JetBlue Airways Corp (JBLU) 2008 Q1 法說會逐字稿

Welcome to JetBlue Airways Corporation first quarter 2008 earnings conference call.

Today's call is being recorded.

We have on the call today, Dave Barger, JetBlue's CEO and Ed Barns, JetBlue's CFO.

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

Actual results may defer 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, Natasha.

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

In the first quarter, JetBlue had an operating margin of 2.2% resulting in a net loss of $8 million, or $0.04 cents per diluted share.

This loss was driven primarily by the unprecedented spike in fuel which costs us an additional $118 million compared to the first quarter of 2007.

I am pleased, however, to note that apart from fuel we maintained our low cost discipline throughout the quarter as our ex-fuel CASM was flat year-over-year.

Additionally, unit revenues continued to show impressive growth.

First quarter revenue performance exceeded our expectations in the guidance we provided you in January.

Passenger revenue per available seat miles where PRASM grew 16.5% year-over-year, and RASM also gained almost 18%.

This first quarter PRASM increase was driven by a 20% increase in yield.

Fortunately, the holidays were evenly spaced throughout the quarter with strong demand and clustered around the President's Day and Easter holidays.

This helped increased our average fare to $25 to about $135, and that's a 22% increase over first quarter 2007.

To be fair, year-over-year revenue comparisons are helped by the extraordinary revenue impact of last year's ice storm.

But even normalizing for this event, we had a very strong revenue performance.

The demand momentum that began during the December 2007 holiday period continued throughout the entire quarter across all of our markets.

We are particularly pleased with our strong revenue performance in March.

A 13% year-over-year increase in PRASM driven by a 17% increase in yield.

JetBlue's average fare during the month of March was $138, our highest monthly average fare ever.

We also continued to benefit from reduced industry capacity which was basically flat in all of our markets on a year-over-year basis.

Additionally, we continue to benefit from the match ration of new markets as it becomes a smaller percent of our overall network.

I'm also pleased that our revenue outlook for the second quarter is quite positive.

Demand as reflected in our forward booking curve remains healthy.

Although we are certainly mindful of the potential risks of an economic downturn or slow down that we are all seeing in the news.

April, year-over-year comparisons, will of course be impacted by the shift of the Easter holiday to March.

While we did see some softness during the first half of April, bookings for the Passover holiday and the Spring break travel period continue to look strong.

May, is traditionally a trough travel period but we expect demands momentum to pick up at the end of the month.

While it's still early, bookings for the summer travel period looks strong.

We expect our year-over-year PRASM growth for the second quarter will be between 8% and 10%.

For the full year, projected PRASM growth will be up between 12% and 14%.

And as we mentioned on our last earnings call, we have shifted a significant amount of our focus to increasing ancillary revenues throughout the year.

And to help measure our progress, we have decided to begin providing RASM guidance as well.

As such, we expect RASM to increase 12% to 14% during the second quarter and 16% to 18% for the full year.

While we are very pleased with these revenue results, revenue gains are clearly not keeping pace with the extraordinary increase in price the price of jet fuel.

The price of oil seems to set new records every few days, not including the refining premium which is now north of $30 per barrel.

Every penny increase in the cost of JetBlue's fuel equates to a $5 million increase in annualized expense.

And since our Earnings Call just one year ago, fuel expense as a percentage of our operating expenses has increased from about 30% to almost 40%.

It's difficult to effectively convey the magnitude of the impact of this increase.

So, just look at the impact of fuel costs in terms of one flight.

For example, one of our 8320s flying between J.F.K.

and Long Beach which consumes approximately 5,000 gallons of fuel.

One year ago that trip required about $9,600 of jet fuel.

Today, the same trip requires over $15,000 in jet fuel.

Unfortunately, not even continued positive revenue performance can keep pace with a 60% increase.

In the face of escalating fuel competitive dynamics and the potential weaker economy, JetBlue's continued financial strength is paramount.

We believe it's essential to take a more financially conservative approach to managing our business.

Fortunately, we have a solid cash balance with over $700 million in cash excluding the $313 million in option rate securities which are currently classified to long-term investments.

Ed will discuss our liquidity in more detail in his remarks but I would like to emphasize we are keenly focused on cash preservation while we continue to focus on cash discipline, measured growth and revenue enhancements.

The JetBlue team will not rely on the hope that fuel prices decline or that the economy will improve or even that our competitors will reduce their capacity.

We are mindful of our duties to our stakeholders, our crew members, customers and shareholder, to face the reality of the current cost of energy and act prudently.

To that end, let me describe four key actions that we are taking at this time.

First, with respect to the capacity reductions in 2008.

As many of you have seen by now in today's press release, we have reduced our estimated 2008 growth range from 5% to 8% to currently 3% to 5%.

Most of this 2008 growth is driven by the run rate of aircraft which were added to the fleet in 2007.

We withdraw at 4% even if we were to take new aircraft deliveries in 2008.

This 3% to 5% growth range, therefore, represents a significant year-over-year capacity reductions.

Now, let me take a moment to walk you through our plan to reduce this capacity.

