JetBlue Airways Corp (JBLU) 2007 Q3 法說會逐字稿

Welcome to JetBlue Airways corporation third quarter 2007 earnings conference call.

Today's call is being recorded.

We have on the call today, Dave Barger, company's CEO, and John Harvey, JetBlue's Chief Financial Officer.

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

Actual results may differ from those expressed in the forward-looking statements due to many factors 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 Dave Barger.

Please go ahead, sir.

Thank you, Pam.

Good morning and thank you all for joining us.

We are very pleased to report an operating margin of 10.3% today, our second straight quarter of double-digit operating margins.

For the quarter, we realized a net income of $23 million or 12 cents per diluted share which is a $23 million improvement over third quarter of 2006.

Our strong third quarter results were driven by solid revenue, better-than-expected cost performance.

CASM was up 9.1% year-over-year, and our CASM, excluding fuel, increased 5.3%.

In addition to solid financial results, we were again recognized for exceptional customer service.

For the sixth year in a row, Conde Nast Traveler Readers recognized JetBlue as the best domestic airline.

We also ranked highest among major carriers in Conde Nast's Business Travel awards.

These awards are a true testament to our dedicated crew members who continue to do a tremendous job, delivering the JetBlue experience to our customers, and it is important for me to take this opportunity to express my sincere thanks to our 11,000 plus crew members.

Now, turning to our third quarter results, we are very pleased with our 9.1% year-over-year improvement in PRASM.

We benefited from a very strong demand during the peak travel period in July and August, which along with rational capacity in many of our markets, helped us increase our fare to $128.83, up from $123.41 during the same period of 2006.

Yields were up 7% and load factor was up 1.6 points year-over-year.

As expected, the strong revenue environment we enjoyed during the summer did not continue until September.

The seasonal shift in demand, along with capacity increases in our markets, limits our ability to attain high yields during this time frame.

September is historically a trough month for us due to our large leisure customer base.

As a result, our peaks tend to be higher and our troughs deeper.

Market maturity is also a key factor and during the third quarter, 14% of our ASM's were in market for less than 12 months.

Those markets that are still maturing will perform very well during periods of strong demand and decline significantly in the trough periods.

Less mature markets therefore have a more significant impact on our trough performance in these type of months.

On our call in July, we said that we thought September traffic would be difficult to predict due in part to the fact that we weren't sure how much of last September's weak revenue performance could be attributed to the London Terrace situation.

In addition, since September has relatively low sales volumes, our PRASM results are subject to a greater fluctuation on a year-over-year basis.

However, we continue to look for ways to improve our revenue performance during our trough periods.

There has also been a considerable speculation about the impact of Virgin America on JetBlue.

We are always very concerned about additional capacity in our markets and the third quarter guidance range we provided last July included a negative PRASM impact from the carrier.

The actual impact was not greater than our expectations.

New competition in our markets is something we've been accustomed to dealing with ever since we started flying back in the year 2000.

We've never really enjoyed the luxury of no competition in any of our markets.

However, we truly believe that we are very well-positioned to compete against Virgin America or other light carriers.

Our superior service, 36 inches of seat pitch and live television are certainly a very competitive product aboard JetBlue.

Looking at our ASMs by region during the third quarter, 52% of our ASMs were east to west.

That's down almost four points year-over-year.

26% of our ASMs were north of Florida, 11.5% in the Caribbean that's up over two points, and 4.2% were in the north, and 2.8% were in the southeast.

Our total capacity during the quarter grew about 11% year-over-year.

ASMs in the Caribbean had the largest year-over-year increase, up about 36%.

I'd like to highlight new services since the third quarter of 2006, specifically Boston and Kennedy to Cancun, Mexico, Boston to San Juan, Puerto Rico; Boston to Aruba; and also Boston down to Ponte, Puerto Rico.

We are very pleased with our Caribbean results where we continue to expand.

In fact, we recently announced new service beginning in January from J.F.K.

to St.

Martin and from J.F.K.

to Puerto Plata in the Dominican Republic.

Our expansion in the Caribbean had not just been out of New York but to Boston, Fort Lauderdale and Orlando.

In fact, we are now flying from Orlando to three cities in Puerto Rico and we will begin service from Fort Lauderdale to Ponte, Puerto Rico, in November of this year.

We also recently applied to D.O.

T.

for route authority to serve Bogota, Columbia, from both Fort Lauderdale and Orlando.

We talked in the past about our comprehensive route network review and I'd like to report that the first phase of this review is now complete but also, it is in a static process, as much as in play on the competitive landscape and at J.F.K.

One of the results of our route network review is the decision to close both Columbus, Ohio and Nashville, Tennessee effective January 6, 2008.

