JetBlue Airways Corp (JBLU) 2009 Q1 法說會逐字稿

Welcome to JetBlue Airways Corporation's first-quarter 2009 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 and 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 a reconciliation of those non-GAAP results in JetBlue's earnings press release on the investor relations section of the Company's website at JetBlue.com.

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

Please go ahead sir.

Thank you John and good morning everyone and thank you all for joining us today.

I would like to start off by thanking our 11,500 crew members for rising to the challenge of a very difficult environment.

Against the backdrop of a deepening recession, our crew members delivered solid performance, resulting in our first profitable first quarter in four years.

We reported net income of $12 million or $0.05 per diluted share which included an $8 million non-cash charge associated with the valuation of option rate securities.

These results represent an improvement of $22 million compared to the first quarter of 2008.

Excluding the special charge, our net income would have been $20 million or $0.08 per diluted share.

We are especially pleased to earn a profit in the first quarter, historically a seasonal weak period, and to be one of only a few major airlines to do so.

In addition, we reported a first-quarter operating margin of 9.3% ahead of our guidance of 6 to 8%.

While revenue was weaker than we had expected at the beginning of the quarter, we continued to outperform the industry in unit revenue growth.

Lower fuel prices coupled with solid cost performance helped drive a 5% year-over-year decrease in our CASM.

The actions we've taken over the past few years to build our brand, reduce capacity, bolster liquidity and strengthen our financial position have clearly helped us manage the challenges of a weak economy.

In addition to improved financial results, our crew members delivered solid operational performance.

Despite weather and operating challenges at JFK Airport, we reported a 79.2% on-time arrival rate, our best first-quarter on-time arrival performance since 2005 and a 6.3 point improvement compared to the first quarter of 2008.

On our last earnings call, both Ed and I highlighted the importance of our focus on generating positive free cash flow.

That focus remains and despite the difficult demand environment, we are still on track to meet our free cash flow targets this year.

In addition, we have recently taken steps to reduce our capital expenditures in 2010, a critical component of achieving free cash flow.

During the first quarter, we deferred the delivery of three EMBRAER 190s from 2010 to 2012.

As a result, we are currently committed to delivery of only three A320 aircraft in 2010, keeping our aircraft capital spending at modest levels.

With respect to the disciplined growth of our capacity and network, during the first quarter, our capacity declined 5% year-over-year even though we took delivery of three A320's and two net E-190s.

This was accomplished through a combination of lower utilization, aircraft gauge and day of week adjustments.

Given the uncertainties about the economy, we remain committed to maintaining a prudent approach to capacity.

During the second quarter, we expect our capacity to decline between 1 and 3% year-over-year.

For the full year, as we said on our last earnings call, we expect to keep our growth rate flat.

You will notice, however, that our 2009 full-year capacity guidance is up modestly from the guidance we provided in January.

This difference is simply the result of fine tuning our schedule in the fall and increasing utilization to take advantage of market opportunities.

We will continue to leverage our position in Boston where our operation has grown from two gates to 11 gates over the past five years.

We are thrilled to be the official airline of the Boston Red Sox.

Building on our strong presence in Boston, we are pleased to announce the start of new service between Boston and Baltimore, with four daily flights beginning September 9.

Baltimore will be the 32nd city we serve from Logan Airport, further solidifying our position as the largest carrier in Boston in terms of destinations served.

During the first quarter, we strengthened our Latin American presence with the launch of new service to Bogota, Columbia; and San Jose, Costa Rica.

We continue to see strong unit revenue improvements in our Caribbean and Latin American markets even in this recessionary environment.

In addition, our Caribbean international destinations generally require minimal upfront capital and despite limited daily frequencies, are relatively low cost and consistent with our free cash flow goal.

We look forward to building on our success in the Caribbean.

To that end, we are pleased to announce that we have applied for government approval to begin new service from JFK to Barbados in October.

By the end of 2009, we anticipate over 20% of our ASMs will be in the Caribbean/Latin American region, a significant increase compared to the end of 2007 when only about 10% of our capacity was in that region.

We believe we are well-positioned to take advantage of other Caribbean market opportunities that they arise later this year.

We plan to continue to optimize our network and add strategic routes by reallocating capacity as well as adjusting our aircraft utilization.

At the same time, we are keeping a close eye on the revenue environment.

Our high aircraft utilization rates provide us with the flexibility to reduce utilization should economic conditions worsen significantly.

Now moving on to revenue.

Our PRASM was essentially flat in the first quarter, which was below the guidance we provided in January, and a reflection of the weakening airline revenue environment.

Yield during the first quarter was up 2.5% and load factor was down 2 points on 5% less capacity.

Looking at the quarter, we saw a disproportionate revenue weakness in March.

As discussed on our last earnings call, we experienced solid improvements in unit revenue during January, driven primarily by return holiday traffic at the beginning of the month.

We were encouraged by what we saw throughout the month of January but a shorter booking window and volatility and demand patterns made forecasting more difficult.

In February, booking patterns began to suggest a decline in demand that was a bit more severe than we had seen.

Our March revenue performance was impacted by the shift of the Easter holiday to April this year.

We estimate the negative impact on March PRASM was approximately 8 to 9 percentage points or about 3 percentage points of our first-quarter PRASM.

