JetBlue Airways Corp (JBLU) 2014 Q4 法說會逐字稿

Good morning.

Welcome to the JetBlue Airways conference call.

As a reminder, this call is being recorded.

(Operator Instructions)

I would like to turn the call over to JetBlue's Director of Investor Relations, Kevin Crissey.

Please go ahead, sir.

Thanks, Felicia.

Good morning, and thank you for joining us for our fourth-quarter 2014 earnings call.

Joining us here in New York to discuss our results are 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 Robin Hayes, JetBlue's President.

Thank you, Felicia, and thank you, Kevin.

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

Earlier today, we reported our results for the fourth quarter and full year 2014.

In the fourth quarter, net income excluding special items was $87 million, or $0.26 per diluted share.

For the full year, excluding the gain from the sale of LiveTV, we increased net income to $232 million, or $0.70 per diluted share.

This represents a year-over-year net income growth of over 38%.

As always, I would really like to thank all of our incredible crewmembers for their hard work they put in to achieve this result.

I truly believe we have the most committed and caring crewmembers in the industry.

In 2014, total revenues grew 7% year-over-year, driven by improved yields and high-margin ancillary revenue.

Fuel prices fell sharply late in the year, and our realized fuel price averaged $2.99 for the year, down 4.7% versus 2013.

Full-year operating margin improved by 1 percentage point to 8.9%.

Our return on invested capital increased by 1 point in 2014 to 6.3%.

Although this is consistent with our plan for steady improvement, we recognize we have much more work to do.

As we outlined in our investor day in November, our three-year goal is to improve ROIC to greater than 10%.

We are not counting on lower fuel prices to get us there.

As we also discussed at our Investor Day, we have specific initiatives well under way, which we anticipate will enable us to generate over $400 million in incremental annual operating income by 2017.

Let me provide a quick update on a couple of these initiatives.

We plan to launch Fare Families in the second quarter, and as a reminder, Fare Families will provide our customers a choice between three branded fare bundles, with the first designed for customers who do not plan to check a bag.

While we are not legally permitted to provide pricing details before filing our fares, we continue to expect at least $65 million in incremental operating income in 2015 and more than $200 million annually by year end 2017.

In terms of implementation, led by our IT team, our partners, Datalex, IBM and Sabre, among many others, have already begun testing, and our front line crewmembers are scheduled to begin training later in the first quarter.

Another initiative I would like to highlight is Even More.

In 2014, Even More revenue totaled just over $200 million.

This 16% increase versus 2013 is well above our capacity growth rate and better than our prior guidance, driven primarily by pricing optimization of the Even More Space product.

We are now pricing by seat and flight.

Another ongoing initiative is Mint, our premium Transcon product offering launched in June 2014.

We are delighted to report that Mint is exceeding our expectations.

Customers love the product, as reflected in both increased NPS scores, and more importantly, our bottom line.

In the fourth quarter, operating margin on Mint routes improved twice as much as our other Transcon markets, which were some of our best performing routes on a year-over-year basis.

We have a number of corporate real estate initiatives, which we expect will improve the customer experience, support our growth, and reduce costs.

T5i, our international arrivals terminal at New York's JFK International Airport, is a great example.

T5i opened in November, and has already reduced our operating costs, whilst providing an excellent facility for our international customers.

In Boston, with the assistance of Massport, we are working on major enhancements to Terminal C at Logan Airport, including a new inline baggage system, expanded gate areas, and a streamlined check-in experience.

With the terrific support of Broward County Aviation Department, and on the heels of opening a fabulous new 8000-foot runway, major enhancements to Terminal 3 in Fort Lauderdale-Hollywood International Airport are underway.

I would like now to turn briefly to operational performance.

Clearly, there is a strong link between efficient on-time operations and improved financial performance.

Our operational performance improved throughout 2014 and, by most measures, surpassed 2013.

On-time departures, or D0, improved 2.7 points year on year to 63.5%, while our systems arrival performance, or A14, improved 2.5 points to 77.1%.

We had particularly strong operations in the fourth quarter.

