JetBlue Airways Corp (JBLU) 2014 Q3 法說會逐字稿

Good morning. My name is Janet. I would like to welcome everyone to the JetBlue Airways third-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 to JetBlue's Director of Investor Relations, Kevin Crissey. Please go ahead.

Thanks, Janet. Good morning, everyone, and thanks for joining us for our third-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 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 would like to turn the call over to Dave Barger, JetBlue's CEO.

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

This morning we reported record third-quarter net income of $79 million or $0.24 per diluted share. Operating margin was 10.7%. We generated record revenues, driven by a solid demand environment and continued improvements in our product and network.

I'd like to thank our 15,500 crewmembers for their continued focus on running a safe airline and delivering outstanding customer service. I'd like to begin by congratulating Robin, who will assume the role of Chief Executive Officer in February 2015. In my view there isn't a better person to lead JetBlue in the next chapter of its evolution than Robin.

Over the last 15 years, humanity has remained central to JetBlue's mission. We target customer segments that are not well served by traditional airline models through our sustainable competitive advantages, a differentiated product and culture, competitive cost structure, and high-value geography.

At the same time, we must remain nimble, evolving as our customers and the competitive landscape change. I have absolute confidence in Robin's leadership and want to thank him as he and crewmembers across JetBlue continue to build a bright future for our Company.

Third-quarter total revenues increased 5.9% year over year. We achieved year-over-year improvements in yield and load factor while growing capacity 4.5%. Also contributing to revenue growth was record third-quarter ancillary revenue per customer of $22.

Total operating expenses increased 5.7% year over year. As expected, the salaries, wages, and benefits line was the largest driver of this year-over-year increase. We remain focused on maintaining a competitive cost structure, which we believe is critical to our success as we continue to build a profitable, defensible network.

Third-quarter trailing 12-month profit margins expanded year over year in all six of our focus cities, reflecting the underlying strength and diversity of our network. We remain focused on successful execution of our profitable growth plan as we roll out new routes and frequencies in our Fort Lauderdale-Hollywood focus city. Our plan is supported by a significant investment from the Broward County Aviation Department, including a new 8,000-foot runway, which opened in September.

Mint continues to perform very well, and we plan to operate seven daily frequencies from New York's JFK Airport to Los Angeles by the end of this year. We'll also commence service from JFK to San Francisco on October 26. We are seeing strong demand for Mint, including, notably, from JetBlue customers who previously did not fly JetBlue on transcon routes.

In addition, we are pleasantly surprised by the amount of interest we are receiving from corporate travel departments. In response to strong demand, we recently restructured our fares and put in place a new refundable fare of $1,209.

In closing, we are pleased with our third-quarter results but remain focused on executing our plan to improve returns while scaling our business. We look forward to updating you on our future plans at our Investor Day on November 19.

And with that, I would 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 again for joining us today. I'd be remiss if I didn't call out a couple of people who are instrumental in the Investor Relations group here.

First of all, seven years of terrific service and devotion -- Lisa Reifer has taken a job working as the Director of Corporate and Commercial Development, working for Robin Hayes. But I want to commend her on just a phenomenal job for seven years. Succeeding her, of course, is somebody from formerly the other side of this phone call -- probably well known by most of you -- Kevin Crissey. And it is just absolutely great, Kevin, to see you here on this side now. Welcome to the JetBlue crew. A tremendous, tremendous impact already. Thank you.

To my formal remarks -- we are pleased to report a record third-quarter operating income of $164 million. That's an increase of 8% compared to the third quarter of 2013. These strong results are a credit to our crewmembers, who do a great job taking care of our customers every day. Third-quarter year-over-year passenger unit revenues, or PRASM, increased by 2.4% on capacity increase of 4.5%. A solid demand and yield environment contributed to our record quarterly average fare of $165. That's a year-over-year increase of 0.5%.

Similar to last quarter, unit revenue growth was significantly stronger in our domestic network than in the Caribbean and Latin America. Florida and Central were the best-performing regions, leading the system in year-over-year PRASM growth. Yields in both the Caribbean and Latin America had been pressured by added capacity from both JetBlue and our competitors. Nonetheless, this region was profitable in the quarter.