We've also decided to discontinue service between Fort Lauderdale and Oakland the transcon flight effective January 13, 2008.

These markets did not mature as well as we have expected and we have decided to redeploy our aircraft more profitably.

These were very difficult decisions for us primarily due to impact they have on our outstanding crew members in these cities and our commitment to the communities we serve.

We believe, however, that these decisions will ultimately lead to improved profitability resulting in greater value for our shareholders and our crew members.

I'd like to take this opportunity to now discuss our home base of operations in New York.

This summer was very difficult for J.F.K.

operations in terms of congestion delays and we continue to be impacted by operational challenges at J.F.K.

There are certain hours of the day where carrier demand far exceeds J.F.K.'s current operational capacity and once again I'd like to stress the current operational capacity.

It's clear in our opinion that our expanded capacity and some type of scheduling change are needed.

Now, we first approached the D.

O.

T.

and the F.A about setting up and scheduling a meeting among the airlines in the spring of this year and we are optimistic that positive changes will be forthcoming.

In fact, D.O.T.

secretary s has called for scheduling a meeting and this commenced this morning in Washington, D.C.

In this meeting, we are very actively participating in, specifically work issues at J.F.K.

We are very pleased with this decision.

Also, the F.A.'s recent air space redesigns, we believe, will certainly enhance both entry and exit ways to and from the New York City airports, driving more efficiency, allowing for the use of technological improvements enabled by our NP and our NAF procedures, and this is a key component of enhancing capacity.

We will continue to grow J.F.K.

in the future and leverage our position there as the largest domestic carrier.

Our new terminal which remains on schedule and on budget will open next fall.

We firmly believe there are still growth opportunities at Kennedy.

However, less so during the peak periods but more evenly spread throughout the entire operating day.

As a result, we are planning more point-to-point flying over Kennedy such as Burlington, Rochester, Buffalo and Portland, Maine to Orlando as well as Buffalo and Syracuse to Fort Lauderdale, and in fact, there will be more coming in the not too distant future with overflies.

Most of these routes are being flown by the U190 and in alignment with our goal of utilizing the Embraer 190 to pioneer new routes for our airline.

In addition, we have recently announced service from Charlotte, Richmond and Raleigh to Fort Lauderdale, also in the Embraer 190 and out west between Salt Lake City and Burbank as we further diversify and (inaudible) our network.

We will continue to focus on increasing revenues through the use of various distribution channels.

During the third quarter, about 75% of our total revenues were booked on our web site jetblue.com, 16% were booked through our reservation agents, 6% through the G.E.

S.S and 3% through the O.T.

A.'s.

We recently began collecting a $10 telephone reservation fee with the goal being to drive more ancillary revenue across the airline and also direct more revenue through jetblue.com, our lowest cost distribution channel.

Speaking of ancillary revenues, we plan to roll out our casual's cabin November of this year to monetize opportunities at altitude on a go-forward basis.

Looking forward to our seeing stated demands through the quarter, bookings for the Thanksgiving holiday are strong and we expect there will be similar demands for the December holidays but we have limited visibility that far out.

Keep in mind that we enjoyed significant RASM gains last year in November and December, and fourth quarter PRASM last year was up 23% compared to the previous year, so we will face a very difficult year-over-year unit revenue comparisons between last year and this year.

Looking into the fourth quarter, we also face year-over-year capacity increases in our markets.

Having said that our year-over-year PRASM growth for the fourth quarter, we project between 2% and 4%.

For the full year, our projected PRASM growth will be between 5% to 7%.

Before turning it over to John, I'd like to take a moment to discuss recent positive change in our executive team.

Russ Chew who joined us today, joined us as chief operating officer last March, and he was recently appointed as president.

In addition to his operational responsibilities, Russ will help lead our efforts to implement our short- and long-term business strategy.

Russ, formerly FAA chief operating officer, is a very valuable resource to JetBlue and I would say, to the industry, as we work through congestion issues and our home base operations at J.F.K.

and in the Northeast.

In addition Russ has provided essential leadership in building new operational structure that will allow our crew members to continue to deliver the JetBlue experience and we very much look forward to the expansion of his role as we move into the next chapter of our airline and continue to identify new and exciting opportunities for JetBlue.

Now with that, I will turn it over to John Harvey for a more detailed review of our cost performance for the third quarter.

John?

Thanks, Dave, and good morning, everyone.

As Dave mentioned, we are very pleased to report a second consecutive quarter of a double-digit operating margin.

Our 10.3% margin was well ahead of our projection and reflects both revenue improvement and continued cost discipline.

