JetBlue Airways Corp (JBLU) 2005 Q1 法說會逐字稿

Good morning everybody and welcome to JetBlue's first quarter 2005 earnings conference call.

We have on the call today David Neeleman JetBlue's Chief Executive Officer, and John Owen the company's Chief Financial Officer.

This conference call contains statements of forward-looking nature, which represents management's belief and assumptions concerning future events.

Forward-looking statement involves risks, uncertainties and assumptions and are based on information currently available to the company.

Actual results may differ materially from those expressed in the forward-looking statements due to many factors including without limitation the extremely competitive industry, the company's ability to implement it's growth strategy including the integration of the Embraer E190 Aircraft into it's operation.

The company is significant fixed obligation, ability to maintain it's culture, it's reliance on high daily aircraft utilization, increase in maintenance cost, fuel price, insurance cost and insurance rates.

The company is dependence on the New York market, it's reliance on automated systems and technology, it's reliance on coal suppliers, additional government regulation and future acts of Terrorism or the threat of such acts or escalation of the U.S. military involvement overseas.

Information concerning these and other factors contained in the company's Securities and Exchange Commission filings including but not limited to the company's 2004 annual report on form 10-KA.

The company doesn't undertake no obligations to update forward-looking statements to the events or circumstances that may arise on statements made during this call.

At this time I would like to turn the call over to David Neeleman.

Sir you may begin.

Thank you very much.

Thank you for joining us this morning and apologize for the early start of our conference call as it is usually at 10:00 but we got preempted a little bit at10:00 so we wanted to move up to 8:00 to make sure that we finish by 10:00.

So you can make sure you can jump on the call and I can explain clearly.

I wanted to just start by saying we are relatively pleased with the performance this month.

Obviously we are not -- it is not -- we prefer double-digit margins but given the current environment we will be content with the 6.9% operating margin, which resulted in $0.06 of earnings per share.

Which was the number was slightly ahead of our own internal forecast and obviously head of the consensus expectations.

We gave guidance at last quarter that we would do between 4% and6% margins and the interesting thing is we used a $1.23 per gallon charge and we ended up with $1.31.

On higher fuel prices we ended up with a margin that was out of the range.

So we obviously did better than what we had anticipated.

And that was driven by significantly higher revenues.

And we had a great March and that drove it.

RASM for the quarter was up 5.7%.

Load increased 5.9 points by the way a record load factor for the first quarter at 85.8%, and a small decrease in yield at 2.7%, and we had 23%increase in ASM's.

For the month of March and as I mentioned it was a very strong month and part of the reason is we had Easter in March.

We had 13 days in March that had over 90% load factor.

Easter was also stronger year-over-year where we flew 93% over Easter weekend this year versus 87.7 last year.

We set monthly RASM records in several of our markets during the month of March.

And not surprisingly the strength of these improvements are, have a lot to do with the improving situation in the west and the business there.

I will talk in more detail in a minute, but we saw double-digit low improvements in each of the months of the quarter and we also saw significant RASM improvements in the west market, which were somewhat offset by the increase in fuel prices, which I will talk about in a minute and give you examples of how that affects our business.

We covered this last call but we have seen some rationalization of capacity in the transcon business with America West and America pulling down some capacity and pulling out of certain market and the some seasonable reduction in our own part and then also we have song entering those marks and so we will talk a little bit more about that in a minute.

We have a fare increase in mid March of about $5 across most of our system.

And that was late in the quarter and didn't really have an impact on our first quarter.

We do expect a few benefits from that increase in the second quarter as our average fares continue to climb.

Yesterday we put through another $5 increase in most of the fare buckets in our transcon markets and that is due to increasing fuel prices but also we are seeing real traffic strength particularly in the transcon markets to cover some of that we have put through that increase.

I want to give you an example of how fuel prices affect us and that way you can gauge.

For every dollar increase in the price of a barrel of crude our costs per gallon increase about $2.4.

So for every $10 increase that is $0.24.

And for every $20 increases we are talking about $0.48 a gallon.

If you times that out by what our expected fuel burn is this year it works out to be about $77 million.

Then if you work that backwards and say how many customers wards and say how many customers do you expect to fly this year and if you use around 15 million, that would be about, for every $20 increase in the price of crude we need to get about $10 in airways fare.

So the $5 increases go a long way to doing that.

Now obviously the average strength is 1,300 and 2,600 miles transcon.

So obviously transcon is more fuel intensive than maybe a flight to Buffalo or down to Florida.

So, if you use that across the board thinking, you think well $10 on the whole system you probably need $20on transcon and maybe $3 upstate and $6 down to Florida.

So that gives you a little bit of relationship about the way we think about increasing fares and trying to cover the increase of these increases in oil.

And obviously we don't know particularly where the price is going, like anyone else.

John will talk a little bit more about the hedges that we have in place.

But we think a lot about hedges and find it difficult to do a lot more hedges at this level because it is hard to hedge historical highs.

But I think one of the things that gives us somewhat solace is our competitors with the exception of southwest are largely a hedge and so I guess you can say a hedge against the hedge if your competitors on hedge would be difficult for us to hedge and have the price go down and we would have higher cost.