Given our leisure focus and strong Northeast Florida traffic, the Easter holiday seems to have a greater impact on us compared to many of our peers.

While there is a tremendous amount of uncertainty in the demand environment, we are encouraged by what we see during the peak travel periods as yields have held up relatively well.

For example, fares during the Presidents' Day and Easter Passover travel periods were roughly at the same levels as last year.

Our challenge has been in the off-peak periods when we have faced significant pressure on yields and traffic.

Selectivity across the industry has become more aggressive in terms of breadth and depth.

As a result of the relatively weak pricing environment, our average fare during the first quarter declined 2% year-over-year.

Regionally we continue to see strength in the Caribbean and our international markets where our PRASM improved during the first quarter even as we added capacity.

Our transcon markets have been particularly weak due to more aggressive sale activity.

While we have faced pressure on the pricing front, we continue to be encouraged by the success of our ancillary revenue initiatives.

Some of these initiatives, like even more leg room, are recorded as passenger revenue and others are recorded as other revenue.

Our other revenues increased almost 30% to $87 million in the first quarter due primarily to change fees and baggage fees.

When we combine all of our ancillary revenue reported in the passenger revenue line with those in the other revenue line, our total ancillary revenue increased about 50% year-over-year in the first quarter to about $19 per passenger.

This helped drive our 3% year-over-year increase in RASM.

Many of our ancillary revenue initiatives have shown less sensitivity to the weakening economic environment.

While customers are generally paying less for their tickets, they have continued to purchase products to enhance their experience such as even more leg room.

Thus with relatively stable load factors, our ancillary revenue growth has helped offset some of the fair weakness we have experienced.

During the quarter, we continued to enhance our customer experience.

We introduced free premium movies for our customers traveling to the Caribbean and we continued to test the sale of food on board our aircraft.

Our goal is to provide our customers with product and services they value especially at a time when customers are carefully managing their budgets.

We believe the JetBlue brand is well positioned in the current environment and we continue to be innovative in attracting new customers.

Our Promise Program, for example, provides reassurance to customers who book flights or vacations with JetBlue.

We have also been successful in stimulating demand through fare sales.

In March, our one-day sample fare drove record web traffic on our website, JetBlue.com.

Building on this success, this morning we launched another one-day sample sale to encourage product trial and awareness.

We believe that once customers try JetBlue for the first time, our product advantage creates a very high repurchase intent.

Therefore fare sales not only help drive revenue, but also build customer loyalty.

In addition, we recently launched our More brand campaign, highlighting our unique proposition which includes more comfort, more free entertainment and more friendly service than other carriers.

We believe our unique value proposition differentiates us within the industry and this is especially true in a recessionary environment when customers have more choice.

In fact, in recent months, our JetBlue.com website traffic has increased relative to our peers.

Turning to the revenue outlook for the second quarter, forward bookings and revenue data continue to be significantly more volatile than in the past.

Given the uncertainty about the economy and its impact on airline revenues, our visibility is once again very limited.

April comparisons will be helped by the Easter holiday shift and we expect positive unit revenue growth for the month.

When we combine our March revenue performance with our estimates for April to neutralize the effect of the holiday shift, we expect our PRASM will be down approximately 3 to 5% on a year-over-year basis.

May is traditionally a trough period for us, but we don't expect our year-over-year PRASM performance to decline as much as it did in March.

We currently expect our year-over-year PRASM growth for the second quarter to decline between 2 and 5%.

As an industry, we're clearly seeing less demand for our service.

Much attention has focused on whether industry demand has stabilized.

We haven't seen any signs of significant improvement on the demand side nor have we seen signs of further deterioration.

Capacity reductions continued to help offset some of the weaknesses in the demand environment.

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

While we certainly face a challenging revenue environment moving forward, we believe we should perform better on a relative basis.

As we look ahead through the rest of the year, our visibility is more limited and we are cautiously optimistic about the summer.

(inaudible) for the peak summer travel period are holding up relatively well so far.

But we continue to face downward pressure on yields due to extensive sale activity.

As a result, we have lowered our 2009 revenue projections.

For the full year, we expect our PRASM to decline between 1 and 4%.

Our continued focus on ancillary revenues, which we currently expect to increase by about 20% year-over-year in 2009, should Help drive RASM improvements.

We expect RASM to decrease on a year-over-year basis between 0 and 3% in the second quarter.

For the full year, we expect RASM to increase between positive 1 and negative 2%.

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 adjustments as appropriate.

Despite the weak revenue environment, we continued to benefit from lower fuel prices.

During the first quarter, we achieved solid financial performance as lower fuel cost provide significant savings.

We paid $75 million less for fuel than we would have paid at last year's first quarter prices.

Combined with our capacity reductions, total fuel expense for the quarter declined by $94 million year-over-year.

Although our non-fuel costs for the quarter were better than we expected, our unit costs have been pressured by our slower growth rate.

We continue, however, to look for ways to find additional cost savings.

Cost control coupled with slower growth helps bolster liquidity, a top priority for the Company.

In addition, we believe it's prudent to manage our liquidity by reducing our capitalist expenditures.

As such, we plan to reduce our full-year capital expenditures by about $70 million.

Ed will discuss these efforts in more detail but I'm pleased with our Company focus on preserving cash and building free cash flow in this uncertain economic environment.

Before closing, I would like to say a few words about the organizational change we recently announced.

