JetBlue Airways Corp (JBLU) 2012 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the JetBlue Airways' fourth quarter and full-year 2012 earnings 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 Q&A is Robin Hayes, JetBlue's Chief Commercial Officer.

As a reminder, this 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 these non-GAAP results in JetBlue's earnings, press release, on the investor relations section of the Company's website at jetblue.com.

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

Please go ahead, Dave.

Thank you, John.

Good morning, everyone, and thank you for joining us.

Earlier today we announced our eleventh consecutive quarter and fourth consecutive year of profitability.

For the full year, we increased net income by nearly 50% to $128 million, or $0.40 per diluted share.

This represents our highest full year EPS since 2003, when you may recall oil averaged only $30 per barrel.

This is in stark contrast to the 2012 average Brent price of $112 per barrel.

Even with Hurricane Sandy, which reduced operating revenue by an estimated $45 million and operating income by $30 million, 2012 was one of the most profitable years in our Company's history.

We accomplished a great deal in 2012, including record revenues of nearly $5 billion, an increase of 11% year over year.

While fuel remained at elevated prices throughout the year, we were able to fully offset the year over year increase in fuel costs with solid revenue performance, improving our full-year operating margin from 7.1% in 2011 to 7.5% in 2012.

Further, we continued to make significant improvements to the balance sheet.

We generated healthy levels of cash from operations, which we used to pay doubt debt, purchase aircraft and repurchase shares.

We prepaid over $200 million in debt and lowered our overall debt balance by $285 million, while maintaining a prudent level of cash and access to liquidity.

We ended the year with approximately $730 million in unrestricted cash and short-term investments, or 15% of trailing 12 months revenue.

And increased our available lines of credit to $325 million.

I'm also pleased to report that in the fourth quarter, we repurchased approximately 4 million shares for $23 million through our share buyback program, largely offsetting the number of shares issued during the year in connection with equity-based crew member compensation.

These results, of course, would not have been possible without the very hard work and dedication of JetBlue's 14,000 crew members.

I would like to take this opportunity to thank our crew members who do an exceptional job delivering the JetBlue experience to our customers.

Hurricane Sandy was the major headline for JetBlue during the fourth quarter.

We suspended flight operations in Washington, New York and Boston, resulting in approximately 1,700 flight cancellations, roughly 40% of our flights over a six-day period.

Thanks to the extensive preparation before and during this now historic weather event, including moving 88 aircraft out of JFK and Boston, and the extraordinary efforts of the Port Authority of New York and New Jersey in reopening the New York area airports, we were able to get JetBlue up and running safely just four days after the storm's landfall in New York.

As the focus shifted to recovery efforts following the storm, we saw a significant decline in customer demand for air travel.

With over 50% of our capacity in the New York metropolitan area, Hurricane Sandy had a disproportionate impact on our results.

Clearly, this impacted our ability to, among other key metrics, exceed our return on invested capital target for the year, specifically to improve our year end 2011 ROIC of 4.1% by roughly 1%.

At the end of 2012, our trailing 12 months ROIC was 4.8%.

While the decline in operating income and ROIC due to Hurricane Sandy is explainable, we continue to remain committed to improving ROIC by at least 1 point per year, on average.

During the year, we continued to focus on improving the customer experience, including enhancements to our Even More offering.

We now offer expedited security for sale on a stand alone basis and we expect to complete the installation of even more speed lanes at all 47 of our domestic airport locations next month.

We also introduced a new tier within our TrueBlue frequent flyer program called TrueBlue Mosaic to better recognize and reward our most frequent and loyal customers.

We believe the JetBlue experience is an important reason why our customers choose JetBlue over other airlines, as such, I'm honored our crew members were recognized once again in 2012 for exceptional customer service, as we earned our eighth consecutive J.D. Power Award for service excellence.

Throughout 2012, we continued to make important changes to strengthen our network and diversify our revenue mix, particularly in Boston and the Caribbean and Latin America.

We opened three new destinations from Boston, including Dallas/Fort Worth, and continued to make schedule and frequency adjustments to better accommodate business customers, including additional service between Boston and Washington Reagan National airport, a route we now fly 10 times daily.

Together with product enhancements, these changes continue to help us build revenue momentum from corporate share gains in Boston.

We anticipate Boston will continue to be a significant source of growth for us in the next few years as we aim to grow to 150 daily departures.

We also continue to see significant potential for profitable growth in the Caribbean and Latin America.

We now have 30% of our capacity in this important region.

In San Juan, for example, we moved into new facilities in 2012 to support future growth.

We continue to effect competitive change in this key market.

To that end, we expect competitive capacity in San Juan will be down 7% year over year in the first quarter of this year.

We also further solidified our position as New York's only hometown airline with the opening of our new offices on Long Island City.

We also commenced construction of a new international arrivals facility at our JFK terminal 5, which we believe will improve operational efficiency by eliminating the need to tow aircraft from terminal 4 to terminal 5. Moreover, we believe these new facilities will improve the overall experience for our international customers and further strengthen JetBlue's competitive advantage as a carrier of choice for airline partnerships at JFK Airport.

We continue to expand the scope of our network through airline partnerships as we added eight new partners in 2012.

In the fourth quarter, we launched a new interline agreement with Royal Air Maroc, our 22nd partner.

We expect our pace of partnership expansion will continue in 2013 with six to eight new partners.

In addition, we plan to deepen some of our relationships with existing partners through one way codeshares and frequent flyer reciprocity agreements.

Our 2013 plan calls for a significant increase in margin growth, based on our ability to continue to successfully execute our network strategy and contain costs.

