JetBlue Airways Corp (JBLU) 2009 Q3 法說會逐字稿

Welcome to your JetBlue Airways Inc.

third 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 investors should not place undue reliance on these statements.

For additional information concerning factors that could cause the 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.

Please note that this conference is being recorded.

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

Please go ahead, sir.

Thanks, John, and good morning.

Thank you all for joining us today.

We're very pleased to report our third consecutive quarterly profit.

This morning we reported net income of $15 million or earnings of $0.05 per diluted share.

Included in these results is a $3 million gain related to the valuation of our auction rate securities.

Excluding this gain our earnings for the quarter would have been $12 million or $0.04 per diluted share.

These results represent a significant improvement over last year's net loss of $8 million.

Similar to the rest of the industry we have experienced significant pressure on revenues as a result of the recession.

While revenues were down sharply from last year, our third quarter year-over-year unit revenue trends were among the best in the industry.

Unit revenues for the quarter were down 8% versus last year and total revenues for the quarter were down 5% year-over-year.

Fortunately the actions we have taken over the past several years to manage our capacity and preserve liquidity have positioned us well for this downturn.

We ended the third quarter with $951 million in cash, which is among the best liquidity positions in the industry.

We also continue to benefit from the actions we took last year to restructure our fuel hedge portfolio.

During the third quarter our fuel expense was approximately $150 million lower than the same period last year driving a 10% decline in our operating expenses.

As a result our operating income increased $44 million year-over-year.

JetBlue crew members continued to do an excellent job running together to run a solid operation.

I'd like to take this opportunity to thank our 12,000 crew members for their hard work.

For the third quarter our on-time performance improved by almost 8 points versus last year.

Our new terminal at JFK which opened one year ago today has certainly improved the overall efficiency of our operation and more importantly it significantly enhanced the ground experience for the 30,000 customers who pass through our home base of operations everyday.

While last year's unprecedented rise in the price of fuel only to be matched this year by weak economic environment presented back to back tasks JetBlue demonstrated the ability to adapt quickly and address these challenges.

Managing capacity through the sale, lease and deferral of aircraft has played a key role in our ability to successfully adapt to changing conditions.

We have also continued to more tactically manage capacity by matching schedule frequency to demand with day of week engage adjustments during trial periods.

We continue to build on our success in the Caribbean and Latin America, while our strong brand resonates well with customers.

Of the 8 cities we open or plan to open 2009, 6 are in the Caribbean Latin America.

We have increased our presence in the leisure go to market such as Montego Bay, while continuing to build on our strength and visiting friends or relatives or VFR markets, such as Santo Domingo and the Dominican Republic.

These two segments complement each other very well from both a seasonal and day of week perspective.

As such we expect continued success with recently launched service to Barbados and our new service to Kingston, Jamaica and St.

Lucia which begin later this month.

We also continue to focus on strengthening our core networks, centered in New York, Boston, Florida and the West Coast.

During the third quarter we continue to grow our Boston operation with the launch of new service to Baltimore, the 32nd destination served by JetBlue from Boston .

As we expand in Boston with new destinations and increased frequencies, we have become more relevant to business as well as leisure customers.

We are very pleased with our customers' response to our growth there.

We also continue to leverage our unique position in New York as JFK's largest carrier.

In September we received approval from the DOT to Coach Air with Lufthansa.

The first Lufthansa JetBlue co-Chair flight is set for Wednesday, November 11, and we look forward to welcoming our first Lufthansa customer on JetBlue.

We are currently selling Lufthansa JetBlue co-Chair flights to 12 domestic destinations, which means our customers will be able to connect to Lufthansa' network of over 400 locations overseas.

We plan to add additional JetBlue domestic and international connections following our cut over to Saver next year.

We are pleased with bookings to date and we expect bookings to increase as more people learn about our partnership.

Turning to the fleet.

We did not take delivery of any new aircraft during the third quarter and do not have any more deliveries planned for the rest of the year.

Taking fewer aircraft together with continued cost has kept our capital expenditures at modest levels.

As a result we're on track to generate positive free cash flow, defined as operating cash flow minus CapEx, in 2009, for the first time in our history.

While the revenue environment pressures near-term results we remain focused on our goal of achieving long term sustainable growth supported by the cash generated from operations.

For the fourth quarter we expect our capacity to be up between 5 and 7% year-over-year resulting in a relatively flat ASM growth for the full year 2009 versus 2008.

As we discussed in our last call most of our fourth quarter growth is being driven by our Caribbean expansion which will add a significant amount of ASMs to our network on a year-over-year basis.

We expect our Caribbean capacity to be up roughly 35% year-over-year in the fourth quarter.

Our Caribbean and Latin America markets continue to mature quickly from both a P&L and cash perspective.

We continue to adhere to a policy that future growth must be funded through cash from operations.

Looking ahead to 2010 we are currently working through the specific details of our growth plans.

While we do not expect to take any new aircraft deliveries in 2010, the nine aircraft added to our fleet in 2009 will drive moderate ASM growth next year.

We continue to have one of the highest aircraft utilization rates in the industry and enjoy the added flexibility of being able to adjust utilization either up or down as conditions warrant.

We plan to continue to eliminate unproductive flying while capitalizing on opportunities that may arise.

Turning to revenue.

Leisure traffic remained relatively strong throughout the quarter as loads were essentially flat year-over-year but like other US carriers we continue to face pressure on yields.

During the third quarter our yield was down 7.7% year-over-year resulting in a PRASM decline of 8%.

While the economic downturn has negatively impacted demand for air travel across the industry our strong VFR traffic particularly in the Caribbean and limited exposure to premium traffic has mitigated the impact on JetBlue.

Thus our year-over-year PRASM performance has consistently been among the best in the industry.

