JetBlue Airways Corp (JBLU) 2013 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the JetBlue Airways first-quarter 2013 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 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'd like to turn the call over to Dave Barger.

Please go ahead.

Thank you, Adrienne.

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

This morning we reported first-quarter net income of $14 million, or $0.05 per diluted share -- our 12th consecutive quarter of profitability.

Operating margin was 4.5%, a decrease of 2.9 points compared to last year, driven primarily by Hurricane Sandy-related demand weakness in the Northeast during the peak Presidents' Day travel period and approximately $20 million of higher-than-expected maintenance costs during the quarter.

Although the first quarter was challenging on several fronts, we remain focused on running a safe, reliable airline and delivering excellent service to our customers.

I'd like to take this opportunity to thank our 15,000 crew members for all their hard work during the quarter.

I would also like to thank all of our crew members who helped support customers and fellow crew members impacted by the tragedy in Boston last week.

Our thoughts and prayers are with the victims and their families.

Of course, JetBlue will continue to do whatever it can to help in the months ahead.

We have an outstanding team of more than 2,000 crew members based in Boston and a customer base of 20,000-plus flyers that count on us every day.

As we discussed at our Analyst Day last month, we have focused on serving the underserved with a differentiated product and competitive cost in high-value geography.

We believe our differentiated product and service is a sustainable, competitive advantage and continues to drive a price premium versus our competitors in many of our key markets.

While we have been pleased with the trajectory of our revenue performance overall, Hurricane Sandy negatively impacted demand for air travel in the Northeast over the Presidents' Day travel period, as many school vacations were shortened or canceled.

With over 50% of our capacity in the New York metropolitan area, we estimate Hurricane Sandy reduced revenue in February by approximately $25 million.

Even with this headwind, quarterly revenue performance was solid.

We generated record revenues and achieved year-over-year improvements in yield, fare, and load factor while growing capacity 6%, demonstrating the core strength of our business.

Also contributing to year-over-year revenue growth was record quarterly ancillary revenue per customer of $22.

This is up 3% year over year, and we see continued opportunity moving forward to generate higher-margin ancillary revenues.

Boston short-haul markets continue to be an important driver of profitable growth, driven in large part by our increased relevance to higher-yielding corporate travelers.

To continue driving this relevance, we plan to commence service from Boston to Philadelphia in May and to Houston Hobby airport in July.

As Boston Logan's largest carrier, we now serve nearly 50 nonstop destinations.

We plan to continue to add important business-oriented markets and improve schedules as we further enhance our relevance position and improve margin performance in Boston.

In addition, we continue to see profitable growth opportunities in Latin America and the Caribbean.

To that end, we are pleased to announce today our plan to serve Lima, Peru, from Fort Lauderdale Hollywood International airport later this year, subject to government approval.

As we continue to expand our network, we believe we are well positioned to be able to leverage our high-value geography to drive incremental partnership traffic as well.

During the first quarter we launched an in-line agreement with Asiana Airlines, our 23rd partner.

While partnership traffic is becoming a more significant source of revenue for JetBlue, we believe this business is still in the early stages of maturation.

In addition to adding new partners, we believe many opportunities exist to deepen relationships with existing partners through coach air agreements and providing better links between TrueBlue and partner loyalty programs.

We're also very pleased to have welcomed Aer Lingus to our home at JFK's Terminal 5 earlier this month, bringing our first international partner's operations to T5.

As a result, connections from Aer Lingus to JetBlue flights are even more seamless for customers.

In addition, increased use of the terminal helps offset our airport operating costs.

Cost discipline, of course, is a critical element of our success.

Maintenance costs have driven most of our non-fuel cost increase since 2011.

As Mark will discuss in more detail, this trend continued in the first quarter as we accelerated engine performance restorations on our E190 aircraft, resulting in approximately $20 million of additional expense.

While we are disappointed with this aspect of our cost performance, we are working proactively with GE, the engine manufacturer, to manage these expenses going forward.

Before closing, I'd like to briefly mention the recent FAA furloughs for air traffic controllers.

While it is still too early to assess the potential financial impact, delays at our New York area airports in particular, but at others as well, have increased.

JetBlue is working directly with the administration; Congress; as well as with our trade association in Washington DC, the Airlines for America; to help forge a political solution to this most regrettable but holding political situation.

We are hopeful that a solution will be reached in the coming weeks.

Although it was a challenging quarter, we remain very optimistic about the future.

We expect margins to improve throughout the year as we execute our network strategy and contain costs.

We also plan to continue to improve the balance sheet and make prudent investments in the business.

To that end, I am pleased to report that LiveTV, our wholly owned subsidiary, has submitted a request to the FAA for a Supplemental Type Certificate related to KA-band aircraft equipment and expects to receive FAA approval next month, assuming a typical FAA review timeline.

We are on track to begin the installation process for WiFi on our first aircraft immediately after approval.

We truly believe our state of the art in-flight connectivity product will be a game changer.

