JetBlue Airways Corporation (JBLU)

Q2 2010 Earnings Call

July 22, 2010 09:30 am ET


Dave Barger - CEO, President & Director

Ed Barnes - EVP & CFO


Bill Green - Morgan Stanley

Michael Linenberg - Deutsche Bank

Will Randow - Citigroup

Duane Pfennigwerth - Raymond James

Gary Chase - Barclays Capital

Hunter Keay - Stifel Nicolaus

Glenn Engel - Bank of America – Merrill Lynch

Bob McAdoo - Avondale Partners

Dan McKenzie - Hudson Securities

Helane Becker - Dahlman Rose



Good morning ladies and gentlemen, and welcome to the JetBlue Airways, second quarter 2010 earnings conference call. Today’s call is being record. We have on the call today Dave Barger, JetBlue CEO and Ed Barnes JetBlue CFO. As a reminder, this morning’s call includes forward-looking statements about future events. Actual results make differ materially from those expressed in the forward-looking statement due to many factors and therefore, investors should not place undue reliance on those 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 report filed with the Securities and Exchange Commission.

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

Dave Barger

Thank you Hilda, good morning everyone and thank you for joining us. We’re pleased to return to profitability in the second quarter and report an operating margin of 10.1%, our highest operating margin since the third quarter of 2007. We reported net income of $30 million or earnings of $0.10 per diluted share. That’s $10 million better than a year ago. Our second quarter results show meaningful improvement over last year and represent our best performance in the last eleven quarters underscoring the progress we have made to strengthen our network, maximize revenues, control costs and maintain a long-term sustainable growth rate.

We also continue to focus on building and maintaining our financial strength, ending the quarter with roughly $1 billion in unrestricted cash and short-term investments or 28% of trailing 12-months revenue, among the best liquidity positions in the industry.

All 12,500 JetBlue crew members should be extremely proud of what they accomplished during the quarter especially in light of the challenges of acclimating to our new customer service and reservation systems, Sabre which we began implementing in the first quarter.

As the testament to these efforts and the strength of our product and brand, we were recently awarded the highest customer service ranking among low cost carriers by J.D. Power and Associates for the sixth year in a row.

Of note, we have the highest score of any North American Airline ranked in the survey. I'd like to take this opportunity to thank our crew members for their tremendous hardwork and dedication. We believe that running a safe, reliable and productive, high quality operation with a strong customer focus is the backbone of our success. Our increasingly loyal customer base helps maximize profitability of our network which we believe in turn enables sustainable growth.

To sustain growth, we must make prudent investments in our future. The Sabre platform is allowing us to better scale our business including more seamless integration with airline partners and better connectivity to global distribution systems. While we began to realize some benefits of this more robust system back in February, we continue to see even more revenue growth as we add functionality to the Sabre platform.

For example, we recently added several classes to our fare structure, enhancing our pricing and revenue management capabilities. In addition to improved revenue management capabilities, Sabre has enabled us to expand our ancillary revenue initiatives as well.

I mentioned last quarter that we had begun adjusting the pricing structure of our Even More Legroom or EML product and now we’re able to offer eleven price points for EML based on customer demand on a particular route rather than length of haul.

This initiative is on track to generate an incremental $10 million in the second half of this year. Improving economic conditions are clearly having a positive impact on demand for air travel, its total revenues were up 16.4% versus last year and unit revenues for the quarter were up 10.4%. Second quarter revenue performance exceeded our expectations as a stronger fare environment contributed to significant year-over-year revenue gains even as capacity increased 5.5% during the quarter.

We had an average one-way fare of $139, a 10% improvement over last year reflecting the improving demand environment as well as our ability to attract and retain higher yielding customers. Revenue results demonstrate that our network strategy is working. With a low-cost structure we have continued to successfully expand our network footprint in two important growth regions, Boston and the Caribbean, Latin America.

Since 2005, we have increased available seats in Boston by over 300%. We are now the largest carrier in Boston in terms of seats offering 77 daily flights to 33 destinations. As we expand in Boston with new cities and increased frequencies, we’ve become more relevant to business as well as leisure customers. As part of this effort, we plan to begin service from Boston to Sarasota and to Phoenix in the fall further solidifying our position as the largest carrier in Boston.

Schedule optimization along with a revamped, more meaningful TrueBlue program have helped us build and grow a loyal base of Boston business customers. We believe we are well positioned as Logan airport’s leading carrier and we expect to continue to benefit from competitive capacity trends. We expect competitive capacity in our Boston markets to be relatively flat year-over-year in the third quarter of 2010.

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