D0 and A14 each improved roughly 4 percentage points year on year, driven by strong operational performance in New York.

These results are a testament to the hard work of our 16,000 crewmembers, who deliver exceptional service to our customers every day.

We look forward to recognizing that contribution to our financial and operational achievements in 2014, with a profit sharing payout of $25 million later this quarter.

In addition, I'm always astounded by the difference our crewmembers make in the communities that they live.

In 2014, JetBlue crewmembers volunteered over 100,000 hours to a wide array of nonprofit organizations.

In closing, we are pleased by the progress made in -- JetBlue made in 2014.

As we look ahead, we aim to improve our financial returns, and we have a plan in place to do just that.

Lower fuel prices, though always welcome, do not change our strategy.

Our growth plan is based on an assessment of network demand over time, and we have no plans to change our capacity guidance based on short-term swings in the price of fuel.

Finally, I would like to recognize Dave Barger for his over 16 years of leadership at JetBlue.

Dave's impact on our Company and the lives of all of our crewmembers, customers and partners, and friends, is just simply immeasurable.

Dave, a big thank you.

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

Thanks, Robin.

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

This morning, we reported record quarterly and annual operating income of $169 million and $515 million, respectively.

This represents 47% growth in the fourth quarter and 20% for the full year.

I would like to join Robin in acknowledging the efforts of our crewmembers, who delivered a very, very good quarter.

With respect to revenue, demand in the fourth quarter was solid, with holiday travel periods booking very nicely.

Passenger unit revenue, or PRASM, was essentially flat, on capacity growth of 7%.

Looking at our performance on a regional basis, domestic markets continued to outperform markets in Latin America and in the Caribbean.

All of our six focus cities continued to be profitable, and experienced year-over-year margin improvement in the quarter.

Ancillary revenue, which, of course, tends to be high-margin revenue, grew 11% in 2014 and totaled $745 million for the year.

Total ancillary revenue in the fourth quarter was about $25 per customer.

That's up 3% year on year.

As mentioned by Robin, our Even More offering continued to exceed expectations, generating just over $200 million in 2014 as compared to $150 million of revenue just two years ago.

With respect to costs, we're pleased with our cost performance in the fourth quarter and in the full year, not simply because of lower fuel prices.

Excluding fuel and profit sharing, year-over-year fourth-quarter unit costs decreased by 0.9%.

That's better than our prior guidance of up 1 to 3%.

In the quarter, year-over-year unit cost pressure came from maintenance, materials and repairs, depreciation, and benefits.

At the same time, we saw unit costs decline in sales and marketing, and aircraft rent, and the impact of higher-than-assumed completion factors.

Turning to fuel, obviously, the dramatic drop in fuel price has positive implications for our fuel expense line.

In the fourth quarter, 26% of our fuel consumption was hedged using jet fuel swaps and caps, and we entered into fixed forward price agreements, or FFPs, covering another 7% of consumption.

Including the impact of fuel hedging, FFPs and taxes, our fuel price in the fourth quarter was $2.70, down from last year's per-gallon price of $3.10, or 13%.

Looking ahead, we hedged about 17% of our expected full-year 2015 fuel consumption.

Based on the forward curve as of January 16, we expect our first quarter jet fuel price per gallon, including taxes and hedges, to be approximately $1.97.

Given the obvious volatility in fuel prices, we're not providing an annual fuel price estimate, but to help you forecast, assuming again the January 16 forward curve, on a full-year basis our all-in fuel price would be slightly less than $2 per gallon.

More specific details regarding our hedge positions are included in our investor update.

This was filed with the SEC, and available on the Investor Relations section of our website, and was filed, in fact, prior to the start of this call.

Although we've provided an estimated fuel price based upon the forward curve, we are not running our business based upon that assumption.

Our business plan assumes much higher prices, with Brent at about the $90 per barrel range.

We haven't, and will not, reshape our business strategy based upon a drop in fuel prices, which, after all, could prove to be very short-term.

Moving to the balance sheet, during the fourth quarter we made debt and capital lease payments of approximately $130 million, bringing our full-year payments to $778 million.

