JetBlue Airways Corp (JBLU) 2007 Q4 法說會逐字稿

Welcome to JetBlue Airways Corporation's fourth quarter and full year 2007 earnings conference call.

Today's call is being recorded.

We have on the call today Dave Barger, JetBlue CEO; and Ed Barnes, JetBlue CFO.

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

Actual results may defer [materially] from those expressed in 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, Jackie.

Good morning, everyone, and thank you all for joining us.

We're very pleased to report an $18 million profit for 2007.

This is an $18 million improvement over 2006 and our first full year of profit since 2004.

We believe these results are impressive, considering that in 2004, oil averaged about $40 a barrel, a far cry from the $90 a barrel prices we saw during 2007 and that we also experienced a $40 million negative revenue impact as a result of the severe ice storm in New York last February.

We made significant operational improvements after that February event, including strengthening our operations team and making important changes to the way we respond to weather and other operational irregularities.

These changes quickly produced result,s and by the second half of the year we improved our DOT rankings across all operational metrics.

To the credit of our team, we believe we are now a much stronger, more competitive airline today than we were a year ago.

For the fourth quarter, we reported an operating margin of 4.1% and a net loss of $4 million.

Our fourth quarter results were largely impacted by the sharp rise in the price of fuel.

Had our fuel price per gallon remained at last year's fourth quarter levels, our 2007 fourth quarter fuel expense would have been approximately $50 million lower.

Despite record high fuel prices, JetBlue delivered solid cost performance and productivity improvements.

The cost cutting initiatives that we began in 2006 have further helped institutionalize JetBlue's low cost culture and we continue to believe that our ability to deliver exceptional service at low cost differentiates us from the rest of the industry.

I could not be more proud of our 11,000-plus crewmembers and I would like to take this opportunity to thank them all for their continued hard work and dedication.

Our 2007 results would not have been possible without them.

Our crewmembers did a tremendous job delivering the JetBlue experience to over 20 million customers.

Again, I would like to say thank you very much.

While we certainly will face many challenges in the coming year, we believe our disciplined growth strategy, combined with our low cost culture, and a renewed focus on revenue maximization, positions us well as we move into 2008.

At this time, I would like to just briefly talk about the Lufthansa investment.

As most of you know, the Lufthansa group completed its $300 million investment in JetBlue last week, approximately 42 million shares issued at $7.27, and they are now our largest shareholder with a 19% ownership interest.

We believe we have a unique position in New York as JFK's largest domestic carrier, and discussions with Lufthansa regarding a commercial agreement have already begun.

We're also exploring potential supply chain opportunities with Lufthansa, which could result in significant cost savings for JetBlue.

We're very much looking forward to working with Lufthansa, clearly one of the world's most successful and well respected airlines.

I would now like to turn my attention to revenue and turning now to a more detailed look at the quarter.

Total revenue for the fourth quarter increased 17% year-over-year to $739 million, on a capacity increase of 11.5%.

Fourth quarter PRASM increased 2.5% year-over-year, which was driven by a 7% increase in yield, as load factor declined about 3 points year-over-year.

We benefited from strong demand during the December holidays, which helped us increase our average fare $10 for the fourth quarter to about $130, a 9% increase over fourth quarter 2006.

We were especially pleased with our revenue performance during the month of December, a 5% year-over-year increase in PRASM.

Our December results are even more impressive, considering, one, we had over 400 flight cancellations during the month due to severe weather, and two, our average stage length was up over 4% year-over-year.

Adjusting for stage length, our PRASM for the month of December increased almost 7% year year-over-year and our revenue performance was strong across the board.

December unit revenues were up year-over-year in almost every region.

Not surprisingly, our existing markets in the fourth quarter outperformed our new markets, which we defined as markets open less than 12 months.

Due to slower growth and key network adjustments, only about 10% of our seats during the fourth quarter were in new markets, compared to about 25% of our seats in the fourth quarter of 2006.

Looking at our ASMs by region during the fourth quarter, 45% of our ASMs were east-west, down 3 points year-over-year.

33% of our ASMs were north to Florida.

11.8% in the Caribbean, plus 3.5 points.

3.8% were in the north, and 2.9% were in the southeast.

Our largest fourth quarter year-over-year capacity increase was in the Caribbean, where ASMs were up almost 60%.

Earlier this month we began new service from JFK to St.

Maarten and Puerto Plata in the Dominican Republic.

We continue to be very pleased with our Caribbean performance.

These markets tend to mature very quickly from both a P&L and a cash perspective and these destinations also generally require a minimal upfront capital, and despite limited daily frequencies, are relatively low cost.

We've also been expanding our network out of Orlando, the home of JetBlue University, our crew member training center.

We now serve 17 nonstop destinations from Orlando, including new service from Orlando to Cancun and Santa Domingo in the Dominican Republic, both scheduled to begin in March.

Given our strength in the northeast and Florida, we intend to continue to explore opportunities to expand between these regions.

Our point to point overfly service from various cities in the northeast to Florida has done very well, and these cities now include Buffalo; Syracuse; Rochester; Burlington; Portland, Maine; Richmond; Charlotte; and Raleigh-Durham.

About 4% of our ASMs in January were in markets that overfly JFK compared to approximately 2% a year ago.

We also continued to see strong results in Boston, which now has over 60 daily nonstop flights to 26 destinations.