Rob Maruster will be assuming the role of Chief Offering Officer on June 1 as Russ Chew transitions into a senior advisor role.

Russ joined JetBlue in March of 2007 with the primary goal of restoring our operational stability and helping us build a foundation for sustainable growth.

He accomplished more than he set out to achieve.

I would like to thank Russ for his valuable contributions to JetBlue and at the same time, welcome Rob to his new role.

Rob has been with JetBlue since 2005 and brings tremendous operational experience to this position.

We look forward to Rob's continued contributions to the success of JetBlue.

The first quarter certainly presented many challenges, but we remained focused on running a safe, reliable operation and delivering excellent service to our customers.

As we look ahead, there is a tremendous amount of uncertainty about the strength of the economy and the impact the economy may have on the demand for air travel.

We are focused on achieving free cash flow and maintaining a strong balance sheet to protect ourselves against some of that uncertainty and to also to provide ourselves with the flexibility to seize market opportunities.

While we are optimistic about the future, we are anticipating a tough environment.

Through our efforts over the past year, however, we believe we have positioned ourselves to succeed in this challenging environment.

Our strong brand, flexible fleet, solid liquidity position and unique culture continue to differentiate JetBlue from the competition.

Despite the very difficult economic environment, we expect to earn a profit in every quarter of 2009.

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.

Thanks Dave.

Good morning and again thank you all for joining us.

As Dave said, we're very pleased to be one of the few major US carriers to report a profit in the first quarter.

These results reflect the hard work and commitment of our outstanding crew members who do a tremendous job delivering the JetBlue experience to our customers every day.

While we made significant progress during the quarter, major challenges lie ahead.

Uncertainty regarding future economic conditions continue to impact the demand environment, while the credit markets have tightened amid anxieties about the global financial system.

Fortunately we believe our ongoing focus on maintaining financial strength and mitigating risk has positioned us well.

Despite the economic outlook, we believe JetBlue will earn a profit in every quarter this year.

At the same time, and perhaps even more significant, we are on track to meet our 2009 goal, generating positive free cash flow for the first time in JetBlue's history.

We ended the quarter with $634 million in cash and cash equivalents.

In addition, we have about $221 million in student loan related auction rate securities net of accounting losses, including an $8 million unrealized loss recorded during the first quarter.

During the first quarter, we sold $29 million of our auction rate securities at prices slightly higher than their 2008 year-end valuation.

We also recently extended our line of credit with Citigroup which is collateralized by a portion of our auction rate securities to April 2010.

While the total availability under the line is $84 million, we've drawn only $74 million, the proceeds of which are included in our quarter-end catch balance.

In addition, the quarter-end cash balance includes a $53 million loan from UBS which is secured by our remaining auction rate securities.

Fuel hedging appropriately receives a lot of industry attention.

As discussed on our last earnings call, we aggressively restructured our fuel hedge portfolio early in the fourth quarter of 2008 to take advantage of declining fuel prices, effectively unwinding all of our 2009 swap contracts.

The losses related to these unwound 2009 fuel hedge contracts are heavily weighted towards the first half of the year.

At the end of December, we had $117 million in cash collateral posted with our fuel hedge counterparties related to these 2009 contracts.

Almost half of these contracts settled in the first quarter, resulting in cash collateral balance of only $63 million as of March 31.

Assuming fuel prices remain at current levels, we expect to have approximately $25 million posted with our counterparties at the end of the second quarter.

We view our hedge program essentially as a form of insurance that helps us manage the volatility risk of rising fuel prices with the flexibility of capturing the benefit of declining fuel prices.

As such, oil has provided a natural hedge against the current demand environment.

In addition, as the forward curve remains in contango, we do not believe entering into long-dated hedge positions covering significant future consumption is prudent at this time.

Clearly oil prices will eventually be pressured as economic conditions improve.

We therefore actively monitor the situation on a continuous basis.

While fuel hedge losses had a negative impact on our costs during the first quarter, that impact is clearly outweighed by fuel price declines.

During the first quarter, our fuel expense was $94 million lower than the first quarter of 2008.

Due to our decreased hedge exposure, we expect even greater benefit from lower fuel prices as we progress through the rest of the year.

Based on the forward curve as of the end of last week, we estimate our fuel expense for 2009 will be about $475 million lower than 2008.

As an interesting perspective, that's equivalent to approximately 15% of our 2008 passenger revenue.

Additionally, as a result of pre-funding $117 million of our hedging losses in 2008, we expect almost $600 million in year-over-year fuel savings on a cash basis.

Approximately 8% of our projected remaining fuel consumption in 2009 is hedged with collars which are more specifically described in our investor update filed later today.

We estimate our second-quarter fuel price will be approximately $1.93 per gallon which is approximately $0.36 per gallon higher than our unhedged price.

For the full year we estimate our fuel price to be approximately $1.90 per gallon, including a negative hedge impact of $0.28 per gallon.

The price for fuel has decreased substantially over the past year a full $0.69 per gallon.

Specifically our average fuel price per gallon for the first quarter was $1.96 compared to $2.65 in the first quarter of 2008.

Fuel nonetheless continues to be our single largest cost item.

Fortunately, and to the credit of our great crew members, our Companywide focus on fuel conservation initiatives continues to pay off.