This includes the debt prepayment of approximately $300 million from the proceeds of the sale of LiveTV.

As a reminder, the LiveTV sale, which closed in the second quarter of 2014, produced a number of financial benefits for JetBlue, including $374 million in net cash proceeds, a $241 million gain, and lowering ongoing CASM, and a reduction in future CapEx.

At year end 2014, our adjusted net-to-cap ratio was approximately 53%, a 6.5% improvement compared to year end 2013.

At year end, cash and short-term investments as a percentage of trailing 12-month revenue was 12%.

Strengthening the balance sheet remains an ongoing priority.

To the extent fuel prices stay low, thereby increasing our cash from operations, we would expect even faster balance sheet improvement by making opportunistic debt prepayments.

With respect to CapEx and fleet, JetBlue ended 2014 with 203 aircraft, including 130 A-320s, 60 E-190s and 13 A-321s.

We expect to take delivery of 12 A-321s in 2015, with two deliveries coming in the first quarter.

Again, on the strength of fuel-driven strong cash flow from operations, our presumption is that we will pay cash for all of our 2015 deliveries.

In November, we announced the deferral of 18 aircraft deliveries from 2016 through 2018, to 2022 and 2023.

In the near term this, of course, lowers our capital commitments by over $900 million and benefits free cash flow.

Recall the net deferrals also offset the capacity growth resulting from our planned initiative to reconfigure our A-321 fleet with additional seats.

Over the past few years, we've been making significant infrastructure investments, such as the construction of T5i at JFK, IT infrastructure to support revenue initiatives, and slot purchases.

We expect our non-aircraft CapEx to be lower going forward.

For the full year 2015, we are forecasting non-aircraft CapEx of between $150 million and $200 million, compared to $320 million in 2014.

We expect total capital expenditures in 2015 of approximately $810 million to $860 million.

Turning to capacity, winter storm Juno caused the cancellation of nearly 1,000 flights this week on our system.

We have not yet determined the financial impact of the storm.

We would note that the storm was most severe on Tuesday in JFK, and Wednesday in Boston, which are, of course, relatively lighter travel days of the week.

Unless noted otherwise, all of the guidance provided on this call and in the investor update issued today excludes the impact of Juno.

Of course, winter happens every year.

Recall, severe winter last year caused the cancellation of about 4,100 flights in the first quarter of 2014, thus increasing our year-over-year forecasted capacity growth by about 4% in the first quarter of 2015 and 1% for the full year 2015; again, before the impact of Juno.

We expect capacity growth of 11% to 13% in the first quarter and 7% to 9% for the year.

This is in line with the guidance we provide at Investor Day.

To be clear, we will not alter our 2015 capacity guidance based upon the recent drop in the price of fuel.

Looking at our capacity plans geographically, we continue to expect the highest growth rate in the Transcon market, driven by frequency increases in New York to both Los Angeles and San Francisco.

As Robin mentioned, the results of Mint on these routes have been well above expectations.

This certainly wouldn't have been possible without the dedication and customer-focus of our crewmembers, especially our in-flight crew.

Evidencing our geographic diversity and balance, based on published schedules for 2015, we expect approximately 28% of our capacity will be in Transcon markets, 30% in the Caribbean and Latin America, and approximately 29% in Florida.

With respect to revenue, our revenue comparisons in the first quarter were impacted, again, by the severe winter storms last year.

Setting these aside, year-over-year domestic demand remains solid, and Latin America RASM is improving as capacity growth in the region slows.

Prior to winter storm Juno, January PRASM was trending toward flat year-over-year.

While we are still working through the final impact, we would expect PRASM in January to be modestly positive as a result of this recent storm.

Moving on to costs, as highlighted again at Investor Day, we face pressure on maintenance expense in 2015.

Compared to 2014, we expect more heavy maintenance visits and landing gear overhauls.

Other line items with more modest unit cost pressure in 2015 include depreciation and landing fees.

At the same time, we expect lower unit costs to salaries and wages, aircraft rent and airport rent, thanks in part to the benefit of T5i at JFK.