As previously announced, we have entered into agreements to sell nine used Airbus 8320s this year, two of which were delivered within the past several weeks.

In addition, we are more aggressively managing capacity through aircraft gauge adjustments and utilization reductions, particularly during trough periods.

Higher craft utilization has been a key component of our business model since we began service in 2000 and we have amongst the highest aircraft utilization rates among domestic carriers in the United States and almost 13 hours per day.

For this reason, we have the ability to reduce our utilization while still maintaining relatively high utilization across our aircraft fleet.

We anticipate lowering our average utilization by approximately half an hour per day in the fourth quarter.

In other words, if it does not make economic sense to fly more hours per day, we will not do it.

We are also making day of week capacity adjustments with a focus on midweek and marginal red-eye capacity in selected transcon and Florida markets.

As a result of these changes, our capacity growth in the fourth quarter will be roughly 5% less than what we had planned at the beginning of the year, and compared to the fourth quarter of 2007, our fourth quarter capacity will be down 2.8%.

This negative growth in the fourth quarter is the first in JetBlue's history reflecting our focus on cash and commitment to grow responsibly in this environment.

This fuel environment also forces us to constantly retest and revisit the assumptions and performance of every market, route and city.

We've had to re-examine whether certain markets we entered into against a different backdrop makes economic sense today.

This ongoing analysis led to us make the decision to suspend service at Tucson, Arizona, effective May 12.

As I've said in the past, every aircraft has to earn its way into the route network and we'll continue to make network adjustments as appropriate to ensure our aircraft are deployed in a profitable manner.

The second item I'd like to discuss is capacity reductions beyond 2008.

If the right opportunities become available, we may sell more aircraft in 2009 and 2010 to help further moderate our growth.

Since we began selling older aircraft from our fleet in 2006, we have announced 18 aircraft sales which have or we expect will generate $200 million in cash proceeds after paying off debt related to these aircraft.

In addition, we are considering additional deferrals beyond the 72 deferrals we've already announced.

The third item is ex-fuel cost control.

We recognize that past and plan capacity cuts pressure unit cost in the near term as it takes time to extract related costs in the system.

We estimate that our ex-fuel CASM will increase between 6% to 8% for the full year.

This increase is not acceptable for the long term and we intend to continue to work hard to reduce our cost.

We are still working through many of the details associated with our capacity reductions at this time as we look through the end of 2008.

As a first step towards lowering our nonfuel costs, a hiring freeze for all management and support staff has been implemented.

In addition, we have highlighted our focus on all discretionary spending.

Of course, we'll continue to invest on our future in areas such as I.T.

(information technology), while we plan to reduce our non-aircraft capital expenditures for the full year and Ed will discuss this in more detail.

We believe this action is prudent given the current environment.

And the fourth item is increased ancillary revenue focus across our airline.

As I've mentioned earlier, we will continue to work to diversify our product and drive ancillary revenue.

We are mindful that ancillary revenues will never be a panacea, but certainly believe that significant opportunities exist to offset some of the impact of rising fuel.

During the first quarter, JetBlue's other revenues increased over 50% primarily due to higher change fees.

In March, we completed reconfiguring our Airbus A320 fleet to enhance the JetBlue experience with a product we called, even more leg room.

This feature provides our customers, a 38-inch of seat pitch and selected rows for an additional fee.

Customer response has exceeded our estimates particularly on our transcon or long-haul flights.

We now expect even more leg room will drive more than $40 million of incremental revenue this year and that's over nine months.

As part of our effort to tailor our products and services around what our customers value most and are willing to pay for, today we announce the new check bag policy.

Customers check in a second bag will be charged a $20 service fee beginning June 1st, for customers who purchase seats on JetBlue on or after May 1st.

Our customer research, shows that less than 25% of our customers check a second bag, and with this new policy we will be able to offset some of the extra fuel required to transport the weight of the added baggage, which will help us to maintain our competitive fares for all of our customers.

We estimate this change will generate more than $20 million this year in new revenue over a period of six months.

In addition we plan to increase several other service fees which we expect will drive additional revenue.

I'd like to take a moment to highlight our philosophy on fees.

Our goal is not to be competitively disadvantaged.

However, at the same time, we do not want to nickel-and-dime our customers.

This is not consistent with our brand or our relationship with our customers.

We strive to strike a balance.

Our award-winning brand is a tremendous asset and plays a central role in every decision we make.

JetBlue's crew members continue to be recognized for the exceptional customer service they deliver.

This past quarter, JetBlue was ranked the top airline and seventh overall across all industries and Business Week magazine's list of customer service champs, a ranking of the best providers of customer service.

We are truly honored to be in the same company as Ritz-Carlton, Lexus and the Fairmont Hotel Group.

This recognition is a testament to our dedicated crew members who continued to do an outstanding job in delivering the JetBlue experience; everyday, every flight.

We will also consider the impact to crew members with every decision we make.

Our direct relationship with our crew members is extremely important and we will do everything we can to protect and improve our culture across the airline.

As a company, we understand the severity of the challenges facing the industry.

We are working hard to weather these difficult times and position ourselves so that we can take advantage of the opportunities that lie ahead.