In closing, our competitive advantages -- a differentiated product with a competitive cost structure, serving high-value geography -- we believe will continue to provide a successful platform for sustainable, profitable growth.

At the same time, we remain committed to generating free cash flow and improving ROIC by at least 1 percentage point per year for the foreseeable future.

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

Thank you, Dave, and good morning, everyone.

Again, thanks for joining us today.

This morning we reported first-quarter operating income of $59 million.

That is a decrease of $30 million compared to the first quarter of 2012.

First quarter year-over-year passenger unit revenues increased 1.8% on capacity increase of 6.3%.

While we experienced yield pressure during the shoulder periods, very strong Easter and Passover holiday traffic helped drive the quarter's solid revenue performance.

First-quarter average one-way fares were $163.

Our overall fare mix improved as we continued to gain market share with corporate travelers in Boston and as revenue contributions from our partnership strategy increased.

Year-over-year passenger unit revenue was flat in January, declined by 3% in February, and increased by 7% in March.

As discussed on the January call, shortened and canceled February school vacations in the Northeast negatively impacted demand during the peak Presidents' Day travel period.

Close-in Presidents' Day bookings were even weaker than expected.

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

Demand during this holiday period was particularly strong this year, we believe in part due to the pent-up demand from February.

We estimate the holiday shift benefited year-over-year March PRASM by roughly 7 points.

With a March PRASM tailwind, we anticipate an April PRASM headwind.

Throughout the quarter we continued to see strength in our Boston business-oriented markets, driving both load factor and yield improvements.

We saw the strongest year-over-year PRASM improvements for the quarter in our transcon markets, driven by healthy increases in both yield and load factor.

As to ancillary revenue, total ancillary revenue in the first quarter increased by roughly 10% year over year to $160 million.

During the first quarter ancillary revenue per passenger was about $22.

Recall, ancillary revenue is measured as the combination of ancillary revenue reported in the passenger revenue line, such as our Even More offering, and the other revenue line.

We continue to see growth in high-margin, passenger-driven ancillary items such as Even More and TrueBlue.

Growth in passenger-driven ancillary revenue was offset to some extent by declining lower-margin ancillary revenue in mail, spare part rentals, and our training center revenue.

Our Even More offering remains on track to generate approximately $165 million this year.

We continue to expect total ancillary revenues in 2013 to increase between 10% and 15% year over year.

Turning to costs, quarterly operating expenses increased 11% year over year, or $126 million.

Fuel, of course, remains our largest expense and comprises nearly 40% of the total.

In addition to our continued successful focus on operating procedures and techniques designed to conserve fuel, we are making prudent investments in our fleet to reduce fuel burn.

Specifically, we are pleased to have retrofitted our first A320 with sharklets in the first quarter and expect to retrofit for additional A320s this year.

Further, all seven of our A320 Airbus deliveries will have sharklets installed.

We expect sharklets to reduce fuel consumption on these aircraft by up to 3%.

We continue to maintain a fuel hedge portfolio as a form of insurance.

In the first quarter we hedged approximately 8% of our fuel consumption.

Additionally, fixed forward price agreements, or FFPs, covered an additional 10% of our first-quarter fuel consumption.

Including the impact of fuel hedges and FFPs and taxes, our fuel price for the first quarter was $3.29.

For the second quarter, we have hedged approximately 18% of our anticipated jet fuel requirements.

Additionally, FFPs cover an approximate 20% of projected fuel for the quarter at an average price of $3.10.

The underlying details of our FFP and hedge programs as of April 19 are more specifically detailed in an investor update which will be filed later today with the SEC.

Recall, we use the Brent forward curve to estimate fuel costs in the prompt quarter and the median of Bloomberg consensus for Brent crude to estimate our unhedged portion for the full year.

Based on the forward curve as of April 19, Brent is averaging $101 per barrel for the second quarter.

Based on the forward curve, again, as of April 19, the second quarter crude to heating crack spread is averaging about $17 per barrel and $19 per barrel for the remainder of the year.

So including the impact of hedges and taxes, we're estimating a second-quarter fuel price of $3.03 per gallon and a full-year fuel price of $3.20.

As to ex-fuel CASM, excluding fuel and profit sharing, year-over-year first-quarter unit costs increased by 6.6%.

This is significantly worse than our expectations and guidance.

The variance results from two primary items.

First, it's a timing issue with respect to the sale of LiveTV's ground spectrum license that we wrote down in the third quarter of 2010.

We had expected a roughly 8% benefit in other operating expenses during the first quarter.

This transaction actually closed early in the second quarter, and we have now incorporated this gain in other operating expenses in the second quarter.

The balance of the variance was driven by approximately $20 million of higher-than-expected E190 engine maintenance expense.

This increase is mainly attributable to an acceleration of performance restorations of our higher flight hour E190 engines.

These engines' restorations are intended to help address several non-core peripheral engine issues to improve, ultimately, operational reliability and extend time on winning.

We had planned for 20 E190 engine performance restorations for the full year; yet in the first quarter alone we chose to perform 12.

