JetBlue Airways Corp (JBLU) 2011 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the JetBlue Airways third-quarter 2011 earnings conference call.

Today's call is being recorded.

We have on the call today Dave Barger, JetBlue's Chief Executive Officer, and Mark Powers, JetBlue's Chief Financial Officer.

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.

This call also references non-GAAP results.

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

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

Please go ahead, sir.

Thank you, Christine, and good morning everyone and thank you all for joining us.

We are pleased to announce another profitable quarter for JetBlue.

Today we reported net income of $35 million or earnings of $0.11 per diluted share.

These results include the impact of a $5 million loss associated with the prepayment of a portion of our convertible debt.

Excluding this special item, JetBlue would have reported net income of $38 million for the quarter.

Despite an uncertain economic environment total revenues grew 16% year-over-year.

Our strong revenue performance was offset by a 22% increase in operating expenses, driven primarily by $162 million of additional fuel expense as JetBlue's fuel price for the third quarter increased over 40% versus last year.

High fuel prices continue to pressure the industry.

However, we continue to focus on revenue diversification during shoulder periods and aggressive cost management helping mitigate the impact of escalating fuel prices.

We ended the quarter with roughly $1.2 billion in unrestricted cash and short-term investments or 28% of trailing 12 months revenue.

We continue to believe a strong liquidity position is paramount in this high fuel costs and uncertain economic environment.

JetBlue's crewmembers performed exceedingly well despite the weather challenges associated with the seasonal thunderstorms and Hurricane Irene, whose path traveled directly through the core of our network.

Flight operations were suspended in New York and Boston resulting in approximately 1,400 flight cancellations or roughly two-thirds of our flights over three days.

Thanks to the extensive preparation that went into this significant weather event, including moving 50 aircraft out of New York Kennedy and Boston, we were able to get the airline up and running safely and quickly with minimal impact to our customers following the storm.

I would like to take this time to thank our 13,500 crewmembers for their extraordinary efforts in delivering outstanding, safe and reliable service to our customers and for their hard work and dedication during a very busy summer.

Our third-quarter results were driven by strong revenue performance.

We believe our 7.7% passenger unit revenue growth is particularly impressive given our capacity growth of 8.3% during the same period.

Capacity growth typically put downward pressure on unit revenues.

Contrary to this general rule, we increased capacity in Boston and the Caribbean while growing unit revenues.

We had an average one-way fare of $155, an improvement over last year of 9%.

This reflects a successful execution of our network strategy and an increasing mix of higher-yielding customers, particularly in Boston.

An important objective of our strategy is to improve revenue performance during shoulder periods.

We believe improving revenue performance during off-peak travel periods is essential to sustained revenue growth.

As such, we are very pleased with our year-over-year increase in PRASM of 13% in September, historically an off-peak travel period for JetBlue.

During the quarter we continued to build on our success in Boston.

New destinations, increased frequencies and our superior products have helped us build relevance with all of our customers, both leisure and business, as well as interline customers.

We currently offer nonstop service to 42 destinations from Logan Airport, twice as many nonstop destinations as any other carrier in Boston.

As we build relevance and gain seat share in Boston, we are seeing nice penetration of business traffic, driving higher yields.

During the quarter year-over-year PRASM growth in many of our Boston business-oriented markets significantly outperformed the rest of the network.

While we expect our growth in Boston will come at a more moderated pace next year, we still believe there are many new attractive opportunities.

We also expect to benefit from the maturation of new markets as it becomes a smaller percentage of our overall network mix.

During the first quarter of 2011 roughly 30% of Boston ASMs were in markets that were open for less than 12 months or had business schedules for less than 12 months.

We expect such new markets will only be 15% of Boston's ASM mix in the first quarter of 2012.

During the quarter our Caribbean and Latin America markets also continued to produce strong results.

Our Visiting Friends and Relatives, or VFR, markets continued to complement our leisure-driven markets very nicely from both a seasonal and day of week perspective.

As previously announced, we plan to begin service next month to La Romana, our fifth destination in the Dominican Republic, where we are the largest carrier in terms of capacity.

In addition to adding new destinations in the Caribbean we also continue to connect the dots between cities within our network.

For example, the Department of Transportation recently granted us approval to begin daily nonstop service between Bogota, Colombia and Fort Lauderdale-Hollywood Florida, home to a very large Colombian population.

We also continue to take advantage of changes in the competitive landscape to bolster our position in San Juan.

To that end we plan to expand our intra-Caribbean service from San Juan with new service to St.

Maarten beginning next month and new service to St.

Thomas and St.

Croix beginning in December.

During the quarter we continued to expand the scope of our network through airline partnerships as we began connecting customers with [Pim].

Last year we set a goal of implementing 6 to 8 interline agreements in 2011.

We remain on track to meet that target.

We now have 12 airline partners and expect to add another partner by the end of the year.

In 2012 we anticipate adding more airline partnerships and creating new opportunities to connect international traffic and build incremental customers on JetBlue.

As our business grows in size and complexity we understand the importance of maintaining a low cost focus.

Mark will discuss our cost performance in more detail, but I would like to emphasize that cost control has been and continues to be a foundation of JetBlue's success.

We recognize that there are things we can control it and things we can't.

We can't control the economy or the price of fuel, but we can control our productivity and overhead.

Prudent management for our controllable cost is always front and center.

A high fuel cost environment makes this further an imperative.

Before closing, I would like to say a few words about the Chief Financial Officer change we announced last week.

Ed Barnes joined JetBlue in 2006 and was named CFO in 2008 during a transitional period in JetBlue's development.

He played a very key role in our efforts to slow the growth and create a sustainable growth strategy that continues to benefit the Company and its owners.