Before closing, I would like to provide a brief update on three exciting opportunities.

First of all, terminal five at J.F.K.

We are very excited to open our new home at JFK's terminal later this year ahead of schedule and on budget.

Terminal five will be the first domestic terminal to open that's been designed post 911 and we look forward to providing our customers and crew members with a significantly improved experience.

We have a unique position in New York, as JFK's largest domestic carrier.

We'll continue to explore opportunities to link our networks with other airlines at Kennedy and other focus cities across our network.

The second item is Aer Lingus.

Our partnership with Aer Lingus, which enables customers to book a single low fare reservation between Ireland and more than 25 Continental U.S.

destinations just went live a few weeks ago.

It's still early, obviously, but we are pleased with what we've seen so far.

We are also continuing to work diligently with Lufthansa and we hope to be able to announce something by the end of the year with this commercial relationship.

And finally, a word regarding LiveTV.

I'd like to briefly discuss our wholly-owned subsidiary, LiveTV.

On our last Earnings Call, we announced LiveTVs new contract with Continental Airlines and we'll continue to look for opportunities to profitably grow LiveTV.

We are considering a range of strategic alternatives for the business and we have retained a financial advisor at this time to help evaluate strategic options for LiveTV.

It may be a few quarters until we have prioritized our options.

In closing, all air lines by the nature of this business are particularly susceptible to changes in fuel, GDP and a host of other external forces.

I believe, however, JetBlue is well-positioned with a strong route network, a flexible fleet order book, solid liquidity, the best crew members in the industry and a management team that understands and has and will continue to respond to the challenges that lie ahead.

We will continue to make decisions for the long-term success of JetBlue.

We are just being smart about it at the same time.

I want to thank our crew members and shareholders for their support and continued confidence in our ability to execute during this challenging time.

And with that, it's my pleasure to turn it over to Ed Barns for a more detailed review of our financial performance during the quarter.

Thanks, Dave.

Good morning, everyone.

As Dave mentioned, we are pleased with our strong revenue performance and cost discipline during the quarter.

Despite higher than expected fuel, which was $0.15 per gallon higher than our issued guidance, we beat or met all of our guidance ranges with the exception of CASM.

Accordingly, we believe we are well-positioned to weather these difficult times with strong financial discipline and solid cash position.

We ended the quarter with $713 million in cash and cash equivalents.

This cash balance excludes $313 million in student loan related auction rate securities.

Consistent with other carriers, we have reclassified these securities as long term investments during the quarter.

As we disclosed in our 10-K, our auction rate securities are collateralized by student loans and guaranteed by the United States Government.

Auctions for these securities began to fail in mid-February due to overall market liquidity, not due to defaults or the underlying collateral.

Our investments in these securities are now earning higher interest rates due to their failure on auction.

We believe with these higher rates issuers are incented to find alternatives and refinance.

Although, we have classified these securities as long term investments, we expect--with regard to the majority of these investments, that within the next 12 months the secondary market will develop that issuers will call the securities or liquidity will return to the market.

In fact, we have had approximately $6 million of our securities called at par by issuers since late February.

Even excluding these option rate securities our current cash represents about 25% of our trailing 12-months revenue.

Amongst the highest liquidity coverage ratios of the major carriers, however, we believe that preserving liquidity is prudent in the current environment.

Let me take a moment to walk you through some of the key features of our liquidity drivers.

Our aircraft sales program has provided a steady source of liquidity.

We have announced 18 sales since the Fall of 2006.

In 2008, we will generate cash proceeds of about three $300 million from the sale of nine aircraft and we will pay down about $200 million in debt; resulting in $100 million of positive cash flow.

Our aircraft sales also retire higher priced floating rate debt, lower maintenance costs, and help keep our fleet young and efficient.

In addition, each sale has historically netted a P&L gain of roughly $200 million.

We have debt-financing agreements in place for all of our 2008 aircraft deliveries.

Due to favorable pricing and financing terms, minimal cash is required for these deliveries.

Therefore, our 2008 aircraft deliveries will not materially impact our cash position.

As a result of our strong cash position, we do not have any financial covenants in any of our agreements.

In addition, we believe we had a very solid relationship with our credit card processors providing them with monthly financial statements and transparency regarding our liquidity.

As a result, we currently do not have any material hold backs in place.

As Dave highlighted, we intend to continue to aggressively manage our growth plans depending on changing economic factor which is we believe will improve cash flow.

In addition, we believe we have various leverage we can pull to help better enhance our cash position.

For example, additional aircraft sales or deferrals, further network adjustments and possibly the sale lease-back of our own aircraft.

We believe our current cash position is more than adequate to address our current obligations including the assumed put of our $175 million convert in July.

We expect to end the year with cash in excess of our target of 20% to 25% of trailing 12-months revenue.

Obviously, our goal in this environment is cash preservation and we are committed in striving to maintain sufficient liquidity to withstand an extended economic or industry downturn.

Let's now turn to a more detailed look at the first quarter results.

Our cost per available seat mile excluding fuel was flat compared to the first quarter of 2007.

The solid cost performance during the quarter would not have been possible without the dedication of our 12,000 plus crew members and I would like to thank them for all of their effort and hard work.

