JetBlue Airways Corp (JBLU) 2018 Q1 法說會逐字稿

Good morning. My name is Karina. I would like to welcome everyone to the JetBlue Airways First Quarter 2018 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, Karina. Good morning, everyone. Thanks for joining us for our first quarter 2018 earnings call. This morning, we issued our earnings release, our investor update and a presentation that we'll 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 and Chief Financial Officer.

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, and thank you for joining us. This morning, we reported our results for the first quarter of 2018. I'll start with a thank you to our nearly 22,000 crew members, who continue to take care of our customers and produce solid financial results for our owners. You have once again done an exceptional job safely managing through the many snow storms that hit the Northeast during the first quarter and into early April.

We have all been keeping the family and friends of Jennifer Reardon in our thoughts and prayers, and our hearts go out to our colleagues and friends at Southwest Airlines. Southwest is a great airline. And like ours, their amazing team wakes up every day committing -- committed to the safety of their customers and of each other. As an industry, U.S. airlines have made immense strides in safety over the last decades, and this will continue to be our primary focus.

Now starting on page -- Slide 4 of our presentation. This morning, we reported first quarter operating income of $128 million, a pretax margin of 6.3% and earnings per share of $0.27. We are making good progress on our many building blocks. These are commercial and cost initiatives that we believe will take us from about -- from above-average industry margins today to our goal of superior margins and drive value for our owners.

One of the highlights of the first quarter was our strong RASM performance, driven by the combination of revenue management initiatives, ongoing ancillary growth and strong demand in our network. We, of course, benefited from an earlier holiday shift this year and that benefit reverses in the second quarter.

Looking at our first quarter performance together with our second quarter RASM guidance, we believe the first half of 2018 demonstrates our ability to increase unit revenue as we grow. Our unit cost performance was impacted by a very eventful winter season, which resulted in more weather-related cancels and plans. Despite losing approximately 1% of our capacity due to lower completion factor, we managed our costs with discipline and ended the quarter at the midpoint of our guidance.

We continue to make good progress in growing our relevance. Our New York franchise remains exceptionally strong, and we're committed to capitalize on our leadership position in Boston and Fort Lauderdale. We also keep building our margin accretive transcon markets, and we will play on our strengths as a preferred airline for coast-to-coast travel with new transcon flying from the LA Basin to be announced soon.

Our Latin and Caribbean region exceeded our expectations, driven by both leisure and visiting friends and relatives, or VFR customers. In Puerto Rico, we continue to see demand recovering as expected, and we anticipate our capacity, measured by the number of departures, to reach pre-hurricane levels starting this summer. Our response in Puerto Rico also speaks to our governance of environmental and social risk and business continuity. This is an important part of our strategy to manage external pressures such as natural disasters. Yesterday, we released our second environmental and social governance report, which introduces our climate scenario planning.

We remain focused on growing ancillary revenue, both through existing and new capital-light efforts. We are executing a company-wide digital transformation strategy to support ancillary growth opportunities and lower distribution costs. In 2018, we expect to keep enhancing our digital platform as well as providing new tools for our customer contact centers.

In recent months, we've added web and mobile service capabilities in addition to airport lobby investments that are designed to improve the experience for our customers. We anticipate rolling out further changes to our website throughout the year that will better merchandise our current travel products. We believe our investments in self-service tools and innovative technology will help us improve our customer service, empower our crew members and reduce costs.

We are very excited to announce that we have appointed Andres Barry as the president of our new subsidiary, JetBlue Travel Products, which includes our vacation business. This is an important long-term, capital-light effort to expand the JetBlue brand more broadly into the travel and hospitality sector. We expect Andres to play a critical role in driving innovation and capitalizing the untapped potential of this nonair ancillary and travel products business.

Innovation is in our DNA. And as we build our platform for future growth, we are embracing hospitality as part of the travel experience for our customers. For example, we are pioneers in trialing advanced biometrics technology, which we believe will improve the airport experience and is part of an industry effort to enhance security. In addition, as this technology space evolves around us, we are investing in the future by our JetBlue Tech Ventures subsidiary.

We continue to making progress in our structural cost program in the first quarter as part of our journey to superior margins. We are delighted to have signed a multiyear engine agreement with Pratt & Whitney for the purchase and maintenance of NEO engines for our existing aircraft order book. Over time, this agreement will bring the latest engine technology to a sizable portion of our future fleet, contribute to our ongoing structural cost efforts beyond 2020 and lower our fuel consumption. This milestone is yet another example of the collaboration and maturity of the teams throughout JetBlue working together to achieve our common goals. Steve will provide added details in a moment.

I'd like to thank, again, our crew members for bringing our mission to life and powering a successful first quarter despite the weather challenges. We will keep working to innovate as we put in place the building blocks that we believe will increase profitability and create long-term shareholder value.

Marty, over to you.

Thank you, Robin. I'll start with our capacity outlook on Slide 6. We continue to target mid- to high single digit capacity growth over the next few years and expect to be within that range, again, in 2018. Our planned [schedule -- to schedule] growth for the year remains between 6% and 6.5%.

From a modeling point of view, we expect 2018 flown ASM growth to be higher, between 6.5% and 8.5%. Recall that as we move through 2018, we will lap the lower completion factor that resulted from ATC challenges and the hurricanes in the second half of 2017.