I would like to take this opportunity to thank Ed for his valuable contributions to JetBlue's success.

In closing, I would like to once again thank our 13,500 crewmembers for all their hard work during the third quarter.

Despite a high fuel cost environment and challenging economic conditions, JetBlue's low-cost structure, strong liquidity position and network strategy have positioned us well.

We believe our unique culture and direct relationship with our crewmembers will provide the foundation for future success.

We are committed to growing on a sustainable basis and generating positive free cash flow, while recognizing free cash flow is not a return metric.

That said, please note we are focused on improving margins and generating appropriate returns for our owners.

Our long-term goal is to consistently achieve a return on invested capital that exceeds our cost of capital.

While we clearly have more work to do, we believe moving to an ROIC metric is appropriate for us and we anticipate measuring ourselves accordingly.

We plan to discuss our roadmap to improving shareholder returns in more detail at our Investor Day, which is being planned for next February 15.

Details will be forthcoming.

And with that I would like to turn the call over to Mark Powers for a more detailed review of our financial results.

Mark.

Thank you, Dave.

Good morning everyone.

Thank you again for joining us today.

Overall it was a very good quarter.

We reported a profit of $35 million and an operating margin of 9%.

We delivered these results despite higher fuel expense compared to last year of $162 million.

As we will discuss, strong revenue performance helped offset the impact of rising fuel.

I join Dave and the entire leadership team in thanking our crewmembers for your contributions to the solid financial performance, and for your hard work taking care of customers, particularly during extraordinary events such as Hurricane Irene, which we estimate negatively impacted third-quarter operating income by net $8 million.

This includes lost revenue of approximately $18 million, offset in part by cost savings of $10 million.

Our quarterly revenue showed solid improvement year-over-year.

Passenger unit revenues increased compared to last year by 7.7%.

Yield during this quarter was also up 7.7%.

Load factor was slightly lower by 0.1 points on 8.3% more capacity.

While load factor was slightly lower, we are pleased with the trade-off for higher yields.

We are also pleased to see the steady demand for our product as we committed to growth capacity in Boston and the Caribbean.

Monthly PRASM improved throughout the quarter.

Specifically PRASM was up in July by 5%, in August by 7%, and in September by 13%.

As Dave mentioned, we are especially encouraged by the strong September PRASM.

Again, this reflects our success to improve shoulder period revenue performance.

Evidencing this trend is the significant improvement in both yield and load factor on Boston transcon markets, including Boston-San Francisco and Boston-LA.

Ancillary revenues continued to improve.

Recall, ancillary revenues is measured as the combination of ancillary revenue reported in the passenger revenue and other revenue lines.

During the third quarter ancillary revenue per passenger was about $19, a year-over-year increase of 7%.

This increase was driven primarily by our Even More Space product, formally known as Even More Legroom.

Even More Space is on track to generate more than $100 million in 2011 revenue.

In response to the strong customer demand for this offering, we recently added up to six seats to the Even More Space inventory on our aircraft.

On a unit basis third-quarter total revenue did not grow up as quickly as passenger revenue.

Due to the lingering nature of Hurricane Irene, we voluntarily waived significant change fees for our customers, resulting in lower change fee ancillary revenue.

While revenue improvements helped offset rising fuel, fuel, of course, remains our most significant cost.

The single item comprised roughly 40% of total operating expenses in the quarter.

During the quarter we paid $137 million more for fuel than we would have paid at last year's price.

This is a year-over-year increase of more than 40%.

We believe the best hedge against fuel prices is better fuel efficiency.

Fortunately, we have one of the most fuel-efficient fleets among the US major carriers, with an average age of only 5.9 years.

In addition, we continue to actively manage our hedge portfolio essentially as insurance to help manage price volatility.

For the fourth quarter of 2011 we hedge approximately 45% of our anticipated jet fuel requirements, for 2012 approximately 21%.

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

Including the impact of hedges and fuel taxes, we are planning on a fourth-quarter price per gallon of $3.23.

This represents a year-over-year increase of roughly 35%.

For the full year we are planning on a price of $3.19, an increase of approximately 40%.

We expect fuel expense for the year will increase by nearly $600 million compared to last year.

Again, as will be indicated in the investor update later today, these prices are based on a forward curve as of October 21, and as always exclude transportation and interplane and fees.

Excluding fuel, third-quarter year-over-year unit costs decreased 2.2%.

This is in line with the guidance we provided last quarter.

These results were better than our expectations when you consider the flight cancellations stemming from Hurricane Irene.

This event reduced our planned year-over-year ASM growth by about 2 percentage points.

Excluding the impact of these flight cancellations, we estimate year-over-year fuel costs would have decreased over 4%, which have would have been -- which actually would have beat our guidance range.

Looking at other key items on the income statement.

Salaries, wages and benefit unit costs decreased 4% year-over-year.

This was due in part to lower profit-sharing expense year-over-year.

Year-to-date we have accrued approximately $24 million in profit-sharing, which includes $8 million during the third quarter, approximately $4 million lower than last year.

As average crewmember seniority increases we expect to face continued cost pressures from salaries, wages and benefits due to wage scale escalation.

Year-over-year maintenance expense per ASM increased 25%.

This was primarily attributable to the gradual aging of our fleet and more aircraft coming out of warranty.

We expect to face even greater cost pressure from maintenance expense next year due to escalation in our A320 contracts, higher shop visits and additional heavy maintenance work on airframes.

Other operating expenses, which include the bulk of our discretionary spending, decreased 7% per ASM.

This decrease demonstrates continued commitment to low-cost spending.

In addition, we incurred a $6 million write-off related to LiveTV during the third quarter of last year, which of course positively impacts year-over-year comparisons.