Looking at a few lines from the income statements, salaries, wages and benefits decreased about 5% year-over-year on a unit cost basis.

This decline was primarily driven by less over time pay this past quarter compared to pay required in connection with last year's ice storm.

Fuel continues to be our largest operating expense.

During the first quarter, our fuel costs were up a staggering 40% year-over-year on a unit cost basis.

Our average fuel price for the quarter net of hedges was $2.65 a gallon, which is about $0.15 cents higher than we had forecast reflecting the volatility in the marketplace.

We hedged approximately 35% of our fuel consumption during the quarter.

We had no out-of-period hedging gains in Q1.

We continue to work 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.

With today's fuel prices we need to be even more focused on fuel efficiency in our operations.

Fortunately, we continue to benefit from our crew member led fuel conservation initiatives 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 with the goal of being hedged 50% of our estimated volume at the start of a quarter, 30% hedged one quarter out, 20% two quarters out, and 10% three quarters out.

Our maintenance expense increased about 13% on a unit cost basis during the first quarter due mainly to the gradual aging of our fleet.

Sales and marketing expense increased 17% on a unit cost basis due primarily to global distribution system commissions and computer reservations service fees as well as higher advertising spending compared to last year which was impacted by the February storm.

In the first quarter of this year, we generated almost 7% of our revenues from the GDS' and about 5% from the OTA's, representing a significant increase over 2007.

In addition, we continue to be pleased with the revenue we generate from the global distribution system, which more than offsets the increase in expense.

Looking ahead at the second quarter and full year, we have detailed guidance available in 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 now expect our ASMs to grow 3% to 5% in the second quarter, and 3% to 5% for the full year.

For the full year, we anticipate taking delivery of 12 new 8320s and six E190s.

Assuming the nine 8320 sales we previously announced, we expect to end the year with 107 8320s and 37 E190s.

With regard to PRASM, we expect to reap the revenue benefit of our slower growth, as well as more disciplined industry capacity.

We expect passenger revenue per available seat mile to increase between 8% and 10% in the second quarter, and 12% and 14% for the full year.

We also expect our heightened focus on ancillary revenues to help increase RASM 12% to 14% in the second quarter, and 16% to 18% for the full year.

The guidance we provided in January is based on the assumption that our other revenues would increase 60% on a year-over-year basis.

As a result of the $20 second bag fee we announced today and improved even more leg room outlook and other fee increases that we've implemented, we now expect other revenues to increase roughly 95% on a year-over-year basis.

Moving on to CASM, we expect CASM ex-fuels in the second quarter to be up 6% to 8%, and up 6% to 8% for the full year.

These increases will be driven mainly by the impact of capacity reductions in the second half of the year which will continue to pressure our unit costs.

Nonetheless, we believe that there is still opportunity for improvement on the cost side.

For the second quarter we expect CASM to increase 22% to 24%.

This year-over-year increases driven mainly by the increases in price for fuel which we expect to be up about 55% over second quarter of 2007.

For the full year we project CASM will increase 20% to 22%.

With regard to fuel, our CASM guidance assumes an estimated average fuel per gallon of $3.09 in the second quarter and $3.05 for the full year.

We are hedged roughly 45% in Q2 and about 35% for the remainder of the year.

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

Finally, moving on to CapEx, we have reduced our non-aircraft capital expenditures for the full year of 2008 from $175 million to $150 million.

While we are very conscious of the need for tight cost controls, we are also committed even in this challenging environment to making investments to drive revenue or improve productivity such as LiveTV capital requirements and our new terminal at JFK.

In closing, although, we continue to operate in an environment of record high fuel prices on a weakening economy we believe we have the right long term strategy.

We expect the fuel environment will continue to present a significant challenge for us and the industry.

Therefore, we are managing our business very prudently.

We know from our experience in the last economic downturn that if we can continue to invest in our business while maintaining tight cost controls we will emerge from this challenging environment better able to drive profitability in the long run.

While maintaining a conservative stance, we also want to position ourselves to be opportunistic.

We maintain flexibility with favorable aircraft delivery positions to accelerate our fleet growth and respond to market opportunities as they arise.

Our flexible order book of both A320 and E190 is one of the most strategic assets.

And we intend to continue to take advantage of it.

We believe we are well-positioned--we believe we are in a position of strength with a solid cash position, the best brand in the industry, great crew members and a loyal customer base.

While many serious challenges lie ahead, we are optimistic about the future.

And with that, we are happy to take questions.

(OPERATOR INSTRUCTIONS) Your first question comes from Mike Linenberg of Merrill Lynch.

Good morning, all.

Just a couple of questions on the average fare.

You know, I think you had indicated that through the GDS' you were pleased with--sort of the revenue that you were seeing.

Can you give us a sense of maybe how that average fare to the GDS compares to your overall average fare?

Yes, it's usually about $30 higher than our average fare.

And then my second question regards the Lufthansa agreement, Dave, I think you said you were hopeful that you could give something together by the end of '08.