We now expect to perform 30 E190 engine performance restorations for the full year.

As previously disclosed, and as Dave mentioned, we have been working with GE, the manufacturer of these engines, to reach a long-term maintenance agreement to smooth future engine maintenance expense.

With or without such agreement, it's likely we will continue to accelerate the engine performance restorations throughout the second quarter, with a decline in the number of E190 engine visits thereafter.

The second quarter and full-year CASM ex guidance provided in today's press release reflects these patterns.

Moving, if I may, to the balance sheet, we extended the first quarter with unrestricted cash and short-term investments of approximately $849 million, or 17% of trailing 12-month revenue.

Not included in this cash balance is a line of credit we have with Morgan Stanley for $200 million.

We are pleased to announce this week that we closed a new $350 million revolving credit facility secured in part by JetBlue's slot portfolio at JFK, Newark, LaGuardia, DCA, and other related gate facilities.

We believe this action, which brings total credit lines now to $550 million, is in line with our efforts to right-size our cash balance and reduce the drag on ROIC caused by excess cash and short-term liquidity.

Additionally, we recently refinanced approximately $42 million in municipal bonds secured by our training center and hangar in Orlando, which we anticipate will result in roughly $1 million in annual interest savings.

The expected reduction of interest expenses reflected in our other income guidance provided in our investor update -- which, as I said, will be filed later today.

During the first quarter we made debt and capital lease payments of approximately $50 million.

Second-quarter scheduled principal payments from debt and capital leases are expected to be a very manageable $120 million and roughly $345 million for the remainder of the year.

With strong cash from operations and manageable capital commitments and debt maturities for the remainder of the year, we believe JetBlue is well positioned to maintain strong liquidity throughout 2013 and generate positive free cash flow.

We expect to end the year with cash as a percentage of trailing 12 month revenues of approximately 15% with respect to CapEx.

JetBlue ended the quarter with 181 aircraft, including 127 A320s and 54 E190s.

For the remainder of 2013 we expect to take delivery of three A320s, 4 and our first A321s, and 6 E190s.

We plan to finance all of our 2013 aircraft deliveries.

We estimate second-quarter capital expenditures at about $220 million.

That is $170 million for aircraft and $50 million for non-aircraft-related expenditures.

We estimate full-year CapEx of approximately $675 million.

This includes $225 million of non-aircraft CapEx, of which $40 million relates to LiveTV and $75 million relates to the construction of our international arrivals facility known as T5I at JFK.

Moving to capacity, we expect to increase second-quarter ASMs to between 6.5% and 8.5% year over year.

Given a higher-than-expected completion factor during the first quarter, we expect 2013 ASMs to increase between 6% and 8% year over year.

This is slightly higher than previous guidance.

Turning to the revenue outlook, while we are seeing some yield softness during shoulder travel periods, we are encouraged by the results of our efforts to stimulate traffic with lower fares.

We currently expect April PRASM to be down between 9% and 10%.

Recall, there is a roughly 7 point headwind in April due to the Easter and Passover holiday shift into March this year.

When we combine March and April together to neutralize the impact of the holiday shift, we expect PRASM will be down about 1.5% year over year.

While we have limited visibility, May bookings currently look solid.

We expect sequential improvement in May PRASM compared to April after adjusting for the Easter holiday shift.

We are optimistic of the success of our initiatives to generate higher-yielding business traffic, particularly in Boston and investments in Latin America and the Caribbean.

As to the CASM outlook, we expect second-quarter CASM ex-fuel and ex-profit-sharing will be up between 3 and 5%, and full-year CASM ex-fuel and profit-sharing will be up between 2% and 4% year over year.

For the reasons previously noted, maintenance expense accounts for roughly 3 quarters of these increases.

While we expect the second quarter maintenance costs to remain at similar levels to those in the first quarter, we expect, again, these cost pressures will diminish in the third and fourth quarters.

We project second quarter CASM all-in will be between negative 1.5% and positive 0.5%, and full-year CASM all-in will be up between 1.5% and 3.5%.

In closing, we continue to work at improving results while executing our profitable and sustainable growth strategy.

We also remain committed to improving ROIC by an average of 1 point per year.

Again, I'd like to thank our crew members for their hard work in running a terrific and safe operation.

And with that, Dave, Robin, we are all ready for your questions.

Operator?

(Operator Instructions).

Jamie Baker, JPMorgan.

David, on sequestration, others have cited that their solution is to cut back service in the small communities, to put down 50-seaters more quickly than planned.

And that is obviously not an option for JetBlue.

You cited a willingness to work with A4A and lawmakers, but from a network perspective, is there a plan B if current ATC staffing today becomes the new normal?

It seems that something would need to be done, maybe on the airport side of things, to speed things up so that net travel time doesn't worsen.

Maybe that means getting pre-check up and running more quickly; maybe it means embracing clear -- I don't know.

Maybe it means dropping some of your shortest-haul segments.

How do we think about the network developing over time if this is the new normal?

Thank you.