Moving below the line to other income, nonoperating expenses were roughly $9 million higher than we anticipated due to a couple of items.

One, we recorded a $5 million loss related to the payment of a portion of our 6.75% convertible notes.

Two, we had non-cash fuel hedging ineffectiveness losses of approximately $3 million.

And finally, we had a $1 million mark to market loss on certain fuel positions maturing this quarter that did not qualify up for hedge accounting.

Turning to the balance sheet.

We ended the quarter with unrestricted cash and short-term investments of roughly $1.2 billion.

Not included in this cash and our debt balance is a new $125 million corporate purchasing line entered after the end of the quarter.

This facility is with American Express and is to be used exclusively to cover our regular jet fuel purchases.

During the third quarter we made approximately $80 million in debt and capital lease payments, including the prepayment of $32 million principal amount of our 6.75% convertible notes puttable in 2014.

Given a weighted average cost of debt was approximately 4.6%, coupled with strong liquidity, we believe retiring a portion of higher priced debt is prudent.

As noted, we recorded a $5 million loss on the prepayment of this debt, and we believe the interest saved will be accretive to earnings.

We also eliminated the potential for issuance of 6.6 million shares associated with the debt prepaid, which no longer will have a dilutive effect on EPS.

Fourth-quarter scheduled principal payments from debt and capital leases are expected to be a very manageable $55 million.

Next year we expect debt maturities likewise of a very manageable $200 million, slightly lower than 2011.

Turning to the fleet.

In the third quarter we took delivery of two E190s.

We plan to take delivery of one E190 and one A320 in the fourth quarter.

With these deliveries we expect to end 2011 with 120 A320s and 49 E190s for a total fleet of 169 aircraft.

Looking ahead to 2012 we plan to take delivery of four E190s and seven A320s.

As you may have seen in the 8-K filed yesterday, in October we formalized our previously announced agreement with Airbus, elements of which include, one, the deferral of eight positions from 2014 and 2015 to 2017.

Two, the conversion of 30 A320 delivery positions to A321s.

And finally, an agreement to purchase 40 fuel-efficient A320 NEOs beginning in 2018.

Recall, in connection with these fleet actions, we also announced plans to reduce the future size of our E190 fleet by up to 25 aircraft.

In furtherance of those plans, we have recently taken two actions.

First, we have agreed to defer seven E190 aircraft scheduled for delivery between 2013 and 2014 to 2018.

Second, we canceled 12 E190 aircraft scheduled for delivery in 2014, 2017 and 2018.

As a result of these changes we now expect to take delivery of two E190s in each of 2013 and 2014.

In addition to better meeting our network needs, the deferral of these seven E190s will reduce our aircraft obligations by approximately $200 million in 2013 and 2014.

This will, of course, help us continue to generate positive free cash flow in those years.

Our revised delivery schedule and these transactions will be more specifically described in the investor update to be filed later today.

With regard to CapEx, during the third quarter we spent approximately $25 million in non-aircraft CapEx and roughly $105 million in aircraft CapEx.

We estimate capital expenditures of about $120 million in the fourth quarter and $475 million for the full year, $365 million of which relate to aircraft.

With minimal debt maturities and manageable capital commitments for the rest of the year, we believe we remain on track to generate positive free cash flow and maintain strong liquidity.

We expect to end the year with a cash as a percentage of trailing 12 months revenue of at least 25%, and this excludes the benefit of the American Express facility.

Turning to the revenue outlook.

Despite negative economic headlines, we are not seeing evidence of a slowdown in demand.

We are especially encouraged by the success of our initiatives to attract higher-yielding customers and for our performance during off-peak travel periods.

Looking ahead, bookings for Thanksgiving and Christmas holidays are shaping up nicely.

The word that probably best characterizes our revenue outlook is healthy.

Based on the data collected thus far, we currently expect year-over-year October PRASM to be up 9% to 10%.

We estimate November PRASM to increase between 7% and 9%.

Because of the very compressed booking curve with a large percentage of bookings coming inside the month, we have limited visibility beyond November.

As you'll recall, our December 2010 results were significantly impacted by the snowstorms in the Northeast.

This five-day event during which we canceled 1,400 flights reduced revenues by approximately $30 million.

As a result, we expect favorable year-over-year comparisons in December.

We expect our fourth-quarter ASM growth to be up between 8% and 10%.

This reflects continued expansion in Boston and in the Caribbean.

In the fourth quarter we expect that our year-over-year Caribbean and Latin American capacity to be up approximately 25%.

We expect year-over-year Boston capacity to be up roughly 15%.

Capacity in the rest of our network will be relatively flat.

Given our success in Boston and the Caribbean we believe growth in these regions is prudent.

Looking at the fourth quarter by month, we expect year-over-year capacity to be up about 7% in both October and November, and December capacity to be up about 14%.

Again, please keep in mind December snowstorms impact year-over-year capacity comparisons, and approximately half of December's year-over-year capacity increases can be attributed to the snowstorms.

We are currently working through the details of our capacity plans for 2012.

We expect the continuation of growth, driven by expansion in Boston and the Caribbean, albeit at a slower rate.

We are not ready to give specific guidance for the next year, but we currently expect year-over-year ASM growth to be in the mid-single digit range.

As to CASM outlook, for the fourth quarter we expect ex-fuel CASM to be between negative 1% and positive 1%.

This reflects our continued focus on running an efficient operation and maintaining a low-cost culture.

Our ex-fuel CASM guidance for the full year is 0% to 2%, and remains unchanged from guidance provided at the beginning of the year.

While fuel prices remain volatile, we currently expect CASM to increase in the fourth quarter by 11% to 13% and for the full year 13% to 15%.

