JetBlue Airways (JBLU)

Q3 2011 Earnings Call

October 26, 2011 10:00 am ET


Mark D. Powers - Chief Financial Officer, Senior Vice President and Treasurer

David Barger - Chief Executive officer, President, Director and Member of Airline Safety Committee

Robin Hayes - Chief Commercial Officer and Executive Vice President


William J. Greene - Morgan Stanley, Research Division

Helane Becker - Dahlman Rose & Company, LLC, Research Division

Kevin Crissey - UBS Investment Bank, Research Division

David E. Fintzen - Barclays Capital, Research Division

Hunter K. Keay - Wolfe Trahan & Co.

Garrett L. Chase - Barclays Capital, Research Division

Bob McAdoo - Avondale Partners, LLC, Research Division

Duane Pfennigwerth - Evercore Partners Inc., Research Division

Will Randow - Citigroup Inc, Research Division

Michael Linenberg - Deutsche Bank AG, Research Division

Jamie N. Baker - JP Morgan Chase & Co, Research Division

James M. Higgins - Ticonderoga Securities LLC, Research Division

Glenn D. Engel - BofA Merrill Lynch, Research Division

Daniel McKenzie - Rodman & Renshaw, LLC, Research Division

Unknown Analyst -



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Good morning, ladies and gentlemen, and welcome to the JetBlue Airways Third Quarter 2011 Earnings Conference Call. Today's call is being recorded. We have on the call today, Dave Barger, JetBlue's Chief Executive Officer; and Mark Powers, JetBlue's Chief Financial Officer. Also on the call for Q&A is Robin Hayes, JetBlue's Chief Commercial Officer.

As a reminder, 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 the company's annual and periodic reports filed with the Securities and Exchange Commission. This call also references non-GAAP results. You can find the reconciliation of those non-GAAP results in JetBlue's earnings press release on the Investor Relations section of the company's website at

At this time, I would like to turn the call over to Dave Barger. Please go ahead, sir.

David Barger

Thank you, Christine. Good morning, everyone, and thank you all for joining us. We're pleased to announce another profitable quarter for JetBlue. Today, we reported net income of $35 million or earnings of $0.11 per diluted share. These results include the impact of a $5 million loss associated with the prepayment of a portion of our convertible debt. Excluding this special item, JetBlue would have reported net income of $38 million for the quarter.

Despite an uncertain economic environment, total revenues grew 16% year-over-year. Our strong revenue performance was offset by a 22% increase in operating expenses, driven primarily by $162 million of additional fuel expense as JetBlue's fuel price for the third quarter increased over 40% versus last year. High fuel prices continued to pressure the industry. However, we continue to focus on revenue diversification during shoulder periods and aggressive cost management, helping mitigate the impact of escalating fuel prices. We ended the quarter with roughly $1.2 billion in unrestricted cash and short-term investments, or 28% of trailing 12 months' revenue. We continue to believe a strong liquidity position is paramount in this high fuel cost and uncertain economic environment.

JetBlue's crew members performed exceedingly well, despite the weather challenges associated with the seasonal thunderstorms and Hurricane Irene who has passed trouble directly through the core of our network. Flight operations were suspended in New York and Boston, resulting in approximately 1,400 flight cancellations or roughly 2/3 of our flights over 3 days. Thanks to the extensive preparation that went into this significant weather event, including moving 50 aircraft out of New York, Kennedy and Boston, we're able to get the airline up and running safely and quickly with minimal impact to our customers following the storm. I'd like to take this time to thank our 13,500 crew members for their extraordinary efforts in delivering outstanding, safe and reliable service to our customers and for their hard work and dedication during a very busy summer.

Our third quarter results were driven by strong revenue performance. We believe our 7.7% passenger unit revenue growth is particularly impressive, given our capacity growth of 8.3% during the same period. Capacity growth typically puts downward pressure on unit revenues. Contrary to this general rule, we increased capacity in Boston and the Caribbean while growing unit revenues. We have an average one-way fare of $155, an improvement over last year of 9%. This reflects the successful execution of our network strategy and an increasing mix of higher-yielding customers, particularly in Boston. An important objective of our strategy is to improve revenue performance during shoulder periods. We believe improving revenue performance during off-peak travel periods is essential to sustain revenue growth. As such, we're very pleased with our year-over-year increase in PRASM of 13% in September. Historically, in off-peak travel period for JetBlue.

During the quarter, we continued to build on our success in Boston. New destinations, increased frequencies and our superior product have helped us build relevance with all of our customers, both leisure and business, as well as underlying customers. We currently offer nonstop service to 42 destinations for Logan Airport, twice as many nonstop destinations as any other carrier in Boston. As we build relevance and gain feature in Boston, we are seeing nice penetration of business traffic, driving higher yields. During the quarter, year-over-year PRASM growth in many of our Boston business-oriented markets significantly outperformed the rest of the network.

While we expect our growth in Boston will come in a more moderated pace next year, we still believe there are many new attractive opportunities. We also expect to benefit from the maturation of new markets, as it becomes a smaller percentage of our overall network mix. During the first quarter of 2011, roughly 30% of Boston ASMs were in markets that were open for less than 12 months, or had business schedules for less than 12 months. We expect such new markets will only be 15% of Boston's ASM mix in the first quarter of 2012. During the quarter, our Caribbean and Latin America markets also continue to produce strong results. Our visiting friends and relatives or BFR markets continue to complement our leisure-driven markets very nicely from both a seasonal and day-of-week perspective.

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