By the way -- a plan B, I would say certainly we always look at that as a contingency.

It could be weather or some other event, but not yet when it comes to sequestration.

Why do I say that?

Even late last night, we were encouraged that Senator Thune and Rockefeller we're meeting with, Secretary LaHood, FAA administrator Huerta -- regarding sequestration, the impact it's having on the air traffic system.

And so as we look at it, we're still running our airline.

But all that said, Jamie, let's get inside of this.

This is government not working -- capital letters, exclamation point.

When we're sitting here holding the traveling public hostage in the midst of sequestration.

And I think what's so frustrating is what we had been hearing over period of time is that the impact is going to be limited, including the closure to those towers which were staffed with other groups outside the FAA.

And then all of a sudden we go guard rail to guard rail into a Sunday impact.

We have had 40 canceled trips so far.

You know, it's anecdotal, but when you wake up this morning in New York and we have severe clear, and La Guardia is already in a ground delay program; New York is going into one; JFK will be in one later today.

There is inter-rail separation, oceanic down to the Caribbean, and there are staffing challenges in Florida.

I just don't think that's going to be something that is sustainable that is going to drive us into this plan B.

It really -- there's so many adjectives I could share, Jamie, we're saying -- and it is -- I really encouraged, I think, with this meeting that even took place last night.

So we'll look forward to hopefully learning more today.

Back to you.

Okay.

No, I appreciate that.

Thanks, Dave.

Yes, thanks so much, Jamie.

Mike Linenberg, Deutsche Bank.

Actually, a couple of questions here.

I want to go back to, Mark, what you mentioned about May sequentially being better than April after adjusting for the Easter shift.

And I wasn't sure if you were referencing the year-over-year increase in the PRASM, right?

So March and April combined, down 1.5%.

Or were you actually referencing the absolute RASM number that you would get to on a combined basis for April and May?

So Mike, with your permission, let me ask Robin to address that.

Obviously, we are not guiding for May today.

What I would say about May is when we -- we look at March and April together.

So we had a very strong PRASM performance in March.

That's not something we celebrated, because we knew that this headwind was coming in April.

So we very much look at March and April together.

As we said, that was down about 1.5 points.

As we look at May right now, again, without guiding, and I do want to put a caveat around what I'm about to say, because this FAA sequestration issue which Dave talked to question from Jamie is something that is very concerning, because it's something that is hard to plan for day to day.

And I don't think any of us understand yet what impact that is going to have on short-term demand.

So that is something that is concerning around May.

But as we look at that May today, and we look at that caveat in mind, then we -- there's the visibility we have.

We would expect May to be positive low-single digit RASM.

Okay.

Very good.

And --

Year over year.

My second --

Year over year.

Okay, perfect.

And then my next question, just in reference to -- there's a headline out on Bloomberg where it's talking about Aer Lingus ordering 757s to link up with JetBlue at their hubs.

Then as you read through it, you realize it's just potentially what they will do with the 757s.

The fact that you do have Aer Lingus moving into your terminal -- you have talked about a two-way coach here later this year.

Does it seem reasonable that the carrier of choice would be Aer Lingus?

And maybe the 757s strategy that they are going to pursue linking up, doubling transatlantic to cities, that maybe some of those cities will be JetBlue cities.

Any comments on that?

Sure, let me take that again.

First of all, as we mentioned, Aer Lingus is an extremely important partner to us.

It was our first international partner, and the relationship, I think, I would describe as special.

They have recently started operating into our T5 terminal, and we are looking at better connectivity in other markets like Boston -- delighted with them.

Already since we moved into the terminal, we are able to reduce connecting times.

We've seen an increase in traffic we get from Aer Lingus.

In terms of commenting on code, I think we've made no secret that we are close to moving to two-way code with our first international partner.

Not going to comment on the cause as to whether that is Aer Lingus are one of our other international partners, but definitely something you should expect soon.

Okay, very good.

Thanks, Robin.

Thanks, Dave.

Thank you.

David Fintzen, Barclays.

Just a quick question -- I think it was a Mark -- in your comments, you said you thought there was a little bit of a pent-up demand from the February, from the school changes.

I'm just curious, and maybe even more for Robin, how do you think about the timing of that?

Did that come in and make the Easter shift look more extreme, or come in in the April spring break?

Or is that something you think comes in once we get past the school year?

You're right.

That's for Robin.

No, I think -- I really think that is behind us now.

Certainly, as we went into February, the school -- a lot of the school districts in the Northeast either canceled or shortened their school holiday.

That's clearly a big driver of traffic for us across the February peak.

But we certainly -- we saw that.

In terms of then we went into March, we certainly saw an improvement.

I do think that there were people who didn't take a trip in February that then absolutely took a trip on the Easter Passover peak.

So I think we saw that into March.

And I think now as we get through the rest of the year, the impact of the Hurricane Sandy that we saw in February -- we have seen that dissipate away as school years pretty much returned to normal.

Okay, thanks.

That's very helpful.