In the first quarter we expect CASM, excluding fuel and profit sharing, to decrease between negative 1.5% and negative 3.5% year-over-year.

Looking at full-year 2015, we expect CASM, excluding fuel and profit sharing, to only increase between 0% and 2%.

In closing, we are very pleased with our fourth quarter and full year performance.

With the continued support and engagement from all of our crewmembers, we look forward to delivering on our plans in 2015.

With that, Robin and I are happy to take your questions.

Thank you, Operator.

Thanks, everyone.

Felicia, we're ready for questions.

Can you please ask --

Thank you.

(Operator Instructions)

Michael Linenberg, Deutsche Bank.

Two questions here.

Mark, you did a good job on prepaying debt.

Can you talk about some of the opportunities in 2015, and what I'm getting to is, do you run into situation where maybe some of your debt mass make whole provisions, where maybe there's a bit less that you can prepay?

What are the opportunities?

Maybe give me a sense of the magnitude?

Yes, we clearly have -- to your point, in the past the debt that we've been prepaying has been fairly low-hanging fruit.

So now we're getting a little bit more selective and, for sure, we do have some of the prepayment and make whole provisions to think about.

I mean, the other thing we're also looking at, by the way, anticipating the long anticipated rise in interest rates, is taking a hard look at widespread floating rate debt.

So there's a fair amount of stuff that we can look there.

Great, and my second question, and maybe this is more to Robin, when I think about where your unit revenue performance was for the fourth quarter and what you're guiding for January, can you talk about some of the new markets?

I mean, obviously, there was good commentary on Mint, but what about the much larger position that you have in DCA?

How have some of those markets ramped up?

Are you getting a much better business mix?

And then, you know, along those lines, just the competitive capacity situation in some of your core markets, what you're seeing?

Sure.

Good morning, Michael, and thanks for the question.

I think the revenue environment that we saw at the end of last year, and we're seeing into the beginning of this quarter, I would describe as stable.

I think we've been very pleased with the way -- given some of the headwinds we had due to Latin America capacity last year, we've been very pleased as to how some of that has been improving.

Really delighted.

I mean, the fastest growth market that we have seen at the back end of last year was Fort Lauderdale-Hollywood.

It's also been the market that has been the highest year-on-year improvement.

So we're seeing really, really good performance from our newer markets.

And DCA is -- we have some mature routes to DCA that are doing very well, and we have newer routes that are still in that maturation phase, but they will follow the curve that we always see from those types of markets.

So feeling really good about the way the network is shaping.

And I've got to tell you, it's really good sitting here and having all of our six focus cities solidly profitable.

Robin, when you said highest improvement in Fort Lauderdale, were you referring to margin or were you referring to a gain in PRASM?

Margin -- year-on-year margin improvement.

Great.

Thank you.

Julie Yates, Credit Suisse.

Thank you for the color on PRASM in January.

Can you help frame how this might progress through the quarter, given the comps are challenging in January and February, and then ease significantly in march?

It's Robin.

I think we get this call every quarter.

We, of course, only guide for the quarter, in January.

I would use the word, stable, though, to sort of refer to the revenue environment as we see it, looking past January as well.

Obviously, very good visibility of January, good visibility of February, and then after that, slightly less on the books.

If I may, Julie, just -- this time last year actually we established a policy of actually providing quarterly PRASM guidance only during the third month of the quarter, and so our cadence has been with respect to the first two months of a quarter, to provide the limited guidance that you have seen today.

But the full quarter guidance won't occur until the third quarter.

But we will in February then be providing the next month's, the February guidance, during our traffic release, when that happens.

Okay.

And then on the hedging strategy, has it changed at all, given where fuel is?

Are you starting to layer on any upside protection at these levels?

Thank you again.

The hedging strategy, it seems to be working really, really well for us.

I mean, we continue to think of it as a tool in the tool kit.

It's a great way to risk -- manage risk, and it still remains a short-term form of insurance.

You'll see that in the Investor Day -- investor update today, we're reporting on the next layer of hedges that were not included in the prior investor update.

As we move forward, again, it will always be in the tool kit.