Before we take a more detailed look at the quarter, I would like to briefly discuss our planned fleet growth.

In July, we announced plans to sell three A320s this year.

During the third quarter, we sold one air cart and plan to close the sale of the other two aircraft during the quarter.

In addition, we also return one A320 to its lessor prior to the end of its lease term during the third quarter.

As we've said in the past, we view our order book with both Embraer and Airbus as a major asset and assuming conditions remain favorable we expect to continue to take advantage of the strength in the worldwide aircraft market.

As such, we have entered into an agreement to sell two A320s during the second quarter of 2008.

That said, we also maintain flexibility with our options to accelerate our fleet growth and respond to market opportunities when they arise.

Obviously, our growth decisions going forward will depend on the competitive environment.

Turning now to third quarter results, our cost per available seat mile excluding fuel was 5.24 cents, an increase of 5.3% on a year-over-year basis.

This year-over-year increase can be largely attributed to a decrease in our average stage lent which was down about 2% year-over-year as well as the removal of one row seat from our A320 fleet earlier this year.

Adjusting for these two either tempts our ex field CASM increased 2% for the quarter.

Our crew members continue to work hard to improve productivity.

We finished the quarter with 71 full-time crew members per aircraft which is down approximately 12% over last year.

Adjusting for the removal of one row of seats from our A320 fleet and the corresponding reduction of one flight attendant on board A320s, we would have finished the quarter with 74 full-time crew members per aircraft, which is down roughly 8% over last year.

Moving on to a few line items on our income statement, salaries, wages and benefits increased 3% year- over-year on a unit cost basis, driven by the changes in our crew member retirement plan and pilot pay increases we implemented earlier this year.

As a result of these changes, we accrued an additional 6.8 million of expense during the third quarter which accounted for all of the year-over-year increase.

Fuel continues to be our largest operating expense and was up about 6% year-over-year on a unit cost basis.

Our average fuel price for the quarter net of hedges was $2.13 per gallon.

Still the marketing expense increased 7.6% year over year own a unit cost basis due primarily to fees associated with our participation in the global distribution systems and O.T.

such as Expedia and Travelocity.

C.

RSBs accounted for 85% of the year-over-year increase.

However, we continue to be pleased with the incremental revenue we generate from the global distribution systems which more than offset the increased expense much as we've said in the past we presently attain a 35 to 40-dollar net fare premium through the GDSs.

Main expenses decreased 2.4% on a unit cost basis during the quarter due mainly to the fewer A.

P.

U.

repairs.

Other operating expenses increased 17.2% year over year own a unit cost basis driven in part by the timing of our aircraft sales.

In the third quarter of last year, we booked a $7 million gain from the sale of two aircraft which was recorded as a reduction to other operating expenses.

During this past quarter, we recorded a $2 million gain in other operating expenses from the sale of one A320.

This $5 million difference drove almost half of the year-over-year increase in other operating expenses.

We also incurred incremental expenses during the quarter for things such as sky cap and cleaning services in an effort to bolster certain operational areas in order to accommodate our increased flight activity during the peak travel summer period.

Adjusting for these expenses and gains from the aircraft sales are other operating expenses increased about 2% year over year.

Turning to the balance sheet, at quarter end, we had cash equivalents and investments of 844 million compared to 699 million at the end of last year.

At present, we feel comfortable with our current cash position but we are committed to ensuring we always have sufficient liquidity to stands an extended economic or industry downturn.

We expect to continue to actively manage our fleet growth and make adjustments as economic conditions warrant.

I view our growth rate decisions going forward as a fluid process.

Our long-term goal is to fund JetBlue from cash from operations and, of course, to consistently grow our earnings.

Looking ahead to the fourth quarter, we will have detailed guidance available in our investor update filed as an 8(K) later today.

However, let me take a moment and share a few highlights.

We expect to grow our Americans, we expect our ASMs to grow 10% to 12% in the fourth quarter and 11% to 13% for the full year.

We currently anticipate taking delivery of three more A320s and one E.

190 during the remainder of the year.

With the three A320 aircraft sales that we announced last quarter and the A320 lease return we just announced, we will operate a fleet of 104 A320s and 30 E.

190s at year-end.

We expect PRASM to increase between two and 4% in the third quarter and five to 7% for the full year.

Stage lent adjusted PRASM for the year should be up three to 5%.

For the quarter we expect CASM to increase 11 to 13% and CASM ex fuel to increase six to 8%.

We expect the increase in our fourth quarter X.

fuel CASM to be driven mainly by the changes in our crew member retirement plan and pilot pay increases we implemented earlier this year as well as the removal of one row of seat from our A320 fleet during the first quarter.