In the first quarter, gallons of fuel consumed per block hour declined roughly 2% compared to the same period last year.

Excluding fuel, our first-quarter unit cost rose by about 9% year-over-year which was better than our guidance.

The majority of this year-over-year increase is attributed to our 5% capacity reduction during the first quarter.

In addition, our transcontinental capacity reductions, which declined 27% year-over-year, drove shorter average stage length during the first quarter.

Adjusting for the 6% decrease on our stage length during the first quarter and keeping ASMs flat, our ex-fuel CASM during the first quarter would have been approximately flat year-over-year.

Let me highlight a few of the items.

Salaries, wages and benefits increased roughly 10% per ASM on a year-over-year basis, driven by pay increases we implemented during the fourth quarter of last year; overtime expenses associated with irregular operations during severe weather and corresponding inefficiencies in crew scheduling.

As expected, our maintenance expense increased about 19% on a unit cost basis during the first quarter, due mainly to the gradual aging of our fleet which results in additional repairs.

The first of our E-190 feet are entering heavy maintenance checks, accounting for a large portion of the year-over-year increase.

Depreciation expense increased about 30% year-over-year during the first quarter on a unit cost basis.

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

Since we are considered the owner of Terminal 5 for accounting purposes, a portion of the T5 facility rent is reflected in the depreciation line rather than landing fees and other rents.

As a result, we expect to continue to see significant year-over-year increases in depreciation expense this year.

In addition, a large percentage of our fleet is owned which increased depreciation expense.

Moving below the line, interest expense decreased $10 million due primarily to a decrease in interest rates.

Interest income and other decreased $18 million due in part to the $8 million valuation adjustment related to our auction rate securities.

Interest rates earned on our investments were also lower as were average balances, reflecting market conditions and our more conservative approach to managing cash.

With regard to CapEx during the first quarter, we purchased three A320s and two E-190 aircraft with cash and debt financing.

We are scheduled to take delivery of four aircraft during the second quarter.

No more aircraft deliveries are scheduled for the remainder of the year.

While we have secured financing for all of our 2009 aircraft deliveries, the aircraft financing market presents challenges going forward.

As a result of the E-190 deferral Dave mentioned, we are committed to take delivery of only three A320s in 2010 which aligns well with our efforts to better manage our capacity, preserve liquidity and navigate credit markets during these turbulent times.

We will continue to follow a conservative approach to fleet growth, reflecting our focus on achieving positive free cash flow and our commitment to a sustainable growth rate.

While we continue to make important investments in our people, product and infrastructure; we are taking a disciplined approach to making investments in our business.

Given the current economic environment, we believe it is prudent to scale back our capital expenditures.

As such, we have reduced our full-year CapEx by $70 million.

During the first quarter, we spent approximately $5 million in non-aircraft CapEx.

We anticipate approximately $45 million in non-aircraft CapEx during the second quarter and $135 million for the full year.

Turning now to the balance sheet.

Our scheduled principal payments from debt and capital leases are expected to be about $40 million for the second quarter and $160 million for the full year, significantly lower than our 2008 debt repayments of approximately $700 million.

Additionally, lower fuel prices have helped bolster liquidity and cash flow.

As discussed in our last call, we expect to end the year with cash as a percentage of trailing 12-months revenue in the same percentage range as we ended 2008.

While we are comfortable with our current cash position, we are committed to continued vigilance and driving additional balance sheet improvements going forward.

Looking ahead at the second quarter and full year, we have a detailed guidance available on our investor update filed as an 8-K and posted on our website later today.

Let me share a few of the highlights.

We expect our second-quarter ASMs to decline between 1 and 3% year-over-year and to remain flat for the full year.

As Dave said, there remains tremendous amount of uncertainty in the revenue environment.

While April comparisons are being helped by the Easter holiday shift, we expect May and June PRASM to decline on a year-over-year basis.

As a result, we currently expect a year-over-year PRASM decline of between 2 and 5% in the second quarter.

While limited visibility and uncertainty about demand trends, our full-year outlook remains cautious.

We currently expect PRASM for the full year to decrease between 1 and 4%.

Our ancillary revenue initiatives continue to help offset some of the fair weaknesses we are experiencing.

We expect our full year-over-year RASM to decrease between 0 and 3% during the second quarter and to range between positive 1 and negative 2% for the full year.

We expect lower fuel expense will continue to drive significant year-over-year unit cost improvement.

For the second quarter, we expect our CASM to decline between 6 and 8% and for the full year we expect CASM to be down between 8 and 10%.

We continue to look for ways to reduce costs and we have achieved some success on that front.

As a result, we have revised our full-year ex-fuel cost guidance slightly downward to 9 to 11%.

We anticipate a 15 to 17% year-over-year increase in ex-fuel CASM during the second quarter.

There are two significant items impacting this increase.

First we sold four aircraft during the second quarter of last year.

The $13 million P&L gain we recognized from those sales benefited our other operating expenses last year.

and will therefore negatively impact our year-over-year cost comparisons.

Secondly, we anticipate a 7% year-over-year decrease in stage length during second quarter.

Adjusting for these two items, stage length and aircraft gains, we expect our second-quarter CASM excluding fuel to be up about 9 to 10% year-over-year.

In closing, let me again thank our crew members for all of their hard work.

While the uncertainty in the economic environment is unprecedented, we believe we are well positioned.