In closing, again, overall a very good quarter for JetBlue.

We are executing on our strategy.

Financially we are focused on sustainable growth, balance sheet strength, free cash flow generation and, of course, low costs.

We recognize we have more work to do to improve our performance, but I believe we are taking the right actions to produce improved returns for our shareholders.

We look forward to discussing these actions and return metrics at the February Investor Day conference event mentioned by Dave.

And with that Dave, Robin and I are happy to take your questions.

We will now begin the question and answer session for investors and analysts.

We would like to ask everyone to please limit themselves to one or two questions with a brief follow-up so that we can accommodate as many as possible.

(Operator Instructions).

Michael Linenberg, Deutsche Bank.

Two questions here.

With regard to the AMEX $125 million for fuel, is there any collateral tied to that?

Did you do a forward sale of points?

Can you just -- I guess this is to Mark, can you discuss that and give us a little bit more color on that?

It is an unsecured facility.

It was not tied to our other activities, although I must say in complement to AMEX our relationship is strong, but it is not tied to points or anything of that nature.

Can you give us a feel for where -- what the cost is, what you're paying for that line then?

Probably not other than to say the interest rate that we pay on draws is competitive.

But relative to our average cost of secured debt and unsecured debt it is a prudent deal.

Can you give us a feel for where your unsecured debt would be trading right now?

Do you have a range on that or --?

I really don't.

I would only do what you would do, which would be call a banker and look at the CDS spreads and then calculate it from that.

Okay, fair enough.

And then my second question, this is to Dave.

Dave, you have done a lot on these interline agreements.

There have been a lot of announcements.

You indicated you're going to add another carrier this year and maybe some next year.

Over the year though we haven't -- there hasn't been a lot of information with respect to flows or numbers or just a feel for revenue.

Can you -- and I realize some of this there is the confidential elements of some of these agreements, but what is the pickup from some of these deals?

Can you give us maybe a feel for how much it adds to your load factors in Kennedy, and maybe to a lesser extent in Boston?

How should we think about this and its contribution to the JetBlue network?

Thanks for the question.

I'm going to hold you in a little bit of suspense, I think, until our Investor Day scheduled in February, most likely at our Long Island city facility.

But that said, it is a -- I think with purpose we wanted to really make sure that what we are doing with airline and for some of the sectors, what we are doing with limited one-way code -- and they are each a little bit different too.

Now over Boston, of course, Kennedy.

Don't forget Dulles and Orlando as well.

And the nature of these agreements is such that -- and more planned later this year and into next year as well -- is such that it also -- this also, the bookings international markets tend to take place earlier, which also takes inventory down in certain buckets.

So I think as we get into the February timeframe, Robin and team, I think this is probably an item that we do want to add color on, because at that point we will have -- we will also have not just full-year type of results, but the benefits of even year-over-year with some of these agreements as well.

So, Michael, it is one of the topics for February.

We are not trying to be secretive.

Yes, it is confidential in terms of specific agreements with certain airlines, but I will close with this.

Our open architecture philosophy, and mainly over JFK, with the aligned and the unaligned has been quite powerful.

I mean, it really has.

It has been -- we are now selling JetBlue on six continents.

And, Robin, it is probably not lost either with the Hahn agreement as well.

The 250 customers in the Hahn where we are reaching airlines throughout the world.

So, Michael, Kennedy is a great gateway, and I look forward to adding more color into February.

Okay, fair enough, thank you.

Jamie Baker, JPMorgan.

David, you cited a view that a high cash balance is, I think, paramount was the term that you used in this uncertain environment.

But the balance as a percentage of trailing revenue is meaningfully above the industry.

And it hardly seems to me that the industry ever is certain.

Is this really optimal level of liquidity long-term, especially just given the low returns that you generate on cash?

I think internally over the years we have said that we wanted to be really north of 20% over trailing 12s, and we have been obviously lower than that in times in the past as well.

So closing the quarter at 28%, as Mark alluded to, end of the year with north of 25%, we do believe that it is prudent when you consider the -- not just the economy -- but also the volatility of fuel.

All that said, it is -- you know, Jamie, when I think about our ability with a strong cash balance sheet to be in a position to be active when we start to take a look at acquisitions of assets such as swaps, this is something that we really forecast was going to take place.

And you bet we are going to be aggressive along those lines.

So this is what cash balance sheets allow us to do, let alone provide for the unexpected.

Mark, do you have anything you want to add to that?

Jamie, thank you for reminding me of the returns item on our cash.

(multiple speakers).

(laughter) Thank you very much.

Apart from the opportunity to vigorously participate in the purchase of assets like this slot, which as you know, doesn't happen a lot in terms of an opportunity.

I agree with you in that respect.

Partly that was the rationale behind purchasing the data.

I am also looking at, as we look in our delivery of an A320 in November, I will probably buy that with cash.

And we certainly have the same flexibility as we consider amongst our financing options for the 2012 aircraft, purchasing aircraft for cash is also on the table.

Got it.

And, secondly, you talk about improving margins.

The airlines that cut capacity in the third quarter only saw slight declines year-on-year in margins.

You chose to grow and saw the more significant margin pressure.

Delta plans to cut capacity in the fourth quarter.

They are guiding up on margins.

Most expect the same at United.

Your plan is to grow and your guidance appears to suggest lower margins year-on-year.

I know you have moved orders around a bit.

Thank you for going through that.

But how do we really reconcile longer-term the desire for higher margins with an appetite for growth, because it isn't entirely clear you can do both?

It is a -- I think again -- and it is not lost on us, but -- what the rest of the industry is doing and our strategy.

That said, let me take you inside Boston.

Let me take you inside the Caribbean and Latin America.

The fact is we are affecting the competitive landscape.