I'm just curious, you know, there's a lot of room between now and the ends of '08, is this partially a function of maybe different IT platform, different culture, or could this also be a possibility of maybe the extent of the potential relationship, when you are ready to announce should we expect it to be something bigger than maybe what you have with Aer Lingus.

Yes, Mike, thanks.

I appreciate the questions.

Regarding Lufthansa, I think we are just being realistic from the standpoint of mainly as we take a look at commercial opportunities, how do the technology platforms really work.

And so, we have teams from the Lufthansa group, as well as JetBlue that are meeting on a regular basis rotating between Europe and here in the States for meetings.

One was held yesterday here in the New York area.

And so, I think it's just being realistic from a timing perspective.

Looking at things that we believe will look very much like what we're seeing with Aer Lingus.

Aer Lingus has been out there for a long period of time.

So, this continued proof of concept will start to actually tart to fly customers here at the end of April with the Aer Lingus agreement and that just--I think that allow us to have some actual operating history as we move forward to Lufthansa.

So, I think we are just being realistic with timing.

Okay, and then just last one on, you know, your terminal five.

I mean, we sort of watched BA moved to their T5, and it looks like, you know, significant cost and disruption.

Sort of what you are doing and should we anticipate that there will be some one time costs associated with the move?

I mean, when I say one time, sizeable one time costs as we move into the new terminal and potentially experience cheating problems, et cetera.

Yes, Mike, thanks for the question.

All the additional costs of moving into T5 are in our CASM guidance that we issued today.

We are going to go through obviously immense testing of our systems and of our operations as we transition.

Wanting to learn from what happened with the other T5s.

So, we are pretty confident that we have the costs in our guidance that will incur.

And in fact, Mike, we have baggage going through the system on a test basis right now.

We are pressuring the terminal.

It's--we want to make sure that when we do make the cut it's as seamless as possible.

Any time you make a transition, there's going to be some unexpected situations that come up.

But the same team that was really driving the construction, bringing it in early on budget is very much involved with Continental Global Gateway project over at Newark successful opening.

And lessons learned whether it's Denver or whether it's London, we want to make sure that we don't repeat it here.

Okay, very good.

Thank you.

Thanks, Mike.

Thank you.

Your next question comes from Jamie Baker of JP Morgan.

Yes, good morning, everybody.

Thanks for the hold back detail that you gave.

I didn't catch if you indicated whether there was a material adverse change clause in the processing agreement nor when the agreement was up for renegotiation.

Yes, you know, Jamie, we haven't disclosed any of the details regarding our processing agreement and at the request of the processors we wouldn't discuss that.

Okay.

A quick follow up.

Are proceeds from the planned aircraft sales this year in the guidance?

Yes, they are.

Any rough approximation?

The cash proceeds from our aircraft sales?

Yes.

Yes, we guided to--we were going to generate $300 million in cash and with the repayment of debt of $200 million it was going to result in a net $100 million cash gain.

Okay.

Thanks a lot.

Yes, thanks, Jamie.

Thank you.

Your next question comes from Ray Neidl with Calyon Securities.

Yes, regarding your partnerships, if you wanted to join a worldwide partnership, one of the main three worldwide partnerships, I don't know if you would want to join them or not but if you did are the limitations and the technology that you are putting in place for Lufthansa and Aer Lingus or would that technology allow you to do other partnerships?

You know, Ray, we have Cape Air, Aer Lingus and now obviously we are working with the Lufthansa on a partnership.

And so, there's a lot of lessons learned with Cape Air and Aer Lingus from an IT perspective.

And so, from the standpoint of joining one of the three global alliances, we haven't had discussions internally regarding that as a strategic next step for us.

And so, I think that we are very pleased with everything that's on our plate right now with the Lufthansa group to make sure that--that cut over is very seamless.

It's not just New York with Lufthansa, they and Swiss and--I mean they operate to 17 locations here in the United States and 22 in North America.

So, there's lots of opportunities, whether it's Boston or Orlando or New York.

So, plenty on our plate right now.

Okay, and it appears we are about to head into a major restructuring of the U.S.

Airlines industry between mergers and liquidations and bankruptcies and so forth.

There's going to be lose assets probably becoming available.

What would JetBlue's interests be in--potential interests be in some of these assets?

Yes, Ray, it's a--I think number one, we want to ensure that we have a strong balance sheet and that we are really preserving the liquidity.

So, that to the extent of opportunities are available, whether it's gates, whether it's lots, and key airports that are of interest to us.

That we will be able to move forward, you know, on bidding for something like that.

And so, it's not lost on us at all regarding the M&A activity that's in the news, whether it's announced or rumored.

Our goal is still one of growing organically and our partners if you will as previously discussed.

But, you bet.

We want to make sure that if something like that materialize on the landscape, we can bid for it.

Good.

Thank you very much.

Thanks, Ray.

Thanks, Ray.

Thank you.

Your next question comes from William Greene of Morgan Stanley.

Hi, this is actually John filling in for Bill.

I just had a couple of questions here.

First of all, over the past few years, you've been able to offset some of your ex-fuel inflation with a lot of employee productivity initiatives and you've made a lot of progress on FTEs per aircraft.

