JetBlue Airways Corp (JBLU) 2015 Q2 法說會逐字稿

Good morning.

My name is Kayla and I would like to welcome everyone to the JetBlue Airways second quarter 2015 earnings conference call.

As a reminder, today's call is being recorded.

At this time, all participants are in a listen-only mode.

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

Please go ahead.

Thanks, Kayla.

Good morning, everyone and thanks for joining us for our second-quarter 2015 earnings call.

Joining us here in New York to discuss our results are Robin Hayes, our President and CEO; Marty St.

George, EVP of Commercial and Planning; 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-Q 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 Robin Hayes, JetBlue's President and CEO.

Good morning, everyone.

Thank you for joining us.

Earlier today we reported our results for the second quarter 2015.

In the quarter, net income was $152 million or $0.44 per diluted share.

On a year-over-year basis, excluding the gain on sale of LiveTV, which occurred in the second quarter of last year, our net income more than doubled.

This strong result is a reflection of the amazing efforts of our 17,000 outstanding crew members who continue to inspire humanity by exceeding our customer's expectations every day.

In May, JetBlue was awarded its 11th customer satisfaction award by J.D. Power with the highest score ever by any US airline.

Again, I would like to congratulate our incredible crew members for these terrific achievements and thank them for their dedication and hard work.

Total revenues grew 8% year over year in the quarter, driven by solid demand across all regions and execution of our network plan.

Second-quarter operating margin improved by more than 8 percentage points to 17.5%.

The lower fuel price environment played a significant role in our strong results, with our realized average fuel price of $2.13 down 31% versus the second quarter 2014.

We were also pleased with our non-fuel unit costs in the quarter, as CASM excluding fuel and profit-sharing came in better than our guidance, up only 0.6%.

Our network strategy is producing strong results across the board with profit margins improving simultaneously with capacity growth.

All six of our focus cities continue to be profitable and generated year-over-year margin expansion in the quarter.

Now turning to Mint, Mint revenue and customer satisfaction have far exceeded our expectations.

Based on this success, we've announced additional Mint service from New York's John F. Kennedy International Airport starting in October this year and expanded Mint to Boston with year-around service to Los Angeles and San Francisco and seasonal service to Barbados, all starting in 2016.

Based on current data, JetBlue will be the only airline offering year-around flatbeds from Boston to both LA and San Francisco.

The expansion of Mint is a good example of our commitment to Boston, where JetBlue continues to be the number one carrier for business and leisure fliers.

When we announce our service to Nashville in Spring 2016, JetBlue will offer 60 non-stop destinations from Boston.

We continue to be very pleased with the results of our investments in Boston.

Operating margin in Boston has expanded more than our system average, both this quarter and on a trailing 12-month basis.

In Fort Lauderdale-Hollywood, we continue to execute our profitable growth strategy with expanding service to both domestic and international destinations.

Indeed, we've announced eight new destinations from Fort Lauderdale-Hollywood launching in 2016, with the latest being Charleston, South Carolina and Turks and Caicos.

Let me now touch on our operational performance.

I am pleased, as all of our operating metrics have improved nicely year over year.

On-time departures or D0 improved 1.7 percentage points year over year to 67.1%, while our system arrival performance or A14 improved 3.3 percentage points to 82.2%.

Not only did we improve our on-time performance, but we did so while canceling fewer flights.

Completion factor improved 1 percentage point year over year to 99.3%, creating efficient available seat mile growth.

These operating improvements are being noticed by our customers, as evidenced by our increased net promoter scores, which we believe will continue to drive additional revenue.

None of this would have been possible without the amazing efforts of all of our crew members, who did a fantastic job again during this quarter.

Turning to partnerships, our partnership revenue continues to grow significantly above our capacity growth, fueled by a combination of new partners and the deepening of existing relationships.

We are particularly pleased with the mutual positive effect Boston is having on both JetBlue and our partners.

The combination of our growth in Boston and the performance of our partnership led El Al to add service to Boston this past June.

In fact, El Al is the sixth partner to start a new route to Boston, either in conjunction with launching a partnership with JetBlue or after developing the partnership in New York and then expanding it to Boston.

This is yet another example of JetBlue's growth, not only in adding competition in the US, but also in our partners' long-haul international markets.

As planned, we introduced fare options in the second quarter.

This was a big undertaking for our Company and I'm excited about the opportunities it represents.

We are convinced fare options is a better revenue strategy than static fees employed by some of our competitors.

Ultimately, we will be able to dynamically price our product based on customer feedback and conversion rates.

It's still very early days, as the new fares only went live on June 30.

