JetBlue Airways Corp (JBLU) 2011 Q1 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to JetBlue Airways First Quarter 2011 earnings conference call.

Today's call is being recorded.

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

Also on the call for Q&A is Robin Hayes, JetBlue's Chief Commercial Officer.

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.

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

Dave Barger.

Please go ahead, sir.

Thank you very much, Sandra.

Good morning everyone and thank you for joining us today.

This morning we announced first quarter net income of $3 million, or earnings of $0.01 per diluted share.

These first quarter results reflect the impact of a 35% increase in fuel prices year-over-year.

Despite having paid $91 million more for fuel in the first quarter than we would have paid at last year's prices, we reported a 5.5% operating income improvement year-over-year.

Our first quarter results and fourth consecutive quarter of profitability demonstrate our continued focus on discipline, growth, and profit maximization while maintaining a strong liquidity balance.

I would like to take this opportunity to thank our 13,000 crew members for another exceptional effort in delivering the JetBlue experience to our customers each and every day.

Our success depends on running a safe, reliable, customer-oriented and highly efficient operation.

Our first quarter results reflect the hard work and dedication of our crew members.

We generated record first-quarter revenues of more than $1 billion, which is a 16% year-over-year improvement.

Our first quarter revenue performance exceeded expectations as a stronger fare environment contributed to significant year-over-year revenue gains.

Additionally, our January and February passenger unit revenue results outperformed the ATA domestic industry average.

Passenger unit revenues were up 14% versus last year driven by an 8% increase in yield.

During this period, our average one-way fare was $150.

Our highest quarterly average fare ever and a 6% improvement year-over-year.

These higher fare levels reflect the strong demand environment and our ability to attract higher yielding customers.

In the first quarter, each of our regions produced a year-over-year RASM improvement, demonstrating the strength of our entire network.

This impressive first revenue performance showcases how we continue to capitalize on the investment we made in Sabre during the first quarter of last year and the success of our network strategy.

To that end, our network in Boston and the Caribbean has better positioned us to produce solid revenue performance.

Boston and Caribbean capacity continue to grow, while the rest of our network capacity decreased by 2.5% in the first quarter.

Our goal is to leverage the strength of our brand and to continue to invest in opportunistically take advantage of other airline capacity pulldowns in these regions where we deem appropriate.

Last week, we reached a milestone.

Operating 100 daily flights in Boston.

Further solidifying our position as the largest airline serving Boston-Logan International Airport.

By June, we will offer non-stop service to 42 destinations out of Boston.

The greatest number of destinations an airline has ever served out of Boston.

To put that into perspective, JetBlue flies to twice as many non-stop destinations as any other carrier in Boston.

This certainly helps us build relevance to the high valued customer.

Those who traditionally travel for business.

As part of this effort, we plan to begin service to Newark with four daily flights in May, seasonal service to Portland, Oregon, commencing in May, and three times weekly service to Santiago in the Dominican Republic starting in June.

We increased first-quarter capacity in Boston about 20% year-over-year and expect to continue to benefit from competitive capacity reductions in JetBlue markets, which will decrease by approximately 3.5% year-over-year in the second quarter.

As our footprint expands in Boston, we believe it is even more important for us to continue delivering the superior customer experience, both in the air and on the ground.

To that end, we are working diligently with Mass Port to further enhance the ground experience by combining the two security checkpoints in our terminal which should improve customer flow.

The new centralized security checkpoint is expected to open in mid-June, which is certainly good news for those of on you the call in Boston.

Moving to the Caribbean, in June, we expect to be the number one carrier to Puerto Rico in terms of seats.

By the summer, we expect to serve seven destinations with 27 daily departures, and we're planning to add additional service from San Juan in May to Tampa and Jacksonville, and to St.

Martin in November.

San Juan is a great example of how we have been able to take advantage of competitive capacity reductions to strengthen our foothold.

In San Juan, we plan to increase departures by roughly 25% year-over-year by this summer.

In the Caribbean and Latin America, our visiting friends and relatives, or VFR traffic, compliments our strong leisure traffic base from a seasonal and day of week perspective.

This continues to enhance our overall revenue performance, especially during the shoulder periods.

The Caribbean was our best-performing region in the first quarter.

Our most recent city opening in the Caribbean, Providentialas in the Turks and Cacaos, has exceeded our expectations and has performed extremely well from day one.

We will continue to add capacity in this region and take advantage of changes in the competitive landscape.

We expect competitive capacity in the Caribbean to decrease by approximately 18% in the second quarter.

By the end of this year, we expect nearly a quarter of our total system capacity will be in the Caribbean and Latin America.

While our growth focus remains in Boston and the Caribbean, we continue to leverage our unique position as New York's hometown airline, long with our valuable slot portfolio at JFK to expand our partnership footprint.

During the first quarter, we announced partnerships with Lon and Virgin Atlantic, allowing us to connect customers to South America and Western Europe.

Our agreement with Lon covers connections at JFK, while Virgin Atlantic covers Boston, JFK, Orlando and Washington-Dulles.

We're also extremely pleased with the positive customer response these additional partnerships have produced and expect these benefits will continue.

During the quarter, we added functionality to www.jetblue.com enabling customers to book tickets that include segments on our airline partners.