For the full year, we project CASM will increase six to 8% and ex fuel CASM will increase 5% to 7%.

Our ex fuel CASM guidance range for the full year is now actually lower than the full year guidance range we provided back in January, thus despite all of the challenges we face this year, we have continued to meet or beat our cost targets.

Our CASM guidance assumes an estimated average fuel cost per gallon of $2.23 in the fourth quarter and $2.07 for the full year.

Fuel prices have increased on average 13% since we provided guidance last July yet our fuel price estimate for the full year has remained unchanged which is a testament to the success of our fuel hedging program this year.

We are hedged roughly 47% in Q4, and more specific details regarding our hedging program will be available in our 8(K) filed later today.

This brings us to an expected operating margin between 3% and 5% in the fourth quarter, and 5% to 7% for the full year.

We estimate our pretax margin will be between -1 and 1% for the fourth quarter, and 1% to 3% for the full year.

In closing, we feel that our cost discipline has been good across the airline.

However, I believe there is still an opportunity for improvement as we continue to grow and mature as a company.

With the continued fuel pressures ahead, we will main take our focus on reducing cost, driving productivity and improving revenue to ensure we can grow profitably and increase shareholder value.

With that, we are happy to take your questions.

Hello, Pam?

Hello, Pam?

(OPERATOR INSTRUCTIONS) Your first question is coming from Robert Barry with Goldman Sachs.

Please go ahead.

Hi, guys, good morning.

A couple questions other costs.

It looks like things came in a lot better than you expected.

I'm curious if you can give a little detail on where the performance was so much better and also I'm curious why you left the margin guidance the same for the year even though the quarter seemed to track so far ahead of where you thought it would come in on cost.

Sure.

Really for the quarter as we looked across all of our categories, we actually beat our guidance estimates across every single category with the exception of depreciation and amortization.

But the big driver is salaries, wages, benefits and payroll taxes, substantial savings there.

Actually fuel came in a little bit better than forecast as well, I think a nickel better than we had thought earlier in the year.

Maintenance also a good guidance mentioned earlier with respect to APUs and other, operating even though up 17.2% year-over-year from a guidance perspective better than forecast.

With respect to why we didn't adjust the full year numbers, really that's just a function of the math.

Three quarters behind us, we can project where the fourth quarter is going to look like and at the end of the year is kind of what it's all about.

So no cost reallocation regarding maintenance or anything like that?

No.

Then just one other one.

The five to 7% PRASM guidance for the year, I think that's a little lower than it was last time at six to eight.

I know you've also changed the A.

outlook.

Is that what accounts for the change in the PRASM or is there some incremental weakness you are expecting in the fourth quarter?

A.

SM.

Bob, we are still seeing I characterize it as steady demand in the quarter and year over year are difficult.

But the, really the energy that we saw in the bookings in July and August, we saw the trough period in September.

We've historically had a trough period September into the October time frame.

Or in early November, early in the December time frame as well so we thought this was prudent to discuss our PRASM guidance accordingly.

Okay.

It sound like you're just being conservative?

Yes, I think it's -- I don't know if I would characterize it as conservative but realistic.

It's clearly we are taking a look at our route network with the announcement of the closure of two cities and as we take a look at Kennedy with the congestion issues that are at play in Kennedy and obviously we have the government interaction in place, over flies that are occurring in new markets so it takes time for new markets to mature but these are all new markets.

We are into the strength of snow bird season from New England to the south so I would probably use the word realistic.

Thank you.

Thanks, Rob.

Thank you.

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

Good morning, Dave and John.

I'm curious about Columbus and Nashville in that obviously they weren't making money or weren't making enough money and so you decide to do leave.

You entered these markets thinking they had pretty good potential.

What went on?

What were the dynamics, competition or just in general what caused to you back off from those two markets?

Thanks for the question, Jim.

Clearly the head line was the fact that these two markets were maturing slowly than what we were expecting and when we opened 16 new markets back in 2006 an awful lot of new markets that we opened up, I think that's been a lesson for us as well to obviously open up fewer markets.

So I mean these two were just, they were tied into Kennedy and they were just maturing at a slower pace than the other locations.

And Jim I think it's important to highlight that even with the announcement of these two cities we will continue to focus.

This is a dynamic environment looking and evaluating those cities that are responding to JetBlue's service.

And I think it's also to say, Jim, that we take a look at where else can we ad service from our current cities.

And this certainly means that the 190, it will make its way out of the east coast coastal, whether it's into the midwest, whether it's into the west, whether it's into the Caribbean, that will happen.

But certainly three flights a day are inefficient and we are looking hard at those cities and their performance.