In 2008, we'll continue to focus on connecting the dots and adding flights between our existing destinations, which we believe will help improve our asset utilization and produce a better return for JetBlue.

In addition to St.

Maarten and Puerto Plata, which we opened earlier in January, we currently plan to open three additional new cities in 2008 at this time.

Looking ahead, our revenue outlook for the quarter is very positive.

Demand is strong, especially relative to the economic environment.

While we experienced some demand softness during the trough periods in the fourth quarter, we have not yet seen any significant signs of an economic slowdown in our forward-booking curve.

Bookings for the President's Day travel period look strong at this time and while it's still early, we're seeing positive numbers for the Easter travel period as well.

We expect our year-over-year PRASM growth for the first quarter will be between 10 and 12%.

Now, please keep in mind that our first quarter revenue performance on a year-over-year basis will be somewhat skewed by the negative revenue impact of last year's ice storm.

For the full year, our projected PRASM growth will be between 9 and 11%.

We also plan to shift a significant amount of our focus to increasing ancillary revenues throughout the year, which I'll talk about more in just a moment.

While we expect our revenue momentum from the December holidays to continue into the first quarter, we continue to operate an environment of high fuel prices and economic uncertainty.

We believe, however, our fleet book -- our fleet order book provides us with the ability to quickly react to changing market conditions.

As many of you have seen by now in today's press release, we have reduced our estimated growth rate for 2008 from 6 to 9% to 5 to 8%.

I'm pleased to announce that we currently have commitments to sell six A320s in 2008, and this includes the two A320 sales we announced on the last earnings call.

We also plan to more strategically manage our capacity through aircraft gauge adjustments and utilization reductions during our trough periods.

We have among the highest aircraft utilization rates among domestic carriers in the United States, which gives us increased flexibility in this fuel environment.

And we'll talk more about our fleet plan in a moment, but I would like to point out that most of our 2008 growth rate is being driven by the run rate of new aircraft added in 2007.

In other words, even if we were to take no aircraft deliveries in 2008, we would grow at a rate of 4%.

So a 5 to 8% growth rate represents very significant year-over-year capacity reductions, which we believe is prudent action in today's environment.

We're also encouraged by the more disciplined approach to domestic capacity taken by many of our competitors, which we believe should help our revenue performance in 2008.

In the first quarter of 2008, we expect competitive capacity in many of our markets to decrease year-over-year.

In addition to strategically managing our capacity growth, we believe we have other tools to help drive and improve revenue performance in 2008, including the Embraer 190, ancillary revenue, and our investment in LiveTV.

As to the E190, we believe the economics and operating flexibility of this 100-seat aircraft give us a significant competitive advantage.

It's a great tool to develop thinner markets and also allows us to more effectively manage capacity during our seasonal trough periods by replacing A320s with E190s on certain flights.

We're very pleased with the profitability of the 190, both for the new markets it opens for us and also for the flexibility it provides to downgauge off-peak A320 flying.

Since we introduced the E190 into our fleet in 2005, we've operated the E190 close to our home base of operations in the northeast, as we work through the learning curve and reliability process typically associated with the launch of a new aircraft type.

I'm pleased to report that our E190 reliability has improved significantly.

Its dispatch reliability rate for delays greater than 15 minutes is now up around 97.8%, a rate which nears that of our A320, which by the way is a high standard to match, as JetBlue was again recognized by Airbus in 2007 as operating the most reliable A320 fleet in the world.

Our E190 utilization rate has increased as well, up to 10.6 hours per day in December '07 versus 10.2 hours in December '06.

We're very pleased with our E190 performance and its market potential.

During the fourth quarter, we exercised three E190 options for delivery in 2009 and we expect the E190 to continue to become a larger percentage of our fleet.

We're also very focused on increasing ancillary revenues during 2008.

During 2007, we increased our change fees and implemented a telephonic reservation fee.

As a result, our 2007 other revenues increased about 50% over 2006.

Yesterday we also announced the launch of refundable fares, which have previously been testing with our corporate customers and CompanyBlue.

Refundable fares will offer increased flexibility to our customers.

This is the first of several initiatives we intend to announce in the next couple of months, as we work to diversify our product to attract high yielding customers.

In the second quarter this year, we plan to unveil our new enhanced-front cabin product.

More details will be forthcoming in the weeks ahead.

Today, our wholly owned LiveTV subsidiary also announced it has entered into a long-term agreement with Continental Airlines to provide live television and live radio products on Continental's domestic fleet.

As you all know, LiveTV has provided JetBlue with live television, radio and other entertainment programming since our first flight almost eight years ago.

LiveTV provides similar service to seven airlines around the world and has simply become a leading provider of an ever-evolving array of in-flight entertainment and connectivity products for JetBlue and other airlines worldwide.

We believe that within a short period of time, domestic customers in the United States will expect some form of in-flight entertainment and connectivity on flights.

It's really not unlike the installation of lie-flat seats on international business class products.

Having them merely keeps us with the competition.

We're very excited about the market potential for LiveTV and we believe the Continental agreement announced today validates LiveTV's leadership position in this field.

As a result, LiveTV has made the decision to aggressively pursue sales opportunities with additional carriers.

At this time, I would like to just talk about JFK and the slots, as well as alliances.

As we look forward into 2008, we're also excited about opening terminal 5, our new home at JFK.

We've operated from terminal 6 at JFK since we launched service in 2000.