We plan to continue to pursue targeted, profitable growth opportunities in Boston and the Caribbean and Latin America while maintaining a cost advantage versus our competitors.

To that end, we expect all of our 2013 Airbus deliveries will have sharklets, improving our fuel efficiency by up to 3% on certain routes.

In addition, we expect to begin installing sharklets on our existing A320 fleet during the first quarter.

The resulting improvements in fuel efficiency will provide significant savings against our largest and most unpredictable cost.

We plan to take delivery of our first Airbus A321 in the fourth quarter of 2013.

This is a very exciting development for JetBlue.

The A321, which we expect will accommodate up to 190 customers, will allow us to operate our slot portfolio in New York more efficiently, reduce unit costs and enhance the customer experience.

We also plan to begin the installation and certification process for Wi-Fi on our first aircraft later in the first quarter of this year.

In closing, we are very pleased with our 2012 results.

We improved ROIC while growing profitably.

We believe we are well positioned to build on our 2012 performance.

We are committed to growing profitably on a sustainable basis by remaining focused on improving margins and generating appropriate returns for our owners.

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

Thanks, Dave.

Good morning, everyone, thank you again for joining us today.

This morning we reported fourth-quarter operating income of $44 million, a decrease of $39 million compared with the fourth quarter 2011.

This year over year decline was driven primarily by of course Hurricane Sandy.

Hurricane Sandy was certainly the headline for the fourth quarter, but hopefully, what is not lost is our solid revenue performance throughout 2012.

Specifically, we generated nearly $5 billion in revenue and outperformed the A4A domestic industry average as measured by year over year PRASM growth for the full year 2012.

Even with 7.6% more capacity, full year yield was up 2% and load factor was up 1.4 points.

We believe these results demonstrate the continued successful execution of our network strategy.

East Coast short haul markets from Boston were the best performing region in our network, as measured by year over year unit revenue growth.

Of particular note, trailing 12 month margins in Boston have improved approximately 7 points year over year.

Ancillary revenue continues to be an ongoing focus, helping drive 2012 record revenue performance.

Total ancillary revenue in the fourth quarter was about $20 per passenger and grew roughly $50 million, or 10% during the full year 2012 as compared to 2011.

This increase was driven in large part by our Even More offering, which generated nearly $150 million of revenue in 2012, that's compared to $120 million in 2011.

We expect our Even More offering to continue to be an important source of high-margin revenue, and expect total ancillary revenues in 2013 to increase between 10% and 15% year over year.

Turning to cost performance.

Quarterly operating expenses increased 8.3% or $87 million.

Fuel comprises, of course, nearly 40% of the total.

In the fourth quarter, we hedged 20% of our fuel consumption.

In addition, we entered into fixed for fuel, or FFP agreements, for 20% of fourth-quarter consumption.

Including the impact of fuel hedging and FFPs taxes, our fuel price in the fourth quarter was $3.20 per gallon, up 1% from last year's $3.15.

For the first quarter of 2013, we have managed approximately 18% of our anticipated jet requirements using collars and FFPs.

For the full year 2013, about 13% is covered.

Although the total percent covered is lower than in prior years, our fundamental approach to fuel management has not changed.

We continue to view this activity as insurance against price volatility, and as a way to protect JetBlue against severe price spikes.

Underlying details of our fuel positions are more specifically described in our investor update, which will be filed later today.

With respect to full-year fuel guidance, we have changed our methodology slightly to use a historically more accurate basis of estimating and managing future fuel costs.

We will continue to rely on the Brent crude forward curve for the prompt quarter.

Beyond the prompt quarter however, we are now using the median of Bloomberg consensus estimates for Brent crude.

This change in methodology applies only to the unhedged portion of our full-year price guidance beyond the prompt quarter.

The heating oil crack spread in our fuel hedges remain tied to the forward curve.

Based on the forward curve as of January 25, the crude to heating oil crack spread is averaging about $18 a barrel for full year 2013.

Including the impact of hedges and taxes, we're estimating a full year fuel price of $3.24, in the first quarter fuel price of -- and a first quarter fuel price of $3.23 per gallon.

Excluding fuel, year over year fourth quarter unit costs increased by about 4.8%.

These results were below our expectations, due in large part to the flight cancellations stemming from Hurricane Sandy, which reduced planned year over year ASM growth by approximately 3%.

Excluding the impact of these flight cancellations, we estimated fourth quarter year over year [ex] fuel costs would have increased only 2.5%.

We continue to see significant cost pressure and maintenance.

Our fourth quarter maintenance expense for ASM increased approximately 20% year over year.

This increase is mainly attributable to more heavy maintenance checks associated with the large number of A320 aircraft delivered in the mid 2000s and the gradual aging of our fleet.

We expect maintenance cost pressure, while still a headwind in 2013, to lessen throughout the year.

Specifically unit cost maintenance between 2011 and 2012 increased by roughly 40%.

In 2013, we expect year over year unit cost maintenance to increase only in the high single-digit range.

We will continue to work with our various maintenance repair partners and OEMs to focus on smoothing and bending future maintenance costs.

To that end, we recently entered into an agreement to mitigate the risk of cost overruns associated with near term E190 heavy maintenance checks.

Moving to the balance sheet.

We ended the year with unrestricted cash and short-term investments of approximately $730 million.

Not included in our year end cash balance is an undrawn fuel purchasing line with American Express for $125 million.

Also not included in this cash balance is our line of credit with Morgan Stanley, which we recently increased to $200 million.