Given the focus on capacity in this region, let me take a moment to review competitive actions and how we think they are impacting JetBlue. In the third quarter, as measured by available seat miles, JetBlue capacity in the Caribbean and Latin America grew by approximately 17% year over year, while competitive capacity in those markets grew by about 7%.

Although increased capacity has negatively impacted unit revenue performance in the near term, we believe the Caribbean and Latin America will continue to be an important profit center for JetBlue. We expect competitive capacity pressures in various parts of our network from time to time. We remain committed to growing our presence and building our momentum across the Caribbean and Latin America. As demonstrated by our success in growing capacity while improving margins in Boston, San Juan, and Fort Lauderdale, we believe targeted growth is critical for our plan to improve financial returns over the long-term.

With respect to ancillary revenue -- total ancillary revenue in the third quarter increased by approximately 12% year over year to approximately $190 million. Our Even More offering continues to be a significant driver of ancillary growth. Dynamically priced Even More seats drove higher yields in 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 -- that's up $20 million year over year. Total 2014 ancillary revenues are expected to increase by about 10% to 15% year over year.

With respect to the other revenue line, other revenue was negatively affected by the LiveTV divestiture completed in June 2014. Recall, revenues related to LiveTV are no longer flowing through other revenue.

Turning to costs -- we are obviously happy with the recent decline in fuel prices and expect to benefit from it. That said, fuel remains our largest expense, and its price is clearly volatile. As such, we continue to maintain a fuel hedge portfolio as a form of insurance against volatility.

We currently have approximately 34% of our remaining full-year 2014 fuel consumption covered using a combination of hedges and FFPs. Our expected fuel price in the fourth quarter is $2.80 a gallon -- that's including FFPs and in hedging. For more specific details regarding our hedges and FFPs, please refer to our investor update, which was filed with the SEC and made available on the Investor Relations section of the JetBlue website prior to the start of today's call.

Excluding fuel and profit-sharing, year-over-year third-quarter unit costs increased by 2.6%, in line with previously quarterly guidance. We ended the quarter with approximately $742 million in cash and short-term investments. We expect to end the year with cash as a percentage of trailing 12 months revenue of approximately 10% to 12%.

JetBlue ended the quarter with 199 aircraft, including 130 A320s, 60 E190s, and nine A321s. For the full-year 2014, we are forecasting aircraft capital expenditures of approximately $635 million and non-aircraft CapEx of $340 million.

Turning to capacity -- we plan to grow fourth quarter ASMs between 5% and 7% year over year. For the full year capacity is expected to increase between 4% to 6%. These increases are primarily driven by our growth in Latin America and the Caribbean.

Turning to the revenue outlooks, we continue to see domestic strength. Peak travel periods in the fourth quarter are booking well. We currently expect October PRASM to be up between 1% and 2% year over year. Moving through the quarter, please note that because the Sunday following Thanksgiving, our highest revenue day of the year, falls in November this year, we expect November year-over-year comps to be positively impacted by the calendar shift.

Moving to CASM: excluding fuel and profit-sharing, CASM in the fourth quarter is expected to increase between 1% and 3%. We expect salaries, wages, and benefits to comprise approximately 80% of year-over-year, ex-fuel CASM growth, primarily due to pilot-related compensation. We expect maintenance expense and other operating expenses to comprise the rest of the year-over-year increases. Excluding fuel and profit-sharing, CASM in 2014 is inspected to increase between 2.5% and 4.5% year over year. This is unchanged relative to prior guidance.

Finally, I'd like to redress our return on invested capital metric. Although we continue to expect year-over-year ROIC improvement, we no longer expect to meet our 7% objective in 2014.

As the year progressed, unit revenue in the Caribbean and Latin America disappointed, and this will likely leave us shy of our target. That said, we are even more energized to improve returns and are working hard on many ROIC-accretive projects. We look forward to providing you a more in-depth look at our plans to continue to grow our returns on Investor Day, which is scheduled for November 19 in New York.

