JBLU

JetBlue Airways Corporation (JBLU)

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JetBlue Airways (JBLU)

Q1 2013 Earnings Call

April 25, 2013 9:30 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

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

Michael Linenberg - Deutsche Bank AG, Research Division

David E. Fintzen - Barclays Capital, Research Division

John D. Godyn - Morgan Stanley, Research Division

Duane Pfennigwerth - Evercore Partners Inc., Research Division

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

Daniel McKenzie - The Buckingham Research Group Incorporated

Hunter K. Keay - Wolfe Trahan & Co.

Bob McAdoo - Imperial Capital, LLC, Research Division

Bob McAdoo - Avondale Partners, LLC, Research Division

Glenn D. Engel - BofA Merrill Lynch, Research Division

Helane R. Becker - Cowen Securities LLC, Research Division

Justine Fisher - Goldman Sachs Group Inc., Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the JetBlue Airways First Quarter 2013 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 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 Investor Relations section of the company's website at jetblue.com.

At this time, I'd like to turn the call over to Jeff Barger. Please go ahead.

David Barger

Thank you, Adrienne, good morning, everyone and thank you for joining us. This morning, we reported first quarter net income of $14 million or $0.05 per diluted share, our 12th consecutive quarter of profitability. Operating margin was 4.5%, a decrease of 2.9 points compared to last year, driven primarily by Hurricane Sandy-related demand weakness in the Northeast during the peak President's Day travel period, and approximately $20 million of higher than expected maintenance cost during the quarter.

Although the first quarter was challenging on several fronts, we remained focus on running a safe, reliable airline and delivering excellent service to our customers.

I'd like to take this opportunity to thank our 15,000 crew members for all their hard work during the quarter.

I would also like to thank all of our crew members who helped support customers and fellow crew members impacted by the tragedy in Boston last week. Our thoughts and prayers are with the victims and their families. Of course, JetBlue will continue to do whatever it can to help in the months ahead.

We have an outstanding team of more than 2,000 crew members based in Boston, and a customer base of 20,000 plus flyers that count on us every day.

As we discussed at our Analyst Day last month, we focused on serving the underserved with a differentiated product and competitive cost in high-value geography. We believe our differentiated product and service is a sustainable, competitive advantage and continues to drive a price premium versus our competitors in many of our key markets. While we've been pleased with the trajectory of our revenue performance overall, Hurricane Sandy negatively impacted demand for air travel in the Northeast over the President's Day travel period, as many school vacations were shortened or canceled. With over 50% of our capacity in the New York metropolitan area, we estimate Hurricane Sandy reduced revenue in February by approximately $25 million.

Even with this headwind, quarterly revenue performance was solid. We generated record revenues and achieved year-over-year improvements in yield, fare and load factor while growing capacity at 6%, demonstrating the core strength of our business.

Also contributing to year-over-year revenue growth was record quarterly ancillary revenue per customer of $22. This is up 3% year-over-year and we see continued opportunity moving forward to generate higher margin ancillary revenues.

Boston short-haul markets continue to be an important driver of profitable growth, driven in large part by our increased relevance to higher-yielding corporate travelers. To continue driving this relevance, we plan to commence service from Boston to Philadelphia in May, and the Houston Hobby Airport in July.

As Boston Logan's largest carrier, we now serve nearly 50 nonstop destinations. We plan to continue to add important business-oriented markets and improve schedules as we further enhance our relevance position and improve margin performance in Boston.

In addition, we continue to see profitable growth opportunities in Latin America and the Caribbean. To that end, we're pleased to announce today our plans to serve Lima, Peru from Port Lauderdale Hollywood International Airport later this year, subject to government approval.

As we continue to expand our network, we believe we are well-positioned to be able to leverage our high-value geography to drive incremental partnership traffic as well. During the first quarter, we launched an interline agreement with Asiana airlines, our 23rd partner. While partnership traffic is becoming a more significant source of revenue for JetBlue, we believe this business is still in the early stages of maturation.

In addition to adding new partners, we believe many opportunities exists to deepen relationships with existing partners through coach share agreements and providing better links between TrueBlue and partner loyalty programs.

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