So we are constantly looking at that in the price of fuel.

Our markets continue to grow and mature.

We have seen some great year-over-year improvements in the Boston market and we are excited how that is starting to develop.

It started out slow but as word of mouth has started to take hold and people are starting to come back and fly JetBlue again we have seen improvements and I will give you a couple of examples.

Boston to Fort Lauderdale which began January 4, we flew -- these are some December numbers that we have load factor comparisons with us and so on.

We flew 77.1% load factor in that month where delta flew 64%, which is down 15 points a load factor where they were the previous year.

So that is obviously good for us and we are going in the right direction there.

And every market had similar, not that much of a reduction on their part but for example in Orlando we had a 79% load factor and they decreased five points down to 72.5.

It's obviously much tough are for them to obtain a higher load factor when they have 199 seats than 156 seats like us and when you have a smaller plane you have a lot more flexibility with frequency and that is why we have the 190 as well.

So, things are good in Boston.

We are pleased with it.

We signed a deal for 10 gates up there.

We will be taking five gates starting in May and then adding an additional gate every six months until we have the full complement of gates in Boston and a lot of service up there and the 190'swill find a nice home there this a lot of market.

Fort Lauderdale is to LaGuardia service, which we started in September is doing well.

We flew in December an 84% load factor.

Song was down 7 points.

In San Juan in December we were at 8 .3% and delta flew as 57.8% so strong increases.

The people love JetBlue, they love flying us again and we will continue to add frequency in those markets.

When you have record load factors the way we do then obviously we are staggering frequencies in some markets.

I think we are in the mid to low 20's it the number of flights between J.F.K. and LaGuardia and Fort Lauderdale.

That is an amazing amount of factor to have the load factors we do is a test the to our brand and particularly our crewmembers who take care of our customers every day.

Just to touch on some of the new markets we are starting, on May 3 we start service in Boston, Las Vegas.

Boston to San Jose, Dallas to San Diego and increase frequency on many existing transcon markets as we start building up for the summer period.

We also had Portland on May 17 and we are excited to be in Portland.

I think our transcon has been it's been a difficult time for transcon over the past year or so.

It has not been a profitable thing for us.

We still loss money in the first quarter in transcon but we have very encouraging trends in the transcon market and if we can get those markets contributing like they have in the past then you will see, I think you will see our margin doing much better.

I think one of the things that gives us a lot of encouragement as to the transcon market and what we are doing there is that we have -- we are starting to have markets where we are exclusively the only airline that is flying in those markets and places -- I think if you divide New York into two sides, you have Newark and you have kind of what we call the other side of the river which is, would be J.F.K. and LaGuardia.

We have service from Portland, for example, we are the only ones that fly Portland nonstop from our side of the river.

If you live on long island it is very difficult to go to Newark.

With Long Beach and with Oakland and San Jose now, we are the only ones in that business.

Ontario.

So we are encouraged.

If you are the only airline in a market it certainly is better to hold on to pricing power and particularly in Southern California where people -- and in Northern California, people really love their airports and we announced service to Burbank and we think that will do fantastic.

It is starting to book up nicely.

I was on a street corner in New York a couple of nights ago and somebody recognized me and made a point to tell me how excited they were about the Burbank service.

I said that starts on I think the 17th and they said no, it starts the 23rd.

We are booked on the fleet on the first time so we have a lot of interested people to know we are going to Burbank.

Our strategy in Southern California is to basically surround L.A.X. with our introduction of the Burbank service by the time we hit our first month we will have four flights a day that will complement the eight flights we have going to Long Beach.

Then we will have two going to Ontario.

If you look at the whole L.A. area we believe that the L.A. area, the people closer to L.A.

X. is only about 6% of the market which leaves about 64% to the airports outside of L.A.X.

And I think what is really encouraging for us is that if you take the amount of service that goes to L.A.X. that is fighting for 36% of that natural market, there's 39 non-stops on five different airlines where for the 64% of the markets there are 14 flights, 100% on JetBlue.

And then of course there is three flights into Orange County on continental.

But basically we've got 14 flights for 64% of the market versus 39 flights for 36%.

So we think that is very encouraging and that will allow us to maybe get that's increases in some of the fares we need to cover the fuel costs and help us do better transcon.

The other thing I think that is important, I had an investor asking the question the other day "Would it be better for JetBlue if the price of oil were $60 a barrel or $30".

And the first reaction is $30 of course.

But I think what was highlighted in the question is we can remain profitable at these high prices of fuel and particularly if we get a little extra for our fares, another five or 10 dollars and whether it goes to $60 or $30 with our cash position and cost structure and most importantly our better product provided by our people, then we have long-term sustainability.

I'm obviously confident that a lot of our competitors don't have that kind sustainability at these high prices of oil that we do.

And I think there's a lot of emphasis given to JetBlue about our cost but I think the most important thing we have going for is obviously our product.