I would, as a consequence, ask that we hold questions regarding ROIC initiatives -- including fare family, seat density, and such -- until we reconvene in November. And with that, Dave, Robin, and I are happy to take your questions. Thank you, operator.

Thanks, everyone. Janet, we are now ready for Q&A with the analysts. Please go ahead with the instructions.

(Operator Instructions) Michael Linenberg, Deutsche Bank.

Mark, I want to go back to -- you talked about the Even More product being up $20 million this year, and I think contributing $190 million in total to revenue. Are those the numbers that you mentioned?

Right.

Okay. So the question that I have is -- when you think about just the overall pricing environment, and the pickup in ancillaries, and how it's been growing at a bit of a faster clip than the rest of the industry; and then I think you are adding some bells and whistles to the product or the program; you are doing some stuff on the dynamic front. Why is it not up more than that?

It would seem like just $20 million increase on that type of revenue base -- it seems like it's actually quite low. And I think about the markets that you serve -- you have -- you know, they are strong markets. And people of an upper socioeconomic demographic -- they like the product. Why isn't it doing better than that?

I'm going to ask Robin to address that.

Yes, hi, Michael. I appreciate the question. It is performing very well.

A lot of the initiatives that you are referring to, which have definitely helped -- those were actually only fully rolled out in the middle of the year. And so we don't have a sort of full-year effect of that yet.

Okay. That makes sense.

And then just a question to Dave on -- I know that on the labor piece, unit costs, 80% of it is tied to labor in the fourth quarter. Where do things stand with the pilot negotiation? I know it's -- I guess it's fairly early, but have you sat down at them and started the process? Where are we on that? Thanks.

Yes, Michael, thank you. And it is -- it's early in the process, as well. I don't really anticipate things to be moving overly fast, when you look at historic precedents, as well. Robin, I know you have had interactions, as well, obviously, with flight operations -- and, obviously, flight operations with the Air Line Pilots Association, but other color you would like to add?

Sure. No, Michael. I mean, it was only recently, in the last couple of weeks, that the MECs were elected and appointed. And the negotiating committee, which the MEC then selects, put in place, has just literally been put in place. So these things just -- you know, there is a process, and they just tend to take a certain amount of time. But I think those basic fundamentals are in place now, and the next stage of the process will continue.

Okay. Great. Thanks, guys.

Jamie Baker, JPMorgan.

I'm hoping for some greater financial detail on Mint -- any actual data that you might be able to share with us, both on the product and, I guess, on the transcon market in general? You know, American has now gone all A321 for an entire quarter. You have had an entire quarter of Mint operations, at least in LA. Just hoping you could bring us up to speed with some actual hard data. Maybe book load factor, that sort of thing?

Sure, Jamie. Good morning, it's Robin. I'll take that. You know, so we had our press event in San Francisco last night for the launch of the JFK/San Francisco route. That first flight will take place this coming weekend, on October 26. And by the end of the year, we'll both have San Francisco and LA, close to a full pattern, but not quite a full pattern.

In terms of how we're doing, obviously not going to share commercially sensitive information. What I will say is when we look at our profitability in September, which tends to be one of the more challenging transcon months, not only was JFK-LAX profitable, which it wasn't profitable last September, it is by far and away our most improved year-on-year margin transcon route. I think that speaks to the strength of Mint.

Okay. It certainly does. And as a follow-up to the issue of Latin America, how exactly do you find LATAM? I mean, in the broader A4A scope of things, there is currently a supply and a demand problem in Latin America, though that does seem to be a bit more biased to the southerly markets.

When you talk about opportunity, and I know you don't want to front-run route announcements, but is yours more of a northerly ambition? Because, you know, on the surface it just kind of suggests that your timing for expansion couldn't be worse. I mean, there's just nothing that screams growth market right now in Latin America. Any thoughts on that?

Thanks, Jamie. I'll take that. I mean, the brunt of our Latin -- by the way, just to answer your first question of how we define it: we kind of have to keep an eye on two different definitions, because the way we look at LATAM is we will often include the PR and the USVI, but the A4A breakdown is different to that. So we kind of track both.

Got it.

