JetBlue Airways Corp (JBLU) 2012 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to JetBlue Airways' first quarter 2012 earnings conference call.

Today's call is being recorded.

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

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

As a reminder, this mornings 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 Dave Barger.

Please go ahead, sir.

Thank you, Sandra.

Good morning, everyone, andthank you all for joining us today.

We are very pleased to announce another profitable quarter for JetBlue.

This morning we reported a first quarter profit of $30 million or $0.09 per diluted share, an improvement of $27 million compared to the first quarter of 2011 and the best first quarter performance in our history.

Operating margin increased 3 points to 7.4%, as a 19% increase in total revenues covered $80 million in higher fuel costs.

While high fuel prices continue to pressure the industry, JetBlue was able to fully offset the increase in fuel expense with record revenues.

A strong pricing environment and the ability to execute on our network strategy in key markets such as Boston and the Caribbean allowed to us achieve these strong results.

JetBlue ended the quarter with approximately $1.2 billion inunrestricted cash and short-term investments, or 26% of trailing 12 months revenue.

We continue to believe a strong liquidity position is paramount, particularly in light of today's volatile fuel prices.

These results, of course, would not be possible without the hard work and dedication of JetBlue's 14,000 crew members who deliver the JetBlue experience to our customers, an experience that we believe is unrivaled in the industry and an important reason why customers choose JetBlue over other airlines.

I would like to take this opportunity to thank our crew members in doing a great job in running a safe, reliable operation.

Despite an uncertain economic environment, demand trends remained strong throughout the quarter.

Passenger unit revenues increased 8% year-over-year, even with 12% more capacity, as we once again outperformed the A4A domestic average.

While the first quarter is typically weak from a seasonal perspective, we saw significant strength in close-in bookings as our efforts to attract high yielding business traffic continued to pay off.

We believe these results -- these revenue results demonstrate the success of our network strategy, particularly in Boston.

To that end, East Coast short haul markets were once again among the best performing markets in our network.

During the quarter we continued to build relevance in Boston as measured by the percentage of domestic and international trips JetBlue serves on a nonstop basis.

Our relevance to Boston customers has grown from approximately 35% in 2007 to nearly 60% today, significantly higher than any other carrier at Logan Airport.

Increased relevance, particularly for the business customer, drives revenue and has played an important role in the success of our network strategy.

As part of our efforts to increase relevance, we plan to commence new nonstop service from Boston to Dallas/Fort Worth on May 1.

With the new service, we will serve eight of the top 10 markets in Boston as measured by passenger revenue.

We believe our Boston network strategy is working well, as profitability continues to trend ahead of expectations.

We also continue to be very pleased with the performance of our network in the Caribbean and Latin America.

We plan to build on our recent success in Bogota, Colombia, from Fort Lauderdale-Hollywood International Airport to Bogota's El Dorado International Airport beginning on May 7.

Bogota is consistently among our most profitable markets, and we expect to announce further expansion in this region in the very near future.

We continue to see significant potential for profitable growth in the Caribbean and in Central and in South America.

To that end, San Juan Puerto Rico continues to play an increasingly important role in our network as we seize on changes in the competitive landscape and expand service there.

We recently announced our plans to move into new and larger facilities in San Juan.

We believe the new facilities will allow JetBlue to efficiently accommodate future growth planned at the airport and improve the overall customer experience.

During the quarter we continued to expand the scope of our network through our growing number of airline partnerships, as we announced new agreements with Japan Airlines and Korean Air.

In addition, we recently announced plans to begin one-way codeshare relationships with JAL and Emirates.

With one-way codeshare, partners will be able to place their code on JetBlue operated flights, which we expect will better facilitate international point of sale, driving more traffic on JetBlue.

Successful execution of our network strategy demands low cost, especially in a high cost and volatile fuel environment.

We remain particularly focused on maintenance costs, which we expect to rise significantly this year due to the aging of our fleet.

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

While we are pleased with the first quarter year-over-year decline in ex-fuel CASM, we recognize that significant cost challenges lie ahead, especially with respect to maintenance.

In closing I would like to once again thank our 14,000 crew members for all their hard work during the first quarter.

Despite a high fuel cost environment, we continued to deliver record revenues.

We are optimistic that demand for air travel will remain resilient, and we are encouraged by the continued strength of demand for our product.

We are committed to growing on a sustainable basis and generating positive free cash flow.

Our goal is to generate appropriate returns for our owners, and we believe we are on track to do so.

We remain committed to improving ROIC by 1 percentage point per year for the foreseeable future.

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

Mark?

Thank you, Dave.

Good morning, everyone.

Thank you again for joining us today.

I would like to join Dave in congratulating our crew members on another terrific quarter.

We expect, in fact, to be one of the few major US carriers reporting a profit this quarter.

Specifically, today we reported our eighth consecutive quarter of profitability, with operating income of $89 million.

Despite having paid $80 million more in fuel, we improved year-over-year operating results by $44 million.