But initial financial results are consistent with or better than our expectations.

Marty will provide some additional details regarding fare options and I anticipate some of you will ask questions we will not or cannot answer due to commercial sensitivity or because they relate to future pricing.

We will provide what we can, but the bottom line is we expect fare options to generate at least $65 million of incremental operating income this year and more than $200 million annually by the end of 2017, which is consistent with the guidance we provided at our Investor Day last November.

In closing then, we are pleased with our results in the second quarter, but remain steadfastly committed to delivering improved financial returns by executing on the initiatives we've previously outlined.

And with that, I'd like to turn the call over to Marty to discuss our revenue results in greater detail.

Thank you, Robin.

Good morning, everyone.

Thanks for joining us.

Demand in the second quarter was solid.

Passenger unit revenue or PRASM increased 1.4% on capacity growth of 7.5%.

Based on A for A data, unit revenue across our combined domestic and Latin networks outpaced the industry by nearly 7 percentage points in the second quarter, while we grew ASMs 3 percentage points faster than the rest of the industry.

Although Mint has performed very well and certainly helped the revenue performance between New York and LA and San Francisco, it is just one driver of our top line performance.

Mint routes represent only about 7% of our ASMs in the second quarter and the premium seats on those routes represent just 7/10 of a percent.

Our strong relative revenue performance was really the result of strong execution of our revenue management and network strategies, the maturation of our network and limited exposure to softer global markets and unfavorable currency exchange rates.

But most importantly, it was driven by the outstanding service delivered by our 17,000 crew members.

Looking at our performance on a regional basis, we saw PRASM strength across both our domestic and international networks, with Latin America and Caribbean markets being particularly strong due to a continuation of improved [VFR] traffic and easier comparisons.

Other revenue decreased 5% year over year in the second quarter as a result of uneven comparisons due to the sale of LiveTV.

As a reminder, we sold LiveTV in June of 2014 and it contributed $14 million in the second quarter of 2014.

This is the last quarter that LiveTV will impact year-over-year comparisons.

Excluding the impact of LiveTV, other revenue grew very nicely in the quarter.

Turning to fare options, as Robin highlighted, we launched fare options at the end of the quarter.

Customers now have a choice of three branded fares, which we call Blue, Blue Plus and Blue Flex.

With the introduction of fare options, all customers regardless of the fare saw a reduction in their change fees, including the base Blue level.

Blue fares are our lowest price option and are ideal for customers who do not plan to check a bag.

Our Blue Plus product offers a free checked bag, additional TrueBlue points and a further reduction in change fees.

Blue Flex offers the second checked bag for free, additional TrueBlue points and free change of the cancellations.

In addition to the introduction of fare options, we've also introduced fully refundable fares at all fare levels.

Before fare options, all JetBlue fares were non-refundable except for the very highest walk-up fares.

We believe that offering refundables at all fare levels will help us increase our share among customers paying mid-range, relatively close to business fares, because historically our competing fares have been non-refundable while others have not.

As planned, we rolled out fare options in a simple way with roughly consistent pricing gaps between the fare option packages: $15 between Blue and Blue Plus and $85 between Blue Plus and Blue Flex.

As we did with our Even More product offering, we expect to further develop the fare options product over time as we learn customer preferences.

The fare options initiative will impact both passenger and other revenue.

All fares purchased by customers will be reported in passenger revenue.

Additional bag charges will continue to be recorded in other revenue.

Since fare options launched on June 30, it had no material impact on our second quarter revenue.

It is too soon to fairly assess financial results relative to our forecast, but early indications have made us optimistic about meeting or exceeding our 2015 target of $65 million in incremental operating income.

The split of incremental revenue between passenger and other is also too early to accurately determine.

Fare options is one of several major initiatives designed to improve our financial returns over the coming years.

We remain committed to executing programs such as our Cabin Refresh, starting a new co-brand credit card agreement, expanding Mint and growing Getaways.

These initiatives are expected to increase our return on invested capital and are largely independent of industry dynamics such as GDP, competitive capacity and the price of fuel.

Now to Fly-Fi, our industry-leading high-speed broadband Wi-Fi product.

We are very excited about the recent partnership announcements with Amazon and major league baseball, which will improve the customer experience and also permit us to further monetize our product advantage.

Fly-Fi is now available on all A321 aircraft and 90% of our A320s.

We expect the entire A320 fleet to be equipped with Fly-Fi by the end of the third quarter.

We'll begin Fly-Fi installation on the E190 fleet this fall.

Once complete in 2016, customers will have access to Fly-Fi across our entire fleet.

With that, I'll turn the call over to Mark to provide further details on the quarter.

