JetBlue Airways Corp (JBLU) 2008 Q4 法說會逐字稿

Welcome to JetBlue Airways Corporation's fourth-quarter and full-year 2008 earnings conference call.

Today's call is being recorded.

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

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

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

Therefore, investors should not place undue reliance on these statements.

For additional information concerning factors that could cause results to differ from the forward-looking statements, please refer to the Company's annual and periodic reports filed with the Securities and Exchange Commission.

This call also references non-GAAP results.

You can find the reconciliation of those non-GAAP results in JetBlue's earnings press release on the Investor Relations section of the Company's Web site at JetBlue.com.

At this time, I would like to turn the call over to Dave Barger.

Please go ahead, sir.

Thank you, Dawn.

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

This morning, we reported a pretax loss of $76 million for 2008.

These results include the impact of a $53 million non-cash charge associated with the valuation of our auction-rate securities.

Excluding this special charge, JetBlue reported a pretax loss of $23 million for the year.

It would be an understatement to say that 2008 was a challenging year as record fuel prices transformed the industry landscape.

While we are never happy to report a loss, given that our 2008 fuel expense increased $400 million compared to 2007, I truly believe our team did an excellent job.

In response to record high fuel prices and signs of economic softening, we took quick and decisive action on multiple fronts.

We aggressively managed our capacity through aircraft sales, deferrals and leases, and reduced our capital commitments.

We also made additional capacity reductions through a combination of aircraft gauge adjustments and lower utilization.

As a result, we were able to manage to negative capacity growth during both the third and fourth quarters, a first in JetBlue's history.

These capacity reductions help us gain more pricing traction.

Our average fare increased about 13% in 2008, driving a year-over-year PRASM increase of 14%.

In addition, we benefited from our heightened focus on ancillary revenues, which grew almost 90% year-over-year to roughly $350 million in 2008, representing about 10% of our total revenue.

Despite the turmoil in the financial markets, we completed several significant financing transactions in 2008 which, along with cash from operations, enabled us to address in an extraordinary year both mandatory and voluntary debt payments.

I could not be more pleased with our team of 11,500 crewmembers.

Let me take this opportunity to thank our crewmembers for their continued hard work and dedication.

It's our unique culture and collaborative efforts, particularly in demanding periods like 2008, that truly differentiate JetBlue from the competition.

Let's turn now to our financial results for the fourth quarter, which we announced this morning.

For the quarter, we reported pretax income of $4 million, excluding special items.

Our fourth-quarter and full-year results were negatively impacted by the $53 million non-cash accounting charge related to our auction-rate securities, which Ed will discuss in more detail.

On a GAAP basis, we recorded a pretax loss of $49 million for the quarter.

We reported an operating margin of 6% as unit revenues continued to show solid growth during the quarter.

Passenger revenue per available seat mile grew 15% year-over-year and RASM gained over 18% on a year-over-year basis.

Despite record revenues, fuel continued to be a challenge as CASM increased 16% year-over-year.

As we begin 2009, lower fuel prices are already significantly improving operating margins and helping to improve liquidity.

The softening demand environment, as other carriers have reported, presents new challenges.

Fortunately, JetBlue continues to take the necessary steps that we believe will enable us to not only meet our near-term challenges but also build for the future and deliver the results our shareholders and customers expect.

The ability to generate free cash flow on a long-term, sustainable basis is an important driver of value and liquidity preservation.

Our continued focus on three areas -- capacity rationalization, revenue maximization, and rigorous cost control -- will help move us toward our goal of positive free cash flow.

In addition, we have taken steps to reduce our capital expenditures, another critical component on the path to positive free cash flow.

We've slowed our growth considerably over the past few years, and our recent fleet plan adjustments will help keep aircraft capital spending at modest levels in 2009.

Last year, we deferred 37 Airbus A320 deliveries and 10 Embraer 190 deliveries.

As a result of these deferrals, we expect only $315 million in aircraft capital expenditures during 2009, compared to $625 million in 2008.

While we are comfortable with our aircraft delivery schedule over the next few years, we intend to continue to look for additional opportunities to sell used aircraft, retiring higher-priced debt and enhancing liquidity in the process.

During the fourth quarter, we released one of our aircraft buyers from their obligation to purchase two Embraer 190s they had previously agreed to purchase in February.

We completed the sale of two other Embraer 190s this buyer earlier this month.

Based on these aircraft sales and an A320 lease return later in the year, we plan net capacity additions of two A320s and six E-190s in 2009, significantly fewer aircraft than in our prior years.

As previously announced, we have secured financing for all of our 2009 aircraft deliveries.

Given the uncertainties of the economy, we are committed to maintaining a conservative approach to capacity.

For the first quarter, we expect our capacity to be down 5% to 7% year-over-year.

We expect our capacity to be down to 0% and 2% for the full year.

Slower growth affords us the opportunity to focus on strengthening our core network, including New York, Boston, Florida and the West Coast.

Our new terminal at JFK T5 has been open and running smoothly for over three months.

We successfully managed heavy passenger loads over the Thanksgiving and Christmas holidays.

We believe we have a tremendous advantage, being based in the largest travel market in the world, and our new terminal gives us the opportunity to provide the level of service JetBlue customers deserve, as well as to showcase the strength of our brand.

We intend to continue to leverage our presence in New York as the largest carrier at JFK while continuing to diversify our network and add in strategic routes.