During the fourth quarter, we continued to take steps to increase our -- strengthen our balance sheet.

Specifically we've made debt and capital lease payments of approximately $100 million, including approximately $50 million of debt pre-payments, which were secured by two Airbus A320 aircraft.

These 2 aircraft are now completely unencumbered, bringing our total unencumbered aircraft to 11 at year end.

That's up from only one aircraft at the beginning of 2012.

We recorded a $3 million loss in nonoperating income related to this debt prepayment.

The interest rate on this retired debt was significantly higher than our weighted average cost of debt and we expect to benefit from lower future interest expense of approximately $3 million annually.

First quarter scheduled principal payments from debt and capital leases are expected to be about $50 million and roughly $395 million for the full year.

JetBlue ended the year with 180 aircraft, including 127 A320s, 53 E190s.

In 2013, we expect to take delivery of three A320s, four A321s and seven E190s.

We accelerated the delivery of four E190 aircraft into this year in order to take advantage of several unique 100-seat growth opportunities in Boston and San Juan.

With respect to capital spending, we continue to make prudent investments that we believe will position JetBlue well for long-term profitability and growth.

To that end, during fourth quarter we prepaid $200 million related to 2013 aircraft deliveries from Airbus, and pre-delivery deposits for future deliveries in exchange for favorable pricing terms.

During the fourth quarter, we spent approximately $370 million in aircraft CapEx and $40 million in non-aircraft CapEx.

We estimate full year 2013 CapEx of about $695 million, $450 million of which are for aircraft and 245 for non-aircraft related capital expenditures.

This non-aircraft CapEx includes $55 million related to LiveTV, and $80 million related to the construction of our international arrival facility at JFK.

Given the current environment of lower turns on short-term cash investments, and frankly, a strengthening industry fundamental, our approach to managing cash is focused on using our balance sheet strength to improve ROIC, while maintaining a strong liquidity profile.

We expect to end the year with cash as a percentage of trailing 12 months revenue of roughly 15%.

We believe a solid cash balance, together with enhanced credit facilities and a growing portfolio, unencumbered aircraft (inaudible) engines provide better returns while preserving financial flexibility.

Before turning to 2013 guidance, let me highlight a change we plan to make to our cost guidance related to profit sharing.

Recall profit sharing historically at JetBlue has been calculated as the greater of 15% of pretax income or 5% of eligible wage dollars.

Effective this year, we are rebranding the 5% portion as retirement plus since it did not vary with profitability.

Any excess above the 5% portion, the variable component will be referred to as profit sharing.

In 2012 under the prior definition, we generated $38 million of profit sharing, of which $35 million would be now characterized as retirement plus and the $3 million balance as profit sharing.

Note all of 2011's $32 million profit sharing, would today be characterized as retirement plus.

Moving forward, we plan to provide CASM guidance excluding both fuel and profit sharing.

Today's investor update will detail 2012 profit sharing expense by quarter using the new definition.

We believe this change will conform to industry practices and provide a better perspective on how JetBlue is managing controllable costs.

Turning to capacity, we expect Boston capacity to be up nearly 15% year over year, capacity in the Caribbean and Latin America will be up 10% year over year.

2013 ASMs are planned to grow between 5.5% and 7.5% year over year.

By region, we expect nearly 30% of our 2013 full year capacity will be in the Caribbean and Latin America.

Approximately 30% in Florida, 30% transcon and 5% in the East Coast short hauls.

Turning to revenue, we entered 2012 with strong bookings over the Christmas holiday travel period and are very encouraged by recent demand trends.

Please keep in mind, in January we face a difficult comparison versus last year when PRASM increased 10% year over year.

In addition, our first quarter capacity growth is more heavily weighted towards January.

We do expect January present to be relatively flat to down slightly year over year.

While the demand over the peak President's Day travel period does not look as strong as in prior years due to shortened or canceled school vacations in the New York area, we expect year over year PRASM to improve throughout the quarter.

March revenue performance should benefit from the shift in the Easter and Passover holidays from April of last year.

Given our strong leisure franchise in the northeast of Florida and Caribbean markets, we have historically outperformed our peers during the Easter Passover travel period.

While still early, the data suggests demand during this period will be very strong this year as well.

Turning to costs, fuel prices will certainly continue to pressure us.

The biggest drivers of the increasing unit costs, excluding fuel and profit sharing in 2013, will be maintenance expense and salary wages and benefits, which we expect will each account for 50% of the year over year increase.

For the first quarter of 2013, CASM is expected to increase between 1% and 3% over the year-ago period.

Excluding fuel and profit sharing, CASM in the first quarter is expected to increase between 2% and 4% year over year.

For the full year, CASM is expected to increase between 1.5% and 3.5% over full year 2012.

Excluding fuel and profit sharing, CASM in 2013 is expected to increase between 1% and 3% year over year.

In closing, we believe our strong financial foundation has positioned us well for continued future success.

I'd like to join Dave in thanking our crew members for their terrific work.

We look forward to providing a more in-depth look at our strategy execution and an update on our business at our Analyst Day scheduled for this March.

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

Thank you.

We will now begin the question-and-answer session.

(Operator instructions)

Hunter Keay, Wolfe Trahan.

Question maybe for Robin.

Just curious how the interline agreement is going with American, as it pertains to the noncontiguous terminals.

And if you are to take this up, and I believe you said one way codeshares in your prepared remarks, Dave actually, but what would be the longer term solution with regard to turning that thing up a notch, given the fact that the terminals are noncontiguous?

And I believe, correct me if I'm wrong, passengers would have to go through security twice in some cases, how do you guys think about that?

