Welcome to JetBlue Airways Corporation second quarter 2009 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. 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. This call also references non-GAAP results. You can find a reconciliation of those non-GAAP results in JetBlue's earnings press conference release on the Investor Relations section of the company's website at JetBlue.com. At this time, I would like to turn the call over to Dave Barger. Please go ahead, sir.

Thank you, [Anthony.] Good morning, everyone, and thank you for joining us today. In the face of a very challenging economic environment, we're pleased to report our second consecutive quarterly profit. We reported net income of $20 million or earnings of $0.07 per diluted share. Included in these results is a $6 million gain related to the valuation of our auction rate securities. Excluding this gain our earnings for the quarter would have been $14 million or $0.05 per diluted share. This compares to a pre-tax loss of $13 million in the year ago quarter. At a time when we are facing one of the worst economic recessions in history, reporting a profit in two consecutive quarters is a significant accomplishment. The recession is clearly having a major impact on the demand for air travel. Our unit revenues for the quarter were down 4% versus last year, and total revenues for the quarter were down 6% year-over-year. Fortunately, the actions we have taken over the past couple of years, including aggressive actions to manage our capacity and preserve liquidity, have prepared us to weather these challenges. Despite challenging credit markets, we raised over $300 million in new liquidity during the second quarter. This, coupled with cash from operations and reduced capital expenditures, drove our cash balance to $880 million as of June 30. As a result, we believe we are in a strong position to navigate the current economic environment. We've also benefited from lower fuel prices as the hedges we've put in place last year, when fuel prices were rising, are now rolling off. During the second quarter we paid about $140 million less for fuel than we paid during the same period last year, driving a 13% decline in our operating expenses. As a result, a operating income…

Thanks, Dave. Good morning and, again, thank you all for joining us. As Dave said, we're very pleased to earn our second consecutive quarterly profit despite the challenges emanating from the recession. Our second quarter results were certainly impacted by the effects of the current economic conditions as overall demand for air travel continued to be pressured. While our total revenues declined 6% or $52 million year-over-year, JetBlue's operating expenses declined by $107 million, reflecting the impact of significantly lower fuel prices. We ended the quarter with $880 million in cash and cash equivalents or 27% of our trailing 12 months revenue. We believe this percent is among the strongest liquidity positions of the major U.S. carriers. Included in this cash balance is approximately $300 million in net proceeds from the combined convertible debt offering and equity we issued in June. We continue to believe that liquidity and financial flexibility are paramount in today's uncertain environment. Not included in our cash balance as of June 30th is $227 million in auction rate securities at fair market value, which are reflected as non-current assets on our balance sheet. Our quarterly results include a $6 million gain related to the valuation of these securities. As we have discussed on prior calls, we have secured an $84 million line of credit from Citigroup and a $56 million loan from UBS which are collateralized by these securities. During the second quarter we repaid $74 million we had previously drawn on the Citi line of credit, so the entire $84 million is currently available and is not included in our cash balance. The proceeds from the UBS loan are included in our quarter end cash balance. During the second quarter we used a portion of our liquidity to repurchase 3 million of our convertible notes…

Thank you. (Operator Instructions) Your first question comes from Mike Linenberg - Bank of America/Merrill Lynch. Mike Linenberg - Bank of America/Merrill Lynch: The auction rate securities, the $227 million fair value, what is the amount of that at par?

Mike, the par value of those are $274 million. Mike Linenberg - Bank of America/Merrill Lynch: And then just my second question and maybe this is just to Dave, you guys entered into the LAX market and I was just curious how that was going? I know it's a crowded market. Any color on that would be great.

I think LAX we would really describe as very, very pleased with the launch. In fact, in the full month of June it was one of the strongest load factors that we had across the system and not just as a benefit of the introductory fares which we have had fun with with the Route 105 fare, the $105 fare structure that we had in place. Very pleased with LAX and the LA Basin strategy that we currently have. And LAX, of course, is New York and Boston today. But a really strong launch, Mike. Mike Linenberg - Bank of America/Merrill Lynch: Just one last one because you brought up about the strong load factors in the LA market and it had me thinking, when you look at your loads, I mean, you clearly have gone from being a very high-load carrier to even in this quarter you look at your loads versus everybody else - and maybe it's just a function of the fact that you're not in some of these big international markets where you see 95%, 100%-type loads - but when you think about the ancillaries and you ran through a bunch of ancillaries and that number drives up, is there the potential there for a change? Its not a philosophical change, but where you start working to try to get more people on the airplane? Any color on that, where your thinking is?