A second question regarding ancillaries, you announced I believe a 10-dollar charge to speak with a reservations person.

What other ancillaries or other nonseat sell sources of revenue do you foresee and is this kind of just the beginning of several things in that regard?

Jim, I think it's important to note that ancillaries are very important stream and we will continue that focus but I don't want for JetBlue to be a totally unbundled product and I think we know that the customer base that we have and a discretionary customer with an unbundled product we want to be careful about that and even though you start to take a look at that a Europe or other models now in the United States or Asia.

Now we just in this quarter, we instituted the 10-dollar reservation and airport fee and the goal there really, part of it was ancillary revenues but also to drive behavior to the most efficient distribution channel which is jetblue.com and last quarter we announced and made a decision to implement the change fee.

We increased I should say increased the change fee another $10 both on line and through the rez center.

Those are two initiatives.

We close the quarter in the fourth quarter cashless cabin and as we talked about in the past this provides the platform for our inflight men's and our members to our segment at what we are doing altitude and that's the largest initiative for the fourth quarter.

So into 2008 the focus on ancillaries will absolutely continue at this airline.

Thanks.

Thank you.

Your next question is coming from Mike Linenberg with Merrill Lynch.

Good morning.

I guess a question for John.

John, just if you can remind us if you qualify for hedging counting and if you don't did you take an FAS.

A 133 gain in the quarter and how does that compare year over year?

Was it a gain or a charge a year ago?

We do do FAS 133 accounting for our hedges, Mike.

Okay.

Do you have those numbers?

Not off the top of my head but Lisa can provide them to you.

We can catch up on that.

My second question is and this is to Dave, the announcement of flying from Fort Lauderdale to bog at a, it seems like you have been flying in the Caribbean for several years but now flying or at least as expiring to fly to South America, longer hall route, maybe slightly different market.

It's a very competitive market.

Can you just maybe walk through your thinking?

And maybe this is a modification of the JetBlue strategy, looking at some of these international markets where access for the most part is restricted.

And maybe opportunities down the road in this region.

Sure, Mike, and thanks for the question on specifically with our filing to Columbia and it's just a filing at this point.

What the Department of Transportation.

But, , yes you can take that as, I would say a modification of our business plan but as we've made inroads into the Caribbean out of New York, out of Boston and Fort Lauderdale and Orlando results have been very positive for JetBlue.

By the way we are flying into Mexico as well today with service down to Cancun from both Boston and Kennedy.

So as we take a look at whether it's north or South America, Central America, Mexico, further expansion to the Caribbean, and again communities of interest out of the Northeast or from Florida we think that those are very good opportunities for JetBlue.

And, Mike, it's worth reminding everybody that the A320 over order equipped long-range, over water equipment and the Embraer 190 over water equipment and close to a 2,000-mile airplane and equipped as a pathfinder to many of those markets from Florida down to the Caribbean.

We are excited about opportunities there and it won't deviate from our home at Kennedy as a long-term strategy but we think there's some nice opportunities

Very good, thank you.

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

Good morning, guys.

A quick one for John and then one for Dave.

You mentioned a $6.8 million pilot accrual.

I apologize, could you just go over what that is?

That's sick .8 in additional salaries wages and benefits related to changes in our crew member retirement plan as well as the pilot pay increase.

You may recall earlier that we went to a guaranteed, we call it a guaranteed profit sharing but guaranteed 5% contribution of eligible salary to our crew members versus a complete profit sharing program and also increased the company match on our 401 K.

from three to 5%.

That was the lion's share of that 6.8.

That's one time to capture the stuff that you are anticipating along those lines.

When you do a year-over-year comparison, yes, because obviously we weren't doing that last year.

A question for Dave is, I mean, you know, the company is obviously not hitting the kind of performance goals that you've laid out historically now.

And I know you talked about getting through portions of the route review that led to the Columbus Nashville decisions.

Can you just put a little more color for us around what is the long-term plan?

Obviously fuel presents new challenges every day it seems.

Are you done with the route review?

Should we expect that there's more to come?

When would we hear it?

Can you sort of flush out a little bit what the process that you're going through and is how you are going to get to the double-digit margins that I know you're targeting?

Sure.

And thanks for the question, Gary.

And, you're right, a return to sustained double-digit margins for all of us in the industry become more difficult with fuel, certainly to touch $90 per barrel, no question about that, plus just the competitive landscape.

We have obviously a new entrant in our landscape.

Gary, the route review is dynamic, it's ongoing and as alluded to previously, there is still markets that we are closely watching, new markets that we opened in 2006 regarding maturity.

And so no announcement today outside of Columbus and Nashville but that's one piece that's in play.