Yield improvements once again [grossed] strong unit revenue performance, as we outperformed the A4A domestic industry average.

Our average one-way fare increased 6.6% year-over-year to $160.

That is our highest quarterly average fare ever.

This drove first quarter year-over-year passenger revenues up 8%.

Our passenger unit revenue growth is particularly impressive, given 12% capacity growth during the same period.

Exceptionally good weather in the Northeast led to a completion factor of 99.7%, our highest first quarter level since 2004.

As a result, we flew more ASMs than expected, ofcourse impacting rests revenue and cost comparisons.

What is noteworthy is we saw nice growth in both yields, which were up 5.9%, and load factor, up 1.5 points.

These yields and load factor results reflect the success of the strategy to smooth revenue seasonality with higher yielding business traffic in off-peak travel periods.

As further confirmation, we saw stronger than expected close-in bookings in March and strong first quarter PRASM.

PRASM was up in January by 10%, in February by 6%, and in March by 8%.

Moving to ancillary revenue.

Total ancillary revenue in the first quarter was about $21 a passenger.

This represents a year-over-year increase of 13%.

Customer response to our Even More offering continues to exceed expectations.

As part of this offering we recently opened expedited security lanes at nine airports, bringing our total to 33 airports system-wide.

As we previously announced, we plan to begin selling eight more additional Even More seats on our E190 fleet later this year.

Even More is on track to generate about $140 million in high margin revenue this year.

We also look forward to the introduction of broadband connectivity on our aircraft later this year.

We believe the KA product will provide the most speed and flexibility of any Wi-Fi inflight technology.

Turning to costs.

Quarterly operating expenses increased by 15% year-over-year, or about $147 million.

This was driven largely by higher fuel expense of $80 million.

Fuel, of course, remains our most significant operating expense, comprising nearly 40% of the total.

While the price of jet fuel increased by approximately 10% compared to last year, we believe we are well positioned with a fuel efficient fleet, having an average age of only 6.2 years, as well as employing prudent fuel conservation operating practices.

We hedge fuel as a form of insurance against sudden and severe price spikes.

In the first quarter we hedged approximately 42% of our fuel consumption.

This helped offset some price pressure.

We recorded $9 million in hedge gains during the quarter.

For the second quarter we have hedged approximately 26% our anticipated jet fuel requirements .

For the remainder of 2012 approximately 21% of our projected fuel consumption is hedged.

The underlying details of the hedged positions as of April 20 is more specifically detailed in our investor update, which will be filed later today.

Including the impact of fuel hedging and taxes, our fuel price in the first quarter was $3.25 per gallon.

Brent crude, based on the forward curve as of April 20, is averaging $118 per barrel for the full year 2012, and the crude to heat crack spread is averaging about $15 per barrel.

Based on this and including the impact of hedges and taxes, we are estimating are a second quarter fuel price of $3.33 per gallon and the full year per gallon price of $3.30.

Excluding fuel, year-over-year first quarter unit costs decreased by 1%.

This is slightly better than guidance due primarily to the excellent weather conditions during first quarter, resulting in 1.5 points of additional ASMs over our expectations.

As Dave mentioned the one area we continue to see the greatest cost pressure is maintenance.

During the quarter this item increased nearly 50% year-over-year on a unit cost basis.

This increase is mainly attributable to more heavy maintenance checks associated with the large bunching of A320 aircraft acquired in the mid-2000s.

Additionally, in the past quarter we had more unscheduled E90 engine removals than is expected.

Finally, Aveos, a key maintenance provider, liquidated in March, resulting in higher costs in the first quarter.

We expect this liquidation will result in her than expected maintenance costs for the remainder of this year as we seek to find alternate repair options.

We expect this impact to abate, however, by the fourth quarter.

Let me highlight one other line item in the income statement.

Other operating expenses declined 13% year-over-year on a unit cost basis, primarily due to an $8 million gain related to the termination of LiveTV's contract with AirTran.

Moving to the balance sheet.

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

Not included in this balance is our $125 million fuel purchasing line with American Express.

During the first quarter we generated $292 million in operating cash flow and made debt and capital lease payments approximately $45 million.

Our debt payments for the rest of the year are manageable.

We expect to meet them with cash from operations.

Similarly, second quarter scheduled principal payments on debt and capital leases are expected to be about $50 million.

As to CapEx, during the first quarter JetBlue took delivery of one A320 and two E190s, bringing our total fleet size to 172 aircraft.

We purchased the first quarter A320 delivery using cash.

For the remainder of 2012 we expect to take delivery of six A320s and two E190s.

During the first quarter we spent approximately $125 million in aircraft CapEx and $60 million in non-aircraft CapEx.

We estimate capital expenditures of about $170 million in the second quarter and $660 million for the full year, including this quarter -- Q1 amounts.

With manageable debt maturities and capital commitments for the remainder of the year, we believe JetBlue is positioned to maintain strong liquidity in 2012.

We expect to end the year with cash as a percentage of trailing 12 months revenue of approximately 25%.

Turning to capacity.