When we look at the possibility of adding more hedges, we do two things.

Number one is, we look at the overall fuel market environment, and then we kind of look at what the competition is doing.

I would note, as you can hear from the other calls, apparently some of our competitors have actually been unwinding a lot of the things that they have put on.

We haven't done so.

But, again, that's where we are.

Okay, great.

Thank you.

Dan McKenzie, Buckingham Research.

Good morning, guys.

Just one house-cleaning question here.

I'm wondering if you can provide the cash flow statement items, cash flow from ops, investing, financing?

I'm wondering if you can share that at this point?

Probably not to the extent that they are not included in the exhibits.

Of course, our 10-K will have that in great deal.

Okay, understood.

And then I'm wondering if you can provide a status update on Fly-Fi.

First, where are we at with respect to equipping the fleet?

I think the goal was 100% at the end of 2014.

Then, secondly, where are you guys at with respect to monetizing Fly-Fi, and how should we think about that looking ahead?

It's Robin, I'll take that.

I think in terms of where we are with the fleet, of the 320 fleet, of which we have 130, we are just slightly over 100 now, so we are in the back stretch.

The 321s are -- as we take delivery of 321s, they are coming fitted out with Wi-Fi -- or, I should say, Fly-Fi.

They already have it.

And our 190 equipage will begin later in 2014, so still on track to -- sorry, 2015, with the year.

So still on track, in terms of where we expect to be.

Very pleased with the product.

And as Marty mentioned at Investor Day, we have, in terms of the first tranche, a monetization deal has been able to cover the bandwidth costs for the coming year, and the team continue to work on the new deals as they come up, and look forward to sharing those in due course.

But really great when we see flights with 80, 100 customers connected on Wi-Fi.

It's really, really, I think, a game-changer for us over the course of time.

Okay.

Thanks, Robin.

Appreciate that.

Jamie Baker, JPMorgan.

Good morning, Robin.

You and Mark both stated you wouldn't revise capacity based on short-term declines in fuel.

I'm curious, therefore, what sort of return metric or duration of fuel decline might cause you to rethink capacity?

Is it 12 months of low fuel?

Is it a specific ROIC target?

Is it just a function of what the competition does?

We know that every airline has downside thresholds that lead you to cut capacity.

Do you care to share with us what would cause you to grow?

I mean, grow above the current plan, I should say?

Thanks, Jamie.

I appreciate the question.

I think, look, if we would look at a [route case] within six months or a short-term timeline at this fuel price, clearly you could make a case for adding capacity, but that's not how we choose to look at it.

We look -- as we come into new markets, we're looking over a three to five-year horizon in terms of the business case and the returns.

Not going to share what our -- [hurdles] we use internally.

But certainly, we don't want to model the fuel price today as something that's going to be around for a few years.

So I think for the rest of this year, we're going to continue to focus on the plan, and as Mark said, run our business as if we have gas at $90 a barrel.

Got it.

And a follow-up to Mark's comment on Juno.

You canceled 1,000 flights this week.

All that really matters is what you were budgeting for the entirety of the quarter.

I mean, is the Q1 [IRO] budget closer to last year's 4,000, or is it something higher, lower?

Help us frame those 1,000, because as Mark pointed out, you obviously had something in the budget already.

Look, I think, too, the big IRO we had last year, which was Hercules, two very important differences.

First of all, Hercules was a bigger event, in terms of numbers of flights canceled.

And secondly, there's a very different profile of, you know, revenues, that first return week in January versus a Tuesday, Wednesday, in the middle of January.

We're still working through the numbers.

I mean, today is really our first full return to service, but I'm anticipating that Juno will be, you know, significantly smaller event than Hercules.

Okay.

Got it.

Thanks, gentlemen.

Duane Pfennigwerth, Evercore ISI.

First, I wanted to congratulate you, Robin, on making oil go down 50% as you take over the reigns of this Company.

Nice work.

Thanks there, Duane.

I appreciate that.

So just regarding your improvement year to year in New York in operational performance, can you talk just practically what you're doing differently?

How much of this is due to improved weather?

Would love to get some more detail behind how you're actually driving that improvement?

