JetBlue Airways Corp (JBLU) 2007 Q1 法說會逐字稿

Welcome to JetBlue Airways Corporation first quarter earnings conference call.

Today's call is being recorded.

We have on the call today David Neeleman, JetBlue's CEO; and John Harvey, JetBlue's CFO.

On today's call, John Harvey will be discussing some non-GAAP financial measures.

A reconciliation of these items can be located on JetBlue's website at investor.jetblue.com by clicking on the GAAP to non-GAAP reconciliation link.

As a reminder, this morning's call includes forward-looking statements about future events.

Actual results may differ from those expressed and forward-looking statements and therefore investors should not place undue reliance on these statements.

For additional information, please refer to the Company's periodic filings with the Securities and Exchange Commission.

At this time I would like to turn the call over to David Neeleman, please go ahead, sir.

Thank you very much.

Welcome, everyone, to our first quarter conference call.

As most of you have already seen our press release this morning, you can tell we've had some disappointing ups and downs during the quarter.

I guess what's most disappointing about the first quarter results for us is that in early February we were really upbeat about how things were going.

We'd closed the books for January.

Our costs came in solidly better than what we had projected and revenues were spot-on and we were looking forward to having a good quarter and even exceeding some of the guidance that we had given you.

And then, of course, the February ice storm occurred which obviously through us off for the quarter and so we were obviously getting through that event.

We were anxious to see how bookings would recover.

By the end of February and early into March, we were very relieved to see that the March revenue projections were coming in even above our poststorm -- our prestorm targets for the month of March.

We had a number for March and we were on target to exceed that number.

And then of course we had the St.

Patrick's day storm.

We had the Valentine's day storm and then the St.

Patrick's day storm.

Certainly that derailed us a little bit.

In fact, with both storms, we canceled nearly 1700 flights, which was obviously unprecedented situation for us here at JetBlue.

We estimate that the impact of these two storms during the quarter is about $41 million, which of course includes the vouchers that we gave away as a result of the storms and the lost revenue that we refunded due to the flight cancellations.

When you look at what we actually did in the quarter compared to last year, we reported a negative operating margin of 2.2% with a share loss of $0.12 compared to a negative 5.2% operating margin last year with a loss of $0.18.

So obviously if you would have plugged that $41 million into the first quarter that we lost because of those storms, the year-over-year comparison, even though it was better this year from a really bad quarter, it would have really been a lot better and would have moved us very close to break even, had we been able to not have those very unfortunate events.

We grew 12.1% for the quarter.

Our average stage length was down 13% and our capacity growth of course, was affected by the one row of seats that we removed on the A320 aircraft creating the extra leg room.

In terms of guidance, we're anticipating slightly improved year over year comparisons as well.

Given the recent -- and that's pretty good given the recent rise in the price of oil.

In 2006 our cost per gallon for fuel was $1.99 and now we're currently projecting a cost of $2.06 for the remainder of the year.

What that demonstrates is that we are continuing to benefit from our cost control efforts and also our decision to slow the growth.

John will go into a lot more detail on cost, because I know there's a lot of questions that came up.

What impact did the ice storms have on your cost going forward, and so John will give you a lot more detail on that, but we're very pleased with the cost story here at JetBlue.

I don't want to spend too much time talking about the ice storms, but I just wanted to give you a brief update on a couple of things and some progress that we've made in making sure that this doesn't happen again.

I guess first and foremost, I'd tell you that as painful as particularly the St.

Valentine's day event was, we've learned a lot from it.

We are a better airline and we're more capable of responding to similar situations than the past and certainly given the weather here in New York, we're going to have these types of situations in the future.

So we're much more prepared for it.

In fact, if you just fast forward one month from St.

Valentine's day to St.

Patrick's day, it was a completely different event for us.

Even though the storm was arguably a much worse storm, even a worse storm than we had here on the day before St.

Patrick's day, we were able to put the operation back together again, operated 93% of our flights the day after the storm and 100% of our flights the day after that.

So it was a completely different event and the reason is that we came up with a precancel plan.

We had a lot -- we learned a lot from St.

Valentine's day and so I think our focus going forward is on day two.

It's what happens on day one obviously dictates what happens on day two and day three and that plan really worked almost flawlessly on the St.

Patty's day storm.

Secondly, I think it's important to note that as a result of both these storms, we were operating under a relatively new mandate from the FAA which essentially prohibits domestic carriers from taking off in ice pallets when it's mixed with rain or snow, and when that's in the official observation at the airport.

Gladly and happily the FAA has agreed to reevaluate this policy.

We've been operating in those conditions for decades in this industry.

That was a pretty sudden change, so we're working really closely with the FAA to see if we can come up with a more reasonable approach and still protect the safety of our customers.

Obviously, that's top of the pyramid for us as well as the FAA, but we think that what they came up with maybe went too far so we're working with them on that.

I want to just outline a few things that we're working on to ensure this operational disruption doesn't happen again.

Number one, we've really strengthened our management team recently.

Some of you may have read some of the press releases that we put out.

We're very very excited to have Russ Chew here who is our new Chief Operating Officer.

