JetBlue Airways Corp (JBLU) 2014 Q2 法說會逐字稿

Good morning. My name is Brandi. I would like to welcome everyone to the JetBlue Airways second-quarter 2014 earnings conference call.

As a reminder today's call is being recorded. (Operator Instructions). I would now like to turn the call over JetBlue's Manager of Investor Relations, Rob Mitchell. Please go ahead, sir.

Thanks, Brandi. Good morning, everyone, and thanks for joining us for our second-quarter 2014 earnings call. Joining us here in New York to discuss our results are Dave Barger, our CEO; Robin Hayes, our President; and Mark Powers, our CFO.

This morning's call includes forward-looking statements about future events. Actual results may differ materially from those expressed in the forward-looking statements due to many factors and therefore investors should not place undue reliance on these statements. For additional information concerning factors that could cause actual results to differ from the forward-looking statements please refer to our press release, 10-K and other reports filed with the SEC.

Also during the course of our call we may discuss several non-GAAP financial measures. For a reconciliation of these non-GAAP measures to GAAP measures, please refer to the tables at the end of our earnings release, a copy of which is available on our website. And now I'd like to turn the call over to Dave Barger, JetBlue's CEO.

Thank you, Rob, and good morning, everyone, and thank you for joining us today. This morning we reported record second-quarter net income excluding special items of $61 million, or $0.19 per diluted share. This marks our 17th consecutive quarter of profitability.

Operating margin was 9.4%, an increase of 1.8 points compared to last year. We generated record revenues driven by a solid demand environment and the success of our ongoing efforts to improve revenues through network and product enhancements. We are also very pleased to have completed the sale of our subsidiary LiveTV during the quarter which resulted in a one-time gain in the second quarter of $242 million and approximately $374 million of net cash proceeds.

Our crew members continue to run a safe airline and deliver an industry-leading product and service. Their excellent work was recognized once again as JetBlue received JD Power's highest honors in airline customer satisfaction for the 10th year in a row.

I'd like to congratulate our 15,500 crew members for this remarkable achievement, a testament to our differentiated product and culture.

Second-quarter total revenues increased by 11.9% year-over-year. We achieved year-over-year improvements in yield while growing capacity 6%.

Growth in high-margin ancillary revenue also contributed to year-over-year revenue growth as ancillary revenue per customer increased 6% year-over-year. Total operating expenses increased by 9.8% year-over-year. As expected salaries, wages and benefits and other operating expenses were the largest drivers of the year-over-year increase.

As Mark will discuss in greater detail, the sale of LiveTV will reduce our operating costs going forward. Maintaining a competitive cost structure is simply critical to our success. We believe our continued focus on improving operational reliability and efficiency together with structural investments such as T5i at JFK, our international facility, will help us improve our cost advantage relative to our network carrier competitors.

We continue to execute successfully on our plan to profitably grow in Boston, Fort Lauderdale and the Caribbean and Latin America. We are also building on JetBlue's already strong footprint in New York through new routes such as JFK, our home base, to Hyannis Cape Cod and Newark Liberty Airport to Santiago and the Dominican Republic.

Second-quarter trailing 12-month profit margins expanded year-over-year in all six of our focused cities including in Fort Lauderdale, Hollywood where we have been growing significantly. In our hometown of New York, profit margin is at its highest level in many years, a testament to the strength of our brand.

In Boston, an important focus for network growth, we are the only airline serving the market with more than 50 destinations on a nonstop basis. Our investment in Boston including significant facility improvements at Logan International Airport, and business-oriented and network investments continues to pay off.

We are very pleased with the successful launch of our Mint product, which commenced on June 15 from JFK to Los Angeles International Airport. By mid-August all JetBlue flights between JFK and LAX will feature Mint. We plan to begin the service between JFK and San Francisco in October 2014.

Our target customers for this product include high-value leisure and small business travelers whom are underserved by our competitors. Premium fares in these markets are often in excess of $2,000 per one-way ticket. We believe offering a premium product will help us significant improve returns in these markets where we have historically underperformed relative to our competitors in unit revenue and profitability.

Although still early, Mint bookings are very strong. Of note we are seeing a significant number of our Mint bookings coming from customers that have never flown on JetBlue.

We are on track to complete installations of Fly-Fi, JetBlue's leading in-flight connectivity product on our Airbus A320 and A321 fleet by the first half of 2015. With nearly 60 aircraft equipped with Fly-Fi today customer feedback continues to be very positive.