We have well outgrown this facility and we believe our new terminal will significantly improve the experience for both our customers and our crewmembers.

The terminal 5 project remains on time and on budget and we look forward to cutting the ribbon later this year.

As has been well publicized, it's also been very difficult operating in New York, the most congested air space in the country.

We estimate the congestion at JFK costs us $50 million in labor, fuel and voucher costs during 2007 alone.

But we're optimistic about the improvements taking place at JFK later this year.

We're very pleased with the FAA and the DOT's final slot allocation published on January 16.

The outcome is very positive for JetBlue.

The slots preserve JetBlue's position as the airport's largest domestic carrier.

At this time, I would like to take a moment to acknowledge all of the efforts of our team, who were very helpful in bringing the New York air space congestion issues to the forefront along with our partners at the FAA within the Department of Transportation.

Unlike some of our competitors at JFK, we're fortunate that many of our market growth opportunities do not necessarily require slots in the peak periods.

Since we operate a relatively flat schedule at Kennedy, we were able to work with the FAA and retime several of our flights into less congested time periods, and for the most part maintain our proportional presence throughout the day.

The slot controls will us help us reduce costs and improve our operational performance, not just at JFK, but throughout our entire system.

With all three major airports in the New York area, JFK, LaGuardia and Newark, now subject to capacity constraints, we also expect our unit revenue performance and customer experience to improve.

In addition, as part of our strategy to be New York's leading carrier, we began service in the past year from two of the satellite airports in the metropolitan area, Stewart Field in Newburgh, New York; and Westchester County Airport in White Plains, New York.

As air space at the three primary airports in New York becomes constrained, we will continue to pursue opportunities to grow out these satellite airports.

Finally, we will also continue to grow JFK and leverage our position as its largest domestic carrier.

As I mentioned earlier, we are in discussions with Lufthansa about a commercial agreement.

Lufthansa serves 17 destinations in the United States and almost 200 destinations worldwide, so we're very excited about the potential synergies here.

In addition, we are also close to formalizing our partnership with Aer Lingus.

Stay tuned for an announcement on this exciting relationship.

In closing, I would like to briefly touch on our recent leadership changes.

Over the past 18 months, we have strengthened our management team as we have transformed from an aggressive start-up to a company that can sustain scalable growth.

We have an experienced team in place and I'm very optimistic about the direction in which we're headed.

The JetBlue brand is as strong as ever, thanks to our 11,000 crewmembers.

Our customers love to fly JetBlue and continue to go out of their way to do so.

Although we will face significant challenges in 2008, I'm confident we have the right team in place and we will continue to strengthen our airline.

With that, it's my pleasure to turn it over to Ed Barnes for a more detailed review of our cost performance for the fourth quarter.

Thanks, Dave.

Good morning, everyone.

As Dave mentioned, we are very pleased with our full year results, especially when considering the negative revenue impact associated with the February ice storm and the record high fuel prices we faced during the year.

The full year profits we announced today are a direct result of the dedication of our crewmembers who continue to maintain their focus on improving productivity and cost efficiency throughout the year.

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

Last October, we announced plans to sell two A320s during the second quarter of this year.

We are pleased to announce today that we now have commitments to sell one additional A320 in the second quarter, one A320 in the third quarter, and two A320s in the fourth quarter.

In total, we currently have commitments to sell six A320s in 2008.

We've also entered into an agreement with Airbus to defer the delivery of 16 A320 aircraft originally scheduled for delivery between 2010 and 2011 to the period 2012 and 2013.

This deferral will provide a firm delivery stream more in line with our current annual delivery schedule.

As we've said in the past, we believe our order book, with both Embraer and Airbus is a major asset and assuming conditions remain favorable, we expect to continue to take advantage of the strength of the worldwide aircraft market to manage our fleet growth through aircraft sales and order deferrals as necessary.

We intend to continue to aggressively manage our growth plans, depending on changing economic factors, and therefore we may announce additional sales in the future.

In addition to fleet management, aircraft sales also strengthen our financial position.

Since we generally sell older aircraft, aircraft sales help lower the average age of our fleet and reduce our future maintenance burden.

Aircraft sales also help improve our balance sheet.

These sales are net cash positive and reduce debt.

In 2007, we generated cash proceeds of about $100 million from the sale of three aircraft and paid down about $70 million in debt, resulting in $30 million of positive cash flow.

We also recorded about $7 million in gains to our P&L from the three aircraft sales.

At the same time, we maintained flexibility with favorable options to accelerate our fleet growth and respond to market opportunities as they arise.

During the fourth quarter, we exercised three E1 90 options for delivery in 2009.

Turning now to fourth quarter results, our cost per available seat model excluding fuel was $0.0548, an increase of 4.5% on a year-over-year basis.

This year-over-year increase can largely be attributed to the removal of a row of seats from our A320 fleet in February of 2007.

Adjusting for the seat removal, our ex-fuel CASM increased only about 2% for the quarter.

Looking at a few line items from the income statement, salaries, wages and benefits increased about 2% year-over-year on a unit cost basis, which was primarily driven by pilot pay increases we implemented at the beginning of 2007.

As you may recall, we made several changes to our compensation program during the first quarter of 2007 to further support our goal of recruiting and retaining the best crewmembers in the industry.

I am pleased to report that our crewmembers continue to work smart and improve productivity.

We finished this year with 74 full-time equivalent crewmembers per aircraft, which is down from 78 FTEs just a year ago.