As you'll recall, we announced plans to serve Los Angeles International Airport, LAX, about a year ago, and subsequently deferred the start of service in light of record high fuel prices.

Today, we are pleased to announce new nonstop service from LAX with two daily flights to both New York and Boston beginning in June.

At the same time, we continue to reallocate our transcon capacity to profitable routes in the Caribbean.

Overall, our transcon capacity will be down roughly 30% in the first quarter year-over-year and up 40% in the Caribbean.

Our Caribbean markets tend to mature very quickly from both a P&L and cash perspective.

We remain excited about our Caribbean and international expansion.

To that end, I'm also pleased to announce today that we have applied for government approval to serve Montego Bay, Jamaica from New York beginning in May.

In addition to New York and Boston, we are expending from Florida into the Caribbean.

In the spring, we plan to move from four gates to seven contiguous gates at Fort Lauderdale/Hollywood Airport, which we believe will better position us for more international growth.

We expect to begin service from Fort Lauderdale/Hollywood to Santo Domingo and Cancun in June.

We are also expanding from Orlando south.

In fact, this afternoon for instance, we began a new chapter in JetBlue's history with the launch of our first flight to South America with daily service between Orlando and Bogotá, Colombia.

Turning now to revenue, as we've previously discussed, leisure demand for air travel was remarkably resilient through most of 2008, but we saw the demand environment weaken at the end of October.

Fortunately, the capacity actions we took earlier in the year helped give us pricing traction.

Our capacity was down 11% during the month of October, and competitive capacity in our markets was down almost 10% year-over-year, which helped drive a 28% increase in PRASM during October.

November revenue performance, however, did not build as strongly as expected, and we revised our revenue guidance downward at the beginning of December.

Bookings for December subsequently picked up, particularly close-in bookings around the holidays.

Capacity reductions helped to boost yields, and we finished the month with an average fare of $151, our highest monthly average fare ever.

This helped drive our fourth-quarter PRASM increase of 15%, which was once again among the best in the industry.

Our reallocation of capacity from transcon markets to shorter haul markets and to the Caribbean -- with traditionally stronger yields -- had a positive impact on PRASM.

Unit revenue improvements during the quarter were particularly strong in the Caribbean, even as we continue to add significant ASMs to that region.

In fact, 16% of our ASMs were in the Caribbean during the fourth quarter, up over 35% compared to the fourth quarter of 2007, and PRASM increased over 30%.

PRASM improvements have also been driven by our increasingly tactical approach to capacity management.

Our high aircraft utilization rates allow us the flexibility to reduce utilization and improve our flight schedule.

We believe that having the right flights at the right times of day has helped us attract higher-yielding customers.

We also continue to diversify our product to attract higher-yielding travelers and generate new revenue streams.

We believe we have a unique value proposition, and we are very respectful of our relationship with our customers.

That said, there are certain aspects of our product that our customers are willing to pay a premium.

For example, last March, we launched our Even More Legroom product.

EML generated about $45 million in additional revenues in 2008, and we expect EML will generate more than $60 million of revenue in 2009.

We continue to develop new products and services that customers value while making it easier for customers to purchase these products.

For example, we recently enhanced airport kiosk functionality to provide customers with the option to purchase an EML seat upgrade when they check in at the airport.

We also began selling travel insurance in the booking flow on our Web site, enabling customers to add this option to their ticket purchase.

In 2009 we plan to move other products to the booking flow to facilitate customer transactions, which we believe should significantly improve conversion rates.

Looking ahead to the first quarter, we are cautiously optimistic.

While January is traditionally a trough travel period as holiday traffic subsides, bookings have been solid throughout the month.

In addition, we benefited from more holiday travel return days at the beginning of the month.

We expect double-digit PRASM growth in January on a year-over-year basis.

Similar to what other carriers have reported, our February and March bookings are significantly lower than January.

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

Our forward-booking curve has moved closer to departure are as customers have been deferring purchase decisions.

A shorter booking window makes our forecast more difficult to predict.

That said, we are encouraged by the strength in yields we are seeing as capacity reductions by both JetBlue and other carriers continue to help offset weakness in the demand environment.

While sale activity during December and January has been steady, fare levels have generally been equal to or greater than previous years' levels, which helps improve yields.

In addition, we are somewhat less exposed to declines in premium business traffic than some of our competitors.

As we look ahead through the end of the quarter, there is tremendous uncertainty as to volatility in our bookings, and a tighter booking window makes it more difficult to offer meaningful guidance.

We currently expect our year-over-year PRASM growth in the first quarter to be between 2% and 4% and between 1% and 4% for the full year.

Our continued focus on ancillary revenues, which we expect to increase by about 30% year-over-year in 2009, should help drive RASM improvements.

We expect RASM to increase on a year-over-year basis between 5% and 7% in the first quarter and between 3% and 6% for the full year.

We continue to watch the revenue environment and economic conditions very closely.

As we have done in the past, we intend to act quickly to make network adjustments as appropriate.

Turning now to costs, we believe lower fuel costs will provide significant savings to us and help improve cash flow in 2009.

Vigilant control over non-fuel operating expenses and capital spending is also necessary to reach our goal of free cash flow.

As always, cost is a top priority for us.

At the same time, however, we will continue to invest in our future and to invest in our customer experience.

In 2009, we plan to begin the process of replacing our reservation system, which is scheduled for implementation in 2010.

The new system, which will be more robust with more sophisticated applications, we believe will drive a significant improvement in customer satisfaction as well as revenue opportunities.