If you are flying transcon on JetBlue and sitting in the seat in the back that has with 34 inches of pitch which is 2/3 of our seats and you are sitting on a leather seat and 36 channels of TV and watching a couple of movies and hopefully by the end of the year you will have 100 channels of XM radio that's a tremendous product and it's pretty tough to duplicate for that and you know song has, is attempting to come close to that but obviously our cost advantage and frequency advantages is much better than there is in particularly markets where people really want to fly.

John will brief more on our expenses and talk a bit on more that.

Our costs have increased an 11% mainly due to fuel increases.

He will go over the price of fuel as well.

We had a difficult month, probably -- a difficult quarter I should say, from our performance and on time percentage.

It's probably our most difficult quarter in our history.

There were a lot of things that came together to affect our on time percentage, slipped to about 65.6% and we are very proud of our on time percentage.

In fact as many of you may have read we just won the airline quality award for the second year in a row that - from which (indiscernible) in Nebraska so we are focused on it, we are thinking a lot about it.

But we had kind of an overused term the perfect storm.

For what happened in the first quarter.

We had a few things come together.

First of all we have a real commitment to attempting not to cancel flights.

A lot of airlines, when they see the first sign of storms they tend to start sending up the operation really quickly and cancel some of the flights.

Because we fly forward because we have a commitment to our customers to fly them we would prefer not to cancel flights and so we hold on to the schedule which obviously affects the on time percentage because flights tend to run later, but they run which is very important.

We had a really tough weather in the northeast.

It started out great and then it just got worse as we got through February and March.

We had just a couple of days that were just horrible.

We had a couple of -- in one case we had two planes, not JetBlue planes that were slid off of closed runways, and in another day a private jet ran went off and closed another runway which caused us to divert lot of flights and cancel some flights.

So we canceled 342 flights the first quarter, which is uncharacteristic of us.

But 99% of those flights were done because of weather.

Very solemn everyday we cancel flight because of maintenance because we have spare planes and other things to cover that.

The other thing that really affected us in the quarter is Fort Lauderdale.

We have a lot of flights going out of Fort Lauderdale and about 25% of our flights touch Fort Lauderdale on a daily basis.

We have lines of flight that go through there.

Fort Lauderdale in the first quarter was the worst performing airport in the country in terms of on time arrivals, which was 2 1/2 times, more delays than the next worst airport.

So we are concerned about the situation in Fort Lauderdale.

We have been down there and met with the folks at the airport authority.

We have met with the FAA.

And there is facilities down there to handle more capacity.

They have a couple of runways down there that they have not used to the full extent and there are now plans in place as we move into next winter to increase the flow into Fort Lauderdale.

And which will be a Band-Aid.

There's a runway down there that needs to be extended, it has been approved but it is taking time to get it done.

But if we don't some improvements in Fort Lauderdale we will have to maybe look at adding service to some other South Florida airports because of the pressure that we are seeing in that particular airport.

But I think the encouraging thing from the first quarter is there are some things we can do better and we are going to be doing better.

Mainly it was obviously not -- things that were out of our control in Fort Lauderdale, we are working on it.

April we are back to the JetBlue standard we are over 80% on time for the month of April.

I think we had one day this last week we ran 97% or 98% on time so it is good to be back on the on time percentage and we look forward to continuing that trend as we go forward.

That 190, continues to progress nicely.

We are still scheduled to start to have delivery of those in August and start flying them in October and we are -- we have circled some certain routes so we are going to start with and so we are excited about that.

As you mentioned before, very little impact to our financial performance obviously in this year.

But as we get to next year you will see those, the benefit of those airplanes really started to take hold.

Lastly, we expect to sign a final agreement with the port authority of New York and New Jersey for the new terminal within the next few weeks and we continue to make progress and we have now completed many of the required environmental assessments.

And in the interim we have made an agreement with the port authority that we are going to be adding 7 temporary gates to the 13 that we already have.

So we will have 20 gates at Kennedy, which will allow us to may be grow to about a 170 departures, 180 departures, from the 115 we have today.

So we have the ability over the next couple years as we build the new terminal to grow to anticipate the level that we will be at when we move into our new 26-gate facility at Kennedy, so excited about that.

The costs that are coming down on the new terminal are very similar, all things considered, to what we are paying today so it's going to be a much better facility with costs that fit into our business plan.

For the outlook, looking forward and nobody cares what we did in the past, you want to know what we are doing in the future I think as you have come waiting and listening on this call, obviously the rest of 2005 will be characterized by a lot of the same conditions that we have been seeing.

High fuel prices and pressure as other carriers are forced to keep their fares low to fill airplanes and we are going there with them because we want to make sure that we are competitive.

But I think one of the things we're looking at and we are very positive about is that our bookings are very strong and they continue to build at faster rates particularly in May than they have last year.

And for the month of May we had obviously -- I mean in April we had Easter last year in April and we don't have it this year so the first two weeks of April were a bit after trough.

But the last two weeks are very strong.

May is very strong and June looks good.

The new markets are booking up well.

So we are encouraged by the revenue we are seeing.

Hopefully a lot of it will accept this the prices of fuel if they continued to stay at this levels.

Last week we launched our customary Spring Fare Sale for travel May 3rd through June 22nd and we have seen tremendous response to that fare sale.