We plan to grow second quarter ASMs between 4% and 6% year-over-year.

This increase will be largely driven by growth in the Caribbean and Latin America, which we expect to be up approximately 15% year-over-year.

As to the revenue outlook.

Despite the broader economic uncertainty, we have not seen any negative impact on forward bookings.

We expect the strong demand environment to continue through the second quarter.

We currently expect April PRASM to be up between 8% and 9% year-over-year.

Although we are not providing specific guidance for May on today's call, please keep in mind that year-over-year PRASM comparisons in May are challenging, as the May 2011 PRASM increased 19% over the May 2010 PRASM results.

That said, we believe the success of our initiatives to generate higher yielding business traffic will continue to produce solid results.

As to the CASM outlook.

For the second quarter, we expect ex-fuel CASM to be up between 6.5% and 8.5% from the prior year.

Again, maintenance expense accounts for nearly two-thirds of the expected increase.

We project second quarter CASM all-in will be up between 4% and 6%.

CASM all-in for the year will be up between 3.5% and 5.5% versus last year.

This is higher than the guidance we have provided in January, as fuel year fuel has risen $0.13 per gallon.

Ex-fuel CASM for the full year is expected to be up between 3% and 5%, consistent with previous guidance.

We expect high ex-fuel CASM pressure as a result of the Aveos liquidation, largely to occur in the second and third quarters, returning to more normal levels by the fourth quarter.

In closing, JetBlue had a very good quarter.

We continue to execute on our commitment to improve investor returns by focusing on profitable growth, controlling costs, and proactively managing the amount and pricing of invested capital, all while delivering terrific service to our customers by terrific crew members.

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

Thank you.

(Operator Instructions).

The first question he is from Michael Linenberg from Deutsche Bank.

Please go ahead.

Hey, I guess a question for Mark and then Dave.

Mark, in the press release I did see that you mentioned -- you talked about buying some aircraft for cash and saying that it would be accretive on an ROIC basis.

Since you -- when you rolled it out on the investor day, you provided a little color on it, and I know, Dave, you talked about the annual aspirations, what you want to do with ROIC.

Are you -- can you tell us what was on an LTM basis?

And is that something that -- I know a lot of the carriers are starting to do, they are starting to put it in their presentation.

Is that something that we can look forward to in the coming quarters, the ROIC calculation?

At the present time, Michael -- and by the way, how are you --we are not probably going to be on a quarterly basis guiding to ROIC.

Just to remind everybody, what we said at the analysts day is we ended last year at 4% and are committed to improving that, as Dave mentioned earlier, by on average 1% per year.

I don't think we are quite ready to give the granular quarter-by-quarter month-to-month type of progress against that target other than to say we are on track.

Good.

And before I go to Dave, congrats on the promotion today, Mark.

Thank you.

Dave, just turning to -- on my next question, when I look at how some of the stocks have traded year to date, we look at [Airway] is up a lot, and think about their tie-in with maybe doing something with American, and how the American unsecured debt has traded.

And I know that year-to-date you guys are down 10% or so -- your stock.

And yet a lot of what I read about American, somehow it seems like JetBlue may play somewhat of a prominent role in the future of American Airlines.

And whether or not it was the pilot agreement, the different proposals that they put forth back in November.

There was reference to a codesharing agreement with a domestic JFK operator, which seemed like it might be JetBlue.

And then even in their section 1113 a week ago, a lot of which redacted, if you looked it closely, it looked like there would be a lot to do with codesharing with a domestic carrier at Kennedy.

And yet, when I think about how your stock is trading, it seems like everybody who's tied to the American merger, they've been bid up and there has been a lot of talk, yet it has been quiet on the JetBlue front.

So the question to you is in it for JetBlue?

What do you -- howdo you think about these things?

And you have American out there talking about various options.

You guys are silent.

What can you tell us, because it doesn't seem like you are getting any of the halo effect like some of the other stocks?

Good morning, Michael, thank you.

And you are right, there are other carriers that obviously -- when you look at the rumors out there impacting what is happening, and where their shares are traded, let's just be clear on that.

I think from a JetBlue perspective, Michael, our plans are no different than what we shared on investor day, and that is again, as you know, organic growth, our own people, our own planes.

That is our commitment.

And we think that performance such as the first quarter and how we are looking that the year is something we will be rewarded for in the long-term, and that is how we are running the business.

Specific to American Airlines and what they are thinking and in their boardroom, I think it is an appropriate question for AMR and their leadership.

We have a partnership with AMR, and at the same time we are also competitors at AMR as well when you look at our route network.

And our partnership today is interline, that is the bulk of what we have with the now 17 airline partnerships across our system.

And really, Michael, when you start to take a look at that, theyare longer haul.

They are international.

They are into locations where we don't fly our aircraft.

We will see what happens in the future in terms of what makes sense with the first set of one-way codeshare when we look at Japan Airlines, as well as Emirates in addition to South African.

But At this point in time it is status quo from the standpoint of American Airlines and the partnership with JetBlue.