Thanks, Marty.

Good morning, everyone and thanks for joining us.

This morning we reported record second-quarter operating income of $282 million.

That's twice the operating income of the same quarter last year.

Total revenue grew 8% on capacity growth of 7.5%.

Yield improved 0.2% and load factor increased 1 percentage point.

We're further pleased with our cost progress in the second quarter.

Excluding fuel and profit-sharing, year-over-year second-quarter unit costs increased 0.6%, which is better than our April quarterly guidance range of 1% to 3%, due to our improved operational performance including a higher completion factor than anticipated, timing of some advertising spend and effective cost control programs.

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

Turning to fuel, in the second quarter 19% of our fuel consumption was hedged using jet fuel swaps and caps.

Including the impact of fuel hedging and taxes, our fuel price in the second quarter was $2.13, down from last year's per gallon price of $3.09 or 31%.

As was the case last quarter, our hedge positions remain unchanged during the second quarter.

We've hedged about 17% of our expected full-year 2015 fuel consumption.

Based on the forward curve as of July 17, we expect our third-quarter fuel price per gallon including the impact of taxes and hedges to be approximately $1.95.

We don't provide guidance beyond the current quarter, but to help you forecast and assuming again the July 17 forward curve, our all-in fuel price per gallon for the fourth quarter and full year would be $1.95 and $2.02 respectively.

For more specific details regarding our hedge positions, please refer to our investor update, which was filed with the SEC and made available on the Investor Relations section of our website prior to the start of this call.

Moving on to the balance sheet, we ended the quarter with $915 million in cash and short-term investments.

During the second quarter, we made scheduled debt and capital lease payments of $39 million.

Strengthening our balance sheet of course remains a priority and we believe we are making good progress.

This quarter, in addition to the scheduled payments, we made debt prepayments of $84 million, which will reduce interest expenses moving forward.

Given our strong liquidity position, we continue to look for opportunities to reduce our debt.

Reflecting the continuous improvement of our credit metrics over the past three years, JetBlue's unsecured credit rating was upgraded to one notch by Standard & Poor's during the quarter and two notches by Moody's in July.

In addition, on June 16, JetBlue entered an accelerated share repurchase program.

JetBlue paid $150 million and received 6.1 million shares at the start of the program with a subsequent adjustment upon the close of the transaction.

Ultimately, the total shares purchased by JetBlue will be based on the volume weighted average prices of JetBlue's common stock during the term of this repurchase program.

With respect to CapEx and fleet, JetBlue ended the quarter with 209 aircraft, including 130 A320s, 60 E190s and 19 A321s.

We purchased four A321 aircraft in the second quarter with cash and expect to take delivery of six more A321s in 2015 with two scheduled to come in the third quarter.

Again, given the strength of our cash flow from operations, the current presumption is that we will pay cash for all our remaining 2015 deliveries.

In order to support our recently announced Mint expansion plans, we have the flexibility provisions under our contract with Airbus to convert a portion of our order book in 2016 from high-density A321 configuration to the lower-density Mint configuration.

In the third quarter of 2015, we project total CapEx of $170 million with approximately $125 million related to aircraft.

For the full-year 2015, we continue to forecast non-aircraft CapEx of $150 million to $200 million.

We further expect total capital expenditures in 2015 of approximately $820 million to $870 million.

Turning to capacity, our full-year capacity guidance remains unchanged at 7% to 9%.

We believe the upper end of this range is more likely, reflecting our high completion factor and the addition of Mint service from JFK, which starts in October.

We plan to grow ASMs between 8% and 10.5% year over year in the third quarter.

Turning to the revenue outlook, we continue to see solid demand across our network.

We expect July passenger RASM growth to be between 0% and positive 1% year over year.

Although we don't provide quarterly passenger RASM guidance, I would note a late Labor Day this year will soften revenue in the last week of August relative to last year.

However, we expect September to benefit from the holiday timing.

Moving to cost outlook, in the third quarter we expect CASM excluding fuel and profit-sharing to increase between 1% and 3% year over year.

Looking at full-year 2015, we are lowering the top end of our guidance and we now expect CASM, excluding fuel and profit-sharing, to only increase between 0% and 1.5%.

That's versus our prior guidance of between 0% and 2%.

In closing, we're pleased with our second-quarter results.

Our crew members remain highly engaged and we are excited to keep delivering on our plans for 2015 and beyond.

And with that, Kayla, we are happy to take your questions.

Thank you.

(Operator Instructions)

Our first question comes from Michael Linenberg of Deutsche Bank.

Yes, hi.

Good morning, everybody.