In fact the last week we set at all time record-booking day, at JetBlue.

And as it was aptly pointed out in one of the hours reports this fare sale wasn't as low as they have been in the past and not as long a period of time.

So that obviously is a function of the fact that our bookings are just stronger than they were even at this point last year.

As far as guidance goes, moving forward, I think obviously we have changed in our guidance.

We need to update the fuel price.

The last guidance that we gave had I think we said for the end of between now and the end of the year for the year it was 7% to 9% of margin guidance and we used a price of $1.17 for the end of the year, from now to the end of the year.

We have up that now to $1.45, which has obviously helped to increase and with that new guidance, with the new price of oil and -- we are now expecting margin guidance for the year to be between 5% and 7%.

So, a reduction in the amount of margin that we expect through the end of the year based solely of the year based solely on the price of fuel.

And offset somewhat by our revenue.

Had we -- had we used the same fuel price we used last quarter we would actually be upping our guidance higher than that then what we had given last time.

So that is how confident we are on the revenue side.

I think we are being somewhat pessimistic on the price of fuel.

That's kind of what we are paying today and there is lot of people that say it may go higher and there is some that say it may if go lower.

If it goes lower we will expect to do better than this guidance but I think importantly we are still expecting to make money in each of the remaining quarters of this year, which would be at these fuel levels, would be something that would be very proud of given the current conditions.

In closing, I want to give another tremendous vote of thanks to our crew members and for the great job that they are doing under some pretty adverse operating circumstances in the first quarter and some very high load factors.

They have to really perform and take care of our customers.

And I think, as we look forward, you know, you have to ask yourself what is it in this market that would cause JetBlue to get back to its customary margins and when will things get better and obviously the answer to that is when the price of fuel comes down or if the price of fuel stays high that we see some rationalization.

I was interested to read some comments on the (indiscernible) Airlines conference call some of the reasons they feel that they are doing better and their relative performance is better.

They have pulled down some of their point-to-point markets and some of their transcon markets where they were not doing well and have kind of pulled back to their strengths and increased the DFW and increased the international flying and doing relatively better.

I think obviously as reflected in Delta's results today, they have yet to do a lot of that stuff and a lot of that competes with us directly.

And we are not privy to their internal financial statements but we think that some of those flights are probably under performers so we will continue to take care of our customers and delight them and continue to add frequency and wait this situation out.

And I'm an optimist and I do think things are going to get better.

I think they have to get better.

I don't think the situation will continue.

It can't continue forever.

So, I'm not sure exactly when it will get better, but it will get better for us and we are excited about that and the 190 as well and I think going to help us get better as we move into next year.

With that I'll turn it over to John Owen and so he can give you the rest.

Thank you, David.

Good morning, everyone.

As David mentioned, 6.9% operating margins for the quarter, we can never be thrilled or happy to be reporting that single digit-operating margin but under the circumstances with the industry backdrop of capacity and pricing and fuel I think it is quite an achievement.

Operating revenues for the quarter rose 30% to $374 million.

That was driven by a 32% increase this RPM's.

Passenger revenue is up $358 million, 28% increase year-over-year.

Capacity in the first quarter was up 23% year-over-year to $5.2 billion ASM's was a bit lower than our budget plan and the guidance that we previously gave where we had expected something closer to 27% increase.

But we had actual aircraft deliveries from Airbus came later in the month and we had assumed and we had more aircraft out of service for longer periods of time for in-flight entertainment modifications than we had originally assumed.

So, that taken with a lower completion factor because we did have quite a few cancellations during the month because -- or during the quarter, rather, because of multiple snow storms affecting Washington, New York and Boston.

All of those collectively causes to come in a bit below our capacity forecast plans.

Utilization though remained at 13.2 hours compared to 13.3 hours per day last year same time.

So basically flat on higher gravity utilization there.

As David said we had a very strong quarterly load factor of 85.8.

That is the highest ever first quarter load factor by several points and it was up 5.9% points from a year ago first quarter load factor.

March, as David said was very strong, we had 90% load factor so only the fourth month in the history of this company we have flown a 90% load factor.

The others were in the summers of 2002 and 2003.

For the quarter we had a 28% increase in revenue passengers carried.

Capacity distribution, for the first quarter 48% going east-west, 41 in the north-south. 6% to the Caribbean which we define as the two Puerto Rico markets, two Dominican republic markets and Nassau in the Bahamas and 5% in our two short haul sectors in the northeast and West Coast.

By comparison in the first quarter a year ago we have 53% of our capacity East-West, only 38% in the North-South, 5% to the Caribbean and 5% in the short haul markets.

First quarter yield was $8.07, that was down 2.7% year-over-year on a 2.5% increase in length of haul.

For the quarter total RASM was 7.4 excuse me, $7.24 and that was up 5.7% over 2004 on essentially a flat average stays away.

As David mentioned March was responsible for much of that improvement because while passenger RASM for the first two months was more or less flat.

Passenger RASM in March was up a very healthy 11% driven primarily by yield and load strength in East-West markets and Caribbean markets and of course the fact that March last year it didn't have Easter in it and March this career did.