In terms of most expansion that we have in that part of the world, it's really part of our Fort Lauderdale 100 strategy. So as we brought markets like Lima and such like this year, we are very excited.

I think our model has always been a little bit different, where we are seeing actually very good growth from the markets. I mean, the challenges we've had out of that part of the world have not been in load factor; it's just been in fare, because there's been a lot of capacity, and that's put near -- cloned the close-in pressure on average fares.

So we don't have an issue stimulating demand in the market. That's always been what JetBlue's been very good at and successful at doing. It's more waiting for some of the capacity to abate, so that the unit fare environment can strengthen.

Excellent. Okay. Thank you very much everybody. Appreciate it. Take care.

John Godyn, Morgan Stanley.

Thank you for taking my question. And Robin, congratulations.

I'm just curious -- and I know we have an Investor Day coming up -- but I'm just curious at a high level, Robin, if you could just sort of speak to perhaps the degree of change that you are comfortable with in the organization as you look out the next few years in sort of transformational initiatives versus incremental ones?

I will keep this very high level and, again, thanks for the question, John. You know, our strategy of serving the underserved, and sitting in that sweet spot of offering our customers a differentiated product, and having a culture that is very unique, and nurturing that culture -- none of that is changing. I mean, that's who JetBlue has always been, and that's who we always will be.

We are very excited about some of the things we have coming up, which I think will add to both our customer experience, our crewmember experience, but also our ROIC. There are plans that we have been working on as a team under Dave's leadership for the last couple of years now, and we look forward to showing more on the Investor Day about that.

Got it. And if I could ask about one specific initiative that I have asked about in the past -- really, just seat density. When I think about what the suppliers are offering in terms of slimline seats; when I think about what other airlines are doing with their A320s, there does seem to be an opportunity to increase seat density considerably. I don't know if there on that are caps on that for you specifically, because some of your transcon flying -- that means you can't quite flex up to the size of Spirit. But if you could talk about maybe, A, the appetite and, B, the practicality of rising seat density, that would be very helpful.

So Mark did make a request in his comments that -- you know, to defer those questions to Investor Day. And we will be delighted to see you on the 19th to talk about that.

Got it. Okay. No problem. Thanks.

David Fintzen, Barclays.

Following up a little bit on the international and the Caribbean capacity -- you mentioned sort of waiting for capacity to abate. To the extent that doesn't happen, how should we think about the domestic network? You haven't really been growing much there lately. Are there opportunities there you can kind of fall back on to the extent that you need to?

Sure. Let me just make -- and again, David, thank you for the question. You know, I think we've reiterated before, and I'll use this opportunity to do it again, the importance of a diverse network plan. You know, six focus cities and different geographies, because you are always going to be in a cycle where one area performs and one doesn't.

And at the end of the day, all the airlines share the same fare data. And so it's when an area starts to perform well, you do tend to see capacity then go in; when it starts to perform that well, capacity will move in. We've seen that for decades, and that's always going to continue.

So at this time last year, we were fielding a lot of questions on transcon performance, because that was an area where there were some -- a lot of challenges; a lot of capacity had gone in the front end of last year. So I just caution -- we are not an airline that kind of tends to overreact to either the good opportunities -- you know, when we see things that are really good, we don't necessarily always tactically chase it.

And likewise, when things aren't performing, you sometimes have to be patient and use other parts of the network to fund that. So just -- the domestic network continues to perform extremely well. It's strong. I think you are seeing that in terms of airlines who have more exposure to domestic. There's no signs of that changing.

And in terms of matching American Caribbean, we start to -- our own capacity growth starts to slow as we get into 2015, as well. So, you know, we had, like, double-digit ASM increases into LATAM this year. And as we get into the first quarter of next year, that abates quite significantly. What other airlines do, I obviously don't know, and I can't speak to; but based on historical trends, these things tend to correct themselves over time.

Okay. Great. I appreciate that color. Thanks.

Duane Pfennigwerth, Evercore.

Good morning. Just a quick question for you on fuel efficiency, which was down year-to-year, despite the fact that you are adding A321s. Can you talk a little bit about what's going on there? Because it's sort of off-trend from what we are seeing from other airlines.