I think it's as we talk about it's a longer term strategy and how do weary deeply those air appliance much as we look to redeploy those air us planes and keep in mine that we calmed down the growth and John alluded to that just the camming of the growth across the airline, we are starting much more a focus initiative on over flies and whether they are seasonal or whether they remain year-round just as Syracuse down to Orlando is a specific where we've been there for a period of time, that is also part of the longer term strategy of the airline and in the alignment with the E.

190 acquisition when we discuss E.

190 as a board almost four and a half years ago.

The number of over flies that we have in play, we announced just between November and January 11 new routes and two of them down to the crib, one of them out west and eight of them from an over fly perspective up and down the East Coast.

Only two of those routes touch J.F.K.

down to the Dominican Republic and St.

Martin Now that doesn't mean we are not going to grow J.F.K., Gary, but when we look at longer term growth, congestion, what's in play, what's the government intervention we will see what that means but we've clearly had a change.

We actually flew over the summertime frame flew fewer flights than we did during the peak of the, say the president's weekend and the Easter time frame Passover earlier this year.

We are looking internationally.

As I responded to with Mikes comment.

And clearly we will start to move the 190s in the Midwest and out west as well as we find opportunities to do so.

So quite a bit of change that's really in play and one last comment, Gary, international partnerships at Kennedy and right now we've talked about Aer Lingus.

We are optimistic about sales that will take place with Aer Lingus here and monetizing J.F.K.

and finally making that a reality as well.

So quite a bit of initiative in play to real change the direction of the airline.

On the cost side, anything.

Always focus and for our crew members who listen to today's call, for the analysts and others very, very pleased with cost discipline as John talked about with the specifics on the costs discipline but that will continue.

We know there are other opportunities across JetBlue to drive unnecessary costs and so that just has to be part of the DNA of the airline on a go forward basis.

Okay.

Thanks, guys.

Thanks, Gary.

Thank you.

Your next question is coming from Frank Boroch with Bear Stearns.

Good morning, John, I was hoping maybe, you touched on the agreement to sell two A320s next year.

Where does that leave your current thinking for capacity growth and I guess in Capex as a result for next year?

We announce that we have an agreement to sell two A320s through the second quarter of 2008.

As mentioned earlier we will continue to look at additional opportunities to sell aircraft next year as long as the market remains favorable.

We haven't given any indication yet to the marketplace with respect to 2008 capacity growth.

We will be doing that with our fourth quarter call to take effect January, 2008.

With respect to Capex, though, I think if I recall some of our slides from investor day and what not, we've taken our aircraft Capex from what was 1.2 to 1.3 billion, we've taken that down to closer total seven to 800 million range.

And given the increased focus or the traction on cost discipline, what's your early thinking about nonfuel CASM for next year?

Haven't given any guidance to that effect nor will I give any guidance on that call to that effect.

Wait for the fourth quarter call in January.

Okay.

Great.

Thanks a lot.

Thank you.

Your next question is coming from Jamie Baker with JP Morgan.

Good morning, everybody.

Just a question on the 2% to 4% RASM in the fourth quarter and what might cause that to accelerate in 2008.

I'm sure you're not going to give us your 2008 RASM forecast but I'm wondering if we could hold RASM constant, what sort of natural increase takes place on the increased Embraer flying and the A320 interior regaging?

Jamie, as I look at 2008 and again, as we are still building and finalizing our plan for 2008, the number one issue that we are clearly dealing with is the trough periods.

And this airline just, it screams during the peaks and we know that the route network is obviously more discretionary in nature than these trough periods and there are several of them, early January and after the schools have, or depending where Easter and Passover is, between the May time frame, September, early part of October, early part of November, early part of December, anyway we are working very hard on the trough period across the airline.

Number one, if it's a route network and where Ewe are deploying those airplanes.

I can it's also important to raise the point that with the A320, with the 34, 36-inch pitch on that airplane, now, that was a cost initiative earlier this year but there's clearly an opportunity to monetize the enhanced pitch on that airplane specifically against competitors like Virgin America where might be on longer haul.

We are hard at work on that and I believe that will be an early 2008 announcement as we implement it.

As we talk about the opportunity, again we are discretionary airline or leisure airline by and large, by just testing refundable fares through our Company Blue initiative, our opportunity to mind the corporate customer, Company Blue through the GDS, the AMEX open program, those are all really opportunities that we have to go after in a significant way.

So I think that that portends well from a RASM perspective as we look at 2008 and beyond let alone partnering with international carriers at J.F.K., Jamie.

I appreciate the clarity.

Thanks a lot.

Thank you.