We began online interline sales with three of the partners Aer Lingus, American Airlines and Cape Air.

Until now, customers could only buy this sort of ticket directly from our partners or through a travel agent.

As always, any interline ticket that includes space on JetBlue and one of our partners comes with the benefit of check in to the final destination and through check-in of baggage.

We plan to add more partners that we can sell on www.jetblue.com.com later this year.

As we have discussed in the past, partnerships are an extremely important part of our growth strategy.

We plan to continue to expand beyond the current nine partnerships we have in place to attract new customers and provide additional connection opportunities.

Higher fuel prices and volatility in the oil markets continue to pressure all airlines.

However, we believe that we're well-positioned to address this challenge.

We have one of the youngest most fuel-efficient fleets in the industry and a prudent fuel hedging program to help reduce price volatility.

One of the benefits of having a direct relationship with our crew members is being able to rapidly react quickly to market conditions.

We have worked with our pilots on best practices such as single-engine taxi to conserve fuel.

In today's high fuel environment, our continued focus on ex-fuel cost is imperative in order to remain competitive.

We have been encouraged by the industry's ability to pass through a portion of the fuel price increases in the form of higher fares to our customers.

This is a sharp contrast to the environment in 2008.

As we discussed in January, our 2011 capacity plans support our continued expansion in both Boston and the Caribbean.

Fuel prices have increased over 15% since January and with that comes heightened urgency to make disciplined market and frequency decisions to maintain our financial strength.

We now plan to grow our full-year ASM's between 6% and 8% in 2011, compared to 2010, representing a reduction of 1% point from our previous guidance in January.

We're reducing our capacity primarily through reductions in utilization and day-of-week pulldowns.

In the second quarter, we expect capacity to increase between 7% and 9% year-over-year, driven mainly by the Easter and Passover holidays shifting to later in April this year.

In closing, I would like to, once again, thank our crew members for all of their contributions to the successful quarter.

We are faced with a challenging landscape given current fuel prices and the nature of our highly competitive industry.

Nevertheless, I believe JetBlue remains well-positioned.

We believe we have one of the strongest liquidity positions in the industry, an effective fuel head strategy and our network is generating solid revenue performance.

Our profitable first quarter results reflect our focus on disciplined growth and investments in our business, which better positions JetBlue for continued customer loyalty and brand differentiation while delivering long-term value to our shareholders.

And with that, I'd like to turn the call over to Ed Barnes for a more detailed review of our financial results.

Thank you, Dave.

Good morning, everyone and thanks again for joining us today.

Joining Dave and the entire management team in thanking our crew members for their hard work and taking care of the six million customers who flew with us during the first quarter.

We're very pleased to report net income of $3 million, despite having paid $91 million more for fuel in the first quarter than we would have paid at last year's prices.

Along with the fuel environment during the first quarter, severe weather in the northeast negatively impacted our operations, including several multi-day weather events.

Despite these challenging events and fuel volatility, we believe the steps we have taken to manage our growth and build our network, and maintain a strong liquidity position have enabled us to deliver a profitable first quarter.

And prove revenue performance was the key driver of our profitability during the first quarter.

Passenger unit revenues for the first quarter increased 14.1% compared to a year ago.

Yield during the first quarter was up 7.7% and load factor was up 4.6 points on a 1% increase in capacity.

These results exceeded the guidance we provided in January, mainly driven by our significant yield improvement.

In addition, severe weather in the northeast in January and February resulted in lower-than-expected depletion factor, which had a positive impact on PRASM.

We're extremely pleased with our revenue performance for the first quarter and continue to be encouraged by bookings.

During the quarter, revenue increases out paced the significant fuel increase.

While it is uncertain whether this trend will continue, it is certainly positive.

Turning to this quarters ancillary revenue performance which would measure as a combination of ancillary revenue reported in passenger revenue and those in other revenue.

The total ancillary revenue in the first quarter was about $21.00 per passenger, a 15% year-over-year increase.

We called it in the first quarter of last year, we waved the significant amount of change in baggage fees due to our system in transition to Sabre, resulting in lower ancillary revenue and leading to strong year-over-years results in the first quarter of this year.

In March, we implemented a $5.00 increase on our even more leg room product which continues to exceed our expectations.

In addition to the EML increase in March, we implemented a $5.00 increase on our second bag fee, which should help drive additional ancillary revenue this year.

Fuel, of course, remains our most significant cost comprising more than 0.33 of total operating expenses in the first quarter.

Since our guidance in January, we have aggressively managed our fuel portfolio and volume hedge.

For the second quarter, we have hedged approximately 43% of our anticipated jet fuel requirements using collars and crew call options.

We are planning on a fuel price of $3.37 per gallon in the second quarter and $3.32 for the full-year, including the impact of hedges and taxes.

The underlying details of our hedged positions are more fully -- or more specifically outlined than our investor update, which will be filed later today.

As indicated in the investor update, the prices are based on the forward curve as of April 15 and exclude transportation into plane fees.

We continue to actively manage our fuel hedge portfolio and have one of the youngest, most fuel-efficient fleets in the industry.

Somewhat mitigating the impact of fuel volatility.

We also continue to reduce flights that under perform at higher-fuel prices.

Excluding fuel, our first-quarter unit costs rose approximately 6% year-over-year.