And I don't mean that in an arrogant sense.

When you look at year-over-year OAL reductions in Boston, closure of crew bases, access to gates, I mean, these are opportunities that don't come along that often.

And I think we have truly -- our relevance in Boston and our growth that is taking place in Boston year-over-year in our prepared remarks 25% in the Caribbean and Latin America in the fourth quarter, and over 15% year-over-year in Boston.

So let me take you down into the Caribbean, and much of, snowstorm aside, when we look at opening Liberia down in Costa Rica, as well as St.

Thomas and St.

Croix, La Romana, again these are opportunities when we start to take a look at our returns and how they are really additive to the network, this is what is fueling our growth this year.

It is going to fuel our growth next year.

And the rest of the network is relatively flat; it really is.

We take a hard look quarterly, and if something is not working, make a hard decision, whether it is reduction in frequency, routes or even if we had to close a station, which we are not in a position to have to do at this point in time.

So we are contrarian.

I know we are contrarian.

Margin is very important to this Company.

But these opportunities are truly -- I am not going to say unprecedented, but they are big in Boston and they're also big down in the Caribbean and Latin America.

Okay, thanks for the color.

See you on Investor Day.

Gary Chase, Barclays Capital.

Good morning everybody, and official congratulations to Mark.

I wanted to see if we could maybe walk through some of the revenue dynamics.

I wanted to see if what your view was on how much legs this concept of off-peak revenue gain has.

And then to maybe make it a little more concrete, if you could help us think about what your November forecast implies for the first two weeks versus the back half where we would consider it more peaky?

Peaky, we are going to spell check that one.

But, by the way, if I may, just introduce Robin into the call as well.

There is an Investor Day as well.

We are working on the forecast for snow as well, right, to make sure that it doesn't happen in New York on that day.

But we are also get inside places like Boston and the growth that Jamie was asking a question about, and the type of customer that we are seeing in Boston as well with those destinations.

But, Robin, a little bit more focus to Gary's question on the month-to-month, if you will, revenue.

Sure, hi, good morning, Gary and good morning everyone.

I think we talked on this call before, I know, about the -- as we diversified the network particularly in Boston and target the business traveler, we are seeing better year-on-year comps in some of our off-peak months.

We saw a very strong one in May.

We saw a strong one in September.

October is a month -- it is sort of -- we have traditionally described as a shoulder period.

If we look at November then we continue to see a lot of strength in early November, really behaving -- we expect that to behave very much like some of the other sort of off-peak months where we have strong business loads.

As we get towards the end of November with the Thanksgiving holiday -- we understand and understand and that was something that we've seen before.

Traditionally JetBlue has always done really well in those periods.

So we continue to see strong off-peak gains.

And as we look forward, Dave mentioned in Boston next year that we expect more routes to be -- more of our markets to be in a mature phase, so I think we will definitely see some significant upside there.

And we expect really that to offset some of the -- even with some of the other airline capacity changes we have seen, even if that starts to slow down, we should see the benefit on the other side with a more mature network.

So it sounds like we shouldn't expect this to end anytime soon, at least several more quarters.

Fair?

We are not giving exact guidance obviously pass the October/November timeframe, but we think our strategy is solid and it is one we are going to continue to execute to.

And then just one on the cost side for Mark.

What gets this turned around?

There was a big step up in cost in 2010 that we always believed was surrounding the Sabre cutover.

We had expected that there would be the ability to leverage some of those costs.

You talked about maintenance pressures for next year.

It is sounding like it is going to be another year where you've got material growth but still some unit cost pressure.

Is there a way to turn this around and what might define that?

I would say, again, remind everybody that but for Irene our CASM ex-fuel performance would have been in the 4 range -- negative 4 range.

So I think we really -- we have really moved a long way in the recent number of quarters.

Not to get overly philosophical, but it is fundamentally a nickels and dimes business.

There is not a magic wand I can wave and suddenly costs will evaporate.

It is really hard work.

It is interesting you asked the question, because we are literally in the process of going through our budgets right now.

And, Gary, it is a tough slugging process.

And that is the kind of process that myself and the other members of the leadership team and the other leaders in the call centers are going through and we are committed to.

So I don't -- I wish I could say these are the three things we are going to focus on that is going to make it swing big.

It is a nickels and dimes type of an environment, and we are intensely focused on all of them -- all the costs.

Okay everybody, thank you.

Bill Greene, Morgan Stanley.

Something we haven't chatted about in some time now is just LiveTV.

And the reason I think about it is just that it strikes me as potentially something that is not going to increase in value as Internet services and Wi-Fi make it onto more and more planes and people can look at their own content on iPads and whatnot.

So how do you think about what you want to do with that?

Isn't there some need for urgency to think about monetizing that?

By the way, we couldn't be more excited with what is happening with LiveTV today.

And it is really as a result of the partnership at ViaSat and the satellite launch that took place successfully a week ago today in Kazakhstan.

So as we move into really broadband capability at altitudes -- different model than others, I will tee up Robin here for comments from a commercial point of view.

And Robin has a LiveTV unit reporting into him here into the airline as well.

But it is a -- this satellite that was built by Space Systems and Loral on behalf of ViaSat that literally is sitting on the horizon south of Tucson, Arizona at 22,500 miles, I've got to tell you, we believe this is going to change the landscape at altitude.

Robin, additional color?

Thanks for the question.

No, I think the connectivity space is a great opportunity for LiveTV.

The partnership with ViaSat is extremely important.

And obviously we have the commitment to launch Ka-band on JetBlue next year.

We have a Memorandum of Understanding planning to also introduce the same connectivity on the [CAL] fleet at United.

And actually I think this creates a broader market for LiveTV rather than a narrow one.