You're right, Mike; the first chapter was one of load factor, it was a trial, and then obviously much more of an overall RASM performance-type of philosophy. And I think it's fair to say that with Robin Hayes and his team and we have Dennis Corrigan now in revenue management, Rick Zeni previously, this whole approach now to not just the load factor but also the yield and much more sophistication, I think, that's taking place with revenue management. LAX was one of these examples of just real strong loads, kind of like we talked about Montego Bay as well. Of course, it's in the strength of the summer. So I think you'll continue to see a focus of the combination of yield and load factor. And obviously if we're trialing a new market or whatever the competitive landscape may be, there may be a nuance from region to region, but really pleased. By the way, just to comment on the ancillary revenue structure as well, we're going to continue that focus. We're pleased with the 10% year-over-year improvement in the second quarter. And, by the way, things like change fees, we saw less of them just because you have the closer in booking curve that we've seen. So a pretty interesting effect of what's happening in the economy.

Your next question comes from Jamie Baker - J.P. Morgan.

I'm curious, first, if you believe that any distressed industry assets might come up for sale over the next year and, depending on your answer, whether you believe your current liquidity gives you adequate firepower to bid on any assets or if you'd imagine having to tap the market again?

I think that as we look at the landscape we remain interested in, first of all, having a strong balance sheet so that we have the flexibility if some of these assets could become available. I'd probably characterize assets as slots or gates in key airports. So it's no secret; we've talked about it in the past, our interest in places like Washington, Reagan National Airport. So we'll see what plays. I think that we feel good about the balance sheet strength. Ed, your thoughts on the ability if a "what if" happens along those lines?

You know, that was one of our reasons for wanting to build up some liquidity last quarter. One was looking towards 2010 and the put of those convertible debt, but the second was to build up that liquidity so as industry assets became available we could play in that space. So I think we're very comfortable with the liquidity that we have today.

Your next question comes from William Greene - Morgan Stanley.

I wonder if we could talk a little bit more about the capacity outlook. Given the RASM outlook that you provided I guess I was a little bit surprised or it strikes me maybe as a little bit early to begin growing capacity. And I also wonder if we could talk a little bit about 2010 and maybe should we extrapolate the second half growth rates into 2010 as just a preliminary outlook for capacity.

I think 2010, it's a little bit early. I wouldn't suggest taking a look at the back half of 2009 as an indicator of 2010. We discussed aircraft deferrals and also really a renewal of a couple of leases. It's early; we haven't finalized our 2010 plan. I think to get a little bit more surgical on the back half of this year, the eight markets that we'll be opening this year, six of them are in the Caribbean and the international basin and we have four more markets that we're opening in the second semester - Baltimore and then the three down in the Caribbean. And so if you take a look at - we ripped ASMs really hard last year, specifically in the September and the October timeframe, so I think it's a little bit of a - it's not an apples-to-apples comparison, hence the color on the 2007 comparison. And, in fact, when you take a look at just September and October '09 versus '08, we take a look at the amount of capacity that we pulled and in the Caribbean adds that we're laying in there, I mean, ASMs just in those months alone were up 7% to 8% versus 2008. Oh, by the way, the new markets again - and this is also the run rate of the markets that we opened earlier this year; they are being reflected later in the year. So we feel comfortable in terms of what we're doing with our growth and the number of cities that we're opening. All that over the course of the year relatively flat from an ASM perspective.

So are you suggesting the RASM outlook for second half includes some sort of degradation in RASM due to new markets?