Hi Hunter, good morning, it's Robin, and thank you for the opening question there.

I think our partnership with American, which currently is interline, is an extremely important one.

We appreciate it very much.

In terms of the connecting experience at JFK, then clearly that is maybe slightly less convenient than maybe other airports where you have a more contiguous set up.

But we haven't really found that to be an issue at all.

At the end of the day, customers are pricing routings on price, schedule and convenience and total elapsed journey time.

And just because of the richness of the schedules at JFK, it can be a very competitive offering.

Okay, thanks, Robin.

And I guess a little more on the codeshare, how has that been trending?

And over the last couple of years, since you guys really put a focus on ramping up the partnerships, and can you help us quantify it at all in terms of contribution?

Whether it's a revenue contribution or EPS or even passengers carried.

And maybe if you could also, I think this is math that I find is very hard for a lot of investors to quantify, give us a theoretical example of how you would account for this on your P&L?

Say a passenger traveling say on Lufthansa from say Munich to Rochester with you guys carrying the passenger from JFK to Rochester, how does that flow through the P&L?

Yes, thanks Hunter, and a couple of points there and I'll try to attack them both briefly.

And I do [visit] just giving an update and a little bit more color into this at the Analyst event in March just as we did in last March.

We really look at -- we look at these flows.

We started with interline, we have five one way code relationships in place now.

So we start with interline, where there was a synergy and a reason for the partnership to develop beyond that to one way code, that's something we have done.

In terms of how we account for it then it in essence goes into our flow and revenue.

We are very particular about how we set these agreements up so that we are getting the equivalent of what we'd sell a ticket for locally.

So we are not looking at this business as good business that's lower yielding than what we could sell in the point to point market.

That's very important for one of our core principles of how we look at this.

And then in terms of -- so it goes into creating the overall demand, it strengthens demands on the market, allows us to also yield up.

Because this business tends to come in quite early, partners with longer haul bookings are booking earlier, so allows us to yield up.

And then we assume an incremental factor in terms of how much of that is incremental versus how much maybe would have displaced the customer at very similar fair.

And that's how we model it through our internal processes here.

Okay that's great.

Thanks very much, guys.

Michael Linenberg, Deutsche Bank.

When I look at your -- you gave the CapEx number Mark, I think you said $695 million and then you said the debt coming due is $395 million.

That CapEx number, is that -- presumably that's a gross number.

How much of that are you going to potentially be financing?

And then how does that reconcile with the year end number, I think you said cash 15% of LTM revenue?

Yes, so the current plan is -- that's actually an excellent question, we are projecting a pretty nice amount of cash from operations next year.

I think the going in assumption is that as we look at the seven (inaudible) years, they'll be financed using essentially Brazilian export financing.

And the big question is what do we do with respect to the Airbus deliveries which really don't start until July of next year anyway.

So we have plenty of time to actually consider private bank debt and/or maybe something a little bit more exotic like a double [EQC], to cover those deliveries.

But I think that the going on treasury planning that we're doing right now assumes as much of that CapEx, particularly aircraft will be covered with cash from operations.

But you're absolutely right, we do have slightly higher debt payment obligations this year.

But candidly, we're I think in a pretty good position because we have a lot of options in terms of how we fund that.

Great.

And before I ask my second question, I do want to thank you for providing the detail on the ROIC.

I know I've pushed you on that in the past, so much appreciated.

Pleasure.

My next question, the 5.5% to 7.5% capacity growth for 2013, you gave us what Boston's going to be up 15%, Caribbean Latin is going to be down 10.% If we look at some of the other major markets like Florida transcon, what are they flattish or are they even maybe down a little bit?

Can you put some numbers around that?

Hi, Michael, I think I heard you say Latin America Caribbean down 10%, it's actually going to be up.

Yes, that's what I meant, I meant up 10%, Boston up 15%.

Those are two clearly our growth markets.

We haven't broken the rest out but you should assume you've got everything in there from some parts of our network will stay flat.

Others will be going by a few percent and that will get you to the 5.5%, 7.5% average.

Okay, thanks, Robin.

Thanks.

Jamie Baker, JPMorgan.

Dave, have you been approached about potentially providing a regulatory solution to some of the issues that might be raised by a merger between US Air and American particularly at DCA?

Really as we talk about what may be happening there, we haven't been approached along those lines.

So we'll see what plays in the future with both those carriers, Jamie.

Second quick question and then a third broader one, if I may.

The 10% to 15% guidance for ancillary revenue growth, can you give us the 2012 base line since some of the categories fall between other revenue and passenger revenue?

So that's up 15% ancillary revenue growth baseline?

Yes so obviously, the Even More offering, I think frankly, I'm looking at Mr. Hayes who is nodding enthusiastically, saying I don't think it's actually come into its full flower.

It's both the Even More Space and the Even More speed, all but several -- a couple of airports now are equipped with Even More speed lines.

That is both bundled in a separate product and I think a lot of revenue is going to come out of that.

Candidly, we're also looking at some pay for performance structures with some of our work groups such that we certainly would expect a lot more effort behind selling that candidly very, very nice high margin product.

And then of course, there's the full year impact of the new Mosaic program and other TrueBlue aspects that I think are going to be very, very important to ancillary revenue growth.

Okay and lastly for Dave, and now as the bigger picture question, when I think about the early years at the airline, JetBlue was pretty innovative in its time.

TVs at every seat, bringing humanity back to air travel, T5 designs certainly had innovative elements when it opened.