So for the quarter passenger RASM was up 4% and excluding effect the new market using our sort of same-store sales basis passenger Rams was up 5% while ASM's in those markets were up 4%.

Other revenue increased 74% primarily due to live TV's, third party sales reduce as well as increased change fees from having more customers and an increase in concessions revenues at terminal six which again is fairly directly proportional to having more customers.

During the quarter we placed four new aircraft in the service.

All were financed with escrowed funds from double ATC transaction, which we priced back in November to pre-fund all of our 2005 a-320 deliveries.

At the end of the quarter we had an operating fleet of 73 Airbus a-320 aircraft, 48 owned, 25 leased average age the fleet was 2.3 years.

On the cost side excluding fuel cost performance continued to be good.

Operating expenses for the quarter were 349 million up 36%year-over-year.

Cash must 674, which was up an 11% year-over-year.

The increase in RASM again was primarily an attributable to the fact that fuel cost per factual increased 43 % to $1.31 net of hedges this year versus 92% or a $0.92 net hedges in the year ago period.

The fuel hedge gains that we realized in the fuel expense line were $8 million in the first quarter.

Significantly, our crew members continued really tremendous efforts that improving our overall fuel economy through various operational changes and in the first quarter we saw fuel burn for block our decrease 2.4% year yourself year.

On a fuel neutral basis, had we had the same $0.92 fuel cost that we saw in the first quarter of 2004 we would have had a RASM of $6.32 which is up only 4% year-over-year for non fuel items.

And an operating margin would have been 12.7% up from the 11.3% margin in the first quarter.

So, again-- first quarter of 2004.

So again we had some solid performance other than fuel.

Taking a closer look at some of the line items, sales and marketing expense up18% on a unit cost basis due mostly the more advertising during the quarter.

We booked 76.4% of or reservations through jetblue.com, which is basically flat year-over-year.

We now have 2.3 million members enrolled in true blue and in company blue our online portrait booking to all we continue to see nice growth and we now have over 1100 companies that have registered to use the product.

Maintenance materials and repairs was down nearly 12% on a unit cost basis.

Slightly below our budget due mainly to the timing of repairs.

We had 22 airframe checks this quarter versus 18 in the first quarter of 2004.

Our tax provision for the first quarter was 41%, which is significantly lower than the 47% rate we had estimated that we would incur in the guidance that we gave at our year-end earnings call.

As you all know the required implementation of FAS 123-r has been moved from July 1 of 2005 to January 1 of 2006 for companies like us who report on a calendar career basis.

So, we are taking advantage of that and we are not going to adopt that until the first quarter of '06.

As a result we will no longer expect to incur the expense of employee stock options in the second half of this year and the non-adaptability of those for tax rate provisions has altered our tax rates substantially so we are now expecting a 41% tax rate for the full year.

Turning to the balance sheet we ended quarter with $652 million in cash and investment securities and that includes the cash we received from a convertible note offering of $250 million that was priced on March 10, which netted proceeds of $243 million.

Taking a look at the operating performance as David said the quarter produced a lot of challenges, which impacted our on time performance.

We are proud of the fact that our completion factor remained high at 98.6 during the quarter despite the multiple Snowstorms that affected Dulles (ph), J.F.K. and Boston during the quarter.

And again it is a reflection of our unwillingness to cancel flights.

We may damage the on time performance number but we try to keep the completion factor as high as possible.

Mishandled bag rate was 4.3 per 1,000 customers and complaints were 0.41 per 100,000 customers for the quarter.

Moving on to guidance for second quarter and full year, as David said booking trends in the second quarter looks good.

We did our spring fare sale last week, had record bookings last week, had record booking days as well as a record booking week.

But we did offer shallower discounts than we did last year and the duration of the sale is shorter than last year's.

April, as David said, we had a bit of a trough between the Easter holiday at the end of March and the passover period at the end of April.

So the beginning of April is a little bit weak but the back end of April is very strong due it a combination of passover traffic, New York City schools, spring break timing and patriots day in Boston.

From an A.S.M. perspective we continue to expect to grow between 26% and 28% for the full year in A.S.M.'s.

Second quarter we expect A.S.M.'s up 26% to 28%.

Third quarter up 28% to 30% and fourth quarter up 28% to 30%.

All that assumes the aircraft deliveries are all outline in the moment.

Average stage length for both the second quarter and the full year are projected around 1350 miles.

We expect aircraft utilization to remain essentially flat to slightly up in both the second quarter and full year.

Current a-320 delivery schedule is two aircraft each in the months of June, July and November.

And one aircraft in every other month remaining in the year except for December where we have none.

That will bring us to a total of 15 a-320 deliveries in 2005 including the four that have already delivered.

As I said earlier all of those have been pre financed by the EETC transaction that we price back in November.

In August we will get our first Embraer e-190 100-seat aircraft.

We will take a total of seven, three in the third quarter, four in the fourth quarter.

We do not plan to operate any of these in revenue service until October.

To reiterate for the year we expect the e-190's to represent only about one half of 1% of total A.S.M.'s.

