JetBlue Airways Corp (JBLU) 2017 Q1 法說會逐字稿

Good morning.

My name is Hillary, I would like to welcome everyone to the JetBlue Airways First Quarter 2017 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, David Fintzen.

Please go ahead.

Thanks, Hillary.

Good morning, everyone.

Thanks for joining us for our first quarter 2017 earnings call.

This morning, we issued our earnings release, our investor update and a presentation that we will reference during this call.

All of those documents are available on our website at investor.jetblue.com and have been filed with the SEC.

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

George, EVP, Commercial and Planning; and Steve Priest, our EVP, Chief Financial Officer.

This morning's call includes forward-looking statements about future events.

Actual results may differ materially from those expressed in 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 forward-looking statements, please refer to our press release, 10-K and other reports filed with the SEC.

Also during the course of our call, we may discuss several non-GAAP financial measures.

For a reconciliation of these non-GAAP measures to GAAP measures, please refer to the tables at the end of our earnings release, a copy of which is available on our website.

And now, I'd like to turn the call over to Robin Hayes, JetBlue's President and CEO.

Thanks, David.

Good morning, and thanks everyone for joining us.

I'd like to start by thanking our more than 20,000 crew members for their dedication to building a great company for our customers and, of course, our owners.

Our outstanding crew members helped power our brand and drive customer choice.

Thanks to their hard work, our culture and values, JetBlue was ranked best airline in North America and fourth globally by TripAdvisor in their 2017 Travellers’ Choice Awards.

I'd also like to welcome Steve Priest, our new CFO, to his first earnings call.

Right, I'm now going to start on Slide 4 of our earnings presentation.

During the first quarter, we reported operating income of $147 million, pretax margin at 7.9% and an earnings per share of $0.25.

Our first quarter financial performance was negatively impacted by off-peak demand that was below our expectations as well as the timing of Easter.

We took quick action to address the near-term revenue challenges, and we are seeing the benefits in our sequential RASM improvement.

Let me put the first quarter in context.

Improving our margins and earning the right to grow has been and remains my priority.

We're committing to our goal of achieving above-average industry pretax margins and we recognize that path to creating shareholder value is ultimately to sustain superior margins.

We are encouraged by a relative performance in 2016, but we still have significant margin opportunities in front of us.

We're making meaningful changes to our company and we will leave no stone unturned.

We're particularly excited about the work we're doing on costs.

I've asked Steve to lead a fleet review and he'll update you in a moment with our initial decisions made on our order book to report our margin commitment.

We're confident that we're on the right track to achieve our longer-term goal of producing the superior margins that the market expects from a low-cost airline as we grow our network.

Okay, I'm going to move on to Slide 5 now.

We took quick actions to moderate our 2017 capacity growth and accelerated a series of revenue initiatives to address the first quarter revenue challenges.

As a result, we've seen sequential improvement in our monthly RASM performance.

We're confident that our actions are working and our RASM guidance, which Marty would detail in a moment, demonstrates our significant progress.

Marty will also provide some details on our new quarterly guidance cadence as we would tie up monthly RASM.

In the first quarter, we continued our strategy of disciplined targeted growth.

Boston remains a key point of strength for us and demonstrates that market relevance is an absolutely critical part of achieving superior margins.

Mint continues to be a RASM and margin builder and demonstrates the returns we can achieve with a best-in-class product and a low cost structure.

Fort Lauderdale remains a focus for our growth and a market that we believe fits our unique model exceptionally well.

We've been particularly encouraged by increasing RASM premiums based on public DOT data.

As I said before, we've established 2 priorities for 2017.

The first is our structural cost initiative and we have turned the corner from planning to execution.

This quarter, we announced the appointment of Steve Priest as our new CFO.

As you heard at our Investor Day, Steve is the architect of our cost-savings efforts, and his appointment demonstrates our commitment to improving our unit costs.

Steve brings nearly 20 years’ worth of airline expertise, including significant experience implementing successful cost programs.

He has my full support and that of the team, and we will look in every corner for opportunities to optimize and expand margins.

He'll share more perspective and specifics on our initiatives shortly.

Our second priority for 2017, is improving our on-time performance.

We've made a number of changes in our operation in a short period and we're already seeing improvements in performance metrics.

Thanks again to our crew members for their work in helping develop and quickly implement these changes in our operation.

We already have a lot of work underway at JetBlue to build an even stronger company.

Again, I want to emphasize that we're committed to sustaining above-average industry pretax margins and continuing to improve our returns as we grow our network in a disciplined targeted fashion.

We truly believe this is the best path forward to increasing shareholder value.

With that, I'll turn the call over to Marty to cover the network and revenue environment.

Thanks, Robin.

Good morning, everybody, and thanks for joining us.

I'm going to start on Slide 7. During the first quarter, we continued to balance our disciplined growth with our margin commitments in keeping with our strategy to enhance shareholder value.

As Robin noted, through the first quarter, we acted quickly to the improve RASM performance.

Our revenue initiatives took effect beginning in February and our capacity adjustments began to take effect in April.

We're pleased with the strong sequential improvement we're seeing in the second quarter outlook and are taking even further steps to continue improving RASM.

Some of the capacity actions we took earlier in the year, include reducing redeye flying and off-peak flying to better match supply and demand in off-peak periods.

These adjustments address the softer RASM performance we see in off-peak versus peak periods.

We've also made network adjustments to optimize selected markets.

Examples include Cuba and San Juan where we've seen isolated demand weakness.

Overall, we're pleased with the results we're seeing in forward bookings.

Regarding Cuba, an important part of our Caribbean plan, we've optimized and tailored our capacity and our revenue strategy to this unique market with a focus on our service to Havana.