In the first quarter, winter storms reduced flown capacity growth by just over 1 point versus our prior guide and resulted in capacity growth below the low end of our initial guidance. For the second quarter, we expect to grow capacity between 5% and 7% year-over-year.

New markets, all those less than 1 year old, are just 2% available seat miles. Our growth remains targeted at Boston and Fort Lauderdale and skews towards adding frequencies on existing routes. We believe our ongoing network investment in these focus cities continue to build our relevance for our leisure and business customers, underpinning solid RASM growth and supporting our margin commitments.

Our summer capacity plan is driven by upgauging markets through the addition of 200-seat, all-core A321. The 200-seat aircraft has allowed us to expand margins and keep fares low in New York leisure markets, and we expect to do the same in Boston. New A321 deliveries have allowed us to build margins in both the Mint and all-core configuration.

Beyond our upgauging in Boston, we continue to build towards our goal of 200 flights a day. This city has proven to be a perfect fit for our low-cost, point-to-point model. In early May, we'll add Minneapolis service as we aim to further grow our relevance and utility for our business customers.

In Fort Lauderdale, we've added new destinations and frequencies to existing markets as we work towards our goal of 140 flights a day.

First quarter RASM outperformed the system by over 6 points, the fourth consecutive quarter of RASM outperformance. We continue to see the maturation of past growth and the benefits of increasing network relevance in the South Florida market.

Calendar placement of holidays clearly helped. But based on forward bookings, we expect this trend of RASM outperformance to continue. Mint markets in Fort Lauderdale are also performing extremely well and are an example of how we have brought a differentiated low-cost model to South Florida. Our ability to grow our relevance in Boston and Fort Lauderdale depends on having the infrastructure in place to support this growth. To that end, we recently executed an agreement with Massport that will bring our total number of gates at Logan to 30 by 2021. JetBlue supports Massport's plans to modernize Logan Airport to improve the customer experience and add needed capacity in a cost-effective way.

In the first quarter, we also executed an agreement with the Broward County Aviation Department that will add 5 gates in Fort Lauderdale. This is a first in a series of anticipated gate additions that will enable us to approach 140 flights a day. We are excited to continue working with the airport authority on our plans to construct additional gates in addition to the renovations in Terminal 3 to improve the customer experience.

Our transcon franchise continues to perform well both in Mint and non-Mint markets. Our most mature Mint routes again saw RASM outperform the system in the first quarter. Newly converted Mint markets such as New York to Seattle are ramping up as expected. We anticipate our Mint aircraft to contribute 20% of our total ASMs in the second quarter and 20% for the year.

Finally, our Latin and Caribbean region, which includes Puerto Rico, was the brightest spot in our network during the first quarter. As Robert mentioned, this region has the highest year-over-year RASM growth across our network during the quarter and Puerto Rico is recovering as expected. We are pleased that the Department of Transportation recently awarded JetBlue additional Havana flying, with weekend service from Boston and added frequencies to Fort Lauderdale. These routes add to a strong and growing franchise in Cuba and the Caribbean.

Turning to Slide 7 and the revenue outlook. First quarter RASM growth exceeded our expectations at 6.1%, above our guidance range from early March. This result included a net 2-point benefit from calendar placement and a 1 point positive impact from weather-related lower completion factor as most named storms occurred during off-peak days of the week.

Since the end of 2017, demand has strengthened across our network, and we saw further close-in strength to end the quarter. Close-in pricing has been particularly strong in peak travel periods, particularly the spring break weeks. Demand and pricing in off-peak weeks are solid, although not showing the same strength as the peak periods.

Looking into the second quarter of 2018, we expect year-over-year RASM to range between minus 3% and flat. This includes 2.5 points of negative impact from holiday travel shifting into the first quarter as well as lapping a 1.25 point benefit that occurred in the second quarter of 2017 from completion factor and co-brand incentive payments. We expect demand and close-in pricing to remain strong. However, the second quarter this year will have more of a trough period, particularly in May. We're optimistic that as we approach June and the early summer peak, pricing strength will again exceed expectations similar to what we saw during the recent spring break weeks.

We think that looking at first half RASM is more helpful in understanding current demand trends. Slide 8 shows our RASM growth by half, with first half 2018 trends continuing to show strength on a half-by-half basis. We are pleased with our RASM evolution since 2016. Our RASM performance over the past couple of years has been driven by our focus on maximizing margins, successfully implementing revenue initiatives and tactically adjusting capacity to manage changes in demand trends and fluctuating oil prices.

The improving trends demonstrate we are executing and delivering on the revenue strategies that we laid out in our 2014 Investor Day. We introduced Mint in our transcon markets and further booked our relevance to corporate customers by adding key destinations from Boston. We are thrilled that Mint was awarded the best business class in North America by TripAdvisor, which speaks highly of our product and hospitality service in key transcon routes. We moved our co-brand credit card from American Express to Barclays, and our portfolio of customers using our co-branded card more than doubled in size in less than 2 years, exceeding our initial expectations.