We are encouraged by positive pricing traction during July and August and the sequential improvement in our year-over-year PRASM during the summer.

The booking curve remained compressed throughout the quarter and our August results were better than expected due to close in strength bookings.

While the September is historically a trough month for us due to our large leisure customer base we benefited from a later than usual Labor Day at the beginning of the month.

These gains were offset by more significant yield pressure towards the end of September as fare sales stimulated traffic and low yields.

The shoulder seasons have been particularly challenging and we continue to employ ways to improve our revenue performance during these periods.

A key part of this strategy has been to stimulate trial by customers new to JetBlue.

During September we launched our all you can jet pass promotion offering a month of unlimited travel for only $599.

This was by far the most successful promotion in our Company's history exceeding expectations on all fronts.

Approximately 50% of the customers who purchased All You Can Jet passes were not previously members of our frequent flier program True Blue.

While we're not disclosing many details about the promotion for competitive reasons, our revenue results for the third quarter reflect a positive net revenue contribution from the All You Can Jet promotion.

The impact to our bottom line is more meaningful when considering the potential new customers we have gained.

Just as important from our perspective was the media buzz created by the promotion.

We were also pleased to see thousands of All You Can Jetters sharing their stories on line, through Facebook, Twitter, other social media sites.

We also continue to be encouraged by the success of our ancillary revenue initiatives which have helped mitigate some of the weaknesses we've experienced in passenger revenue.

When we combined all of our ancillary revenue reported in the passenger revenue line with those in the other revenue line, total ancillary revenue in the third quarter was about $17.50 per passenger.

Ancillary revenue results for the third quarter were slightly lower than expected due to fewer customers paying change fees.

We continue to look for opportunities to meet the needs of our customers while growing our ancillary revenue streams.

One way we're doing that is by making important changes to our frequent flier program True Blue later this year.

Redesigned based on customer feedback, our goal is to make TrueBlue more robust, more rewarding and flexible.

For example, rather than awarding points to customers based on the distance they fly, we'll offer points based on how much they spend.

Customers will also benefit from a more flexible redemption scheme including no black-out periods.

We anticipate the new True Blue program will be very well received by our customers.

Turning to the revenue outlook, given the compressed booking curve forward bookings continue to be characterized by volatility, resulting in a limited ability to make reliable projections.

We're been encouraged by the booking trends we saw during the summer peak travel period.

At the same time however we continue to face yield pressures during the off peak periods driven by extensive sale activity at deep discounts.

Similar to September, October is generally a trough period for leisure travel.

Based on the data collected thus far we currently estimate October PRASM will be down about 10%.

Bookings for the Thanksgiving holiday look relatively solid and early signs for the December holiday are positive but we have limited visibility that far out.

November PRASM comparisons will benefit from the shift of the Monday after Thanksgiving, a peak travel day, into November this year.

In addition our continued focus on ancillary revenues which we currently expect to increase by about 15% year-over-year in 2009 should help RASM.

We're cautiously optimistic about the fourth quarter.

We expecting both PRASM and RASM to decline between 3 and 6% in the fourth quarter.

For the full year, our PRASM and RASM projections remain unchanged.

We expect PRASM to decline between 4 and 7% and RASM to decline between 2 and 5%.

Before closing I'd like to provide a brief update on the transition to our new reservation system, Saber.

The transition to Saber is on track for implementation for the first quarter of 2010 and we are pleased with the progress we are making.

During the third quarter we began integration testing, the final phase of the project and the key milestone.

The transition to Saber has been a Company-wide effort and similar to the opening of our terminal at JFK last year, we have a dedicated and experienced team leading the transformation.

Moving to the Saber platform will allow us to scale our business as we grow including providing better integration with Interline co-Chair partners and better connective to GDSs and on-line travel agencies.

We will also be able to better tailor our product to corporate customers and other key customer segments.

As we close out 2009 our tenth year of operations, we're well positioned to navigate the challenges that lie ahead.

Our efforts over the past few years to build liquidity and slow our growth have positioned us well.

We expect to earn a profit in every quarter of 2009 despite a very difficult economic environment.

This is a testament to the hard work and dedication of our outstanding crew members, who remain focussed on running a safe, reliable operation and delivering exceptional service to our customers everyday.

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

Thanks, Dave, good morning and again thank you all for joining us.

We're very pleased to earn our third executive quarterly profit.

Despite slightly higher than expected fuel which was $0.04 per gallon higher than our issued guidance we beat or met all of our guidance ranges for the third quarter.

Like other companies in our industry and elsewhere our results were impacted by the effects of the economic recession.

Our total revenues declined by 5% or $48 million year-over-year.

Driven largely by the reduced demand for air travel which has pressured fares.

Fortunately the actions we took last year to restructure our fuel has the portfolio continue to pay off as we benefited from significantly lower fuel prices.

Driving a $92 million decline in operating expenses.

We ended the quarter with $951 million in cash and cash equivalents or 29% of our trailing 12 months revenue.

We believe this is among the strongest liquidity positions of the major US carriers.

As a result of our strong cash balance and improved financial results, our largest credit card processor reduced the amount of our hold back from 50 million to $30 as of September 30.

Our quarter end cash balance excludes $205 million in auction rate securities at fair market value which were reclassified as short term investments on our balance sheet.

During the third quarter we continued to opportunistically sell our auction rate securities.

In August we sold approximately $25 million of our auction rate securities at fair market value.

I'm also pleased to report that earlier this month we entered into an agreement with Citigroup under which they have agreed to purchase our auction rate securities which had a par value of $158 million.

The $120 million in cash proceeds from the sale are not included in our quarter-end cash balance.

In conjunction with the transaction we terminated the line of credit we had with Citigroup.