Thanks, Duane.

Happy to take the question.

I think it's been a real focus of our leadership team, our operational leadership team, all of our operational crewmembers, a lot of individual pieces coming together.

I'll mention a few now.

Creating a new operating philosophy, a real strong focus on our fleet launch, looking at our schedule patterns, really looking at where we base spares in our network, looking at our maintenance procedures.

Those are a lot of things that the team has been attacking in the last year.

And certainly the weather this December was kind to us, but we -- over the peak of December, we operated 12 consecutive days with a 100% completion factor.

It's more than just good weather that enables you to do that.

So we're not complacent.

We still feel we have a lot of improvement to go, and we are focused on that, but very pleased with the initial results at the back end of last year.

And really a special shout out to our crewmembers who have made this happen one flight at a time.

Thanks for that.

And then any update on your fleet densification program, adding seats to the A-320s?

I know you talked about second half 2016, but I felt like maybe you hinted there was some chance it could be accelerated.

Any update there?

No, Duane.

Still on course for the timeline that we provided at the Investor day on November 19, but thanks for the follow-up.

Thank you.

Savi Syth, Raymond James.

A bit of a more strategic question regarding growth, and one of the concerns that some have had in the past is JetBlue's good clip of capacity growth despite relatively lower margins and returns.

I know kind of the case for it has been that you need to get to a defensible size, and the argument's clear based on what you're seeing happening in Seattle.

But what I was wondering is have you gotten to a defensible size, or is there more growth that is necessary, and is the kind of consolidation that you've seen among the top four carriers change what size you need to be?

And then also, if you get to that size by organic growth, or if kind of a merger or an acquisition makes sense?

In terms of strategy as an airline, still very committed to our own organic growth plan, and I think as we come into our 15th-year anniversary of operating here into February, we are very proud of what we built, and what we're going to continue to build.

So no change in our focus on building this Company one airplane at a time.

In terms of growth, I think we laid out there the case at Investor Day that we think growth is an important part of our airline.

We've got six focus cities.

We've talked before about once you get past that initial growth phase, then the maturation, you see very quick returns.

So we look at Boston, you know, investment in the past, solidly profitable.

Fort Lauderdale, I mentioned earlier, we are growing that more quickly than any other focus cities.

We're also seeing big improvements in returns.

So our plan is to continue to grow.

I think we provided some guidance on that this year.

I think with the changes we're making to the 320, and the deferrals that we announced at Investor Day, we found a more capital efficient way of growing, but we're also committed growing the returns going to ROIC, to the degree that we laid out at Investor Day.

We're going to continue to do both.

Got it.

Then if I just might ask, on the fuel consumption side for 2015, I would have expected a bit more of an improvement in fuel efficiency.

Is that just due to the timing of the A-321s?

Are the ones early on still related to Mint, and the larger-gauge ones really coming in the back half?

They're scattered, actually, throughout the rest of the year.

Keep in mind moving forward, we'll finally have the full impact of the 13 aircraft we've already taken delivery of.

Okay.

All right.

Thank you.

Thank you.

Hunter Keay, Wolfe Research.

Just a little bit more on the capacity.

We're just looking through some OAG data, and looks like what I'm seeing, OAG doesn't match up with the ASM guidance.

So can you just help us understand the ASM growth by month at the very least, without getting into PRASM for the quarter?

How we should think about January in relation to February and March?

Sure.

Q1 is very tricky, just because the amount of flights that we canceled last year.

If we actually look actual to actual, then January is -- again, these are not Juno-adjusted, so they will change a little bit, because we canceled about a thousand flights with Juno, with is just sort of over one-day of equivalent capacity in January.

Pre-Juno, about 17% growth in January, about 11% growth in February, and about 6% in March.

Wow, that's a really strong PRASM guide -- benefit, if that's the case.

So -- but I won't go there.

So let's talk about Mint instead.

When you first conceptualized Mint, was there any given consideration given to maybe some pending changes in the United and Delta frequent flyer programs?

And then part two of that question, who have you been taking share from?