In closing, I'd like to thank our crew members and shareholders for their support.

We are committed to driving positive free cash flow in 2009, which means we will continue our focus on capacity rationalization, revenue growth, cost discipline, and other liquidity-enhancing initiatives.

Despite the challenges facing the airline industry, which are optimistic about the future.

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

Thanks, Dave.

Good morning.

Again, thank you all for joining us today.

2008 was a successful year for JetBlue.

Ahead of escalating fuel and a weakening economy, we took actions to strengthen our financial position and mitigate risk.

We paid down an extraordinary amount of debt and completed several significant financing transactions despite tough credit markets.

We ended the year with $561 million in cash and cash equivalents.

In addition, we had about $260 million in student loans-related auction-rate securities that have impairment losses.

Given that our fuel expense increased over $400 million in 2008 and we paid down almost $700 million in debt, I am very pleased with our liquidity position.

I'd also like to note that the $700 million in debt repayments does not include the redemption of $76 million of our 5.5% convertible notes, which reduced our debt levels without requiring the use of cash.

Turning to the auction-rate securities situation, as many of you know, auctions of these securities began to fail in February.

Substantially all the securities we hold are guaranteed by the US government and continue to provide superior yields.

As we previously disclosed, we acquired these securities from Smith Barney and UBS.

In 2008, we monetized the Smith Barney portion with a $110 million line of credit from Citigroup.

We monetized the balance of our auction-rate securities with a $53 million loan from UBS.

The proceeds of all transactions are included in our cash balance as of December 31.

Due to continuing illiquidity in the auction-rate security market, we recorded a $67 million loss to reflect an other-than-temporary decline in the value of our auction-rate securities during the fourth quarter.

Accordingly, our auction-rate securities, which have a par value of $311 million, were written down to an estimated fair value of $244 million.

Separately, UBS granted JetBlue a put right permitting us to sell our auction-rate securities with a par value of $85 million at their full par value in 2010, resulting in a $14 million offsetting gain during the fourth quarter.

As a result, the impairment charge, net of the gain on the put right, was $53 million for the fourth quarter and the full year.

As noted in our press release, we are still evaluating the tax treatment of the impairment charge.

Despite the turmoil in the financial markets, our team was very focused on liquidity-enhancing initiatives throughout the year.

Aircraft sales provide a steady source of liquidity and also helped us reduce our net debt.

In 2008, we generated cash proceeds of about $300 million from the sales of aircraft and paid down about $200 million in debt, resulting in $100 million of positive cash flow.

We also recorded a P&L gain of $23 million in connection with these aircraft sale activities.

Looking ahead to 2009, we plan to continue to take a conservative approach to capacity, reflecting our focus on generating positive free cash flow and our commitment to grow responsibly in this environment.

We are comfortable with our reduced delivery schedule for the next three years, but at the same time we believe our flexible fleet plan, including the availability of aircraft purchase options, will allow us to quickly respond to improved market conditions.

Before turning to the fourth-quarter results, I'd like to address our fuel hedging program, which has had a significant impact on our liquidity position.

We view fuel hedging as an important form of insurance against market volatility.

Our fuel-hedging program generated approximately $170 million in cash gains between 2003 and 2007.

Even including the impact of our 2009 fuel contracts, our program has generated about $40 million in savings since its inception.

As is the case with other carriers, we had to post cash collateral with our fuel hedge counterparties beginning in the third quarter of last year as the drop in fuel prices drove losses on hedges put into place earlier in the year.

Due to the precipitous decline in fuel and the potential impact on our liquidity position, we subsequently suspended our fuel hedging program.

Specifically in October, we began selling swap contracts to the same fuel hedge counterparties, covering most of our fourth-quarter 2008 swap contracts and all of our 2009 swap contracts, effectively capping losses related to further oil price declines.

At the end of December, we had posted $117 million in cash collateral related to our 2009 contracts, most of which will burn off by the second quarter of 2009 as those contracts settle.

We have essentially prepaid the underwater portions of our hedge portfolio.

Therefore, we expect improved cash flow from lower fuel prices as we move forward into 2009.

While fuel hedge losses had a negative impact on our costs during the fourth quarter as we recorded $58 million in fuel hedge losses, that impact is clearly short-term.

We have hedged approximately 8% of our projected fuel consumption for 2009.

To provide some visibility with respect to the impact of the remaining 8% hedge position, our 2009 fuel price as of January 23 is estimated to be $1.99 per gallon, excluding taxes, which is about $0.27 higher than our unhedged market price on that date.

We believe it is prudent not to hedge in the short term so that we can take full bandage of lower fuel costs.

Given the current economic environment, we view fuel as a natural hedge against declining demand, and we're in the process of evaluating our fuel hedging strategy going forward.

That said, we all prepared to act, as we have done in the past, as opportunities arise or markets shift.

Turning now to a more detailed look at the fourth-quarter results, while the spot price of fuel has decreased substantially since its peak in July, fuel continues to be JetBlue's biggest single cost item.

Our fuel price for the fourth quarter was $2.67 per gallon, including the impact of hedges.

This represents an increase of 14% over the fourth quarter of 2007.

That said, we continue to benefit from having one of the youngest and most fuel-efficient fleets in the industry with an average age of about 3.5 years.

Our crewmember focus on fuel conservation initiatives has also continued to pay off.