After these sales we have approximately $85 million of auction rate securities at par value which were sold to us by UBS.

As you may recall UBS is required to repurchase these securities at par value beginning in June of next year.

We have a $56 million loan from UBS collateralized by these securities which we intend to repay next year with the proceeds from the ALF sale.

Turning to the fleet, JetBlue ended the quarter with 151 aircraft.

We did not take any deliveries of aircraft during the third quarter and we do not have any more aircraft deliveries planned for the remainder of the year.

During the third quarter we spent approximately $30 million in non-aircraft CapEx and we anticipate approximately $45 million in non-aircraft CapEx during the fourth quarter.

As a result we currently expect total CapEx including aircraft to be around $395 million for 2009.

As Dave mentioned we expect to generate positive free cash flow in 2009 assuming fuel prices remain at forecasted levels.

This is a significant accomplishment for JetBlue especially in light of the weak environment environment.

We believe the ability to generate positive free cash flow is an important driver of shareholder value and this continues to be a top priority for JetBlue as we move into the next year.

While we have no aircraft deliveries planned for 2010, we expect to pay approximately $85 million next year in predelivery deposits related to future deliveries.

We also have roughly $40 million in spare engine commitments next year.

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

Although fuel prices have risen since the beginning of the year, we have continued to benefit from the year-over-year decline in prices.

Our total fuel expense in the third quarter was approximately $150 million lower than the same period last year, as our average fuel price per gallon declined 40% year-over-year to $2.07.

Included in this figure is $0.20 per gallon of fuel hedging losses.

Our unhedged fuel price for the quarter was $1.87 per gallon.

In the third quarter approximately 8% of our fuel consumption was hedged.

While fuel hedge losses had a negative impact on our cost during the third quarter, these losses had no cash impact during the quarter.

We currently do not have any cash collateral posted with any of our counterparties.

We continue to view fuel hedging as an important form of insurance against market volatility and we use a variety of products to manage this risk.

During the third quarter we enter our fuel hedge portfolio largely in the form of jet fuel swaps for near-term consumption and out of the money crude call options or caps to manage risks further out.

Our fuel hedge portfolio now stands at 61% for the fourth quarter, 49% for the first quarter, 24% in the second quarter, and 23% for the third quarter of 2010.

For the full-year of 2010 we are now approximately 30% hedged.

The underlying details of these positions are more specifically described in our investor update which will be filed later today.

We expect to pay $2.04 per gallon for jet fuel in the fourth quarter including a positive hedge impact of $0.04 per gallon.

For the full year we expect to pay $2.01 per gallon, including a negative hedge impact of $0.26 per gallon.

These prices are based on the forward curve as of October 16, and exclude taxes, transportation and the plane fees.

While fuel prices drove unit costs down in the third quarter by 13% year-over-year, our non-fuel unit costs continue to be pressured.

Excluding fuel our third quarter non-fuel unit costs rose by about 8.5% year-over-year.

These results were slightly better than our expectations as outlined in the guidance we provided last quarter.

The majority of our year-over-year increase in the ex fuel CASM can be attributed to the shift in our capacity from transcon flying to shorter all, which drove a 5% shorter average stage length during the third quarter.

Salaries, wages and benefits increased roughly 11% per ASM on a year-over-year basis.

Driven primarily by wage and benefit increases under new pilot employment agreements and cost pressures associated with our policy to not furlough crew members during economic downturns.

In addition we have hired additional crew members to help with training as we prepare to cut over to saber.

Maintenance expenses increased 22% on a unit cost basis due to the gradual aging of our fleet.

In addition the timing of repairs we had planned earlier in the year drove our maintenance expense relatively higher in the third quarter.

Landing fees and other rents increase 6% year-over-year on a unit cost basis due to 8% more departures versus 2008.

And higher landing fee rates.

Other operating expenses increased 11% year-over-year on a unit cost basis.

This increase was driven in part by $6 million in tax incentives and $2 million in gains, on the sale of aircraft which were credited to other operating expenses during the third quarter of last year.

In addition, variable costs increased with the 8% more departures versus 2008.

Moving below the line, interest expense decreased 25% year-over-year, or $17 million, due primarily to lower interest rates.

At the same time interest income and other decreased by 75% or $15 million, due to lower interest rates earned on our investments and lower average investment balances.

This decrease was offset by the $3 million valuation adjustment related to our option rate securities.

We have a very manageable debt maturities of approximately $50 million in the fourth quarter, including the $120 million from our recent auction rate securities transaction, we expect to end the year with a cash balance as a percent of trailing 12 months revenue of approximately 30%.

While we are comfortable with our current cash position we continue to believe that liquidity and financial flexibility are paramount in today's uncertain environment.

Looking ahead to 2010, we expect about $380 million in debt maturities for the full year including approximately $160 million for payment of a convertible debt issuance that we expect to be put to us in March.

Looking ahead at the fourth quarter and full year we will have detailed guidance available on our investor update filed as an 8K and posted to our website later today.

Let me share a few of the highlights.

We expect our fourth quarter ASMs to increase between 5 and 7% year-over-year.

The recession continues to affect demand for air travel.

However, we encouraged by bookings trends during the holiday travel periods.

In addition year-over-year comparisons become easier in November.

As a result we currently expect year-over-year PRASM to decline between 3 and 6% in the fourth quarter and a decline of 4 to 7% for the full year.

Our ancillary revenue initiatives continue to help offset some of the fare weaknesses we're experiencing, but as Dave mentioned, the compressed booking curve has resulted in fewer customers paying change fees.

We expect our year-over-year RASM to decrease between 3 and 6% during the fourth quarter and between 2 and 5% for the full year.

We expect lower fuel expense will continue to drive year-over-year unit costs improvement, but at a relatively slower rate than the fourth quarter.