Okay.

Thanks a lot, Dave.

You got it, Michael.

Thank you.

Thank you.

The next question is from David Fintzen from Barclays.

Please go ahead.

Thanks.

Good morning, everyone.

Congratulations, Mark.

Thank you.

A question on Delta slot swap.

Obviously they were talking fairly optimistically about it yesterday.

I'm just curious, does that ultimately change or impact our business travel strategy at Kennedy?

Good morning, Dave.

I think let's let Robin chime in on how he is looking at the New York landscape, and specifically Kennedy vis-a-vis La Guardia.

Robin?

Good morning.

No, it doesn't.

I mean, if you look at the portfolio that we have at JFK, it's predominantly a [leisure origins] portfolio.

We have a lot of Florida operation and Caribbean, international.

Very small dependency on business travelers in New York, and indeed, if you look at what we have added from La Guardia, it all serves our Florida predominantly leisure market.

Okay.

Thanks.

That's helpful.

And just conceptually on the ROIC goal, how should we think about how growth plays into that?

As you look at Kennedy, do you think that those gains in ROIC, at least as the earnings component of that calculation, do you think that is something that is broad based through the network and steady improvement uniformly?

Or does really hinge on some of the growth potential and opportunities you see in Boston or San Juan raising the margins on average?

Hi, David.

I will take that again.

It's Robin.

Certainly, we have been very focused onBoston and the Caribbean, because where we have been able to grow significantly and do so profitably, which is accretive to ROIC.

If you look at the rest of our network, then really I would say for the last couple of years capacity has largely been flat or some very modest increases, and that is also really helped us improve the performance of those markets.

Every -- at the end of the day, every route and every focus city has to earn its way into our network.

It is true in any year different parts of the portfolio are going to do better than others, and that is also the benefit of having a hedged and diverse network be plan.

Let me add if I may, Robin, to that.

I think we had this discussion at analysts day.

The point we made was if in the short-term our total objective was to increase rapidly ROIC we could easily do that by just shutting down all growth and maybe even starting to pare down routes that aren't meeting a certain level of profitability.

ButI think we are really trying to manage ROIC in the context of a long-term perspective.

And while it could really increase growth in the near term, in the long-term if we were to do that and basically walk away from all of the hard work and investment that we made in Boston in particular, and the Caribbean, we would quickly lose our value.

The conundrum here is we don't quite have our, if you will, our defensible fortress-type hubs or network yet.

We are building that, certainly, and close to it in Boston and the Caribbean, but it's not time to stop the growth.

And so workingthrough an ROIC commitment with the full knowledge that we need to continue to grow, I think, is something that is going to distinguish us as we move forward.

I appreciate that.

That's helpful color.

Thanks, Dave.

Thank you.

Our next question is from Hunter Keay from Wolfe Trahan.

Please go ahead.

Hi, good morning, everybody.

Good morning, hunter.

A little follow-up on Mike's earlier question about the AMR situation.

Dave or Robin, how does that work in terms of having terminals that are obviously not contiguous with each other.

I mean, I think that is one of the big pushbacks that we hear a lot about, a potential ramped-up codeshare.

So putting aside the implications from, say, a broader codeshare AMR, if they are able to emerge from bankruptcy standalone.

Doyou find there is customer dissatisfaction with having to connect and, I guess -- correct me if I'm wrong -- having to go through security twice in some cases.

Would that even be leveragable onto a bigger platform with them?

Hi, Hunter, it's -- I'll take that.

No, not really.

And in fact, if you look at the connection experience between American and JetBlue at JFK, it is two new and high quality terminals, and any customer landing internationally is going to have to clear customs and go through security again in any case.

So the only bit that you could argue is it's slightly different to maybe an airport where that is all under the same roof is you have to leave the terminal.

But you get on the AirTrain, it is a very quick -- less than five minute connection and through security again, and I think the excellent facilities offered at JetBlue's terminal five and also the new terminal eight American facility at JFK I think more than offsets that five minute or so transfer.

So, no, it doesn't come up at all as an issue for our customers who connect.

Okay.

Thank you, Robin.

And I guess more broadly on the codeshare issue, how do you guys track the profitability of these codeshares, because there are costs associates, obviously, with having codeshares, particularly if you have to, say, reaccommodate a passenger connecting to an international itinerary, things like that.

What -- Iknow you don't like to talk about the specifics, whether it is a free sell or block space, things like that, but How do you track the profitability and earnings accretion, if there are any, of these codeshares, and how do you allocate the costs associated with them?

I will take that again, Hunter.

First of all, I think we talked before about how we price these connections, so the way we price it is much more akin to a fare equivalent to what we could sell locally ourselves as opposed to a more traditional prorate agreement, which tends to disadvantage the airline who is just providing the shorter segment.

In addition, if you look at what a lot of the costs really come with codeshare, it really comes around when you are placing your code on another carrier, because you now get into an exhaustive list of disclosure requirements.