No. I mean, it's actually, as we take a look at full year guidance and then specifically third year (sic) guidance, you could really infer there's somewhat of a strength in Q4. It's probably too strong of a word to use, but relative strength in the fourth quarter versus the third quarter for a couple of different reasons. One is, for example, Montego Bay month one, one of the best routes to maturity and profitability that we've ever seen in the company. We think that we're seeing that really across the Caribbean that's why, again, in the second quarter 23% of our ASMs were dedicated to that part of the world. We don't have reliance on the business customer. We're starting to see trial of the business customer. The VFR traffic, it's not inelastic, but I'll tell you, it's been really strong in terms of the Caribbean markets specifically. So as we take a look at all that and we then roll into our forecasting, again, being conservative, we actually see some improvement into the fourth quarter versus the third quarter, but it's not a perfect science right now because bookings are so close in.

Can I just for clarification on your July comments about RASM, you said modestly better than June, but I don't think we have the base, so where we are to date here in July a rough sort of estimate of where the RASM looks year-over-year?

Yes. I think also in the second quarter, because we had the benefit of Easter and, of course, it's year-to-year, right? I mean, airlines are kind of like suggesting how you look at the Easter holiday, but that positive that we had in April, down 10% in the May timeframe year-over-year, down 12% into the June timeframe. And, again, we're closing out the month but, yes, relative improvement to June. I can't put a number onto it, Bill, but my sense is that we could see something that looks like a return to single digits, though.

Your next question comes from James Parker - Raymond James.

Explain to me you're suggesting, I believe you mentioned that you raised fares and some other airlines have done the same thing, but at the same time you're more pessimistic, I think, regarding the revenue outlook and so I need a little enlightenment. It's like, why bother? If the market won't bear it, why are you raising fares?

Jim, we've been involved in some of the fare increases in the second quarter; we led one. Maybe a way to think about it could be the ability to in some of these markets, which have been quite strong, the ability to really start to raise the upper level of the fare structure. And tactically the ability to do that has rewarded us quite well in some of these key markets. I mean, you start to take a look at just some of the other carrier pulldown relatively speaking year-over-year - again, I allude to the Caribbean international markets - there's quite a bit of capacity that's no longer flying in that part of the world. We don't want to be out there as a gauge model airline, but there's been some real interesting tactical opportunities most likely on the upper end on the fare structure.

So you're suggesting you're not raising fares across the board; you're just doing it on the upper end in certain markets? Because the net bottom line is your revenue outlook is more pessimistic.

We had one fare structure that was across the board and actually, as we're taking a look at the revenue environment, Jim, again, it's difficult because we just don't have that visibility as all the airlines don't really have into the future. But as we take a look at PRASM guidance, Q3 versus full year, you can start to run the math in your model. And, you know, I think we're starting to see less impact of H1N1. I think our business model with the relatively resilient VFR traffic. We don't have the reliance on the business customer. We're getting trial. I think that we're actually seeing as you compare those numbers relatively speaking a little bit more strength. And, again, it's a tough word to use in this economy and as we close the year versus the current quarter that we're in.

Your next question comes from Bob McAdoo - Avondale Partners LLC.

As I try to understand the guidance and you talk about costs in this quarter being up 9% to 11% and I go back and I apply that to last year and then I look at sequentially what that means going from second quarter to third quarter, it looks like it takes a CASM ex fuel from like 6.12% up to 6.56%. And I'm wondering sequentially that looks like a 7% or 8% increase sequentially. I'm curious as to what's going on in the third quarter versus the second quarter cost-wise? Where would the cost increases be or did I do a calculation wrong?

I don't think its necessarily that significant of an increase quarter-over-quarter. One of the things that we had in the third quarter of last year was a $7 million tax credit that was accounted for in other operating expenses, so that maybe one of the inputs that makes maybe third quarter look a little bit higher. Our stage length is going to continue to be substantially less than last year, so I think that's something you have to take into consideration as well. And our departures are up quite a bit year-over-year.

But in terms of going from second quarter this year to third quarter this year, you're saying there really shouldn't be that much difference in terms of unit costs? What you're saying is it may be that I didn't take into account that tax credit last year, is that what you're saying?

