JetBlue Airways Management Discusses Q2 2012 Results - Earnings Call Transcript

JetBlue Airways (JBLU)

Q2 2012 Earnings Call

July 25, 2012 9:00 am ET

Executives

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

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

Robin Hayes - Chief Commercial Officer and Executive Vice President

Analysts

Hunter K. Keay - Wolfe Trahan & Co.

Michael Linenberg - Deutsche Bank AG, Research Division

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

Duane Pfennigwerth - Evercore Partners Inc., Research Division

David E. Fintzen - Barclays Capital, Research Division

John D. Godyn - Morgan Stanley, Research Division

Glenn D. Engel - BofA Merrill Lynch, Research Division

Kevin Crissey - UBS Investment Bank, Research Division

Savanthi Syth - Raymond James & Associates, Inc., Research Division

Raymond Neidl - Maxim Group LLC, Research Division

Presentation

Operator

Good morning, ladies and gentlemen and welcome to the JetBlue Airways Second Quarter 2012 Earnings Conference Call. Today's call is being recorded. We have on the call today, Dave Barger, JetBlue's CEO; and Mark Powers, JetBlue's CFO. 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 pay undue reliance on these statements. For additional information concerning factors that could cause results to differ materially from forward-looking statements, please refer to the company's annual and periodic reports filed with the Securities and Exchange Commission.

I would now like a turn the call over to your host, Dave Barger. Please go ahead, sir.

David Barger

Thank you, John, and good morning, everyone, and thank you for joining us today. This morning, we are pleased to report record second quarter net income of $52 million or $0.16 per diluted share, an improvement of $27 million compared to the second quarter of 2011. This marks our ninth consecutive quarter of profitability. We achieved a 10.2% operating margin, a 2.7 point improvement over last year. We're particularly pleased with the margin expansion we are able to achieve as we generated record revenues, evident that our network strategy is working.

JetBlue ended the quarter with approximately $1.2 billion in unrestricted cash and short-term investments or 25% of trailing 12 months revenue. Due to our strong liquidity position, we're able to strengthen our balance sheet during the quarter by reducing debt, including approximately $170 million in debt prepayments. These results would not have been possible without the hard work and dedication of JetBlue's 14,000 crew members who deliver an unrivaled customer experience to our customers each day. As a testament to our high-quality product and the experience that our crew members delivered to our customers, we recently earned the highest customer service ranking among low-cost carriers by J.D. Power and Associates for the eighth consecutive year.

We're very pleased to be honored with this award along with some of the most respected brands in the world. I'd like to congratulate our crew members for this remarkable achievement and thank them for their continued excellent work in running a safe, reliable operation.

Demand trends remain solid throughout the quarter as we saw strength in all regions. Our year-over-year PRASM growth of 6% exceeded our expectations with strong traffic in the second half of June. During the quarter, East Coast short-haul markets, specifically our business markets from Boston, continued to outperform the rest of our network from a unit revenue growth perspective. We are very pleased with our results in Boston as new markets mature and our share of business traffic increases, resulting in improved profitability.

Customer response to our growth in both new and existing business markets within our network continues to serve JetBlue very well.

Bolstering the success, we recently announced plans to introduce a new tier within our TrueBlue frequent flyer program called TrueBlue Mosaic, which will recognize and reward our most frequent and high-valued customers. We believe the program's enhancements, including Even More Speed and dedicated 24-hour customer service lines, will help us strengthen and deepen our relationship with our customers.

We continue to profitably grow in the Caribbean and Latin America, an area of significant focus for JetBlue. We recently announced plans to begin our third Colombian route with nonstop service to Cartagena, Colombia from JFK later this year, pending government approval. We also announced plans to begin serving Samana, our sixth destination in the Dominican Republic, as well as Grand Cayman in the Cayman Islands, JetBlue's 23rd Caribbean destination, both pending receipt of government approval.

During the quarter, we announced 3 new interline partnerships agreements with Air China, LOT Polish Airlines and Turkish Airlines. And just yesterday, we announced that partnership with Cathay Pacific, our 21st partner. We've been very pleased with the growth trajectory of our partnership traffic and remain on track with our target of adding between 7 and 9 total interline agreements in 2012.

During the quarter, we deepened several of our existing partnerships. We recently began providing reciprocal precompiler mileage benefits with Emirates with whom we have a one-way co-chair agreement. We also began handling Hawaiian Airlines fights at our JFK terminal and have plans to begin servicing Aer Lingus' operations from JFK Terminal 5 to Dublin and Shannon in early 2013. These relationships not only bring incremental traffic and improved facility utilization for JetBlue, but also generate high-margin ancillary revenue through airport concessions.

As we grow, we believe continued focus and discipline around cost is critical to our success. Mark will discuss our cost performance in detail, however, I would like to highlight some of the steps we've recently taken to help reduce our largest expense, which, of course, is fuel. JetBlue is the first FAA certified A320 carrier in the United States to use satellite-based special required navigation performance with authorization required, also known as RMPAR, approaches at 2 of JFK's prime and most used runways, runways 13 left and 13 right. The unique procedures associated with this technology allow for shorter flight times and reduce greenhouse emissions. We estimate this could result in fuel savings of approximately 3,000 gallons per day.

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