Our work to enhance our merchandising platform remains on track as well. Recall we have partnered with Datalex, a leader in travel retail solutions, to develop this new platform which will allow us to provide our customers with bundled offering such as Fare Families. We believe Fare Families will allow us to protect our base fare particularly in markets where we generate a unit revenue premium relative to our competitors while providing us the ability to improve the monetization of our differentiated product.

We expect to roll out the first phases of this new platform during the first half of 2015. As we have outlined on prior calls, our plan to improve return on invested capital this year is driven by three key components, maintaining a relatively flat invested capital base, revenue growth and cost control. With respect to invested capital, we continue to pay down debt including approximately $300 million in debt prepayments during the second quarter.

With respect to costs, we believe improvements in operational efficiency and greater focus on self-service capabilities for customers will help us reduce costs and improve the customer experience. For example, we recently announced the rollout of automated customer check-in 24 hours prior to scheduled departure, which should reduce the volume of transactions required at the airport.

On revenue, we believe network maturity will continue to drive PRASM improvements. To that end, our business markets in Boston are maturing nicely as we build relevance.

In addition, our Caribbean and Latin American markets continue to mature quickly usually within a year. We also expect continued momentum in high margin ancillary revenue driven by our Even More product, change fee revenue, revenue related to TrueBlue and JetBlue Getaways.

In closing, we are pleased with our second-quarter results. Even excluding special items we expect 2014 will be JetBlue's most profitable year ever.

We continue to focus on executing our plan to improve returns while scaling our business to achieve higher, sustainable returns over the long term. Our unique business model is anchored again by three key competitive advantages that we must preserve and strengthen to be successful over the long term, a differentiated product and culture, competitive costs and high-value geography.

At the same time we remain committed to improving ROIC by 1 percentage point per year on average. And with that I'd like to turn the call over to Mark for a more detailed review of our financial results.

Thank you, Dave. Good morning, everyone. Thank you for joining us today.

We are pleased to report second-quarter operating income of $141 million. That's an increase of 38% compared to the second-quarter 2013. These strong results are a testament to the terrific efforts of our crew members who deliver the JetBlue experience every day.

During the quarter we completed the sale of LiveTV, which we believe will reduce future capital commitments while preserving access to industry-leading in-flight entertainment and connectivity, an important element of our differentiated products. We recorded a one-time gain in the second quarter of $242 million.

We use the sales proceeds, as Dave mentioned, to reduce our invested capital base including roughly $300 million to prepay existing debt, releasing 14 aircraft and bringing our total unencumbered aircraft to 34. In addition, we repurchased approximately $75 million of JetBlue shares under our previously authorized share repurchase program designed to offset dilution from JetBlue stock granted to crewmembers.

Looking ahead, we expect the sale of LiveTV will reduce full-year 2014 CASM excluding fuel and profit sharing by approximately 1 point. LiveTV operating expenses will no longer be consolidated in JetBlue's financial statements, which is somewhat offset by the third-party service fees we are now paying LiveTV to support our in-flight entertainment and connectivity systems. While we no longer benefit from LiveTV revenues, which will negatively impact the other revenue line in our income statement, the sale has no impact on our 2014 ancillary revenue guidance of 10% to 15% year-over-year growth because this is an airline metric only.

We have provided a brief summary of LiveTV's effect on the income statement, balance sheet and capital expenditures in our investor update, which was filed with the SEC and made available on the investor relations section of JetBlue's website prior to the start this call. With respect to revenue, second-quarter year-over-year passenger unit revenues, or PRASM, increased by 6% on a capacity increase of 6%. A solid demand environment and the Easter and Passover shift into the second quarter contributed to our record second-quarter average fare of $168.

That is a year-over-year increase of 6.5%. We estimate the shift of Easter and Passover holidays from March last year into April this year increased second-quarter year-over-year PRASM by approximately 2 points.

Demand was solid across our network during the quarter. Florida was the best performing region leading the system and year-over-year PRASM growth. The domestic demand environment continues to be very strong.

In Latin America and in the Caribbean, we added a significant amount of new capacity which of course pressured yields. Airline partnerships remain important source of incremental traffic and high-yield margin passenger revenue for JetBlue. As previously disclosed, gross revenue from partnership traffic was $80 million in 2012 and $120 million in 2013.

We have continued to realize a portion of revenues we had previously designated as incremental from American Airlines even without the partnership. To that end we continue to believe the termination of the partnership with American is not material to our outlook.

As to ancillary revenue, total ancillary revenue in the second quarter increased by roughly 13% year-over-year to approximately $185 million. Our Even More offering was a significant driver of this ancillary revenue growth. Dynamically priced even more seats by time of day, by sea and by row continue to drive improved yields and seat factor resulting in higher Even More revenue per seat.