In 2008, our gallons of fuel consumed per block hour declined roughly 4% compared to 2006.

Excluding fuel, our fourth-quarter unit costs rose by 17% year-over-year, which was in line with expectations.

The majority of this year-over-year increase can be attributed to our 7.4% capacity reduction during the fourth quarter.

In addition, our transcon ASM reductions resulted in shorter average stage length for the fourth quarter, which also had a significant impact on our unit costs.

Adjusting for the 5% decrease in our stage length during the fourth quarter and keeping ASMs flat, our year-over-year increase in ex-fuel CASM during the fourth quarter was about 7%.

Let me highlight a few of the line items.

Salaries, wages and benefits increased 13% per ASM on a year-over-year basis, primarily due to pay increases we implemented during the first quarter of 2008.

In addition, our no-furlough policy has pressured our unit costs.

However, we believe our commitment to a no-furlough policy differentiates JetBlue from the industry and provides a solid foundation for our crewmember morale and thus increased shareholder value over the long term.

Our maintenance expense increased about 12% on a unit cost basis during the fourth quarter, due mainly to the gradual aging of our fleet, which results in additional repairs.

Many of our E-190s are beginning to undergo heavy maintenance C checks for the first time, which accounts for a large portion of the year-over-year increase.

Depreciation expense increased 40% year-over-year during the fourth quarter on a unit-cost basis.

This increase was driven in part by our move to Terminal 5 at JFK.

As you will recall, we are considered to be the owner of Terminal 5 for accounting purposes, and the T5 facility ran as reflected in the depreciation line rather than in landing fees and other rents.

In addition, we mortgaged most of our 2008 aircraft deliveries.

Therefore, a larger percentage of our fleet is owned, which increased depreciation expense.

Landing fees and other rents increased 17% on a unit cost basis year-over-year as we continue to experience airport cost pressures as the industry reduces capacity.

In addition, we had more departures spread over fewer ASMs on a year-over-year basis, which impacted our airport costs during the fourth quarter.

With regard to CapEx, we purchased three A320s and 1 E-190 that were debt-financed during the fourth quarter.

Our non-aircraft CapEx for the fourth quarter was approximately $10 million and approximately $60 million for the full year.

Now, turning to the balance sheet, our scheduled principal payments from debt and capital leases are expected to be about $30 million for the first quarter and $150 million for the full year, significantly lower than our 2008 scheduled debt sureties of approximately $400 million.

Lower fuel prices will help bolster liquidity and improve cash flow as we pre-fund in a portion of our 2009 fuel expense in 2008.

We expect to end the year with cash as a percentage of trailing 12 months revenue in the same range as we ended 2008.

While we feel comfortable with our current cash position, especially in light of our slower growth plans and lower fuel prices, which are committed to continued vigilance and driving additional balance sheet improvements going forward.

Assuming market conditions remain the same, we believe that it's highly likely that, in 2009, for the first time, we will generate positive free cash flow.

Looking ahead at the first quarter and full year, we will have detailed guidance available in our investor update filed as an 8-K posted on our Web site later today.

Let me share a few of the highlights.

We expect first-quarter ASMs to decline between 5% and 7% year-over-year and ASMs for the full year to decline between 0% and 2%.

We believe that capacity reductions will help drive revenue improvements.

But, as Dave said, we are very cautious about the demand environment in light of the current economic outlook.

Given the uncertainty and unlimited visibility we have, it is difficult for us to provide meaningful revenue guidance.

That said, we currently expect our year-over-year PRASM growth for the first quarter to be between -- to be up between 2% and 4% and between 1% and 4% for the full year.

We expect RASM to increase between 5% and 7% for the first quarter and 3% and 6% for the full year.

For the first quarter of 2009, we expect our CASM to be up between 0% and 2%, and for the full year we expect CASM to be down between 5% and 7%.

We expect our fuel costs per gallon in the first quarter to be $2.07, which includes the impact of fuel hedging.

For the full year, we are assuming a fuel price of $1.99, including the impact of hedges.

These numbers are based on the forward heating oil curve as of January 23.

We recognize that one of the best ways to generate free cash flow on a long-term basis -- on a long-term sustainable basis is by increasing unit revenue and decreasing the related costs.

We continue to focus on improving our cost structure and looking for ways to work more efficiently.

As we look into 2009, there are several significant items impacting ex-fuel CASM.

First, as we reduce capacity, especially in transcon markets, we continue to face near-term unit cost pressures as it takes more time to extract costs than to reduce ASMs.

Less transcon flying will drive a shorter stage length, which we expect to decrease roughly 6% next year.

Second, we expect to generate a profit next year, which will increase profit-sharing expense.

Third, without any future aircraft sale plans for 2009, we don't expect to reap the same P&L benefit from aircraft sales in 2009 compared to 2008.

Adjusting for these three items -- stage length, profit sharing, and aircraft gains -- we expect our CASM, excluding fuel, to be up about 4% to 5% year-over-year in 2009.

Finally, with regard to CapEx, we estimate capital expenditures to be roughly $500 million in 2009.

This includes $315 million in aircraft-related expenditures, which excludes two E-190s that we sold in January and $100 million related to LiveTV.

Lower CapEx is critical to our goal of generating positive free cash flow.

However, we need to continue to make appropriate investments in our brand, culture and technology to ensure we are well positioned to drive future revenue and future growth.

For example, as Dave mentioned, we will begin the process of replacing our reservation system in 2009.