Some quick questions here on the E190s getting, Marty, with the Wi-Fi.

When is that going to be completed?

So the first plan is actually in prototype right now, Mike.

We'll be starting full install this fall and be completed in 2016.

Okay.

And then the A320 seating densification process, when is that?

I know that starts sometime in 2016.

Is that the beginning of the year?

No, we're still on track for what we announced on Investor Day, which is second half of 2016.

Okay, great.

And then this is to Mark on, well, Marty you can address it as well, on your unit revenue trends.

When we look at July guidance and we look at where you were in June, and yet it looks like the third quarter there's an uptick in capacity, are we seeing an acceleration from June?

Or are the trends similar to June, because you are adding a bit more sets in the July, at least July/August time frame than what we had in the second quarter?

Can you give us additional thoughts, color on that?

Well, we have not yet seen competitive RASM, obviously for the rest of the industry, for July.

We've seen June and we're very happy with that performance right now.

I think the JetBlue RASM story, I think continues to be hundreds of basis points better performance than the rest of the industry.

And I think based on that strength, we are very excited about what revenue trends looked like this summer, certainly compared to the rest of the industry.

Maybe what I'm getting at, is it more demand strength or because of the implementation of the new product, the new way of pricing that's really driving it?

Or is it just too hard to parse that out?

I fundamentally agree with what I said originally, which is I think we've got great execution right now and I think it's core demand strength.

Obviously, we're 28 days into fare options.

It is very hard to look at fare options and say that's the secret sauce to create great revenue performance.

We've had this revenue performance the last seven or eight months.

Yes, okay.

Fair enough, thank you.

Appreciate it.

Our next question is from Julie Yates of Credit Suisse.

Hi, Julie.

Julie, are you there?

Can you move to the next question and re-queue Julie if she's able to join us please?

Thank you.

Our next question is from the line of Jamie Baker of JPMorgan.

Hi, guys.

Can you hear me?

We can.

Terrific.

Good morning.

Follow-up on Mike's question on densification: how should we be thinking about the financial impact?

I'm not asking for guidance per se, but obviously 10% increase in A320 flying on a flat shell count implies fairly meaningful [ex-field] CASM improvement, but also fairly stiff RASM headwinds.

Could you put some goal posts around that for us?

Sure, Jamie.

I think what I'd say is we are very excited about what densification is going to bring for us.

We think it's a very ROIC positive way to increase capacity.

I think if you were to look at the fleet guidance that we have given, especially based on our most recent fleet modification we did with our partners at Airbus, you can sort of see how we change the shape of our [floor] delivery curve, really in anticipation of that capacity coming in.

We are dedicated to the same sort of prudent capacity growth that we've followed for several years.

And I will say, based on our revenue performance, I think we're very comfortable that we've earned that right to grow.

Okay, and then just a housekeeping question.

Given the uncertainty around fare bundles in your aforementioned commentary, the split between passenger and other revenue, have you considered adjusting the monthly traffic releases to be on a TRASM basis?

Yes, I get it.

Listen, we fully recognize that we're putting you guys in a tough spot when it comes to modeling and I'll say two things.

First, is that we ourselves, again a month into this, I don't think we know yet how it's going to be settling down between PRASM and TRASM.

Second thing is I think we're certainly taking into consideration what guidance will look like in the future, but nothing to update right now.

Okay, fair enough.

Thanks a lot, everybody.

Our next question comes from Duane Pfennigwerth of Evercore ISI.

Hi.

Thanks, good morning.

Just a cost question for you.

So it looks like your capacity growth should be about 10% in the third quarter versus about 7.5% in the second quarter.

You just exceeded your cost guidance in the second quarter, so why is it that your cost growth will be higher in the third quarter versus what you just posted?

Yes.

Hi, Duane.

How you doing?

There's a lot of quarter-over-quarter shifting, frankly, from the quarters.

We're seeing some advertising expense that shifted from this quarter to the third quarter.

Things of that nature are really behind a lot of that.

So there's timing of some spend, there's also some timing of some maintenance volume, which we typically elect to bunch up in the September time frame.

And then there's some technology related expenses in that quarter as well.

But overall, we remain steadfast behind our full year cost guidance, which as you know now, is tighter than our prior guidance by half a point, so just a lot of quarter noise.

Okay.

Marty, I wonder if you could just comment on Mint.

I appreciate that commentary that it's a small percentage of your seats, but how much of the outperformance relative to the industry would you attribute to Mint?

Honestly, I'd attribute very little to it, 7/10 of a percent.

Versus what we'd expect in (inaudible) plan, I think it's de minimus.

Sure.