We believe Even More is on track to generate approximately $190 million of revenue this year. Total 2014 ancillary revenues are expected to increase by about 10% to 15% year-over-year.

Turning to costs. We continue to maintain a fuel hedge portfolio as a form of insurance. In the second quarter we hedged approximately 15% of our fuel consumption.

Additionally, fixed forward price agreements, or FFPs, covered approximately 7% of our second-quarter fuel consumption. Including the impact of fuel hedging, FFPs and taxes our fuel price in the second quarter was $3.09, up 0.9% year-over-year.

We have currently covered approximately 32% of our remaining full-year 2014 fuel consumption again using a combination of hedges and FFPs. For more specific details regarding our hedge positions and FFPs, please refer to the filed investor update.

Excluding fuel and profit sharing year-over-year second-quarter unit costs increased by 5.1%. This is in line with previously -- with our previously quarterly guidance.

As expected the main drivers of the year-over-year increase were salaries, wages and benefits and other operating expenses.

Moving to the balance sheet. We ended the quarter with approximately $797 million in cash and short-term investments. In addition, JetBlue maintains $550 million in undrawn lines of credit and 34 unencumbered aircraft and a significant number of spare engines.

We expect to end the year with cash as a percentage of trailing 12-months revenue of approximately 11% to 12%. We expect to keep the debt portion of invested capital relatively flat in 2014 compared to 2013 even as we take delivery of nine A320s this year -- A321s, I'm sorry, this year.

With respect to CapEx and the fleet. JetBlue ended the quarter with 197 aircraft including 130 A320s, 60 E190s and 7 A321s. For the full-year 2014 we are forecasting aircraft CapEx of approximately $625 million.

The LiveTV sale has reduced expected LiveTV-related CapEx by $40 million to $20 million for the full year offset somewhat by increased aircraft CapEx for Ka-band installs on the JetBlue fleet.

Turning to capacity. We plan to grow third-quarter ASMs between 3% and 5% year-over-year. For the full year capacity is expected to increase between 4% and 6% year-over-year. These increases are driven primarily by our growth in the Caribbean and Latin America, which we expect to be up approximately 20% year-over-year both in the third and full year.

Turning to the revenue outlook. We generally performed well during the summer peak travel periods and we continue to see solid trends across our network. We currently expect July PRASM to be up between 2% and 3% year-over-year.

Trends in the Caribbean and Latin America look more encouraging in August and we expect PRASM improvement in August relative to July.

Moving on to the CASM outlook. Excluding fuel and profit sharing, CASM in the third quarter is expected to increase between 1% in 3% year-over-year. And we expect salaries wages and benefits excluding profit-sharing to comprise roughly three-quarters of the third-quarter year-over-year ex-fuel CASM growth primarily related to pilot-related compensation, additional costs related to FAR 117 and crewmember seniority.

Going forward in-flight entertainment and connectivity third-party services fees paid to LiveTV will flow through the other operating expense line driving year-over-year comparisons higher. In addition depreciation and landing fees will comprise the rest of the third-quarter ex-fuel CASM a pressure somewhat offset by sales and marketing aircraft rent and maintenance.

Excluding fuel and profit-sharing, CASM in 2014 is expected to increase between 2.5% and 4.5% year-over-year. This is 1 point lower than our prior guidance due primarily to the sale of LiveTV.

In closing, we indeed remain focused on maintaining our relative cost advantage versus the network carriers, leveraging our differentiated product and culture to drive revenues and continue to build a profitable and sensible network. To that end we continue to focus on execution, running a safe, reliable and efficient operation and meeting our financial commitments.

Specifically we believe our initiative to reach our target of 7% ROIC this year are on track. At the same time we are well underway in developing several longer-term strategic initiatives designed to continue to improve returns over the long term. We look forward to providing you more in-depth looks at some of these initiatives at our Analyst Day in November.

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

Thanks, Dave and Mark. Brandi, we are now ready for the question-and-answer session with the analysts. Please go ahead with the instructions.

Thank you. (Operator Instructions). Michael Linenberg, Deutsche Bank.

Good morning, everyone. Just a couple of questions here.

Dave, you talked about the improvement in the margins in all six focus cities year-over-year. On an LTM basis are all six focus cities now -- are they in positive territory as it relates to operating margin, I guess is what you were referencing?

By the way we are very pleased with the performance on a year-over-year basis. I am not going to go into specifics on each one of our six focus cities but very very pleased with what we are seeing.

