred.

And most of the state portion is, although there are some states where you are not allowed to carry NOLs forward and other things.

There are some actual current taxes paid on income in other states.

But it's a small percent.

: Thank you very much.

You're welcome.

That concludes the question and answer session.

Mr. Neeleman I'll turn the conference back over to you for additional or closing remarks.

I don't have closing or additional remarks.

John and I are headed to the city to do the Raymond James airline conference.

We are going to be on our horses here and riding off.

We would like to thank everyone for tuning in and a special thanks to the men and women of JetBlue that create this, have created this wonderful company and for the fantastic job they are doing in taking care of our customers.

They are the ones to be thanked for these tremendous results.

We expect to keep them going.

Thanks a lot, everybody.