In San Juan, the capacity adjustments that began last year have improved RASM performance meaningfully.

For the second quarter, we plan to increase capacity between 4% and 6%.

Our full year capacity guidance is unchanged at 5.5% to 7.5%.

Our growth remains targeted on margin accretive network opportunities.

In the last 5 years, approximately 97% of our growth has been in our 6 focus cities, and 92% has been in New York, Boston and Fort Lauderdale.

While 1 or 2 routes can capture the attention of the market, more than half of our 15 new markets this summer touch Fort Lauderdale.

Moving to Slide 8 and the network.

Starting in Boston, we continue to see the benefits of our growing relevance in our margins.

Our service to LaGuardia from Boston is exceeding our expectations.

We've also added Atlanta as our 63rd nonstop destination from Boston during March and we're thrilled with the market response.

Our mid-markets continue to be RASM and margin builders, and we believe the value of this cabin is the result of the outstanding service delivered by our in-flight crew members.

Even our most established Mint market outperformed system RASM in first quarter.

RASM increased over 10% in March and 6% in the first quarter for the 2 New York markets.

In March, we expanded Mint service to Fort Lauderdale with nonstop service to Los Angeles.

This fifth group is developing comparably to our experience in Boston.

Nonstop Mint service between Fort Lauderdale and San Francisco is out for sale and we are encouraged by the early bookings.

In the second half of the year, we plan to convert 3 additional routes to Mint, starting service from New York to San Diego and Las Vegas and from Boston to San Diego.

By year-end, we are scheduled to have 31 Mint aircraft on 9-weekday markets.

Turning to Fort Lauderdale, we've been pleased with the market development as we build our relevance in South Florida.

By this summer, we anticipate flying to 55 nonstop destinations as we grow both the breadth and depth of our service.

We expect to continue to produce a significant RASM advantage to our competitors.

As we build relevance, we believe that Fort Lauderdale will follow a broadly similar margin trajectory as we saw in Boston a few years ago.

We fully expect to produce margins comparable to our overall network, when our Fort Lauderdale growth has matured.

In New York City, we made some tactical adjustments in Newark that take effect this summer.

Overall, our margin performance in the New York area remains strong, particularly in Mint and our broader transcon flying.

We expect those trends to continue.

Within New York, New York to Florida RASM growth was less than 0.5 point of headwind to RASM in the first quarter and expected to be less of a headwind in the second quarter due to the capacity adjustments we made.

Turning to Slide 9 and the revenue outlook.

RASM declined 4.8% for the first quarter.

Adjusted for calendar impacts, we estimate first quarter RASM to decline approximately 1.2%.

The timing of Easter negatively impacted the first quarter by 2.3 points.

January calendar negatively impacted the quarter by approximately 1 point.

Weather events and a higher completion factor were a small net headwind to the first quarter.

As we disclosed in our March traffic release, we're moving to quarterly RASM guidance.

We will discontinue reporting monthly RASM results.

We plan to update our quarterly guidance with each traffic release and narrow our initial 3 point guidance range as we progress through the quarter.

In February, we implemented revenue management actions focused on increasing yield through both inventory and pricing.

Last week, we increased close-in fares system-wide and raised our fare structure in select markets, including Boston and LaGuardia.

We also raised select Mint fares for the 10th time, demonstrating the overwhelming success of our product.

As our Mint product has matured, we're finding ways to better segment business in high and leisure demand, that is resulting in a better mix of fares.

As our Mint routes expand, we're optimizing our fare mix for each individual route.

I'll conclude with the RASM outlook.

For the second quarter, we expect further sequential RASM improvement on both a reported and adjusted basis.

We expect second quarter RASM to increase between 3% and 6% year-over-year.

To be transparent, that's assuming a 99% completion factor.

To give some additional detail to help modeling, we expect April RASM will increase in the double-digit percentage of approximately 11%.

This outlook includes a 7-point benefit from Easter timing.

Beyond April, we expect positive RASM for the balance of the second quarter.

Finally, I want to echo Robin in thanking our outstanding crew members for their hard work.

And now, I'll turn the call over to Steve.

Thank you, Marty and Robin.

Good morning, everyone, and thanks for joining us.

I'm honored to have been appointed CFO.

We have an outstanding foundation at JetBlue and I'm thrilled to be working with our crew members to realize the immense opportunities we have in front of us.

We're all very aware of our shareholders' expectations, and part of my job is translating the efforts of our crew members into value for you, our owners.

I greatly appreciated the open dialogue in my first months in the role and you can be sure this direct engagement will continue.

I firmly believe we have enormous potential to drive shareholder value over the coming years, increasing our margins and return invested capital as we execute our growth.

I'll start on Slide 11 of the presentation with some highlights of the first quarter.

Our operating income was $147 million, down 58% year-over-year and our net income for the quarter was $85 million.

Pretax margin was 7.9%, down year-over-year by 12.1%.

There was no profit sharing accrued in the quarter and EPS was $0.25 per basic and diluted share.

Net income was positively impacted by a lower effective tax rate.

We now expect a 38% effective tax rate for the full year.

The margin decline during the first quarter was driven by a combination of the RASM dynamics discussed by Marty, the impact from Easter falling into the first quarter last year, higher fuel prices and maintenance and labor cost pressures we've outlined in past calls.

Moving on to Slide 12.

Driving costs out of our system is a critical element of our strategy and our ability to deliver on our margin commitments.

In the near term, we faced some unit cost headwinds.

For the first quarter, year-over-year ex-fuel -- year-over-year unit cost ex-fuel increased 3.3% versus our guidance of 3% to 5% growth.

Year-over-year growth is mainly driven by a decline in stage length of approximately 2.5%.