And specifically with all the growth that we continue to invest in Fort Lauderdale, Hollywood International Airport and that focus city. But certainly you can understand I'm not going to go into specifics by each of our focus cities.

Okay, that's fair enough, and then question just to Mark. The debt prepayments, the $300 million, what was that debt tied to and what was -- what are some of the terms? What was the underlying interest rate?

Interesting question, actually. The terms were quite simply they were related to aircraft. They were all secured aircraft deals.

And on a nominal basis the interest savings could be again on a nominal over the course of the perspective loans about $37 million on NPD basis, about $27 million of interest savings, some of which you are seeing this year.

Great, okay, very good. Thanks Mark. Thanks Dave.

Jamie Baker, JPMorgan.

Hey, good morning, everybody. Dave, there's no delicate way to ask but it's the question on all of my clients' minds and that's who I work for. What is your intended JetBlue role for 2015?

It's the same as it is today right now, Jamie. Listen, I appreciate the transparency.

It is no secret that I have a contract through the February 2015 timeframe. But in the seat, leading the Company and very pleased with the results and what we are seeing with the investments that we've made over the years. So that's the headline.

Okay, I appreciate it. That's it for me. Thanks.

John Godyn, Morgan Stanley.

Hey, thank you for taking the questions. Guys, there has been a bit of speculation from investors that there could be some changes to seat configuration or ancillary programs with baggage fees going forward.

Basically, making JetBlue look a little bit more like some of the low-cost carriers that are more aggressive on those fronts. I was just hoping that you could speak to those points broadly and offer some thoughts.

I'll tee up Robin for comments here as well. First of all, in the headline, the business model, it's not changing. And as we look at the changing landscape there's plenty of customers that are underserved.

This is what we share internally with our crewmembers. There are customers underserved with the super discounters and customers that are underserved with the network carriers.

And along those lines, again these three advantages that we drive into our Company to drive the results that we are seeing and it's our product. We are not afraid to make changes.

You look at Mint, look at Fly-Fi. Culture, very positive cost structure and geography.

And all of that said the industry continues to morph as well. And so if you look at advantages and things like seat density always seem to come up. We are focused in other areas right now.

And when we look at things like Datalex and Fare Families and the ability to drive monetization across 34 million customers appropriately, that's how we are running the Company. Robin, a little bit more color. It's your team continues to really do some nice stuff in this space.

Sure, thanks for the question, John. I appreciate it.

If I can address the comment about first bag free and then come back to the density question which you opened with, I think we've said before that we are investing and partnering with Datalex for a new fare product. We use the word Fare Families but what it allows to do is put different bundles of offerings in front of customers. If you look at many of the low-cost carriers in Europe they do this really elegantly and really well.

And we look at that and we see opportunities to bundle elements of our product that we don't do today. We fully accept that what has happened over the last several years is as some of our competitors have taken away more the gap between what we offer and what they offer has increased.

In markets like Florida we believe we get a premium for things like a first bag today and there's other markets that we accept that we don't. And so when we get asked about does Fare Family allow you to monetize first bag in markets where you don't get it, then we will have that capability.

Now what we haven't said yet is what that looks like and the structure of that. But we do, I will conclude, by saying we do believe Fare Families is a significant source of revenue growth for us into the future. And I think we said before that we are looking to roll that out in the first half of next year.

In terms of the density, Dave touched on this. We get a lot of questions on this and what I've said before is we are not against adding seats. It's no philosophical objection.

What Dave said earlier about maintaining a differentiated product is very true. There's a big gap that has emerged between what we offer and what other airlines offer.

We have done this on the 190 before where we actually reduced seat pitch and aisle for our core customers to create more even more rows, so we have done that recently. But we continue to look at that again not philosophically against it, but we actually believe that things like Fare Families is a much bigger source of immediate value generation. So that's where we are focused right now.

Got it. So changes on the ancillaries and getting maybe more creative and clever there sound pretty realistic. On the other hand major seat configuration changes, that would take some time, is that a fair kind of takeaway here?

Yes. I think the Fare Families is where we are focused right now. And we've already said that that is a platform we will have here in the first half of next year and we want to be very thoughtful about how we execute these things. These are very complex changes for our Company and we want to execute it really well so our customers have a seamless experience.

Is there anything aside from bag fees that you would point out that Fare Families really kind of introduces as an interesting opportunity?

Yes, obviously we have got some thoughts. I'm not going to go into the details now.

I would point you to some of the European airlines who do this really well. We certainly looked and learned from them and we look forward to showing more towards the back end of this year.