This was slightly worse than our guidance as weather-related flight cancellations reduced our plan year-over-year ASM growth by about 1%.

Excluding the impact of these flight cancellations, ex fuel costs would have been in line with our January guidance.

Our maintenance expense for ASM increased 34% year-over-year.

This was primarily attributable to the gradual aging of our fleet, additional aircraft out of warranty and an increase in the number of heavy maintenance checks performed year-over-year.

Sales and marketing expense increased about 12% for ASM year-over-year, mainly due to the timing of a new advertising campaign and a reduction in advertising spend in the first quarter of last year, which was unusually low due to our Sabre cut over efforts.

Aircraft rent increased about 8% per ASM year-over-year, driven by the fixed use A-320 aircraft we began leasing last year.

Salaries, wages, and benefits increased approximately 7% year-over-year, due to the increasing seniority of our crew members and additional training associated with our growth plans for the second half of the year.

Moving below the line, interest expense decreased 5.3% year-over-year, or $3 million, due to lower debt balances.

Interest income and other increased $2 million due to gains from the mark-to-market of fuel derivative contracts.

We entered the quarter with unrestricted cash and short-term investments of $1.1 billion.

During the first quarter, we remain approximately $40 million in debt and capital lease payments.

Our scheduled principal payments from debt and capital leases are expected to be a very manageable $15 million in the second quarter, and $95 million for the second half of the year.

In regards to the fleet, JetBlue ended the quarter was 164 aircraft.

During the first quarter, we took the liberty of one Embraer E190 and two Airbus A320 aircraft.

Through the remainder of this year we are scheduled to take the delivery of two additional A320's, one in of the second quarter and one in the fourth quarter.

One of our E190 deliveries will be moving from the second to the third quarter due to the limited availability of aircraft engine parts manufactured in Japan.

Included in this delay, we expecting to take delivery of E190 in the second quarter, two in the third quarter, and one in the fourth quarter.

We are also returning a leased E190 aircraft in the second quarter.

With these deliveries and returns, we expect to end 2011 with a fleet of 169 aircraft comprised of 120 A320's and 49 E190's.

We continue to focus on growth funded by cash from operations and aligning our aircraft order book and network strategy.

To that end, we have exercised an option to opt out of two E190 aircraft scheduled for delivery in 2013.

We are now scheduled to take 5 E190's and 7 A320's in 2013.

We believe we are better positioning JetBlue for the long-term with these fleet actions.

With regard to CapEx, we spent approximately $15 million in non-aircraft CapEx, and $110 million in aircraft cutbacks during the first quarter.

We estimate capital expenditures of about $115 million in the second quarter and $500 million for the full year, $390 million of which relates to aircraft.

Our non-aircraft CapEx includes $40 million related to ITD.

With minimal capital commitments and debt maturities for the remainder of the year, we expect to end the year with cash as a percentage of trailing 12 months revenue of at least 25%.

The current fuel environment puts the pressure on positive free cash flow goals.

However, we continue to focus on and take actions in pursuit of this goal.

We believe with our strong liquidity, we remain well-positioned in the current competitive landscape and we can confidently weather today's fuel prices.

We are pleased with our recent revenue performance and the demand for our service is strong.

The benefits of industry fare increases and the fuel surcharge on our Caribbean routes implemented in the first quarter are expected to have a greater impact going forward as those increases mature.

In April, which has the benefits of a late Easter and Passover holiday, we expect PRASM to increase approximately 12% to 13% year-over-year.

The timing of these holidays have a greater impact on our monthly results of traffic and stronger focus.

Our May visibility is still somewhat limited due to the closing nature of our booking curve.

But we are pleased with the bookings thus far.

We expect PRASM to increase between 15% and 17% year-over-year for the month of May.

With higher fuel prices pressuring costs, we continue to focus on maintaining the low cost structure.

Given the recent fuel prices in the second quarter, we expect CASM to increase 18% to 20% and 15% to 17% for the full year.

In the second quarter, we anticipate that ex fuel CASM will be up between 3% to 5% and will range between flat and 2% for the full-year.

In closing, given the current fuel environment, we are extremely pleased with our profitable first quarter, reflecting our continued commitment to our brand, customers, crew members, and shareholders.

We continue to diligently manage our growth and our cost to ensure that we maintain our industry leading liquidity level while still delivering excellent service to customers.

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

(Operator Instructions) The first question is from Michael Linenberg from Deutsche Banc.

Please go ahead.

Oh, yes, hey.

Good morning.

I guess, two questions.

Dave, in your prepared remarks, you had talked about how JetBlue was outperforming on a RASM basis.

I am curious.

Are you looking at your RASM and just are you comparing it to the domestic for the industry or are you comparing it on a system basis?

Good morning, Michael.

We're look at it compared to the domestic landscape.

Okay.

I just -- the reason -- and thanks for the classification.

The reason I was asking, you know, I know you vindicated now roughly 25% of your businesses is the Latin America --.

Right.

Piece and I am curious if you have, you may not have that data available and I know we can get it from form 41 down the road, if you would have it, you know, how you performed, vis-a-vis breaking out, you know, the Latin piece, Latin versus domestic if you have that at your fingerprints.

Hi, Michael, it's Robin Hayes.