We continue to see the impact of older aircraft as well as escalation in our maintenance contracts, with unit maintenance cost of 8.7% year-over-year.

We were able to keep CASM ex-fuel growth in the lower half of our guidance range despite two winter events.

For the second quarter, we expect CASM ex-fuel growth to increase and reach a peak for the year between 4.5% and 6.5%.

We expect the growth rate to moderate in the second half of 2017.

Maintenance costs are expected to increase at a faster rate in the first quarter, which reflects the timing of heavy maintenance checks.

Stage length continues to impact our CASM ex-fuel trends, but will begin to moderate by the fourth quarter.

I'd like to emphasize that our 2017 cost outlook is unchanged.

We remain confident in our CASM ex-fuel guidance of between 1.5% and 3.5% growth.

We expect unit cost pressures to moderate as you move into the second half of 2017.

Moving on to Slide 13.

My #1 business product is our cost structure.

We can only grow in a value accretive way by fully executing on the structural cost initiatives.

During the past year, I've been leading cost functional team and we're already working on the first $100 million of our $250 million to $300 million cost savings in the total plan.

We continue to expect 2020 to be the full run rate year with full savings in place by the end of 2019.

2017 is a critical year for our cost program.

Whilst we expect to realize only a small benefit, we are laying the foundation for future savings.

The team is hard at work, renegotiating on putting [ IROPs ] on over 20 significant contracts.

The focus currently is on maintenance, commercial and IT-related contracts.

One specific area I would like to highlight is the progress we've made in airports.

We've brought a self-service technology to 6 airports and expect to have 12 airports completed by year-end.

We expect to provide a detailed update on our structured cost initiatives in the second and fourth quarter earnings calls for each year of the program.

In addition, our cost efforts go beyond our structured initiatives.

We launched an on-time performance effort late last year and we're working to further improve the customer experience even as we reduce the cost of irregular operations.

We'll launch our cabin restarting efforts on our A320s this summer, and of course, we've already completed the restarting of the A321 fleet last year.

For the 3-year period, 2018 to 2020, we're aiming for CASM ex-fuel target between flat to 1%.

Again, we fully understand that the success of our efforts to control cost is a key to accretive growth for our shareholders.

Moving on to Slide 14.

We ended the first quarter with 230 aircraft, including 103 unencumbered aircraft.

During this period, we purchased 2 aircraft as operating leases and also purchased an additional aircraft out of operating lease in early April.

We expect these 3 deals to produce $1 million in aircraft rent savings annually.

Since 2015, we've purchased off-leased 18 aircraft for $325 million.

This is an incredibly highly accretive use of our strong balance sheet.

As part of our margin and return commitments, Robin has asked me to lead a detailed review of our current and future fleets.

We are still in initial stages, but have made enough progress to begin making some changes to our order book.

To be clear, the lens we're using for fleet decisions is maximizing our returns, ensuring the most efficient use of invested capital.

Fleet, as we all know, is the majority of any airline's invested capital base.

As we look to the fleet, we're not looking at CASM and RASM in isolation, they're working hand-in-hand with our commercial team to ensure we have a fleet that fits our network strategy and produces the best possible returns for our owners.

As I mentioned, our work has progressed to a point, where we are deferring 13 aircraft in 2019 and 2020.

Specifically, we are deferring 8 aircraft from 2019 to 2023, and 5 aircraft in 2020 to 2024.

We retain flexibility to make further changes in our order book.

Additionally, we've worked with Airbus to swap 2018 neo deliveries, the 11 aircraft on order for 2018 are now all 321ceos.

The second part of our fleet review is taking a hard look at the future of the A190 in our fleet.

We believe the timing is ideal.

Our 30 aircraft on lease begin to expire starting in 2023, and we need to decide on the 24 Embraer aircraft we currently have on order.

The delivery dates from these aircraft were deferred in 2014.

It is no secret that the A190 is a higher CASM aircraft.

We estimate that our A190 CASM is roughly 20% higher than our A320s on a stage length adjusted basis.

However, the A190 is also a significantly higher RASM aircraft and supports some of our highest margin business market where customers value higher frequency.

For example, the A190 has been a vital tool in developing our Boston focused city in particular and that will factor into our fleet work as well.

Moving on to Slide 15.

We ended the first quarter with an adjusted debt-to-cap ratio of 34%, well within our target range of 30% to 40% over the cycle.

We are extremely comfortable with this range.

In early April, we amended and extended our revolver facility, increasing the total size to $425 million.

We improved the covenants and lowered the cost of JetBlue.

My predecessors made phenomenal strides with our balance sheet and that supports our maturing approach to capital allocation.

In the first quarter, we announced $100 million of accelerated share repurchase adding to the $120 million completed in the fourth quarter of 2016.

This leaves us with $280 million left on our authorization through 2019.

We intend to launch $150 million accelerated share repurchase this quarter, which will expect to complete by the end of July.

We have flexibility to be opportunistic to accelerate our share repurchase as long as the current fuel and revenue environment continue.

We expect our CapEx spend for 2017 to remain between $1.2 billion and $1.4 billion.

As we move through the year, we intent to use a mix of cash and debt to fund aircraft purchases.

With the aircraft deferrals, we now expect our medium-term CapEx to average $1.1 billion versus the prior guidance of $1.3 billion.

Our CapEx plans are highly correlated to our fleet review and the decisions we've made so far are accretive to our business.

Capital allocation is a major lever of driving shareholder value.

Our aircraft investments remain focused on a highly return accretive A321 aircraft.

We are pleased with our use of cash and we feel confident in our ability to execute high to single -- mid- to high-single-digit growth and return capital to our shareholders.