Obviously, as I'm sure you understand, John, we are very constrained by what we can say from a pricing point of view ahead of us actually being at a low in [portraying] the system. So hence my cautiousness about being more specific with you.

Okay. Thanks a lot, guys.

Duane Pfennigwerth, Evercore Partners.

Hey, good morning. Just on your growth in Latin America. I think the comment was you added a bunch of capacity which of course lowered yields.

My question is why is 25%, 30% growth the right number there and are we missing something? In other words, even though you are lowering yields because of your 30% capacity growth, is that perhaps enhancing your profit margin year to year? Thanks for taking the question.

I think we have talked before about the importance of this part of the world for us. And we've talked a lot about our expansion of Fort Lauderdale Hollywood. And so certainly we've seen opportunities that we have taken advantage of.

These routes do ramp up very quickly to profitability. We certainly see -- and if you look back over a year we have significantly outperformed the industry in this part of the world. There's been a couple of months really in the May/June timeframe where the yields did get pressured without capacity and other capacity.

But we truly believe that is a very short-term issue. And in fact as I look into August I am already seeing significant improvement in our pricing capability in that part of the world.

So I think these things ebb and flow and I think we feel very good here. There's a quick path back to being able to continue to grow Latin and getting stronger unit revenue performance as we do it.

Okay, appreciate that. And then I wonder if you would kind of comment how we should be thinking about the rest of the quarter in terms of unit revenue comparisons. I know people generally say less about forward revenue than they used to but how we should think about the comps into August and September?

Sure. Whilst I won't -- we only guide one month out, what I will say because historically July and August have performed in a very similar way for us. But what we are seeing actually this year is based on what we see today and I do put the health warning around August because although we have pretty good line of sight it is not complete line of sight, we are seeing August shaking up to be much better than July. And September is still very early, I don't want to comment.

Thank you very much.

Hunter Keay, Wolfe Research

Hi, good morning, everybody. So, we saw Delta move pretty aggressively into Seattle, obviously as everybody knows at this point and Alaska responded with a whole bunch of commercial initiatives and their stock doubled. So now we see Delta moving pretty aggressively into your market.

The question that I have for you guys is are you going to be more inclined to do things to combat this that are shareholder friendly? Or do things that keep your customers loyal to you?

A couple of thoughts. First of all, you referenced Boston and Seattle with a competitor. Let me just comment on the strength of New York.

There's a lot of changes taking place taking place right here in our backyard. And we are in, as you know, a significant presence in three airports and fly to five airports here. And the growth that we are seeing across New York on a year-over-year basis margin wise with a lot of competitive dynamics taking place.

And trailing 12 as well, Michael's earlier question, I won't go into specifics on but very pleased with what we are seeing across New York. And again this is right in the middle of significant competitive changes that are taking place.

With regard to Boston, I don't think that Boston and Seattle except for the fact that they are both geographically very similar in their proximity to the end of the country and one in Europe and one Asia, of course Alaska north of Seattle in that landscape but we are very pleased with what we are seeing in Boston. When I look at our product and the financial improvement that is taking place north of 50 nonstop markets and the dynamic that you see in Boston with airlines like Hainan added service nonstop to China, JAL to Japan, Emirates, Turkish, again partner airlines for us.

Other airlines that I know are having discussions with Massport and that we are having discussions with, very very pleased with Boston including of course the Cape Air operation. A real significant partner for us.

So we are very pleased with the progress that we are making, the investments that we are making in Boston. And I want to call out Massport as well because we have a terrific partner with Massport in terms of what is happening at Logan. Robin, additional commentary when you look at Hunter's question on Massachusetts versus Washington State?

Yes, I do think there's a tendency to get very micro-focused on a particular market. We tend to take a step back and look at overall system capacity, competitive capacity and it has been pretty constant. It's really running at about 1% to 2% throughout this year.

It goes up in some areas. So we try to not get ahead of that.

In terms of your comment, Hunter, about customer versus shareholder, we try and find things that actually work for both. And so when we think about Fare Families and how we can roll that out in a very JetBlue way but also in a way that drives significant incremental revenue, when we identify parts of our product offering for customers they don't necessarily particularly value and there is a way of monetizing that, we do that.

I don't necessarily see it in either/order. I think you and I maybe agree to disagree on that. But we want to try to find actions that are absolutely shareholder friendly but also are protective of our brand because we think maintaining a differentiated product and culture at a lower cost structure in higher value geography is ultimately what will allow us to win in this space.