In closing, I'd like to thank our crewmembers for all of their hard work.

We are confident that we have the tools necessary to drive positive free cash flow in 2009.

While we face a challenging revenue environment as we enter 2009, we are well-positioned.

We have a very manageable aircraft delivery schedule, committed financing in place, moderate debt obligations, and most importantly, a team of outstanding crewmembers.

With that, we are happy to take your questions.

Thank you.

Now we will begin the 30-minute question-and-answer session for investors and analysts.

(Operator Instructions).

Mike Linenberg, Merrill Lynch.

Yes, two questions here -- Ed, you talked about no aircraft gains in 2009, and I know there were the two 190s in January.

Did that show up in the fourth quarter?

If so, what was it in the fourth quarter?

Then could you actually tell us what the total aircraft gain amount was for 2008?

Yes.

Thanks, Mike.

The total aircraft gain for 2008 was $23 million.

The sales that took place in the first quarter did not result in a gain.

They were effectively or essentially a deferral.

It was something that was coordinated through Embraer.

In lieu of a deferral we sold the aircraft at essentially no gain.

Okay, good, thanks.

Then just my second question -- you know, Dave, you made some comments about where capacity was in the Caribbean in the first quarter, how much it was up versus transcon.

Can you give us a breakout of the composition of ASMs in the March quarter of '09 and maybe how that compared to the March quarter of '08, just giving not just Caribbean and transcon but all of your regions, so we can see how the geographic mix has shifted?

Mike, as we move into '09, I think it's just fair to say that we are going to continue to expand down into the Caribbean, for example that Montego Bay announcement as we gave earlier this year, I mean, roughly, as we take a look at the year, the transcons on a year-over-year basis are still into the 30% range.

As we move into the Caribbean and international, by the way, because we also categorize international, including Mexico, Central America as well as South America, Bermuda as an example as well -- starts to look like 20% of the capacity, and a large part of the capacity up and down from the northeast down to Florida, obviously, and then the percent of short-haul that we have, whether it's in the Northeast or whether it's out in the West Coast.

So to give you a feel for really how we are allocating ASMs, over the course of the year, we're looking at something that looks like approximately 86% of the ASMs on the 320 fleet and 14% of the ASMs on the 190 feet.

Okay, all right.

That's helpful.

All right, thank you.

William Greene, Morgan Stanley.

Yes, I'm wondering if we can just spend a little bit of time on the CASM ex-fuel guidance again.

I think, in the first quarter, you said 11% to 13% up and then 10% to 12% for the full year.

But if I understand your capacity guidance, you are accelerating that as well.

So I think that would suggest that your ex-fuel inflation rate is accelerating through the year.

Is that because of T5 costs, or what's driving that growth?

No, I think that we are fairly constant on our costs throughout the year.

T5 doesn't escalate through 2009.

I think what you're probably seeing is how we are managing really the trough periods through 2009.

I'm sorry.

What does that mean, managing the trough periods?

Well, we are going to pull capacity up and down just related to when we think we can do profitable flying.

You know, the 2009 impact of profit-sharing is going to be roughly $20 million, so that's a big component of that.

Okay.

Then, you've also given full-year PRASM, so can you talk a little bit about how you see that being driven by the economy?

So, if we think about what your economic assumption must be that drives that number, how do you think things trough in the economy?

Are you assuming sort of a second-half rebound, or how are you thinking about this?

Yes, good morning, Bill.

I think, from the standpoint of really building our plan this year, obviously as we close the year in December and into January, a little of visibility and not a great deal of visibility as we move into the middle part of the year, but negative GDP -- that's going to be released, what -- this coming Friday I think the government or those in the media are suggesting we are probably down 5%, and we will see how they take a look at the first quarter.

We are assuming negative in the first quarter, same in the second quarter.

Over the course of building our plan, we were assuming somewhat of a rebound going into the back half of the year, Bill, but we are really assuming just flat at best as we move into the latter part of the year.

I think what's most significant is just the amount of capacity, the discipline that the industry is -- the restraint that is taking place as a result of the economy.

So basically the assumptions that we are looking at with GDP are driving our RASM guidance for the year, as noted previously.

That's helpful.

What's your long-term or what do you think the right long-term capacity growth rate is?

You know, I think it's a -- let me key on the word "earn" and this whole theme of really free cash flow.

I think maybe exchanging the word "right", the right long-term growth to earning our right to grow longer term is probably something that looks like 5% to 10% ASMs.

Clearly, we're not talking about that in 2009.

You start to take a look at the opportunity that the landscape is presenting, not unlike what we are seeing down in international markets -- and we want to be prepared to seize upon that, but we really have to earn our right to do that.

So as we look at 2010 and beyond, the flexibility of our fleet order book very much as a management team, we would like to see something that looks like 5% to 10% growth.

Is there a threshold that defines what "earned" means?

Well, certainly from the standpoint of a strong balance sheet and free cash flow, Bill -- and you know, this is something that our company hasn't seen in our history, and so I think we will get much more surgical as we move throughout the year.

But as Ed mentioned in his comments, this is -- we are really focused on the bottom line this year and the free cash flow.

So that's really how we are taking a look at 2009.

I thought that 2009 would be a little bit more of a transitional year, if you will, but I think 2008, there were so many changes taking place -- oil and now the economy -- that it was much more of a foundational year for this airline.

We will see how transitional we can make it in 2009 because of the economy, and again, earn our right to grow in 2010.

