JetBlue Airways Corp (JBLU) 2003 Q4 法說會逐字稿

Good morning everybody, and welcome to JetBlue's fourth quarter and year-end 2003 earnings conference call.

Today's comments will be followed by a question-and-answer session. (OPERATOR INSTRUCTIONS) We have on the call today David Neeleman, JetBlue's Chief Executive Officer, and John Owen, the company's Chief Financial Officer.

At a reminder, this call contains statements of a forward-looking nature which represent management's beliefs and assumptions concerning future events.

Forward-looking statements involve risks, uncertainties and assumptions, and are based on information currently available.

Actual results may differ materially from those expressed in the forward-looking statements due to many factors, including, without limitation, potential hostilities in the Middle East or other regions, the Company's ability to implement its growth strategy, and its dependence on the New York market, its fixed obligations, and its limited operating history, seasonal fluctuations in its operating results, increases in maintenance costs, fuel prices, and interest rates, the Company's competitive environment, its reliance on sole suppliers, government regulation, it's failure to properly integrate LiveTV or enforce its patents, its ability to hire qualified personnel, the loss of key personnel, and potential problems with the workforce, including work stoppages and continuing changes in the airline industry following the September 11th terrorist attacks, and the increased risk of future attacks, the potential risk with delivery, placing into service and integration into its operations of the EMBRAER 190 aircraft, as well as the potential liability relating to the company's handling of customer data.

Additional information concerning these and other factors is contained in the Company's Securities and Exchange Commission filings including, but not limited to, the Company's annual report on Form 10-K and quarterly report on form 10-Q.

At this time, I'd like to turn the call over to David Neeleman for opening remarks.

Thank you very much.

Welcome everyone to our fourth-quarter conference call.

We appreciate everyone being with us today.

I want to touch initially on our '03 results just briefly, and talk about them for a second, and then we'll talk a little bit about the fourth quarter.

Then I want to spend most of the time talking about '04, obviously.

First of all, we are obviously very pleased with '03.

With our operating margin at 16.9 percent, we are very proud of that. '03 had a lot of milestones in it.

Obviously, our fleet grew from 37 aircraft to 53 aircraft.

We upped our daily departures from 168 at the end of 2002 to over 220 today.

We fly about 30,000 customers every single day.

We've become the largest airline at JFK Airport as measured by passengers carried, and I mentioned that we have for the year a 16.9 percent operating margin.

Obviously, stellar results in a difficult year.

While we had a significant amount of growth, obviously, during that year.

So we are happy with that.

I guess a month or so ago, we gave guidance a couple months ago.

We gave guidance on the fourth quarter where we lowered our previously stated margin expectations.

At that time, we said that our margins were coming somewhere between 13 and 14 percent.

I wanted to talk a little bit about the fourth quarter and the events that caused us to do that.

First of all, the softness was almost exclusively in the West.

We had a significant amount, the highest percentage of our business we've ever had in the West.

We had about 59 percent of our total ASMs which were in the West.

The business looked great going through October.

Beginning of November, we started to see a pretty good decline in average fares.

Some load factor, but mainly it was in average fares.

So we realize that the projections that we had for that period of time wasn't going to be, wasn't going to hold up.

I think there was a couple of reasons for that obviously there was some competitive pressure;

I think you had America West starting their nonstop flights to LAX, and there was some lowering of fares obviously.

But also we had a 46 percent growth in the West year-over-year, and that's a significant amount.

Probably a little bit too much capacity going into the off-season.

We are always pretty good at meeting capacity with demand for seasonal fluctuations, we do that really well in Florida, never had to do that in the West before.

As we look to the summer, and as we add our Summer frequencies we will have to take a look at next fourth-quarter and first-quarter and make those adjustments.

I think we have learned something from that.

I think the thing that really pleased us in the fourth quarter was that Song had a lot of promotional activity, they had a lot of excitement and a lot of advertising in New York, a store in SoHo and all kinds of things going on.

The effect that Song had on us in the fourth quarter to our South business, it was minimal, can't say it didn't affect us at all, obviously it did have some effect but it was minimal.

We are happy about that.

Our customers are loyal to JetBlue.

We have a frequency advantage in those markets, and we have a product advantage and I will talk a bit more about that a little later, but I just wanted to walk you through a little bit of, we got to talk a lot about competitive situations today.

I wanted to spend just a minute on Song for second.

We've done some analysis on Song and their cost, their state of cost and their DOT costs and done a bit of analysis on that, I just wanted to share a few thoughts with you on that.

We don't have their load factor information for prior to September, and obviously September was not a good month for them and they have said that.

So obviously those load factors have improved from that time.

I think important if you look at the September numbers you see a wide gap in load factor disparity.

For example, JFK, Fort Lauderdale they had a 54 percent load factor, we had an 84 percent load factor.

West Palm Beach they were at 33, we were at 84, at JFK we were MCO which is Orlando, 57 to our 75, and so on.

There are a lot of examples that way.

Obviously they had a bigger airplane and didn't even have the same number of people on a flight than we had.

As you go forward and you look at the economics of what they are trying to accomplish, we would assume over time that we would if we were flying the same numbers of people on the same flights, say that they had an average of 130 people on an airplane and we had 130 people on an airplane, that would give us an 83 percent load factor compared to their 65 percent load factor.

So what they tried to accomplish by lowering their CASM obviously was by putting more seats in an airplane.

But that increases their trip costs, and as we look at the difference we think the trip cost difference, that is what it costs us to fly a plane from New York down to Florida is almost 40 percent less than what it costs them.

To the extent that we have the same numbers of people on a flight which wasn't the case in the latest numbers we have, then we can make money and do really well and obviously that would be a very difficult thing for them to do, sometimes it is harder when you have a bigger airplane to have the kinds of frequencies.

Plus the flexibility of them being able to (technical difficulty) out of those markets and the off-season and bring in a smaller airplane is obviously limited when you have only one type of airplane with 199 seats on it.

And then going into the first quarter we are seeing the same things, certainly we have some softness in the first quarter related to the two-for-one and other things that are going on in the market which I will touch on in a minute.

As for the south markets and what is affected with Song, actually in January we were we expect to be over our projections to the South.

And the shortfall really is almost exclusively related to the East-West traffic again in January.

So that is a little bit about Song and obviously there are other things to talk about so we can move on to the next thing.

On January 7th, American Airlines announced a two-for-one special the day we announced Boston service, and perhaps it was timed for that event.