We expect to continue to drive productivity across the organization and further reduce our FTEs per aircraft in 2008.

Fuel continues to be our largest operating expense.

During the fourth quarter, our fuel costs were up about 25% year-over-year on a unit cost basis.

Our average fuel price for the fourth quarter, net of hedges, was $2.34 a gallon, which was about $0.10 higher than what we had forecast.

Just as a point of reference, fuel comprised about 20% of our operating expenses back in 2004, our last profitable year.

And in 2007, fuel was about 35% of our operating expenses.

The good news is that we continue to improve our fuel efficiency.

With an average age of approximately three years, JetBlue operates one of the youngest, more fuel-efficient fleets in the industry.

We have also undertaken a wide variety of conservation initiatives to help reduce fuel, aircraft fuel burn, including single engine taxi and rapid deployment of ground power units at our airport gates.

In addition, we continue to take a disciplined approach to fuel hedging.

In 2007, we saved about $35 million in fuel costs due to our fuel hedging program, of which about $27 million fell in the fourth quarter.

And just to clarify, there were no out of period fuel hedge gains in Q4.

Our maintenance expense increased about 20% on a unit cost basis during the fourth quarter, due mainly to the gradual aging of our fleet, and a greater number of aircraft repairs.

Other operating expenses increased about 15% year-over-year on a unit cost basis, which was driven in part by one-time expenses we incurred in connection with the closings of Nashville and Columbus.

We also incurred incremental expenses during the quarter relating to LiveTV's research and development investments, and wireless technologies.

These costs, however, are being offset by revenue increases.

Our year-over-year increases and other operating expenses was also impacted by the reduction in ASMs resulting from the removal of a row of seats from our A320 fleet last February.

Adjusting for LiveTV expenses, the removal of the row of seats from the A320 fleet, and the one-time city closure expenses, our other operating expenses increased about 6% year-over-year.

Turning to the balance sheet, at year end we had cash equivalents and investments of $834 million, compared to $699 million at year end 2006.

We now have over $1 billion in cash, with the completion of the $300 million investment from Lufthansa last week.

Our liquidity coverage measured by cash as a percentage of trailing 12 months of revenue is the highest amongst major carriers.

While we have several obligations coming due in 2008, including the assumed put of our $170 million convert and an additional $100 million of double ETCs scheduled debt payments, we feel very comfortable with our current cash position.

We believe our more disciplined growth strategy also helps improve our cash flow.

We're also pleased to report that the debt and lease financing has been arranged for half of our Airbus A320 deliveries and all of our Embraer E190 deliveries scheduled through the end of this year.

Now let's look ahead at the first quarter and full year.

We will have detailed guidance available at our investor update filed as an 8-K and posted on our website later today.

However, let me take a moment to share a few of the highlights.

On the capacity front, we expect our ASMs to grow 13 to 15% in the first quarter and 5 to 8% for the full year.

As you can see, our annual ASM growth rate is heavily weighted towards the first quarter.

Keep in mind that our year-over-year ASM growth in the first quarter of '08 will be impacted somewhat by the 1,200 flight cancellations we made during last year's February ice storm.

We anticipate taking delivery of 12 A320s and six E190s during the year.

Assuming completion of the six A320 aircraft sales in 2008, we expect our year end fleet to be comprised of 110 A320s and 36 E190s.

Again this, may change if additional sales opportunities arise.

With regard to PRASM, we expect passenger revenues -- revenue per available seat mile to increase between 10 and 12% in the first quarter and 9 and 11% for the full year.

We also expect our heightened focus on ancillary revenues to help increase other revenue and therefore overall revenue performance.

Moving on to CASM, for the first quarter we expect CASM to increase 9 to 11%.

This year-over-year increase is driven mainly by increases in the price of fuel, which we expect to be up about 30% over first quarter of 2007.

We expect CASM ex fuel in the first quarter to be down slightly, reflecting our continued low cost discipline.

We also incurred some additional overtime costs related to the February ice storm during the first quarter of last year, so year-over-year comparisons are a bit skewed.

For the full year we project CASM will increase 10 to 12% and ex fuel CASM will increase 3 to 5%.

We expect our ex fuel CASM increase for the full year will be driven mainly by the impact of capacity reductions in the second half of the year, which will pressure our unit costs.

We also intend to invest in some technological advancements to help meet our ancillary revenue goals and enable us to pursue more international partnership opportunities.

In addition, we believe that there is great market potential for LiveTV and as a result, we expect to incur additional costs associated with new customers, as well as continued research and development.

We believe, however, that our projected increases in revenues will outpace the associated cost increases.

That said, we will continue our focus on efficiency.

With regard to fuel, our CASM guidance assumes an estimated average fuel cost per gallon of $2.50 in the first quarter and $2.55 for the full year.

We are hedged roughly 35% in Q1.

More specific details regarding our hedge program will be available in our 8-K filed later today.

Finally, moving on to CapEx, we expect capital expenditures of about $875 million in 2008.

This includes $700 million in aircraft-related expenditures, and about $60 million for LiveTV, and $40 million in lease hold improvements related to our new terminal 5 at JFK.

However, we intend to keep a watchful eye on economic conditions and we'll adjust capital expenditures if warranted.

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

However, there is always room for an improvement in our cost structure, and we have more work ahead.

JetBlue's low cost structure is a key component of our sustainable, competitive advantage and we believe it will be even more important as we operate in an uncertain economic environment.