Moving on to the final slide, Slide 16.

Before I conclude, I want to thank our crew members for all of their hard work and dedication.

We have a really terrific team here at JetBlue.

In my new role, I will be focused on leading efforts to enhance margin and drive superior returns.

Achieving the benefits of scale in our unit cost growth is absolutely vital.

We are committed to above industry average margins with the ultimate goal of achieving returns comparable to our low-cost peers.

Structured cost and revenue initiatives.

Our fleet review and disciplined growth are just some of the levers we are pulling to ensure that we are -- that we create shareholder value.

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

Thanks, everyone.

Hillary, we're now ready for the question-and-answer session with the analysts.

Please go ahead with the instructions.

(Operator Instructions) Our first question comes from Mike Linenberg with Deutsche Bank.

Quick question here, and this is -- I don't know if it's for Marty or Robin.

Just with all the headlines with respect to the involuntary denied boardings, I know that historically, JetBlue, you have a policy of not overbooking, although if I guess, if you look at your numbers over the last year or so, they've crept up and I suspect something structural going on.

Can you just talk about why those numbers are so high despite no overbook?

And are there changes to bring that -- are we going to see that number come down?

It's Robin.

I'll take that.

Yes, the -- we don't oversell sell our flights.

The numbers that you're looking at actually relate to when we have a mechanical down gauge of a larger airplane into a smaller airplane.

Our old process was to sort of route covenants over onto the smaller airplane and then the rest would count in those numbers.

We're actually changing the way we do that going forward, because in most cases, we're making those changes more than 12 hours before departure.

And so it's not something that sort of customers have experienced so much at the airport.

And we're committed to our policy of not overselling flights.

And our crew members have always been empowered to make decisions in the rare cases, where we have to put someone on flight to offer compensation to customers not -- in a voluntary manner.

Okay, great.

And then just my second question, it was -- I thought it was somewhat interesting that you're swapping from neos to ceos in 2018.

Can you just talk about the rationale behind that decision?

And I apologize, I should know this, but are your neos, are they coming with the GTF?

Or they with CFM engine?

Thanks, Mike.

I'll get Steve to take that.

Hi, Mike, thanks for the question.

Yes, just to clarify, the early neos that we're bringing into the fleet will have the Pratt GTF engine.

I mean, you've obviously heard a lot about the GTF in the marketplace, Pratt are confidently resolving issues with the GTF, and they are a great partner of JetBlue's.

We just felt that swapping the neos for ceos between 2018 and 2019 was -- is prudent, good contingency planning for us.

So that's the approach that we've taken.

And then there's obviously a CapEx benefit from that, because with ceo, obviously, the acquisition costs are significantly lower, right?

Is that the right way to look at it?

Indeed, there's a cap to good going, and as you're aware, I mean, we announced this morning this is part of a wider fleet review and why we took the opportunity to defer 13 additional aircraft out of 2019 and 2020.

So that activity as well has really helped our capital allocation process.

Our next question comes from Jamie Baker with JPMorgan.

First question, I suppose either Robin or Steve, you cited $100 million of savings as "work-in progress," you mentioned looking in every corner for margin upside.

I know it's a sensitive topic.

But should we assume that headcount is an area that you're willing to at least examine, where under -- I would say, whereas under the previous administration, I didn't considerate it to be on the table.

No.

Thanks, Jamie.

Look -- by the way, before I start, should I be wishing you a very happy birthday today?

It's a birthday certainly for your shareholders today, that's what matters.

Oh, that's very good to hear.

Look, we're very committed to leaving no stone unturned.

In fact, 2 to 3 years ago, we went to a very significant organizational review here, which resulted in about a 10% reduction in leadership headcount as part of the structural cost program.

We're looking at how we can be more efficient.

And absolutely, we need to look at everything, we're very flexible, and we'll continue to be very flexible in terms of leaving no stone unturned.

Appreciate that.

And second for Steve, I had a little bit of a hard time, it must be my age, in understanding the EMBRAER 190 commentary.

You cite the CASM drag, but also the RASM benefit.

We get that, the fact they operate on some uniquely high-margin routes.

If we were to think of the entirety of the 190 fleet on a margin basis, how much of a drag do you consider that fleet type to be?

And I'm asking because if there is a gradual solution that you can achieve in this size aircraft, it would help to understand how accretive that could be longer-term.

Thank you, Jamie.

As you know, we're sort of looking long and hard at the whole current and future fleet and today's announcement is just a part of that, and E190 is just one key element of that review.

We have 60 E190s in the fleet.

I'd like to reiterate that the success we've had in Boston and the high-margins that we generated at Boston, that E190 is a critical part of that.

As I mentioned, it is a higher CASM aircraft, but we do drive higher RASM benefits over the size of it.

In terms of total fleet, that's one of the key things that's on the table, you can go from everything from pulling out the fleet in its entirely or leaving all the 60 into the fleet.

We won't get into any specific perspectives on the margins associated with that aircraft.

But needless to say, it's a big part of the review, reiterating the fact that there are covenant challenges with the aircraft, but it does a good benefit to JetBlue in some of our markets as we fly them today.

Our next question comes from Duane Pfennigwerth with Evercore ISI.

This is actually Ray Wong, on for Duane.

In regards to the E190s, when could we expect a decision on that longer-term future?

I'll take that one, I'm joining.

Good morning, Steve here.

We won't be coming out with any specific dates on this.

It will be sort of later this year.

Whilst we're treating this with a real sense of urgency, it's my job to make sure that we do real due diligence around this.

This is not a decision that we would jump to very, very quickly.

I want to make sure that myself and the team, particularly in partnership with our network colleagues, do a very, very thorough job on this.