He has joined us and is already making a huge difference here with the way he looks at the operation.

We also were thrilled to get Alex Battaglia, who's our new Vice President of JFK.

He's doing a great job out there as well.

Those were two areas, JFK was an area that we could have improved on during the event.

It's important to note that we were recruiting both Russ and Alex before this event.

But after the event and they saw the impact and their ability to come and help they both agreed to join us so we're happy to have them onboard.

Russ is starting to add management team members in very key positions.

We've recently been joined by [Joe Bertopelli], who's running our system operations control, who has vast experience in SOC, which is system operations, and he'll not only be helping our folks and adding to the strength, but also making those decisions that we need to make to avoid the kind of events that we had.

I feel about 10 times better than I did a month ago and we're certainly improving in a lot of different areas.

We've already done a lot of preparation on the airport side, as I mentioned, in system operations, some quick fixes to our software and other things and just policies and procedures.

Also on reservations, coming up here in the next month or so, we're going to have full functionality on the web that our customers will be able to go on during an (Inaudible) event and be able to move themselves to other flights, cancel their flights with a full refund, or move themselves with no change of fee and cancel, which really will be a big benefit and we're looking forward to have all that functionality on the web, which will help our customers during these really difficult weather events.

Lastly, I want to just spend one minute to talk about the Bill of Rights.

We were proactive in putting that in.

We see the Bill of Rights as a competitive advantage that JetBlue has over our customers.

It's been well received by our customers.

I just wanted to assure you from a shareholder perspective that these policies and procedures, about 70% of them were in place prior to the ice storm event.

So we were already doing these things about 70% of the time.

We think that our customers having vouchers, that this will generate new business for us.

It will get people to come and try and fly JetBlue, maybe where they wouldn't fly our competitors because they have protections that aren't offered to our customers.

We think it's a really good thing and it's been well publicized and like I said, it's been well received by our customers and don't see it as financially onerous to the Company, but actually see it as a positive.

Moving on to revenue, our year-over-year PRASM increase in the first quarter of 8.6%, which is notable considering that that PRASM number includes the revenue reductions related to the vouchers that we gave away.

Obviously, we gave away 10s of millions of dollars of vouchers and because that money went to decrease what we did in the first quarter, so to have 8.6% given the amount of money, vouchers we gave we is actually pretty good.

We also had 18% of our ASMs in the first quarter in new markets.

That's in markets that we were in less than 12 months.

We're still developing a lot of new markets.

As I mentioned earlier, we are on track to beat March revenues, then the second ice storm came along.

The flight cancellations associated with the March storm obviously impacted our PRASM, but even with that impact from that storm, we increased March year over year of 17% , which is excellent.

Obviously some of that had to do with the timing of Easter Passover and spring breaks.

We had a lot of revenue.

Last year we had it mainly in April and this year we had some of it in March.

As we mentioned before, the April number obviously will not be near that number and will be kind of flat for the year because of the timing of the holidays, because this year New York and New Jersey spring break was moved earlier and Boston also was mainly in April, but straddled the two months.

Looking forward on the forward-looking revenue, our May and June bookings are showing some signs of softening.

We don't have a lot of visibility beyond that, but it seems like that we're experiencing kind of an overall softness in our domestic revenue demand consistent with others have mentioned on their calls.

Having said that, our year over year PRASM growth for the second quarter, we believe, will be somewhere between 6 and 8% and for the year, given the little bit of softening we're seeing, we're changing that number to 7 to 9%.

Lastly, I just wanted to talk for a minute about the 190s.

There's been a lot in the press and we've talked a lot about the 190s and some of you have read that we've subbed in a couple lines of flying on the 190s to ExpressJet to fly and we're appreciative that they were able to come in and fill those gaps.

The reason we did that is it really allowed us to hasten and speed up the modification, the mod programs that we had for known reliability issues on the airplane.

We think that that's going to create a much better airplane a lot quicker than the pace we were on for before.

We've been working really close with Embraer to improve our utilization and reliability metrics.

We're also working with Embraer regarding the compensation related to the service disruptions and the cost associated with leasing the other airplanes to come in, as well as the additional spares that were needed to be able to expedite those mod programs.

We have a great relationship with Embraer and they're really stepping up to the plate and working really closely with us to get this airplane where it needs to be.

The customers absolutely love that airplane.

They love flying on it, it's a very comfortable airplane and every time I'm on it I ask if anyone misses the middle seat and no one's raised their hand yet.

We have just recently -- a lot of questions come up about the cost on the 190 and is it -- is there anything about the cost that is a different story than when you purchased the airplane.

What I'm pleased to tell you is that we've done a bottom's up cost analysis and looked at really the airplane cost and maintenance cost and labor cost and really the only driver that's kind of not in-line with what we had assumed originally was just the utilization of the airplane.

We feel very comfortable that as we get the utilization up, as we get these reliability issues taken care of, which are not dissimilar to other new airplanes when they come on the market, that we're very comfortable that the cost difference per seat between like an A320 and a 190 and our ability to yield up to cover those cost differences given that we have less seats -- given that we have 50 less seats to sell, we still feel very good about that.