The near-term revenue environment will certainly present a significant challenge.

Lower fuel prices, however, have helped improve our operating margins and liquidity.

We are projecting significant P&L improvements throughout 2009 even with negative year-over-year PRASM growth.

We're taking a conservative approach to managing our business and remain focused on liquidity preservation.

At the same time, we remain confident in this challenging environment and poised to take advantage of opportunities.

And with that, we are happy to take your questions.

(Operator Instructions) Mike Linenberg, Banc of America-Merrill Lynch.

Two questions here, I guess for Ed.

The cash on hand, the $634 million, just a clarification -- does that include the $63 million that you posted as collateral with your counterparties for the fuel hedges?

It does not include any of our fuel hedging collateral, no.

Okay, good.

And then my second question -- and this is probably a question to Dave.

We saw this morning Alaska come out and announce they're going to now institute a first-bag fee and now when I look across the industry, I think it's just you guys and Southwest.

Southwest has actually given -- they have a couple of reasons.

They think it's revenue dilutive and it's disruptive to their service and I think there may be some technological considerations.

So at this point, they are not there.

But where are you guys on that front?

What are your reasons, just your philosophy etc., how you are thinking about it?

Good morning Mike.

It's a first-bag fee.

There is -- clearly we know that technically we can do that.

We're doing that with the second-bag fee today.

So as we look at the landscape, I think it's probably -- there's a fine line between nickel and diming the customer and what is the core product.

It's not a secret as well that we have to change to our reservation system, our passenger service system that's taking place over the course of the next year too, which I think will also allow us to the extent we do go forward with this, maybe do it with -- in a very thoughtful manner.

Right now I think customers and part of our core brand, they truly value the fact that the first bag is part of the purchase price.

So I think we are going to have much greater flexibility with the change to our PSS system and we will continue to take a look at the landscape as well.

That's very good and nice quarter.

William Greene, Morgan Stanley.

You know, it seems like there is some movement within the industry here now to add wireless connectivity to flights and I wonder if you think that's going to put the value of LiveTV at risk.

And I know you have looked at monetizing it, so can you talk a little bit about should we maybe monetize it now and perhaps try to do that faster given this movement toward wireless?

Good morning Bill.

A comment on LiveTV and wireless.

Again, we made the determination that the narrowband enabling PDAs across our fleet, to go forward with that, that will take place later this year.

That was our test with BetaBlue, a very successful test.

We will start on the 320 fleet later this year with a campaign continuing with the 190s in 2010.

All that said, LiveTV and our team are keeping a very careful eye on the broadband and the different products that are out there on different carriers and observing behaviors such that if it makes sense to be a follower in this space, we can do that.

And I think the jury is still out on if somebody's going to purchase really broadband for 995 or 1295 on certain stage lengths, longer haul; I think very, very appropriate if you start taking a look at transcon.

So I think my headline with LiveTV, build the ability to do that to the extent that JetBlue or other customers want to do that.

We think the PDA application is outstanding and then the Company is also in the in-flight entertainment space as well.

So we will take -- it's still -- it's core to our brand and we will evaluate opportunities too as they may show on the horizon, to the extent that there's opportunities to look at strategic options for LiveTV.

So we are certainly -- don't think that this is the right time to do that today in today's economy.

Can I ask for some clarification on some of the RASM commentary?

If I think back to some comments you made in the middle of the first quarter, I think you'd backed away from RASM guidance for the full year saying sort of the demand was a bit cloudy.

But now you're sort of giving the 2009 outlook again.

Does that suggest maybe that you feel more conviction that you have a better sense for the direction of RASM here now?

Is it based on the economy?

It's not clear to me sort of what might have changed.

Yes, I think even with the first quarter as we attempted to really provide transparency for the full year with our guidance, we now have the first quarter behind us, obviously into the second quarter.

So I think just better transparency into what we are seeing with the demand environment.

So the shift in our numbers I think are just trying to be again more surgical, more realistic now that we have the first quarter and half of April under our belts.

So that's why we adjusted the RASM that was offered in today's commentary.

Just one last question on the pilots.

Since that unitization effort failed, have you taken a different approach to wages?

Have you had to address some of those wage concerns for either them or any of the work groups?

Thanks.

Absolutely.

In fact, if I may, just a comment.

Our -- the financials for the first quarter, if I may, this is again the first profitable first quarter in four years and I think it's important that these numbers were [pure].

They were not built on the backs of labor of our workforce.

We did not furlough crew members.

We did not mandate pay cuts for those on the front line or within leadership.

We're being prudent because we're building the Company and the culture for the long-term.

I think clearly the pilot campaign, absolutely lessons learned.

And I think as we look at leadership issues, comp benefits, quality of life, they all play into how we look at what are the necessary actions with the pilot group on a go-forward basis or any one of our large work groups or any of our crew members.

And so I think I'll probably leave it at that but there are a lot of lessons learned.

The value of a direct relationship and to collaborate on solutions with our workforce to me is a huge competitive advantage.

Thanks for the time.

Jamie Baker, JPMorgan.

Quick question on fuel.

I had to jump off earlier, so if you covered this, just let me know and I'll follow up with Lisa.

But the second quarter, $1.96 all-in seems a bit high given that so far in April, Gulf Coast spot has averaged the $1.40 level.