As we've analyzed this it's real interesting and I have been in this low fare business for a long time and I have had a lot of competitive responses.

Traditionally it's been let's just match the fares because if we match the fares because nobody would fly on that other airline if they could flight on American or Delta.

And then there was okay, we will match the fares and we will give you triple miles, that was kind of the next thing.

We will use the power of frequent flyer miles, but in this case obviously it's gone beyond that, in that somebody can fly two round trips from New York to Florida.

Which if you look at it in regular frequent-flier mile terms is about 4000 miles; if you go 1000 miles down and back twice.

They are getting an award that is as much as 15 times miles that they've earned.

So you have gone from triple miles to 15 times.

That is obviously an unprecedented program that's been offered in the industry, and one wouldn't think that it is sustainable.

That's an awful lot of seats to be giving away, or necessarily can be improved on.

I guess the next thing would be just fly us once to Florida and we will give you a free ticket worldwide but that would seem to be a more difficult thing to do.

Just to summarize the effects on the -- and this is just kind of best guess, and John Owen will give you better margin guidance than what I am going to give you here.

But keeping in mind that over 50 percent of our ASMs are still East-West, that business was already going to be down anyways, the two-for-one special that was put out by American and matched by Delta and United came on and is in effect for the whole month.

And the fact that the East-West traffic is in off season, when we look at the effects of that we are looking, we had our original budget and then what we are looking at now based on what our January revenues are and how February is shaping up in March, of about three percentage points on margin is what John will give you the guidance on lower than what our budget was, which would still give us the highest margins projected in the industry.

And so I think considering all of that, we are very pleased at the fact that we have a great brand.

We have lots of loyal customers, we have lots of people that just love flying on JetBlue, and they just keep coming back and buying tickets on us.

I think certainly could have been, had a bigger impact and it certainly could have more if an impact -- we are still early in the quarter, but I think overall we are more convinced than ever that jet JetBlue's brand is strong and we have tremendously loyal customers that are flying us.

So that's enough about the 2 for 1.

Yesterday Delta made some announcements and so I will comment on that.

They announced they were adding 15 flights a day from JFK to various destinations.

Obviously we are still assessing that and looking at the schedules and looking at the aircraft sizes, and our schedule planning people are crunching all the numbers.

I think these initial thoughts -- two things, No. 1 is that if you have more service in the market as has been the case with us all along, and we certainly had capacity additions added in lots of the markets that we fly, there is always new business that comes and there's new travel that is created so there is a bigger pool to choose from.

And then second of all, there is as you analyze these markets, if you added them altogether about 25 percent of that market is still connecting.

For example, if you are going to the West Coast is a pretty good chunk of people that are still going to a hub somewhere, be it a hub at Midway or a hub in Denver or Chicago or Dallas.

What we see as more nonstop service comes in at lower and lower fares, then a lot of that one-stop business goes obviously nonstop.

Its significant numbers of people in the quarter ending second quarter -- in the year ending second quarter of '03 for example, the whole L.A. area between New York, there were still about 1200 people a day that were connecting.

So you'd expect some of those people to go nonstop so there is still some room for growth in those markets and some stimulation.

I wanted to touch just a little bit on our Boston service, we announced that and obviously right on the heels of announcing that or on the say day or the night before came the announcement from American on the two-for-one so even with all of that we are very pleased with how Boston is going.

The Boston into the South loads for the first-quarter are building better than their sister markets out of JFK which is good news for us.

Boston to the South is forecasted to be profitable in February which is impressive for a new market startup.

Interestingly, Boston is also -- leads all of our cities with the highest percentage of reservations booked online.

We're pleased with Boston.

It will account for about 11 percent of our total ASMs in the first quarter.

It's important that that market does well and we are pleased with it.

The way it's shaping up for a new market.

Second of all, I wanted to touch a little bit on the LaGuardia situation.

We have not been shy with our thoughts on the operations at LaGuardia, it is a more difficult and challenging operating environment and I think some people were a little bit surprised we applied for slots there.

I think our thinking there is that we are the largest airline from New York to Florida, it's an important market for us, we are doing well in that market, it's profitable, and I think it's an effort to give to maybe capture some customers that haven't had a chance to fly on JetBlue because they are focused on LaGuardia, and also give some of our existing customers some additional options.

We have a lot of, we haven't exactly decided where we are going to fly there but we have said it would probably be to Florida.

If you take the example of our Fort Lauderdale service, even in the off-season we have 10 or 11 flights a day, on season we are several more than that.

We have flight times that sometimes go 15 minutes apart, they are very close to each other and a few instances they are thirty minutes apart.

So the ability to take from -- and we won't necessarily say we do Fort Lauderdale which is obviously at the top of our list, the reductions will not necessarily -- we won't cut Kennedy one for one, if we added three or four, four or five flights to Fort Lauderdale we probably pull a couple out of Kennedy and put two over there, so it would be a net add of about three flights or so.

We think that we are -- we have a great brand loyalty in New York and we just want to fly to LaGuardia.

We analyzed the operational challenges there and looked at how it would affect our operation.

A couple of things that we have planned there -- if we are, let me just use the caveat that we haven't exactly -- we have been awarded some slots and with those slots we think we can do seven departures, we are still negotiating our times with the FAA, could be about seven departures a day.

We are still also talking with the port authority about facilities and gates there, that seems to be preceding okay.

But we need to start that within 120 days if we expect to start up around the May timeframe.

But from an operational perspective there are times and days that we see significant gate holds out of Florida heading back to New York going to LaGuardia and not to Kennedy, so in those cases because of our large presence at JFK we would just of course fly the plane up to JFK, we wouldn't wait three hours to go to LaGuardia if we could go on time to JFK.

And then we would just make provisions with those customers to make their way back to LaGuardia if they have a car, the vast majority of those people we think would either be in car services or taxis anyway.

They would certainly rather be at Kennedy a few hours earlier.

That is something that we've looked at very closely and also that we would isolate those lines on those flights so the LaGuardia lines wouldn't disrupt the Kennedy service as much as possible.

We would focus on that.

This year is 2004 is shaping up to be a challenging year from a competitive side.

How do we deal with these challenges as a company?

I submit to you that we are going to deal with them the same we have always dealt with them, when we set up JetBlue from the very beginning we set it up with the three pronged approach of having low-cost, lowest cost that we can possibly have and it was the lowest cost in the industry, best product and with a strong balance sheet.