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

Yes, the J.F.K.

congestion, that only effects you during a certain small window part of the day.

Is that correct, the evening when the international flights are going?

Most of the day is still pretty open for growth.

Is that a correct assumption to make?

Ray, that is a correct assumption to make.

There is a previous slotted hours with the Sunday sets of the high density rule, the three to eight time frame that has been the historic peak.

That's not to say there are not some new peaks as a result of other results that have played out such as the morning time frame but we believe there is plenty of opportunity for growth certainly in the trough pace if I may over at J.F.K.

especially with how we are looking to deploy some airplanes.

The longer haul airplanes going down to the Caribbean they are gone for quite a period of time and we can really start to schedule those airplanes out of the slighted hours.

We are excited about the new terminal, excited about the government intervention and will clearly grow J.F.K.

What about your other important hub, Fort Lauderdale, there's congestion there,.

I think Fort Lauderdale is a great example of partnering with the FAA, the government intervention, and wide respect in the community as well, Fort Lauderdale and the surrounded air that problem that was there really about a year and a half ago through the use of a third runway down in Fort Lauderdale which traditionally wasn't utilized.

We don't see operational issues at all down in Fort Lauderdale and in fact they are starting to expand the southern runway down in Fort Lauderdale and we think that enhanced capacity is certainly going to continue down there as well, too.

Thank you.

Thank you.

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

Yes, hi, good morning.

Dave, you mentioned in your comments that there was an impact in the third quarter from Virgin America but that it was less than your estimate.

What's your estimate in the third quarter and what is it for the fourth?

I think the comments were really as we've been into our third quarter estimate from impact from Virgin America so I didn't quantify the number in there, Bill.

But it's clear that there is impact with a new competitor in the market and Virgin America was six a day from J.F.K.

to LA ex as well as S.

F O.

And out of Washington Dulles with U.

S.

F O.

And lacks, let's face it there's impact on any carrier in that market including us so that has been baked into our fourth quarter guidance and we are continuing to evaluate the competitive situation, Bill.

And how do you respond, if it starts to increase, is it sort of something where you look to increase capacity there or would you pull back or how do we think about what your response should be?

Yes, it's, well, we start to, a lot of gain theory place in there and there is, as we look at our strength from New York, that by the way the transcons as I shared in my comments were down about 4% year over year with the percent of our flying into transcons but there is, we look at New York as our position of strength into the Bay area.

That's not just S.

F O.

But also Oakland and San Jose.

As we look at Southern California again from a hoark in, Burbank, Ontario, very specific airports to the area other than an LA ex if you will and that's been a very large part of the success of this airline including into the third quarter numbers as well.

So from a Virgin America perspective, we are going to be prudent but we are also going to make sure that these markets are a very important part of JetBlue on a go-forward basis.

Not just our Kennedy, Bill, it's out of Washington, it's out of Boston, when we look at our product and it's several flights a day into these markets, it's the opportunity to really work with that expanded cabin which we really haven't taken credit for from a revenue perspective.

The inflight entertainment and the fact that it's the whole cabin that's got comfort, at least 34 inches as opposed to our first class section, we believe our model is better.

If I can shift gears to Embraer's, as we look at some of the efforts you've taken on the A320 front to sell some of those should we be thinking it makes sense to revisit the Embraer order in terms of size or timing of it or even in terms of sales of those aircraft what should we expect that to do especially in light of where fuel is?

I would take a look at the Embraer's from the perspective of it's, the airplane as we are now, we will celebrate two years in the November time frame of flying the airplane.

The technical dispatch reliability is now very close to the A320.

We feel very good about our ability to deploy these airplanes away from the East Coast and the growth plan that we've announced with the 190s previously, we stand behind that as well as we take a look at the 190s in the future.

And it is a very significant part of our fleet plan.

It's the ability to go in and path find a new market.

It's the seasonality.

It's the time of day.

It's the point-to-point flying a 100 seat airplane as opposed to a smaller airplane if you will.

It is and will continue to be a very important of JetBlue on a go-forward basis.

Just the last question on the terminal at J.F.K.

If we end up in a specifics where they start capping flights at certain parts of a day or even a whole day how will that change sort of the economic logic behind the terminal?

I presume it anticipates some sort of growth in the number of flights.

But I'm just curious as to your thoughts on how that might have to change the strategy if we cap flights there?

Sure, Bill.

I'm assuming there will be some kind of caps or some type of limitation that's put in place at J.F.K.

It's unfortunate.

You think we would be moving away from the use of technology and a way from land-based navigation systems into satellite-based navigation but that's not going to happen overnight.

We know it's at least a ten-year plus project.

