JBLU

JetBlue Airways Corporation (JBLU)

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JetBlue Airways (JBLU)

Q4 2012 Earnings Call

January 29, 2013 10:00 am ET

Executives

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

Mark D. Powers - Chief Financial Officer and Executive Vice President

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

John D. Godyn - Morgan Stanley, Research Division

Duane Pfennigwerth - Evercore Partners Inc., Research Division

David E. Fintzen - Barclays Capital, Research Division

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

Kevin Crissey - UBS Investment Bank, Research Division

Glenn D. Engel - BofA Merrill Lynch, Research Division

Daniel McKenzie - The Buckingham Research Group Incorporated

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

Michael W. Derchin - CRT Capital Group LLC, Research Division

Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the JetBlue Airways Fourth Quarter and Full Year 2012 Earnings 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 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 these non-GAAP results in JetBlue's earnings press release on the Investor Relations section of the company's website at jetblue.com.

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

David Barger

Thank you, John. Good morning, everyone, and thank you for joining us. Earlier today, we announced our 11th consecutive quarter and fourth consecutive year of profitability. For the full year, we increased net income by nearly 50% to $128 million, or $0.40 per diluted share. This represents our highest full year EPS since 2003 when you may recall oil averaged only $30 per barrel. This is in stark contrast to the 2012 average Brent price of $112 per barrel. Even with Hurricane Sandy, which reduced operating revenue by an estimated $45 million and operating income by $30 million, 2012 was one of the most profitable years in our company's history.

We accomplished a great deal in 2012, including record revenues of nearly $5 billion, an increase of 11% year-over-year. While fuel remained at elevated prices throughout the year, we were able to fully offset the year-over-year increase of fuel costs with solid revenue performance, improving our full year operating margin from 7.1% in 2011 to 7.5% in 2012.

Further, we continued to make significant improvements to the balance sheet. We generated healthy levels of cash from operations, which we used to pay down debt, purchased aircraft and repurchased shares. We prepaid over $200 million in debt and lowered our overall debt balance by $285 million, while maintaining a prudent level of cash and access to liquidity. We ended the year with approximately $730 million in unrestricted cash and short-term investments, or 15% of trailing 12 months revenue, and increased our available lines of credit to $325 million.

I'm also pleased to report that in the fourth quarter, we repurchased approximately 4 million shares for $23 million through our share buyback program, largely offsetting the number of shares issued during the year in connection with equity-based crew member compensation. These results, of course, would not have been possible without the very hard work and dedication of JetBlue's 14,000 crew members. I would like to take this opportunity to thank our crew members who do an exceptional job delivering the JetBlue experience to our customers.

Hurricane Sandy was the major headline for JetBlue during the fourth quarter. We suspended flight operations in Washington, New York and Boston, resulting in approximately 1,700 flight cancellations, roughly 40% of our flights over a 6-day period. Thanks to the extensive preparation before and during this now historic weather event, including moving 88 aircraft out of JFK and Boston. And the extraordinary efforts of the port authority of New York and New Jersey in reopening the New York area airports, we were able to get JetBlue up and running safely just 4 days after the storm's landfall in New York.

As the focus shifted to recovery efforts following the storm, we saw a significant decline in customer demand for air travel. With over 50% of our capacity in the New York metropolitan area, Hurricane Sandy had a disproportionate impact on our results. Clearly, this impacted our ability to, among other key metrics, exceed our return on invested capital target for the year specifically, to improve our year-end 2011 ROIC of 4.1% by roughly 1%. At the end of 2012, our trailing 12 months ROIC was 4.8%. While the decline and operating income and ROIC due to Hurricane Sandy as explainable, we continued to remain committed to improving ROIC by at least 1 point per year on average.

During the year, we continued to focus on improving the customer experience, including enhancements to our Even More offering. We now offer expedited security for sale on a stand-alone basis, and we expected to complete the installation of Even More Speed lanes at all 47 of our domestic airport locations next month. We also introduced a new tier within our TrueBlue frequent flyer program called TrueBlue Mosaic to better recognize and reward our most frequent and loyal customers. We believe the JetBlue experience is an important reason why our customers choose JetBlue over other airlines. As such, I'm honored our crew members were recognized once again in 2012 for exceptional customer service as we earned our eighth consecutive J.D. Power Award for Service Excellence.

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