I would only note that the A321 count is only nine of a nearly 200 fleet base, so we won't really start to see it, I think, in terms of -- move the dial in terms of on a seat cost basis, and probably the end of next year. So I think in terms of fuel efficiency -- and again, I would remind you that a fair amount of our flying is in the Caribbean, which, of course, has a bit higher fuel costs down there as well. We can talk off-line if you want to get into more of the details. But having a younger fleet, I should note, really does contribute to -- relative to our competitors, in particular a pretty high fuel efficient operation.

I guess the question is not about fuel cost per gallon, but about gallons per ASM, which seems to be down year-to-year. We can maybe follow up off-line, but the question would be: what's changed about your network? Or why that would be negative?

Are you looking at the quarterly number?

Yes.

I need to kind of go and fact-check this, but our completion factor is a little bit up this quarter over last quarter. So to the degree that might have something to do with it, I'm not sure.

Okay.

We'll look into it.

Okay. Can you maybe just go into a little bit more detail about what the underlying trend is in other revenue -- X the loss of LiveTV revenue? So how much of a headwind was that this quarter? And I don't know if you can remind us of how much LiveTV revenue you had in the fourth quarter of last year? Thanks for taking the question.

That's a good question. I actually don't have the numbers, but we do have the numbers filed. I think we -- in last quarter's investor update, we actually included the details, including this item, in our investor update on the LiveTV transaction. So I think that that number is pretty specifically described there. Again, I apologize not having it off the top of my head, but I do know that that's where it is.

Okay. Thank you.

Daniel McKenzie, Buckingham.

You know, it sounds like from response to an earlier question, you are liking the results that you are seeing from the addition of first class on the transcon routes. I guess the question is: how aggressively would you consider expanding that?

I know in the past you have talked about Boston, but is there opportunity beyond Boston -- say, international or elsewhere across their system? And then just tied to that, would you consider accelerating some of these fleet deliveries or swapping out existing A320s in exchange for other A321s, if you can get your hands on them?

Dan, it's Robin. I'll take that. Look, for now we are just very focused on executing both JFK-LAX and JFK-San Francisco really well.

We truly believe that this is going to be transformational for our profitability on those two markets. And early indications are that's what we are seeing, although one or two months is -- we are very early on in the cycle.

Beyond that, don't really want to use the call to signal what we might be thinking about, but we truly believe we have a terrific product that could play a broader part in the JetBlue network in the future. But right now we are focused on those two markets.

Okay. Thanks, Robin. That will do it for me.

Helane Becker, Cowen.

So I just have one question. I think Dave mentioned in his prepared remarks a nonrefundable -- or fully refundable fare, right, of $1,209 that you have put in place. I just wanted to flesh that out for a second. Is that just on the Mint product? Can you just tell me what that's related to? And have you moved that $599 fare up at this point?

Sure, Helane, I'll take that. It's Robin, and good morning.

When we launched Mint, we launched with three fare products -- a $599, $799, and $999. The $599 and $799 were nonrefundable, and the $999 was a refundable offering. Really due to the strength of demand of the product, we turned the $999 into sort of another nonrefundable -- more of a walk-up nonrefundable fare and then moved the refundable fare up to $1,199.

And then the reason now you are seeing numbers slightly higher than that is because there's been an additional price increase that we've added. That has taken us up to $1,209. We still have the $599 available -- that's our sort of a lead-in promotional fare. But obviously the price increases come in two ways, both the headline price and the mix of inventory.

Okay. Great. And then I just have one follow-up question. Can you say what percent of your total ASMs are domestic versus what you would consider to be international?

Yes, I can. Let me make sure I give you the right number here. I think it's 32% LATAM. Yes, so if we take the third quarter, we had 32% LATAM. Recall, our LATAM includes Puerto Rico and the USVI, and so 68% are domestic.

Great. Thank you. We'll see you in a few weeks. Thank you.

Hunter Keay, Wolfe Research.