Hi, Robin.

Hi.

Yes, the comparison that we did is actually the adjusted domestic number.

We do have the number.

It's not something that we hope to shed externally.

Okay.

And largely because our network down there is still small compared to the competitive set, so it's probably not that meaningful.

Okay.

Okay.

And then just a second question and, you know, Ed mentioned -- he made the point of feeling confident that you can weather given the current fuel prices.

And I would say, current fuel prices are high and looks like they expected to be high through the full year just based on the current forecasts.

It would suggest from now, in order to at least hit the type of metrics that you have aspired to hit in the past, you would have to see some pretty meaningful fare increases to the latter part of the year.

I mean is that, you know, in that statement, is that what is baked in there?

You think the revenue trends that we're seeing now will continue through the year, that you feel like you will have pretty good traction on keeping fares -- up at the level that we saw like in the March quarter, which think is an all-time high, the 150.

Yes, Michael.

Again, I will stay away from comments regarding fare actions into the future.

Really, the fare increases that we have seen over the course of the first quarter, I think our numbers, domestically and internationally, we participated in 13 of 20 of them.

Okay.

And we're starting to look at the forward curve of oil, which is pretty flat throughout the rest of the year.

And what we know about the revenue environment today.

That is really what is driving the comments that we have seen, you know, tied into hedge prepared comments.

I think also, you start to see -- you start to see whether it's the fare increases previously put into place or also the fuel surcharges down into the Caribbean, that have been put into place.

You start to really see the benefit of those over the course of the full year.

That is what is behind that right now.

Okay.

Okay.

Very good then.

Thank you.

Okay.

Thanks, Michael.

Thank you, the next question is from Bill Green from Morgan Stanley.

Please go ahead.

Dave, just a quick question about how you think about participating in fare increases, and not?

When you're not participating, is it that you're worried and seeming less in demand?

How do we think it will be sort of 13 out of 20 and not 20 out of 20, given what fuel's done.

I appreciate that, Bill.

Let me have Robin on kind of the philosophy, if you will.

Good morning.

Hi, Bill.

I think as we think about fare increases, you know, we thought the approach of being reminded to want to participate.

We have wanted to make sure as we have gone that we think that is not going to choke demand or do something that may [stress demand].

So, a lot of increases have happened very quickly and sometimes you just want to take a pause for a few days and see what is going on.

And other times, it's possible that we had something different in mind and we just wanted to execute something a bit differently.

And so, we waited for a different opportunity to do that.

Okay.

And when we look at the capacity in CASM tradeoff, you took down the capacity a little bit, which would suggest some elasticity you're seeing, and you went to the top of the range on CASM.

Does it suggest there is almost one-for-one relationship there or are there stuff that you can do more to take more costs out; if fuel keeps moving, I'm trying to figure out how reluctant you may or may not be to take out more capacity.

Bill, it's Ed.

I don't think that we're reluctant to take out capacity.

I think the question is to whether to take out capacity or not, is really a network and route profitability question related to fuel more than it is associated with our cost structure.

And certainly, there are things that we can do to take additional costs out of our cost structure, but at this point in time, I think we're pretty confident in the investments that we're making and our brand and our customers and crew members, and we don't feel the need for that at the moment.

So, In other words, it's sort of safe to say that the pain point would sort of grow if we took more out?

I'm not sure why you wouldn't look to be taking out both costs and, if necessary, if you can't push the fares through the capacity.

It was not quite clear to me.

And I don't think we want to over react to fuel prices in the near-term and stop making investments that are necessary for the longer-term.

And I think you can make certain network actions if you're not cash flowing on a specific route, maybe the day, week-type action, shoulder period actions and I don't think that impacts the investment we're willing to make in the business.

Okay.

All right.

Thanks for the time.

Thanks, Bill.

Thank you, the next question is from Jamie Baker from J.P.Morgan.

Please go ahead.

Hey good morning, everybody.

Morning.

A question for Robin.

One of the things I'm thinking about at the industry level is whether carriers are spending too much time and money on expense of cost insurance, fuel hedging, and not enough time actually focusing on cost recovery as part of the process by which tickets are constructed.

Some of the other domestic low-cost carriers, you look at Spirit and Allegiant, they're trying to push the envelope in this regard.

I'm wondering if you think there is room for JetBlue to potentially revise how you construct the tickets or is the current model already optimized and the best we're going to do?

Jamie, I think we have -- Jamie, I think we're consider -- to the value proposition for the customer.

I think it's important to us, that brand loyalty, we have a very high customer repurchase intend.

So, we do not want to do anything that jeopardizes that because we that is what gives customers the reason to keep coming back to JetBlue.

We really focused identifying revenue streams by offering new products and services to customers like EML.

And really where we hit up on something that is successful, continuing to -- that is the reason to and to increase the price point.

If you look at what we did with the EML last year with the early boarding, what we would be rolling out in a couple of months with that on-set of fast track security at selected airports and really using that to improve the products and the price point.

Things like our getaways product and the growth that we're seeing there.

We have kind of taken that approach to the, rather than sort of nickel and diming -- and stripping and bubbling the product.

And since you brought up expedited security, that is a topic near and dear to my heart, both as an analyst and passenger.

Can you give us a quick update on that?