So, no, I think in terms of is there any kind of desire, any panic to have some kind of fire sale on LiveTV?

No, I think the opposite is true.

We will be considerate and thoughtful.

And we think connectivity is a great opportunity, particularly for those airlines looking to combine a -- connect Internet and TV experience.

Because despite the huge progress and strides that have been made with connectivity and the additional bandwidth and options that Ka gives us versus KU and some of the ground-based products, you still -- LiveTV is still a product can't be streamed through those technologies, and so we think there is room for both.

And will there be a way to monetize it to a greater extent on the plane than you currently do?

Well, I think, my view is the more options that you put in front of customers, the greater the opportunity there is to monetize that asset, because the greater breadth of product you are providing them.

So, in other words, get it through fare or demand?

Sorry, Bill, I didn't follow -- understand the question.

Sorry, I am just saying, in other words, when you offer these greater level of services you essentially find that there is even more demand or an ability to price higher.

Yes, yes.

I think if you're talking about the sort of pricing of the connectivity then that is something we are still working through, but absolutely, I think the -- what really compelled us to look at Ka and work in partnership with ViaSat is it allows the airline as JetBlue, and also United, one of our other customers, and future customers to control the pricing in the way that they want to do.

And you can vary that by sector, by customer, by bandwidth use, and so we have a lot of flexibility to monetize the asset.

Okay.

And, Dave, can you just give us an update on any of the efforts among employees to unionize -- remind us where the pilots are on that?

First of all, with the pilots, as I believe shareholders are aware and on this call, but we had an affirmation by our pilot group for -- in support of our current model, the direct relationship with our crewmembers.

And by the way, I don't think you necessarily win these things.

I think you can lose a lot, but it is this affirmation I think that is so important with our contrarian model with our crewmembers.

And really out in the rest of the landscape, Bill and to others on the call, we have had ongoing pockets of discussion that take place.

That has been the case over the course of several years.

We don't believe that there is anything that is a crescendo on the landscape right now with any work groups, but we are absolutely aware that there are unions and third-party representation efforts ongoing at our Company.

We know that has been the case.

We know it is going to be the case, and that is how we are running the Company on a go forward basis.

I will close with this though, we can't be more pleased for really the affirmation on behalf of the pilots, especially considering the change in the voting environment with the NMB rule change earlier this year and the record 97.2% turnout.

Bill, thanks.

Will Randow, Citi.

Congratulations to Mark.

Mark, as you know, I have always been a fan of yours, especially when you cut the order book.

But I was looking at your first-half 2011 pretax profits per aircraft, counting the E190s as two-thirds an A320.

And JetBlue is only running about 156 -- sorry, 150k per aircraft.

That compares to another meaningful carrier at Fort Lauderdale running Airbus that was running about $1 million per aircraft.

So I guess my question is, have you run the incremental pretax profit, as well as ROIC analysis, for increasing seating density in your aircraft and taking less aircraft, and how do you think about that?

Yes, we do, and I will share the answer with Robin on that, because it really goes, I think, to the core of our product.

Our product is very different than [Spirit].

And our customers are probably very different as well.

What our customer will tolerate is probably not to be found on the higher, denser aircraft into Fort Lauderdale.

So it really does go to the heart of customer expectations and our ability to maintain the products and performance that you have seen.

I think, Will, just to follow on, it is Robin here.

Now, as we said before, our view is with the -- particularly with the strength of Even More Space that we actually have the configuration on our aircraft that maximizes our margin.

And secondly as we look at our competitor in Spirit -- in Fort Lauderdale with Spirit, which you raised, I would just like to point out that in quarter four their capacity is down nearly 29% in JetBlue competitive markets, which I think speaks for itself.

I think the customer is clearly choosing our brand and our product.

Okay, great.

And then the question for Dave and Robin.

You mentioned Boston PRASM was outperforming the system.

Can you share your competitive capacity for Boston, as well as your system for the third quarter and your expectations for the fourth quarter, and just kind of talk about business mix as well?

In terms of quarter four, I will give you that number.

We look -- currently view (inaudible) capacity is down about 6.2% in our Boston markets.

I don't have the number for quarter three.

I don't think it would have been much different.

In terms of business mix, I think, again we will probably be ready to talk about that a bit more specifically in February -- Investor Day, but we continue to see traction and our business mix out of Boston is significantly higher than the 15% to 20% JetBlue average.

Sorry, just I just want to make sure I caught it.

For the fourth quarter what was your system (technical difficulty) capacity?

And thanks again.

The Boston number is 6.2% quarter four.

Okay, perfect.

Thanks, guys.

Glenn Engel, Bank of America.

Two questions.

In the third quarter weather hurt you in comparisons, and in the fourth quarter weather should help you in comparisons.

And yet you have your non-fuel unit cost doing -- going down less in the fourth quarter than third quarter.

So what is the bad guys that are causing things to get tougher in the fourth quarter?

The fourth quarter, again, I did want to affirm that we are not changing full-year guidance; it is still zero to 2.

What happened in the fourth quarter is we anticipate that some items that were deferred from the third will be moving to the fourth quarter, notably some marketing and maintenance expenses were shifted to the fourth out of the third.

And on the ancillary side you mentioned you are increasing the -- more space.

You said it was 6.

What percent of an increase is that, and should that mean I should see a proportional increase in that $100 million of benefit?

On the Airbus we currently -- before this change we had six rows, so 36 Even More Space seats.

So that is going up to 42.

That represents an increase of, what, just over 15%.

On the Embraer 190 we have four and we are going up to eight, so that represents 100% increase.

And just as a reminder, both of these changes are being made without any change to the -- our overall seating configure -- density on the aircraft.