And then maybe one sort of bigger-picture questions for Dave.

A lot of volatility here in revenue and fuel in the industry.

But you're probably on pace for a good point or more of margin improvement in the industry, probably something similar to veteran returns.

When we look at JetBlue and you think about your ROIC target in terms of what -- your 1 point or more incremental, should we think about JetBlue as -- if the industry is getting that, should we think of JetBlue as separate from the industry?

Or should we think about JetBlue getting the industry benefit?

And why wouldn't we think there would be more than a point?

Does that become maybe a little bit overly easy return target in an industry that looks to be improving?

I appreciate the question, Dave, but with Analysts Day and today, nothing has changed.

It's still -- our plan is we are very transparent regarding a Sandy-impacted ROIC number from 2012, which, again, at just under 5%.

We knew that number was higher if we would not -- as we looked at the trend pre-Sandy, that has driven our performance metrics.

And so, you bet.

When we look at some of the impact of Sandy early this year and now sequestration -- we're looking at the same plans.

We're taking 14 airplanes.

We are growing Boston.

The maturity that's taking place up there, the relevance that is taking place up there, the connections of new markets such as into -- subject to government approval -- Lima; what we're planning to do in terms of, again, Latin America out of Fort Lauderdale/Hollywood.

This is what is happening to us.

And keep in mind, when we talk about improving our return on invested capital metric by at least a point on a year-over-year basis for the foreseeable future, Dave, we are doing it while we're growing.

So I think when you start to take a look at the rest of the industry, I think that benchmark is a little bit different.

Okay, all right.

I appreciate that color.

Thanks.

Sure, you've got it, Dave.

Thanks.

John Godyn, Morgan Stanley.

I just wanted a couple very quick clarifications and then a question, if you don't mind.

Just to clarify, Robin, you mentioned FAA furloughs as a qualifier in your May PRASM.

Was that a conceptual comment, just the idea that could have an impact?

Or are you literally seeing something?

I know it's very early, but are you literally seeing anything already impacting close-in bookings?

No, nothing as of yet, but it is very early.

And awareness is definitely building.

It's been on the front page of the Journal now for the last two days.

And in our view, then we are certainly -- particularly for some of the shorter-stage flights, where if you are looking at a flight that is normally an hour, and you are going to think there is going to be a two-hour delay on the back of that, and you can drive it in three to four, then we definitely think people are going to start thinking about other forms of transportation.

So a conceptual comment at this point, but something that we're really concerned about if the traveling public continued to get held hostage like this.

Got it.

And Dave, I think that you had said that you were hopeful it would get solved in a couple weeks.

That is a precise timeline, so I just wanted to clarify what gives you that precision of the timeline?

Well, I wish I could have precision on it, John.

And it's not a matter of just being hopeful.

But I think, again, Robin mentioned headlines.

Senators Thune and Rockefeller meeting with the DOT, FAA yesterday.

By the way, there is a recess that is coming up as well with members of Congress.

And so I would think that constituents are going to be in touch with senators and the House of Representative members and say, hey, listen, enough, enough.

This is -- I mean, it's ludicrous.

So could it go on?

Yes, it could absolutely go on.

There is no doubt about it.

We are sitting here today with an 87% load factor, right in the heart of what is happening in the New York metropolitan area.

And so as we're talking to people like Senator Schumer and Gillibrand and Governor Cuomo, you bet.

We are not taking a backseat on this issue.

So hopeful, but John, I can't say it with certainty.

Got it.

But this recess at least creates a boundary that might affect the timeline here.

Sure.

And I think on that recess, it will be interesting to see if those flights go on time.

Mark, can I just ask one question on CASM ex fuel trends?

You have got these A321s coming at the end of this year.

Can you just talk a little bit about the gauge of those aircraft, and if there is a CASM ex fuel benefit towards the end of the year and as we look into 2014 coming from the upgauging?

I know there aren't a lot of these aircraft, but I'm just curious how you are thinking about it.

Well, I feel so strongly about the positive impacts of CASM ex fuel on the higher gauge that I wish we had more coming, but we only have four this year.

But in fact, I think we spoke about this at Analysts' Day -- and for sure, while the trip costs might be slightly higher just because of the weight of the airplane and what not, the seat costs are phenomenal.

And as we discussed the gauge that we're looking at, practically in the high density routes, it's really going to be a huge mover of CASM.

And again, I think you're going to really start to see that the goodness of the A320 once we have a little bit more critical mass sometime next year, and not just with our fourth-quarter deliveries.

But, yes, it's as they say in the sales brochures.

It is a real CASM advantage, particularly if you are, as we are, on really high density routes.

And while I do have the floor, I think I misspoke when I referred to our $8 million, by the way, of the LiveTV ground spectrum license.

I somehow said that it was an 8%.

I don't know how we would charge an 8% in the first quarter.

I meant to say million.

So it is an $8 million charge, just to clarify that.

But John, can't wait to see and get critical mass on the A321 fleet.

Great.

Thanks, guys.

Thank you.