Yes, it's something we're going to start to roll out here in a couple of months; initially at a selected set of airports and continue to grow as we get more airports on stream.

But is that -- is that for certain fare categories?

Is that something like -- or something like United where you buy a pass, you know, from an eticket machine and then hand it in?

Is it a revenue driver or loyalty exercise?

We think it's both.

We think loyalty drives revenue but it is going to launching as a benefit of the EML product.

Got it.

Got it.

Okay, thanks for the answers, Robin, appreciate it.

Take care.

Thank you.

Thanks, Jamie.

Thank you, the next question is from Gary Chase from Barclays Capital.

Please go ahead.

Good morning, everybody.

Morning, Gary.

And I wanted to clean up a couple of things and then I had a broader question.

Ed, when you gave the April numbers, do you think there is a significant impact for the way Easter shifted on the calendar and have you thought about qualifying what that might have done to your March revenue and what that might be doing to your April revenue?

I think I will let Robin take that one.

And normally -- we look at the March and April together because of the shift in the Easter and Passover effect and normally the impact we see is sort of a 2% to 3% because of the change in the holiday.

Yes, but you don't have that full affect this year.

So, really what I'm after, I'm trying to get my arms around your previewing a number in May that would look to be a little bit of acceleration from where you are in April, and I am wondering, in fact, if it's not even more acceleration because April is being helped by this issue that we're talking about now.

And you think it's in the two- to three-point range that we're talking about, even though Easter is not fully out of April this year -- or last year?

That is how we look at Easter, between March and April and it's a comment about May.

I think, one of the reasons that we have spent so much time and investment in Boston is to allow us to build a business the model that allowed us to fill those [troughs] in a bit better.

And so, that allows us the opportunity to continue the improve our performance during what has been some of the sort of the trough and [show] the months to JetBlue.

And would you characterize the guidance as acceleration the way I did or is it more function of what happened last year when you didn't have enough of the offpeak traction, you know, whether it was Boston or for other reasons?

No, I think that -- May of last year was a tougher month for us, as well.

Okay.

You brought some of that in the annualized [contract] -- and you have this march to April shift through Easter and Passover.

You don't think May is a material acceleration over April?

No, I am not surprised by May based on what we saw last year with May and what we're trying to do in Boston by increasing the amount of business travel that we get up there.

Okay, and then one last cleanup point, Ed, in your prepared remarks, you said something about the competitive capacity in Boston, or maybe it was Dave being down or more headwind or less tailwind from competitive capacity, you know, as you look forward.

To the best of my knowledge, no one is actually adding there.

That is just a function of what happened a year ago, right?

Or am I wrong?

Has someone started to add capacity to Boston outside of you, that we haven't picked up on.

No, I think there is a bit of additional capacity that one of our competitors is added back in Boston, but as well, I think we haven't seen any significant shift.

Okay, thanks, guys.

Thanks, Gary.

Thank you, the next question is from Duane Pfennigwerth from Evercore Partners.

Please go ahead.

Hi, good morning.

Good morning.

Ed, I just wanted to ask about your other revenue and your total RASM growth.

This is the first quarter in a while where total RASM grown faster than your passenger RASM.

And just wondered, is there anything one-time nature there or should we expect that trend to persist this year?

I think it was in some remarks that they gave, you do have a good quarter-on-quarter comparison because of the Sabre cut over last year.

And waiving a lot of change fees that we didn't -- we kind of got back to normal cadence with this quarter.

And I think some of the price point champs to EML and second bag fee, I think it happened later on, so you'll start to see that.

Do you think they should grow similarly or could RASM grow faster than PRASM this year?

We will limit our comments on revenue to April or May.

Fair enough and then, just on your X fuel cost guidance.

Looks like at the mid-point, it implies about down 2% in the second half.

I wondered if you could comment on the run rate by quarter if the back half.

Should it look similar -- 3Q, 4Q?

Or is there one quarter where it's going to be down materially?

Hi, Duane.

You have to look at both the first half and second half of the year.

The first half of the year, especially in the first quarter, we had the impact of some winter ops and we also, in the first and SEC half of the year, have a lot of training events associated with the growth in the second half of the year.

We also have maintenance a little bit more front loaded.

So, probably by the third quarter we'll benefit more from a lot of that because there is a big increase in ASMs in the third quarters, and we don't have as many training events or maintenance cycle during that period as well.

So, there is a lot of cost investments we have incurred the first half of the year and we won't have as significant costs in the second half.

Thank you.

Thanks, Duane.

Thank you, the next question is from Glenn Engel from Bank of America/Merrill Lynch.

Please go ahead.

Good morning.

A question, really, on capital spending.

So I can understand that you really can ignore your return on capital goals in the short-run because of the opportunities created by American and others withdrawing from Boston and the Caribbean.

To what point do does ROIC really start to matter and you really can't justify spending when your ROIC is below target?

Hi, Glenn.

I think we tend to take a longer-term look at that.

When you think about capital expenditures, the majority of capital expenditures are really associated with fleet.

And those the fleet activities and commitments were made quite a long period ago.

I think the right timeframe to look at that is 18 to 24 months out, as to whether you can reduce some of that.

We did announce this quarter that we opted out of some E-190 deliveries in 2013, so we're trying to realign some of that.