So I want to spend a couple of minutes talking about each one of those individually for a second and John will give you further guidance on our cost but we are pleased with our cost performance.

And for No. 1, for the full year we are looking at a cost that would be flat CASM that will be flat to last year which is pretty amazing when you consider three things.

No. 1 is that fuel is obviously higher than it was last year, and John will give you the exact number that is in our guidance, and No. 2, we took 3.7 percent of our ASMs out of the fleet by removing six seats.

So to be able to remove 3.7 percent of your ASMs just to give you an indication with the guidance that John is going to give you, if you put the 3.7 percent back in which we are not intending on doing, then our CASM would be sub-six cents which is amazing.

Third of all our maintenance costs are increasing, significantly.

We said from the very beginning that maintenance costs will increase every year and this year we have significant number of engines going to maintenance for the first time, and even with that over 100 percent increase in maintenance cost year-over-year are still able with the fuel, the removing of the seats and the increased maintenance we see ourselves being flat on the CASM side, so that is great news.

Second of all, new (ph) product, we have the best people in the industry.

JetBlue does, our people are amazing at dealing with challenges and day to day, and I think our customers appreciate greatly the efforts that we go to to take care of them on their flights.

Just last Monday, I had the opportunity to fly on one of our flights like I do every week and I announced that I was on board, there was applause and just a lot of happy customers and a lot of loyalty.

We had a storm that came through here yesterday and the day before.

Our call volume was 10,000 calls higher on a given day before yesterday than it was the day before.

And we were able to bring on 400 hours of overtime and had average wait times that were very small under a minute.

It's just dealing with challenges and dealing with our customers really creates that tremendous royalty.

And then we also announced that we are going to add XM radio, by the end of the year we should have 100 channels of digital satellite radio and also we have a deal with Fox to provide some movie content to a couple of channels that we will have for them.

Products is continuing to get better.

I think one of the things also there has been a bit of talk about us taking out a row of seats, when we took out row 27, it was a very undesirable row, it had a 31 inch pitch, it didn't recline and we just thought it wasn't really the JetBlue experience.

So by taking it out, 66 percent of our seats have 34 inch pitch or more.

So you kind of visualize somebody traveling across country, sitting in a seat that has 34 inch pitch, watching live television or watching a Fox movie or listening to satellite radio, it's a tremendous experience.

And it does breed a lot of royalty and to be able to do all that with the cost that we are able to achieve it's a great achievement from our crew members.

Also just wanted to -- as you noticed from our press release we finished the year with $607 million of cash and cash equivalents which obviously gives a lot of ability staying power and ability to stay in these markets that we believe to be good.

And that our customers like to fly, regardless of competitive pressures as they come because we know we can do them profitably, with the cost structures of some of our competitors it is a very difficult challenge for them to meet the profitability we can do at the same fare levels.

Just last week, two quick things, the EMBRAER rollout the EMBRAER 190 rollout is scheduled in Brazil for the 9th of February.

Things seem to be progressing there nicely.

We are going to start (indiscernible) towards the middle of next year and so we are looking forward to those airplanes and the growth opportunities that will continue to allow us to reach (technical difficulty) that we have been able to fly into because of the size of our airplane.

So that is going to be a great thing for us.

Three things actually, adding new markets, being able to go into cities to provide a little bit more feed (ph) than what we have into Kennedy today and also being able to go into markets where we have seasonality differences to be able to match the high season with the 320s and the low seasons with the 190.

We think that is going to open up a lot of markets for us.

And then lastly, LiveTV a quarter ago in our Board meeting our Board instructed us that so long as there was a competitor at LiveTV that we should be aggressive and -- not us because we are not running the company, but our LiveTV company should be more aggressive in marketing the LiveTV product.

And they have been, and obviously in addition to Frontier and West Jet there is another airline that will be announced shortly as a new customer.

Several other customers are in the proposal stage so we see that as a really good business, not one that is distracting us but one that we have the possibility of making some additional money on which is good for our business.

So with that, kind of long-winded, I am sure there will be more detailed questions on the things that we covered, but with that I will turn the time over to John Owen, our CFO, to give you more specific information.

Good morning, everyone.

As David said, for full year we had an operating margin of 16.9 and for the quarter an operating margin of 13.3, that was down 3.5 points year-over-year.

And Dave has given you explanations on the revenue weakness in November and December in particular that attributed for the majority of that decline in the margin.

Capacity ASMs were up 52 percent year-over-year with an average of almost 17 additional aircraft in service, utilization was basically flat at just under 13 hours a day on the fleet.

Load factor for the quarter of 83 1 was up 1.3 points from the same quarter in 2002, and we had a 37 percent increase in revenue passengers carried.

Capacity for the quarter, David earlier alluded to the fact that 59 percent of the capacity was East-West, 36 percent was North-South, 3 percent was short haul in the North-East and 2 percent was short haul on the West Coast.

Fourth quarter as David said, we had capacity additions and yield pressures which kept pricing environments a bit challenging in the off-season or off-peak times in early November and early December.

Operating revenues increased 40 percent to 263 million on a 54 percent increase in revenue passenger miles, and passenger revenue of $253 million for the quarter was about 4 percent under our original budget plan.

Fourth-quarter yield was 8.16 cents down 9 percent year-over-year on an increase in length of haul of 12.5 percent, again as I said, that yield decline is primarily what drove our revised margin guidance that we supplied in early December with our November traffic release.

For the quarter RASM was 703 down 7.5 percent over 2002 on a 16 percent increase in average stage length.

Excluding the effect of new markets, that is what we like to call same-store sales, RASM in markets that we were in the prior year was down 3 percent while ASMs in and those markets was up 35 percent year-over-year.

If you look in a little more detail, we actually saw year-over-year increases on same-store sales basis in October and November which was pulled down in December due primarily to yield weakness in Transcom markets.

Other revenue was up 62 percent primarily due to increased change fees, we took in over $5 million worth of $25 change fees during the quarter, as well as additional LiveTV third party revenue as increases in concession fees from terminal six.

During the quarter we added six new aircraft, four financed with bank debt and two through sale leaseback transactions.

At the end of the quarter we had a fleet of 53 aircraft, 29 owned, 24 operating lease with an average age of 21 months.

On the cost side, we were very pleased with the cost performance, it was excellent overall and in line with our previous guidance.