Sure. Okay. Yes, thanks Robin and I think we agree that obviously the best answer is both. I guess just what I was referring to more is if competitive capacity gets so bad where you are losing market share, you are losing your customers to Delta and your stock price is going down and you are forced to make a decision that is uncomfortable, that's selling Mint out of Boston, out of New York for $400, or hypothetically of course just implementing a first bag fee, something that your customers would not enjoy.

So I guess ideally you have a solution that checks both boxes but I guess what I was really more referring to is the decisions that you don't want to do. The uncomfortable decisions.

Again, as we look at the investments that we've made in Boston, they are relatively flat this year, an awful lot of investment taking place there in the past. So the ability for market maturity to take place, it's a lot of our investments going into South Florida right now.

But I would also remind you as we look at our ROIC target on an annual basis and again as we talked about our 2014 goal and the further commitment to improve our ROIC while we are growing our Company, I would remind you that up in Boston we are just over a decade old. And there's an airline, I believe out in Seattle that is 70-plus years old.

And so I'm not sure when they made their foray into Washington state. So the dynamics are also different as we look at what is best for us. Again, that's our crew members, our customers and our shareholders.

Okay, thank you.

Dan McKenzie, Buckingham.

Hey, good morning. One housecleaning question here. Did you mention the timeframe for the rollout of the Fare Families and other potential ancillary revenue initiatives?

Eash, our CIO, has given me one date. In my mind I always take a more cautious approach. So at the moment we are not going beyond the first half of next year.

But clearly we are all acutely aware, we do see this as a good source of value. And the quicker we can get it in the quicker we will start seeing that. But for now, for planning purposes we are assuming the first half of next year.

I see. And then I am wondering if you can talk a little bit more about first class. You mentioned some market share gains from passengers that haven't flown JetBlue before so I guess a few questions tied to that.

To what extent has the first class narrowed your average fare differential versus your peers from what you are seeing today? And what load factors are you targeting, what are you seeing and is there a plan to accelerate the first-class product to other markets? I know you have spoken about Boston but are you thinking perhaps international markets as well to support yields there?

I'll use your term, housekeeping. Just a housekeeping note. We use the term Mint experience versus first class or business class.

I know it's a play on words but it's really important. We use the word core for coach because 10 years in a row JD Power -- it's a nice experience. And we don't have a curtain, so a little bit of housekeeping there.

But really pleased with what we are seeing with the Mint launch out of Kennedy. We know these are two markets for sure historically that people actually purchase the ticket. And as we look at our rollout with introductory fares of course there's going to be some normalization that takes place there.

Really pleased with what we are seeing with customers who have never flown us before. Or we believe that to be the case. And also with intrigued by even the corporate community, if you will.

And that's not where it's intended for. And the whole transcon out of New York is looking different for the most part on carriers and again I think about at the right price point really really dynamic for us. Robin, additional commentary and specific to Boston international markets with Dan's question?

Using the term inexperienced so Dave doesn't elbow me in the side here. When we think about when we presented the Analyst Day last year and we talked about an area where we had a significant RASM shortfall was into these transcon markets. So absolutely we see Mint as core to driving up to a sort of industry competitive RASM performance and we are already extremely pleased.

The fares we have at the moment, it's driving a lot of new business. We are getting a lot of customers who have never flown JetBlue before, so really above and beyond their expectations.

So yes, will the average price drift up? Yes, of course it will.

I'm not going to put a timeline on that but very pleased. And then we have plenty of time to decide what we want to do beyond that and will get to that in due course.

Very good. And Dave, the housecleaning item noted, Mint. Got it.

Helane Becker, Cowen & Company.

Thanks, operator. Hi, everybody. Thank you so much for the time.

I just have two questions. One is, Dave, you mentioned the right price point for Mint. And I know when I have checked the website the fares seem to be between $599 and $799 and it seems to be sold out on a lot of days.

So I am A) wondering if the right price point might be something higher, or what your definition of the right price point is. And my second question has to do with the TSA fee that went into effect on July, the increase.

I was just kind of wondering if you could talk to the impact that fee might have on your revenue and whether there will be acceptance by your customers if you can pass 100% of it along? Thanks.

Let me just start with TSA and give a comment as well as on Mint, and Robin, feel free to jump in on that as well as a pricing with Mint. The TSA fee increase -- headline -- this increase, at the end of the day, this impacts demand at a macro level. We know that.

And this is not unlike any type of fare, a fee, a tax or whatever the case might be. And so it's a very peak time of the year for us right now. So I think -- and it just rolled out -- so there's minimal type of impact, if you will.

But still, I think what's really so upsetting about it is that any additional dollars that are collected are not being further invested in the security protocol. This is being raised to reduce our national debt and it's heinous.