For the fourth quarter we expect cass CASM to decline 3 and 5%, and for the full year we expect CASM to be down between 7 and 9%.

We anticipate a 5 to 7% year over year increase in ex fuel CASM during the fourth quarter.

Throughout this year our non-fuel unit costs performance has been slightly better than our projections.

Accordingly we have again revised our full-year unit cost guidance downward from previous levels.

We now expect full-year ex fuel CASM to increase between 7 and 9%.

While we continue to take steps to reduce costs and maintain our low-cost advantage, we are committed to investing in our brand, our customers, and our crew members.

As we look into 2010 we will continue to make those investments prudently.

And fortunately we have built a balance sheet that allows us to do so.

In closing I'd like to thank our crew members for all their hard work.

Despite a tough economic environment our results have improved significantly versus last year.

And we continue to expect to earn a profit every quarter this year.

This certainly would not be possible without the dedication of our outstanding crew members.

With that we're happy to take your questions.

Thank you, we will now begin the 30-minute question-and-answer session for the investors and analysts.

(Operator Instructions) And our first question comes from Mike Linenberg from Bank of America, please go ahead.

May, good morning, everyone.

Two questions, Dave, what's the goals with respect to Lufthansa, when you -- and I don't know what sort of metrics, whether it is revenue or when you think about the enhancement to loads on the markets that you co-chair with them.

Is your analysis suggest that maybe you could get a bump-up of a couple of points, any info you can provide on that would be great.

Sure, Mike, good morning.

I think with respect to Lufthansa, first of all, we look at the relationship as much more than the commercial agreement, right?

It is the investment, it's Board seats, intellectual expertise, et cetera.

I think I would characterize Lufthansa, and again, we just started selling this, is the ability to really monetize JFK as our gateway.

We have seen this with Air Lingus in Boston and Kennedy, we're starting to see some trends with Lufthansa.

I think that I would probably just want to manage expectations, Mike, because it is new and, let's face it, there are other avenues that Lufthansa has in terms of feeding customers across North America through the Star Alliance.

I think it is early, we'll have much greater visibility here later in the year and into 2010 and I think we'll be able to be much more transparent on it.

And then just my second question, Dave, and this has to do with capacity, in the third quarter you were up a little under 3% and fourth quarter you're looking at 5 to 7%.

I know that you've indicated that a lot of that growth is new stuff and yet when you kind of look at where RASM is heading for October and you look at it for versus the last couple of months, at least on a RASM basis it looks like it may be a little bit of a setback.

On the top line basis it looks like there's improvement there because you're adding a lot of capacity.

With that type of performance and the new markets aside would that suggest to you that maybe you need to do a little bit more right-sizing in some of the core markets maybe Transcon or Florida.

And maybe that you need to cut out some frequency.

What are your thoughts on that?

How do you think about that?

Sure, Mike, I think as we look at capacity this year relatively flat even though we're taking -- we have nine airplanes and again no new aircraft scheduled for 2010, I think the team feels quite good about the allocation of ASMs.

Again it is adjusted seasonally in terms of where they're at.

This is excluding some of the new markets.

Again, we've talked about the new markets, six of eight down into the Caribbean, Latin America, which tend to mature quite quickly, they tend to contribute quite quickly as well.

So statistically, if you take a look at into the -- we expect, for example the TransCons, to be right over 30% as we're into the fourth quarter.

If we you look back two years ago that number was close to 50%.

TransCons are still accorded JetBlue.

There is no secret there is quite a bit of competitive just activity taking place in the TransCons, but it is certainly core to our route system.

I think specifically when we look at the Caribbean, this comment up 35% year-over-year, but looking at just over 20% in the fourth quarter, we feel right-sized and then you start to take a look at Florida, right-sized, it is core to us.

And the short haul markets we feel good about as well.

As we close the year Mike, we feel good about capacity and how we've deployed ASMs and where there are competitive skirmishes we're certainly going to defend our turf.

Okay.

Well, good, and good job on the margins.

Thanks.

Mike, I was going to add one thing to that.

Sure.

I think October was a pretty tough comparison for us.

Last year we had to take a lot of capacity out relative to fuel prices and so this year you're seeing a lot of that capacity being added back in.

Certainly last year's PRASM was impacted by the amount of seats that we took out of the markets.

Okay.

And it sounds, too, from the guidance you have given us on PRASM just the implication for November and December definitely see a -- a return to the trend that we've seen over the past couple of months?

Right.

Thanks, Mike.

Good quarter.

Our next question comes from William Greene from Morgan Stanley, please go ahead.

This is actually John filling in for Bill.

Just a couple of quick questions.

First, JetBlue has had a lot of success recently managing capacity down, and kind of punctuated by what you guys highlighted which is positive free cash flow this year.

And we've seen that at some of the other low-cost carriers as well.

And I was just curious when you think sort of beyond 2010 into 2011 and forward, how should we be thinking about a new kind of long-term capacity growth rate or range of growth rates given that you've had this positive experience recently, managing capacity more conservatively?

Good morning, John.

I think the comment that I would share is we still look at JetBlue as a growth Company.

And but there was an awful lot of calming down over the last couple of years which really, I think, placed us well into the 2009 time frame, in this recessionary environment, the ability to really have visibility into potentially four profitable quarters and free cash flow.

I think all that said the discipline within the Company of truly financial metrics driving our growth, so that we earn the right to take additional aircraft, that's how we're really looking at the business.

And, that said, I think even though we're not providing a look at 2010 ASMs as of yet, as we're finalizing our plans, this is still a growth Company.

And we have a considerable number of A320s and 190s in our order book, and I think we're really looking forward to deploying them, playing some offense in the not too distance future.