Now I'm obviously pleased that the focus in recent years has shifted first to free cash flow and then more recently to ROIC, those are the right priorities.

My question though is whether we should still consider JetBlue an innovator?

Trust me it's good that you're thinking inside the box, okay and -- but I am left wondering if you have a deep enough bench to also be contemplating anything new and different that might shake things up?

It's fine if the answer is no, just curious to hear your thoughts.

Sure and thank you, Jamie.

There's-- when I look at the early days, by the way, the innovation that we rolled out, candidly, this is against a backdrop of an industry that fundamentally there was a real question regarding what the product that was being offered.

So you're right, we were somewhat path finding with TVs.

And the answer is you should absolutely think of us as an innovator, even though we are certainly financially driven.

For example, as we talk about ROIC metrics.

And I think the best example of that is we've been maybe criticized is the wrong term, but being a follower when it comes to Wi-Fi, as an example.

And when I look at the current offering in that which we plan to start testing from an FAA SCC perspective here in the first quarter, with the broadband application, and partners such as ViaSat, working with our LiveTV unit and the ability to -- I mean the speed, the weight of the cost, this is on paper again, we move into testing here in Q1.

This is incredibly innovative and I think is certainly going to be quite disruptive to the cabin experience.

And so Jamie, when I think about Wi-Fi, by the way, we talked previously about that, the initial installation being free to the customers, that's exciting.

And I could talk about the ground experience and the A321s and what we're doing with partnerships, and so on.

But yes, you should absolutely think of us as certainly being an innovator and a disrupter in this industry.

Excellent.

That's the color I was looking for.

Thanks a lot, Dave.

[John Goodwin] from Morgan Stanley.

Dave and Robin, I was hoping to follow up on the ASM guidance, I think last quarter both you mentioned that mid single digits was the right way to think about the ASM growth trend.

Is that still the right multi-year ASM growth baseline?

And when we think about 2013 and the fact that we're towards the higher end of that range, is there anything about the unique opportunities of 2013 that drove that?

If you could just elaborate a bit, I think that would be helpful.

Yes, no.

Hi, yes, thanks John.

No, I think you absolutely should still be thinking about that mid single-digit number in terms of long-term projection.

Mark touched on it in his comments that when we look at the very, very positive trajectory we've seen in Boston and Puerto Rico.

And Mark talked to how much operating margin we've seen in Boston in the last 12 months, which I've got to be very candid, was beyond my expectation in terms of what I thought we could achieve.

And the opportunity to bring forward some 190 delivery is not incremental just bring forward into this year, I think has afforded us some opportunities that we wanted to take advantage of.

And so just moving aircraft forward clearly has had a bit of an impact this year.

I also think our pricing team have done a great job as we looked at the amount of the resource we have, our spare account, the amount of turn time, ground time we have and they've done a terrific job in putting aircraft time back into the system for this year, assets that we have that we're going to be sending as spares that we're actually going to fly.

And again, that's very accretive to ROIC earnings.

So all of those have enabled us to get a growth time this year that's probably slightly ahead of what we expected as we went into it.

I think one of the challenges that investors have is just getting comfortable with that level of ASM growth just considering your near term PRASM expectations, seem to be underperforming CASM in all likelihood in the first quarter.

I mean how do you get confident that 2013 is the year of margin expansion?

I think we're very confident about that.

We look at our ability to outperform the unit revenue performance last year, despite the additional capacity that we added in.

I think we have demonstrated that we can do that and that we will continue to do that.

And I think we're taking advantage of opportunities that are unprecedented.

If we look at some of the competitive capacity reductions in markets like Boston, markets in Puerto Rico, these create tremendous opportunities for our brand to go in and grow margin.

We look at what we've done with Boston, we look at how our market share through travel agencies, which frankly isn't even our major form of distribution, is higher, significantly higher in Boston than our seat share.

All of these things I think lend -- certainly may have filled out, there is very good momentum behind our plan and our investors should be feeling very confident about that.

John, I would also offer too, we're attempting to be very transparent when it comes to talking about PRASM within our current guidance construct into Q1.

And you live in New York, I mean all three of our airports were under water not that long ago.

And then as we saw the demand softening in December, and then obviously January a tough comp year over year, February the schools around here, and this is a big holiday for us when you think about President's weekend, a lot of these days being made up across the northeast with schools still holding classes.

And we did comment that we see very nice strengthening over the course of Q1.

So it's -- what we're really attempting to do is to be very transparent to shareholders regarding what we're seeing.

And this is again half of our ASMs are in the New York area, our airports were literally under water in this storm.

So it's a -- we feel very confident about 2013.

Okay, that's really helpful, Dave, thank you.

And when it comes to your multi-year point per your ROIC improvement goal, are buybacks embedded in that plan at all?

No, sir they're not.

Thanks.

Duane Pfennigwerth, Evercore Partners.

We'll keep it on the ROIC theme here.

Wanted to ask you a little bit about it as a Management goal.

To what extent has this changed your thinking and process for network planning?

It feels like ROIC improvement hasn't been articulated at least to us for about a year now.

So my question is, in that year how has this new goal changed the process by which you decide where to put new capacity?

Good morning, Duane.

It's actually -- I wouldn't say that this is just over the last year.

I mean as we've had five years worth of leadership team board offsite, as we talk about growing our business.

By the way a young business, when we're compared from an ROIC perspective, entering our 14th year, versus many carriers, let's say 40 years old or even 80 years old that we get hung up against from an ROIC perspective.

All that said, Duane, this framework is absolutely in place.

It's in my performance goals.