Duane Pfennigwerth, Evercore Partners.

Just in terms of the revenue trends to date, can you tell us how you're thinking about -- beyond the seasonally-stronger summer period, the Fall, at this point with respect to capacity?

No, Duane, not at this point.

What I would like to stay on revenue is I think we've covered the unique features about March and April, which were exacerbated by the way the holiday shifted this year.

And as we look at the -- and I'll give you some flavor to May, but as we head towards the summer, May, June, where we have some visibility right now, we feel good about the revenue environment.

We think the yield softness that we saw in some of the trough periods in April, we think that's behind us.

And we feel -- again, subject to my comments earlier about sequestration, I think we feel more positive about what we're seeing going forward.

So there is no downward bias on capacity given the revenue results to date?

We have flexibility to adjust if we need to, but at the moment, no.

I think we feel very good about where things are situated.

And then on the other expense line, appreciate that you expected a gain there this quarter, but it looks like ex that gain, it was up pretty substantially year to year.

Can you just talk about what's going on in that line?

Thank you.

Yes, sure, thank you.

Actually, there's two pieces, again.

As we have noted, versus guidance, that we just had this $8 million related to the spectrum LiveTV thing, which is now in the second quarter from the first quarter.

But from last year, you recall, last year as well we had an $8 million -- coincidental, same number -- $8 million gain in the first quarter related to the termination of a contract with AirTran and LiveTV.

And so that's probably a little bit of the cause of why it looks different.

Okay, thank you.

Thanks.

Thank you, Duane.

Savi Syth, Raymond James.

Just on the Sandy impact, just one clarification.

The $25 million negative impact -- that doesn't take into consideration any positive benefit in March, does it?

No.

That was the impact as we measured it in -- but only February, around the Presidents' Day weekend and that week holiday.

Do you have any kind of thoughts on how much of that might have showed up in March?

No, it's a bit hard to speculate on that.

I think instinctively, as I said, I do think some people deferred a trip.

But hard to know how much of that precisely was recaptured.

Understood.

And additionally, you have seen Southwest -- just kind of thin their seats and add some seats to their flight, and now Alaska announced additional seats.

Any opportunity to add there?

I know last year you added Even More Space seats, so wondering if there's more that could be added in the economy cabin.

No, really, we get asked that a lot.

We look at that.

One of the unique aspects of our configuration, if we take the A320 today, where we have 150 seats, then to go above that triggers a fourth flight attendant.

And so there is a cost headwind, significant cost headwind that we would have to overcome.

So we actually have chosen to optimize, maintain that -- there's a cost advantage at staying at three versus going to four, optimize around the very high-margin Even More revenue that we have been able to successfully grow.

We've added, if you take the 190 where we have stayed at 100 seats, but we've created some additional Even More seating last year.

We've seen a benefit from that as we then reduced the seat pitch slightly on the rest of the aircraft.

So we look at it, but we feel that we have optimized the revenue and cost point around the 150 and 100 platform we have today.

All right.

That makes sense.

Thank you.

Thanks, Savi.

Dan McKenzie, Buckingham Research.

The economy has hit a soft patch here.

And as the airline most levered to leisure travel, how are you thinking about the impact of the economy on the revenue picture here versus just simple demand destruction from the sequester?

Any color you can provide?

It's Robin.

I think we certainly saw some signs of yield softness during some of the nonpeak periods in the last couple of months, and the demand can be stimulated.

The load factors are full, the flights are full, but it was coming in at a price point lower than we had anticipated and seen in previous years.

But as we look forward, we definitely think that softness is behind us.

We feel, as we look into May and June, we feel more confident.

And I think if you look historically back in the last five, seven, eight years where we have hit these tough patches, JetBlue is a brand.

Our value proposition -- it's a brand that has done well during these periods.

We tend to perhaps not have so much exposure to some of the high premium fares when the economy is going well, but we've always been a brand that people have come to as the economy has tightened.

So we think that plays well to who we are.

And it's not something that is concerning us at this point.

Okay.

And then if I could go back to this idea of deepening existing relationships, I am wondering what kind of timing you could provide?

And how should investors think about the materiality?

Is this something that is potentially a rounding error as you look at the business?

Or is it more material?

Southwest is out there saying that its code share with AirTran is piping in $1 million a day.

No, certainly.

I think we shared some numbers in terms of Investor Day in terms of what the partnership revenue was worth.

Just to remind what those were, we said $80 million gross; in terms of net, around $40 million.

And that's something that is going to continue to grow.

And as we now look at deepening some of our one-way code shares to two-way code shares, which we really see as a natural evolution, yes, of course, that is going to drive more revenue.

But I really think that -- I look at that as part of the plan.

As we are going to continue to increase inter-line partners.

We are going to move more inter-line partners to one-way code, and we're going to start to move selected one-way code partners to two-way code.

And I think all of that is going to continue to drive that $80 million number and upwards.

We've seen good growth.

We've seen double-digit growth in that revenue in the last few years.

That's something I think we are going to see continue.