I was delighted again to announce the deferrals this morning, because capital allocation and driving shareholder returns is absolutely critical to me.

And the E190 is a just part of that.

I'd just like to finally assure you that when we do have anything to announce then we will certainly be out there with that.

But the review is going to take a little bit of time and we'll continue to update you guys as we continue to progress.

Understood.

And so in regards to those aircraft deferrals, how does that impact your decision for potential transatlantic flying?

And how do recent competitive trends kind of factor into that?

We -- again, I'll take that one.

It's Steve here.

Despite the deferrals that we've announced this morning, we still have some optionality with Airbus in terms of converting the neos to the LRs, and we still have that in our gift.

Now any decision on the LR will be made on a margin basis.

So if JetBlue in partnership with Airbus look at the capabilities of the aircraft and we come to a view that we can drive more accretive margins by flying across the Atlantic versus flying, if you'd like, West Transcon, then that would a decision that we could consider.

If the margins of the LR are not comparable to a domestic neo, then we wouldn't consider it.

So we're going through the due diligence at the moment.

We continue to have flexibility with this.

And indeed if it turns out that it's a higher-margin use of capital, then we will take the investments accordingly.

And if it's not, then we won't.

Our next question comes from Kevin Crissey with Citigroup.

Steve, welcome to the circus.

So I have more questions than usual, so I'll probably ask a couple and then jump back in the queue.

First, I guess, question would be is, I'm a little confused on the fleet.

If I step back and look at the Investor Day from 2016, there was a deferral of 18 aircraft and then shortly thereafter, there was the reacceleration of basically replacing those aircraft.

And now there is another deferral and part of another fleet review.

I combined that with reducing redeyes and off-peak days and months, which was something that was actually added during that time frame.

And I'm kind of confused as to the strategy and the structure.

So maybe you could talk to the way you think about things.

I know, Steve, you're new to that current position, so basically give me comfort that we're not going to see a reversal -- of these reversals as we look forward.

Yes.

Thanks, Kevin.

Well, let me start with your last comment.

The answer to that is no.

You won't be seeing any reversals.

Look, I'll make a couple of comments and I'll hand over to Steve because it's a really good question.

We are absolutely focused on these margin commitments because that is how we drive shareholder value.

Ever since I've been in JetBlue, we have always been successful with our partners at Airbus in creating a flexible order book, so that we can react to events.

If you recall, the order we made last year was very important in bringing in additional Mint airplanes into the fleet this year and into next year, and that has been a real margin driver for us.

But we also left ourselves some flexibility in the out-years and that is what we have negotiated today.

The thing that isn't negotiable, are these margin commitments, but we won't be driven by the order book.

Steve, do you want to give any additional insight on how you're thinking about the current review?

The only thing I'd say, I mean, I anticipate that the question is really about the overall fleet review, but I just want to emphasize on the call that we've taken a thorough look at our invested capital base, and you know today was all part of that and making sure that we're not just thinking about the immediacy around 2017 and '18, but thinking about our order book over the medium term, I'm making sure with the right sorts of capital allocation and these fleet deferrals that we're thinking about that very seriously.

So that's the only additional color, Robin, that I would add to the question.

If I could have a follow-up.

As you look at the 190, and its value in the network and you've highlighted that, can we rule out a replacement aircraft for the 190, or is this -- what I'm asking is this strictly reduction of the 190?

Or could there be a replacement for the 190?

And then, I'll get over in the queue.

Kevin, I'll pick this one up again.

As I've just reiterated, everything is on the table.

We are having a thorough review of the E190.

We took a look at the order book on the Airbus side of things.

We continue to have conversations and engagement with all of the manufacturers.

So my job, as CFO, is to make sure that we have the right capital base and we make sure that we bring the right return to shareholders, and the whole fleet review is pivotal for that.

So I'm not ruling anything out for the moment.

Our next question comes from Hunter Keay with Wolfe Research.

So the deferral again.

At the Analyst Day, you talked about high single digit capacity growth rate CAGR to achieve the CASM target.

So with the deferral, should we be thinking about that capacity growth rate as maybe now mid- to high single digit capacity growth?

And I can surmise by the slides where you said, even if that is the case, it's fair to assume that, that does not put the CASM target at risk.

Is that clear -- Is that fair?

Steve here.

I'll pick that up.

First of all, as we've continued to guide our capacity over the medium-term over the range we've talked about is mid- to single high-digit, don't forget, during this period, we also have the restarting -- covenant restarting effort taking place as we go through that, which is incredibly accretive for our business as we continue to add a percentage of capacity on to our 320 fleet.

Your question pertaining to CASM, despite the reduction of the $1.3 billion to the $1.1 billion CapEx guide, despite the change in the ASM (inaudible) with the deferrals, our CASM guide remains as is at 0 to 1% during that period.

So we're absolutely committed to the cost-saving initiatives that we put forward and our CASM guide remains.

Okay.

I'm sorry, Steve, I -- just want to be completely clear, are you still saying high single digit capacity CAGR through the end of the decade?

Mid- to high single digit.

Okay.

Mid-to-high.

Just want to make sure.

Great.

And then, in terms of the -- another E190 question, thanks for -- maybe this question is like 2 years too early, but if you're considering Transatlantic at some point down the road and Boston is such a success market for you with that plan, would you need some smaller gauge aircraft, I mean, to feed Boston?

I mean, again, maybe I'm -- tell me if I'm too early in this question, but would you have to have some sort of feeder aircraft if you were to consider flying across the Transatlantic in the 321LR?

Frankly that's just too early to say.

We're -- we've kicked off the fleet review.

We've deferred some of the Airbus fleet.

We're looking at E190s.

You're ahead of the game.

We're continuing to focus on that.