We intend to maintain our focus on reducing costs, driving productivity, and improving revenue to ensure that we can grow profitably.

And with that, we're happy to take your questions.

(OPERATOR INSTRUCTIONS) Your first question is from Bill Greene with Morgan Stanley.

-- more color around the RASM guidance.

Even if we add back in $40 million to the first quarter of '07, I guess for the challenges you had last year, we still come up with an acceleration in RASM growth from the first quarter versus first fourth quarter.

I'm still trying to understand kind of why you think that will happen.

Is it just all the timing of all the holiday, or is there something else you see in your markets?

Yes, good morning, Bill.

There's a lot of moving pieces from the standpoint of what's happening with RASM.

And Q1 over Q1, just even independent of the storm.

First of all, the holidays, the way that they played with even New Year's onto a Tuesday, with our demographics, the Martin Luther King holiday in mid-January, as we then moved into President's weekend, spaced nicely with Easter, which is obviously earlier this year, but also again with demographics with Passover into April, very strong for our route network.

I think it's also, I think it's also important to note that we're just doing a better job.

I think just on blocking and tackling from the perspective of managing the troughs better.

And I mean not just the supertroughs that we've had in the past, but two weeks here and there or day of week flying, things like seeing the benefit of the OTAs, if you will, to help during these many troughs.

Entry into the GDS, the deployment of the 190 into markets that clearly have a higher level of business flying, and wrapped in there as well is -- there's people who now know, customers who now know that JFK is starting to move back to a level of predictability.

And I think that we suffered with that over the course of the past year, with JFK in the news and what was happening with congestion and not that the slots are in play right now just yet, but clearly we're not in that summer peak time of the year.

So there's a lot of different pieces that are playing.

Ed, do you want to add from the standpoint of RASM?

I think just as well as maturing markets -- adding 16 cities in 2006 and five cities in 2007 I think has really allowed a lot of our markets to mature.

What was same-store sales RASM?

I don't think we specified that, Bill.

We can follow up.

Okay.

I think we mentioned that the level of maturity in markets less than 12 months is now down to 10%.

It was double that, as we look at same timeframe year-over-year.

And my last question is on CASM.

How much of the growth in CASM for 2008, for the full year number, ex fuel, is related to the new terminal?

That's not really having a significant impact on our CASM in 2008.

We're opening the terminal in the, late in the third quarter of 2008, and the differential between the rest just isn't that significant to our CASM.

So that's really a 2009 event?

Sure.

Okay.

Thanks for your help.

Thanks, Bill.

Thank you.

Your next question is from Jamie Baker with JPMorgan Chase.

Good morning, everyone.

Good morning, Jamie.

Thanks for that clarification on the out of period hedge gains.

I'm curious at the announcement of refundable fares implies that you're going to begin overbooking?

At this point, Jamie, there's not a plan to.

Refundable fares, we've been testing through our CompanyBlue product and obviously as we start to penetrate more into the business market, our products, American Express, the OPEN Card program, it's -- we are very encouraged with the test that we did.

We rolled this out yesterday and it's incredible to see what people are -- what they are looking for for flexibility in their travel schedule.

And one day's number is anecdotal, so we've got to get a trend, but very, very pleased.

No plans to overbook at this time.

I haven't had a chance to look at where the fare levels are compared to your existing [Y] levels.

On average, how much of a premium is one paying for the flexibility?

I can look it up if you don't have that at your fingertips.

I just--

Yes, from the standpoint of a premium, of course it depends on the market, but between $50 and $100, Jamie.

Okay.

Sounds fair.

Secondly, you hinted at an enhanced front cabin.

I'm curious if the development of this, if it's already incorporated into your RASM guidance and possibly your CASM guidance, if there's any change to the aircraft configuration, or will the announcement in coming weeks be something we should consider as incremental to our forecast?

Yes, it's a -- from the standpoint of seats on aircraft, 150 or 100 seats, there's no change to the number of seats that we're going to have across the fleet.

And I think also in the spirit of being transparent, we've talked a better game than we've executed, too, over the last year, too.

And using the space on, specifically on the A320 today with that level of pitch on the airplane 36 and 34, we just think we've got a smarter design that, again, is going to be of great interest, we believe, to say the nondiscretionary traveler, or somebody who is looking to buy up, if you will, from the JetBlue experience.

So some of those numbers -- we've been conservative, but they are baked in from the standpoint of RASM, and again, no change to the number of seats on a fleet.

That's very helpful.

Thanks for everything.

Thanks, Jamie.

Thank you.

Your next question is from Jim Parker with Raymond James.

Good morning, Dave and Ed.

Good morning, Jim.

In uncertain economic times, investors are often interested in what assets may underlie a company, and its share price.

And I'm curious, what is your assessment of the valuation of your new JFK terminal?

What do you think that's worth?

I don't think we've really put any numbers to the JFK terminal and what it's worth.

I think what it's worth to JetBlue as another enhancement to the JetBlue experience, getting out of T-6, which is not the best operational situation for us and our ability to drive incremental revenues from our terminal as well.

And a second question, I'm curious, you have this substantially greater exposure and capacity into the Caribbean, then you're overflying JFK going to Florida.

Couple of questions in that regard.

One, are you becoming more of a leisure-type carrier?

And then secondly, what happens in the summer, with all of this Florida traffic?