Thanks for all of the time.

I appreciate it.

Jamie Baker, JP Morgan.

David, I'm curious if you are actually beginning to see any increase in the number of bookings that come through any corporate channels, or if that's just something you are hoping to see, given some of the strategic shifts that you've made.

I know this question has been asked of other airlines on other conference calls.

I'm just curious how you would actually identify if you are picking up any greater corporate share.

Yes, I would characterize it, Jamie, more as we shift somewhat our commercial strategy -- and again, it's not losing sight of the strength that we have in the brand -- to your question really, we are hopeful that we will start to see it more from the standpoint of the commercial traveler.

I am really just delighted with Robin Hayes joining us as our Chief Commercial Officer from British Airways, and we've had internal promotions as well with Marty St.

George, Scott Lawrence, and also Rick Seaney very much focused on this change in the res system.

And so as we are identifying corporate accounts, what used to be Company Blue -- and we still have Company Blue in place -- but the ability to really move forward with that in 2009, really what you're seeing in PRASM is more from the standpoint of we are hopeful that our change in strategy will drive more of a corporate traveler base.

I think this should help our trough period.

The announcements we've made previously regarding Boston, just more frequency, is in alignment with just being more attractive to the business customer.

We know we can't be relevant if we are only one or two flights a day in the market.

Okay, that makes sense.

Second, just I must have misunderstood.

Right before you went to the Q&A, I caught reference to a 4% to 5% decline in ex-fuel CASM.

I'm not sure if I heard that right, since the earnings release is obviously suggesting ex-fuel CASM increases.

Did I just miss here that statement?

I think you did.

It was a 4% to 5% increase in ex-fuel CASM if you adjusted for stage length and profit sharing and --

Got it, got it.

Okay, that makes sense.

All right, that does it for me.

Thanks.

Gary Chase, Barclays Capital.

Good morning, everybody.

Could I ask you to -- I wanted to piggyback on a couple of things that I think Bill Greene was asking you a second ago.

You know, as you think about the first-quarter RASM assumptions, particularly in light of what you said on the double-digit January, presumably that means you're going to be pretty flattish in the combination of February and March.

It does feel like there's a little bit of pickup to get to the full-year guidance.

At the same time, there looks to be capacity growth implied in the second half, just look at where you're going to be in the first quarter on ASMs and for the full year.

So, can you just maybe flush out for us a little bit about what's underneath that?

Are there stage length issues?

Is it the maturation of some of these Caribbean markets that you are talking about?

What is it that would drive us to a better outcome in the second half on growth than what we are seeing in the first quarter?

Yes, good morning, Gary.

I think, first of all, even sharing our thoughts on January, you know, in the midst of this call, we want to be, again, as transparent as possible and at the same time with limited visibility.

For example, we start to take a look at our booking curve into single-digit type of bookings that we have in place as late as the May timeframe going into the summer timeframe.

I think we are just being very cautiously optimistic is a term that we use, but even with February and March, I mean with the headlines that you see in the media -- I mean, Monday, 71,000 jobs lost across the country -- we are just being cautious along those lines.

We are truly seeing, though, that a closure in booking window and we are still seeing strong bookings, though, in yields with customers that are booking us over the course of the next 30 to 60 days.

We saw that with January; we saw it in December as well.

I think from the standpoint of -- and you really have a key theme here.

The market maturity -- it's wonderful from the standpoint of the ability, as we look at 2008, only opening two cities with Porta Plata and St.

Maarten into the Caribbean portfolio to where this year-over-year build from the standpoint of same-store sales and market maturity, that is really important.

Certainly, the second quarter, with Easter as we move into the summer timeframe, which is always strong for us, you know, that's baked into the numbers from as we take a look at the second half of the year.

I think, from an airline perspective, and this is this commercial adjustment, we are really working hard to lessen the trough period and be more relevant to that business flyer.

So all of the above, that adds into how we're taking a look at the second half of the year.

Okay.

Also, Ed, I also was a little distracted.

We had a lot going on during the prepared remarks.

I thought you said that you had waived some of the purchase obligations on a planned aircraft sale for E-190s.

Did I hear that right?

We had two plans planned E-190 sales in February of 2009.

The counterparty was unable to get financing for those aircraft, which isn't surprising.

So we did release them from those obligations and plan to take those aircraft internal.

Does that change?

I mean, one of the key drivers of your ability to manage capacity through this was the ability to monetize a relatively new and valuable aircraft fleet.

You know, is this symbolic of what's to come?

I mean, is this one of the reasons you are growing fleet despite capacity reduction?

Well, I think it's one of the reasons that we decided earlier this year to defer a number of aircraft, because we could sense that there might be some softness in the resale market.

So certainly we also concluded some purchases in December of this last year.

So, I think there still are sales to be had out there.

I think what you are seeing in us retaining our aircraft is positioning ourselves for 2010 and 2011.

So we are building some excess capacity within the airline.

I think we are being responsible about that, but we do want to be able to grow when the skies clear.

Okay, thanks.

Ray Neidl, Calyon Securities.

Yes, just a couple of general questions I wanted to clear up.

One is you didn't mention anything about your foreign partnerships, so I just wanted to get an update on that, particularly at Kennedy.

Are you still dealing with Aer Lingus and is the Aer Lingus relationship with United -- doing some of their kind of flying routes with them out of Washington -- have any effect on what you might do with them in the future?

Yes, good morning, Ray.