You are providing a lot of training for your staff or crew members at JetBlue, whether that is in the call centers or ticket desks, and we have been careful to avoid two-way code.

We have started [doing it] in interline where we have sizable interline partnerships and we see benefits that take that to the next level, which [has been] one-way code, which puts the onus on our partner to manage that complexity.

And finally, again, if you take JFK and Boston where we transfer the most of our customers between our partners, we have really -- the way we set up that without [colleagues and] operations has been to minimize costs.

So our partner airlines, for example, will deliver baggage to us at JFK.

They will come and collect them at JFK, allowing us to avoid the infrastructure investment in interline baggage transfer.

So I think just a couple of examples of how we have done it differently to, one, protect our yield, and two, minimize our unit cost per customer.

Okay.

Thank you, Robin.

Appreciate it.

Thank you.

The next question is from Glenn Engel from Bank of America.

Please go ahead.

A couple of questions.

One, other revenue was up only 0.5% or only 1%, and it had been running up double digits?

Yes.

That's right.

I mean -- we are still looking at 13% or are 12% quarter over quarter rather -- increase in the ancillary of ticket price.

Why am I seeing, though, in the other revenue no growth at all?

I'm sorry.

We are looking at the press release, right?

Yes.

Okay, [just checking].

Glenn, it's Robin.

There was a payment from American Express relating to the end of one of our previous contract periods in the previous year that you are not seeing again in this year.

It was a one-off settlement, and we haven't got the benefit of that in quarter one this year.

And so that has impacted the like to like comparison.

Second, if I looked at sales and marketing, that grew much less than revenues?

What drove that?

I think a couple of things there.

First of all, some activity that we shifted out of quarter one into the rest of the year, and we continue to be very active at managing our costs through our online distribution partners and making sure that we drive those unit costs down on a year-over-year basis.

And third, can you go through why Aveos makes some much of a -- makes a difference to maintenance?

Why you can't just get it some where else?

Why does it cost you more?

Well, we were able to -- good news, bad news on that, Glenn.

We were able to negotiate obviously some time ago a very, very favorable flight hour agreement which covered a significant number of our A320 parts.

This was a long-term favorable agreement, and of course, with the liquidation, we suddenly found ourselves in a situation where -- I guess the good news, Glenn, by the way, is that we were able to successfully recover the parts -- [and their parts] -- as well as the work in progress, so that we were able to avoid a material write-down this quarter associated with that liquidation.

But with their liquidation we immediately had to essentially move to time and materials providers, which of course are sort of piece work and very, very expensive.

We are aggressively scouring all other service providers on a part by part basis to ensure to enter into hopefully similarly favorable flight hour agreements.

And hopefully all of that work is done and completed by the fourth quarter.

So a lot of the CASM questions that I'm sure you have with respect to the balance of this year are really a function of the time and materials cost versus the flight hour agreement costs that we have -- we previously had with Aveos.

And again I can't sort of represent exactly we will have flight hour agreements covering all of these part types, nor can I guarantee that we will have in place those replacement flight hour agreements priced as well as the Aveos agreement.

So that is what is driving a lot of the maintenance costs increases through the end of the year.

And can you give us a sense of the incremental impact from this Aveos alone?

Yes, I think it is a double digit type of million dollar number.

Again, associated with -- some of it is in the first quarter, and some of it that we are modeling is largely second or third and hopefully again we are back to our normal level by the fourth.

Thank you very much.

Sure.

Thank you.

The next question is from Duane Pfennigwerth from Evercore Partners.

Please go ahead.

Good morning.

Good morning.

Just on your April unit revenue commentary, can you just give us a sense for you think about the comps.

It looks optically like it as tougher comp, yet it looks like you will see acceleration sequentially here.

So is it capacity changes we are seeing, or how would you characterize the April comp versus March?

Duane, it's Robin.

I will take that, andgood morning.

April was very kind to us this year in terms of how the holidays panned out.

Up in New York and Boston, two of our largest origin leisure markets, and the holiday periods really were separated from each other as opposed to being on top of each other last year.

That effectively gave us a little two to three week holiday travel period as opposed to the seven to 10 day period we had last year, and obviously that is very favorable.

So the comp in April is tough, and thank you for recognizing that.

The beneficial holidays span has allowed us to continue to see good unit revenue growth.

Thank you.

And then just a follow-up on the other revenue question.

It looks like last year there was consistent growth each quarter.

Can you talk about the outlook for other revenue growth going forward?

Hi, Duane.

We he haven't guided on that in the past.

I think -- if we think about sort of some of our larger other revenue lines, then I think it -- like change fee and bags.

We did just put an increase to our second bag fee here in March.

ButI think the biggest impact is in even more revenues -- even more [lines, which] Mark talked about in his comments where we continue to see good demand for this product, good growth for this product.

And if fact we have taken the decision to speed up the reconfiguration of the E190 fleet to add an additional eight seat to Even More Space customers.

We are finding in markets like Boston where over 50% of our departures are E190s to business destinations [with frequency], we are selling out of this product quickly, and there is a strong demand to add it, and so I think we continue to see good growth in that Even More Space line.