As we move forward, I think what you're going to see the 190 doing a lot more flying in places other than just JFK and Boston and developing new markets and connecting the dots.

I guess I would just tell you that we love the product, we don't love the reliability, but we feel like we have a really good plan and once the reliability gets up there, there's really nothing structurally about the airplane that's any different than when we made the decision to buy it in the first place.

Just in closing, I just wanted to tell you how much I appreciate our crew members for the fabulous job that they did in trying to recover the airline during two very difficult regular operation storms and we're going to get better, but it really was -- in every case, they didn't have every tool that they needed, but they will have them and we'll be much better prepared, but it wasn't because of lack of effort on behalf of our great crew members.

With that I'll turn the time over to John Harvey and he'll give you more details on the financial

Thanks, David.

Good morning, everyone.

As David mentioned, we are disappointed that the ice storms negatively impacted our results for the quarter.

However, I am pleased to report that despite the storms, we have continued to maintain our overall cost discipline and our commitment to low cost carrier spending habits.

Before we take a more detailed look at how we performed on the cost front, I wanted to begin by walking you all through the financial impact of both ice storms.

In February, we canceled approximately 1200 flights over a six-day period.

As a result we recorded approximately $24 million in vouchers net of estimated breakage.

In addition, we estimate that we lost roughly $17 million in revenue due to the flight cancellations associated with this storm.

The incremental expenses that we incurred due to the storm were offset by the cost savings of not operating the aircraft, so all in we believe the net pretax impact of the February storm was roughly $41 million.

Turning to the March storm, we canceled approximately 480 flights, but since we preemptively canceled most of these flights, the financial impact of this storm was immaterial.

Thus the net impact of both storms to our bottom line was approximately $41 million.

Shifting gears a bit, I want to touch briefly on some recent changes to our compensation structure that we believe will benefit both our crew members and our shareholders.

As a matter of course, we regularly review our compensation structure and benefit levels.

Recently, we concluded that certain components of our compensation program should be modified to further support our goals to recruit and retain the best.

As you know, we have a stock purchase plan in place which allows crew members to purchase JetBlue stock at a 15% discount with a two-year look back feature.

Unfortunately, the new accounting rules which came into affect in January '06 required companies to record expense for stock-based compensation without receiving the benefit for purposes of calculating our tax rate.

In other words, these accounting rules created permanent difference between book and tax expense.

When the new rules came into affect, many companies eliminated or modified their stock purchase plans.

At that time we chose not to.

Effective this month, however, we have decided to restructure our stock purchase plan to eliminate the two-year lookback feature and reduce the purchase price discount to 5%.

As a result going forward, we expect our stock compensation expense will be significantly reduced as our plan will now be considered a noncompensatory plan, thus enhancing our bottom line and profit sharing opportunities for all crew members.

In fact, if the new changes to our stock purchase plan had been in effect at the beginning of '07, we believe our stock-based compensation for the full year would be about $6 million lower.

We also decided to make several positive changes to our crew member retirement plan.

We have increased the amount of company match in our 401K plan from 3% to 5%.

Additionally, we've changed our profit sharing program in order to, one, guarantee every JetBlue crew member an annual company contribution equivalent to 5% of his or her eligible salary to be paid into a tax deferred account, and two, pay any excess over 5% in cash whenever our profit sharing formula of 15% of pretax earnings produces more than 5% of each crew member's eligible salary.

As a result of these changes to our crew member retirement plan, we accrued an additional $7 million in expense during the quarter.

Finally, we've introduced the hourly pay rates for our pilots in an effort to continue to recruit and retain the industry's best.

We are also discontinuing stock option grants to newly hired pilots and other licensed crew members, as these crew members perceive the options to be less valuable than pay adjustments or increased retirement plan benefits.

To summarize, once our stock purchase plan change is fully phased in and stock option grants are discontinued for newly hired license crew members, we believe these changes will result in a net benefit to our bottom line by reducing the majority of our stock comp expense.

At the same time, our crew members will receive improvements in their retirement benefits as well as guaranteed profit sharing dollars.

Now let's take a closer look at our Q1 results.

For the quarter, our CASM was $0.0834 up 7.5% year over year.

Excluding fuel, our CASM increased 8.2% year over year.

If we stage length adjust our ex-fuel CASM, to get a better apples to apples comparison we see the stage length adjusted extra CASM was up only 1.1% for the quarter and this increase was driven mainly by the Q1 expenses associated with our retirement plan changes I just discussed.

If we adjust for both the financial and statistical impact of the storms our ex-fuel stage length adjusted CASM was actually down 2.5% for the quarter.

In addition, I'm very happy to report that other operating expenses which include most of our discretionary spending, decreased 3% on a unit cost basis year over year.

Stage length adjusted and excluding the impact of the storms, our other operating expenses were down approximately 15% year over year.

We're very pleased with these results because they reflect our continued commitment to cost discipline despite a very challenging environment.

Looking at a few other line items on our income statement, salaries, wages, and benefits for the quarter increased 11% on a unit cost basis due mainly to changes in our crew member retirement plan that I previously discussed as well as overtime pay related to the storms.