And, John, I think what we mentioned on previous calls is just getting JetBlue to a sustainable growth model.

I think key to that sustainable growth model is generating free cash flow.

That's not to say that we won't be opportunistic and take deliveries when we see the ability to do so, but I think we're very committed to free cash flow and sustainable growth.

Okay.

Great.

And just on a separate topic, over the last couple of years the concept of monetizing LiveTV has come up in the past.

Since then you've taken more of an organic growth approach to LiveTV.

Just given where the market is and sort of, the rebound in general, IPO activity, is the prospect of monetizing LiveTV sort of more interesting or more on your minds going forward or are you still firmly in the organic growth camp?

Well, with regard to LiveTV we remained convinced that it is not core to JetBlue, and that at some point in time we will have to enter into some sort of transaction or strategic alliance to further monetize our investment in LiveTV.

The timing of that I can't tell you.

The market conditions probably right now are becoming more favorable, but I don't think they're at the point where we would be pursuing something at this time.

Okay.

Great.

Thanks a lot.

Thanks, John.

Our next question comes from Hunter Keay from Stifel Nicolaus, please go ahead.

Thanks.

I would like to press a little bit on first bag fee.

Are you seeing significant enough share shift to justify not charging for first bag.

(Inaudible) has been marketing its no-fee campaign very heavily and they reported very strong load factor growth in September and 3Q as a whole for that matter.

You guys have been relatively quiet on that front.

Do you think your customers are aware of this, of the fact that you do not charge for first bag and how are you approaching that?

Sure.

Good morning, Hunter, as we look at first bag fee, I'll tell you, I think I would say never say never, but all of that said, we're in this process of converting over to Saber.

And this is a big transition for any airline.

Certainly we look at this as this is our next T5 project and so let us make sure that we stay really into a close to a lock-down in terms of additional movement, ancillary revenues, or anything above and above what we have today.

We're right in the heart of the CSS change.

We expect to convert into Saber into early 2010, and that really gives us a very nice platform to take a look at many different options, including charging for the first bag fee.

When you start to take a look at customers who are paying for a full live ticket and maybe other customers who are paying from some other bucket, I think that there's -- people understand that.

There is greater value if in fact you pay more, not unlike what we're seeing behind the heart of the adjustments we're making to the True Blue program.

So I would want to manage the expectations that we're very close to a lock-down and really focused on Saber and that allows us some nice -- a nice platform to make changes in 2010.

Okay.

Great.

Yes, I know that is what I figured.

I just want to verify.

I appreciate that color.

Sure.

My next question, with regard to you guys referenced some fruit in the investments as you phrased it.

Clearly your cash balance you mentioned here, very very robust, among the best in the business.

Can you maybe give us some hypothetical non-aircraft investments where you may consider deploying that, as it would contribute to maybe not necessarily to long term but also maybe near-term growth?

I think the way that we look at investments, Hunter, is in our infrastructure and in our crew members and in our brand, if you look at last year we completed our investment in T5, that was very successful.

This year one of our core investments is Saber, our customer service system.

We are also in the process of looking at a data center move, as well.

So, we increased pilot compensation this year, that is another investment in the Company's culture.

So, when I talk about prudent investments, those are the things that I think that we have to have for long-term success at JetBlue.

Great.

Thanks a lot.

Thanks ,

Our next question comes from Duane Pfennigwerth from Raymond James .

Most of my questions have been asked already.

Just in terms of the business traveler and JetBlue, obviously we're in a business traveller downturn looking for signs of recovery.

Do you have any metrics to suggest what that is as a percent of your mix and how that might be changing?

And just as a follow on there, in terms of Saber and some of the things you're talking about, should we be viewing JetBlue as being status to its product?

Good morning, Duane.

When I look at the business mix and historically we've talked about the strength of JetBlue in the past has been the leisure, the VFR traffic, and that has really played quite well into this recession.

All that said, business traditionally, we said in the past 15 to 20% of our traffic.

Anecdotally we believe that we're seeing a greater business mix.

It is interesting because of the booking curve, when somebody can book close in, you really don't know the purpose of their trip.

We do issue six surveys from flight and we get some nice feedback regarding the purpose of the trip.

But the booking curve being so close in, it skews some of the information traditionally you take a look at.

I focused a little bit on like Boston and Baltimore.

When we start to take a look at traditionally it may look more like a business market, we're very pleased, we started with four 190s as part of the pattern, we announced the fifth.

We're very pleased with point of sale, as well as exit Boston as well as exit BWI.

Without going into a great deal of detail, we're -- an incredible amount of data that we received through the All You Can Jet campaign, in terms of segments, and where people were flying, which was really very helpful to us, as well.

So it's, -- it's anecdotal at this point but I do look at Boston-Baltimore as a real great indicator for a shorter haul, tends to be East Coast line

In terms of the status change with Saber if I understand your question properly, with things like TrueBlue going into platinum and gold and silver level, that type thing and correct me if I'm wrong, I think we still take a look at, JetBlue as a very democratic product, but that is not to say that you don't take a look at things like earning points based on share of wallet, or things like enhancements around even more leg room, or whatever the case might be.

But I don't see us moving into clubs.

I don't see us moving into defined programs based on loyalty.

We really haven't seen a need to do that in the past, and again I'd never say never but it is really not part of the current dialog today.

That's great.

And then just on the labor rate increases, when did those go through?

When would we round-trip them next year, and as we make some assumptions around FTEs, what sort of rate increases should we be thinking about?

Thanks.

Duane, it's Ed.

The adjustments to the pilot compensation went into effect 6/1.

We accrued for those in the third quarter.

The payout occurred in the fourth quarter.

So I think it is fair to say that about a half year is already in there.