As you slow capacity, is improvements on FTEs per aircraft possible or should we think about that as something that might increase year-over-year in '08?

Yes, John, I think certainly it's possible but obviously as you slow the growth it is harder to reduce costs.

But, I think it's safe to say that as Dave indicated, we currently have a hiring freeze in place for really our corporate positions and we'll be responsible with regard to FTEs going forward.

So, there will be a lot of pressure on headcount as we move forward.

Great.

And just aside from selling aircraft and potential strategic alternatives for LiveTV, do you have any additional assets that we might not be thinking about that you might consider monetizing in the future?

I wouldn't say that we have any material assets that we are considering monetizing at this point in time.

But certainly we have other opportunities to obtain liquidity.

Now, the temporary facilities that you have at JFK, is that something that is monetizable once the new terminal is finalized?

No, I don't believe so.

Those are really temporary facilities that we've built at JFK.

So, we will probably deconstruct those as we move into the new terminal.

Great.

Thanks a lot.

Thank you.

Your next question comes from Gary Chase of Lehman Brothers.

Good morning, guys, it's Dave Simpson from Lehman.

A couple of quick questions here.

The March RASM, do you guys have any sense of how much revenue shifted into March from April as a result of the earlier holiday, any help how we should think about that?

Yes, it's--thanks, Dave, certainly we had the benefit of Easter shifting to the left.

But, we really take a look at probably a 2% to 4% gain if you will as a result of Easter falling in the first quarter.

Great.

And the fourth quarter capacity decline, is that principally, are you thinking that principally is utilization, sort of dialing back some of the red eyes, et cetera, or do you think there's opportunities to make some changes to the network in terms of a route and footprint, et cetera, what kind of changes can we expect there?

Yes, I think--I'll tell you from a network perspective, we are obviously evaluating every station that we are flying to.

And whether it's been around for a period of time or whether it's relatively new because the cost of energy totally changes if you will the route P&L.

So, we are evaluating that so potentially depending on what happens with oil as well as the landscape, you bet, we could adjust that as we move into the second semester this year.

I think I would like you to think of actually the negative growth, if you will, in the fourth quarter as really getting better at managing some of the trough periods.

So, that's a day of week.

That could be some of the other red eye markets that we're flying to.

And by the way, that could be on transcon market, it could be day of week on some of the short haul markets as well, or even day of week into Florida markets or the Caribbean.

So just getting smart about what kind of demand we are seeing over the course of seven days and being much more surgical if you will of putting that capacity out there.

So, that's the net of what we are seeing right now into the fourth quarter.

Great.

And then just last, I think you mentioned this but I may have missed it, the change in 2008 ex-fuel CASM guidance, is that a function of the capacity outlook changing or are there some other things changing within that guidance?

No, definitely in the near term.

It's pretty much all capacity related.

Okay.

Great.

Thanks, guys.

Thanks, Dave.

Thank you, your next question comes from Frank Boroch from Bear Stearns.

Maybe you could give us some color around the Transcon markets and then just more generically maybe just looking back at the first quarter where you were seeing more support of the fare environment from legacy competitors or fellow low cost airlines?

Yes, good morning, Frank.

Just a little bit of color on Transcon markets, we continue to see as a percent of our ASMs that they are declining.

And in fact, in the first quarter just under 40% of our ASMs were in the Transcon market and that's down really over the course of last year, year and a half, that was north of 50% of our ASMs in the Transcon market.

So, when we take a look at the RASM, the PRASM year-over-year improvements that we saw in the first quarter, generally speaking, it was really strong across the system, whether it was short haul or longer haul or into the Transcon markets as well.

Is there impact of energy in the Transcon, more so.

You bet.

Or new competitors in the Transcon?

You bet, as we've talked about in the past.

So, just a little color on both the network as well as the Transcons.

Okay, great.

And I guess as you think about fleet flexibility, is there one type of aircraft that you think you have a more flexibility to push back or that you are more inclined to make changes with than the other?

Well, I think that what we would consider both fleet types and anything that we do to pull down capacity.

Traditionally, we have used the A320 as well as deferrals with both the A320 and E190 to kind of dial down on our capacity increases.

But, moving forward we'll just-- we'll be looking at both markets and where we see strength in one versus the other.

That's probably where we would head.

And Frank, if i may, just a little bit more--I mean, adding on to that topic the ability to have the A320 and E190 in the fleet and the flexibility that it provides us from the standpoint of building the network or adjusting to the seasonality of the network really important.

A couple examples, some of the significant amount of what we call flyovers; routes such as Burlington and Portland down to Orlando or upstate New York, Buffalo down into Fort Myers as an example, White Plains to Fort Myers, all examples of E190 flying.

And it's a really nice tool to open up a new market, connect the dots and cities where we have relevance today and then seasonally adjust into bigger airplanes as necessary such as, places such as Buffalo, Orlando.

This is the first time we've flown the route nonstop and we did that with an A320.

So, the ability to go into a place like Austin, Texas and to do that with a 190 and to balance it with the 320; a really important tool for us.

Could you use some of the 190s to help David Neeleman's new venture in Brazil get off the ground sooner.