Despite the fact that the fuel price in the quarter was 84 cents, which was 5 cents higher than the 79 cents assumed in the guidance that we had provided.

Operating expense for the quarter was 228 million up 46 percent, there was a CASM of 609 which was a 3.6 percent decrease year-over-year, and that is despite a 6 cent fuel increase year-over-year for the quarter.

And as David alluded to a 3.7 percent reduction in seats in the aircraft from the reconfiguration of the fleet from 162 seats to 156.

So overall excellent CASM, had we not removed seats we would have been looking at a sub six cent CASM.

Year-over-year improvement in CASM basically better economies of scale, longer average stage length and we continue to see an excellent reduction in credit card chargebacks which show up in the other line.

On a sequential basis CASM increased 2.7 percent from third-quarter to fourth-quarter due primarily to increase in maintenance cost and fuel price but consistent with earlier guidance, as I said.

Significant differentials in the expense lines, sales and marketing expense decreased 25 percent on a unit cost basis due mainly to better economies of scale and not needing to spend as much advertising or grow the advertising at the same rate as growing the size of the company.

For the quarter we booked 74.6 percent of our reservations through JetBlue.com, that's up 6 points over the same quarter of the prior year, and roughly 1 point from the prior quarter.

That rate as we said before continues to be slow but it is still the highest by far in the U.S. industry, and we continue our promotions there of double throughput points for booking online and a $5 discount per one-way segment for booking online.

True Blue, what we will call our flight gratitude program, the equivalent of a frequent-flier program continues to grow nicely.

We passed the one million mark early in the quarter and are expecting if trends continue to hit the $1.25 million market in March.

Maintenance materials and repairs increased 105 percent year-over-year on a unit cost basis, we had an average of 17 more aircraft, but fourth-quarter saw 11 airframe checks and 3 engine repairs compared to 7 airframe checks and zero engine repairs in the fourth-quarter of the prior year.

Also included in maintenance materials and repairs for the fourth quarter is somewhere in the vicinity of $1 million related to the seat reconfiguration program, things that were expensed in the process of the seat reconfiguration program.

As David said on the balance sheet, we had $607 million in cash and short-term investments which does include in the short-term investments line about $10 million worth of value in the money hedges, and we had over 600 million, $670 million worth of stockholders' equity at year end.

Looking at the operational performance, our crew members continued to produce outstanding numbers operationally.

WE reported a completion factor of 99.6 for the quarter, DOT on-time performance was also quite good at 86.7, both of those are despite the two snowstorms that we faced in early December here in the Northeast that disrupted operations at both Washington Dulles and principally JFK.

Mishandled bags was 2.7 per 1000 customers.

Very good number and we continue to drive that number down as the quarter progressed.

And DOT customer complaints were a very low 0.13 per 100,000 customers; we did not have a single DOT complaint for the month of October.

As we said earlier utilization was still high at around 12.8 hours for the quarter, and speaking to the year just to talk to the dedication and hard work and organizational skill of our system operations people and our technical operations folks, we ran almost 67,000 flights in 2003 and had a grand total of 7 cancellations due to maintenance issues.

We are very pleased with the reliability of the plane and hard work of our people to make sure that we're putting a dependable product out there for the customer.

Now for guidance for the first quarter and the full year.

Preliminary booking trends are looking okay year-over-year though as David mentioned the revenue environment continues to show some real yield pressure particularly in the Transcom markets.

From an ASM perspective, for the full year we expect capacity to grow between 35 and 37 percent, for first quarter that should be year-over-year about 40 to 42 percent, second-quarter 34 to 36 percent, third-quarter up 29 to 31 percent and fourth-quarter up 37 to 39 percent.

That's all based on the aircraft delivery schedule which I will outline in a moment.

Average stage length is expected to be just less than 1300 miles in the first quarter and grow during the year and wind up just under 1400 miles for the full year.

Aircraft utilization we expect to improve slightly to 13.3 hours in the first quarter and stay in the 13s for the full year.

Operating margin is expected to be between 9 and 11 percent during the first quarter of 2004 and for the full year we are forecasting an operating margin of between 13 and 15 percent, that uses an all in net of hedges 85 cent fuel price for both the quarter and the year in that assumption.

Looking out through 2004 we expect strongest quarter to be third quarter, followed by fourth, then second and the weakest quarter to be the first.

That is not necessarily in line with historical quarterly trends for the company, I would point out that you probably shouldn't look to prior year quarterly trends because the mix of capacity in various markets, whether it's North, South, or East-West and what is on season and off season does continue to change.

And additionally, we should see a bit more variability going forward and quarterly results as we continue to start doing engine shop visits and quantity of shop visits and the severity of the work that needs to be done on engines is one of those things that can swing quarterly results.

Just to advise people to be aware that quarterly results could change because of that.

For the first quarter we expect CASM to be up roughly 1.5 percent year-over-year, at an assumed fuel price of 85 cents which is roughly consistent with the prior year and 3 percent fewer seats as we said.

CASM for the full year we expect to be up 1 to 2 percent, again 85 cent fuel price assumption and that again is despite 3.7 percent fewer seats for the full year 2004 compared to 2003 where the 23.7 percent fewer seats apply from roughly the six or seven of September on to the balance of the year.

Maintenance in 2004 on a unit cost basis is expected to increase a little more than 1/10 of a cent in CASM over 2003 unit cost.

For the full year we expect to do 50 airplane seat checks, seven of which will be the major C4 (ph) checks, and 25 engine repairs.

By way of comparison in 2000 we performed 34 C checks, only one of which was C4 that was our first ever C4, and only 9 engine repairs.

From a fuel perspective, with respect to fuel 45 percent of our fuel requirements are hedged in the first half of 2004, and 35 percent roughly hedged in the second half of '04.

The majority of those hedges are in the form of crude oil swaps at 25 1/4 roughly per barrel in the first half of the year and about 25, 35 in the second half of the year.

We do have some callers in the first quarter at 25 75.

We've got plans if the forward curve will ever start looking attractive to layer on more hedges than we've got at this point.

But the last couple of months we haven't seen any great opportunities to do so.

Aircraft deliveries, we've received two aircraft already in the month of January, that's the totality of deliveries for January.

We will get two in February, one in March, nothing in April, May through September we expect one each, three in October, two November and one December, that's a total of 16 aircraft in the year with fleet of 69 A320s.

And, of course the U 190s as David mentioned will begin delivery in the middle of 2005.