One thing that -- that we don't have in this year that we will have in next year, is some savings due to some efficiencies that -- that we're going to put in, in the next year, that will somewhat offset some of those costs.

The other thing that you're seeing in labor is really an increase in crew members related to the CSS implementation.

We've hired some additional crew members to make sure that we have time to have adequate training for the crew members that are impacted by that implementation.

So some of those efficiencies will -- will certainly be seen in 2010.

We haven't -- we haven't finalized our budget for 2010 so I really can't give you an assumption for what you should assume on rates for next year.

Okay.

Thanks.

Thanks, Duane.

Our next question comes from Gary Chase from Barclays Capital, please go ahead.

Good morning, guys, it is [Dave Simpson].

Good morning, Dave.

So on the cost side you mentioned you sort of have been consistently through the year beating your cost guidance.

Just curious to get a little bit of a feel for where costs have been tracking better than you thought and just some sense of sustainability of that?

I think we're pretty happy, Dave, with the cost structure that we have today.

Really on a long-term basis, where we like our cost structure to be, is kind of between the ultra low-cost carriers and the legacy carriers.

The places that we've -- we beat our estimate this year has probably more to do with some conservative -- some conservatism that we've put into our guidance, more than anything that we've been surprised by.

I would say our cost structure will tend to remain approximately where it's at and position approximately where it's at relative to our competitors.

Okay.

All right.

And just going back to some of the labor questions, you've mentioned because of the no furlough policy, you have been a little overstaffed.

Without free growth next year is that something that gets combination of utilization and attrition gets solved?

Or is that something you see persisting for a while?

Yes, I think, Dave, again we couldn't be more pleased, again, as you fly through troubled air, the ability to collaborate with our work groups, and we believe that voluntary programs as opposed to involuntary programs is how you build the enterprise for the long term.

We take a look at even the third quarter this year our departures were, our stage length was down but our departures were up almost 8%.

Employments were up as well on a quarter-over-quarter basis in terms of close to 5%.

So when you start to take a look at departure driven and employment driven head count plus what's going on with CSS.

So, I mean, there are an awful lot of parts that are moving in this siynchronicity tied into how we want to staff the airlines.

We have nine new aircraft that we have the run rate into next year.

I think in my opening comments I mentioned -- or opening question, the ability to play some offense and seize upon some of the market opportunities that are out there.

We have additional aircraft coming in 2011 and beyond, a considerable number.

As Ed mentioned, I think we're well placed and I'm very pleased that we have again collaboration with our work force in terms of flying through tough times.

Great, guys.

I appreciate the color.

Thanks.

Thanks, Dave.

Our next question comes from Kevin Crissey from UBS.

Good morning.

Good morning.

I think you mentioned in your prepared remarks on-line travel agencies and I guess it was probably related to the Saber conversion.

Can you talk about kind of what they represent from a bookings perspective or a revenue perspective, and maybe some commentary on what you're seeing in terms of them cutting back on their booking fees and whether you've lost any website-direct sales?

Kevin, maybe at a high level, I am not going to go into detail what we're seeing through GDSs and OTAs.

We've talked in the past about GDS bookings and it would be much more relevant to the corporate customer.

But from a OTA perspective we've always looked at this as eyeballs in the past, the ability to really market JetBlue.

And Saber is going to allow us the capability to be even more surgical in terms of where we want to play and distribute where we don't want to.

So I guess -- I guess you're not going to comment on whether you're seeing any impact from, say, Expedia cutting booking fees?

Basically there is not much of incentive for people to go from Expedia to switching over and do JetBlue.com, or whatever, right?

So I'm just wondering if you can comment on that or you will comment on that?

Just from an overarching comment again, what we're seeing through JetBlue.com which is where we want to drive bookings into the airline, that remains strong and that is core to us.

As we look at Saber, that's going to continue to be our focus.

Granted, we're now into opportunities like Lufthansa, which drives a little bit different IT backbone.

But, in fact, I think we're very pleased with what we're seeing through the JetBlue.com website.

Okay.

Thank you.

Yes.

And our next question comes from Dan McKenzie from Next Generation.

I guess my question was somewhat similar to the last one and that is how you're thinking about the revenue and cost magnitude of the move to the new reservation system.

If I'm not mistaken the primary difference after versus before is full global content versus partial local content distribution.

Well, Dan, I think that there is a lot of things that we are going to be able to do with Saber versus Navitar.

The change-over will affect, not only how we can interact with Alliance partners, but also hue we distribute our inventory through Saber today.

The -- our ability to price our inventory as well, our corporate web page will change.

There is quite a few things changing with this system.

It is really, the way we looked at it was the Navitar system wasn't going to provide us with the future flexibility that we needed to play in the current market, and so the upgrade was necessary.

We think that it will be additive to our revenues.

Certainly it is going to increase some of our costs but I think at the end of the day we're going to be able to generate additional margin.

Understood.

And I guess my second question is how is JetBlue managing a potential operational hiccup, if any, from the two to three months shut down of a runway at JFK, I guess starting next March?

Yes, Dan, obviously the bay runway at Kennedy and taking out one of the most important runways we think in North America, it's a big deal.

And very pleased, though, I think with the FAA and Port Authority, the carriers, at Kennedy, obviously we're a significant player there.

And so that time frame between at the end of March into the end of June, we all agreed that first of all once the patient is on the table, do the whole project, as opposed to do stripping out over years, or under the midnight shift you end up with a much better project.

It reminds me of days back at Newark, with the runway taken out about 12 years ago which went very well.

I am expecting that we're going to see the same type of behaviors, if you will, by the big carriers and the rest of the carriers, as we all tend to peak into the summertime frame.

The ability to voluntarily limit operations to a winter schedule, as opposed to going into the summer schedule, the ability to work with, again the FAA in terms of what we're doing at Kennedy to prioritize Kennedy.