In fact, about two-thirds of the year over year increase can be explained by these two items.

Fuel continues to be our largest operating expense, however our fuel consumption per block hour for the A320 is down 3.5% year over year and the E190 burn rate per block hour is down 3.4%.

This increase is driven by our continued commitment to several fuel conservation initiatives.

Including single engine taxi and rapid deployment of ground power at gates.

Depreciation and amortization increased 11% on a unit cost basis, due primarily to the associated depreciation of our seven gate temporary facility at JFK which opened in June of last year, and write-offs related to our recent A320 seat reconfiguration.

Of the 11% increase in depreciation 73% of it is due to these two items.

Sales and marketing costs were up 28% on a unit cost basis, due primarily to increased advertising related to our "most leg room in coach" campaign, which we launched in February.

In addition, we launched our big winter sale in January this year.

In prior years, we began our winter sale in December so the associated advertising costs would typically fall into Q4.

Moving on to the balance sheet, we're very happy with our cash position.

At quarter end we had cash equivalents and investments of $774 million compared to $699 million at the end of '06.

Our decision last year to slow our aircraft delivery schedule has improved our liquidity outlook and we intend to continue to maintain our liquidity targets throughout the year.

Looking ahead, we'll have detailed guidance available in our investor update filed as an 8-K later today, but I would like to take a moment and highlight a few things.

We expect capacity to grow 12 to 14% in the second quarter and 11 to 13% for the full year.

We anticipate taking delivery of eight more A320s and eight additional E190s during the remainder of the year.

Keep in mind though, that you may see additional aircraft sales this year.

As you all know, the market for A320s is very strong and we do operate the world's largest fleet of A320s, so stay tuned.

As David mentioned, we expect PRASM to increase 6 to 8% in the quarter and 7 to 9% for the full year.

Stage length adjusted PRASM for the year should be up 5 to 7%.

We expect CASM to increase 6 to 8% for the second quarter and 7 to 9% for the full year.

CASM ex-fuel is expected to increase 5 to 7% for the quarter and 7 to 9% for the full year.

It's important to emphasize that our full year CASM ex-fuel forecast has not changed since we initially provided guidance back in January.

In other words, the ice storms have not impacted our low cost discipline.

Our CASM guidance assumes an estimated average fuel cost per gallon of $2.06 in the quarter and $2.06 for the year.

Details on our hedging program will be available in our 8-K filed later today, but we are roughly 65% hedged in Q2, 35% in Q3, and 25% in Q4.

This brings us to an expected operating margin between 8 and 10% in the second quarter and 5 to 7% for the full year.

We estimate pretax margin to be between 3 and 5% for the quarter and between 1 and 3% for the full year.

To close I just want to reiterate that although we faced many challenges during the quarter, our results show that we continue to maintain our long-term focus on low cost carrier spending habits.

We're pleased with the cost direction which we're headed and would like to thank our crew members for their continued hard work and dedication.

With that we're now available to take your questions.

(OPERATOR INSTRUCTIONS) Your first question is going to come from Jamie Baker of JPMorgan.

Good morning, everybody.

David, the softness in May and June, any color on fair categories or geography?

And also your revenue trends are probably being helped out by your GES participation.

Does that imply that if we strip that incremental GDS business out that maybe demand is even softer than what you've just implied?

Jamie, I don't know if we've done that calculation.

Obviously, we have other levers that we can pull on the other online travel agencies that we'll be making some announcements on, so we think that we have some additional upside, but we haven't looked at what the GDS was or is.

We just look at what our projections are for the month.

They're down a little bit and we see some softness.

I don't think that's unusual or different than what everyone else is seeing.

Okay.

-- GDSs, so.

Okay.

For my brief follow-up, have you had any conversations regarding a potential sale of the Company or domestic code share with any existing legacy airline?

What was the question?

Have you had any conversations regarding a sale of the company and/or domestic code share alliance with any existing legacy airline?

U.S.

airline code share?

Correct.

We've had conversations with lots of international carriers and there's certainly a lot of willingness.

The code share stuff has been taken -- was pushed back just a little bit, obviously, due to the ice storm, but we're getting back on track on those issues now that we've got all this other stuff taken care of, and no, we haven't had any conversations with any legacy carrier about acquiring the Company, no.

Thanks a lot, everyone.

I would reiterate that that would not be something that we would want.

I wouldn't think so, actually, but didn't hurt to ask.

Yes.

Thanks, David.

Thank you.

Thank you.

Your next question is coming from Robert Barry of Goldman Sachs.

Hi, guys.

Good morning.

Good morning.

Given the demand softness you're seeing, I was wondering why you were still planning to add the same amount of capacity this year?

Well, I think -- we're looking at it -- as John mentioned in his notes, we are -- the urge is very strong demand for airplanes out there, used airplanes and we have some, as we did last year when we sold the five airplanes, we're entertaining lots of really attractive offers for a certain number, two, three of our existing airplanes.

So I think we can moderate the growth by selling airplanes if we need to, but like I said in my comments, the visibility on softness is just in the next couple months.

So I guess I would tell you we have lots of flexibility to slow down even more if we need to, but we have a lot of things that we want to do with our airplanes and we're excited about the markets that we're looking at.