Not necessarily relative to your own expectations, but relative to maybe the 500 basis points of industry outperformance versus main line domestic, would you care to attribute a point to that?

It's too small to contribute.

Okay.

And as we think about fare families, the way that you've positioned these as a buyout versus getting hit with a fee, it seems like the vast majority of customers would choose to buy up.

I wonder if you could comment how much of the revenue as it's outlaying today, if you buy up to the next level, I assume all that would flow through passenger revenue.

It just feels like the majority of this is going to flow through PRASM.

I think two things.

First of all, it really is too early to tell and we've done some surveying of what we think our competitors are doing.

Obviously we've done it a little bit different way, which does create this challenge.

Second thing I'd mention is, we're still in a situation where travel agencies and OTAs are not able to sell the fare options the way we sell them on jetblue.com.

So right off the bat there's a bit of a haircut as you remove them from the mix too.

But again, I think it's way too early for us to give a prediction on that.

Okay, thank you.

Our next question comes from Savi Syth of Raymond James.

Hi, good morning.

Just a few follow-up questions here.

On the timing of the seat [project], could you remind us roughly how many aircraft you'll be able to convert a month or what the cadence of that is?

And are you currently starting to see some costs related to that ramping up?

Or is that more the first of the year as you start hiring and preparing ahead of the seat project?

Hi, Savi.

First of all, we can't give any guidance over and above what we've given already.

We haven't given ASM guidance for 2016 or 2017 yet specifically.

So I appreciate the question, but not in a position to give that guidance, first.

As far as increased costs, I haven't noticed any yet, to tell you the truth.

There's a little bit of work done on certification, but it's not a cost we've incurred yet.

That's right, it's Mark.

Just to confirm, that's absolutely the case.

Got it.

Okay, and then on the fare options, could you provide any color on since it was introduced in June, how many ticket sales it might impact in July versus August?

I'm guessing it's going to be more October when all of the ticket sales or at least a majority of the ticket sales start to get impacted?

You know we've not historically given any guidance on what our booking curve looks like and I'm not going to break that precedent right now.

Obviously, as we said, there's no impact to speak of, no measurable impact in June and every month it gets a little bit higher.

Okay.

If I can ask, on the Boston Mint then, how should we think about that regarding the differences versus New York?

I know Boston doesn't have the same high [pay] load factor as New York, but then again as you pointed out, you don't have the same level of equal products going out of Boston.

What's your thinking on the contribution in Boston versus what you're seeing in New York?

I think the most important story about Boston Mint is recognizing that the Mint product is designed at a very low fare.

Entry level fare is $599 for both these markets and there are many, many, many coach tickets sold on airlines above $599.

I think the success we've seen in New York is what gets us so excited about Boston, specifically because we're seeing the small and medium business customers, we're seeing the high-end leisure customers and we're also seeing some of the large corporates.

In a place like Boston where we actually have a much better collection of corporate accounts than we do in New York and much higher market penetration, I think all those factors are going to work very, very well for success in Boston.

All right.

Appreciate it, thank you.

Our next question is from Julie Yates of Credit Suisse.

Good morning.

Sorry about that.

I'm off mute.

I wanted to ask specifically about Orlando, since a legacy carrier called it out as an area of yield weakness.

Are you guys seeing this as well in the quarter or any indication in the forward bookings?

Not at all.

We've certainly heard the commentary by other airlines.

We're very happy with what we're seeing in Orlando.

Okay, interesting.

And then how was Even More in quarter and any change to booking behavior on Even More with fare options?

So we had a very strong quarter in Even More.

We don't generally break it out of other revenue, but I did say that when you take out LiveTV we had a nice comfortable increase in other revenue, which obviously Even More is a very big contributor to that.

With respect to impact by fare options, we've not seen any impact on Even More to speak of.

But again, we're four weeks in.

Obviously, it was important that as we added the fare options product that all of our ancillary products are important to us.

One thing we're very excited about with what we've accomplished with our new website and new website partner, is being able to say to ourselves, how can I improve the conversion of all of my ancillary products.

So it's not just Even More; it's also rental cars, it's hotels.

We think all of those products are going to get much better as the website design improves and our ability to merchandise improves.

Got it.

Okay and then lastly, I know it's early, but any color or initial thoughts around how you're thinking about 2016 capacity?

No.

Not yet.

Okay, thank you.

Our next question is from Dan McKenzie of Buckingham Research.

Hi.

Good morning, guys.

Thanks for the time here.

A quick question here on fare options.

It seems to now be replacing fare families in the commentary and I'm not sure if that's a rebranding.