Good morning, everybody. Robin, I would like to follow up on John Godyn's question a little bit about change. I know that you talked -- I saw an article where you were quoted about stressing the word continuity when you took over -- and congratulations, by the way. And I fully understand why you would say something like that; it makes sense.

But can you talk to me, as much as you feel comfortable, about how you are planning on changing the culture at JetBlue; and how you might think about incentivizing people all across the organization to potentially behave differently in a way that would really, truly incentivize them to do things differently and think about everything from a day-to-day basis -- how they can contribute to grow return on invested capital?

No, I mean, I think -- first of all, Hunter, thanks for the question. I mean, I am very proud of our culture. And I think our culture is a real differentiator.

When I think what our crewmembers do day in, day out, to go and be above and beyond for our customers, then I don't think that's something we should change. I think that's something we should be proud of and continue to nurture and encourage.

I personally believe, and hear it from thousands of customers every month, that our culture and our people are one of our -- if not one of, our most important competitive differentiator. So very proud of our culture. Not looking to change our culture.

I mean, from David Neeleman through to Dave Barger every two weeks traveling down to orientation to personally meet and present to all of our new crewmembers -- those are the sorts of traditions I think this Company has built on, and traditions which I will be honored to continue. I think when we talk about change, I think some of the frustrations have come in terms of -- you know, why isn't JetBlue growing returns to the same degree that other airlines must be growing them?

But I don't think that's because of our culture. I think our culture is an important foundation. And as I had said before, some of the things that we believe will be ROIC accretive, we are going to share on November 19 at the Investor Day. I don't really want to get into that into the call here.

Okay. And then help me understand a few moving parts here. The ROIC around the increment obviously did not -- it's still growing, but it's not growing as much as you guys thought it would this year. Yields are light from excess capacity in the Caribbean, much of which is your own doing. And you said that capacity growth there would decelerate next year.

But given the incremental change in ROIC, why did CapEx come up? What are the consequences from an income statement/balance sheet/cash flow perspective of not hitting the ROIC target this year? Because it doesn't look like much has changed in that regard.

It's really two separate questions. CapEx was up -- I presume you are talking about non-aircraft CapEx?

Yes, just CapEx in general.

CapEx in particular this year reflected the delivery of nine A321s, including basically the Mint fleet. But the other part of it is we had some really extraordinary and fairly exciting expenditures -- including, by the way, you recall the slot purchase, I think the number of which I am probably not going to disclose; but also the completion of T5i, which opens up, I think, mid-November before Thanksgiving; and Boston facilities and other projects.

These are all sort of nearing completion. So it's these kinds of expenditures don't continue into 2015. So -- by the way, I should also note that T5i was financed using our own cash. So you wouldn't see an impact on the balance sheet as a result of that.

Okay. Thank you.

Glenn Engel, Bank of America.

Good morning. Two questions. One, it looks like the headcount was up 9%; that's much more than ASMs in fleet. What's driving that, and when do we see a reversal?

There was some headcount -- and I'll share this answer with Robin, but I know -- I do believe that some of the headcount increase was really front-line crew, largely driven by our attempt to improve reliability. So I think that there was some extra pilot hiring. But beyond that, I don't know what other extraordinary items -- I think we've been keeping, actually, some of the overhead and office space relatively flat.

Are you looking actual headcount, Glenn, or salary wage and benefits costs?

I'm looking at actual headcount. The second question that I have is -- Mark, you can back to me -- is free cash flow. You try to generate free cash flow each year. With the opportunities this year, is this a year where the free cash flow will be negative?

This will be negative, just to get ahead of that. I think that for some of the items I just listed for Hunter this year, our non-aircraft was exceptionally high related to a couple of key investments. So we will, unfortunately -- as you know, Glenn, I love free cash flow, so this is particularly painful for me. But that, sort of against, then, the headwind of cash from operations being a little lighter because of the Latin/Caribbean revenue picture, will result in a negative free cash flow picture this year.

And, finally, we have further cost pressure from higher pilot pay next year. What are the good guys we are going to see in 2015 on cost?