And I wanted to reiterate, as I said earlier, we've not made a decision on the LR.

The LR is purely something we would do if the margins of that aircraft would be superior to the margins that we got on the existing neo fleet.

So it's just too presumptuous and too early at this stage.

Our next question comes from Brandon Oglenski with Barclays.

So Robin, the high-level, and forgive me if you guys already announced this, but it sounds like the ARS, the $150 million that I think Steve talked about is incremental here, and you guys are moving to quarterly guidance from monthly.

I mean, it just seems like all a bit more mature message than we heard last quarter.

I guess, is that transit of signal to your shareholders and the fact that your stock is at the lower valuation here in the group that there is a lot of confidence the strategy is going to work and you want to put some cash flow behind that?

Yes, thanks for the question, Brandon.

I'll take that.

We're absolutely committed to continue to improve -- the continuous improvement from the Q1 results.

We're absolutely committed to drive margin and drive shareholder value.

That is -- the commitment to above-industry margins.

I mean, I really see that as a floor.

I think that we have to be delivering the superior margins that the market expects from low-cost carriers, and so this is all part of our plan to get there.

I think we responded very quickly to the Q1 revenue performance.

I think having Steve in the seat as CFO, I've been very pleased with how quickly he has acted on many fronts.

Let's not forget, he was in the company for over a year preparing the structural cost program.

So from him then moving to the CFO and now being responsible for executing that, gives me a great deal of confidence that when I think about revenue, when I think about unit costs, when I think about making sure that our growth is accretive, and we're driving value to shareholders through a capital returns plan, I think it's my job to make sure all of those things are coming, and we are behaving -- and we're acting with a high level of urgency to get it done.

And that's what we're going to continue to do.

Well, I appreciate the response, Robin.

And I guess on the back of that, Marty, what are the risks here, because there's a lot of competitive growth in South Florida.

I know you guys are focused there this year, too.

I mean, do you have confidence that you're going to continue the positive revenue momentum despite the fact that there's a lot of focus on the markets where you guys are?

Brandon, thank you.

Frankly, based on the demand trends we're seeing right now, we're very confident in the guidance that we've given out so far.

And secondarily, back to the comments you made about South Florida, other than New York, where we have taken specific actions in the New York market, our South Florida RASMs are doing very well versus systems.

So we are absolutely convinced that we're well in the path towards making all the improvements that we've talked about to continue to improve our margins.

Our next question comes from Helane Becker with Cowen.

Just a couple of questions.

On headcount, up 10% on a year-on-year basis on a capacity increase of 4%, is there something you're getting ready for that you have such an increase in headcount?

Or is that a level we can expect to see for the rest of the year?

I'm not sure why so many people were added.

Hello, Helane.

This is Steve Priest.

I'll pick that one up.

We obviously have, in terms of our crew members particularly in flight space, we have flexibility with our crew members in terms of the hours that they work with us, and that flexes up and down with something we call the bid devisor which is depending on how many hours each of our crew members work and the increase in the headcount we've taken forward is associated with that.

So if you want to get into any more of the details surrounding that, then very happy for you to take that offline with David.

But that's the underpinning issue associated with that.

Okay.

And then on profit-sharing, I'm not sure why there was no accrual for profit-sharing this quarter?

Helane, again, I'll sort of pick that up.

That's purely from sort of an accounting perspective.

So it doesn't sort of set any expectations for the full year.

It's just how we account for things in the quarter.

Okay.

And then my last question is with respect to core RASM.

The -- I think you said April was up about 11% and then for the full quarter RASM would be up.

But I guess, it's coming down on a sequential monthly basis?

Hi, Helane, it's Marty.

So yes, we did guide the entire quarter at being up 3% to 6%, obviously, with a big, big Easter benefit in there.

So you're drawing the Easter benefit out.

There's also a little bit of noise throughout the rest of the quarter, specifically last year with (inaudible) moving.

I would say, overall we're trying to get away from the monthly ups and downs.

I think as a leisure carrier, we're certainly very seasonal, very subject to holidays, and I think based on the guidance we've gotten from a lot of you on the call and from investors, I think we're much more comfortable going to a quarterly guidance.

Our next question is from Savanthi Syth with Raymond James.

If I may follow up on Helane's question there.

Marty, what's the core assumption in that 2Q PRASM guide without some of the holiday noise, because it clearly improved throughout 1Q.

So I'm trying to understand maybe what the core trend is in 2Q in this, from what you can tell so far?

I think the best way to describe it is we can just specifically talk about Easter.

We talked about the overall benefit of Easter moving from March to April, it's about 2.3 points impact to the overall second quarter.

So a cleaned up second quarter would be subtracting 2.3 points from that overall guidance.

Okay.

And there's no benefit from any kind of early 4th of July travels happening in June this year versus none last year?

No.

This is a movement between May and June, but not -- excuse me, between April and May, but not between June and July.

That's helpful.

And maybe if I can ask, I think you addressed this a little bit in the commentary on the improvements that you've made to Mint even since you've launched that and the fare increases.

But a look at the markets that you've introduced, be it the Boston, New York shuttle market or Mint, then I'm going to look at how much the kind of prevailing fare is versus what JetBlue's entered the market with.

And I get that the model -- the low-cost carrier model is to bring fares downs and stimulate, but at the same time, you do have maybe -- outside of maybe from a network standpoint, your product is kind of on par or better than your competing products.

And I think you see that in Fort Lauderdale.

Just curious, why I shouldn't assume that you -- there is more to go with Mint and some of these other fares that over time you can start to claim a premium like you see in Fort Lauderdale?

Or is there something that I'm missing here?

Well, it's a great question.