Operating margin, we are looking at between 5% and 7% for the second quarter and an assumed fuel price net of hedges of $1.45 which we think is a pretty pessimistic look at fuel prices but it is based off of the very flat forward curve in the low 50's 45 we have right now and up substantially from the number that we had assumed of $1.17 for the last nine months of the year when we gave guidance at the end of January.

Likewise for the full year we are expecting an operating margin of between 5% and 7% just as on the second quarter, again with a $1.45net of helps for all three remaining quarters of the year for an assumed fuel price.

For the second quarter on RASM we expect it to increase roughly 12% year-over-year based on the $1.45 fuel number versus $0.97 fuel number in the second quarter last year when we had an all-time low quarterly RASM of $5.9.

Currently expect it to increase for the full year 8% to 10% based on $1.45 fuel this year versus $1.06 average fuel price for 2004.

We have no new hedges in place since the last conference call so we are sitting with roughly 20% of the fuel burn hedged for the remainder of 2005 in the form of crude oil swaps at just under $30 per barrel.

From a capital spending perspective, total aircraft cap ex for the year expected to be roughly $800 million including pre delivery deposits and we have a commitment to finance the first 30 e-190 aircraft through sale leaseback transactions with G.E. capital so that covers the seven delivering late this year.

All the aircraft delivering in 2006 and into the first quarter of 2007 pre financed there.

As a reminder, we have a negative carry on the EETC transaction from November, a difference between the interest rates we pay on the debt there and the interest that we earn on investing the cash.

We still expect full year 2005 interest expense to total just under $100 million.

Other capital expending including live TV, spare parts, construction projects, expected to be about $150 million for the full year.

All of our debt with the exception of the $425 million in convertible notes, floats as does all of our cash investments.

Average debt rate at the end of the first quarter was 4.4% and average investment return was 3%.

For shares out standing our estimated shares outstanding for Q2 and for the full year are based on the assumptions of no additional shares assumed from option exercise, convertible debt assumed to be entitled (indiscernible).

We expect to be 18.2 million options outstanding at 1608 average strike price and built in an assumption of 20% market appreciation evenly throughout 2005.

That gets us to a forecast of $110.9 million weighted average shares outstanding for the second quarter and 111.8 million weighted average shares outstanding for the full year.

So, with that I think David and I are finished with our prepared marks.

We would like to also if you could open it up to questions and we will take as many as we can.

The floor is now open for questions.

[Operator Instructions]

Our first question is from Michael Linenberg, Merrill Lynch.

Please proceed with your question.

Two questions.

The first one to John, your comment about the 100 million of interest expense for the year or just under it just expands at, are you netting capitalized interest against that number or is that a straight interest expense number?

That's the straight interest expense number.

Good.

Then my second question, to David, you did talk about Boston and also some of the New York markets.

We do have some trans con capacity being added into the Dallas market and I know at the end of the day it not a lot but with independence flying into San Diego and into the L.A. and San Francisco markets is there anything you are seeing there because sort of in the meantime you have been adding capacity as you indicated, flying to San Diego.

Anything that you are seeing initially any sort of impact color would be helpful.

Mike, we thought there would be at this point in tame more impact than we have seen.

We really haven't seen the impact, which is a little bit surprising because I think independence air to run themselves at what we see as absurdly low levels and our business doesn't seem to be affected which is not to say that it won't be going forward but I think again the laws of airline economics say if people are continuing to charge those kinds of fares and sustain those losses it may not be something that can sustain itself over the long term.

So, we have not seen any effect and we haven't seen that much effect for song either.

In fact, we have seen from song a little on the trans con they are trying to keep fares higher when they get past their sale period probably to compensate for the fact that they have got higher fuel costs as well.

And that airplane of theirs burns a lot more gas per customer than what our planes do so they are disproportionate affected in a negative way.

Very good.

Thank you.

Our next question is from Ray Neidl, Calyon Securities.

Please proceed with your question.

Good morning.

You talked about this year in your presentation but some of your critics I'm not among them have been saying that Jet Blue has been impeding the process of getting some fare increases through the industry.

And they say that Jet Blue at this point is going to sacrifice current operating margins for growth.

I know you put that you a couple of price increases recently to meet the higher jet fuel prices.

I'm just wondering going forward to you see the industry being a little bit more liberal in getting through some more price increases?

Well, I think, ray, our philosophy on fare increases, we have always priced our product to our costs independent of where maybe somebody else is.

But we have to be cognizant not to crush the demand side of the business.

It would be nice if we could continue to raise prices and expect the business to stay the way it is.

So we are cautious not to do that.

So as these fare increases comedown we hook at each within and as we did yesterday, the day before when we did the trans con we looked at our cost on that market and how fuel is affecting it and decided we probably would be good to get another $5 on that fare, the same way we did when we did the fare increase in March.

So, I think we will individually look at them and look at bookings and be careful not to affect the demand side.

Is the delta policy affected you at all or were you there already?

We were below there already.

So we have not seep any effect for that.

The second question is, there's probably going to be some consolidation going on led by maybe U.S.

Airways and America west.