Well, I think you should probably take into account that tax credit from last year, but I don't think there's anything specific that I can mention that's going on between second and third quarter.

Your next question comes from Gary Chase - Barclays Capital.

Since you were just talking about it I wanted to see if I could just follow up on Bob's question for a second there. I don't know his exact numbers, but we share the perception that the cost numbers, at least, you've been performing at a better level than what you're guiding to. And from our perspective, too, I mean, shouldn't the cost comp start to get easier because last year at this time, as you noted in some of your other remarks about capacity, it did start to pull the network down a bit. So is there any color that either explains why the first and second quarters were lighter on cost or why the third and fourth might be more or is that just conservatism in the guidance?

Gary, I think I would probably say that it was conservatism in the guidance. We continue to take a look into the future on an expense basis and consider some of our costs as investments into the future and I don't think that there was any significant difference between the two. You know, the one thing that's a little bit unpredictable is the timing of some of our maintenance and so, while that may shift from quarter to quarter, on a full year basis I think we're fairly comfortable with our guidance.

And Gary, if I may add, as I take a look at the different pieces that are moving within our structure as well, less capacity, specific in the second quarter, again, flat over the course of the year, but we have the stage length decrease, we were up departures 5%. And we also saw, interestingly enough, this improvement in on-time performance, which is, especially being based in New York, and how that extrapolates into whether it's fuel burn - our relative fuel burn, the aggregated amount on a year-over-year basis in Q2, was relatively flat but our departures were up 5%, which is interesting because those are more inefficient departures or should be because they're short haul. So there's quite a few pieces that are in play there as well. And even when airplanes arrive earlier, crew cost, etc., as it makes its way through the model - by the way, I'm not suggesting the New York airspace is anywhere near fixed, but interesting to see the on-time performance up 3 points year-over-year in the first semester. I think our team's operational integrity efforts and the new terminal at Kennedy are really, really helping us out a great deal.

Just as an editorial, I'm not observing that New York airspace is totally fixed, either. But we do think while it's probably never going to be totally fixed that's a significant source of future savings or potentially significant and since you mentioned it do you think that's going to be sustainable or do you think there's something unique? As somebody who lives here I would say there's been plenty of gray and cloudy and rainy days, so it hasn't been the weather.

Yes, you're right. I mean, one of the wettest Junes ever for those on the call who live in different geography along the East Coast. And do I think it's sustainable? I think that we're going to continue to see the right focus out of Washington, the Port Authority. I think the carriers are working collaboratively - maybe a little bit of color there. I think it's nice to see an administration that's not looking to auction slots, so we're not having to fight those battles. With Secretary LaHood and FAA Administrator Babbitt, you know, calling this focus on New York, my sense is there's good focus that's happening with the FAA. I think collaboratively speaking, no secret the long runway in New York will be closed for four months next year from March 1st to the end of June and the ability to work collaboratively across the airport community I think is a real positive signal. So I think there's a combination of just small victories, maybe I'll call them, that are very helpful. I'll tell you what, though, Gary, terminal five is so helpful. I mean, if we are running off schedule the ground delay program or there's delay programs in place down in Florida with thunderstorms or whatever it might be, the ability to, not just the customer experience, to gate the airplane, to arrive the airplane, to not have an airplane in the penalty box, that entire side of the airport as a result of the inventories in T-5 I think is really between terminal four, five, six and previously six, seven, even over to terminal eight, has really been helpful to our operation.

Okay, we'll probably follow up a bit more offline. Just lastly and I think you answered this, it doesn't feel to us like you're guidance implies revenue erosion and I just wanted to make sure. I realize the comps get worse, but you're also up against a much tougher set of comparisons in the third and fourth quarter. To us it actually looks like the underlying baseline here is improving just a little bit in order for you to get from your third quarter, second to third and then third to fourth quarter. Is that a fair assessment or do you think it's more conservative than that?