Yes, it's -- thanks, Jim.

And obviously look forward to seeing you later this week.

It's -- by the way, with the JFK terminal as well, it's as Ed mentioned, just that ability to start to even connect traffic in one building as opposed to what we're doing today, just all that upside with the JetBlue experience.

We're so positive about it.

It's roughly about three times the acreage and the ability to operate out of those 26 gates.

Just to comment on the capacity, what we're doing in the Caribbean -- it's natural from the standpoint of New York, connecting down into the Caribbean.

We're now growing significantly from Orlando into the Caribbean.

And what we've seen with these markets, now that we've got year-over-year comparisons, is they are strong, Jim.

We start to take a look at peaks versus troughs.

The natural catchment, or communities of interest between specifically New York is very, very solid on a year round basis.

By the way, for example, St.

Maarten, cutting the ribbon down there two weeks ago, the ability to go off-peak with the 190 full over-water capability, the aircraft capable of that mission, to dial back gauge -- we can certainly do that or add capacity as necessary during the holidays.

I think we're just getting smarter about what we're doing with capacity and taking advantage of some of these peaks.

Or Super Bowl-extra sections.

It's the kind of stuff that we can do, with our two largest operations in the Super Bowl.

With the example of the overflying, New England, upstate New York, down into Florida, again, what we see is year round markets.

It's not necessarily just the discretionary customer.

The ability to put a pattern of service where a business flyer can come up to New York and not pay $400 to $500 for a hotel room or Boston or wherever it might be, has been pretty powerful.

So it's the beauty of the 150 and the 100-seat airplane.

Thank you.

Thanks, Jim.

Thank you.

Your next question is from Frank Boroch with Bear, Stearns & Co.

Good morning.

Dave, I was curious if you could shed some light on the 19% threshold or the stake that Lufthansa has taken, and does that suggest that JetBlue is open to further foreign carrier stakes up to the 25% limit?

Frank, there's -- we're certainly well aware of the 24.9% voting shareholder, foreign ownership in a carrier, and so from Lufthansa, it's probably a better question for them, if there is interest in that.

We thought that was a level that we could commit to and agree to from the sustained point of their ownership and also work through Washington with approval.

And now we enter into that next chapter from the standpoint of what are synergies, not just as an investor, but what are synergies between the two companies.

Okay, and I know you've had some experience domestically with partnerships with Cape Air.

Anything on the horizon with other domestic, maybe larger domestic carriers?

Well, I think with regard to Cape Air, very pleased with how that played up in New England.

Cape Air is a really solid business partner and so potentially, not that there's a plan just yet.

There could be additional, I guess overlap in the network, if you will, with Cape Air, but nothing else is really planned from a domestic perspective at this point, Frank.

It's again, I think we've been -- take Aer Lingus.

We've talked a good story over the past year, but we haven't executed to it.

Let's really take a look at what the timelines are, let's make good on the commitment, let's do it right, like with Cape Air this past summer and let's expand it where it makes sense.

And that's exactly the philosophy now behind what's the next step with Aer Lingus and also with Lufthansa.

By the way, I think that's plenty of partnership to digest for us over a period of time.

Great.

Lastly, if anyone could maybe give comments on how the Transcon markets have been performing.

Yes, it's -- I think that I would look at the Transcons as holding their own, and we know that the Transcons we've dialed back the percent of ASMs in the Transcon, 3% on a year-over-year basis.

No surprise that we have a new competitor that's been out there since the August timeframe, into the Transcon markets, and that's still a significant portion of our business, not just from Kennedy, but Boston, Dulles, down into Florida as well.

And I think the Transcons are holding their own, and we're also getting smarter.

When you get into these troughs, just day of week, you don't have to operate every flight seven days of the week and that's starting to play nicely from the standpoint of the year-over-year RASM improvement, as well as just, just becoming smarter with how we're scheduling the fleet.

Great, thanks.

Thank you, Frank.

Thank you.

Your next question is from Gary Chase with Lehman Brothers.

Good morning, everybody.

Hi, Gary.

Hi, Gary.

Couple, couple for you.

First, I'm wondering if there's any significant stage length reduction in 2008 as we talk about a little bit of network reconfiguration, as well as mix of E190s versus A320s changing.

Gary, our stage length is actually going to be pretty flat year-over-year.

Okay.

When you mentioned a number of things that were in CASM that included -- presumably there's going to be some configuration costs for this front cabin stuff that you're describing.

You also mentioned LiveTV investment.

What kind of impact are those having on CASM?

I think pretty much all of our CASM increase year-over-year is related to primarily four different things.

It's going to be the pulldowns that we're doing, which are going to have negative impact on year-over-year CASM.

The aging of our aircraft, and really specifically our E190s, we're going to have their first full year of heavy maintenance this year.

IT investments that we're making to really be able to execute on some of our marketing and sales initiatives, as well as to get back to operational efficiencies, and then LiveTV and the investment that we're making there.

The last two, IT and LiveTV, are those a significant component of the cost growth?

They are.

LiveTV, we're going to have to -- we're going to spend some money on LiveTV to get ready for the Continental installations, and on the IT side, we need to continue to build the infrastructure as we build the airline.

And is there any operational improvement?

Is there a block time reduction assumed from -- in the second half for what's going to be playing out at JFK?

We haven't assumed anything yet.

We're pretty optimistic about it, but we didn't want to make assumptions without kind of seeing what was actually going to play out.