From a CAPEX perspective, total aircraft capital expenditures for the year expected to be about 580 million including predelivery deposits, we continue to work towards double ETC (ph) transaction that we expect would prefund the deliveries of our remaining 13 aircraft in 2004.

We have assumed a negative interest carry related to borrowing that money before the aircraft are delivered and having to reinvest it in lower yielding cash equivalents, and that negative interest carried is baked into the guidance that we've given you from an assumed date April 1, going forward for the balance of the year.

So to the extent we do a double ETC transaction either earlier or later than that date it would adjust that number accordingly in the models.

Other capital expenditures including LiveTV, spare parts, deposits on flight simulators, and upcoming construction projects is expected to be about $240 million during the year.

Again all our debt with the exception of the $175 million in convertible notes that we issued in July float and so do all of our cash investments, average debt rate at the end of the fourth quarter was 3.2 percent, average investment return was 1.2 percent.

Estimated shares outstanding for Q1 and year end are based on the following assumptions, no additional shares assumed from option exercises.

At year end 2003, 16.2 million options outstanding at a $13 average strike price, 20 percent market appreciation or market stock price appreciation ratably over 2004, which results in an estimate for Q1 2004 of 111 million weighted average shares outstanding, and for full year 112 million weighted average diluted shares outstanding.

And with that I think I'm finished with my prepared remarks and we are ready to take questions from the callers.

So operator we are ready for the first question.

(OPERATOR INSTRUCTIONS) Gary Chase of Lehman Brothers.

Good morning guys.

Just a couple of quick questions, first, I wonder if you could give us quickly a forward look on what the capacity mix is for the first quarter, specifically what the East-West mix is?

East-West for the first quarter is about 54 percent of the total system.

Obviously that's we are in off peak season during that time and have the 2-for-1.

So should be better from here.

Also as we build up the southern components during the first quarter to take advantage of the peak in the south it is bringing it down from the 59 percent that it was in the fourth quarter.

You kind of lumped the East-West line together for purposes of talking on the call.

I was curious if there was any distinction between any of the markets; you obviously got New York, Boston and Washington to Long Beach and Oakland.

Is there anything worth chatting about there or is it all kind of generally weak?

Actually it is more related directly to Oakland and Long Beach.

Because we have -- if you took the total number of percentage of ASMs we have in those markets, it's probably more than 50 percent if you add those two markets together of the 54 percent.

Really it's those markets -- the other markets are doing fine.

It's also JFK, we are certainly not seeing the kind of yield weakness out of Dallas that we are seeing out of JFK.

I know it's early and you sort of alluded to this in your comments and it's obvious that the reduction in seat count affected both your unit revenue positively, your cost comparisons negatively, there seems to be a lot going on now but is there any way to determine what P&L impact that had, if any?

It's a difficult question because obviously the flights that were not full and booked full, you could say we could have sold six more seats on them.

But our yield management works in such a way that as the flights move up you get a couple more bucks for them.

We kicked around a couple million dollars of revenue in the fourth quarter.

Where it really impacts us are the months of December and August.

Where you have the really, really high load factor months more than the lower load factor months.

It is difficult to quantify, I don't think we spent a lot of time thinking about it.

I think if you are going to -- if you are going to go to war you obviously want low cost but you also want a great product.

We fly long haul, we are 1400 miles almost average stage length by the end of the year.

If somebody can do it in 34 inch pitch, I think they are going to be a lot happier now.

American's experience with it hasn't been all that successful and they have actually now put seats back in, more specifically to compete with us.

I think it's something that we feel strongly about and it was more something that we didn't want to disappoint our customers and people are really starting to notice, it's a very, very comfortable ride, particularly in light of the wider seat.

Just one last question, is there any way to conceptually describe for us what represents the ramp up in your margins for the year?

Obviously to go from a 8 to an 11 in the first quarter and post 13sh for the year represents some real progress in the last nine months.

Is it mix?

What is driving that?

Higher percentage of our business now is in markets that are traditionally peak in the summertime.

I think if you look at the industry as a whole, the first quarter is the worst quarter of the year.

We've been a little bit immune from that in the past because we had such a high percentage of our business in the south and then we made less in the summer because so much of that business was north-south, but I think that has flipped a little bit and as we get more service in markets that are peak in the summer, we are going to have -- those things reversed themselves a little bit.

That is why you see that on the higher margins in the second and third quarter and a little bit lower margins in the first and fourth.

Is it fair to say, David, that your assumptions other than seasonality really aren't that different from what you are seeing now in those markets?

Are you planning for improvement?

Certainly the season is a big deal, we are planning it.

In the third quarter for example we have 62 percent of our business in the West, that is what we plan because we have pulldown's (ph) north-south and we put it, we follow the sun with the airplanes.

I think the reasonable assumptions on fare.

We've actually taken into consideration the lower revenue environment and the increased competition and come up with those numbers but if they change we will let you know.

Right now we feel confident with what we have told you today.

Thanks a lot guys.

William Greene of Morgan Stanley.

David, you mentioned in your remarks that some of the yield and rise in weakness you have seen is related to the growth that you've put in place in some of the East-West markets, does that imply that you'd consider slowing the growth rate?

I think as you certainly in the JFK Long Beach where we topped out at seven flights a day, we don't have any more slots there.

In that particular market, we can't grow that one.

But there are other markets that we see that we have significant growth in, obviously we just got started in Boston, Dulles is great and there are other cities out of JFK that we think we will add.

Sacramento is off to a great start.

I think we are going to continue to look at markets, and where we think we can make money and then make those adjustments based on seasonality.

David, as I recall, in the past you talked about having sustainable operating margin around 15 to 20 percent.

Do you think we need to back away from that assumption or is it just the current fuel environment, that makes you say this year we will be below that level?

No, I think this is a very competitive year.

I think the other airlines costs are lower, and I think the question that we don't know the answer to but we have to as we look forward more than 2004 is how sustainable it is, for example, Delta's new entry into the East-West market.

They have never had good RASMs in those markets even before we came along.

It's a very difficult market and you are looking at 4, 5 cent RASMs and to the extent that people want to continue to fly capacity where their costs do not necessarily justify it then you could see lower margins in the sub 15 level.

But still solidly in the double-digits which is something we are very pleased with.

What we have is sustainable, and if we have to hang around sub 15 for a couple of years we certainly can do that without any problem and still have the growth that we have planned.