I didn't see a reconciliation of the fuel hedge for the quarter in the release.

Can you walk us through what the quarterly assumption is there?

Jamie, we will have that in our guidance that's coming out later today.

That $1.96 does include the impact of our fuel hedges.

It's also based on the forward curve as of the end of last week.

So it should be pretty easy for Lisa to walk you through that later.

All right, that's fair enough.

Secondly, David, I recently flew JetBlue for the first time on my Company's dime.

That may not mean anything but I'm curious whether ARC data or any other tools that you might have at your disposal suggest that business travelers might be trading -- well I don't want to say trading down -- trading over to JetBlue?

First of all, we appreciate the travel.

I think it's a little bit early.

It's one of our -- one of our key initiatives is to be more relevant to the corporate traveler, the business flyer, the nondiscretionary traveler.

We're seeing anecdotal evidence of trial, especially as consumers -- mainly the small wall and medium-sized unmanaged businesses -- are looking for better value.

It's really part of this More campaign.

It's why we are adding additional frequencies into city pairs between for example Boston over to Chicago, Pittsburgh down into the Carolinas.

So anecdotally we are seeing it and we're also seeing as a result, the surveys on board the airplane -- we do issue surveys to a percent of the customers on every flight and we get some nice data back on the purpose of the trip.

And of course we are also -- we have very pure information in terms of the booking curve and when somebody's booking for travel too.

So I think we are pleased with the directionality of what we are seeing with the smaller and the medium-sized business customer.

Lastly, if I could just squeeze it in.

Does Southwest's entry into LaGuardia which I think is just really a rebranding of former ATA service, but nonetheless does that change your appetite or your willingness to bid for slots that might be coming available there?

I think that a strong balance sheet and being opportunistic for whether it's slots, gates at key airports that are important to us; that allows us to have that flexibility.

Whether it is at LaGuardia, which is part of our New York strategy, or whether as we announced today with BWI out of Boston across the Metroplex down in Washington with access into a DCA.

And so it's -- I don't think the Southwest decision has changed our strategy.

Some of these airports, the ability to really gain access I think is the largest issue and probably DCA being the airport with the most difficulty of gaining access.

So that's probably the way I would characterize how we are looking at some of these key airports.

Duane Pfennigwerth, Raymond James.

Wondering if you could talk about your transition on the reservation system side from Open Skies to Sabre, why you are making this change and what would this enable you to do with partners such as Lufthansa that you can't currently do?

I think it's a natural evolution in this chapter of our Company's growth and very, very pleased with (inaudible) over the first Open Skies system over the first nine plus years of our history.

And then we take a look at not just our growth, but also where we are growing.

Later this year, 20% of our ASMs will be into international or Caribbean markets.

The ability to, as we take a look at the booking flow through the website and the ability to monetize the booking flow -- by the way, this is all prior to whether it's opportunities with Aer Lingus or Lufthansa and the Lufthansa family of airlines that we plan to have conductivity with later this year.

So we just think this is prudent for this time because it really we think optimizes our revenue opportunities.

For this chapter of our growth, it was prudent for us to make the move anyway.

And we do have a team of 30 leaders across the Company dedicated to the PSS, the passenger service system, transition.

And my hats off to Rick Zeni and team because this is a very, very key investment for this Company and I'm very pleased with their traction.

Thanks.

I think Jim may have a question.

Just quickly here your transcon business down -- capacities down 27% in the first quarter.

What is it going to be up or down in the summer season?

Transcon as we closed the year -- transcon is still key to our airline and we anticipate it as we close the year, about 30% of our ASMs will be in transcon markets.

We're opening LAX in the June timeframe as part of our LA basin strategy of note.

So it's still key and at the same time, I think it's -- as we start to see the advanced purchase gates collapse such as one day advance purchase with fares that just we don't think are prudent even in this oil environment, we will reallocate ASMs appropriately, such as what we are doing with North-South into the Caribbean, the announcement with Barbados today, as an example.

So I think that transcon for the most part has gone North-South into the Caribbean, but it is still a core part of our network.

And is it up or down for the summer season?

In the summer season I think again, first on a year-over-year basis, it will be down.

The exact number I think we will have to probably get to you off the call.

But again, 27% of our ASMs in the first quarter were dedicated to transcons and 30% we believe as we close the full year of 2009.

Here's where I'm going with that.

Shoot.

I believe that looking at JetBlue relatives to other carriers, you're removing far less capacity.

And looking at transcon, it appears that JetBlue has been a leader in taking fares down.

I believe you did $99 transcon fares and then you did a one-day $14 sale.

So I'm curious one, about transcon and then about the total system; why you're not taking down more capacity.

I appreciate where you are trying to go with the question, Jim.

Transcon not too long ago was north of 50% at our airline.

So we think that we are probably in the right range as it currently stands.

Again, it's part of our network.

It's a network that we're going to defend.

And I think that when we look at pricing, a one-day event such as we put forth with $14 fares and that is less than the first bag fee for competitors, that's very much in key with the irreverence of our brand.

And you bet, we're going to take opportunities to challenege the competitive landscape.

So clearly I don't believe that JetBlue has been leading the fare sales in the transcon markets.

It's core to our network.

We think we're right-placed right now and we're going to defend it.

It's core to Boston, it's core to New York, it's core to Washington, and also the transcons that we have in South Florida.