Do you have guidance on ASMs, now, doesn't contemplate any airplane sales?

There's a range in there so I would tell you that the lower end of the range would be air aircraft sales and the higher end would be nonaircraft sales.

Got you .

Then on the changes to compensation, some puts, some takes, could you just boil that down?

What is the net cash impact and what is the net expense impact of all those

Obviously, the guidance that we gave for the full year, up margin, CASM, and whatnot is the net impact in the P&L.

At this juncture I'm not sure I'm willing to actually break it down piece by piece for you guys.

I will tell you, though, that as you look at the '07 numbers, because it does take time for us to wind down the 401-K because of the two-year lookback and it does take time for the options to play out, that we are taking a bit of a P&L hit in '07, but over the long haul, it's a good thing.

I think John said 401K but he--.

CSBP.

My bad.

Because we have a little bit of an overlap now.

Those were involved in the CSBP are going to stay in it and then we'll roll off in the next year or so.

There is kind of an overlap.

I think the big benefits from what we're talking about here will be seen in '08 because it is a bit of an overlap.

We turn P&L positive in '08.

That sounds like it may be more beneficial though to the P&L than to the cash flow?

That would be correct.

There is a bit of a cash hit over the long haul.

Mainly in terms of the 401K side, because that cash the extra 2%, if we can continue to produce profit sharing, then there's no additional cash hit because that money was either going into an account for our crew members or it was going to them, it doesn't matter.

There's really -- as long as we pay over 5% from our crew members, there's no additional cash hit on that portion of it.

Okay, thank you.

Thank you.

Your next question is coming from Jim Parker of Raymond James.

John, good morning.

Hey, Jim.

This $41 million impact of the storms, you're saying that's a revenue impact, but then you're saying bottom line impact.

How much is the bottom line impact?

it happens to be equal to the revenue impact.

We had an offset.

Basically, we weren't flying some of the flights, Jim, so we had a lot of savings in fuel expense as well as a few other things and that kind of offset the incremental interrupted trip expense and overtime pay and whatnot.

So the expense side kind of nets out due to the fuel savings.

Okay.

David, you have, it appears, pretty much changed all the management people other than yourself and Barger and I'm just curious what is the evolution of the Company that has brought all of that about and are you all set in that regard?

Can you elaborate on that a bit?

Well, I think -- yes, it's a good question.

As the Company gets bigger and it gets more complex and there's other things that are going on, you just need different additional expertise in certain areas.

So I feel really good about what we've done, we've talked a lot about this on the revenue management side, the schedule planning side, we're a lot more disciplined in looking at places to fly and a lot more analysis.

We also obviously in the finance side and the changes we've made there and the costs that we're working on.

Now it's the operation side.

Russ Chew is bringing an orientation of, hey, folks you've got 125 airplanes and they're flying in some pretty difficult air space, so we need to figure out how to put humpty dumpty back together again so I'm very pleased with the operational changes that we're making and to make sure that we don't have the events of the ice storm happen again.

Overall, I'm really pleased with our management and the direction that we're headed and really the people that we have here and the new people that have come in have really hit the ground running and are doing a great job.

Okay, thank you.

Thank you, Jim.

Thank you.

Your next question is coming from Ray Neidl of Calyon Securities.

Just looking at the guidance you're giving, that there wasn't too much change on the cost side, but there is cost pressure, especially in the fuel area.

You said demand kind of looks a little soft going into later on in the quarter.

Is there a possibility with those higher cost side in the fuel area to have an offset on the revenue side?

What do you think the probability of that is, of yield management or even a price increase?

Well, I think certainly when we look at our projected revenues for the rest of the quarter, we try and be realistic and we try and be maybe a little conservative and there certainly is always upside to those numbers and we're working really hard.

There's the ancillary revenue question that we get asked a lot that we're working on and everything we can do to increase our revenues we will within reason within our operating structure.

I would tell you that we have upside, but I guess I would have to tell you we also have downside.

We try and be realistic, but I think it's a conservative number and hopefully we can try and beat those numbers.

That's what we try and do every day.

On the flexibility side, with slowing down growth, how much of a lead time would there be, to go to Airbus and say slowdown of deliveries or to turn around and try to sell some of these aircraft to somebody else, we're probably talking at least a couple of quarters, aren't we?

Not necessarily.

I guess it depends, there's maybe six to eight different parties that we're in active talks with, that are saying please come now and some are saying, okay we'll wait four months if you want to wait until then.

So it just depends on the parting, but right now we're finding a very robust market for used airplanes.

On the new airplane side, certainly Airbus has plenty of buyers on their side too and they would gladly do some things, but we like getting new airplanes and kind of shuffling off the bottom of the deck.

That's kind of more been our focus.

Okay.

Have you looked at 2008 yet for your plan growth?

Are you still working on that plan?

The guidance we've given, we're still in the low teens.

Obviously, as we get a bigger base, that number goes down if we're just adding the same number of airplanes.

But again, flexibility is the key here.

Okay, thank you.

Thank you.

Your next question is coming from William Greene of Morgan Stanley.