We remain at 150 on the Airbus 320 and 100 on the Embraer 190.

Are there any other ancillary opportunities out there?

I think something we have mentioned before, next year we are still looking to increase the amount of Even More Space on the aircraft.

The 190 aircraft out of Boston, quite often the seats are sold out several days before departure, and so business travelers flying the last-minute who are looking for that product can't get it.

So as we said before we are -- we do have a plan next year to add another two rows of Even More Space seats on the 190.

Again, without removing any seats in the aircraft.

And secondly, with the successful launch of our Even More Speed line at 15 of our airports -- there is more to follow -- we do have the opportunity to potentially unbundle that next year and sell that as a standalone product, and it is something we are evaluating.

In addition, we continue to see very strong growth in our Getaway Vacations Division, which we think will continue as we continue to expand it currently in our part of the world.

Thank you very much.

Dan McKenzie, Rodman & Renshaw.

Dave, I guess or Robin, I am wondering if I can give you a little friendly push back here at the New York market.

And the reason why is the bulge bracket banks have all made it pretty clear that they're looking to cut back headcount, 5%, maybe to 10%.

Who really knows, but Delta, obviously calling that out as an area of weakness on their conference call.

I think your schedules are pretty firm to the first quarter, if I understand correctly, and yet you folks, it looks like am seeing you grow, call it, 4% and the broader New York market.

So I'm wondering if you can provide a little perspective about given the -- what Barron's would call, I guess, a neon swan.

That is something that is blindingly obvious -- and not a black swan, a neon swan.

So it looks like New York is going to be pretty tough heading in the first quarter.

I am wondering if you can provide a little bit more perspective about what gives you the confidence to grow 4% in this kind of backdrop?

Sure, no, I am always happy for friendly and unfriendly push back, so thanks for making it friendly.

As we look at New York, predominantly a leisure franchise, and a lot of the growth that you are seeing is in some of the markets that we are bringing on quarter four this year.

So Dave talked about La Romana in VR and Liberia, Costa Rica, which we are very excited about.

So I think that is one point.

The other thing I would just remind you from last year, we did have some pilot hiring which we had to catch up on last year, so we did take our quarter one schedule down a bit.

And so in terms of comp quarter one to quarter one that is lightly unusual.

Got it, okay.

And then I guess --.

And our New York franchise is not very dependent on the financial services sector and the banks, although we do have a lot of bankers flying somewhere -- we are always happy to see them.

Understood, okay, well, I appreciate that.

Then, I guess, for my follow-up question here, I'm wondering do we have any labor cost increases that we should be thinking about?

I guess since the pilots decided not to unionize was there any kind of exchange in terms of compensation that we should be thinking about heading into the first quarter or into next year?

None whatsoever.

Okay, thanks very much.

Duane Pfennigwerth, Evercore Partners.

So the near-term competing capacity trends look favorable, but I am just wondering longer-term if you have any thoughts on Delta slot swap with US Air?

On the surface it would appear to be bringing more capacity -- domestic capacity to New York, but wondering how you're viewing that?

We actually view the slot swap as very positive.

I think as Dave said earlier, we intend to be active bidders on both the LaGuardia and the BPA slots.

I think both of those airports are -- airports and markets are important to us.

And I think our franchise at JFK is very specific, very defensible, and we don't really expect any change as we have got that slot swap to occur.

Anything operationally at JFK, any implications there?

No, we don't believe so.

Okay, and then with respect to your ex-fuel cost growth next year, if we look back at this year it was really two halves.

You had up substantially in the first half and then we have been flat to down here in the second half.

So as we think about next year which half is it going to look most like?

And any line items that you can talk about either favorably or unfavorably into 2012?

We haven't obviously given guidance on yet, so it is harder to provide accurate expectations.

I can tell you just as proof of the matter where I am spending a lot of my focus is, of course, on maintenance costs and wages and fuel, which of course again is almost a day-to-day thing by virtue of the changing volatility in fuel curves.

But then I can only repeat what I said, which is that the entire team is really focus on everything right now.

And we look forward to at the Investors Day giving you a little bit more color on that whole outlook.

Thanks Mark and Robin.

Hunter Keay, Wolfe Trahan.

Robin, can you talk to me for a little bit about how Virgin America has been behaving as a competitor?

I mean, based on some DOT filings they have got an extremely light cash position, and I am just wondering if you are seeing them price maybe what you define as irrationally -- irrationally I should say, maybe in the pursuit of cash something like that?

Have you noticed any kind of changes in their behaviors from a competitor perspective recently?

No.

To be honest, we don't spend much time looking at Virgin America.

But from what I recall in terms of looking at the summer, pretty rational pricing on the transcon by all airlines.

And nothing into the fall I would consider to see that suggests that anyone is trying to behave irrationally or bring the pricing down.

Thanks, Robin.

Mark, just quickly on hedging, I don't know if you have noticed this, but I'm sure you did, Southwest pared back a significant portion of their hedge book.

And they're only about 15% hedged if WTI is less than $100 a barrel in the first half of 2012.

They have got the balance sheet to take that kind of a risk, and I think it is admirable, actually, and I wish the entire airline industry would stop hedging, which would make fuel become much more of a pass-through.

You have got a lot of cash.

You have got a good balance sheet.

Your hedging strategy has become increasingly complex.

Now with maybe Ed's departure does this maybe open up a window to readdress to a certain extent how you are hedging and maybe consider not hedging at all?

We actually evaluate the hedge policy literally on a quarterly basis with the leadership team, and in fact other advisers that we have retained on that.

So it is always -- we are always questioning ourselves asking that question -- what are we missing here?

So it is an appropriate question.

I don't think -- I don't expect right now that there will be any significant changes to the approach that we have taken.