When you look at an industry that is already taxed domestically north of 20% and you start to look at alcohol and tobacco, sin taxes, if you will, it's ludicrous. And that's the bigger issue that is out there. And there's all kinds of dynamics about connecting flights and origin in international markets connecting to domestic flights, etc.

But listen, we are accepting it. We are not seeing impact at this point in time but we will see what happens into the fall, into the winter timeframe. At the end of the day further taxes, fees, surcharges whatever the case might be impacts demand at a macro level.

Talking about Mint and pricing. Robin, I will lateral the ball over to you. It is interesting, Helane, because you look at our pricing, we are talking about trial and that has been the history of our Company.

When we have had trial in our core experience since our first flight in 2000, it has been very sticky with customers changing brands. And so as we look at trial that is what we are after. You were asked earlier as well regarding pricing, Robin, so I'll elbow you for additional commentary.

Helane, I think the fact that we are sold out I think talks to the strength of demand for the product. Of course we continue to see that. We are in the process of adding additional daily frequencies as we take new airplanes in.

Do I see the average Mint fare coming up? I think we have been very open and said that we do. It is still going to be the lowest cost way of getting across the country with what we believe to be the best product.

And I think the fact we are so sold out gives us hope that -- well, hope is the wrong word -- gives us confidence that there's plenty of room to move the fare. But yes, $599, $799, $999, think of this as a promotional offer. And we want to create scarcity value for the product in its opening months.

Great. Thank you so much for that color.

Glenn Engel, Bank of America Merrill Lynch.

Good morning. A couple of questions. One, the maintenance side continues to be a good guide window, maintenance costs start to rise again year over year?

Thank you, Glenn and thank you for acknowledging that as promised with the help of our sourcing and tech ops group converting to some flight hour agreements has really assisted in making that line item a flat number. Probably too soon to talk a little bit about what is going to happen in 2015.

But again I think that you will continue to see in 2015 at least the positive impact of flight hour agreements. And with Jeff Martin's help we are going to probably expand the scope of some of our flight hour agreements to other parts. Having predictable and relatively manageable flat maintenance costs, minimizing surprises is a good thing.

So the third quarter will be another good guide on the maintenance side?

I'm not looking for any spikes and they looking at Mr. Martin as we speak, and he is giving me a thumbs up. So we shouldn't have any big surprises after the year.

Sales and marketing expense was up a lot in this quarter. Was there anything unusual about that?

There was an ad campaign that was accelerated in the quarter. And by the way, the percentages are big but the dollars are small on that line.

How again does the employee profit-sharing calculate? Because we didn't see any yet and yet you clearly made more money this year than last year.

I'm sorry. Say that again?

Profit-sharing. You don't see any profit-sharing even though your profits were up in the first half?

Yes, that will be a year-end calculation, typically. It's a full-year number.

Okay. I'm okay. Thanks.

But it's there too. Thank you.

And the LiveTV was not showed up in the second quarter. It will have the impact only in the third quarter?

The LiveTV, yes, I think there are some adjustments in the second quarter here. It was what, it was June, so there's a stub period that it did flow through. So it's not the full-quarter impact, it's just the stub period of the quarter.

Okay.

Thomas Kim, Goldman Sachs.

Good morning. I would like to ask about your ROIC target. First off, how are you tracking toward that 7% goal for the year?

As we talked about, growth for the year really is that 4% to 6% type of range is what we're looking at. Keep in mind that an awful lot of ASMs were lost over the course of the first quarter.

Okay. Can you does help us understand why you may not be setting the bar higher? Many of your peers are in the low teens or aspiring to be in the mid-teens.

To what extent are you seeing -- are there structural barriers to actually generating a much higher ROIC? And to what extent -- and I appreciate that this is not something that is a short-term phenomenon -- but if you walk us through, how you get that ROIC well above your cost of capital in the low- to mid-teens range, what you need to be doing on that?

Obviously we appreciate the stuff you are doing on the top line to improve asset turn. But obviously one big drag is the capital base. And so are there things you can be doing more on the capital base to get that asset turn higher and therefore better ROIC?

Just if you can walk us through the medium- to long-term strategy and help us understand A) if there are any structural barriers and B) what could you do to more aggressively ramp up that ROIC? Thanks.

Let me just clarify just answered our footprint from an ASM perspective, right so. As Mark and I both commented in our prepared comments, we are very much committed to and we see a line of sight to the end-of-year 7.0% ROIC, this 1 point on average year-over-year that we actually committed to approximately three years ago.