You know, Frank, I think he's actually already has obligations from Embraer with the 195 family of airplanes to support this growth plans.

And we had previously slowed down our 190 orders in the course of 2008 as well.

So, I think David is all set, haven't heard an announcement, Dave, but we are wishing him well.

Great.

Thank you.

Thank you.

Thank you.

Your next question comes from Kevin Crissey of UBS.

What fuel price would--have you reconsidered the free TV?

I mean I think Continental plans to charge for the TV or that's my assumption.

Why not just charge for TV?

It seems like an easy way to generate cash.

You know, Kevin, I'll tell you we debate that.

And it's part of the brand since day one has really been free TV.

JetBlue free TV same sentence, if you will, and we also know that fuel in that environment was $0.60 cents per gallon and--so, but it's a large part of the brand.

That said it's--there's no doubt that we know that there is opportunities if you will to drive ancillary revenues through charging for the TV.

But, we also know that we have, we believe imbedded in our average fare dollars as a result of the TV already being baked into our product.

And so, we look at this more of with a TV with radio.

We have some -- we have the premium entertainment options on board the airplane, as well.

As we work with LiveTV at some point with new offerings not unlike if you're at home you have the basic package and why can't you upgrade to something where it might be more of a pay-per-view type of package.

That's the kind options that we have with the LiveTV group.

So, I think my last thought, everything is on the table as we take a look at liquidity, as we take a look at this environment which is unprecedented including things such as offering LiveTV.

Thank you.

When you think about LiveTV and offering it to Continental, what were the competitive--it seems like that would be somewhat of a cannibalism of your advantage on the East Coast?

What were your thoughts and concerns when you looked at selling it to Continental.

I think it's a--we are looking at this at really at some point when the dust settles if you will on a little bit of a new normal on the landscape.

It's going to be the cost of entry in the domestic landscape.

And so, if you take a look at--we use the example in the past business class, internationally, if you don't have live flat you're really not considered competitive as you try and fly across the world markets and long haul markets.

And so, we saw this with Delta, respectively, with the song unit and it was pretty obvious that there were work around that were available, other options if you will.

And so, if this is really going to be the new normal where everybody is going to have it at some point, I don't know, is it five years down the road, ten years down the road, it certainly makes sense to have a piece of that business as we are moving forward into the future.

Live TV we really think--I mean, the LiveTV group with where the leadership team, Nate Quigley, our CEO, Glenn Latta, Jeff Frisco, the founders down there.

It's not just TVs and it's not just radios.

It's things like--it's awful lot of information that flows through the airplane.

It's cashless cabins.

It's cabin surveillance.

It's the ability to take a look at wireless at altitude as well.

So, we think there's a nice business model there that we can participate in.

Thanks very much.

You got it, thanks.

Thank you.

Your next question comes from Jim Parker of Raymond James.

Good morning.

Now, you've just are pursuing LiveTV a bit further.

You mentioned that you are considering strategic alternatives and that must mean value for shareholders or cash for the company.

Can you give us some idea as to the revenue and earnings or value to the shareholders to the company that might come from the disposition of LiveTV?

Jim, it's really premature.

I mean, we've always incorporated LiveTV numbers into the airline numbers as well.

But, what we have seen over the--almost six years with the purchase of LiveTV as a wholly-owned subsidiary, is just a tremendous growth in the business.

And not just for outfitting our airline but airlines such as the Continental announcement and it could be Virgin Blue or Air One.

I mean, different parts of the world as well.

So, I'm not prepared right now to provide further transparency on the numbers, Jim, respectfully.

A question for Ed, at what price of oil and crack spread are you burning cash from operations, ex your aircraft sales, what price level are you burning cash?

Jim, I don't that we have a definitive number on that.

Obviously, there's a lot of factors that you would have to consider such as competitors response.

What's happening in the general economy.

But, you know, I think that everyone in the marketplace right now is burdened with the same fuel.

And so, we don't feel like we're necessarily at a competitive disadvantage but we're mindful of the need to cover that cost.

Okay, thanks.

Thank you.

Your next question comes from Dan McKenzie of Credit Suisse.

Hi, good morning, thanks.

I'm just wondering if you can provide some perspective about the progress of Orlando and I guess at this point wondering if the level of commitment might change in light of the fuel environment or the competitive dynamics?

Yes, Dan, good morning.

Orlando was announced as our seventh focus city, so from that commitment and growing Orlando, recently we opened service--international service down to Cancun as well as Santo Domingo.

I believe, March, was actually the first month of--full month of operation from the standpoint of our numbers.

And so, that commitment is continuing as we are working with greater Orlando airport authority, gate relocation as well as, additional gates.

We think that Orlando makes a great deal of sense based on what we've seen in our numbers over the years to continue to grow both domestically and internationally.

Then, there's also--we have Aer Lingus' newest city in North America is Orlando.

Lufthansa's newest city in North America is Orlando.

And so, as we take a look, we have tentative approval to fly in South America with Bogota, and the ability to take a look at those type of opportunities not just for our route system, but also to partner with these other carriers, you bet, that makes sense for us.