By the way, as we talk about cascading this into the organization, as we look at growing profitably but also improving ROIC, this is how we're building this Company long term.

And it is cascading from me to my group of direct reports, Exec leadership team and into the organization.

It's been very helpful, I think that you Mark really helped a great deal as we talk about slowing the growth back in 2007 and we think about CapEx and literally the expenditures of CapEx, slowing it down, moving to free cash flow, moving to ROIC, I think this is a healthy sign of a Company that's maturing.

But to Jamie's question earlier, still being very disruptive and innovative.

And it's been very helpful to be a conduit in which to think, or a template in which to think about how many airplanes we're going to be taking on a year over year basis.

Okay and then just to follow up actually on one of Jamie's questions too, in terms of the other revenue line specifically, I understand a lot of the good stuff you're doing on the ancillary side will flow through passenger revenue.

I assume you had some cancellation give backs here, or cancellation fee give backs here in 4Q, how should we be thinking about the growth rate of that other revenue line into 2013?

Are you referring to like change fees and things like that?

Yes.

Basically every part of your revenue that's non passenger.

So how should we be thinking about that growth rate into 2013?

I think it leveled off here in the fourth quarter.

Yes and I don't think -- we don't actually break that out as guidance that we provide.

We did look at -- we did anticipate a question that related to the $0.02 EPS versus consensus, 50% of that actually did relate to change fees and the other 50% related to the loss we took on the prepayment of the two A320s.

If that gives you a little bit of color.

Okay, that's helpful.

Thank you.

David Fintzen, Barclays.

A question for Robin.

You mentioned Boston margins doing much better than you had anticipated.

Can you give us a little bit of context around where San Juan margins sit and ultimately, where you see San Juan going?

Is that a market you think can rival Boston?

Just a little flavor for how we should be thinking about that.

Thanks, David.

I think San Juan is a couple of years behind Boston in the investment phase.

So I look at what we started doing in Boston back in 2009, 2010.

San Juan would be a period of major capacity investment really started actually last year.

This year, we will continue to grow that market, but it will grow at a lower pace than last year, because we put a lot of capacity in.

Competitive capacity in San Juan, Puerto Rico continues to come down as we saw in Boston.

And without making any specific forecast because it's not going to be disclosed externally, but we believe that San Juan will, within a couple of years, start ramping up and provide a very nice return for JetBlue.

It is a much smaller market than Boston, right?

So as we talk about Boston being up to probably about 120 flights in the peak this summer, taking that up to 150 over the next two to three years, then San Juan is clearly a much smaller market than that.

Right, no that makes sense, I appreciate that.

And then maybe a quick one for Mark, you mentioned maintenance unit cost up high single digits.

In terms of balancing that out to get to the non fuel guidance for the year, is there any one line that stands out in the P&L or is it less pressure around?

And then in terms of the high single digit, you talked a little bit about leeway, how dialed in should we think about that maintenance guidance?

How much room do you think you have to have to maneuver to bring that down?

I think that we are -- the whole Aveos thing is well behind us now and we're looking forward to basically enjoying full year of flight hour agreements with a couple of our OEM and other partners, both on two engines, as well as then some maintenance caps on some potential E190 heavy checks.

As you may know, those plans are now getting to their C-4 check range.

And we have now those in place.

And I think that we will continue to look for other ways to bend that cost curve down.

But as I say, we're pretty pleased that we've been able on a year over year basis to move that thing down from what had been two years ago at 38% year or year to something far more reasonable.

It'll still obviously outpace ASM growth because the fleet is getting older, but it's certainly going to be a lot less than the stuff that we were talking about last year.

And just in terms of the other side of the cost structure, is there anything that stands out that in airports or other areas on a unit cost base that's balances that or is it pretty much spread throughout that branch?

I think it's a great question, David, because I think this year we're going to spend a lot of time internally focused on bending in a very similar way the cost term on salaries and wages.

We've already started to get a little bit ahead of that on some outsourcing opportunities, some opt out opportunities and the like.

We've also done a great job in terms of bending our cost curve on benefits, notably healthcare.

But I think that this year's probably going to be a lot of discussion as we had our [MMNR] last year, this year we're going to have a lot of conversation about internally on the whole wage bending that wage cost.

Okay great, I appreciate that color.

Savi Syth, Raymond James.

Just on the -- a follow-up question on the cost side.

I believe your pilot pay structure is based on an industry average and we're starting to see a lot of large pay rate increases at the legacy carriers anywhere from 20% to 60% over the next few years.

And just was wondering when that starts to impact your cost and when will -- and what kind of an impact it might have?

We've always been committed to the proposition that our pilot wages are peer competitive.

We are not unmindful of the fact that there are reports of pilot shortages, occasions simply amongst other things by the qualification -- higher qualification requirements plus obviously the military is producing a lot less in terms of numbers of pilots.

And that is something we are speaking to our pilot values committee and others about as we move forward and we're also not unmindful of what some of the legacy carriers have done with respect to their pay structures, keeping in mind of course that their demographics, if you will or their age of -- their population age and their relative seniority's are much, much different than ours.

And as I say, we're -- we feel like we're in a pretty good position with the pilots today and these are challenges that we're going to have to deal with.

Okay and if I may ask, regarding Virgin America, what's the overlap that you have with Virgin America?

And I was just wondering if -- what the impact might be of them adopting a no growth strategy here?

Yes, it's about 11% overlap and I think if you look at the first quarter there is a (inaudible) reduction in transcon capacity versus last year.

And you certainly -- the industry is certainly seeing the benefit to that in just some of the fare environment.

All right, great.

Thank you.