Vis-a-vis the other New York airports in weather events, because a runway is out of service.

The Secretary of Transportation and FA administrator were up n New York about two weeks ago addressing the airlines on this very specific issue, tied into New York on-time performance.

So I'm feeling pretty optimistic about it, Dan.

And all that said, hey, it is a really important runway and there will be challenges and we'll end up with thunderstorms when you're not expecting it, or wind configurations.

But I think, again, it is the right approach it is 100 day s take the pain and get it done the right way and then get into the summer flying.

Got it.

If I understood correctly it sounds like everybody is planning to fly a winter schedule for those summer months?

I wouldn't say everybody, because there are a lot of carriers that only operate one trip a day.

For them the ability for them to seasonalize up to two -- I think the main thrust is the big players out of JFK and obviously we're one of those.

We'll look into making sure -- this past year to give you a feel for it, we were something like 180 trips per day, we'll probably be something like 155 trips per day as we get into the runway construction time frame.

And I think we're seeing collaboration by the other large carriers at JFK to do the same.

That's great, I appreciate the perspective.

You got it, Dan.

Our next question comes from Mike Derchin from FTN Capital, please go ahead.

You mentioned earlier that business travel represented about 15 to 20% of your total.

Do you have a rough idea how much VFR is and how much Resort is, by any chance?

Mike, by the way, we look forward to spending some time later this week, and I think that, again we've always looked at the leisure component of it and the VFR component of it, as something that is the bulk of that traffic, it is that 80% plus of out traffic that we've seen.

VFR if you think about it really does vary by market.

Take the Caribbean, and our growth out in the Caribbean, the demographics of what is happening in St.

Martin, are quite a bit different than what we're seeing in a Santiago and the Dominican Republic.

In terms of the core leisure versus core VFR traffic.

So I think the best way to think about it is still we're seeing an uptick in business travel.

By the way, there is a lot of business travel in that part of the world, too.

And, something that is 15 to 20% in the past that is core business, anecdotally we believe is moving northbound and we couldn't be more pleased with the leisure end of VFR traction that we've seen.

Separate subject, what about your move of headquarters?

What is the status of that?

Sure, in fact we're speaking to you from Forest Hills today, and we have leases that expire in Forest Hills, as well as in the support center that we have up in Darien, Connecticut, and so I think there has been a very thoughtful approach, not unlike T5 not unlike CSS with a senior team leading the efforts in terms of is i t -- are we remaining in New York?

We're taking a look at Orlando opportunities.

We've been very transparent about this.

I would say we're really into somewhat of a jump-ball between New York and Orlando and the ability to take advantages of synergies here in New York and Orlando.

We've committed to our workforce by the way that we'd be communicating this in the first quarter of 2010 so everybody can expect accordingly and make plans for the long-term.

Great.

Thank you.

Appreciate it.

You got it, Mike.

Thanks.

And our next question comes from Jim Parker from Raymond James, go ahead.

Good morning Dave and Ed, just a couple questions regarding capacity and the flexibility that you have.

You have no more aircraft coming this year and in 2010.

What is the upper limit through greater utilization to which you could increase capacity in 2010 and then, secondly, at what point in capacity growth do you begin adding people?

Hi, Jim.

Good morning.

Yes, I don't think we're going to say what our upper bound is.

It probably depends a lot on departures and stage length and other variables.

I think we've been pretty transparent about the fact that we have some excess capacity in our system.

I think if you look back we've -- we've been able to get a lot more utilization out of our A320s, specifically, than what we're using them for today.

That said, I think that we are pretty comfortable with where we're at today, and the ability that we have to utilize those aircraft to a greater extent in 2010.

If things get -- if the economic improvement is sustained I think we also have access to aircraft in other areas, as well.

Great.

And at what point from here would you actually begin to add full-time employees, because you didn't furlough anyone as you reduced capacity, as you build it back, at what point do you have to begin to add new people?

Well, I think that's fairly aircraft-specific, when you look at pilots.

Certainly as you add frequencies, you are going to be adding full-time equivalents into our operations, from a more corporate standpoint, we probably don't require that many more heads to fly our current utilization, or slightly higher.

Okay.

Thank you.

Thanks, Jim .

Our next question comes from Helane Becker from Jesup & Lamont.

Thanks very much, operator, hi, everybody.

Just one question that I don't think was asked on the JetBlue program you did last -- in September, that the Jet Anywhere program.

Was it -- I know you don't want to talk a lot about it, but was it successful enough that it is something that you would repeat for other time frames?

Other shoulder periods?

Good morning, Helane, it certainly was successful for us, and, as we were looking at stimulating traffic into the trough, couldn't be more pleased with the results, and the comments about it, being certainly positive from a revenue perspective.

Plus the new flyers, database, True Blue, and we put a value to the marketing buzz, it was significant, as well.

So I think our teams truly believe said this is a little bit of the irreverence of JetBlue that we can do things a little bit differently into the future.

Whether it is trough or whether it's in the traditionally strong periods, people like the idea of these type of passes.

It was really, really embraced by customers, by the way, crew members, as well.

That's interesting.

Were you -- I know you stopped it early because you were concerned about having the seats available.

Excuse me, for, when people wanting to use it.

From that perspective, were there more -- were there some routes that are more heavily utilized, like say New York-Florida or New York-California, than other routes, or was it just pretty much across the board, the system?

It was very eye-opening in terms of what we saw with the demographics in the routes and maybe even surprising in many ways, too.

I won't go into any details about geography, TransCon, or Florida or short haul.

I think why this was so successful and one of the reasons we also closed out the sales early, because of the volume that we're very pleased with, but I think we wanted to make sure that we were successful with it.