If you don't want to name the airline, maybe you could talk about it in terms of where your share is coming from, the share gains are coming from, in the context of are they individuals, are they corporate contracts?

Are you seeing more stimulated point of sale in, say, like the Bay Area, or is it more New York-based?

Any kind of color you could give us around where the share growth is coming from, because you're clearly not stimulating demand with that type of product?

Thanks, Hunter.

Appreciate the question.

Look, very pleased with Mint.

We've been planning Mint for a long time so, obviously, we had no knowledge of any other competitive changes to frequent flyer programs until they were announced, so it wasn't a factor at all.

We looked at a market that historically was constrained by very high fares and, in our opinion, people were getting a pretty crummy product for very high price.

So we wanted to change that, and so we created what we think is a best-in-class product at a price point that is significantly lower than anything that was available.

And as is true in many new markets that JetBlue flies, we have an overall positive impact because we bring down the fares, not just on our planes but the whole market as well.

So very pleased.

In terms of where we're getting it from, there has been a stimulation facto, because when you go from a $2,000 fare to a three-digit fare, you do stimulate additional demand.

So we definitely have seen the market grow.

But in addition, you know, in terms of where we're stealing share, and this isn't a cop-out, I would say we're getting a bit of everything.

When we built the business case for Mint, we didn't assume a lot of large corporate contracts.

We really were focusing this product on individuals and small- to medium-sized companies who didn't have access to the source of discounts that large corporates had, but we've been very pleasantly surprised that we've been getting some of that corporate business as well.

But we really look at that as the icing on the cake, it was not something that Mint was designed to go after.

Okay.

Thanks a lot.

David Fintzen, Barclays.

Good morning, everyone.

Just going back, I forget if it was Robin or Mark, probably Robin who said this, but domestic still continues to be better than international.

I'm curious how that tracks through the first quarter, and kind of when should we start to see international look more like domestic through 2015?

I think what we're seeing in international, and we haven't [put it] in the quarter, is we start cycling against a lot lower ASM growth in the market.

So Latin America will definitely see some pickup in the quarter, and I think domestic is more a strong trend that we have already seen.

And within some of the international, are you seeing any -- you mentioned overall demand is stable, and good demand commentary.

But with international, are you seeing any divergence between things maybe more Northern, South America, versus Caribbean?

Is there any sort of economic read-through in demand you're seeing in the international markets?

No, one of the things we were commenting on as we prepared for this call was how -- whether it's leisure travel, vacation travel, visiting friends and family, business travel, they all seem to be performing at a stable level.

And so not really seeing any segment sort of out-perform or under-perform another right now.

Okay.

That's helpful.

Quick one, just following up a little bit on Jamie's question.

Mark, what was the Hercules cost impact, just for us to kind of size that?

I don't know if you -- I can't remember if you disclosed it.

You stumped me on that.

I'll have to get back to you on that one.

All right.

Thanks.

Thank you for bringing up that great memory.

For all of us, right?

Thanks for the color, everyone.

Glenn Engel, Bank of America.

Couple questions, one on seasonality.

Easter's a little bit earlier this year.

Is there going to be any shift of revenues from April to March?

It's a little bit earlier.

There will be a little bit of shift from April to March.

Two, when I looked at the fourth quarter numbers, depreciation surged versus the third quarter, more than I would have expected.

Is there any one-time write-off there?

And rent and landing fees dropped significantly.

Is there any one-time credits there?

Sure.

Quickly, with respect to depreciation, keep in mind, not only did we have a full year now of T5i, which just opened, but we had a number of other IT projects included in the CapEx number, in addition, of course, to the airplanes.

Those IT projects, as I mentioned, were projects that really are focused on enabling a lot of the revenue initiatives that we outlined at Investor Day.

With respect to your second question, on rent and landing fees, again, back to T5i, the good thing about T5i is we're no longer paying really, really, really high rents at T4 at JFK.

And then we had a couple of one-time every-year rent true-ups at some of our focus cities.

So it's hard to predict every year what airport and/or how much it will be, but it happens every year.

That's always in the fourth quarter.

And that was a good guidance year.