More recently in 2017, we refined our Fare Options, driving extraordinary growth in our ancillary revenues per customer. As Robin mentioned, we are currently enhancing our website to optimize our digital distribution platform. We expect the growth rate of ancillaries per customer to be more typical this year as we start lapping some initiatives implemented last year. We remain excited about the network and the ancillary revenue opportunities ahead.

Before I turn it over to Steve, I'd like to thank our crew members for their hard work. I believe that as we grow, our culture continues to power our strategy and allows us to deliver outstanding hospitality to our customers, while also increasing our margins.

Steve, over to you.

Thank you, Marty. Good morning, and thank you for joining us. I'll start on Slide 10 with some highlights from the first quarter. Revenue was $1.8 billion, up 9.6% year-over-year. Pretax margin was 6.3%, down 1.3 percentage points from the first quarter of last year, essentially due to higher fuel prices.

EPS is $0.27 per diluted share. This quarter, our solid revenue performance and [customized] efforts were partially offset by increasing fuel prices. Despite our fuel-driven margin compression, a lower tax rate and our balanced approach to capital allocation contributed to EPS growth.

Our effective tax rate this quarter was 20%, lower than expected due to the refinement of the estimates related to last year's tax reform. We continue to expect that our effective tax rate to range between 24% and 26%.

Moving to Slide 11 in unit costs. Our first quarter CASM ex-fuel increased 3.1% year-over-year. And despite the operational pressures from the eventful winter season, we were in line with the midpoint of our quarter's guidance. We continue to focus on managing our costs and delivered against our initial commitments.

For the second quarter of 2018, we expect that CASM ex-fuel to range between 2% and 4%, driven by timing of maintenance expenses and previously expected inflationary pressures from business partners. Given our ongoing cost reduction efforts and progress in our structural cost initiatives, we continue to track towards a negative 1% to positive 1% CASM ex-fuel guidance for the full year.

Turning to Slide 12. We continue to expect CASM ex-fuel growth to inflect down during the second half of the year as we make further progress in our structural cost program. This is the result of maintenance, sourcing, airports and distribution initiatives put in place over the last 16 months. Our CASM ex-fuel growth in the first half is expected to be between 2% and 4%, above our prior guidance, due to lower completion factor in the first quarter. For the second half, we expect CASM ex-fuel to decline in the range of negative 4% to negative 2%. As a reminder, the 2017 comparison includes high unit costs due to hurricanes and the onetime bonus we paid to our crew members at the year-end as a result of tax reform. Thus, we anticipate the underlying CASM ex-fuel growth for 2018 to slow to a range between minus 0.5% and 1.5% for the second half of this year.

Our progress in structural cost gives us confidence that we will achieve our CASM ex-fuel commitments in the second half and from 2018 through 2020. We expect this year's inflection in our cost trends to put us on the path to unit cost declines in the years to come.

Moving to Slide 13 and an update on our structural cost program. We are delighted that at the end of March, we closed a 15-year deal with our business partner, Pratt & Whitney, for the purchase and maintenance of NEO engines. The deal covers engines and spares for the 45 aircraft on order, which didn't have a prior selection. It also revises contractual terms on engines for the 40 aircraft already under contract. Our negotiations include the full cost of engines, parts and ongoing maintenance. This achievement is the result of hard work across JetBlue teams for many, many months. A minor portion of the expected savings from this agreement is included in our 3-year program. Most of the run rate savings will extend well beyond 2020 as we take delivery of our first 13 NEO aircraft in 2019 and an additional 13 during 2020. This deal is, of course, just 1 part of the broader effort in tech ops, and our work on the V2500 engine RFP continues. We are currently reviewing responses and making progress towards selecting the right business partner.

Our airports pillar is another area where we made steady progress this quarter. We finished deploying self-service technologies in 4 additional lobbies and are on track to have 24 completed by the year-end. These investments will further improve crew member productivity and allow us to focus on hospitality. We will provide our regular half-year update on the structural cost program in July. We continue to expect that this 3-year effort will result in run rate savings of between $250 million and $300 million by 2020.

Turning to fleet on Slide 14. This quarter, we purchased 2 additional A321 through cash for a total fleet of 245 aircraft. We expect to increase our total fleet to 253 by the year-end. Our A320 Cabin Restyling program is an important milestone in April, with a certification and return to service of the first aircraft and the second one is scheduled to enter modifications shortly. The restyle program is a key contributor to our unit cost goals, and we anticipate that it will allow us to grow our capacity in a capital efficient and customer-focused manner.

We have also made good progress with our fleet review, including evaluation of options for our existing E190 fleet and the A321LR. We have no news to share today, but we remain focused on achieving the best outcome for our crew members, customers and owners.

Our CapEx guide for 2018 remains between $900 million and $1.1 billion, composed of up to $900 million on aircraft and the remainder in nonaircraft spend.

Turning to Slide 15. One of the guiding principles for our capital allocation is to maintain our strong balance sheet, targeting the investment-grade financial metrics and appropriate liquidity. We believe that a strong balance sheet allows us to be flexible through this cycle, allocate capital to best and highest use and underpin long-term value creation. Over the last year, we've targeted our capital deployment at growing our fleet, reinvesting in high incremental return projects such as Cabin Restyling as well as returning cash to our owners. We ended the first quarter with adjusted debt-to-cap ratio of 28% and cash and investments of approximately 11% of trailing 12-month revenue.