And I think -- I don't want to go into too much detail, but the best way to describe it is, we've certainly had price increases on the top of the range.

We've also had less price increases on the bottom of the range.

I think having a really wide range between the highest fares and lowest fares actually helps us fulfill what we want to accomplish as a low-cost carrier, but also continue to drive RASM improvement.

I do think there is RASM improvement upside and the team is continually looking at the best way to segment that market.

I think one thing we're seeing that I think has worked to our advantage, is that we do have a good mix of corporate dealt business, small-medium business and also high leisure, all on different booking curves.

So I think the ability to segment that demand and trying different prices at different point of the booking curve has worked out very much to our advantage.

And does that apply to like the Boston, New York shuttle market as well and some of the other markets you're in?

I think it applies system-wide.

I mean, my view is that's the overall JetBlue strategy, which is we're not afraid of low fares and we're not really afraid of high fares and really high peak demand periods.

Our next question comes from Rajeev Lalwani from Morgan Stanley.

Robin, a question for you.

You're currently focused on, sort of, improving your margins and even provided a slide showing your relative position, which looks healthy.

But just looking at some of the peer sets that you pointed out, it seems like you're focused on some of the legacy carriers.

So the question is, is that an appropriate comp for your business?

And is that what you're going to use going forward to assess capacity growth levels?

Yes.

No, I think -- it's a great point.

I mean, our peer set -- our true peer set, in my opinion, look we compete with everyone.

And so when we say above-average industry margins, I think about that as a flow.

When I think about what success looks like to me, that is driving the superior margins that our more sort of low-cost carrier peer set have done.

In 2016, we were -- I was pleased with that, because we did deliver margins above some of those.

Clearly, as we went into 2017, we were focused on improving that.

And we want to move urgently and quickly to a point where our margins are comparable with that more low-cost carrier peer set.

And so the initiatives that we have outlined on the cabin side, I'm delighted of the progress we're making.

I mean, not too much of it is visible yet outside the company, but we have lot of efforts on that.

I think we have responded quickly on the revenue initiatives and we will continue to do that.

And the combination of those 2 things will ensure that our growth is value accretive.

We maximize our ability to drive those shareholder returns and deliver superior margins.

And -- by the way, I don't see that as a long-term objective, that is something we need to move urgently towards.

And Marty, a question for you.

You made a comment about stability and positive RASM beyond sort of the really strong April.

What are some of the major pluses and minuses we should be thinking about as we get beyond the month and start heading into the back half of the year, essentially the big risks and opportunities to make sure you hit that?

Thanks.

I think the best way to start is by talking about what we're seeing for summer and beyond.

It's very early for summer.

We've got less than 20% of our revenue on the book so far, but we're very happy at what we're seeing in the early revenue trends.

With respect to the rest of the year, all I can say is that we continue to have some of the efforts that we started in the first quarter take fruition as the year goes on, including by the end of the year, lapping our additions in Cuba, continuing to build momentum on some of the ancillary changes that we made.

Fundamentally, I think we're relatively optimistic.

But again, from a bookish perspective, I think it's way too early to say.

The other thing I'll add is that, the majority of our growth in the fourth quarter is actually driven by Mint deliveries.

And Mint deliveries are very much proven as being sort of RASM and margin accretive.

So we continue to remain cautiously optimistic with what we're seeing for the rest of the year.

Very helpful.

And Steve, a quick one for you, if I could just sneak one in.

On profit-sharing, I know there wasn't any accrual in the first quarter.

How impactful was that as you started accruing for it through the rest of the year?

Thank you, Rajeev for the question.

It's very early to say, we've come out of the first quarter, we've talked about some of the headwinds that we've got in the first half of the year, particularly associated with the stage length and the timing of the maintenance.

I'm very confident in the work that our crew members are doing.

I'm confident in the structured cost initiatives start to take traction, and I'm very confident in the work that margin and commercial teams are doing.

So the guide that we've given in terms of the CASM guide going forward is included in that.

So you should refer to that when you're thinking about the approach going forward.

Our next question comes from Joseph DeNardi with Stifel.

Robin, just, I guess, going back to the one of the prior questions.

Why is a relative margin target the right way to, I guess, guide the business, why not come up with an absolute margin goal?

No.

Thanks, Joe.

And -- we talked about that.

Look, our commitment whether we describe it as a relative margin or absolute margin is to drive superior margins.

There are airlines that go out with sort of fixed number targets.

There is a lot in this industry that we don't control, particularly around fuel.

And so -- and some of the overall revenue environment.

And so that leads us to a preference of saying, look our job as the leadership team at JetBlue is to drive superior margins in the market.

And we're ambitious and that's what we want to accomplish quickly.

And if we are driving a superior margins then as a relative investment thesis then we're doing everything we can.

And it's really, I think, making sure that our growth is accretive and making sure that those margin commitments are understood and that the market has confidence that everything that we're doing, the leadership team, is to drive a high level of urgency around those margin commitments to drive those superior returns.

If over the course of time, we get more certainty around some of the other factors, then I'm not opposed philosophically to describe in absolute terms.

But right now, we're focused on driving superior margins relative to the peer set.

Okay.

And then Steve, I think there is a little bit of uncertainty kind of coming out of Investor Day as to -- for the longer-term CASM ex guidance, when you actually start to realize that cost leverage?

So I'm wondering if you could just maybe put a finer point to that.

Should we expect that in '18, unit cost ex-fuel are up again and then you really start to get the benefit in '19 and '20?

Thanks, Joe, for the question.

As I alluded to, we've -- the structured cost program is pivotal to this, and I'm absolutely focused on it.

As you would naturally expect there is a ramp, we've started to execute and I'm very pleased with the early results.