And just to clarify, would that be in your fares and in your PRASM, or that shows up in other revenue?

It shows up in passenger revenue.

Okay.

And then just lastly as you think about how to use your cash, you have a healthy cash balance here.

Your stock is trading below book value.

Is you share repurchase any higher in your potential options than it has been historically?Thanks.

Thanks for wading into this debate that I'm having with Dave all the time.

That's right.

Candidly, I'm still focused on looking at aircraft as a potential use of cash.

I'm -- we are also possibly considering using some of our cash to fund certain significant facility improvements that are on the horizon, notably at JFK.

And I will continue to look at possibly using that cash when the pricing is right to repurchase some of the converts, which as I think we said in the past, is great because the converts are at an interest rate higher than the average weighted cost of debt and has the added benefit of not only retiring debt but then removing from the calculations related to EPS any of the associated common shares.

And so clearly my preference is probably doesn't favor share price -- share repurchases at the present time.

Okay.

Thank you.

Thank you.

And the next question is from Dan McKenzie from Rodman and Renshaw.

Please go ahead.

Good morning, guys.

One quick house cleaning item, and that's on the $8 million gain on the termination of the LiveTV?

I guess I didn't see that stripped out as a one-time item.

Should we be thinking of that as one time, and if so --

Yes, asAirTran was acquired by Southwest, and Southwest was making decisions as to fleet commonality on the entertainment system, under the terms of our contract with the LiveTV this was a one-time facilitation or termination payment.

Got it.

Okay.

And if we -- I guess I'm not sure if I'm not sure if there's a tax impact with that, but if I look at -- is my math correct if I'm coming up with $0.06 a share for the quarter, stripping that one-time item out?

I haven't done that.

I will circle back with [you], so that's fine.

Yes, circle back, please, thank you.

But anyways, I have of course, been public about your market share successes, and if I could just play devil's advocate for a moment on the growth here.

Can you talk about the cost dynamic versus the growth dynamic, and I guess what we have seen from Southwest is that when costs and particularly labor costs get too high, growth stops.

And I guess what I'm wonder what cost level do you conclude the growth lever has to be shifted into slow mode?

And I guess related to that, what I'm really getting at is how comfortable are you that you don't necessarily bump up against that looking ahead one to two years?

Hey, Dan, good morning.

Just on a macro level the Company is very much focused on all-in CASM.

Of course, ex-fuel CASM as well.

As we talked about last year, as we talked about this year, we knew that we had a couple of years worth of fairly significant -- very significant year-over-year increases when it comes to MM&R and the maintenance category.

So we are aware of that.

As we are a little bit surprised by what played with the immediate liquidation, if you will, with Aveos.

Not even really a process tied into reorganization.

So that was obviously a surprise that impacted us.

But when we look at our CASM, our ex-fuel CASM from a labor perspective, as we are working out on a five year plan with our CASM, and we look at our revenue opportunities as well, listen, we are focused on CASM, but we are comfortable with the aircraft -- the Skyline -- that are coming into the fleet with these opportunities.

And I think again on the revenue perspective it is the maturation of Boston, it's the maturation of the Caribbean and Latin America.

We talked about for example Colombia in the past, and shortly, as we are adding service into cities like this, it is a nice way to add service with Bogota to Fort Lauderdale, Kingston to Fort Lauderdale.

So, Dan, it's -- we don't see out on the horizon that one, two, three years out, are you are mentioning with Southwest that, hey, it is time to shut the growth lever.

We are focused on it.

We have some opportunities.

And I think really abovethe line the revenue opportunities are quite significant with the investments that we have made.

Okay.

Very helpful.

Appreciate that, thanks.

And then given the M&A back drop, can you update us on any poison pills in the by-laws?

So for example, labor contracts that might reset any other items?

And does a poison pill make sense just given your business model versus the industry?

I will confess I'm a lawyer in recovery, so I'm not going to wade into that, because I will violate my recovery rules.

But there's a -- I think it is pretty much disclosed -- I'm looking at our Jim Hnat, our General Counsel -- I believe that is probably pretty well outlined in the K and the proxy statements, so let me defer to people who have crafted that language very carefully if I may.

Very good.

Understood.

Okay.

Thank you.

Thanks, Dan.

Thank you.

The next question is from Savanthi Syth from Raymond James.

Good morning.

Just a quick follow-up on the maintenance question.

How do you see the timing and -- where can we see the peak and leveling off of maintenance costs?

Just to focus if we can on just 2012, I would guide to a -- somewhat of a flat type of performance going into the second quarter, and even perhaps the third quarter.

Then by the fourth quarter the maintenance costs -- unit maintenance costs other ought to then be abating or coming down to more of a normal level.

Again, the big challenge here we have is that we have a -- we've got essentially source on a flight hour agreement on favorable terms virtually 20% on the Airbus.

And so there is a fair amount of work we need to do.

And so that's -- our best estimate is -- or an accurate estimate is probably around that period.