During the first quarter, we repaid $59 million in debt and bought out 1 additional leased aircraft. In 2018, we expect to raise debt to maintain an optimal liquidity and capital structure. We also anticipate that we will continue to return excess capital to our owners opportunistically. This quarter, we executed $125 million in share repurchases with $625 million remaining from the total amount authorized by the Board.

I'll close with one more thank you to all of our crew members for their hard work and their nonstop support to the operation during an eventful winter. We are one team and are making great progress in our commitment to our owners. We are firmly committed to delivering the JetBlue experience to our customers and ensuring that our commercial strategy, our cost reduction efforts and our long-term investments will result in superior margins. We will now take your questions.

Thanks, everyone. Karina, we're now ready for the question-and-answer session with the analysts. Please go ahead with the instructions.

(Operator Instructions) Your first question is from Savi Syth with Raymond James.

I was wondering if I could ask a question on the fleet side. I know you're kind of taking a bit longer to do the E190 evaluation and understand I believe with the C Series. But I was wondering if from a JetBlue model perspective, is doing a wholly owned or third-party regional might be a solution, given that it gives you flexibility to address those business markets and then switch the main operations to a single fleet size? Just wondering if that -- is there something about the JetBlue model that might not work?

Savi, I'll pick up the initial view just in terms of giving you some initial comments on the fleet review, and then I'll pass over to Robin for his perspectives on the regional side of things. We are very pleased with the progress we are continuing to make on the fleet evaluation. As we said previously, we are not going to rush to any conclusion in this changing and evolving OEM landscape. We've completed a hell of a lot of great work and we've made great progress. And we'll obviously make any fleet decision with a view of continuing to maximize shareholder value and driving towards superior margins. The one thing I would add, and I know I've said some of this before, is the 100-fleet platform. And particularly, as it stands at this point in time, the E190 that plays that role, really just played an important role in our Boston network strategy, where our margins continue to be very close to the A320s. But that's an overall perspective about the fleet review, but I'll hand it over to Robin to see if he's got any perspectives on the other side of the question.

Savi, it's Robin, and thank you for the question. Look, as we think about this and we're thinking about this very much in terms of JetBlue. I think the announcement we made yesterday with JetSuite, for example, JetSuiteX in terms of us kind of codesharing and building our region to some of the higher margin into West -- into California market, I think, shows that we look at this space very differently. And we look for ways to access it in a way maybe how other airlines do it. But in terms of airplanes like the 190 and the 190 replacement, those very much would be JetBlue airplane.

And if I may follow-up, Robin. Thanks for bringing up the JetSuite. Just kind of curious how big an opportunity that is? It seems somewhat small right now, but just maybe how that might fit in to kind of a longer-term JetBlue plan?

Yes. We're very excited about the opportunity. You're right, it's small now, but -- so was JetBlue when we started nearly 20 years ago. And we -- obviously, with our partners, Qatar Airways, a significant amount of investment in that business to allow it to grow. And again, when we think about how we can compete and how we can compete profitably, then how do we kind of access that sort of semiprivate high value market. How do we take advantage of new opportunities? And so we very much see JetSuite in that light. And it's small today, but we believe it's a great product, a great operation. It will grow and that will benefit both our customers and, ultimately, our shareholders.

Your next question is from Brandon Oglenski with Barclays.

Steve, can you remind us what the long-term CASM goal is as we get out into '19 and '20, and whether or not you guys factored in a pilot deal to that goal?

Yes. Brandon, thanks for the question. We've talked in terms of the strategy going forward. It's 0 to 1 CASM CAGR over the 2018 to 2020 period, so 2018, 2019, 2020. And it does indeed include a pilot deal.

Okay. And just as a point of clarification, the back half of this year though, you're not assuming any new labor contracts, right?

We haven't made any specific comments or predictions around the specific pilot deal. The guide that we've given excludes any ALPA deal, and we continue to negotiate in good faith with ALPA at the table. And I'm looking forward to moving forward with the contract in due course.

Okay. Appreciate that. And then just lastly, so as you look at that cost outlook in the back half of the year and into '19, what -- is the V2500 engine contract the biggest driver of optimism that cost can be down? Or is it a combination of the A320 densification project as well? Can you just give us some idea of magnitude on these?

Yes, Brandon, there's no sort of silver bullet here. I think what I'm most pleased about is the fact that we've got engagement across all 4 pillars of the structural cost program. As a reminder, the back end of 2016, when we did the Investor Day, we talked about 4 pillars: tech ops, corporate, airports and distribution. We are making good progress across all of those 4 pillars. The largest pillar of the 4 is in the tech ops space. We have, as I mentioned in my prepared comments, executed the NEO deal, which I'm extremely happy about. We, obviously, have the V25 RFP we're working through. We are also currently working through the RFP on the heavy maintenance of airframes as well in addition to the other pillars. So all of those different initiatives are contributing to the structural cost program. In addition to your point, which is the importance of the restarting program, again, I'm very pleased the first aircraft has gone into the shop, come out ahead of schedule, actually, and -- in terms of the timing and back into service. So both the structural cost program in alignment with the restyling effort that puts an extra 8% of seats on each and every one of our 130 A321 -- A320 aircraft, excuse me, will help us achieve and contribute to our 0 to 1 CASM commitment through 2020.