Now, all that said, we have a training center down there and we have a goal to try and at the same time with the JetBlue lodge down there, house crew members that are in training in something that's more cost-effective, if you will, then placing them in disparate hotels in the Orlando area.

So, that's an example of something that we are evaluating right now.

Is there--are there better options, if will you, from the standpoint of financing that growth.

But our commitment to Orlando remains steadfast.

Okay, thanks.

And you may have answered this previously indirectly, but with respect to other ancillary revenue opportunities, you know, on the EML initiative, I was just wondering how willing you'd be to be a little more aggressive with pricing.

I believe right now you are charging $20 for 38-inch pitch Transcon.

Yes, I think of that as want to get visibility and some trial, not that you don't get trial when you have pretty close to 80% load factor but the acceptance that we have seen with EML on a short, medium and long haul really bodes very well for us to--respectfully if you will adjust to that price point.

The feedback has been really well-received in both, by our customers and our crew members.

And people saying, "Hey, listen, I don't have a problem at all paying up for that servicing." And that's our philosophy and here is the core JetBlue experience.

If we are trying to charge for something it's a very small population like second bag or if you want additional service such as--say refundable fares offer that out in the marketplace or EML.

Okay, good.

Thanks a lot.

Thank you, your next question comes from Bob McAdoo of Avondale Partners.

Just a quick run on the fares year-over-year where you are up $25 or 22% or something like that.

Can you break that out as to how much of that might have come from the shift of Easter back into the quarter versus the fact that a lot of the fares might have been depressed extremely because of the ice storm the prior year versus just kind of other changes.

How would you slice that?

You know, Bob, we don't necessarily look at it that way.

We know that we saw 2% to 4% year-over-year PRASM growth in Q1 '08 over '08, because of the holiday.

Maybe another way to look at it is the number we presented in the fourth quarter was approximately $130 average fare, which is now over $135 average fare across the system.

So, you don't have to exactly put a number to it--it's not necessarily the way we looked at it.

It was more year-over-year PRASM growth.

Maybe I'll ask another way, how much did the ice storm last year depress your average fare?

Do you have a sense of that?

Well.

A bunch of free tickets that you gave out afterwards, I'm trying to figure out.

Yes, it's a--I think probably the March over March performance which I had in the opening comments just to reflect upon that is we ended up with a 13% year-over-year increase in PRASM.

So, we thought we were more stable if you will from the standpoint of March, a normal schedule as opposed to what happened in the February time frame.

And that's without the benefit of holiday.

And then this March, our average fare was the highest we've ever had at $138.

So, the average fare, Bob, we can certainly get it for you in terms of what we saw a year ago February and it was--it was certainly depressed but I think it was more a reflection than just flights we didn't fly as opposed to what kind of fares were out there.

A $25, 22% increase is just so much more than anybody else I was kind of curious as to where it was coming from, was it particular routes, it just seems so much, the performance is superior to other people, I'm just trying to get a sense of maybe how you did it.

No, I appreciate that, Bob.

I will tell you it's--I think that as we have taken a look at a lot of different pieces of the fare structure and the group was running, the different revenue initiatives and our VP of revenue, management Ric Zeni, who has now been here for a couple of years, and Ric's benefit into our organization of looking at what's the low fare, what's the high fare in the market.

The ability to adjust the top end with significant--during significant periods of demands such as Easter.

It wasn't that long ago where we had an average Transcon fare of $299 and now we're on the 500s.

And now, add another $300 bucks almost to that.

So, I really credit Ric and the team taking a much more surgical look at what's out there.

Bob, we just don't have as many markets that are maturing from the standpoint of new markets.

Right now on a year-over-year basis what used to be 24% of our ASMs in new markets is 10%.

That's a big benefit.

That's a real deal.

All right.

Cool, thanks.

Thanks, Bob.

Thank you.

Your next question comes from Bill Master of Broadpoint Capital.

Thank you.

Ed, were any of your aircraft sales did they affect any of the double ETCs that you currently have outstanding?

No, not right now.

Okay.

You've talked extensively about kind of your liquidity parameters that you would like to maintain 25% of LTMs sales.

What about a leverage target, where do you want to be comfortably in this type of environment?

And also please include off balance sheet aircraft leases.

Yes, I'm not necessarily sure that we have a target.

I mean, obviously, we'd like to be less leveraged in this environment.

We would like to maintain a lot of liquidity and a high cash balance.

But I don't think I could provide you with a target.

Okay.

And then finally, I assume that your 3 's that you plan to take out with cash, the ones that are probably going to be put in July.

Those are included in your current maturities.

Do I have that correct?

That's correct.

Okay.

Thank you.

You bet.

Thank you.

This concludes our session with investors and analysts.

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

Thanks so much, Natasha.

Just enclosing briefly, I'd like to thank our crew members for their support and also at this time I think it's very important to say thank you to David Neeleman, our founder.

And we wish him all the best with his new airline venture down in Brazil and wholeheartedly thank him for creating JetBlue.

I think it's a very appropriate message as we close this call.

Thank you, operator.

Thank you, everybody, for dialing in.

Have a good day.

Thank you.

This concludes today's conference call.

You may now disconnect.