Okay, and then just last one, just as a follow-up, I think Bill Greene was asking this earlier about the RASM performance in the first quarter.

I was interested in that, but I think it's more interesting that you've got an accelerating trend through the course of the year.

So in other words, if you strip out the Valentine's Day impact from last year, that was 7% roughly in RASM comp.

Yet if you look at what's going on for the remainder of the year, you've got into what we think is a harder comp from an industry perspective -- you've got an accelerating performance.

And I'm just wondering what's in there -- by your own admission, Easter's going to be a big impact in your first quarter.

Yet that's going to be, if I'm reading this right, pretty significantly your lowest RASM quarter of the year.

So how does that -- can you walk us through that?

Gary, there's -- I think certainly momentum continuing from many of the initiatives laid out in, as I laid out in the first quarter, but also, I mean there's -- what's really significant is just the market maturation.

We had so much drag on this company from the standpoint of opening in 16 new markets back in 2006 and there were people who -- Columbus, Nashville, tough decision.

And granted we had visibility into potentially what was going to play with Lufthansa as well as we take a look at our route network and what that could potentially mean.

But there was just so much drag on the P&L from opening that level of activity, jumping from, I believe the number was from 37 to 53 cities literally in one year.

Okay.

And so we don't have that, we don't have that type of drag in 2008.

But just to be clear, the stuff that you've described as potential -- I mean I assume there's no impact from JFK capacity constraint, and I assume there's no assumption in the guidance for Lufthansa commercial agreement, whatever we want to call it, a code share?

Yes, there's -- we've definitely -- I mean at the end of the day with the New York airports all becoming slot constrained, from a macro perspective, plus capacity coming -- really coming out, disciplined capacity reduced domestically, as you take a look at what other carriers are doing, yes, we've baked that into our 2008 plan.

As Ed mentioned, we've been conservative because, again, JFK's a little bit of an unknown going from -- I mean it literally turned on -- almost did a 180 from 2006 to 2007 from how bad it started to operate.

And so we're just conservative, but, yeah, those are, those are baked in at a macro level.

A code share as well?

No, no benefits of code share, at this point in time.

The only thing that's in there in a very small way is Cape Air because that's really year-over-year from the standpoint of the summer.

Okay, guys.

Thanks very much.

Thanks, Gary.

Thank you.

Your next question is from Mike Linenberg with Merrill Lynch.

Just two questions.

First, Ed, on the pretax guidance, does that include the gain that you'll take on the six aircraft?

Yes, sir.

Okay, and then my second question is to Dave.

And Dave, with LiveTV, Continental's a big customer.

At what point will you be providing more information out there?

I mean revenue base of LiveTV, you did indicate that you were going to turn it up a couple notches and based on some of the comments from Ed that there's going to be some CapEx there.

So it looks like it will potentially be a growing part of your business which sort of results in two questions.

One is that -- is the current management team at risk of having resources being pulled from the airline to LiveTV?

And sort of two, is that as that business gross, at what point does it make sense to bring in a risk-sharing partner?

Bottom line is that you want this business to grow and prosper down the road.

This could be worth a lot in the marketplace.

Your thoughts on that?

Mike, it's specific to any contract.

I'm not going to go into any specifics on the contract.

At some point I'm sure there will be greater visibility tied into the LiveTV.

The headline is this company we purchased over five years ago is a significant asset and we've been hard at work, not just with JetBlue, TVs, radios, second fleet type, Beta Blue, as we're working with that new spectrum.

But investing from the standpoint of resources, our new CEO has been there for over a year now, Nate Quigley.

One of the founder, [Glen Lotta], as President, and today, and the team working down in Orlando.

The proper capital investment to support them as well.

It's -- we thought it prudent to, sure, it's time to now market yourself and delighted that Continental signed the agreement from that perspective because we're also of the opinion that it's going to be ubiquitous across the skies here before too long, at least in the United States.

So from -- at what point is there -- I think your last comment was a risk-sharing partner.

Hard to say at this point in time, Mike, but we truly value LiveTV and what it means to JetBlue and our customers.

Okay, very good.

Thank you.

Thank you, Mike.

Thanks, Mike.

Thank you.

Your next question is from Robert Barry with Goldman Sachs.

Hi, good morning.

This is actually Chris filling in for Rob.

Just had a couple of questions.

First, in the past, JetBlue you've talked about funding your business from cash flow for operations.

Just wanted to get a sense of what's your timing on that goal, how are you thinking about that going forward?

Well, I think that's always our goal.

Certainly the economic environment and the fuel prices in the last year have kind of had an impact on that, but we always strive to be cash flow positive, and I think we've taken the right steps to do that, from cutting costs to increasing revenues to focusing more on our ancillary revenues.

I think you'll see a lot of that in 2008.

And I was just going to say is there -- to what degree can you at all sort of quantify at least in terms of orders of magnitude all of these revenue initiatives that have you in place, whether it's, the cashless cabins, the GDS, the refundable fares, can you sort of give us a better sense of what kind of impact that's having on your RASM, or will have on your RASM?

Well, I think it's -- obviously not just with RASM, but overall revenue, there's two pieces there, Chris.

And I think there's -- orders of magnitude, when we looked at ancillary -- first of all, ancillary revenues on a year-over-year basis, I think we provided transparency, roughly up 50% just on a raw number year-over-year.

But there's a significant focus on ancillary revenues.