Especially in light of the 190's coming on, they are really going to help us a lot too.

Lastly, John, you mentioned double ETC (ph) as a possible financing vehicle that you would.

Do you -- to keep your debt to total capital ratio where your goals are will you need to come back to the equity markets?

We have no present plans to be back in the equity market during 2004.

But we have made it clear, from the very beginning of this company, that as needed overtime we will raise additional equity to support the growth of the airline and keep our ratios in line.

That statement remains true, but we certainly not in our budget or anything for a plan for this year have we planned for an equity offering.

Thanks for your help guys.

Ray Neidl of Blaylock & Partners.

Just to further develop the questions that were just asked here.

The margin squeeze in the fourth quarter, you described very well what caused that and that trend is continuing into the first quarter, but I think you also mentioned that you might have had some onetime higher maintenance costs in fourth quarter.

Are all those maintenance costs going to be continued going forward?

You said maintenance costs are going to be higher, but what number should we be using for the first quarter and for the year?

Because the fourth quarter the maintenance costs really did jump very high.

I think we gave good guidance a moment ago on what we expected the CASM effect of maintenance cost to be for the year.

Really the only significant oddity that would not recur related to the fourth quarter maintenance materials and repairs line is the roughly 1 million dollars that I alluded to that related to the seat reconfiguration.

There is nothing during a seat reconfiguration you can capitalize.

Everything gets expensed.

We ran every airplane through the process, a few of them in September but most of them in the fourth quarter and that onetime expense won't recur, but as we said we are expecting a substantial increase in maintenance next year because of a much larger number principally of engine shop visits there, certainly the much more expensive item on a relative basis compared to the airframe business.

Okay, so it is just that one item.

Ray, just to reiterate it is about a 10 percent increase in maintenance year over year.

And your breakeven load factor I think was up for the quarter 4.3 points.

Are we going to see those same trends in the future?

I know you said your CASM is going to be flat but where will your breakeven load factor be going as you go into these more marginal markets?

My question would be -- the reason the breakeven load factor rose is because yield went down, RASM went down, that is what drove that u[.

The real question is you tell me what yield to RASM will be and I will tell you what (multiple speakers) breakeven will be to.

I guess I would dispute, (indiscernible) what can you say Ray about the more marginal markets, we don't think of the markets that we have planned or the targets we are going into are marginal markets.

That was going to be my next question, some people are saying that the easy fruit has been picked for JetBlue and now it is going to be more difficult to find markets that produce the same margins that you've had as a smaller initial startup carrier, I guess you are disputing that affect?

Yes I think there are plenty of markets out there and there are a lot of things, exciting things that we have on the horizon.

As we sat down to look at where we were going to fly in the second, third and fourth quarters I can tell you we had a lot more markets that we wanted to fly than we had airplanes so.

And then again, by the time we hit next year those decisions will become even become easier in light of the fact that we have the 190's which really open up things for us a lot.

Thank you.

David Strine of Bear Stearns.

Two questions.

First is do you have a target for FTE headcounts per aircraft by year end?

(indiscernible)

No, I don't have that one handy because it is not one that we track.

And secondly with respect to the expansion at LaGuardia, where do you think, do you have a number in mind an idea in mind as to how much you can expand there New York to Florida before you begin to be concerned about potential cannibalization from JFK?

We have enough slots we think to do seven departures provided we get the times we want and the facilities and all that.

We have a schedule that has us at 13 flights a day, it's really limited there on slots so we haven't really taken it to the limit and said how many can we do?

But we think there is enough business to really take as much traffic there as we have slots to use.

Obviously we are somewhat limited by the slots, we haven't really thought in terms of cannibalization because we think there is enough to go around with slots that are available.

Those slots are now a done deal for coming in in May or could they be subject to any challenge?

Well they are a challenge.

We have to be able to run a pattern of service, so we have to have slot times that really work, so we are still working on that as well as facilities issues.

The reason we announced it is because once we apply it becomes part of the public record and we thought it was better for us to announce that we had applied.

And that is really all we have said publicly is that we have applied.

Now if you want to call the FAA (indiscernible) they've actually granted some slots to us, but we are still working with them to get the proper times we need and (indiscernible) forward to get facilities. (indiscernible) walking down a Manhattan street yesterday and somebody came out of the blue and said hey thanks for getting the LaGuardia slots and just walked away, so I assumed at least one person is happy about it.

One customer there, it's a good start.

Thanks a lot, guys.

Sam Buttrick of BBS.

With respect to your reported at least interest potentially in US Airways North East shuttle assets and obviously without violating any confidentiality that may or may not exist, could you comment at least conceptually as to whether running that type of high-density short hall congested airport operation is or is not consistent with your overall business strategy?

I will say, Sam, when you have product differential and a cost differential that we have, obviously we have a lot more flexibility then to do a lot of things.

Other than that, I have been told just to read this, from (indiscernible) "if strategic assets (indiscernible) our business plan were to become available at the right price and under the right conditions we would of course consider applying those assets.

With that said, our company policy is not to comment on market speculation."

So that is pretty much all I can say on that.

That statement includes "fit within our business strategy" and I guess I'm asking you to perhaps refine your business strategy.

You describe yourself for example as a long haul carrier, you describe yourself -- well you are planning on your average stage length increasing from 1300 to 1400 miles, so clearly that sort of short haul operation isn't in that budget.

You haven't developed any real short haul market since your initial -- at least partially and politically motivated -- short haul routes.

I guess I'm asking you to comment on long haul versus short haul more generally.

Like I said, (indiscernible) even though it is a high percentage of our ASMs we will dispute that we haven't developed some markets, I mean (indiscernible) in the fourth quarter North East ASMs from New York to the North East, the politically motivated cities, ASMs were up 7 percent and RASMs were up 13 percent.

So in markets where we do not see these huge amounts of increases we are holding firm on the RASMs.

I think, to your point of long haul and all that, we certainly don't have that baked into our 2004 plan.

I think you will see that when you get to 2005 that you will see that number coming down as the 190's are introduced and those will certainly be flying a lot shorter mission.

So that could fit into those -- if it fit within our business plan and become available at the right price.

Secondly, John, I guess could you comment briefly on your tax rate both in the fourth quarter it was below earlier quarters and there are some obvious reasons why that may be but I do not recall it being a guiding factor, and I could be wrong in that regard, and also with respect to 2004.