But again, I think that we view ourselves still as the growth carrier that needs to make some of these investments that are network end markets.

I don't know if it's appropriate to hold us at this point in time to a short-term ROIC goal.

Our goal right now is free cash flow.

Can you talk about your current views on LiveTV?

Yes Glenn, good morning.

Robin now has responsibility for that within JetBlue.

Robin just some comments on LiveTV?

And ViaSat, and what have you?

Sure, the focus on LiveTV at the moment, in addition to the core business is increasing in the connectivity space.

Our partnership with ViaSat and the ability to offer to Ka-band for airline customers from next year I think is a unique opportunity for LiveTV.

And then, you would've seen that we have signed a MAU to provide the K-connectivity to the 737/ 757 fleet of United, the old Continental aircraft, it is part of United.

We have a lot of interest on other potential customers, nothing of yet to talk about.

We think the Ka band will allow us to create a very different experience on board for customers and at a price point that is much more competitive than what they find from competitive products today.

Any change of views in keeping LiveTV within JetBlue Corp?

At the moment, we're very focused on making that work as part of the JetBlue family.

Thank you.

Thanks, Glenn.

Thank you, the next question is from Jim Parker from Raymond James.

Please go ahead.

Good morning, gentlemen.

Good morning, Jim.

From all I have heard so far, your commentary and projections are thinking regarding RASM; is it safe to say, then, given all the fare increases that us this far there is really no resistance on the part of the travelling public to paying the higher fares?

Jim, just a comment overall it's been -- this has been so different than 2008, and when we saw oil running back in 2008, and today, the crack spread, 30, 31 and you start talking about the economy and the strength of the economy year-over-year.

I don't think we used the term robust, if you will.

I think what we're seeing across the domestic landscape and into our international markets, it's been quite positive.

When we look at the results of our cost of fuel, Ed noted $91 million more quarter-over-quarter in the first quarter and really our ability to share that with customers and so, quite positive.

Robin, any additional comments regarding what you are seeing?

No, not yet.

That's something that we are very mindful of every time our increase goes in.

We do watch that very carefully.

As of yet, we haven't seen any sign of demand being choked by these price increase.

We're coming in to what is always a strong time, as we head into the summer for us.

And the summer bookings, as far as we can tell right now and seem to be beyond -- and what we expected them to be.

I think if there is any sign of weakness in the industry, we won't see that until the fall but as of now, we haven't seen that.

A second question, of course a component of your growth strategy is the partnership program that you have with JFK connecting with these international airlines.

I am curious, how has that manifest so far?

What are you seeing, I believe you suggested that the fare will not -- will be the same as the local fare.

Are you seeing that?

How is that going to be manifested, in higher loads?

Higher fares?

Or what is it?

Jim, just a clarification as well, with the nine partners that we now have, (inaudible, multiple speakers) Lon and Virgin Atlantic in Q1, we anticipate announcing another one actually in the very near-term and so, the classification was not just Kennedy, obviously the [friend] that we have at Kennedy can the network and also Boston.

Now, we're starting to see a Washington-Dulles, as well as Orlando.

And the sum of sector philosophy, what is happening with the nine carriers is actually been very positive.

I think of it as diversification, too.

So, it's not just Boston or the curving of Latin America, but the diversification mainly across JFK and the ability to really attract first time customers to us.

Because here before, it hasn't been easy, if you will, to have a seamless experience.

Robin, from a standpoint of load or fares or -- thoughts regarding the partnerships?

No, the -- that is exactly right.

The way I look at it, it's just another source of business that is going to drive our core demand.

So, of course, it will allow our revenue management team, as a result of that, to yield up and, you know, optimize the flight according to the demands.

Clearly, that is where we create more streams of demand and because many of these sales are occurring in international markets there is a high-level of that, that is incremental in us.

This will allow us to yield up or load up or a combination of both, and that is how we look at the space.

Because we are very protective of the yield, we can manage it as a source of demand.

As it's coming into our own website.

Okay, thank you.

Thanks, Jim.

Thank you, the next question is from Will Randal from Citigroup, please go ahead.

Good morning.

Good morning.

You guys have talked about the desire to self fund growth, but with the current high fuel price environment, we might see some -- call it free cash flow use, with the four years delivery cadence.

I guess, how do you think about a sustained high fuel prices are here to stay and free cash burn creeps up.

Would you look to adjust your fleet plan or find other ways to fund the growth?

Hi, Will.

I think that is obviously a complex question.

It has a lot of things that are dependencies on that, such as how the economy's doing and what the revenue environment looks like.

So far, it was like the revenue environment has been covering some of those fuel costs, and we'll have to see if that traction continues.

As I said, we kind of look at that almost 24 months out as probably the right time considering what your fleet actions might be.

So, we'll pay very close attention to what is happening in the near-term, and we have shown before that we're not afraid to make the right fleet actions to fit what the network wants for any particular year.

So, your goal remains to self fund growth, is what I am hearing.

It remains free cash flow.

Yes.

Ed, we talked about this before.

I recognize the industry landscape has changed the past years, particularly seating density has increased at some of your competitors.

I know JetBlue has an outstanding product in terms of seat back entertainment and other attributes.