You next question is from Helane Becker with Cowen.

It's Helane Becker. Quick question on the maintenance cost. So as we think about the fleet changing this year and when we think about rent, depreciation and maintenance, first quarter rent and maintenance came down. Is that a trend that's going to continue going forward for the rest of this year as we think about that? Should we expect that?

Thank you very much, Helane, for the question. I'll reflect on the 2 halves of that. So on the rent side of things, we are being very opportunistic about looking at the best deployments of capital as I've talked about with the balanced capital allocation strategy. And we, obviously, had a number of leased aircraft in the JetBlue fleet. And thinking through the lens of shareholder returns, we are continuing to take the opportunity to buy some of those leases out. So when you look at the sort of depreciation line versus the aircraft rent line, you'll see sort of a move between those 2 lines. But that, as we've gone forward, continues to reduce the rent side of things. In terms of maintenance costs, there's a whole host, as I mentioned, of initiatives that we are working through with Jeff, Marty, and Tony and the rest of the leadership in tech ops making some great progress as we go forward with that. Again, there's no one sort of silver bullet in there. With regards to Brandon's question, I covered off some of the more significant changes, specifically pertaining to quarter 2 because I'm sure this question will come up and I want to address it now, is that we did have a movement of some maintenance costs between Q1 and Q2. So about 0.5 point of costs pertaining to maintenance shifted from Q1 to Q2. So that's why we amended our CASM guidance for Q2 on the call today. Basically, the first half is exactly right where we said it would be 3 months ago. So that really hopefully gives you an overview about where we are with maintenance and how that pertains to the guide that we put out this morning.

That's great. That's very helpful. And then I think you guys had a -- as my follow-up question, I think you had an announcement earlier today or maybe late yesterday on the first pilot group coming out of the Orlando base. I think that's where your training facility is. Could you just update us on how that's going and your expectations for that?

No. I'll take that, Helane. Thank you for the question. No -- I mean, this is a very innovative program. It's called our Gateway Select program. And as we think about the pilot supply challenges into the future, which we believe are real, then we've got to make sure that we, like other airlines, can secure that supply. And so this program was put in place really to allow pilots to -- who didn't have an experience to learn to fly at a lower cost than they would before. The first 6 have brought to the point now where they are about to embark on their 1,500 hours of flight experience as flight instructors, which is mandated by the FAA on [one path] completed. We think that will be about 2 years. They'll be back and ready to resume their career in the right seat of a JetBlue airplane. And we are very, very excited about that, and we continue to hire pilots very successfully through this program.

Your next question is from Jamie Baker with JP Morgan.

Marty, let me start off with you. In nonstop markets where you compete directly against an airline that offers basic economy, are RASM trends behaving any differently than in other markets? I mean, I think the impact of basic economy is fairly evident on the bottom of the line -- on the bottom line, excuse me, of the airlines that offer it. What's not clear to me is what impact it's having on guys like JetBlue that don't offer it? Any difference in RASM trends?

Yes. Jamie, thanks for the question. That's a great question. It's something we're watching very, very closely. And I think, it's fair to say, we're really not seeing any significant difference in RASM trends in basic economy markets versus nonbasic economy markets. I think it's important to note that we have been competing with ULCCs probably more aggressive than anybody. And we watch these markets extremely closely. And obviously, this is a place where we're paying a lot of attention, but we're really not seeing the trend that you're asking about.

Okay. I appreciate it. And Robin, I'm sensitive to your aversion to negotiating in public, but I do have a question about the pilots. If you look at recent contracts in an effort to assess where the market is, are there any work rules or efficiencies that you don't already enjoy? For example, I think you're already using a preferential bidding system. So that doesn't represent an incremental opportunity. I'm basically just trying to assess whether the pilot contract is simply a wage exercise or if there's potentially some sort of flexibility or efficiency that the airline might pick up along the way.

Well, Jamie, you answered the question that I'm not going to negotiate in public. We had the last mediation session in April. I think that went well. We made progress. We have another one coming up in May. I think both negotiating teams are working very hard to get this done. It is our first contract, so it does include everything from pay and benefits and work rules. And that's probably as much as I should say on that right now, but thanks for the question.

Well, let me sneak in a third then. You mentioned LA basin is the basis for some new routes. Does that imply new routes from existing airports in the basin or did you use the word basin to imply a potentially new airport such as, I don't know, John Wayne?

Well, Jamie, you were listening. I'm very, very, very impressed. Look, I'm not going to say too much now. I'm actually heading out there tomorrow with a team. I think that it's very important as we think about our drive to superior margins that the network is an important part of that and it's important that we focus on our strengths and adjust things that aren't working. And so you'll be hearing more on that very, very, very soon.

You next question is from Michael Linenberg with Deutsche Bank.

Just a couple here. Just to follow-up on your codeshare with JetSuiteX. I did see it looks like that you have also invested some more money into that business. I'm curious where that percentage is? How much you've invested? And at this point, is it being marked on the balance sheet as an investment? Or are you now accounting for it under the equity method? And is that -- are we going to see that run through your P&L? Any bit of color on that would be great.