Gary Chase, Barclays Capital.

I was doing a little bit of math here on some of the things you said which is always a scary proposition, at least on my part.

But everybody is so sensitive on the revenue stuff.

I want to make sure that I understand what you are pointing to.

If I look at what you are suggesting for the combination of March and April, given what you showed in your March traffic release for PRASM, April looks like it's going to be up about five-ish percent call it and then the other two months of the quarter are going to be down somewhere between 6 and 8 in order to get to your PRASM guidance for the quarter and the specifics don't necessarily matter.

I guess what I'm driving at is it would seem that at least where you're going to be in May and June, if that's right, that the full-year guidance has some pickup in the second half.

Is that what it is?

Or is there some sort of network change towards shorter stage length year on year or something else that we ought to understand about how that progression works?

I think the early look to the math as we take a look at the Easter holiday shift and then May and June, directionally accurate; how we're looking at really what we're seeing in the current environment, right?

Less visibility that we are seeing, closer end bookings, everything that that means as well that usually means less change fees because people are booking closer in.

We are -- we believe that GDP will be negative as we move through the first three quarters, is the way that we are modeling it.

We think -- again we start to take a look at something that looks flat toward the end of the year.

And so it's I think directionally fair to say that we are also modeling I think just responsibly, revenue towards the second semester of the year that drives those numbers that we gave guidance to today.

All that said, we will be perfectly candid and transparent.

This is a real difficult environment in which to model and we haven't seen the increased degradation.

But at the same time, we haven't seen the considerable strength that one would anticipate as well.

So I think the key travel dates around what we saw with President's weekend and Easter, the strength, basically the same average fares on a year-over-year basis, speaks well to the summer time frame for our network and also for the peaks over the second half of the year.

Okay but when you say directionally accurate, you mean they are going to be down more than what you are projecting as you move into like the third and fourth quarter right?

In other words, May and June are going to be down a good bit more than what the guidance implies for PRASM in the third and fourth quarter.

I think it's -- again, we are looking at some level of strength [in the end] of the second semester, but it's not a significant number at this point, all things considered, relative to where we're sitting with our first-quarter numbers.

The CASM guide for the first quarter, you came in below that.

There is a change to CASM ex-fuel for the year but you also have more capacity growth which was little bit of tailwind.

Was there something -- there have been a lot of calls this morning, so if you said this, I do apologize.

But was there something timing related in the first quarter that would lead us to believe either you're going to sort of make it all back in the second, third and fourth?

No, I don't think it was related to a timing difference.

It's just managing our costs appropriately.

Did any part of the cost forecast rise in the second half then?

Nothing that I could specifically point to.

Okay and then just quickly, the fuel consumption also came in a little lower, possible that less congestion in JFK or is there another explanation for that?

I think it's probably a whole host of things, whether it be just runway time or using our aircraft a little bit more efficiently.

Robert McAdoo, Avondale Partners.

Can you just kind of go back over with all the ins and outs of airplanes and whatever what your fleet composition was year-end 2008, 2009 and 2010 given what you've done with the deferrals and whatever else?

Sure, Bob.

Our aircraft composition at the end of 2008 was 107 320s and 35 E-190s.

During the first quarter, we added three A320s.

So we ended the quarter with 110 A320s.

We took delivery of two net E-190s, four in total but then we sold two of the E-190s.

So we ended the quarter with 37, for a total of 147 aircraft.

For the remainder of the year, we take four additional A320s in the second quarter.

So we will end the year with 150 E-190s -- I'm sorry -- 41 E-190s and 109 A320s including the lease return that we have in November.

So a total of 150 aircraft at the end of the year.

What have you got coming in in 2010?

In 2010 we take delivery of just the three A320s.

So it be 153 net of anything that you might --

We have another lease return in 2010 as well.

You had talked about this total ancillary which is some above the line, below the line or in passenger, not in passenger, of $19.

What would that have been a year ago since you've done your more leg room and all that kind of stuff?

I don't have that number at my fingertips but I am sure that Lisa can give it to you later on, Bob.

One quick last thing.

I saw that one of the competitors had a $79 Boston-LA fare for a while.

Is that -- I assume you matched that.

When you do that in these non-peak times, is the customer responses as dramatic as you had hoped?

Obviously with a $14 fare, you get a lot of excitement.

Does the $79 fare generate a lot more business in these kind of non-peak times?

How would you characterize that?

It's -- of course when we do that, it's capacity controlled.

But I think it's fair to say that we've been pleased with the response, especially when you start to take a look at a new market such as Boston-LAX.

It's an opportunity for brand awareness into LAX.

But I'm pleased with the results.

In fact speaking of LAX, we are pleased with the bookings that we are seeing with LAX even though it's -- we're roughly just under 60 days before startup.

When they did that, did you match the Boston to the LA basin like to Long Beach or whatever?

Yes, we tend to take a look at LA with all three of the airports that we will be servicing and again, capacity controlling obviously into the airport.

But we tend to look at the geography as one as opposed to airport specific.

Helane Becker, Jesup & Lamont.

Two questions.

One, Dave, a lot has been made in the press and trade I guess publications lately about Long Beach and some of the issues there with the facilities.

And I was just wondering if you could kind of address that in the context of adding capacity to LAX and how Long Beach longer term might fit into your plans.