So that said, would you increase seating density level, still better than competitors, to improve revenue per plane, returns on capital, and to fund some of the desired capacity growth of schooling incremental Cap Ex?

I would say right now, we're very focused on the value proposition, which includes, you know, our even more leg room cabin, as well as the best leg room pitch in the industry.

I don't think we're reconsidering that at any point in the future.

I don't know, Robin, if you want to offer comments on that.

I think, obviously, that is when we won -- frequently, additionally, adding seat on the aircraft does triggers some additional costs in terms of in-flight crew.

In addition, EML is a runaway success for us and we're very happy with it.

Anything that we do to increase density also has to off-set the gains we see through EML by having potentially less or no EML seats.

And so far, we think we are optimized from the revenue stroke cost, so it's delivery perspective.

Sorry, I wanted to follow up on that real quick.

You said the map on the EML looks very attractive.

Can you talk about that a just a little bit?

You have as much seating pitch, as some of your competitors have in the first-class cabin, in the EML rows.

I think we have shown since we have cut out the [Sabre] and we had the ability to optimize EML.

I think we have taken advantage of that and we put in a number of price increases, the latest as recently as March and we continue to see we have been able to do that without choking demand for the product.

We have a number of things planned later this year, I talked about one of them in terms of fast track security at selected airports.

There are some other things that we're are thinking and planning to do that we think will continue to build awareness of the product.

We think, what we have is a simple, clean and effective product that allows us to offer a strong value proposition to customers at a price-point that is compelling; whilst allowing us to deliver it simply and consistently and at minimal incremental costs.

We really think that is the sweet spot as we talk to corporate customers and as we build our corporate customer base, increasing EML is a product that they're learning about and finding very attractive.

Thanks, guys.

Thanks, Will.

Thank you, the next question is from Hunter Keay from Wolf Trehan.

Please go ahead.

Thank you, good morning.

Good morning.

I hate to bring up the bag fee thing again.

I am sure you saw American raise their second bag fee from I think it was zero to $30 in the Caribbean recently.

My understanding is there is a lot of bags that fly down there and you guys are getting really, really good pricing.

Have you given any thoughts of pursuing an aggressive unbundled product down in that specific region just based on sort of what your competitors are doing?

It's Robin.

We're very, very pleased with our Caribbean performance as it is and we think the, you know, we think we have the right product for that market.

Certainly, until that change, some of that competitive made life tough in a couple of markets, but I think at the moment, we see the Caribbean as the core part of the JetBlue's network.

We're going to continue to grow it comfortably, and no plans to change anything right now, or to unbundle anything from that.

Okay, thank you.

And I'm curious to know how you think about the Spirit Airlines as a competitor given their aggressive growth in Fort Lauderdale.

Doesn't look like there is a lot of direct city overlap, but the products are so different.

And you're both doing okay but do you think you get a measurable yield premium against them?

Do you feel like you serve different customer bases?

And how do you think about them, just specifically out of the Fort Lauderdale market?

As a competitor?

Yes no, a couple of things.

I think actually, I think, our observation on Spirit out of Fort Lauderdale was actually -- they have been there reducing capacity and redeploying some out west.

What if we continue to grow Fort Lauderdale, and so, I think we feel very good about what we're doing down there.

I do think the market , maybe, of Spirit and Southwest would attract, are very different.

I think we're absolute first, the seat pitch value proposition.

And we think that the different customer routes and I think our ability to continue grow forward has shown that we are successfully in that

All right, thank you.

Hunter, thank you.

Thank you, the next question is from Helane Becker from Dahlman Rose.

Please go ahead.

Thank you very much, operator.

Hi, gentlemen.

Thanks for taking my question.

Just on the cut over last year from Sabre to this year, can you comment on, you know, put some meat on the bones with respect to one corporate travel revenue.

And two, what the revenue improvement was on a dollar basis on a year-over-year basis?

Helane, good morning.

With the CSS cut over that we had with Sabre, obviously, we're a year beyond it right now.

I don't know if we're going go specifically into detailing what we're doing in the corporate world and a number of corporate customers.

We're pleased with what we're seeing with the penetration and the GDS community and the corporate customer and what we're doing to enable that also in places like Boston.

Robin, any additional comments you want to provide on CSS?

We talked about it before.

The focus on us on our corporate book of business and has been out of Boston.

I think we have been pleased with the progress we're making there.

A percentage of bookings that come through the more traditional corporate travel agents has significantly increased, albeit of a very small base.

And, you know, we expect to see that continue.

We start the Boston Europe flights in May and that's been a market where fares have traditionally been very high and has choked a lot of demands.

We think our ability to come in there and to stimulate lower fares and additional demands.

I think is going to be welcomed by the Boston market.

And we are going to continue to add relevance, we serve over 40 destinations direct to Boston and I think it is twice as many as our nearest competitor.

And I believe it is right to say that is the most non-stop destination that has been served by any airline, at any time in Boston.

We're going to do that.

We haven't broken that out on our corporate revenue.

What we said is 15% to 20% of JetBlue customers are flying on business, and that number is higher in and out of Boston.

That number would be higher than 20% in and out of Boston?

Yes.

Okay.

And then, can you say what you are hoping for in terms of either, I don't know if you want to put in sales or in terms of share, what you're hoping to get from the ability, you know, on AirLingus, American and [Cape Air] to book through www.jetblue.com.