I'm going to just let the CFO answer that, Michael.

Michael, it's covered on our equity side of things, as you questioned. We have approximately 10% shareholding in the business. So they are the 2 perspectives in terms of the question you raised.

Steve, what was the percent? Did you say 10%?

Yes.

Okay. So you're at 10%. And then back to Robin, though, on JetSuiteX site, you talked about codesharing with this business. And I think that they have publicly said that their goal is to get to 100 airplanes by 2022. Should we presume that you're going to be codesharing with the regional operator with 100 airplanes by 2022? Or is it you're going to pick and choose which markets you want to tie up with them?

Yes. No, look, I think a lot of that is sort of in our future and that we are working through. I think we look -- we always look at opportunities. And when we think about the semiprivate market, the ability to fly between 2 FBOs and a great product at a competitive fare, we think that, that is a market that is -- has a lot of growth potential, and we clearly want to be part of that. And by -- we are very kind of ambitious about where we think that can get to. Otherwise, we would not have made the investment in JetSuite. And we'll just watch the space. I mean, I think we're make taking a measured approach to growth. As they grow, then the growth has to earn its way into that network just like it has to earn its way into our network. But when you look at the customer experience, when you look at the customer MPS data, when you look at the level of customer satisfaction and repeat purchase, I would say once someone has tried that experience, they really don't want to go back. And so it's exciting for us to be the partner with them.

Great, Robin. If I can just ask a follow-up on ancillary. You talked a lot about that in your opening remarks, and you just brought on Andres Barry to spearhead that effort. Can you give us a sense of what your ancillary is per passenger today because it's hard to discern from the public docs what that number is and where you want it to go over the next 3 years or so?

Yes. No, thanks, Michael, for the question. In terms of the number per customer, it's about $30. And when we think about where it can go, I think we've got us a track record on revenue initiatives. And so we need to -- part of our journey on superior margins is continuing to find new levers that we can develop. And I think I've been pleased with our ancillary growth over the last several years. We've seen good CAGR on that project -- on that revenue stream of about 20%, but I think we can do better. I think we can do more. And so by creating a subsidiary, putting a leader in charge of it, creating focus around that. To give you one interesting stat is that we have all these customers flying JetBlue today for the most part. A relatively low percentage of those buy a vacation or other product [willing to] JetBlue. And so -- but when they do, they then have a 38% CAGR sort of growth to then come back and buy the same vacation from us. And we've seen that over a sustainable 5- or 6-year period. So once they purchase, their ability to repurchase is double in terms of that nonair revenue. So we see it is a very long term -- we see it as a way to, if you like, accelerate ancillary revenue growth over time. And potentially also, using our brand, leveraging our strong brand into new ancillary revenue stream that we don't do it today, but do it in a very capital-light way. Just make it clear, we're not buying hotels. We're not doing any of that sort of capital-intensive work. This is very capital-light investment.

Your next question is from Hunter Keay with Wolfe Research.

So outside of just the seasonality issues, what are some of the similarities and maybe some of the subtle differences that you guys see with transcontinental and transatlantic service?

Hunter, it's Marty. Thanks for the question. I mean, you certainly mentioned 2 of them. I think a third one that's very important is that for some very important transcontinental markets, premium product is extremely important to the revenue stream. Certainly, I think if we did not have the success that we've had with our Mint product, it would be a much more difficult conversation for us to talk about the concept of even flying transatlantic. There are certainly many months in a year where a high-quality premium product is extremely important for success. The second thing I will say is the -- with respect to the difference between the markets, certainly, we're respectful of the fact that they're in different competitive environment, but what we like about the transatlantic is something that I think the founders of JetBlue liked 20 years ago, which is it's a market with high fares and not great service. In certain of the premium cabins, especially. And we think that could be a great opportunity for us, much like it was in the transcontinental market 4 years ago.

And then probably one for you, Robin. I know you guys are disappointed with the FAA decision to unionize. But I'm kind of curious, why you think that happened? I mean, your pay was competitive. It seems like you gave them forums to be heard, but 66% yes vote is a decent majority. I'm kind of curious to know what your opinion is to sort of what went wrong? What was the disconnect? Is it a cultural issue? And just why you think they decided that they needed to be organized?

No. Thanks for the question, Hunter. And I could have given you the very long version and I probably won't do justice to a shortened version. But I did spend quite a bit of time out with our in-flight crew members with Joanna. So definitely heard a lot of the concerns that they had. I think, first, in terms of everything that we agree on whether you voted for union representation or didn't is that everyone loves this company and believes in our culture and believes in our value of caring. And I think that a lot of it came down to just individual crew members preferring to have the certainty of a contract in terms of what's in it versus the traditional model which has been sort of an intuitive one over the many years where we've adjusted [today] and we changed [work rules]. And I think that there were just some nervousness about not having that documented, not having something that you can rely on. But I didn't meet a single in-flight crew member on the campaign trail who wasn't amazingly committed to this company and didn't share in the importance of our culture as one of our main competitive levers.

Your next question is from Kevin Crissey with Citigroup.

Forgive me if I missed it. Have you announced a replacement on the Board for Dave Checketts yet?