Yes, and you will see in today's investor update there is a broad -- a variety of products that we do use literally based upon the term that we are trying to insure.

I continue to believe that some protection against the volatilities of this marketplace are appropriate.

I would also note that since 2002, while I don't look at hedging as a device to speculate fuel prices, but rather to insure our volatility risk, we have been in the money by about $43 million, $44 million.

So overall the program since 2002 has not lost us any money at all.

Okay, thanks everyone.

Jim Higgins, Ticonderoga Securities.

Just one quick question on commentary on December revenue.

I know [RAL] revenue was hit pretty hard by the winter storms last year.

What does it do to PRASM?

Is the PRASM comparison made more or less difficult by those storms?

We expect the PRASM comparison to be better.

Obviously, we are not guiding specifically to what that is.

That is all I need to know.

Thanks.

Kevin Crissey, UBS.

Can you talk about -- and maybe you have and I have missed it -- the Sabre revenue trends?

Sure, hi, it is Robin.

We continue to see a lot of positive developments with the Sabre platform.

We continue to turn on new functionality as time goes by.

Something we have talked about before, one of the biggest benefits, in addition to some of the improved inventory and pricing capabilities that it gives us, we have seen considerable shift into the corporate travel agency space, particularly in Boston, which I think has really helped fuel our remarkable pricing growth there on top of large increases in capacity.

On the downside it is also increased the [potential] business that we are getting through the online travel agents.

We have talked about that before as one of our strategic challenges.

But we continue to make good progress driving that revenue down as a percentage.

It remains one of our priorities to continue to reduce the amount of business that we are getting through the online travel agency counters.

Thank you.

That is it for me.

Helane Becker, Dahlman Rose.

It is just two easy ones.

One is with the increase in the Caribbean capacity do you have to wind up hedging more in the summer months to account for potential hurricanes?

That is a great question.

Hi, good to hear your voice.

I think the answer is it doesn't necessarily impact the volume of hedging that we do.

I will also say though, and I think we would probably describe this a little bit further at the Investor Day, but there are some other types of things that I do to hedge our hurricane risk, including actually pre-purchasing physical and storing and that sort of thing.

Which at least over the past two years has been very, very successful, again, as a way to ensure that we are not only insuring against volatility, but also assuring ourselves of supply.

So there are some other nonhedge things that we do to address hurricane risk seasonally.

Great, thank you.

And then my other question is completely off topic, which has to do with Lufthansa's investment in the Company.

They mentioned at their recent Investor Day that they were looking at diversifying away from that investment.

And I was just wondering, Dave, do you have the right of first refusal to buy back that stock or would -- have they talk to you about that at all, or can you just talk about that Lufthansa arrangement?

I am aware of the commentary that took place.

And all that said, not aware of anything -- any dialogue specific with us, because it hasn't taken place.

So it is really all I can offer you at this point in time.

It is a -- we have been very appreciative of the Lufthansa investment, the Board as well as guidance at a global level.

It is just such a great company.

So that is where it currently stands.

Okay, can you say if you have right of first refusal to buy back the investment?

I would have to check that.

I believe that is the case, but we would have to affirm it and we can do so after the call.

Okay, thank you.

Bob McAdoo, Avondale Partners.

Just a quick one.

I notice that your aircraft rent is down going from second quarter to third quarter by little more than 10%.

Could you tell us what drove that?

Actually, off the top of my head I don't know why, but I can get back to you on that.

I appreciate it.

Thanks, that's all I had.

Okay, good catch.

We will follow up, Bob, thanks.

Justine Fisher, Goldman Sachs.

It is actually Josh with a quick question.

Looking at your field guidance for 4Q, I am wondering if you could give us a little more detail on how the hedges are affecting that versus just the baseline forward curve?

It does look like your price is a little bit higher than some of your competitors.

I am wondering if you could give us more detail on that?

Actually, let me (inaudible) the derivative aspect of that question.

A couple of things are driving, if you will, our per gallon price relative to other airlines.

Number one is that we happen to be [signist] in some pretty high fuel cost areas, notably Boston, JFK and the Caribbean.

And when I do a spot check from time to time of the average per gallon price in the Caribbean against the average price that I pay domestically, I almost see a 40% to 45% increase in the Caribbean.

And when 25% of your ASMs are there and you can't take a tank of fuel into the Caribbean, because of the distances involved, it is just one of the cost of having a nice franchise in the Caribbean.

Then, of course, I no longer enjoy the great fuel costs I used to enjoy many, many years ago when I lived in Houston.

So it is a -- Boston and JFK are high fuel cost areas as well.

So that is driving a lot of the difference.

That is very helpful.

Then just the last one is on your maintenance expense guidance.

You were talking about how you continue to expect that to be up next year because of some of the older aircraft.

And you said -- were you expecting it to just be up or up more than the 25% it was up this quarter?

And where do you expect that to finally level out as the fleet ages?

I expect it to be up.

I don't know if it is going to be in that kind of range.

As I say, we are literally in the process right now of a fairly granular level looking at how many (inaudible) we expect and airframe overhaul visits we expect next year, which of course, on the fleet of only 169 will have a big impact on total maintenance costs.

Got it, thanks guys.

This concludes our session with investors and analysts.

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

Thanks, Christine, and on behalf of Mark and Robin, thank you for joining us for the third-quarter earnings call today.

We will look forward to talking with you in another three months.

And also to our crewmembers, thank you for a very solid quarter in the third quarter and your support ongoing as we close 2011.

Thanks so much, Christine.

Everybody have a good day.

Thank you for participating in the JetBlue Airways third-quarter 2011 earnings conference call.

This concludes the conference for today.

You may all disconnect at this time.