But if it is, I'm wondering why the rebranding right off the bat and maybe I'm reading too much into it.

Then related to that, how much bandwidth or appetite do you have to add a more stripped down fourth band or fourth option and would you even have that flexibility to do that if you wanted to do that at some point?

Thanks, Dan.

So two things.

First, with respect to the changing of fare families to fare options, fare family's always an internal phraseology that we use.

I think we recognize that as we communicated internally, I think fare families confused some people, obviously we carry a lot of family customers.

It was just branding we didn't think would be helpful for clarity with our external customers.

We thought it would be better for our customers to understand.

Second issue, I can't comment on any future pricing actions.

The one thing I will say is that when we designed the original fare options packages, one thing that was very important to us was that the base package, the Blue fare, was still going to offer you the best product of any airline in North America.

And it's still the best product of any airline in North America.

So anything is possible, but it's something we can't really comment on.

Understood, but the IT flexibility is there; is that correct?

Oh, we have infinite IT flexibility now versus what we had six months ago.

Mark, a second question here: what's the share buyback philosophy going forward?

It continues to be, it's really a policy, not a commitment, but what we try to do is repurchase shares so that we aren't diluting the share count with respect to options and RSUs and what not granted to crew members.

So it's basically to keep the share count neutral to crew member compensation.

Very good.

Thanks for the time, guys.

Thank you very much.

Our next question is from Hunter Keay of Wolfe Research.

Hi, everybody, good morning.

Hi, Hunter.

Can you talk about the concept of the single fleet type?

I know you guys are putting Fly-Fi in the 190s, so I think that pretty much speaks volumes to how you're thinking about the role of that plane in the fleet.

But do you ever think about the cost drag from running two fleet types?

And will there be, assuming, Robin, as you take control of the Company here, for lack of a better term, will there be a willingness to evaluate the place of the E190 longer term as it relates to -- we all know the revenue and we all know the network benefits from that plane.

But purely from a cost perspective, would there be an open mindedness down the road to shift to a single A320 family fleet type?

I'll take that, Hunter.

It's Mark.

We look at everything, frankly and clearly a single fleet type is something that we've looked at for some time.

The simplicity though, in terms of the cost benefit, is probably overestimated than your question would suggest.

Because there is a lot of complexity and a lot of transition period types of costs such as unwinding flight hour agreements, not to mention some LLP issues on engines.

So the net cost is probably much less than what the question would suggest.

And then I do have to mention revenue because, particularly out of Boston, that airplane on many of the routes out of Boston, particularly the short-haul, high-frequency routes, is really the right thing that probably would not optimally be replaced by the other type of fleet that we have at the airline.

So again, just to assure you, we look constantly and analyze constantly all manner of fleet options, but it's probably not as simple as perhaps the question suggests.

Okay, Mark, thank you.

And then can you talk about the timeline when you need to make a decision on when to convert potentially those A321s to Mint configured?

I think it's probably about a six-month lead time.

Can you confirm that and also real quickly, how much of your July ASM is going to be up?

Thanks a lot.

I can't recall so, it is provision of the contract where I think it is -- I'm not sure if it's six months.

I think it's a little longer than the six-month period under the contract, but it's not so long that it makes the ability to convert prohibitive or unrealistic, so it's there.

In fact, as I think as we mentioned in our prepared remarks, that's how we're going to accommodate some of the Boston expansion, through the flexibility in the contracts.

And Marty you want to take the capacity?

Yes, I'm looking at the number here to make sure I get it right.

I'll take that offline.

I'll get back to you Hunter on the capacity in July.

Thanks Marty and Mark.

Appreciate it.

Sure.

Our next question is from Andrew Didora of Bank of America.

Hi.

Good morning, everyone.

Marty, you often talk about your six focus cities as it relates to the margin side.

Can you provide a little bit of color on how these markets performed from a revenue perspective relative to the overall stats you reported for the network this morning?

We generally don't break out the results by city anymore than we have.

I'll say that we're very happy with all six of them.

We think there's growth potential in all six of them.

I'm not sure I'm understanding the question fully, Andrew, so maybe you can give a little more--

I'm curious on how the unit revenues trended in your six focus cities relative to the directionally 1.5% PRASM increase for the overall network?

Did it outperform, underperform?

We generally don't report that by city unfortunately, sorry.

Okay.

And then, Mark, have you begun to layer in any hedges for 2016 yet or are you pretty much fully floating right now?

No, we're fully floating.

We continue to look at it of course.

The shape of the curve is sort of interesting and the hedging costs are suggest that it's probably not quite the time.

Okay, thank you.

Our next question comes from Helane Becker of Cowen.