Kevin, no, you haven't missed it. It's Robin, by the way. No, super appreciative for everything David has done over the years. I mean, I personally benefited from a lot of counsel from him, and we continue to look at the composition of the Board with the eye of good governance and also driving long-term shareholder value.

Okay. And maybe you could -- maybe it's for Marty. Marty, if we think about Boston and the competition there and maybe you could talk about the difference that you're seeing in the leisure market versus the business markets. I know you've had a great deal of success growing the business markets there. But if maybe you could talk about recent trends or maybe you can't.

Kevin, no, we certainly can. We are very confident in our position in Boston. We're the largest airline up there. Again, as we said multiple times, we have a business model that is built for low-cost, point-to-point services versus the overwhelming majority of our competitors really in the country, who are really fundamentally built on hub and spoke. We have the most nonstop destinations. We absolutely have the best product and brand than any airline. We actually provide our own service versus one of our other competitors. Actually, most of our competitors have a good amount of outsourced regional flying. With respect to our results out there between business and leisure, our business strength is really, really strong up there. We have seen a lot of capacity come under leisure. I think if anywhere we've seen RASM go down, it's been in leisure. But we've been competing in the leisure market from the very first days of JetBlue. This is not new to us, and we're very confident of our success of there.

Your next question is from Duane Pfennigwerth with Evercore ISI.

I may have missed it, but did you give an update on [Europe line] and when you need to make that fleet decision if you made that fleet decision?

Duane, Steve here. You didn't miss anything, Duane. We didn't give a specific update in the prepared comments. We haven't made any announcement in terms of our requirements if we choose to convert an existing A321 NEO to an A321 NEO LR. We have to give Airbus approximately 2 years notice of doing that. I want to reiterate it's the conversion, not incremental aircraft. And I also want to reiterate to the analyst community that the reason we would do this is aligned to the Boston and New York strategy, where we see Mint be phenomenally successful. Marty commented earlier about higher fares, lower service, and we see an opportunity there. But it's really around making sure that we continue to penetrate the Boston and New York business markets, where we've done a nice job over previous years of doing that. So that's where we are with it. And as soon as we have anything to announce by the way, then we'll obviously let you guys know.

So there's sort of an unlimited views on that. It could be 2 years from now that you tell us or next week?

Yes. I mean, there's no, sort of, specific timing. It's just a rolling 2-year notice in terms of where we go and when we do that. So yes, it's not any specific point in time.

Okay. And then on the fleet review and perhaps kicking tires on other fleet types in a smaller jet category. Can you just talk generally about sort of the upper limit on CapEx for JetBlue or maybe the plans relative to the $1 billion this year? How we should be thinking about that on a 2019 or 2020 basis?

Not at all, not at all. So we laid out our overall CapEx guide as a $1.1 billion average from 2017 through 2020. That is the guide that we continue to go forward with. We haven't made any specific decisions with regards to the E190 whether we will continue to retain the fleet or whether we replace it with something else. And so that $1.1 billion pertains to our existing order book and the continued investment in nonfleet CapEx to help us drive the structural cost program and capital-light opportunities to drive better experience for our customers, our crew members and, ultimately, our owners.

So sorry, just to follow-up there, if you do decide on a new aircraft type, that would be incremental to the existing CapEx guide that you've put forward?

Yes, indeed, it would be.

Your next question is from Rajeev Lalwani with Morgan Stanley.

Marty, actually a few questions for you. Earlier, you talked about Puerto Rico as a market sort of coming back online fully by the middle of the year. Do you see that as having a positive or negative or neutral impact to the Caribbean and Florida overall? Said another way, is the absence of Puerto Rico and maybe some other markets in Caribbean are contributing to the strength that you've seen in those markets or is it just something else?

Rajeev, thanks for the question. As we said, the Latin, Caribbean region is the RASM superstar for us in what we've seen so far. Frankly, I don't really think there's a big connection between the strength we see in the rest of the Caribbean and what the changes have been in Puerto Rico. Certainly, our Puerto Rico strength has come from an explosion in the visiting friends and relatives market, as Robin alluded to in his prepared remarks. And I think back to what we said in the end of 2017 and I think in that October conference call, customers will find the beach. The true -- like truly leisure beach traffic in Puerto Rico was never that bigger percentage of what we carried, and it certainly has gone down since the hurricane. But overall, our (inaudible) strength has been very, very -- a very, very positive development for us.

Okay. And on basic economy, just coming back to your response to Jamie's question earlier. Do I take that to mean that there isn't much of an interest in implementing the product? I mean, Alaska announced it yesterday and threw out some pretty meaningful numbers. I'd love to just get your perspective on that.

We're confident looking for ways to optimize our offering. If you go back to the Fare Options platform that we launched after our 2014 Investor Day, we've made multiple changes to how we have packaged and sold our product to try to make sure we continue the outstanding RASM performance that we've had in the last several years. I think it's fair to say looking at the answer I gave to Jamie, we don't see a burning platform of challenges to our revenue model based on basic economy. But I would also say, if we get to the point we decide that is a RASM optimal thing for us to do, we have a great platform to do it.

Okay. And then if I can sneak in a last quick one. Marty, I think you made some comment about assuming -- and correct me if I'm wrong, about assuming improving trends on the close-in side, demand accelerating through the quarter, et cetera. Can you just clarify what you meant there? I just want to make sure I understand whether or not you're assuming demand trends just continue to improve throughout the quarter.