When you start to take a look also, the restrictions, there is a reason why customers look at the airline industry, i think with kind of like one eye.

That is, there's always the nickel and dimming and what is next and the mouse print.

This doesn't have any of that.

Very little I should say.

The taxes and what have you, and let us know where you're going three days out and the seat is yours.

But the loyalty that this further built for the JetBlue brand far and away exceeded our expectations.

Got you.

Okay.

Thanks for your help.

You got it, Helane, thank you.

Our next question comes from Will Randolph from Citigroup.

Good morning.

Good morning.

In terms of your goal of self-funding growth, when I think about 2011 aircraft capital expenditures of slightly under $600 million, how should I be thinking about that, in terms of the level, et cetera?

Well, I think what you're looking at right now for 2011 is the firm commitments that we have for aircraft.

I think what JetBlue has been able to show in the past is that we're pretty flexible with our fleet.

We have really good relationships with our aircraft manufacturers.

So it is probably a little bit early to determine the exact number of aircraft that we need for 2011, or whether there would be the ability to sell aircraft to get down to the number that we actually wanted.

But I think I just want to leave you with the fact that we are committed to free cash flow and sustainable growth, and we'll make sure that the business plan drives that not the fleet order book.

And in terms of industry revenue, how should I think about in terms of recovery?

Does JetBlue benefit less because that recovery will be predicated on the business traveler coming back?

Or do you think you can gain share in term of that market?

It sounds like you think you do.

I look at industry revenue that, first of all, the ability to model for -- so that it works in the downturn.

And I think there's a -- a word that I would use is reset.

And I think JetBlue is very well positioned.

I don't know if that, when we start thinking about, less about market share but just this reset that is going on, there is a customer that used to fly say Boston down to Charlotte and paid $800, and as opposed to what we're seeing in the Richmonds of the world, traditional markets, so there is a reset that's going on, so I think that the more exposure, the more trial that we get we are so well positioned.

Business flyers when they do board JetBlue, they say, wow, it is kind of nice on TVs to watch the business markets and the national news and the aircraft is quiet.

And it's a very nice business environment.

My sense is when the economy reboots itself to whatever level, granted, the tide is going to raise all ships, but I think we're really well positioned with our network to take advantage of it.

If I could just squeeze in one last one.

In terms of quantifying your opportunity in terms of Coach and Lufthansa, can you give us any sense for that?

And I thank you.

You got it Will, I think, if I may, I think it is right back to Mike's earlier question.

It is so early and when we were out to sail less than -- just a couple of weeks ago and first travel on November 11, so our commitment to being transparent though is there as we have mentioned in the past, Air Lingus 50 to 100 customers per day in our route system, across Boston and Kennedy.

Some type of transparency we believe that we will be able to provide regarding Lufthansa traffic.

I think the theme again that I would close on, our network at JFK and our new terminal at Kennedy and the opportunity to monetize JFK as a gateway, is very, very important part of our strategy gone a go-forward basis.

Thanks, again.

You got it, thanks, Will.

Our last question comes from Steve O'Hara from Sidoti & Company.

Good morning, I was hoping you could comment on some of the spot transactions in New York and any competitive changes you may be seeing from Southwest or any of the other carriers?

Well, I think it's -- and good morning, Steve -- I think that, as we look at -- and granted there is an awful lot that's happening with slots specifically at LaGuardia airport and into DCA, as well.

I think the airlines that are participating in that for their business purposes right, that is probably a better question for them.

However, we're taking a look at what it will mean potentially if there is up gauging of activity here at LaGuardia, of course there is going to be an impact, right, because capacity is such an important driver into revenue opportunities for us.

So we'll have to see what happens assuming that that transaction is closed out.

I think I would be remiss if I didn't comment again on our interest in also growing down in the Washington area.

Including down at Reagan National Airport.

We've been on record with that in the past.

So it's interesting to see what's playing with the slot transactions.

The Southwest to your question, granted now, growing at LaGuardia, in Boston, as well.

And it appears that there is more growth that has been announced in Boston than at LaGuardia so far.

Maybe that's a result of slots, I'm not sure.

What we're seeing with Boston-Baltimore is a very good indicator of the JetBlue brand and couldn't be more pleased that we've already announced additional service with our foray into Boston-Baltimore..

Keeping a keen eye on capacity here, Steve, but again feel very well positioned in New York with not just Kennedy, LaGuardia, Newark, White Plains and Stewart Newburgh, five airports in our portfolio.

And then just real quickly the change in the JetBlue from I guess a customer spend versus a mile standpoint, I mean, is this kind of the first change in the industry in that kind of a process, and do you think going forward that will help kind of maybe improve the revenue aspect of that program?

Well, I think it's -- mainly we're being -- we're reacting to feedback from our customer base, and I think what we've heard from our customers is the ability to -- especially those who may be flying shorter haul, the ability to be recognized, if you will, through the price of their ticket, as opposed to the miles that they're flying.

So I don't know if -- if this is an industry-first or not, here in North America.

But I think it's being -- it is listening to our customers and making the changes.

It is things like last-seat availability.

It's the availability to further build loyalty at the end of the day.

I mean, that's what drives us.

It is loyalty.

You can get a customer once.

How do you get that customer for life?

All right.

Thank you very much.

Thanks ,

This concludes our session with investors and analysts.

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

Hey, thanks, John.

Just in closing I would like to thank everyone for joining us on the phone today.

But I'd also like to personally thank all of our crew members for a terrific effort not just in the third quarter, but ongoing as we are very close to our 10-year anniversary.

And today as we celebrate our one-year birthday with terminal 5, such an important part of our footprint in New York, that is a very special day.

Thanks for joining us today and we'll talk to you again next quarter.