From your viewpoint you are doing a good job growing the airline aggressively internally.

Are you satisfied with that policy or could you be involved in a merger in that position?

In this case we have a big announcement to make.

We are not buying anyone.

For us my attorney just about fainted here.

No, we got minister cash, did the convert deal and the timing wasn't the best but we got it done and we have $652million in cash.

The reason we did that is we didn't know how high prices of fuel were going to go.

If you were reading the guys at gold man you wouldn't sleep at night.

We have potential liquidation's and potential assets that could become available not planes or people necessarily but maybe gates and slots that may be of interest to us. .

So we thought it would be good to beef up the cash and have that option ready.

So we have the cash to be able to somethings but not merge with another airline.

That is out of the question.

There's no immediate plans to expand LaGuardia further?

If we get some slots we would love to expand.

We have done well and we think we continue to do we will if we could get more dates as slots.

Here is our next question is from Jamie Baker, JP Morgan Securities.

Good morning, everybody.

If we look at maintenance on a per departure basis it was up from the fourth quarter but down year on year, which I think that is the first time we have ever seen a decline.

What is driving that?

Jamie, I think you have got me stumped because we don't look at maintenance on a per departure basis.

So I'm just I'm not really prepared to address the question.

We can look at it and I can call you back later and try to explain it and I don't have an answer for it.

It probably timing, Jamie.

We try to figure out what engines are going to shop and sometimes we are certainly not going to run an engine into the shop if it doesn't need it.

So, our tech folks do a great job of managing that whole process and they give us numbers a if we do better than that we are set to be timing.

So it is pay me now or pay me later.

I think a lot of it may be with timing.

Was there anything in the year ago period that may have inflated that figure?

It wasn't anything particularly.

Year-over-year we had 22 airframe checks this quarter versus 18 in the same quarter last year.

So, it wasn't up quite as much as capacity.

Actually had -- if I recollect, nine engine visits this year versus five last year but the five last year were higher dollar engine visits and it were lower dollar repair visits that were heavily covered by warranty.

So you can't even look at numbers and draw some good conclusions from the number of event because the relative prices of the events changed.

Fair enough.

And as a follow-up to David Neeleman, as it relates to some of the operational challenges you witnessed if Q1 and as the JetBlue model continues to mature, would you consider an interline agreement that would allow you to cancel flights without straining the passengers?

I think certainly what we did when we canceled flights is just paid for them to go on other airlines.

We don't need an interline agreement to protect people.

We will take care of our customers regardless of whether we have an interline agreement or not.

Thank you, gentlemen.

The next question is from Gary Chase with Lehman Brothers.

Just a couple of questions for John Owen and one for David Neeleman.

John Owen could you remind us what you were anticipating in terms of option expense for the third and fourth quarters so we can reconcile what is moving around between fines this time and last time

Last time we were talking about roughly $11 million net of profit sharing and tax and with that equated to is about roughly $20 million worth of stock option expense that would have occurred in the second half of the year that now won't.

And I apologize for this, I want to make sure I'm crystal clear on where you are on fuel.

Was the guidance $1.45 for each remaining quarter or $1.45 on average for the year?

It was $1.45 for each of the remaining quarters of the year plus, of course, the $1.31 for the quarter just passed.

Yes, the answer is yes to both.

I think it averages to $1.4 for the whole year by the time you are done.

But you are not calling for escalation in fuel in the third and fourth?

No, basically what we did is look for lack of any better benchmark an extremely flat forward curve built in a very large crack spread that is out there right now and went from that and netted our hedges against it and came up with this.

So, it assumes that the forward curve stays in the sort of $51 to $52 range for the full year.

Well, that forecast is at least as good as anybody else's.

I don't have any crystal ball.

You can all make your judgments to fuel price however you like.

We just want to give you the assumption we used.

Just one kind of more strategic question, David Neeleman.

As you pointed out a couple of times in your prepared remarks, you can look at this a lot of ways if you take the impact of rising fuel cost out of the business you are still solidly profitable at least, you know relative to where you were a few years ago.

There's been a little bit of erosion but not that much.

And I'm wondering as you look out, I think I have heard you say in the past some of the opportunities surprised you a little bit, Florida was a bigger opportunity than I think you had initially envisioned.

As you look out over the next five years or so, the next sort of way of your growth, if you think about it that way, do you feel as good about that as what you are sitting on today this do you think you can find these kinds of opportunities going forward?

Yes, absolutely we do think so, Gary.

Because I can what we said in the past is away intended to be in a lot more markets than we are today but that Florida has eaten so many of or airplanes as we continue to take delivery we keep putting more there.

That we have got a lot of things in queue that we would like to do that we have not been able to accomplish yet.

And when people ask me what surprises you most about JetBlue, that is what surprises me the most is not of frequencies that we have to do to satisfy the markets.

So that applies to new markets that we will be going to as well.

It is just the model where people love to fly it from up and come back and fly it again, if you look at the anchor points of Boston, New York and Washington and all of the cities that we can fly to all of those places then all of the places we can fly between those places, there's not an infinite number of flights but there's a lot and we have schedules that take us out through the end of the decade and beyond and there's plenty of exciting things for us to do and a lot of people that will enjoy the JetBlue experience that are not currently able to do it today.