Yes, very good guidance.

And the depreciation of $86 million, is that my steady-state number going forward and growing?

It will grow, obviously, because we're taking airplanes.

Okay.

Right?

Thanks.

Joe DeNardi, Stifel.

Mark, can you just walk us through kind of what the priorities for the free cash flow are this year, given the fuel -- the cash benefit you guys should see from lower fuel?

So the priorities right now are obviously debt prepayment and, you know, Jim Leddy and his team in the Treasury group are making a lot of good progress on that.

We are -- I should note also, we will continue our share buyback program that relates, obviously, to crewmember type of equity, so that we're not diluting you with respect to crew-based compensation.

And then, of course, the 12 A-321s happening this year.

Okay.

So I guess the incremental cash from the lower fuel is going to probably go towards the debt as opposed to maybe accelerating the share repurchase?

It's actually -- it's interesting.

The -- there's actually very little choosing to talk about.

We're going to do all three.

Okay.

And then the sales and marketing expense line in the quarter was down pretty sharply.

What was driving that?

A couple of things I should note.

Number one is a series of programs in the year that, in the fourth quarter, came in better than we had anticipated in our prior guidance.

Okay.

Thank you.

Tom Kim, Goldman Sachs.

Good morning.

I had a couple questions here.

Just with regards to your percentage of point of sales on your international bookings from the US, in particular Latin America, could you give us a little bit of color there?

Sorry, Tom.

Was the question, how does the point of sale break down between US and international?

Yes, specifically for your international -- your point of sales on your international bookings that are generated in the US versus those that are originating from overseas.

I've got you.

I just wanted to clarify the question.

I'm going to disappoint you, because that's not something we disclose publicly.

Okay.

And then can you give us a little bit of color with regard to your FX exposure?

That would be zero.

All right.

Okay.

Great.

And lastly, can you give us an update on your pilot negotiations?

Sure.

Very early on in the process.

Okay.

All right.

Thank you.

Helane Becker, Cowen and Company.

Just a couple of questions.

One, I'm surprised a little bit that MRO didn't decline -- was up so much in the fourth quarter.

Is that just a function of the changes you're making to the fleet, timing pieces, or is that something we should consider, the run rate going forward?

I think as we said in the past, and I think Jeff Martin explained at -- you're talking about maintenance, right?

Yes.

It's -- we have -- we are doing a diligent amount of work, trying to get most of our ongoing maintenance covered under predictable types of flight-hour agreements.

This year, of course, there are some heavy checks and some landing gear checks that, you know, you don't have the luxury of timing, and it doesn't make any sense to cover those under flight-hour agreements.

I think the nature as we move forward of MRO candidly is slightly lumpy, but less lumpy than it would have been but for the entering of a lot of significant flight-hour agreements.

And this year is one of those lumpy years, or crunchy peanut butter years.

Okay.

And then just my other question is following up on something Hunter hinted at.

Your PRASM seems to be fairly strong, given the capacity increase.

So is that -- I'm trying to figure out if that's just because -- how much of that is related to the capacity increase versus the 4%, what would have been a 4% increase, or is it better pricing on -- that you're seeing versus where you were a year ago?

Is something going on?

I guess I'm asking this badly, but was something going on last year that had, you know, pricing down versus where you are this year?

No, I think it's always -- one of the challenges in months where you have a big disconnect between what you schedule and what you actually fly, is that you can get a lot of distortion very quickly.

So we are pleased with a flat PRASM performance in January, but without guiding for the quarter, I don't want -- it would be wrong to look at the way the capacity falls away, and assume that there's a big increase in PRASM.

We used the word, stable, for the quarter.

We said it's flat for January.

When you have those big disconnects in the way -- because of storms, weird things happen to unit revenue.

So I'm not going to take that next step and guide for the quarter, but I guess I'm trying to do a bit of expectation management around the capacity.

That's very fair.

Thank you very much for the time.

Thanks, everyone.

That concludes our fourth-quarter 2014 conference call.

We look forward to talking to you soon.

Thanks.

And again, that will conclude today's conference.

Thank you all for your participation.