Of course, theoperation teams are fully incented to accelerate and get good terms in place sooner.

Sorry.

I understand the obvious aspect of it, but there is also kind of the heavy maintenance aspect of it.

I was hoping to kind of get more color on the combination of both.

Yes, again, and then we have -- you are absolutely correct.

This year, as we have indicated, we have had a higher engine removal rate and a higher heavy maintenance cost running through this year.

I think that is probably going to be by quarter pretty flat with the exception of the summer quarter, because that is obviously when we are working the planes real hard, and so we probably are limiting the number of aircraft that we put into heavy overhaul in the third quarter.

Okay.

That's good.

And then on the PRASM side, you talked about and we have obviously seen is in the results, kind of the positive impact of this increasing business mix.

Wondering if you could help quantify that or talk about maybe how that trends?

I know in the past you talked about you having less and less that have been in-service for less than one year, and just wondering how much further we can see that kind of off-peak outperformance?

I will take that.

It is Robin again.

I think we continue to make good progress in Boston and are very pleased to see the profitable growth that we are seeing in Boston.

I think there are still a number of markets [in] Boston that are important to business travelers that we don't serve.

There is an argument that we could have made that we could have gone at Boston even harder and faster, and we made a conscious decision to meter that growth in order to make sure that we balanced the growth there versus taking advantage of the opportunities that existed in the rest of our network, particularly in the Caribbeans.

So we continue to see, as we look at the months ahead, an opportunity to outperform our PRASM performance in what has been traditionally been weaker months for JetBlue.

It does -- obviously, as time goes on, you are cycling against tougher comps.

Mark made the point in May that -- May last year we were plus 19%.

We are still confident there is opportunity in Boston to grow from 100 to 150 flights per day.

We will continue to make those investments to grow, and that is going to help us do an even better job of filling the troughs.

Thanks for the color.

My last question is in the recent past I noticed kind of the hedges put in place were maybe roughly 40%, and I kind of noticedgoing forward it is kind of 20%.

Was there anything -- is this kind of the run-up in fuel prices and it's kind of costlier here, or any changes in [thoughts] there?

No, I'll just be very candid.

So we were at 40 [for the prompt] moving into the second quarter.

We are in the 20s full year.

I think we are at 21%.

I think that in this case probably not being aggressive on the fuel side has proven [us well], particularly if you look at our full and quarter fuel guidance relative to perhaps some of the other airlines who have reported.

So being a little bit more reticent or even just a little slower in terms of -- or less aggressive I think is probably the better word -- has proven to our benefit.

All right, great.

Thank you.

Thank you.

The next question is from Ray Neidl from Maxim Group.

Please go ahead.

Just looking at your overall strategy.

It seems like San Juan, are you developing that into a hub or focus city similar to JFK?

And does the Boston and Caribbean expansion pretty much keep your hands full, or are you looking at maybe secondary markets in your service territory where startup carriers are coming in?

For example, using the smaller aircraft to go from some place like Syracuse to Cincinnati, which has lost a lot of service?

Good morning, Ray.

I think, first of all, with San Juan as we move into the terminal.

That is the terminal that has not been used ever, and we will be moving into it in the June time frame.

We are very excited about it.

We will consolidate into one facility.

A much better ground experience I think that we will have in San Juan.

I think it is fair to characterize San Juan as a focus city, which really -- welook at the opportunities yesterday as we added Newark into San Juan.

West Palm Beach shortly is going to be add inside San Juan.

Routes that have never been flown before for us, for example -- or anybody -- like West Palm Beach to San Juan.

Newark certainly has in the past.

Recently adding in places like Hartford, et cetera.

There is plenty of opportunity San Juan north, and we think San Juan across the Caribbean and potentially south.

So, yes, if as focus city.

The second -- your comment about the use of 190s.

The network strategy -- and just really crediting Robin and team, the discipline of our focus cities; Boston, New York -- obviously at Kennedy, but we are in five New York airports -- Orlando, Fort Lauderdale-Hollywood.

We talked about San Juan and the LAbasin, focused at Long Beach.

The routes, the discipline is they have to touch the focus cities.

And so when we looked at -- I think I heard you say -- something along the lines of Syracuse, Cincinnati or point that point flying that doesn't fit within the lattice, the network typology that we set up, to tell you the truth, they don't receive support across the commercial team and don't receive support across the Company.

So that is how we are looking at that it, and the use of the 320s, the 190s, and obviously partnership traffic as well.

It is an opportunity for me to just comment on Japan Airlines, 787 inaugural route from Tokyo into Boston Logan, and now plugging into our network behind it.

Pretty exciting stuff that I think that we offer a lot of carriers across the globe.

Back to you, Ray.

Yes, the point to point stuff, that was just something I was throwing out there.

That makes a lot of sense avoiding that at this point in my opinion.

The second thing is a little broader in your focus city at JFK.

It looks like terminal six is going to be landmarked.

I think it is torn down or is being torn down right now.