Okay, very good.

Any perspective on timing?

Is it second quarter or third quarter?

Or is it phased in evenly?

In terms of the first two-way code partner, I think you are going to hear in news on that in the near term.

Okay, very good.

Thanks, Robin.

Okay, thanks, Dan.

Hunter Keay, Wolfe Trahan.

Mark, you talked -- well, you have been, I think, buying your planes with cash recently.

And you talked earlier in the call about financing all of your deliveries.

Is this a change?

Is this -- should I interpret this as a concern about free cash flow throughout the year?

Or is there some sort of LTV noise in there?

Can you give me some color on that?

Did anything change?

Hunter, you always give me too much credit.

No, it's actually very simple.

Obviously, the EMBRAERs we will continue to finance using Brazilian export financing.

Really nice terms.

With respect to the others, it's -- our presumption as I went into this year has always been -- we were going to use cash.

And we have been very, very fortunate in obtaining some terrific commitments to cover those airplanes with really, really good terms that, candidly, are going to bring our average cost of debt down.

So it was -- but for the terms of those offers that Jim Leddy and his team have been able to obtain, I'd combine them with cash.

Okay.

Maybe more on this cash thing.

Correct me if I'm wrong; I think you guys early in the call said you were going to do positive free cash flow this year.

To be honest, I'm having trouble getting there in my model.

I think at the Analysts Day, you said you were going to be well north of $700 million in operating cash flow.

But can you help me out with regard to the components of that?

Should I expect, like, a $200 million working capital tailwind?

Because if not, your net income on your D&A has to be up like 40% to get there.

It's hard to model it.

Yes, as we look at your analysis, Hunter, you're a little bit of the outlier, but we can walk through it if you want off-line.

But we are still forecasting positive free cash flow this year.

Okay.

And again --

I think we've got -- I've given you the CapEx numbers, so I think you can infer how you get there.

All right.

Thanks, everyone.

Appreciate it.

Thanks, Hunter.

Bob McAdoo, Imperial Capital.

Just want to go back over the maintenance thing a minute.

The term performance restoration event -- is that a fancy term for an overhaul?

Or is there something literally about thrust that is slipping on these airplanes that needs to be dealt with?

What does that mean?

No, it is actually -- it's probably -- we could talk -- I love engines, as you know, so we could talk for the rest of the period on this.

But performance restoration is really two-fold.

Number one, yes, it is the overhaul of the airplane in part, but also there's a key element here, which is there are some of the peripheral items, as I mentioned, that aren't related to core that, candidly, need to be addressed in advance of perhaps the regularly-scheduled performance restoration.

And as we aggressively monitor these engines in terms of oil consumption and other performance criteria, we make the decision to pull it off and address those other peripheral items.

So it doesn't necessarily mean you pull a full overhaul, but if you are in a high time situation and those events are occurring such that you want to go fix those peripheral items, depending again on remaining cycles and hours on the core engine itself, you may well just choose to run the full performance restoration.

Candidly, not the most efficient use of your engine time, but if you've got the engine off and you've got the engine cracked open, on balance, it typically makes sense to run a full restoration.

What are some of the issues that this engine has?

The core itself is perfectly fine.

Again, it's a lot of the peripheral things around the motor.

And look, this is a 10 E engine is -- we are the first one to use it.

And just like with every other engine, you're coming in with some teething pains, and that's what we're doing.

Okay, so maybe we can talk off-line.

Thanks.

Glenn Engel, Bank of America.

If I -- to the mass roughly, does it seem like only 1% to 2% of your traffic actually does connect with other carriers using that $80 million number?

And is that up much versus last year yet?

We haven't provided any specific information for 2013, but yes, I'm expecting the growth in the partnership traffic to maintain the same sort of trajectory that we showed you earlier -- sorry -- back in March, in terms of the Analysts Day event.

And we think about the $80 million on a revenue base of about $4.5 billion core.

We've been very public about the fares that we get through that traffic or equivalent.

Your math is pretty close to being right.

And did you say how much it was up year over year in the first quarter?

No, we haven't given anything on 2013 yet.

That's something we will update annually at the Analyst event.

We showed 2012 number, and I would expect the same sort of growth trajectory into 2013 as we saw in 2011, 2012.

Second, if I add up the guidance in the second quarter, it looks like over the past 12 months the margins will actually be lower and the ROIC will be actually slightly lower in the trailing 12 months through the middle of this year than the prior 12 months.

How long can you tolerate ROIC not hitting your 1% target before you start adjusting supply?

Candidly, that's just non-negotiable.

We will get our 1% target.

And again, we have a lots of levers.

I think Dave also indicated network maturity, partnerships, huge ancillary thrust around here, efficient use of liquidity, and a real tight control of things that go in the denominator.

I still remain confident even with sequestration, and the revenue blip, and this cost issue of $20 million that -- we're getting there, Glenn.

Okay, thanks.

Helane Becker, Cowen Securities.

Just a couple of questions.

One, a point of clarification.