Let me start with Aer Lingus.

The relationship continues with Aer Lingus over Kennedy as well as Boston, and we are also optimistic about Orlando in 2009.

So we turned this on in the first semester of 2008, and we are very pleased with what we are seeing with the Aer Lingus relationship and the ability to really co-brand with Aer Lingus and their advertising, our advertising, and offer the world through our focus cities.

With regard to Lufthansa, we look at the second semester as the commencement of our activity where we will start to flow traffic between the route systems.

The relationship with Lufthansa, as you look at their portfolio as well, whether it's Swiss, Austrian -- and I mean the growing portfolio -- carriers that also have operations at Kennedy, Boston and what have you, really excited about what that means into the latter half of the year.

It's not meaningful from the perspective of any revenue that's a bit baked into any of our guidance that we've given this year.

I'd also just like to take the opportunity -- it's not just commercial traffic, it's the synergies of input with board members as well as just Lufthansa is our largest investor -- supply chain -- and really the ability to partner on so many fronts.

We are really excited about what Lufthansa means to JetBlue.

Okay.

Regarding -- you're not doing any aircraft sales, I think you said, this year.

That's out of the way or you already said as far as that goes.

Is that because the credit markets are frozen and there's no customers for aircraft?

Would you be more active if we had a different type of credit environment?

I think, Ray, I think there still is some interest in aircraft.

We continue to get some inquiries about our aircraft.

I think, right now, with our reduced delivery schedule going forward, specifically in 2010, we have three A320s and three E-190s planned delivered in 2010.

We would like to actually keep some excess capacity in JetBlue, so we're not out in the market right now trying to actively sell aircraft.

Certainly, as market conditions change, that could always change as well.

Okay, good.

Thank you.

Kevin Crissey, UBS.

Good morning.

I wanted to ask, you talked about kind of the consumer resilience and maybe the leisure consumer resilience, given your network.

I'm just wondering your perspective on kind of the lagging nature, maybe, of consumer versus business and whether that in fact exists and whether we should be thinking about GDP or kind of unemployment -- you know, kind of a bare case on the airlines is they were kind of at the tip of the demand iceberg and that things are actually going to get worse as unemployment rises.

So I want to get your perspective on GDP versus unemployment as it relates to maybe your customer base.

Sure, Kevin, and good morning.

I think it's -- as we closed 2008, we're very pleased with the type of the resilience that we did see from the perspective of the discretionary customer.

You know, it's a -- so much of our customer base as well the visiting family, relatives type of traffic that we have, it's not just vacation travelers.

I mean, it's a large portion of what we do, not just between, say, New York and down into the Caribbean, but also just between places like Florida and into the Northeast as well.

There's just so much of the family and relative traffic that it almost seems recession proof, if you will, from the standpoint of seeing one another.

I also think that there's -- this is a really -- our value proposition and customers looking for value especially in this type of economic environment -- I mean the highest fare in our company's history at $151 in the December time frame it's -- and with what we offer from the standpoint of the JetBlue experience, I think that we are very well placed with customers trialing.

I think this is where our commercial plan with the business flyer -- you know, the business flyer who is unmanaged trialing on JetBlue, a 190, a 320, versus what they seen in the past, that we're actually very well-positioned with the economy on its heels.

It's a --

I think, at the same time, though, we want to be very cautious about what's happening because these headlines it's hard to keep up with in the media or what's coming out of Washington.

And so along those lines, we'll be very vigilant as we take look at the year.

But I do think that the core of our traffic today, this VFR traffic is really hearty for our airline.

Thank you very much.

Duane Pfennigwerth, Raymond James.

Most of my questions have been answered.

Ed, I'm just wondering.

With $500 million in CapEx for '09, how do you define free cash flow?

It is operating income less CapEx.

Okay.

I think Jim has a question.

Dave and Ed, just quickly here, your full-time employees in the fourth quarter at year-end are flat, but your capacity in the quarter is down 7%.

I'm curious about the upside leverage.

How much can you grow your capacity on the upside before you have to significantly increase the employment?

Yes, good morning Jim and Duane.

I look forward to seeing you next week as well.

You know, I think that, just a comment if I may, as we went into the fourth quarter -- and we do have a no-furlough policy at our company.

This investment, others would look at it as an expense that transpired in the fourth quarter.

I think it, actually, it positions us quite well.

I am not just talking about pilots.

It's basically any of our crew members that are tied into the operations always looking at the back office as well.

But it allows us to springboard into growth to the extent that we want to dial it up.

So I think that we are nicely positioned to really take advantage of growth if it happens.

We don't have to open up the training center.

We don't have to go through sim events.

It is tough, too, because I also know the pilots, or flight attendants, anybody tied to hours on the airplane -- there was just less hours in the September and October timeframe.

But the ability to move with agility, I think it just speaks volumes regarding the culture and the ability to seize upon opportunities.

So one other thought in here, too, Jim -- because of utilization on the fleet, the 320s and the 190s, we can also dial it up.

We've been more prudent about really managing utilization to better place flights for time of day for the business customer, if you will, higher-yield customer, but we can dial utilization up, I don't know, call it another single digit, 5% or so on utilization.

We are positioned well with our member base.

So, looking forward for that opportunity to the extent the economy presents itself that way.

Dave, is that like 7%, or 10%, or better that you could increase capacity and not have to add any significant number of people?

Well, I think that I don't know if it's 5% or 7%, Jim.

