JetBlue Airways Corporation (JBLU)

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JetBlue Airways (JBLU)

Q2 2013 Earnings Call

July 30, 2013 10:00 am ET


David Barger - Co-Founder, 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


John D. Godyn - Morgan Stanley, Research Division

David E. Fintzen - Barclays Capital, Research Division

Michael Linenberg - Deutsche Bank AG, Research Division

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

Duane Pfennigwerth - Evercore Partners Inc., Research Division

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

Jared Shojaian - Wolfe Research, LLC

Daniel McKenzie - The Buckingham Research Group Incorporated

Glenn D. Engel - BofA Merrill Lynch, Research Division

Bob McAdoo - Imperial Capital, LLC, Research Division



Good morning, ladies and gentlemen, and welcome to the JetBlue Airways Second Quarter 2013 Earnings Conference Call. My name is Hope, and I will be your operator for today's call.

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. [Operator Instructions] Please note that this conference is being recorded. 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.

I will now turn the call over to Dave Barger. Mr. Barger, you may begin.

David Barger

Thank you very much, Hope. And good morning, everyone, and thank you for joining us. This morning, we reported second quarter net income of $36 million or $0.11 per diluted share, our 13th consecutive quarter of profitability. Operating margin was 7.6%, a decrease of 2.6 points compared to last year. Second quarter results were below those of a year ago driven primarily by continued maintenance cost pressures and a sluggish economic environment. In addition, the timing of the Easter and Passover holidays had a significant impact on year-over-year unit revenue comparisons. Given our strong leisure franchise in the Northeast of Florida and the Caribbean, we estimate the shift of the Easter and Passover holidays from April last year into March this year reduced second quarter year-over-year PRASM by approximately 2 points. Despite this headwind, we generated record revenues and held load factor relatively flat while growing capacity approximately 8%, demonstrating the underlying strength of our business.

Throughout the quarter, we remained focused on our #1 priority, running a safe, reliable airline. In addition, we continued to remain focused on delivering excellent service to our customers through our industry-leading product and culture. We believe our strong brand and differentiated product continue to generate a price premium versus our competitors in many of our key markets. As a testament to the exceptional service provided by our crew members, we recently earned our ninth consecutive J.D. Power & Associates award in airline customer satisfaction among low-cost carriers. I would like to congratulate our 15,000 crew members for this remarkable achievement, and thank them for their continued hard work during the quarter running a safe, reliable operation.

Although the yield environment was somewhat sluggish during the quarter, jet fuel prices declined as we experienced a tighter correlation between revenue and fuel. However, on a historical basis, fuel prices remained very high. Thus, we have remained keenly focused on running an efficient operation. Our crew members, again, do an excellent job operating in a highly congested airspace in the Northeast, where we have nearly 80% of our operations.

As Mark will discuss in greater detail, maintenance cost continue to drive the majority of our second quarter nonfuel unit cost inflation. To that end, we are pleased to have recently finalized a flight hour-based agreement with General Electric to service our E190 engines. Moving forward, we believe this agreement will help us smooth out and better predict future-related expense. Cost discipline is a critical element of our success, particularly with respect to our network strategy in high-value geography.

As we successfully execute on our Boston growth strategy and margins expand, we expect our growth rate in Boston to moderate over the next few years. Similar to Boston, we are pleased with the margin improvement we are seeing in San Juan as we add capacity.

As we discussed in detail at our Analyst Day earlier this year, we are also excited about ROIC-accretive opportunities in our focus city of Fort Lauderdale. We have been very successful in Fort Lauderdale as we have grown our Latin American footprint. South Florida's large population and diverse demographic have driven significant leisure and business traffic. We believe there are many Latin American markets with tremendous growth potential currently underserved by other airlines. Given the enplanement cost advantage of Fort Lauderdale-Hollywood International Airport over Miami International Airport and our superior product offering, we believe we are positioned well to grow profitably in Fort Lauderdale and improve returns over the long-term.

Before closing, I'd like to provide a brief update on a few exciting initiatives underway, designed to help us improve ROIC by growing profitably and achieving our goal to meet and exceed industry PRASM. We believe long-term customer loyalty plays a key part in helping us achieve our goals. Over the past several years, we've made a number of changes designed to enhance TrueBlue, our loyalty program. Most recently, we announced that points earned by members never expire. We believe our loyalty program has a potential to be a source of significant value, both from a core revenue and ancillary revenue perspective. If a JetBlue customer who is not a member today becomes a TrueBlue member, their annual value to us, as measured by revenue, increases by about 2.5x. Today, only about 1/3 of our customers are TrueBlue members. So, we are very excited about this opportunity.

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