Hi.

David, do you have the same-store sales RASM number and did I understand the guidance on the PRASM being stage length adjusted up 5 to 7%?

It was -- the guidance number was--.

Stage length adjusted PRASM should be up 5 to 7 for the year.

And unadjusted?

Unadjusted for the full year, 7 to 9.

Okay, sorry.

And then the same-store sales number, did you have that?

For which period were you talking about?

For the first quarter.

First quarter.

We'll get back to you on that.

It was a pretty impressive number.

I think it was like 15%, but I'll have to get back to you that for sure, don't--.

Okay.

Then, John, if we just thought theoretically for a second, if you slowed the growth to zero, what's the maintenance CapEx level, the minimum that you'd have to do?

I'd have to crunch that number.

Is it fair to say maybe 1 to $200 million, is that about a ranges that probably is realistic without doing that--?

I wouldn't even venture a guess without doing some analysis on that, I just don't have that at my fingertips.

But we can get back to you on that.

Are you talking about maintenance CapEx, overall?

Yes, if the growth went to zero, what's the CapEx number look like?

On aircraft maintenance--?

Well, in total for the corporation.

From a maintenance perspective, engines are the lion's share of maintenance, and we're paying those right now by hour, so that wouldn't change that number.

As the fleet ages, it gets a little bit higher but that doesn't affect CapEx.

You can call us later and our crack Investor Relations' department can get you those numbers.

Thanks for your help.

Your next question comes is coming from Mike Linenberg of Merrill Lynch.

Good morning, David, good morning, John, this is Lily standing in for Mike.

Didn't sound like Mike at all.

Voice has changed.

My first question is regarding your Newark operations.

I know fare is competitive in that market, but just looking at Newark itself, could you shed some color on how revenue and fares are going in particular in that market?

Newark?

Yes, Newark.

Well, we didn't grow that market this year, we kind of stayed flattish and were down a little bit, so we've been very pleased with what we've done out of Newark.

It's profitable flying, it's done very well, and we're very happy with it.

We've noticed of late Continental has some lower fares in there and maybe they're maybe struggling to fill their seats a little bit, but we're not.

We're doing very well out of there.

They certainly have a lot more seats than we do, so it may be harder for them to fill their seats.

Right.

My second question is regarding the whole Embraer mod issue in updating software, et cetera.

Did you provide a number how much that may have cost you?

And also in the future, if there were further upgrades, do you anticipate doing this all over again this way, or would you be more inclined to go back to the -- kind of take a couple planes off the side and not cause as much disruption, if you would?

Oh, yes.

Well, there's no doubt I'll answer your last question first.

There's no way we ever want to cause disruption to our customers.

As great as Express Air was to jump in and help us out, it certainly wasn't flying on a 190 product without the TVs and stuff.

It was something that we did and it was a decision that we made and I think it was a good decision, but have absolutely no plans of doing that in the future.

As far as the cost of the mods go, those mods are being -- the costs of those are being borne by Embraer.

We aren't paying for that cost.

It's something that is kind of included in our relationship and goes with kind of launch carrier status that if they find something that needs to be replaced or improved, then they do it.

In addition to the mods that we -- we're going through a current mod program now, which is a more extensive mod, that we are -- it's early, but we're seeing some much improved results from the airplane over just the past few weeks, and so we think that we see some light at the end of the tunnel that we're going to be able to get through this and have a really good airplane on our hands here.

Embraer is also bringing some support up here, in addition, some technicians and some engineers to really expedite it.

They want to have this thing behind them as much as we do.

I'm really confident that as we go through the summer and towards the end of the year that hopefully these situations will be in our rear view mirror for good.

Great, thanks.

Finally, could you just provide some percentages on how diverse your network is, a breakdown between the percent of ASM on the transcon, northeast to Florida et cetera, et cetera?

We've had that before and I don't have it right at my fingertips, but why don't -- let me.

Okay, ASM distribution for the region this quarter was 37% in the south, 43% in the west, 9.5% in the Caribbean, 8.5% in the north, and -- in the north and southeast, 8.5% was in the north and southeast and 2% in the west, the west short haul stuff that we do.

The west short haul that we fly around out in California.

Great.

Thank you so much.

Thank you.

Your next question is coming from Gary Chase of Lehman Brothers.

Good morning, guys.

Gary.

Just triangulating through the guidance that you're giving, the RASM progression seems a little weird and I just wanted to ask a couple of questions around that.

First, is there any voucher impact that spills into the second quarter?

You noted the $24 million adjustment in the first.

Is there any lingering voucher impact in the second quarter?

No.

What we do on vouchers, obviously, is we take the gross amount we take out and then we make an assumption on something less than that.

And as we've mentioned on previous calls, to the extent that we redeem a higher percentage of those numbers, then obviously it will affect RASM going forward, but right now--.

There's nothing baked into it.

Yes, there's nothing baked into it.

We think we have a pretty good number there.

I guess then the way I'm looking at it, you come off an adjusted number in the first quarter in the neighborhood of about a 13% RASM gain.

It would appear based on the 7.9 for the year, you go back into double digits beyond the second quarter where you're predicting 6 to 8.