Not going to update midyear in terms of where we are at on that track. But to your point, that remains the same as we look beyond 2014 from the standpoint of improving our ROIC, a point per year on average on a go-forward basis, that's how we are running the business.

So when you get inside of it, Mark, I'll try to roll the ball over to you from the standpoint of, again this year relatively flat invested capital base. And as we look at maturing markets, the focus cities, the comments on again year-over-year margin improvement despite growth that is taking place in all six of our focus cities, the ancillary revenue improvements that we have seen, partnership traffic that we have seen as well on Nippon Airways being the recent addition into the group.

Of course this focus on not just ex-fuel CASM but all-in CASM as we look at a new fleet with things like 321s and that dynamic, Sharklets, retrofit on the 320s, rightsize in the Embraer 190s, decisions made with LiveTV. That's how we are running the business, Tom. Mark, over to you for additional commentary.

Dave, you said it well. I would highlight one word that you said, which is while growing and it's not structural, if you will, but it is situational. We are growing.

And I sort of share the sentiment that I'm not entirely convinced that seizing growth immediately as a way to in the short term improve ROIC would be in the best interest of our owners because all of the investments that we've made would surely be lost. It is a competitive environment.

I think part of our, Robin, your comments on the Caribbean and Latin America, we are not done. As a 15-year-old company and frankly even our Caribbean network is much younger than that, we are not in a position where we can basically eliminate flights out of Cleveland or other places in a hub and spoke environment.

And I do look forward to looking at this with you through a long-term lens. But I truly do believe, and I think, Robin, you would share this as well in terms of the network, if we stop growing -- maybe abdicate would be a strong word -- but I don't think that would be in the best interest of the share price and the owners.

I appreciate the question. I think this gets to the heart of what a lot of many investors and potential investors are thinking as they compare us with other options. And I think we have been making a lot of investments over the last few years which are positioning us really well in terms of growing ROIC over the coming few years.

We talked a lot about Fare Families and a number of other things that we are not discussing that are in the pipeline. We talked about the 321s, the Sharklets, the unit cost benefits of the 321, the investments in real estate in Boston and Fort Lauderdale that allow us then to facilitate that growth. A lot of those are investments that we've been making. They have acted as a short-term drag on ROIC but are absolutely there to position us for ROIC growth in the medium- to long-term and that's what we are focused on.

And I definitely appreciate all the additional color there. I guess a little more specifically with some of these products, can you just give us some examples -- like for example with Mint, obviously you're very happy with the promotional launch, or promotional fares at the launch.

How long does that continue? And at what point -- when you think it matures, sort of stabilizes, what do you estimate the ROIC on that product to be?

We are not going to break it out like that. But we are 38 days into this product, so it's extremely new. We don't even have a full patent on LAX yet.

We don't even start flying it to San Francisco in October. And I think we laid out very clearly the case for Mint at the Investor Day last year, which was about closing the RASM gap. We are extremely confident -- I would say I'm even more confident than I was before about our ability to do that.

I'm not going to put a timeline on when the fares are going to go up because even if I wanted to that is not something that we can do. But we did Mint so that we could transform the profitability of those transcon markets, which is absolutely ROIC accretive because transcon was one of the biggest areas where we saw that RASM deficit and we are committed to address it.

That's great. Thanks a lot, Robin.

Joe DeNardi, Stifel.

Thanks, good morning. Mark, I may have missed this but could you quantify what the benefit to ROIC was from deploying the LiveTV sale proceeds? And maybe if something higher than 7% is now a reasonable target for the year?

I did not quantify that. I will simply say from a high-level perspective I am assuming that you and your associates probably aren't going to include the gain on the sale in a lot of your ongoing model.

I would say that the real benefit from the LiveTV transaction from an ROIC perspective is what did you do with the cash? And as we reduce the invested capital as well as we significantly are going to reduce interest expense.

Okay. Yes, I guess what I'm trying to understand is what was the benefit to ROIC from that reduction in invested capital?

I didn't mention that but I did say, I sort of hinted what the interest expense savings was, that's it. And then we are just the denominator to buy 300 plus the shares that we have purchased.

Okay. So does that push the target comfortably above 7%?

I don't think we're going to give mid-year guidance on ROIC. But it's clearly a slight good guide. But again I really feel the benefit of the LiveTV is reduce future capital expenditures and lower CASM and it's nice to reduce the debt stack.

Okay. Thanks.

And that concludes our second-quarter 2014 earnings conference call. We will talk to you again in three months with our third-quarter call. Thanks for joining us and have a great day.

And again that will conclude today's conference call. Thank you all for your participation.