JetBlue Airways Corporation (JBLU)

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JetBlue Airways (JBLU)

Q2 2011 Earnings Call

July 26, 2011 10:00 am ET


Edward Barnes - Chief Financial officer and Executive Vice President

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

Robin Hayes - Chief Commercial Officer and Executive Vice President


William Greene - Morgan Stanley

Kevin Crissey - UBS Investment Bank

Garrett Chase - Barclays Capital

Daniel McKenzie - Rodman & Renshaw, LLC

Ray Neidl - Calyon Securities

Duane Pfennigwerth - Evercore Partners Inc.

Glenn Engel - BofA Merrill Lynch

Jamie Baker - JP Morgan Chase & Co

Michael Derchin - CRT Capital Group LLC

James Higgins

Helane Becker - Dahlman Rose & Company, LLC

Hunter Keay - Wolfe Trahan & Co.

Michael Linenberg - Deutsche Bank AG



Good morning, ladies and gentlemen, and welcome to the JetBlue Airways Second Quarter 2011 Earnings Conference Call. Today's call is being recorded. We have on the call today, Dave Barger, JetBlue's CEO; and Ed Barnes, 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 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.

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

David Barger

Thank you, Kim, and good morning, everyone. Thank you for joining us today. We are pleased to announce another profitable quarter for JetBlue. Sabre reported a net income of $25 million or earnings of $0.08 per diluted share. Total revenues grew 22% year-over-year, reflecting the strong revenue environment and underscoring the progress we've made to strengthen our network and maximize revenues. Our strong revenue performance was offset by a 26% increase in operating expenses, driven primarily by $160 million of additional fuel expense as JetBlue's fuel price for the second quarter increased 44% versus last year.

The sharp increase in the price of fuel has clearly had a negative impact on the entire industry. However, our efforts to diversify revenue during shoulder periods, and conservatively managed cost continue to pay off, helping mitigate the negative effects of escalating fuel prices. We ended the quarter with roughly $1.2 billion in unrestricted cash and in short-term investments or 28% of trailing 12-months revenue, among the best liquidity positions in the industry. We believe maintaining a strong liquidity position is especially important in this high fuel cost and uncertain economic environment.

Our second quarter results reflect the hard work of JetBlue crew members and the strength of our business model. I'd like to thank our 13,500 crew members for their extraordinary efforts in delivering outstanding, safe and reliable service to our customers everyday. As a testament to their efforts and the strength of our product and brand, we recently earned the highest customer service ranking among the low-cost carriers by J.D. Power and Associates for the 7th year in a row, a remarkable achievement. We're very pleased to be in the company of some of the most prestigious and respected brands in the world, who received this recognition. With a 13.2% year-over-year PRASM increase, we're among the top performers of the U.S. carriers, who have reported second quarter results. Our stronger fare environment contributed to the significant year-over-year unit revenue gains during the second quarter, even as our capacity increased 8.7%. We had an average one-way fare of $158, a 14% improvement over last year, and our highest quarterly average fare ever, reflecting the stronger fare environment, as well as our ability to attract higher-yielding customers. These strong results are clear evidence that our network strategy is working, which includes focusing on further penetration of the business traveler segment, particularly in Boston. The key objective of this strategy is to improve revenue performance during shoulder periods.

As such, we are very pleased with our year-over-year domestic PRASM growth in May, traditionally an off-peak travel period, which outperformed the industry. JetBlue has continued to grow each year in Boston. We currently offer nonstop service to 42 destinations from Boston's Logan Airport, more than any other carrier. In fact, no airline has ever served as many destinations as JetBlue in the Logan Airport's entire history, further solidifying our position as the airport's leading carrier. We continue to benefit from competitive capacity trends and expect competitive capacity in our Boston markets to be down about 3% year-over-year in the third quarter of 2011.

New destinations and increased frequencies, combined with our superior product have helped us build and grow a loyal base of Boston's business travelers. As we grow this relevance, we believe we are able to stimulate demand and quickly gain traction in new markets. Illustrate in the first month of our Boston-Newark service, which began in May, the market size have roughly doubled versus the same period a year ago. Boston to DCA, Washington Reagan National, another business oriented route, also continues to ramp up nicely. We currently operate approximately 100 daily flights in Boston and plan to grow to nearly 150 daily flights by 2015, that's a similar number of departures we currently operate at JFK. We will continue to partner with Massport and make investments at our airport facilities to improve the customers' ground experience. A new centralized security checkpoint opened at our terminal last week, which we expect to significantly improve the experience for our customers traveling in Boston. We also have plans to introduce an innovative flat-rate travel pass, designed for the business customer in the very near future, which we believe will drive additional revenue.

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