What's more, if I heard you right, was April flat.

That's pretty much the entire explanation for why it's 6 to 8 instead of double digits.

My interpretation would be April flat, rest of the quarter and year double digit.

I guess I just wanted to get a little bit more color as to how you were thinking about that.

I understand stage length is moving around here, but it seemed a little odd to me that we would come off a 13% adjusted quarter one month flat and then the rest of the year is all kind of in the high single, low double digit range.

Well, I'll have to -- let's take it offline and we can talk.

I'm trying to follow exactly all of those assumptions.

Suffice it to say, as we move through the year, we have a lot of new markets and we're not going to be adding as many new markets this year as we did last year.

We have a lot of new markets that are maturing.

The financial impact of the 190 and the revenues and cost on that is still a little bit work in progress, so we're doing the best that we can to associate it -- to be able to figure out where those revenues are going to come in.

April's a big month for us and obviously if you move revenue from April, it's probably our biggest month of the year, obviously with all the holidays and so if some of it moves into March, it does have a big impact on the quarter itself, so let's take it offline and you can spend a lot more time talking to either Cindy or Lisa about it and we can give you more color on it and we can try and follow your reasoning a bit closer.

Could I just ask one more nit on that?

April is purely based on what you're seeing.

You think it's Easter movement that causes you to be flat, right?

Absolutely.

If you look at March's number, it was just ridiculous.

Given the impact of the second storm and to have it be as high as it was in March, a lot of that revenue from April slopped into March.

I think it was 17% increase for March.

Okay.

We'd really like to go over it with you offline.

Thanks, guys.

Thanks.

Oh, let me just update, same-sales stores, SSS, try and say that ten times -- Sally sells seashells -- our same-store sales for the first quarter, ASMs were down in the same-store markets by 8% and RASM was up 15.3% in those markets for the quarter, and stage length adjusted, that was about 12.7%.

So, yes, 15 kind of stuck in my mind, and that was the right number, which is what our same-store sales number was for the first quarter.

Next question.

Thank you.

Your next question is coming from [Frank Busch] of Bear Stearns.

Good morning.

I was wondering if you could give us a better sense of how the demand profile stacks up, say, maybe in the first quarter and as you look forward, say, north/south versus east/west.

And also the revenue growth rate in the other revenue line, over 60% in Q1.

Is that a level of growth that we can expect for the balance of the year?

Thanks.

As far as the markets, we haven't broken out which markets are doing what as far as the RASM numbers.

Certainly we're headed to the peak summer season for the transcon flying and we see strong bookings in those markets, but we had a pretty good summer last year in those markets.

So in order to do much higher than what we did last year to have a RASM increase, obviously becomes more difficult when you've laid these quarters on top of each other when you have better quarters.

As far as the 60%--.

Yes, I haven't done a comparison of the actual run rate, but I will tell you that what's driving a lot of that, is you may recall last year's part of RTP, we came forth with an initiative to start, for lack of a better term enforcing our current guidelines and policies with respect to change fees, excess baggage fees, and whatnot.

Really what you're seeing in the first quarter, is you're seeing our crew members doing a great job of enforcing our policies.

Whether that run rate continues through the back half of the year, I'd have to go take a look at that number.

As you get -- obviously, again, you lay quarter over quarter where you have the improvements, then it's hard to get the 60% number.

There's other things that we can add to that number and we've talked a lot about other revenue initiatives that we're doing.

The American Express credit card is doing very well and it's contributing and starting to contribute a lot, and so those are other things that figure into that line item.

Okay, great.

One last question.

I notice the FTE per aircraft came down nicely and that really didn't even benefit from the full quarter of the rail removal.

How do you see that evolving through the balance of the year?

I don't think I've actually come out with a target for '07.

What I have said is, we're probably going to be somewhere in the mid-70s when all is said and done.

So I'd say mid-70s.

I haven't come out with a hard target though.

Okay, thanks.

Thank you.

Your next question is coming from Daniel McKenzie of Credit Suisse.

Hi, good morning.

Can you talk about the competitive dynamic and I guess what I'm really getting at here is is the softening in demand really a function of a more competitive capacity in JetBlue's markets, or would you characterize the softening more just as a function of the weaker economic backdrop?

I think it's the latter.

I think as we look at capacity increases in our markets year over year, there's really nothing that stands out that is really, really bad.

We certainly have some markets where we have competitive reaction, but taken as a whole, it's not -- there's nothing that really stands out as being, oh, man, this is really going to be bad.

It really is more, just kind of a softening of -- maybe we -- sometimes you'll have a really good quarter revenue-wise and then people take a quarter off and pay off their credit cards and then they come back at you the next quarter.

I think it's a little bit cyclical and I think it's just indicative of what other airlines, Southwest and others are seeing.

Okay.

Separately, I wonder if you can provide some further perspective on ancillary revenue potential here.

How may initiatives, potentially, could be identified and would you characterize that as meaningful and of course, the potential timing of these initiatives?

Well, we certainly have a lot of things under work.

I think the biggest ancillary revenue possibilities we have obviously are things like I mentioned, the credit card, other things.