Is there some goal in mind you that can kind of talk about?

We haven't talked about specific numbers publicly.

I think what we're trying to do is build the utilities at www.jetblue.com.

We want that to be a place that our customers, particularly actually, TrueBlue members can go and have access to a virtual network through our open architecture platform.

Increasingly, what you will see is more frequent flier [tie-ups] to somebody's partners that TrueBlue members can earn and redeem points on a number of airlines around the world.

And I think it's one of a number enhancements that we have planned for www.jetblue.com.

Although we do distribute to other channels, our focus is pretty much for making www.jetblue.com the preferred place for customers to come to for JetBlue travel.

Right.

Thank you very much.

Thanks, Helane.

Thank you, the next question is from Daniel McKenzie from Hudson Securities.

Please go ahead.

Good morning.

Good morning, Dan.

Thanks for the competitive capacity comments, that is something I look at as well.

And looks like AMR is handing over quite a bit at Boston and San Juan.

Congrats on the strength of the brand.

Looking ahead, the competitive landscape is evolving dramatically, given the Southwest-AirTran merger that is a precedent setting lost cost competitor merging.

AMR is growing 21% at JFK, looks like they and Delta are pretty serious about calling back the market share JetBlue has taken, and you've got Virgin growing 35% in the third quarter.

Just a portion of that in Jet Blue's market.

So, it looks like there is some income in here.

Can you update us on how you're thinking about your strategic position verses any potential need for greater critical mass to compete looking ahead?

Good morning, Dan.

You're right.

There is an evolving landscape, and you do tell it nicely, whether it's AirTran-Southwest, by the way, we compet with both in our markets.

Some changes they could -- taking place at JFK and some on the transcon as well.

Globally, the focus we have had on Boston, we were not there seven years ago and we're at 100 trips a day and moving north of that and working with Mass Port to secure the infrastructure on the ground to what we're doing.

It's taken a lot of capacity to date and earned the right for more come capacity in the future.

The non-stops, the partnership and in Boston.

To Latin America as well and the markets we have opened, for example, my comments about the Turks and Cacaos, you know, and that is punishment recognized and contributed to what we're doing, a positive way and we're seeing more markets along the lines.

I think again, strategically, we're not wavering from the standpoint of commitment to Boston and the commitment to the Caribbean and Latin America.

Additionally, we'll be doing there with the additional new aircraft we're taking this year.

The partnership diversity, I think Robin's comment about the utility of that route system and really seizing upon what we're doing at JFK has been positive.

You commented about the transcons and, that is certainly something that is very, very important to us as well and from Boston and New York, whether we're doing in it in Washington and Florida and we don't fly to one city in the bay area we're not wavering in terms of our strategy and that is interesting to see the landscape around us and the opportunities created as a result of our commitments in places like Boston and the Caribbean and Latin America.

Robin, any additional commentary?

Back to you Dan.

Okay, thanks.

The brand is strong enough to go it alone at this point and that signs like it.

Based on the quick glance of the schedule's data this morning, looks like 18% of JetBlue's capacity will be in new markets in the second quarter and I wonder if you can give us a perspective on the markets that will be the one-year markets or are you see anything data points to lead to you conclude that the markets could go up quickly.

And just to comment on your comment about 18%, I am not sure how you are depiping -- defining a new market.

That number seems high to me.

Fair enough.

I think that is -- and they can say that Dave mentioned earlier, the understanding of the Caribbean.

18% from 18%.

We're added Provencilalis in February and a couple of markets from May and Jacksonville and Tampa and we have Boston U, and so far, we have anchorage with the red-eye and Martha's vineyard and that is it in terms of new market.

The 18% seems high.

I'll circle back and sounds like that new service is wrapping up okay?

Provencialis, a wonderful February and with that routes and from day 1.

Okay, thanks a lot.

Appreciate it.

Thanks, Dan.

The last question is from Steve Wilder from Capstone Investments.

Please go ahead.

Steve Alder, your line is open.

If your phone is muted, please unmute it.

I want to piggyback on an earlier question.

You and others have been saying there is little price sensitivity in the overall system.

Can you give us more color on price sensitivity on business versus others?

Advanced bookings and break it into consumer-related markets like lauderdale and Vegas, versus marketing like New York and Boston?

No, Steve.

I would start simply by, at the moment, I would enjoy a difference in either of the segments.

We're seeing both of the segments hold up pretty well.

Again, I think, one of the unique things about JetBlue and the value of proposition and even as times get tougher for corporate, there is a retreat to value and I think we provide a great solution and if I go back to the financial crisis, the end of 2008 and the way that a number of companies relook to their business travel and as a result.

Many of the changes and carriers like JetBlue are determineinant.

They're diversified between visiting friends and family and JetBlue's packaging and -- packages and they're holding up strongly right now.

Okay, thank you.

Steve, thank you.

This concludes our session with investors and analysts W.

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

Thank you very much and for those of you joining us today or listening on the website.

We appreciate you joining us for the first quarter.

Thank you again to our crew members and we'll talk to you again after the second quarter.

Thank you very much, have a great day.

Thank you, Ladies and gentlemen, this concludes today's conference.

Thank you for participating.

You may now disconnect.