Sam, thanks for raising the point about the tax rate, I had intended to comment on it and must have skipped the paragraph in my script here.

We did see a decline in the fourth quarter in our tax rate.

That was driven principally by about $1 million worth of enterprise zoned tax credits that we earned for hiring people based on the fact that Long Beach and Oakland are both located in enterprise zones in the state of California.

These are credits we will use in future years to offset California state income tax.

So it was the recognition that all of the various factors necessary to earn those credits had been done, that drove those credits.

And we had a few hundred thousand dollars prior in the year but in this kind of large lump of them that occurred in fourth quarter.

So that is what drove down the tax rate for the fourth quarter.

Going forward in the projections that we've got here, we assumed about a 40.8 percent tax rate which is slightly under 41 which is pretty consistent with where we were in the fourth quarter.

That's great.

Thanks very much.

40.8 not 48, but 40.8.

Round it to 41.

Jeffrey Kauffman of Fulcrum Global Partners.

Two questions, one I would like to focus a little bit on yield and one I would like to focus on how the 190s may change that picture as well.

First I thought I heard you mention John in your comments that the yield pressure was a little bit worse in November and December early December, when you were talking about the fourth quarter.

Can you kind of take us through the fourth quarter?

Talk about when the yield compression was worse, did it lighten up a little bit at the end of the quarter and how has that been relative to what you saw in 4Q as you are starting out January.

I think the best description of how the quarter transpired is to say that October was pretty consistent with our plan and expectation.

But historically what you would normally see in markets is weakness in early November, there is a trough in early November before you get to the holiday time period in late November.

And then after people are done with the Thanksgiving time period there is normally a pretty good-sized trough in early December leading up to a very strong peak around Christmas and New Years.

What we've seen is the behavior in the peaks around the Thanksgiving holidays and the Christmas to New Years time is consistent with past experience, nice strong solid peaks.

What we've seen is more weakness in the off peak times in early November and early December.

And it was really the off peak time in early November that we first started seeing some yield weakness and that's what drove us as we progressed through the month and looked at the way December was shaping up to go ahead and revised margin guidance downward when we issued our traffic release at the end of November.

And a lot of that was due to our own capacity increases obviously where we had capacity increases, even in the south in the fourth quarter of 29 percent over what Song is doing.

Capacity increases in the west of 46 percent.

What we said last time is the peaks seem to do well during -- you have big capacity build up with obvious frequencies, the value get a little choppier, they get a little lower.

And following through on that logic I guess as we have come into this fairly light January period, have you seen any difference in the competitive dynamic?

I know David you did mention some competitor actions but in terms of the yield is it a different dynamic than you were seeing during the off peak periods back in November, December?

The yields continue to be under pressure and probably even more so because when obviously someone is giving away a free ticket for every two trips, the competitive weapon we have, we don't have a worldwide network, so we have instead low cost so we just lower our fares even more and keep more low fares available.

That is our response to be able to compete and so launch that -- we have a $79 Transcom fare that is good Tuesday, Wednesday and Saturdays so if any of you need to go to San Diego, go buy a ticket and go or to Long Beach, it's good weather out there, its not cold and snowy out there.

We have to continue lower fares and that is the way we react because we have low fares and thank goodness we have margins to be able to do that and that will be our response going forward as well.

Second question regarding the 190s.

When I think about these aircraft in the markets that you may be putting them in, my first impression is there are markets where a lot of the majors may be making abnormal profits because they are charging much higher than I guess would be considered normal yields in some of those areas.

Could you address whether or not that is a valid statement and as you put these aircraft into these markets, is the yield, you mentioned I think the cost of these planes would be about half a cent higher than your other fleet type, but is the yield that you expect to generate off these 190's higher yet than the average yield you are generating on your system?

Absolutely.

I mean the cost we said, the guidance we gave would be about a cent higher on a 650 mile average stage length and there is no doubt that we will get a higher yield in those markets that we go to and it's going to be a very interesting process trying to figure out where these things go because there is like four of us that decide these things, and all of us have our own ideas where we want them to go.

And there is such a long list, and they are going to go to places where we are going to make money first of all and strengthen what we are doing in JFK and Boston and Dulles.

Those are the first places they are going to go.

Just to add, one of the things that is remarkable about the JetBlue story not only that we have the low cost and the good product, is that we have such a small percentage of connecting traffic not we are going to build any hubs or anything, but if you take our -- even Southwest Airlines percentage of connecting traffic compared to what we have, it just gives you a lot of flexibility to go into markets and introduce people to JetBlue.

Lots of different cities by building complexes that they don't have the opportunity to fly on as cheap today.

And do it at obviously much lower cost than and who will be flying against which are primarily 50 seat airplanes in markets that in some cases have lockup fares at $700 for a flight that's an hour and 10 minutes away.

We see it as a tremendous possibility to really stimulate traffic in really good markets that haven't been stimulated for a long time.

Thanks and congratulations in a tough quarter.

Jamie Baker of J.P.

Morgan Chase.

David a question for you, this notion of departing for LaGuardia and then choosing JFK is an interesting one to me.

I suppose it is sort of like parking on a Manhattan street, you take what you can get.

If the intent is to potentially incur additional cost there should we assume that your intent is also to price LaGuardia at a premium to your existing JFK to the extent complementary service is available?

That is a real interesting question, Jamie, because we price based on availability on a flight, and you know that (indiscernible) every flight we have a fare range of Florida, 69 to 229 with the extreme peak being at 249.

We will price it to what the demand is.

What we found in the past and this way, I'm curious to really see how it does do because there are times where LaGuardia fares are a bit higher than ours and sometimes they are lower than ours.

But I think the combination of having JetBlue in LaGuardia for our customers will probably drive an average fare maybe $10 higher than what we have out of Kennedy, I don't know I am just guessing.

But when I just look to see what we do out of Kennedy compared to our competitors and what they do out of LaGuardia compared to us, generally the Song load factors are higher out of LaGuardia than they are out of Kennedy, yields are a little higher.

So I think if it is more expensive out of LaGuardia it is just going to be based on supply and demand.

The fare structure will be the same.

John, just to be clear the CASM guidance that you gave for example for the full year up 1 to 2 percent, that was a fuel inclusive number?

That is fuel inclusive.

Just so we understand the competitive hostility seem to be heading your way with such frequency, when do you do your budgeting process?

For example, is your guidance inclusive of Continental entering Newark, Sacramento, was it done after yesterday's Delta announcement?