We've done some work on buy onboard, if there's some things that we can offer that people really want to buy, I think there's some upside there.

Our Life TV subsidiary came up with some really neat technology, which is a cashless cabin which allows us to take credit cards and all kinds of things onboard the aircraft.

So we're looking at that.

Additional, if you go forward, as I mentioned earlier, we've got the OTA distribution channels that we have are in one and we're looking at announcing additional participation in those other systems and then I think the upside also is from the international connectivity.

Like I mentioned, that took a little bit of a back seat over the last couple months, but the technology people haven't been resting on Navitair and the functionality is coming quickly that we can do that a lot easier than we have today.

These are things that we've talked about a lot and I hesitate to give you too many promises on that, but our revenue folks are very focused on figuring ways that if we don't diminish the JetBlue experience but we can add to it by people saying, hey, if I could have this I'd love to have it.

It's additive to the experience.

Then one last quick question.

I'm hoping you can -- wonder if you can talk about the extent of any air traffic control improvements that might be on the way this year at JFK?

?

Well, I think we've -- Russ Chew is here with us.

He left his job as the COO of the FAA and even though he has restrictions on being able to deal with them directly, he certainly brings a wealth of knowledge with him.

Joe Bertopelli, who came, actually from Miter which is a think tank, aviation aerospace think tank has lots and lots of ideas and we're meeting weekly with the FAA or daily, we have a daily briefing call.

We see improvements in certain parts of the day, particularly in the mornings, when permitting we use two runways to takeoff, and in the evening when he use two runways to takeoff, which really hasn't been done at JFK to my knowledge since they built the airport.

There are other improvements that we have in the works, and also just our ability how we react to ground to light programs and other things.

So we think there is some additional upside, but it's just working together with us, the port authority and the FAA to make sure that we utilize all the asphalt out there, which we don't believe that we're using Kennedy to its full capability today.

The progress is there, but it's slow, but it's steady.

Okay, great.

Thanks.

Thank you.

Your next question is comes from Kevin Crissey of UBS.

Good morning, everybody.

Just a quick question.

We hear from corporate travel managers and et cetera that one of the reasons to not use a JetBlue would be, initially, GDS participation, you took care of that, but no business class seating.

And you've kind of inched towards that.

Have you given that any consideration going -- I know you've moved the leg room in the front, but go to a full business class seating?

Well, I -- we -- a couple things on that.

First of all, another thing that keeps corporate people from booking with us is the no, nonrefundable fares.

So we are testing, beginning testing some refundable fares that are at our highest levels in our company Blue program that we can test that and allow people to -- so we think that will really help, to book us and get a nonchangeable, nonrefundable fare.

As far as the cabin goes, we have a lot of flexibility with this first 11 rows with 36 inch pitch.

As we move forward, if somebody wanted to, maybe for a reduced price block a middle seat, that's something that we don't currently have the technology for today completely, but something we could roll out in the not too distant future, where if the plane is going to be empty anyways, we just make sure that that seat is sitting next to a person who is willing to pay us for it.

I think that would obviously help a lot.

I really believe and I obviously fly a lot of first class and business class and I fly a lot of our flights that if you had a 36 inch pitch seat with 36 channels of TV, 120 channels of XM radio and the seat next to you wasn't full, I think that's a very comparable product and it's actually flexible.

So that you don't have to go put these monuments in the front that squish everybody else in the back.

But it becomes something that you use on Tuesdays and Wednesdays and you don't use it on weekends when families are traveling.

We also have come up with a new seat assignment algorithm that we're implementing here shortly so that at least if you book late in the game and you pay our highest fare, you're going end to up in the front of the airplane with the extra leg room seat with an aisle seat or window seat.

That's our first step and then we'll go to blocking those middle seats if people want to pay the nominal rate to do that if the planes aren't full anyway.

So there's a lot of effort in that area.

Do you have an effort additionally, when I was talking to some of the corporate travel managers, they seem to be less than fully aware of your actual move to the 36 inch in the front or whatever.

So do you have efforts -- I mean, is your sales force out there making sure that they're aware of that?

Yes, I think we had had a huge advertising campaign that was rolling out and just as it rolled out, the St.

Valentine's day storm came along.

So that kind of derailed our publicity effort on that, but we're back on track now and we'll be making sure that word gets out to everybody.

It is very, very -- I was on the flight the other day and someone just walked right by me, I didn't even have to stand up, they were able to get out.

That's an amazing product.

Certainly word will get around as people find it, but we need to tell them, also.

Thank you.

Thank you.

This concludes our session with investors and analyses.

With that, we'll turn the call over to David Neeleman for closing remarks.

Great.

Just in closing, tough quarter.

We've learned a lot of lessons, we're going to be better for it.

We are looking forward to implementing these changes.

I think at the heart of it all, JetBlue has an unbelievable product and has unbelievable people performing, serving with that product and that's really the heart of the value of JetBlue.

We thank our investors for their support and our crew members for their diligent work and we'll talk to you next quarter and hopefully will have better news for you.

Thank you very much.

Thank you.

This concludes today's call.

You may now disconnect.