Kevin Crissey, UBS.

You talked about the capacity growth being biggest in January.

Can you give the monthly run down of what your capacity growth looks like as you go through Q1?

Hi, Kevin.

So no we don't break that out by quarter.

But I think we touched on the fact that January is riding above what that average would be as we get into -- plus I think we said earlier it had a high comp.

As we get into the rest of that, that is going to come down.

So January is certainly the high capacity month of the quarter.

Okay.

And can you talk about whether you expect your RASM improvement to be more load factor or yield as you look into the quarter?

Thank you.

As we look into the quarter, I think we touched on the January picture earlier.

I think February is -- has been a traditionally strong month for JetBlue.

It's the really last hangover of Hurricane Sandy in that many school districts have shortened or canceled holidays.

And so that is going to impact the yield environment during the President's Day, President's week holiday.

And then as we get into March, I think we're going to see strength in both yield and in load factor because one, that is where Easter and Passover is sitting this year another very strong period for JetBlue.

But also what we're seeing is that where customers aren't taking trips over the President's Day holiday, they are locking those in for the Easter Passover period, and so we're seeing some nice early demand there as well.

Thank you.

Glenn Engel, Bank of America.

Sharklets, can you talk about when you'd expect them to be installed on all your planes?

That's a great question.

It's -- we have a lot of flexibility to make it fast or make it slow, largely depending on how much Mr. Hayes would like the capacity.

It takes about two weeks when we retrofit the airplane to -- and it is a pretty big mod.

So we have a lot of flexibility to go fast or go slow.

Again it is really a trade-off between out of service and revenue opportunities versus obviously the efficiencies of maybe having a couple of modification lines.

We'll do five retro fits this year and all of the aircraft from Airbus delivering this year will have the sharklet.

And probably we'll be a little bit more specific in terms of the pace of those future mods as we -- Jeff Martin and his team look at the whole maintenance cost/hangar schedules.

Do you have any outside date when you'd expect it to all be done?

I'm looking at--

2015, 2016, 2017?

Probably '16.

'16 to '17.

I'm looking at Mr. Barger and he's saying yes to that.

Okay.

Second, if I look at your cost guidance in the first quarter you're looking up 3% ex fuel and profit share and up only 2% with profit share.

You only had $3 million of profit share last year so why does it have a full point impact on your cash and comps in the first quarter?

I'm actually not getting the same number, but we'll look at that offline.

That's not what I'm getting.

We only had $3 million, that's right Dave, we only had $3 million full year last year.

In terms of the new definition.

That's right.

That's correct.

So it wouldn't seem like it would have much of an impact on a negative side but okay.

Third question is can you just give us operating cash flow and CapEx for 2012?

So we're looking at total 2012 CapEx was approximately $825 million.

And from cash from operations about $700 million.

So you did not hit your free cash flow target this year?

So no we didn't I think-- and I'll just -- and it's a great point.

We have historically been pretty fanatical about free cash flow and I actually had the same reservation sometime about mid December as we were looking at this pre-payment opportunity that we had with Airbus.

And I was reminded by our new Treasurer, Jim Leddy, at the time who said don't let a useful financial metric get in the way of significant value creation, and that's precisely what the pre-payment provided.

Thank you very much.

Dan McKenzie, Buckingham Research.

Can you talk about how corporate travel trends are shifting for JetBlue?

I realize it's a pretty imperfect science, but what metrics are you looking at?

And what are you seeing today that's different than say a year ago?

Thanks, Dan.

I think that it's really a continuance of a process that we started a couple of years, centered in Boston but not just in Boston.

I mean we do have corporate accounts across other parts of our network as well.

And when I -- what encourages me when I look at agency share data in Boston, I mentioned this earlier, and we are now several points ahead of our natural seat share, that's telling me we've gone past that sweet spot.

We have a number of different format of corporate deals in place.

We just made an investment, in fact, with a couple of additional account managers, which is going to allow us to both process more deals and review our current deals more effectively than we have today.

And then also focused on compliance.

So I think phase one of this journey for us was let's get the deals in place.

And now phase two is okay we have the deals in place but we need to make sure that they perform.

And then we're focused on the corporate customers that are driving that incremental corporate business to us.

And I think that together with the, Mark touched on this, but the rollout of the new TrueBlue Mosaic program with a number of benefits for our most loyal customers that was important as well.

Because we had in certain pockets had some resistance from customers who were maybe in higher tiers of other airline programs, we didn't have something that allowed us to compete with that.

So I think the very JetBlue in a very innovative way, we created a program that was compelling and has been very attractive.

And as we -- again early days, but we are -- we've seen thousands of thousands of new customers come into that since we launched it.

Okay, I appreciate that.

And then if I could shift to a network question here.

This past year, JetBlue has increased growth internationally out of Florida.

And I wonder if you can provide some -- just give us some perspective here on how much further there is to go perhaps this year.

And then further out, are there still significant international growth out of -- opportunities out of Florida?

Modest growth?

Not sure what you -- not sure what kind of color you can provide, but anything would be helpful.

Dan, I'm happy to answer that.

I think that when we look Latin America, I answered the question earlier from David and I focused a bit too much maybe on Puerto Rico as one of our focus cities.

But when I look into Latin America and I look at the opportunities that we have down there, and how quickly these routes ramp up into profitability.

When I look at -- I mean it's really rich.

And we already announced in the last couple of months here new service from Fort Lauderdale-Hollywood into San Jose, Costa Rica and also Medellin in Columbia.

And we look and we see a significant amount of opportunity.