Thanks, operator.

Hi, guys.

Thank you for the time.

On fare options, as we look forward to your traffic releases for the next three or four months, is there a way we would be able to sort out the uptake on that?

Helane, as of now, no.

We have no plans to change our current reporting or guidance structure.

Again, for the next several months it's still going to be a relatively small number.

Okay, that's great.

And then as we look ahead to opportunities for Mint, for example, you mentioned service to one of the Caribbean islands and so on and the high end leisure customer that likes that product, are there opportunities, A, for more markets where that makes sense?

And B, is there an opportunity to post the fares higher after the introductory period or some of these markets are seasonal, should think about it as always being Mint for $599?

Hi, good morning.

It's Robin.

I'll take that one.

I think we do see a lot of opportunity for future Mint markets.

We want to be very considerate and thoughtful in the rollouts because this is a very different business model for us and it creates complexity, so we're very conscious about isolating that complexity.

Also, if you look at our future order book, the high density 321 is a very important airplane for us too.

So we have to balance Mint markets versus the need for the 321, which is a very efficient and cost effective way of adding capacity into some of our Caribbean markets where we can take a 320 and turn a 321.

So yes, we have a lot of interest in Mint.

The markets of the Caribbean, those are quite an opportunity to take an airplane out of a trans-con turn at a traditionally weaker time of year and fly a turn into the Caribbean.

So again, that's something we can continue to do more of if we see good successes.

In terms of your final comment on the fare, there have been a number of -- a couple of price increases have gone in now with Mint.

So we have seen average fares come up and we can also control that through inventory.

But we also think it's an important part of the wow of the product, if you like, to have this amazing lead-in price of $599.

And so I think that's is something that you'll see as something that we continue to be very excited about.

Okay, can you say what the average Mint fare is?

No, we don't break that out Helane.

Well I thought I'd try.

As you know.

You can't blame a person for trying.

Thanks very much.

Thank you.

Our next question comes from Joseph DeNardi of Stifel Nicolaus.

Good morning.

On the operational performance metric that you guys provided and the improvement you're seeing there in terms of on-time departures, can you quantify what benefit that has to the cost structure in the quarter?

Or is that mainly a passenger satisfaction benefit?

It's Mark.

I can't quantify, but I will tell you it is palpable.

Particularly as we look at, and a lot of energy here, particularly in New York the operating metrics and credit to the team, we're seeing a completion factor, we're seeing all of the metrics that were outlined by Robin.

And we also are pretty fanatical about fleet launch and it truly, truly is one of the underlying good guys behind our ability to tighten our cost guidance.

So it truly is there, but I think we would all love to be able to quantify what D0 equals in terms of CASM, but it truly is there.

Okay, thank you.

And then on the interest expense reduction that you're expecting from the debt pay-down, can you quantify that for the year and maybe talk about what opportunities there are for further pay-downs that aren't too expensive to retire?

Sure.

I would point out that in today's press release we noted that interest expense was down quarter over quarter $7 million as a result of reduction in debt.

We continue to look at other opportunities to pay down debt.

We are mindful of the fact that a lot of fixed debt may have break implications.

Our Treasury team has successfully been able to work with lenders and we're basically prepaying debt close to par, so we're minimizing the impact of those prepayment issues.

So in that light, prepayment opportunities abound.

The $84 million that we prepaid this past quarter reflected the prepayment of special facility bonds of securing a hanger as well as a number of aircraft.

Okay.

Thanks, Mark.

Thank you.

Our next question is from Tom Kim of Goldman Sachs.

Good morning and thanks for the time here.

I'm curious if you can provide a little bit of color around some of the underlying drivers behind the PRASM growth deceleration you saw in the second quarter?

You know, I don't think we can give a lot more guidance than what we have given so far.

One thing I'll say that I may not have stressed enough earlier, is that a big chunk of this benefit has come from a lot of the network investments we've made over the last several years, specifically Latin America.

If you go back 12 months to this call, 12 months ago we would have been talking about challenges in Latin America with the capacity that JetBlue and other carriers have added.

I think we've annualized that and some of the capacity's come out from some of our competitors and we've got extremely strong unit revenue performance in Latin America.

So we're very excited about that and as I said earlier about domestic, domestic is really spread across the whole system.

I don't think we see any unusual pockets of strength or weakness domestically.

Tom, it's Robin.

I'd like to add a couple more thoughts on that.

First of all, I think when we talk about the acceleration within a quarter, I think we have to be a little bit careful about looking at monthly traffic numbers because there's often a bit of noise.

And you have to look back at the comps and how did our May and June last year compare to May and June this year.