And nothing has changed on the competitive landscape that gives you pause.

No, I think I went over this on the last call there was some concern that simple fares - simpler fares would expect us but as the stage lengths got shorter and short are there was not the corresponding reduction in the simple fare cap price that they were virtually maybe $70 or $100 less for something that was 2,300 miles shorter so the same economics hold true.

The 50-seat airplanes against us are at what I would call an extreme competitive disadvantage from an economics point of view and from and product and quality point of view.

So, those -- I think that business is going to be really much easier to penetrate a lot quicker pause there's a lot of low hanging fruit in those markets so that is one reason we are licking or chops a little bit.

Thanks a lot, guys.

The next question is from Sam Pinella (ph) with Raymond James.

Good morning.

Can you talk about unit costs trends, ex fuel for the remainder of the year?

Is there anything unusual with respect to maintenance or even sales and marketing that you anticipate?

No, nothing dramatic.

We do have some increases in maintenance that are baked in during the course of the year, as one would expect as we grow.

But I went through the various categories in our forecast and just took a look to see if there was anything that really stuck out.

And once you get beyond fuel you have a few small items like maintenance and sales and marketing that are up small amounts here and there.

But the rest of it is pretty much noise.

So, it is just some gradual things across the board in a variety of places.

And I would remind people that we have ramp-up costs embedded in this year for the 190 of several million dollars as we are taking on board a variety of people on the training and instructor side and the recruiting and background checking side and a variety of different things like that to be prepared for the 190 where we are putting a little pit of drag on the cost structure.

I think we estimated it is around $5 million for the course of the year of 190 expenses in there.

So that is part of it as well.

And what was your long-term debt at the end of March?

I don't have the balance sheet in front of me at the moment.

Just a second.

Total long-term debt at the end of March was $1 billion 897.

Is that total?

I thought that was total debt?

That is total debt, yes.

That is long-term and short-term.

Long was a billion 865.

My apology.

Great, thanks.

thank you our next question is coming from David Strine with Bear Stearns.

Please proceed with your question.

thanks one quick question, John, are you guys going to avail yourselves to the FAA seat check extension and it so is that alter your previous maintenance expense guidance?

Our plan is to avail ourselves of that extension.

However, the way it works, what the FAA initially did was say that Airbus could change the Airbus maintenance program to extend the interval for seat checks.

And that is all well and good but we can't extend it ourselves until we demonstrate to the FAA with statistics of our own based on our own check history that it is appropriate for the way we operate the airplane.

So, we have been compiling all of those statistics and working to make sure that we can get that extension from the FAA but to my knowledge we have not received it yet.

And we haven't but we haven't in our numbers anticipated yet.

And have you looked at what that may do in terms of a quantity to maintenance costs?

Have you been able to quantify it yet?

Haven't really set down and run a bunch of numbers on it but it is relatively simple.

If we get the entire extension on the seat checks because you go from 5,000 to 6,000 hours.

So you can kind of run the math and figure out the kind of reduction that you would see on an ongoing basis as you simple my extended seat checks out and over the life of the airplane did fewer of them.

Okay, thanks a lot.

Okay

Thank you our next question is coming from Susan Donofrio, Fulcrum Global Partners.

Please proceed with your question.

Hi, guys.

Two quick questions for you.

One is could you just touch base on the competitive landscape going forward?

Are you anticipating is going to get better or worse?

I know you had said there's pull downs to trans con where obviously expecting song to ramp up if you could address that and then the second follow-up to that is just if you could just talk about the average fare relative to a year ago because I know we have had some fare increases and then we had a fare sale.

I'm just trying to get my hand around that one as well.

Okay I will talk about average fare first.

In the first quarter our average fare was $105 and last year $105 so there is a very little change between this quarter but as I mentioned in the remarks there was very little

I'm talking about today.

Well, today, certainly, with fare increases you are going to have higher fares and with the fare sales not as deep, but a lot of that will obviously be gobbled up with fuel, more than that will be gobbled up with fuel or we would have the same operating margin we had last year which we are not expecting to have.

As far as the competitive landscape I think it is just a war of attrition and I don't know exactly, we have seen great things and we have seen not so good things.

One of the things that was encouraging a little bit about song is that the seven flights a day her doing JFK and LAX.

Actually in a pull a down it five for the off season and then they are go from five to three to San Francisco.

Within those planes end up in our Florida market so I guess it is better to have them peak and peak instead of off peak with higher demand.

So we don't know about the competitive landscape.

We see things improving.

But anything can happen in this crazy business.

Fair enough.

Thanks you so much.

There appear to be no further questions at this time.

I would like to turn the floor back over to Mr. Neeleman for any further closing remarks.

I will make it short it because we're six minutes in the delta call so, thanks again and we will see you next quarter and we will keep taking care of our customers and hopefully our results looks like that.

Thank you very much.

Thank you.

This thus concludes today's teleconference.

You may disconnect your lines at this time and have a wonderful day.