And when we look at the South Florida [Cathmont] area, one of the real benefits of Fort Lauderdale-Hollywood is an airport with it's low cost structure.

We look at the costs of operating out of there compared to say Miami, and it allows us to offer lower fares, stimulate the market and do all the things that we know work in terms of allowing JetBlue to come in and grow and be successful.

And so just as we talk about Boston and San Juan, we see a very, very lengthy and profitable ramp up to growth into the Latin American market, both in the northeast where we can fly but also from South Florida Cathmont area and Fort Lauderdale-Hollywood.

Yes, appreciate it.

Thanks.

Helane Becker, Dahlman Rose.

I just have a question about I guess it's like the thought process.

You've got this new route to Medellin.

And I know you serve quite a lot of cities in Colombia now out of Fort Lauderdale.

And I notice that aircraft seems to overnight there, and I'm just wondering if it doesn't make more sense to bring the aircraft, or why you can't bring the aircraft back to overnight it in Fort Lauderdale and is that not an inefficient way of operating that route?

Hi, Helane, no, thanks for the question.

We certainly have a mix down there.

We have a number of daylight returns.

But having a flight that departs late overnight, comes back in the morning is as equally effective aircraft time and also opens up the -- offers customers a choice of collections -- connections.

If we look at Colombia where we've been very successful to the point of [sell] market out of markets like Colombia and things like the morning flight is very, very important.

And again, as we build connectivity into our network both into Fort Lauderdale but also Orlando, the ability to offer a choice of time of day of departure for connecting customers also very important for our network connectivity.

Okay and then in the Caribbean, I think you said that industry capacity would be down 7% in the first quarter.

What will your capacity be like in the first quarter?

This is in San Juan?

Yes, thank you, sorry.

Caribbean, just trying to recall what we said on that earlier.

We said -- Helane, good morning, the industry is down 7% -- yes good morning, in San Juan specific, right?

And we also talked about our growth is up on an annual basis as we're looking at something that looks like 15% and we don't break it out by quarter though Helane.

Okay, so can you -- did you also say what percent share you have in the market?

We don't break that out and also because we are so direct sold some of that is actually harder cost to measure.

Got you.

Okay, well thanks for the help you guys, thanks very much.

Have a nice day.

Michael Derchin, CRT Capital Group.

The sharklets, have you given us a total financial return when this thing is all completed for the Firm?

How much profits are going to be added ultimately?

I haven't largely because I'm not actually under the terms of our deal with the Airbus, entitled to disclose the purchase price of the sharklet or the mod costs related to it.

Again, I think the key factoid there though is that it is uncertain especially longer routes easily a 3% good guide to fuel.

And we're looking at a return on this thing of something a little bit north of two, but not much more north of two years.

Right, thank you.

And just on the ethnic market, you guys are doing a tremendous job there, can you give us a little bit more color on it?

Is that very seasonal or is that year round?

And with the changes that are being contemplated in Washington on loosening up immigration and so on, how do you see that playing out for you?

Thanks, Michael.

I think in terms of Visiting Friends and Family market, then it's seasonal to a degree.

It's less seasonal than your traditional leisure vacation market.

The other thing about the Visiting Friends and Family market is it can be stimulated in the trough.

So it is a market that responds if you have a tactical need to lower phase and stimulate demand, it responds well to that.

And just a broader comment on maybe less about immigration, more about tourism.

The more that we can market the United States around the world as an inbound tourism destination, we look at the interest coming out of Colombia and other markets to visit here, so when they arrive there is an efficient process of clearing customs immigration.

As they travel around the system, efficient security.

I think all these things are only helpful in terms of creating demand and improving things for the industry here.

Thanks very much.

Last plug I'll give in a couple of years here, less than a couple of years here, we'll have our T5i open, so we'll be able to land international flights into JFK and clear them in our own terminal, which will enhance our customer experience.

Thanks very much.

Jeff Kauffman, Sterne Agee.

Mark, let me just throw out a brief one.

$55 million in CapEx for LiveTV, I'm sure you'll talk more about it at Investor Day but can you give us an update on how big LiveTV is?

And is it generating any meaningful contribution yet?

And where are you looking this capital spend to be and the revenue base to be over the next year or two?

So Jeff I'll only talk about it at Analyst Day if like last year you sit in the front row.

Very well.

(laughter)

Candidly from an FCC perspective.

LiveTV is still not material to our results, so probably is not really worth breaking out.

I do think though that we will highlight LiveTV, because it really is the engine by which we're going to implement these innovations of Ka-band.

So I think just a plug for Analyst Day, we will actually try to demonstrate a little bit of the capabilities of Ka-band.

And again, while the $55 million of CapEx is seemingly a big number, a lot of it really is essentially monies that LiveTV gets back in the form of fees and what not from its own customers as it installs LiveTV and what not on other airlines, including JetBlue's aircraft.

But I think the real story behind LiveTV again, it's not material, it's not worth separately breaking out but it is really one of those engines going back to Jamie's first question on innovation, that really helps us and enables us drive and take an innovative lead in the space.

All right.

Well I'll do my best for front row.

Thanks so much, Mike.

I'll save you a spot.

And we have no further questions at this time.

Great thanks so much, John, appreciate that.

Let me just close this call by once again thanking our crew members over the course of 2012.

Again we're very pleased with the results of 2012, we're very excited about 2013.

We look forward to seeing many of you at Analyst Day again in the March time frame.

Thanks for calling in today, we appreciate it.

Thank you, ladies and gentlemen, this concludes today's call.

Thank you for participating.

You may all disconnect at this time.