Yes. I mean, I think if you look at the demand environment as we see it right now, we're very happy with what we're seeing. I think we've all seen some fare increases over the last few weeks. Certainly, in the last 2 quarters, we saw both quarters, fourth quarter '17 and first quarter '18, closed some really nice close-in strength. So we really -- from our modeling, we don't really see any reason for that to change. We've seen competitive capacity tick down a little bit. Overall, we're very bullish about what we're seeing for the demand environment right now.

Your next question is from Darryl Genovesi with UBS.

Steve, just a clarifying question. When you were going through the second half CASM outlook, you gave a negative quarter -- negative 2% number, which seems to dovetail with your full year guide. But then I thought you said a negative 1% to -- sorry, negative 1.5% to plus 1.5% number for something else in the second half. What was that?

No, the underlying -- so we are guiding negative 2% to negative 4% for the second half of year. But then when you take into account the cycling across the significant hurricanes and the bonus that we gave to -- the $1000 crew member bonus that we gave as a result of tax reform. When you adjust that, it goes to the minus 0.5% to plus 1.5%. So that's the underlying H2 perspective.

Understood. And then, I guess, I just wanted to ask you a little bit more on the fleet. JetBlue is about 18 years old. When I go back and I look historically a relatively young, growth-oriented airlines and their CASM trajectory, it will often start to -- some of the CASM growth will start to flatten out around the time that airline start retiring airplanes. And so I think the oldest aircraft in your fleet now are about 18 years old. Are you thinking that you can get 25 years out of them or are you going to start cutting them up at 20?

Great question. Yes, I mean, there's no reason. We're very, very happy with the Airbus fleet that we -- makes up the vast majority of our fleet. The 245 aircraft we have, 195 of those are in the Airbus that work -- they're great workhorses. They're great for us and there's no reason to think as to why they wouldn't take us through up to 25 years. But on the fleet side, we obviously continue to review that both from a margin standpoint, from a fuel efficiency standpoint, from CASM [ex of our] maintenance. And that's why we're going through the overall flow of fleet review at the moment that we do. Very happy with the existing Airbus fleet that we have today.

I think -- Darryl, it's Robin. If I can add just an additional point on that. I think when you look at some of the heavier maintenance costs you see on the older airplanes, a lot of that link to the engine costs. They kind of go to their later shop visits. I mean, that's what really drives most of the ongoing maintenance costs. And I think it's an opportunity for us being out with the V2500 RFP at the moment because we're able to reset that cost into the future, and that also gives us comfort that we can cost effectively fly these airplanes for the period of time that Steve talked about.

And your next question comes from the line of Joseph DeNardi with Stifel.

Marty, I'm wondering if you could just talk about Mint in the context of how cyclical you're expecting it to be over this cycle? I think some of your [LTC] peers look at those types of products as good things to have when the economy is good, but not very good when the economy rolls over. So can you just provide your perspective on how you see that behaving over this cycle?

Joe, thanks for the question. Great question. And it's certainly something we spend a lot of time talking about. The one point I'll say is -- and we'll fully admit, we haven't seen a down cycle yet. But I will say that Mint has been wildly above our expectation. And I think one of the big reasons for that has been our pricing strategy. We still have fares in the mid-3 digits at the bottom end. And although we have had significant RASM improvement in Mint over the last 3 or 4 years, we think that we can play at all elements of the price spectrum. Certainly, if you look at who we're carrying on the airplanes, we have a very strong core of high-end leisure customers. And even in the recession, those tend to be the last customers that go. And I think with the traditional legacy way of pricing those markets, which is really higher fares or upgrades, that's the market that's much tougher for them to access than under our sort of everyday low pricing strategy.

Got it. Okay. And then, Marty, another one for you. Just on the credit card, you're one of the few airlines -- maybe the only U.S. airline that switched partners recently. It seems like it went seamlessly for you guys. I think some airlines are worried that they would lose customers during that transition. So I'm just wondering if you could speak to what your experience has been switching from AmEx to Barclaycard and maybe what that's taught about looking at kind of the flexibility you have going forward.

Well, interesting question. I mean, first of all, we are very grateful to American Express for many years of service and they were very, very good partners during the transition. I think the relationship between AmEx and Barclays made this much easier than it could have been. The second thing I'll say is we're very lucky that the winning bidder in our RFP, Barclays, also had a lot of experience in converting portfolios. So I'd say, from our perspective, it was an almost seamless transition. Barclays has been extremely effective in converting lots of accounts, adding new accounts. They have been an outstanding partner. I will say the only downside so far has been -- there's definitely an accounting difference when you switch partners versus when you re-up with your current partner. We talked about that a little bit I think 2 or 3 calls ago. But again, that's more of a timing issue than an actual underlying revenue. We've already taken our guidance up once as far as the results from the credit card. We're not in a position to change guidance right now. But I'll say the partnership has been fantastic and there's nothing but absolute, absolute satisfaction with Barclays.

All right. And that concludes our first quarter 2018 conference call. Thanks for joining us. Have a great day.

That concludes today's conference call. You may now disconnect.