I thought you guys had actually said that publicly that South African Airways was going to be your first two-way code share partner.

I did allude to that over in Dublin when we saw each other.

And so I think that it's fair to say that South African is absolutely on a very short list of those airlines that we would move into a two-way code share with.

Got you.

So it was a short list rather than a specific is how we should think about that.

That's correct.

And then the other thing, Dave, I saw some comments that you made, I guess, Sunday night at Harvard about the EMBRAER and the fact that you weren't happy being the launch customer for a new plane type.

Which I get.

But have you actually given any consideration to maybe spinning off the regional operation to its own subsidiary and focusing your attention on just the main line, A320, 21 operation?

Thanks, Helane.

By the way, it's absolutely not.

The EMBRAER 190, the A320, soon the A321, that is JetBlue.

So as we take a look at the 100-seat platform, the 150-seat platform, up to the 190-seat platform, we think that these are three tools that make great sense for us.

And my comments regarding -- up in Boston this past Sunday, I very transparent.

As a young airline, there was a lot of burden for us to be the worldwide launch customer of this airframe.

And Mark just gave further commentary, not just on the airframe, but of the motors as well.

And when I think about airlines that -- much greater resources, if you will, in terms of digesting and being the leader, if you will, in terms of application of the airplane; time of the airplane, as its flying hours; time on wing for the motors.

I would have loved to have been a follower.

But that said, we are committed to the 190.

The 190 has been very, very important to our success in Boston.

And without it, we would not be Logan's leading airline.

We would not have the relevance, close to 50 markets; announcing what we are doing with things like Philadelphia, being the most recent example.

So it's very, very important to us.

Is it taking a lot of leadership time?

You bet.

So that's really the comment back to Harvard.

Okay, thank you.

And then just one last question.

Given the forecast for free cash flow, for this year, would you think about being more aggressive in a share -- in a return of capital for shareholders program?

I didn't ask that the way I wanted to.

No, I've heard the question before.

So again, I think that we are delighted that we are on track to generate positive free cash flow.

In terms of where we use our cash from operations, it's -- my first and foremost is look at buying aircraft with cash.

And if we get offers to finance aircraft at favorable terms, fine; continue to look for opportunities to prepay debt and what not.

I would also say, though, that we are still looking at purchasing shares in the market equal to the amount of shares that we are providing our employees in terms of compensation programs.

Okay, great.

Thank you very much for the answers, everybody.

Thanks, Helane.

Justine Fisher, Goldman Sachs.

My question was related to previous questions on the cash balance.

Again, if free cash flow is expected to be pretty solid this year, I was just wondering about why the increase on the revolver?

And it does seem -- and if it's true that you want to get rid of the negative impact of carrying a lot of cash on the balance sheet, what's the expected use of that cash?

If you are expecting to run that cash balance down and have liquidity instead in the form of the revolver, and then you're going to finance your aircraft, too, where was the cash going to go?

First of all, I would also say that while we've increased our lines of credit with this Citibank-led line of credit, we also had a line of credit for $145 million with American Express which we have terminated.

It was a great facility at the time, but it just proved to be a little bit more cumbersome than we would like versus a conventional bank facility.

So that $125 million is gone.

And we had then added this $350 million coupled, then, with the pre-existing Morgan Stanley line of $200 million.

And candidly, I view a line of credit as essentially the ultimate security from a risk perspective.

I don't foresee that we are going to be going up and down on that facility on a regular basis.

But it's a -- I think just in terms of risk management and just prudent management, as we move our cash balance down, that's really what it is intended to provide.

Is there a minimum cash balance that you guys would be comfortable with?

Actually, we are going to file -- two questions.

The terms -- there is some covenants related to minimum cash in the covenants that are described in our filing today, describing the line of credit.

But to your question, I think [15], in that kind of range, plus or minus, of trailing 12 revenue with these lines of credit -- and by the way, with the -- current 11 owned aircraft as well as maybe as many as 17 by the end of the year, I feel very, very comfortable.

You know what you earn in the bank today.

And putting that kind of cash in the bank, earning that low amount of interest expense, is a massive drag on ROIC.

That makes sense.

The last question I had is just on aircraft financing.

It seems -- well, we haven't seen JetBlue come to the AATC market to finance new planes, and so I am assuming you are financing -- that if you do end up financing deliveries instead of paying with cash, you will do it in the bilateral loan market, or some -- for the A320, some non-AATC market.

Are you guys valuating the AATC market?

And are you just seem better terms in that bilateral loan market?

The short answer is we are constantly looking at the AATC market, and we've been very fortunate, though, in terms of the private bank market has been incredibly supportive, and just the terms have been just very, very superior to what we have been able to -- we think we would obtain in a public AATC environment.

Okay, great, thanks.

Thanks, Justine.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating, and you may now disconnect.

Adrienne, thanks so much for your time today, and those of you on the call, appreciate it very much.

And again, thank you to our crew members delivering our 12th straight quarter of profitability.

We'll talk to you in three months.

Thank you.