I know some carriers are moving away from monthly traffic because the focus really is on the trend over a bigger period.

I think back to Marty's point, if you look at the A for A comparative data through the first six months of the year, you actually continue to see very strong performance if not a strengthening of that performance relative to others.

So I would just caution a little bit about just looking at sort of the May and June data and look at the longer trend.

Okay, fair enough.

I actually was suggesting, referring more specifically to the deceleration that we had seen in May and June.

And obviously you had a tough comp last year, so I'm just wondering if that's all it really was, just a tough comp?

Look, I think look at the trend and as Marty said earlier, we continue to see strong demand across all six of our focus city markets.

Okay.

One of the areas that we've been [pleasantly] surprised by was some of the cost performance.

Q2 was very good and obviously some puts and takes around the third quarter, but you have brought down the full-year cost guide by about half a point at the upper end of the range.

I'm just wondering if you can give us a little bit of color around what's driving that?

It's frankly, just really good discipline across the system in the near term.

Again, operational metrics are very, very impactful and credit to the crew members.

I wish I could quantify exactly how much that is as Joe asked for.

Then we're seeing really good cost behavior, really across the board.

I think, Tom, if I may, it's Robin.

As we said at our Investor Day, as a Company, we know how important strong ex-fuel CASM cost control is to our ability to continue to grow our model and so it's something that we remain extremely focused on.

We don't have time here to go into all of the things that we're doing, but there's a lot of focus on the operational side, how we review expenditure, some of the programs we've got and some of the larger expense areas to drive more efficiency.

And then frankly, as Mark pointed out, just running a more on-time operation, completing more flights has an inherent efficiency that also bubbles up into the number.

Okay, yes.

Thanks for the color.

Appreciate that.

We have one more question from Rajeev Lalwani of Morgan Stanley.

Hi, thanks for taking my question.

Just a high-level one on the Trans-con market, there's been a fair amount of changes from yourselves and some other carriers.

I was wondering if you can bring all that together and talk about if the environment on that side is improving, getting more or less competitive, your thoughts there would be great.

Hi, thanks, Rajeev.

The trans-con market has been strong for us.

I think obviously Mint is an important contributor to that, but it is by no means the most important contributor.

And we're seeing the strength in almost all of our JFK trans-con markets, not just LA and San Francisco, also seeing strength in Boston.

We've had markets, some are Fort Lauderdale trans-con markets which have been breakeven for awhile and now slightly profitable.

I think we're really seeing the trans-con improving across the board and we're very happy with trends we're seeing.

I think it's one of the reasons we're so excited about adding Boston next year.

Okay, great and then last question, on Latin America, it seem like a fair amount of the other carriers have been stepping up their investments and partnerships and co-chairings and things like that.

I'm wondering how that may impact you from a competitive standpoint, if at all.

Honestly, we're very happy with our growth potential in Latin America.

We do have a couple of strong partnerships in the Caribbean.

We're always looking for more partnerships, so I would certainly not say we're against partnerships down there.

I think there's certainly opportunities, but we're fundamentally focused on our own growth.

We see an awful lot of runway ahead of us for additional opportunities in Latin America.

We've obviously added a couple of markets, Antigua, Grenada we've launched recently.

But I think what's more exciting for us is a there are a lot of markets we're not flying from multiple focus cities and we have a trend that we followed historically with JetBlue.

We'll start something out of New York, maybe out of Boston, maybe out of Fort Lauderdale, maybe out of Orlando.

I think that trend has worked extremely well for us and I think for that reason, we see a lot of upside for our own growth down there.

I do want to build on that because I think something that we've gone on the record as saying is that we do have some concerns about some of the joint ventures that are appearing in some of these markets.

We do believe that has the ability to inhibit competition longer-term and we've certainly called for, as joint ventures are reviewed and as new joint ventures are created, taking best practice in other jurisdictions, whether a period of time for that approval at which point at the end of that the consumer benefits, the customer benefits, that we're committed to at the beginning can be reviewed.

And if they are there, then the joint ventures can continue and if they can't, that should be subject to review.

So we do remain concerned about that, but as Marty said, in terms of as we look specifically at Latin America, we still see a number of growth opportunities.

But when we look at Mexico City and how hard it was to get slots there, getting really tough slots at an airport where you have a very few number of slots in the hand of a very few number of carriers, we are concerned about that and that's something we continue to dialogue on.

Great.

Thank you, gentlemen.

Thank you.

All right, everybody, that concludes our second-quarter 2015 conference call.

Thanks for joining us.

Have a great day and see you next quarter.

And again, that will conclude today's conference.

Thank you all for your participation.