I mean, we were, over the summer time frame where we were operating in excess of 600-plus flights per day across our route network, outside of the most recent holidays, we're more into the 550 or so flights per day.

So that will give you a feel for the bandwidth that we have in place.

I'm not suggesting that 600/550 translates into how we can dial it back up, but I truly think that we are positioned nicely that there's not a lot of hiring that would take place.

But at the same time, I'm looking forward to some hiring, too, because people are looking to upgrade to the left seat of an airplane and what have you.

So -- I can't give you the exact number though, Jim, but it's safely -- you can come take a look at that summer versus the fourth-quarter average flight activity and draw a conclusion there.

Yes, okay, that's great.

Thanks.

Michael Derchin, FTN Midwest Securities.

Just a couple of quick ones -- a status on the pilot unionization effort?

Sure, good morning, Mike.

We have an in-house pilot unionization effort.

The vote will close on February 3, so as we sit here today, we don't have visibility in terms of how that will play out.

So at the same time, as we've spent considerable time with our pilots as well over the last several weeks, I'm hopeful that we can maintain a direct relationship with our pilot group.

So, February 3, in the afternoon, we will have much more information on this topic.

Okay, thanks.

What about a status of the new terminal?

How is that working, and just also on the ancillary revenue side?

Yes, I will tell you, on a scale of 1 to 10, we would give it a 10.

I mean, the transition was -- it truly was seamless, and on the first flight that took place on October 22, it gave us enough time to pressure test for Thanksgiving a shorter holiday, and then Christmas, Hanukkah, New Year holiday -- and also seeing some winter operation events as well -- really pleased with the accommodations of the terminal.

We are always working through little things, whether it's roadways or taxi stacks or security queues and how we break out ticket counters with international traffic, domestic traffic, but really pleased.

I think the feedback, too, from crew members and customers -- very positive.

The ancillaries don't have -- it's a little bit too early to really share what we are seeing from the standpoint of ancillaries on a year-over-year basis on '05 versus '06, but the early look is quite positive from the standpoint of revenue per [enplanement] as a result of food/beverage and specialty retail in the building -- exactly what we thought would take place.

Thanks very much, guys.

Helane Becker, Jesup & Lamont.

On the average fare being the highest in your history, does that include the ancillaries so that we should think 14% -- I think you said 14% of revenues were ancillaries?

Should we be thinking about it that way?

Helane, good morning.

The December average fare, the $151, keep in mind the strength that we saw in the holidays, especially with our network.

In that number, the only what many would look at as additional revenues, would really be the EML component, so the Even More Legroom component.

Everything else is really bucketed separate from the standpoint of ancillary revenues.

Okay, so that would show up in other revenue line?

That's correct.

Yes, okay.

Then, I think you said that you were forecasting a profit for '09.

So we are going to have to be thinking in terms of tax rates and net operating loss carry-forwards.

Can you just talk about the tax position and what kind of cash tax payer you will be, if at all?

Helane, this is Ed.

We are going to have some tax guidance and our guidance that we issue later on today, so that will be in the investor update.

Okay, easy enough.

Then lastly, if you look at your bookings for April and March combined, can you just talk to how they look relative to March alone not looking so strong?

So I mean really, I think your question is geared around Easter.

And Passover.

Yes, I was going to say, for our route network as well, Passover is very significant.

Easter is very significant.

So I think, again, we don't have as much visibility, but what we are seeing with the bookings that we have there is, from a yield perspective, quite solid.

Again, what we are seeing, though, is people booking closer in as opposed to traditionally what we've seen during that timeframe.

I got you.

Thank you.

Bill Mastoris, Broadpoint Capital.

Ed, a point of clarification first and that is, when you said that '09 ending liquidity -- and that is I think you mentioned as a percent of LTM revenues -- is going to be roughly the same as the end of '08, were you including the auction-rate securities in that calculation?

We were including the portion that we have monetized, so the lines of credits and the loans.

Okay.

The put that you indicated for I believe it was $83 million if I recall correctly -- when does that put in '10 take place?

Is that before the put date on your 3.75% converts?

It's the first half of the year.

I don't have a specific date on that, but it's around the same time.

Okay, I just thought that that might be used to actually take those out.

Then finally, with your liquidity position, in really what are very good prospects versus many of your peers, particularly on the legacy side, are you going to continue the repurchases of the convertible securities out there in the open market?

You know, based on just general market conditions, I think that we would consider repurchasing some of those.

We just have to be mindful of our existing cash, so we may look for other ways to do that as well.

Okay.

Then lastly, on the 5.5%, you know, I'm not sure I understood the color around that, how that took place as far as the reduction in that outstanding balance.

Maybe you could shed a little bit more light on that.

That would be greatly appreciated.

Yes.

I think, because of the general credit markets and the liquidity out there, a lot of people who invested in those notes earlier in the year have decided to take an early redemption.

So we've had about, what is it, about 75 million, 76 million of those present themselves for early redemption.

But they converted into equity, so it didn't require any cash.

Okay, thank you very much.

I appreciate it.

This concludes our session with investors and analysts.

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

Thanks so much, Dawn.

To everyone who joined us today, we certainly appreciate your time and we look forward to talking to you again in about 90 days.

Have a great day.

Talk to you soon.

Thank you, ladies and gentlemen.

This concludes the JetBlue Airways Corporation fourth-quarter and full-year 2008 earnings conference call.

Thank you for participating.

You may now disconnect.