So does that leave your lots of leeway expansion terminal five to the terminal six area as you grow at JFK and connect it with New York also?

Is your move completed into Queens, and what kind of problems are you having with the giant sign you want to put up?

Thanks, Ray.

We're in our new facility right now in Long Island City.

It's nice to be consolidated from Forest Hills and Darien, Connecticut campuses into one facility.

By the way -- commentary -- I think just a long-term lease rate that makes great sense for this Company as we look at our cost structure, and proximity to talent that our brand has access to here in the New York metropolitan area.

The move went well and we are in the final holds of the approvals for a large but respectful JetBlue sign here in the New York landscape, and I think that is a matter of weeks andmaybe even less to close that out.

And then if you go over to JFK, just a little update.

Of course, terminal five, we're close to celebrating four years of really just optimum performance through that facility.

We're very close with the port authority of extending terminal five.

We call it [P5] International internally.

It's on the footprint of the former terminal six.

Terminal six is -- was not landmarked.

It was obviously, as you know, originally there to support National Airlines decades ago.

It is now a tarmac, and we are very hopeful that we will be breaking ground on an international arrival facility similar to what you see happening over at terminal four.

There's a lot of growth happening at Kennedy.

We believe that having all of our operation under one roof -- and again we will have Hawaiian Airlines in here very shortly -- is really exciting.

By the way, the completion on that as we work through final approvals on the port authority is probably something that looks like 20 to 24 months.

So we're excited about, again, further invested in New York, Ray.

Okay, great.

Well, congratulations on your move, and congratulations to Mark.

Thank you very much, Ray.

Thanks, Ray.

Thank you.

The next question is from Helane Becker from Dahlman Rose.

Hi, everybody.

Thanks for taking the questions.

Just a couple of things.

On aircraft utilization, you have pushed it up to 11-- more really than 11.5 hours a day.

Are you reaching a maximum now, or is there room to go in that area?

And how does -- would that work with maintenance requirements, or do you need to actually think about other aircraft?

Hi, Helane, it's Robin.

I will take that.

There is certainly an opportunity to increase our utilization further.

We clearly have to balance that against concerns about operability and the impact on maintenance cycles.

I think we still see an opportunity, particularly into the Caribbean, for more back to the clock flying than we do today.

Obviously as fuel goes up you have to weigh that more carefully, because it does tend to come at a lower average yield than some of the daylight flying.

And where we see those opportunities, we will do that.

What we don't want to do is just increase utilization for the sake of doing so without being sure that there's a real profitable benefit in having the extra capacity.

But, yes, the opportunity is there, and we will take it where it makes sense.

Okay.

And then, Dave, I think you were stopping off in Luton on your way home from Istanbul earlier this week, and I was wondering if there is really opportunities for you to work with EasyJet without having an international connecting opportunity?

It is -- good morning.

Boy, it is hard to be a secret, isn't it?

It was all over the paper.

Our visit with EasyJet with members of our leadership team, it really -- it is about how do you look at best practices.

And when you look at best practices about what they are doing in Europe, what we are doing in the United States, I don't see synergies between our two companies.

We are here in the Americas, and they are across Europe, but when you start to teak a look at things like A320 operations and the family of aircraft, [made thens], how they are operating them.

Their interest in winglets, by the way, as I hope that Airbus is listening to the call or looking at the transcript about the retrofit opportunities.

It is that kind of thing.

When you look at ancillary revenue opportunities.

By the way, this isn't the first visit that our team has done with other carriers across the world.

There is a lot of interest in JetBlue with what we have been doing over the course of the past 12 years, now in our 13th year.

And I'll tell you, we are always interested in what are the best practices of what is happening across the world, and hats off to EasyJet in terms of what they accomplished over the last year and a half with their leadership there.

It's been quite nice with Carolyn's leadership.

There is not synergies in terms of some kind of a bridge across the Atlantic.

That's -- we are different point models, if you will, in different continents.

Backing over to you, Helane.

Okay.

And then, are there -- you might have said this and I missed it -- are there codeshare or interline opportunities for you at DFW with American on the Boston DFW route as well?

I think Dave touched on the partnership that we have with American, which is an important one for us.

At the moment really looking at continuing to maintain the status quo.

We will see what happens in the future.

Other -- there are other additional coach opportunities with some of our partners where we just have interline relationships today, and I'm sure you will be reading about some of that --hearing about some of that later in the year.

Okay.

Great.

Thank you very much.

Back to you.

Thanks, Helane.

Thank you.

And the last question is from Jeff Kaufman from Sterne, Agee.

Please go ahead.

Jeff Kaufman, your line is now open.

If your phone is on mute, please unmute it.

At this time there are no further questions.

Sandra, thank you very much.

We would like to once again thank all of you for joining us for the first quarter 2012 earnings call.

And a special thank you to our 14,000 crew members, delivering an outstanding quarter and safe, reliable operation.

We look forward to talking to you as we close the second quarter.

Everybody, have a great day.

Sandra, thank you.

You're welcome.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may now disconnect.