But Kennedy assuming some type of cap is put back into place our schedule today we are pretty evenly deployed over the course of the operating day without the super peaks that you tend to see with, I'd say a domestic presence that's feeding a flight operation over to Europe where you have everything peaked in the afternoon time frame.

We see growth at J.F.

K.

In fact, we've peaked at 186 trips at Kennedy earlier this year and we built the terminal for 225 trips.

So as you can see it's, we are already fairly well described in our current facility when we take a look at moving into a brand new terminal.

As we talked about in the past it's something that looks like about a dollar per ticket to really offset the new facility with the Port Authority.

And it's fair to say, too, Bill that we have ramped up time frame built into our lease with the Port Authority.

I'm glad the government is involved.

It's going to rationalize things.

But J.F.K.

and our home, we are going to be able to use it just fine.

Thanks for your help.

Thank you.

Thank you.

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

Hi, good morning.

John, one housecleaning question here, what's the base crew assumption for the unhedged portion of your fuel guidance?

I do everything nowadays based upon U.S.

Gulf Coast.

Lisa will get back to you how that converts back to crude.

Everything now I think in Gulf Coast pricing.

Got you.

And I guess another question here is hoping you can provide some more perspective on the unit revenue trends in the newly latticed point-to-point markets and relates to do that the length of time before you'll have a view of whether they are performing to expectations.

Dan, it's, this point-to-point flying, the latticing across airlines, I alluded to upstate New York as well as England and clearly the Carolinas down to Fort Lauderdale as well, it will take a period of time before we start to see if we are hitting the trends that we built into our P&Lily all that said this north-south flying is ski employed right into the advance if you will of the snow bird season so peak traffic between north and south as the weather starts to get a little bit tougher up here.

We always thought this was an important part of our strategy.

It's not like what we are doing nonstop out of the Boston, just smaller, Rochester, Syracuse, Burlington.

As we take a look at the next series of earnings calls.

What percentage of the new flying will the latticed flying account for.

We don't have a percentage handy on that, Dan.

We will have to get back on you.

How many new cities should we expect in 2008?

A little bit early to really give visibility on our 2008 annual operating plan.

However, suffice it to say even the announce it of Pete plat and St.

Martin, it's 2008 flying and I think we've learned that it's not going to, we are not going to open cities on a, we are going to connect the dots, drive efficiencies in the location, we are going to take advantage of a one off market where it's one trip a day but we don't expect a whole lot of markets being announced in 2008, Dan.

Okay.

Thanks very much.

Sure.

Your next question is coming from Bob Mcdue with Avondale Partners.

McAdoo.

You haven't want to do give guidance on capacity but assuming you don't sell any more airplanes can you bring us back up to speed on what deliveries are scheduled in 2008?

Yes, right now we have 12 firm A320s, six firm E.

190s.

And as I mentioned, we already have agreements to sell two A320s.

Now you are looking at net 16 next year, ten plus six if we don't do anything else.

Could you just as easily off the top of your head 2009.

I believe 2009 is again 12 and six if I remember correctly.

By the way welcome back, Bob.

It's good to be here.

Very good.

Thank you.

Your next question is coming from Bill (inaudible) with Bank of America Capital Markets.

John, could you confirm that all of the planned sales for the A320 does not effect any of the double E.

T.

C.s.

We have not sold any aircraft that is subject to a double AT C.

YTD, correct.

In the past you've indicated that you plan to manage the BS very carefully against the backdrop of a 30% liquidity that is to L.

P.

M.

Revenues, if that's still the policy.

Would you consider purchasing any of the convertible debt in the open marketplace kind of as a way to maybe strengthen the BS a little bit more?

What I have stated previously is we have a target of 25% of trailing 12 months.

Certainly, my treasurer and myself would like to see a three in front of that number but we understand where we are today in our growth cycle and we look at all opportunities with respect to our convertible debt.

Thank you.

Thank you.

This concludes our session with investors and analysts.

With that, we will turn it over to Dave Barger for closing remarks.

Barger.

Great.

Thank you very much.

Once again I'd like to take this opportunity to thank our crew members for their hard work this past quarter.

Our third quarter results are even more impressive especially when we consider them against the backdrop of the operational challenges that we faced at our home in Kennedy and at Northeast.

We realize there are many tough challenges that lie ahead, particularly as oil pushes at $90 per barrel.

I will assure you we will continue to drive rest revenue and cost discipline as we continue to drive for our shareholders.

Thank you.

Pam, thank you very much and we appreciate everybody joining in for today's call.

Thank you.

And this concludes today's JetBlue Airways Corporations third quarter 2007 earnings conference call.

You may now disconnect your lines and have a pleasant afternoon.