Just give us a feel for the timing as to when you nailed these numbers down.

We do a forecast revision basically an update to our budget for anything that we know has changed from when the budget was done and our budget was completed in mid-December.

So we do revisions immediately prior to each one of these calls.

So that we can give the best, latest and greatest that we know from a guidance perspective.

We reforecast revenue for the first quarter as an example, in a relatively detailed forecast for the first quarter and literally updated it within the last two days.

But the things that we did were done prior to Delta's announcement yesterday.

Although we did provide some guidance, we did do some preliminary stuff on that.

We did take that (indiscernible)but it's early, it (indiscernible) been done less than 24 hours ago.

So we changed the range and lowered some of the revenues but maybe we will -- what's amazing to me, I don't know Jamie if you find it interesting -- when I went home and told my wife about the two-for-one on Delta I mean on American, she said let's do it.

She wants to go to Brazil and I reminded her that we shouldn't be flying another airline.

But it is a pretty powerful thing and to be down a few points in margin, probably half of that will happen anyway because that revenue was put in place before we saw the weakness in the fourth quarter.

It's pretty amazing that the effect hasn't been greater.

Obviously we have more in the quarter to go, but we are actually quite encouraged that that was a pretty direct shot and I think we are doing quite well with it to.

That's a big help.

Thank you, John and David.

Michael (indiscernible) of Goldman Sachs.

It seems the new CEO at Delta is reevaluating everything including I think putting some (indiscernible) expansion on hold, just given your comments earlier on Song, do you view this as positive or negative development, who would you rather be competing with, Song or Delta?

(indiscernible) sort, I think Song has tried to in a sense tried to mimic our product offering, little better seat pitch to 33 inches, and with their LiveTVs and they have big airplanes and it really limits their flexibility to move things around.

I don't know, I don't think we've -- we kind of see Song and Delta interchangeably.

I think they do too because they are giving away free tickets on Delta if you fly on Song.

I think on balance probably compete against Delta would probably be our preference.

But either way it's competition.

I think one of the things that continually amazes me really I think our people are underrated and our TVs are overrated.

I think really the whole aspect of flying on JetBlue, the human contact aspect from our in-home reservationist, our quick airport checkins and our friendly people on the flights is just a really powerful thing in competing with either Delta or American or anybody else.

And earlier you were talking about pretty substantial growth in LiveTV this year, I was just wondering if you could quantify that at all?

I don't know if you can answer this, just if that business is profitable or not?

It's very profitable, it was a great acquisition for us to do that, we are very pleased with that company.

Like I said we have Frontier, we have West Jet, we have another airline that will probably be announced today even that they did sign with us.

I guess we have those airlines baked into those assumptions for the year provided we get a couple of these other ones it will significantly help the LiveTV business over and above where the profitability it has right now.

Our goal is not to go out and permit LiveTV our subsidiary to bid on business in unprofitable fashion.

And can you give us a sense of how much those revenues were in the fourth quarter?

They were pretty much diminimus.

In terms of third party revenues and the way of live TV accounts, at the risk we are getting verbose here I will give a quick explanation.

Because they are in the Frontier and West Jet contracts, there are a pair of contracts with each company, one is the sale of certain equipment that goes in the airplane and the other is a continuing long-term maintenance contract.

The revenue recognition rules are quite complex, but we work this out.

We are working in consultation with Ernst & Young and their national office experts on it.

The final conclusion was the totality of the revenue taken in needed to be taken through the P&L ratably over the life of the transaction.

So all we potentially created what you might call a deferred gain from the sale of equipment on the front end, it will be taken in over a ten-year contract, things like that.

So we do not see that much from a revenue perspective in our P&L at this juncture.

(indiscernible) Frontier was not fully installed and West Jet hasn't had any installed yet, so I think that number will become bigger as we move through this year and next year.

Sounds good, thank you.

Dan Hemme of Prudential Equity.

I do not know what your appetite is to answer this but I will try to ask it as sensitively as I can.

What is on your competitive radar screen?

Where do you feel like you might see the next competitive threat and what areas if any, do you feel like you might be at the greatest risk?

We will outline them for you.

From day one we've had fair competition from day one.

If you look at the average fares that are in the markets we fly, the last data we have is Fort Lauderdale where we have -- everyone's price per price on where we fly when we have been able to get market shares.

I can't think of a single place where we aren't in competition, I wouldn't think there would be, like I said I don't know what else can be done other than give someone a free ticket to Tokyo if they buy a $69 ticket to Florida.

I can't really answer that because I think there has been about as extreme as you can be so far.

Maybe just a follow on to what you shared earlier about your margin expectations and just to clarify your 9 to 11 in first quarter and for the year you are thinking 13 15.

What is going to attract the improvement?

Start low, finish high --?

It is seasonality.

Is it anything more than that at all?

I think we have some costs usually in the first and second quarter are higher for various reasons, the icing and all kinds of stuff that we have and then costs tend to go down as the year goes on with the efficiencies of the year.

We had obviously Boston launch, in the beginning, we started out Boston, we had also just a general improvement second, third quarter and the industry are better quarters.

You just take a look at the analyst projections for the airline industry for the second, third quarter they are significantly higher than they are in the first quarter.

I think with 62 percent of our ASMs in the East-West in the third quarter, that is good and bad, when you get to the fourth quarter and you have 59 percent of your East-West.

We are just at the seasonal or tracking more to industry seasonality with obviously much higher margins.

Thanks very much.

Due to time constraints, we have no further time for questions.

I will now turn the call back over to Mr. David Neeleman for closing comments.

I just wanted to thank everybody for joining us today, and I think just in closing I would like to say that we are going to keep taking care of our customers.

We are going to keep taking care of our crew members.

We are going to continue to run what we feel is the best airline in the industry and we are going to keep focusing on our costs and keeping them as low as we possibly can.

And I think and the goal is to run industry leading margins and that's what we are going to continue to do and as competitive pressures come we will certainly act accordingly and react accordingly.

But overall, in light of this difficult competitive environment we find ourselves associated we are very positive on the future of our business and very positive.

I am a pretty lucky person to be involved in such a great company and running a company that has industry-leading margins and lowest cost and best product and I think there is a lot of people that would love to be in my shoes.

Thank you very much, I appreciate your time today and we will talk to you next quarter.

Thank you.

This does conclude this morning's teleconference, you may disconnect your lines and have a wonderful day.