And the results we're seeing in 2017 are obviously into the guidance.

We've given a CAGR perspective on the 0% to 1% over the '18 to '20 period for the reason that again this will ramp up over time.

And it's very contingent, some of the contracts that we have with our business partners, our abilities to invest in technology despite driving some of the changes for example.

So we haven't come out with explicit guidance on each of the years.

But I -- as I have reiterated, I have absolutely complete confidence in the execution of the program.

The program will in its totality be complete by the end of 2019.

So you can assume the full $250 million to $300 million will be embedded in the 2020 year.

And you'll also get a sense that it'll ramp as we go forward.

But at this point, that's the guide that we've given.

In addition, as I mentioned on the call, we will be giving more explicit updates on the structured cost program and its progress on the 2Q and the 4Q earnings calls for the duration of the program.

Our next question comes from Darryl Genovesi with UBS.

Steve, your CASM guidance implies 4% to 5% growth in the first half, but less than 1% growth in the second half of the year.

Could you just walk us through what some of the moving pieces are that get you to that 300 basis point slow down?

And you mentioned there was some maintenance that was sitting in the second quarter, but just wondering about the second half in particular?

And then within your response perhaps you could provide us with a quick update on the A320 retrofit program?

Yes, no problem.

Thanks very much for the question, Darryl.

First of all, I'll address the Q1 and Q2's half 1 position.

We were pretty negatively impacted by stage length in Q1 and that will continue into Q2.

So the Phase I adjustment has put sort of a bit of a headwind onto sort of the underlying just a CASM performance.

In addition, we had a couple of significant storm events in Q1, which had an impact on the CASM as well.

But the primary driver is the timing issue.

We have significant maintenance activity happening in the first half of the year.

Some of that was in half one -- sorry, in Q1.

The remainder of that will be in Q2.

And then that will peel off quite significantly as we get into Q3 and Q4.

And that's why I have absolutely confidence in the annual guide that we've come out with 1.5% to 3.5% CASM, because it really is a timing issue, so we're good on that front.

And moving on to second question about the restarting efforts.

We're very, very pleased with the results of A321 program that we ended -- took and completed by the end of December.

The A321 -- the A320 program will kick off in the summer with the first prototype, and we'll take that forward.

The thing that I'm most excited about with regards to the retrofit program and how we're going forward apart from the excellent product that we'll bring to our customers and increased density on the aircraft is the fact that we're going to be really able to use this as a structured cost initiative by aligning the heavy maintenance checks on our airframes as we go forward with the retrofit program and aligning one on top of each other.

And the investment, as you saw in the slide in the long-term planning software, is really going to help us do that.

So we are taking a very, very focused approach, not only to our customer and to the investments in the product, but also into our unit costs as we progress through the program.

Great.

And then Marty if I could, I apologize -- apologies for belaboring the Q3 RASM discussion.

But would you just comment on the extent to which the Atlanta weather in early April may be benefiting your second quarter RASM performance?

Hi, Darryl.

Thanks.

With respect to Atlanta, we saw -- we certainly saw some pricing changes and inventory changes from Delta, but the impact on our RASM is de minimis.

We have one more question from Dan McKenzie with Buckingham Research.

Marty, given the focus on Mint as a RASM builder, I guess, I'll just follow up on a couple of prior questions.

I'm wondering if you'd be willing to break it out for us either as a RASM contributor or perhaps on a full year basis and so clearly helped off-set some of the decline in the first quarter, but I wonder if you can share some more perspective about what that was?

And then related to that, what is the annual goal for Mint with respect to say the longer-term revenue plan, say in 2020?

Hi Dan.

I'm still thinking about the first question.

We generally don't release that level of detail, but maybe Dave and I can follow up afterwards and see if there's information we can give you.

With respect to your second question and our overall strategy for Mint, I think the best to describe it, is that we've looked at Mint as being an incremental strategy.

You may remember when we started out announcing Mint, we announced New York-LA and New York-San Francisco, significantly exceeded our expectations.

Then we announced Boston, also significantly exceeded our expectations.

Then we added Fort Lauderdale, also as we said booking very well.

Our latest add with the announcements we made for San Diego and Las Vegas.

There is no grand plan that Mint is going to be 60 airplanes, 80 airplanes, 100 airplanes.

Our view is we will let success beget success.

It is the right product structure at the right price point, delivered by outstanding crew members.

And I think that we've had get customer reaction.

As long as we continue to get that reaction, we'll expand it.

But much like Steve's comments with respect to the 321LR, adding Mint airplane is competitive against adding 200-seat high-density 321, which also have a high opportunity cost.

So we continue to take a mix of both airplanes because they're both very much accretive to the network.

Understood.

And then I could just follow up with one last one here.

I guess, Marty, again going back to the commentary that San Juan capacity adjustments have begun to improve RASM.

Have we lapped the challenges from Puerto Rico and just more broadly Latin America?

And I guess, the reason I'm asking is I'm just trying to understand where the hidden RASM levers could be in the back half of the year, just looks like schedules -- looks like capacity might be up 8% in the back half of the year.

So I'm just trying to get some -- perhaps some more perspective about where we could see some strength?

Thanks, Dan.

I think it's important to remember that we have impact from a lot of our changes that continue to sort of come in from about the rest of the year.

One of those is that in the fourth quarter, we do lap the additions that we made last year in Cuba, Long Beach and in Newark.

With respect to Puerto Rico specifically, the softness that we started seeing, I think as an industry in Puerto Rico, really started in the first quarter of 2016.

So really starting to lap that right now.

That concludes our first quarter 2017 conference call.

Thanks for joining us.

Have a great day.

And again that will conclude today's conference.

Thank you for your participation.