Sure, it's a headline, we remain committed to Long Beach but at the same time, with the disappointments -- a word that I will use -- with the upgrade of the facilities at Long Beach.

We respect the fact that it's a capacity controlled airport.

It's a curfewed airport.

But we just don't think the customer experience warrants the current infrastructure, especially with the commitments that we believe have been put in place by the City of Long Beach.

So I think very encouraged by meetings that took place this week with the Long Beach Airport leadership team here in New York, as we talk about gates and parking and food and beverage opportunities.

And as we look at -- and we will see exactly what plays along those lines with making really some of the improvements real at Long Beach.

All that said, I think we look at the LA basin similar to how we look at New York or Washington, that there is -- it's a multiple airport area.

So Burbank and LAX and Long Beach can all work quite well together.

And because customers have certain preferences to airports in that part of the world, especially considering the congestion of the roads.

So that's how we're currently looking at it.

I'm very encouraged by the visit that took place this week by the Long Beach Airport Authority and look forward to seeing some of these improvements in the near future.

Okay and then just one follow-up question that's kind of unrelated.

I noticed that over the last year or so, Internet sales have kind of leveled off in this like 76, 77 area.

Do you think that's the plateau that we should think about or -- and as a result I guess maybe of more international flying, you are seeing a higher percentage -- as a percent of revenue, your sales and marketing is going up just a little bit.

And I was kind of wondering if you could talk about that.

Is like this mid-70s what we should be thinking about?

Yes, I think the JetBlue.com in the mid-70s from the standpoint of distribution is a good number to be thinking about.

As we start to -- obviously we're in the OTA's.

We are in the GDS's as well.

To be relevant to the corporate customer, it's important to have visibility to the small, medium-sized business customer that is currently unmanaged.

And so that will be certainly a part of our distribution strength on a go-forward basis.

And you are right.

As we are migrating into markets such as Bogota, the ability to work throughout the Dominican Republic or the Commonwealth of Puerto Rico, the ability to have multiple distribution paths is very important to us as well.

So mid-70s I think is a good number.

Great, thank you very much.

Kevin Crissey, UBS.

Just wanted to talk -- I think the number was 9 to 10% CASM ex-fuel increase in Q2 if we adjust for the aircraft sales and basically last year's comp and stage length.

Is that the right number, 9% to 10% CASM ex-fuel?

That's correct.

How should we be thinking about that relative to -- that's basically among the worst in the industry in terms of you have less capacity being cut, you don't have the penchant headwinds that some others have.

Why should investors look at that as an okay number?

I think one of the things we have to look at is our stage length is declining and so as a result of that, we are going to have some inefficiencies in our cost.

I think the other thing that Dave alluded to before is that we believe that during these times of recession is not the appropriate time to make earnings on the back of our crew members.

So we haven't done some of the things that our competitors have done such as furlough or institute wage decreases.

I think it's important as we move forward that we protect our brand, protect our culture and continue to make investments in our infrastructure that are necessary for our growth into the future.

And I think that what you are seeing in that 9 to 10% is kind of the culmination of all of those things; of not wanting to disappoint our customers, our crew members and wanting to really invest into the future.

On LiveTV (inaudible) is installing that here starting basically right now, if I'm not mistaken.

And you guys have a revenue split on that.

Is that right?

Should we see that flow to other revenue and is it meaningful in '09 or when does it become meaningful?

We do have an arrangement with Continental.

We haven't really made the terms of that arrangement public.

But certainly any of the revenues that are derived out of that would go into other revenues in our financial statements.

Is it something that we should give any real attention to in '09 or is it really an 2010 event from a magnitude perspective?

Probably from a magnitude perspective on a full-year 2010 is probably when it's going to be a more meaningful number.

We will have quite a few installations on their aircraft through 2009 and continuing into 2010.

The cost of that, that gets reflected in your CASM ex-fuel as well or is it just (inaudible) as the CapEx?

The cost of the installations themselves are in the CapEx guidance.

Bill Mastoris, Broadpoint Capital.

You know, in the past you've talked about managing your capacity with some aircraft sales and in the past you've been very successful in doing so.

Is that any part of your future plans as far as managing capacity?

I know you've mentioned that you're going to return a couple off lease, but would aircraft sales be a part of that should the opportunity arise?

I think last year you saw kind of a change in our philosophy and just seeing that there was potentially going to be some softness in the resale market that we really went to more of a deferral strategy.

We will continue to consider aircraft sales as opportunities come about.

But those would probably be offset by the optionality in our aircraft contracts as well to take future deliveries.

I think we are pretty okay with our current fleet size and composition.

Ed, in the past, you have actually purchased some of the convertibles, the 3.75 out in the open market.

Did that activity continue in the first quarter?

Are there any plans to do that at any time during the future?

We didn't do any in the first quarter, but it's something that again we kind of keep focused on.

And as opportunities arise, we would certainly consider doing that again.

This concludes our session with investors and analysts.

With that, I will turn the call back over to Dave Barger for any closing remarks.

Thank you John.

In closing, thank you for those of you joining us via the webcast today.

We very much appreciate it.

Again to our 11,500 plus crew members, thank you very much for all of your support over the first quarter.

Looking forward to a good year.

Thank you.

Thank you ladies and gentlemen.

That concludes today's conference.

Thank you for participating.

You may all disconnect at this time.