And it's been very beneficial to the company and without really customers voicing negative opinion.

And it's the many fees that we talked about.

It's the, as you alluded to, cashless cabin.

It's the change fees that we changed twice.

The RES fee that we put into place, different baggage fees.

Believe it or not, the number of pets that travel between this part of the country and Florida is just an incredible number.

It's just the discipline to also collect them as well.

Cashless cabin also provides us the platform to start to look at purchase onboard.

Yesterday with the refundable fares, as well as what we're talking about with an enhanced change to the configuration to the aircraft, it's -- there's all of these opportunities that are working across the world and they are certainly working for us, too.

From the standpoint of core revenue, as we talked about earlier, from a magnitude perspective, I think you can see that just in terms of the guidance that we're providing on a year-over-year basis.

Okay, thank you.

And just one last quick one, in terms of -- you alluded to competitor capacity cuts or discipline.

Just curious as you look across your network, where are you seeing sort of the marginal -- the cuts, if you will, if you look across your network, where are the good guys in terms of competitor capacity?

It really is.

It's across the board, Chris.

It's not that there is double-digit reductions in any one area.

It's really minor, small reductions of capacity, not unlike what you're hearing from a macro perspective, from all the other airlines about what they are doing with U.S.

capacity.

Okay, great.

Thanks for your time, guys.

Thanks, Chris.

Thanks, Chris.

Thank you.

Your next question is from Ray Neidl with Calyon Securities.

Just to clarify what might happen with the Lufthansa agreement, I know it's a little early.

But if you do have an operational agreement with them, might you divert some of your assets to some of the other Lufthansa cities this they fly to in this country, possibly drawing down JFK in the process?

Ray, I can't speak highly enough about Lufthansa, the pace at which this moved, and by the way, it wasn't just something that was over the last 90 days.

I believe it's happened over the last three years, four years worth of relationships.

So Kennedy, they are big in Kennedy, and obviously they have Swiss involved as well.

30% overship in BMI, large presence along other East Coast ports, whether it's Boston, whether it's down in Orlando, and certainly when you start to move west, and not just in the United States.

So possibly that could happen.

It's just -- this is a very can-do company.

It's -- I mean from a Lufthansa perspective and obviously JetBlue, couldn't be more delighted with already discussions that are taking place.

Okay, great.

And with your capacity growth slowing down in the later part of this year, I know it's too early for 2009, but if you have roughly same conditions with high fuel prices, going forward might we see JetBlue moving down into the single-digit capacity growth in years going out, and if that's the case, you'll probably be showing some continuous sales from older aircraft.

I'm wondering what you're seeing for the market for the A320s, if that's holding up worldwide?

We are seeing the market hold up for A320s at the current time.

And one of the nice things about having a flexible fleet is that we can ratchet up and down our growth.

And so we'll just see how the economy pans out.

You know, we're pretty optimistic right now with what we're seeing in the first quarter and, but if things turn for the worst, we can certainly sell additional aircraft and we've shown a willingness to do that.

Okay, good.

Thank you.

Thanks, Ray.

Thank you.

Your final question is from Dan McKenzie with Credit Suisse.

Hi, good morning.

Most of my questions have been answered, but maybe just a couple of clarifications here.

Does the revenue guidance include the revenue potential from the refundable fare structure?

I missed that.

Yes, good morning, Dan, by the way.

The answer is yes.

And, fair to say we are conservative because we didn't know how it would play, but, yes, that is baked into our guidance.

But it does not include the guidance say from an international code share such as Aer Lingus or Lufthansa?

Yes, very, very minor from the perspective of Cape Air.

Certainly Lufthansa, we're working on that right now.

And Aer Lingus, it's not meaningful, really, Dan, from that perspective.

We've been talking about Aer Lingus, I think for like three years and finally I think we'll close on that and move forward.

Okay, good.

And then just one quick follow-up here.

I was wondering if you could provide some more color on costs and revenue trends in the markets that you are now latticing, I guess in particular, what's the competitive dynamic like in those markets, and what are your biggest worries looking ahead?

Yes, it's a -- the latticing, connecting the dots.

It's -- what we're seeing is we're connecting dots from a position of strength.

And so Dan, as I take a look at upstate New York, connecting it down into Florida, for eight years we've been connecting customers eight, seven, six, depending on which station you talk about, Buffalo, Rochester, Syracuse over Kennedy.

The ability to start to blend in a nonstop, even though we may not be the first nonstop in the market, the brand is very well known when we start to look at those cities, or into the Portlands, the Burlingtons of the world.

Fair to say it's a little bit early with the Richmonds and Charlottes, and the Raleighs because we opened those stations later.

But again, we are very, very positive from this perspective and latticing, connecting the dots, more efficient ways of adding flying as opposed to new stations and we'll definitely be part of the philosophy on a go-forward basis.

Okay, great.

Thanks a lot.

Appreciate it.

Okay, thanks, Dan.

This concludes our session with investors and analysts.

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

Thank you very much, Jackie, and just in closing, I want to once again thank our 11,000 crewmembers for all of their hard work during 2007, our first profitable year since 2004.

Despite the challenges that lie ahead, we're very optimistic about 2008 and again, thank you all for joining us on the call today.

Have a great day.

Thank you.

Thank you.

This concludes JetBlue Airways Corporation's fourth quarter and full year 2007 earnings conference call.

You may now disconnect.