Well, I think, in fact, just with respect to the pilot side, we already announced the pilot increase. So I'm not expecting -- other than driven by seniority, as well as the just basic operation of the current contract -- a lot of extraordinary increases there. I think we will probably feature Jeff Martin during our Investor Day presentation to talk a little bit more about some of the operating costs and what, from a long-term perspective, those costs are going to look like going forward at Investor Day.

Thank you.

Savi Syth, Raymond James.

-- capacity growth next year. Could you just give an idea of what kind of -- where capacity growth is going to be focused next year, and maybe the mix?

Good morning. I think, obviously, not guiding specifically, although a lot of the schedules are loaded. I think we continue to offer the sort of mid- or slightly above mid-single-digit sort of capacity growth.

What I would remind you in DD1 of next year, because of the impact of Hercules in January, there will be quite a bump. Because that was about, from memory, about a 3 point, I'd say -- was it about 3 points for the quarter, or 2 to 3 points for the first quarter. So that's going to have an impact as we think about year-on-year comparisons. Unless, of course, there is another Hercules-like storm.

Hopefully not. So this year I think a big mix is international. Is next year going to be mostly domestic, then?

No. Again, we'll get into this a little bit more in November. But continued expansion in markets like Fort Lauderdale and Boston will be kind of central to our 2015 plan, and that will include both domestic and international.

Understood. And then if I just might ask a follow-up on the competitive capacity -- Caribbean was pressured; just general trends in the other regions?

Sorry -- could you just repeat the question? Was that domestic?

Sure. Yes. I just was wondering outside of the Caribbean what you are seeing from a competitive capacity front?

In the short-term I think we have continued to see similar trends throughout the year. So if we look at quarter three, Boston was about flat; Fort Lauderdale was slightly negative; transcon slightly up.

So I would say that for domestic, for at least the rest of this year, we'll see for the most part around inflation-type competitive capacity increases. And Latin American/Caribbean obviously higher than that.

Understood. Thank you very much.

Joe DeNardi, Stifel.

Mark, I'm wondering if -- just a couple questions on ROIC. If you could just update us on where you see that shaking out for the year, and whether you have -- you are still thinking about 100 basis points a year going forward?

I apologize for giving you more of a tease, but I just would note that we are committed to that metric and remain energized around it. Again, as I discussed, we are going to hopefully go into a little bit more depth during Investor Day on the specific initiatives. And I think I would rather defer -- I really don't want to sort of do a quarterly -- where are you on an ROIC metric. So I'm going to resist that. But I do think that we'll talk about that in a long-term context in November, if you don't mind.

Okay. Do the initiatives that you are considering -- do those include also kind of the CapEx profile, or is this strictly revenue initiatives?

All of the above.

Okay. And then, I guess, given where we are with fuel costs, does that change the way you guys think about your capacity growth?

Candidly, not really. It's a great benefit. But our capacity plans are well established and well thought out. And when we look at additional capacity, we stress it with a broad range of all sorts of costs, including fuel.

Okay. Thanks.

Julie Yates, Credit Suisse.

On the Q4 PRASM, I know you guys don't guide quarterly, but is there anything you can provide beyond the October guidance of 1% to 2%, just to calibrate expectations for November and December, given the tough comp in December and the shift of Thanksgiving back into November?

No, we don't. We won't. And you -- the point I was going to make, you just made, which is -- I always use this call as a reminder when the Thanksgiving holiday moves. So one of the peak days does move from December back into November. So November will look much better, and December will look correspondingly worse than last year, just because of that shift.

Okay. And just on the scheduled data showing that competitive capacity in Boston is really ramping up in the fourth quarter and even in the first quarter. How do you protect the market share that you've taken there, and especially on the corporate side?

Actually, we look at LA capacity into quarter four -- we are showing about 1% in terms of -- we look at it in terms of seats. It does go up a little bit in quarter one, but honestly, our plan and our product is so strong up there; we have such a strong presence with corporate travel market, the investment in Boston Terminal C, that we are not concerned at all.

Okay. Great. Thank you very much.

That concludes our third-quarter 2014 conference call. We'll talk to you again in a few weeks at our Investor Day. Thanks for joining us, and have a great day.

Again, that will conclude today's conference. Thank you for your participation.