JBLU

JetBlue Airways Corporation (JBLU)

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JetBlue Airways (JBLU)

Q3 2012 Earnings Call

October 25, 2012 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

Robert Maruster - Chief Operating 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

Duane Pfennigwerth - Evercore Partners Inc., Research Division

Hunter K. Keay - Wolfe Trahan & Co.

Glenn D. Engel - BofA Merrill Lynch, Research Division

James D. Parker - Raymond James & Associates, Inc., Research Division

John D. Godyn - Morgan Stanley, Research Division

Kevin Crissey - UBS Investment Bank, Research Division

Raymond Neidl - Credit Agricole Securities (USA) Inc., Research Division

Thomas Kim - Goldman Sachs Group Inc., Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the JetBlue Airways Third 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 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'd like to turn the call over to Dave Barger. Please go ahead, sir.

David Barger

Thank you, John, and good morning, everyone, and thank you, all, for joining us. This morning, we are pleased to report another profitable quarter for JetBlue. This marks our 10th consecutive profitable quarter. We reported a third quarter net profit of $45 million or $0.14 per diluted share and operating margin of 8.6%. Despite continued economic uncertainty, total revenues grew 9% year-over-year. Our solid revenue performance though was offset by a 10% increase in operating expenses.

JetBlue ended the quarter with approximately $1.1 billion in unrestricted cash and short-term investments or 22% of trailing 12 months revenue. We view a strong liquidity position as paramount in this high fuel cost and uncertain economic environment. We continue to use our strong liquidity position to make balance sheet improvements, including paying down high-cost debt and paying for aircraft in cash.

These results reflect the hard work and dedication of JetBlue's 14,500 crew members in delivering an industry-leading customer experience every day. In addition to delivering the JetBlue experience, our crew members achieved excellent operating results this quarter, evidenced by improved completion factor, on-time performance and mishandled baggage claims. I'd like to take this opportunity to thank our crew members for running a safe and reliable operation.

We're very pleased with our revenue results during the summer peak travel period. In September, historically a seasonally weak period for leisure travel, we were particularly pleased with the performance of our Boston business-focused markets. East Coast short haul markets were again the best performing part of our network on a year-over-year basis. Our relevance in Boston continues to improve. We measure relevance as the number of routes JetBlue serves on a nonstop basis relative to the total number of domestic and international routes flown by travelers in Boston.

Today, we are relevant to about 62% of Boston's customers, an increase of 25 points since 2007, significantly higher than any other carrier at Logan Airport. Relevance is particularly important as it enables increasing penetration of business travel segments.

Looking forward to 2013, we expect to continue targeted growth in Boston adding new business markets as we build relevance to our customers in Boston. Through our partnership with Massport, we have secured critical infrastructure necessary to execute our growth plan, including additional gates and an improved customer experience at Terminal C.

As we build our Boston network to improve our appeal to business customers and add corporate contracts, we continue to effect competitive change. Specifically, competitive capacity in Boston decreased by about 6% in the third quarter. We expect additional competitive reductions of about 5% during the fourth quarter. Boston is succeeding as an important part of our network, which is currently centered on 6 focus cities.

In Boston, we have built an operation in which approximately 90% of our customers travel on nonstop itineraries. This network structure in Boston, historically a city not well-suited geographically to a hub-and-spoke structure, enables JetBlue to generate a revenue premium with lower costs than those of our legacy competitors.

For the full year, we expect Boston to contribute materially to improving JetBlue's ROIC. Specifically, trailing 12-month pretax margins in Boston have improved by 8 points year-over-year.

We're also executing on our profitable growth strategy in the Caribbean and Latin America. We are pleased with the performance of our new services offered from Florida to the Caribbean and are expanding intra-Caribbean service. Bookings in Caribbean markets commencing in November are ramping in line with our expectations. These destinations include: Cartagena, Colombia; Samana in the Dominican Republic and Grand Cayman Island in the Cayman Islands.

We recently announced a new interline agreement with Royal Air Maroc, our 8th new partnership this year, bringing our partnership total to 22. As we have added new partnerships and deepened existing partnerships, we are pleased with the growth trajectory of our partnership portfolio, which feeds quality high-margin traffic into our network.

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