I think it's a fair assessment, Gary. In fact, again, the fourth quarter comparisons start to get a little bit more easier, if you will, only from a revenue, you know, we started to see the degradation in revenue at the end of last year into 2009. So I think the way you really characterized how we're looking at a slight improvement, if you will, relative to the third quarter is accurate. And, again, just the strength of - well, we're currently focused on this VFR - not just focused now, I mean, the core of JetBlue has been this VFR traffic and the trial that we're also getting with the business fliers who are looking for, hey, you know, corporations are managing their T&E accounts and it's a good experience out of places like Boston and T-5 and, you know, across our route network. So I think your characterized it well.

Your next question comes from Daniel McKenzie - Next Generation Equity Research.

Dave, in response to an earlier question on industry assets that might become available, I'm wondering where we're at with the potentially forced auction of slots in the New York area that the FAA pushed last year. I believe the industry soothed the FAA over the initiative and I guess related to this is slots become available from another carrier. Is it your read that those are for the FAA to distribute or are they assets that can be bought and sold by the incumbent carrier? I guess the reason I'm asking you guys specifically is because JetBlue's significant number of slots in the New York area, of course.

Dan, I think with the previous administration and the auction of the slots, that lawsuit's been withdrawn. I think what is germane, though, is the slots - not the high-density rule but the slots being placed back into Kennedy Airport had temporary language tied to it that does sunset and so we're still waiting for what's the next iteration of this language. The last time the high-density rule went into effect it was here for 37 years before it was repealed and then it was only gone for about a year and a half, hence the re-slotting of Kennedy Airport underneath this temporary language. So that's the one item that's probably out there in terms of it's a little bit of an unknown what's the language tied to a slot, you know, can you purchase them, lease them, etc. What's the timing of a slot? Because, again, that language was temporary.

And then I guess as a follow up I'm wondering if you could talk about where you're at with respect to ancillary revenue initiatives tied to the growth in the Caribbean? I think in the past you've mentioned there could be some package opportunities given some empty hotels down there and I'm wondering if that's still an opportunity or where you might be on that initiative.

Yes, thanks, Dan, very much so. Our route network with the hotels, golf courses, casinos, cruise ships is so well positioned to take advantage of places like the Caribbean. I think it's fair to characterize our Chief Technology Officer, [Joe Ing], and Rick Zeni leading the charge, the change to our CSS system, we're somewhat in a - lockdown's probably too harsh, but somewhat in a transition for any type of project technologically speaking, it's kind of like getting ready to move into the new terminal five. Let's be careful about complicating things until such time as Sabre is well along and now part of our IT infrastructure. And so now that we take a look at the getaways program that we have today, the ancillary revenue's tied to what it could mean specifically in the Caribbean. By the way, not to undersell the Las Vegases, the Orlandos, the Californias of the world, the packaging, what happens in terms of the revenue buckets. I think there's a lot of excitement that's happening with Robin and his team so that we can really mine our route network and the Caribbean is absolutely perfect, Dan.

Understood. So it sounds like it potentially is a first quarter 2010 opportunity then, if that's the case?

I think we're really looking at first quarter as the CSS conversion. And let's make sure that the quality assurance on the conversion, so probably end of the first semester into the second semester next year. It'd be great to be able to take advantage of the summer peak, for sure.

Your next question comes from Michael Derchin - FTN Equity Capital Markets.

How does Continental's entry into the Star Alliance with antitrust immunity affect your relationship with Lufthansa? And also, any thoughts on Alliance plans or co-chair?

You know, Mike, I think the Lufthansa investment in JetBlue, long term strategic investment, I think your question's probably a real good one for Lufthansa in terms of how they look at Star and Continental joining, United, etc. We have not had discussions regarding any entry into Star or any other alliance and so as we take a look at Lufthansa we're real excited about the commercial agreement - and, again, think about the CSS conversion, the ability to change out to Sabre will help us to optimize that relationship - so, again, as we're making that conversion right now we're excited about how we then exchange customers with Continental. And I think the last part of your question was would we take a look at other opportunities with airlines and you bet. I mean, I think our assets at New York at terminal five today, you know, that building in what I would argue is the most lucrative air transportation market with the number of connections coming across that gateway, which is perfect from Europe, South America, Asia, boy, you bet we want to continue to be able to be real receptive to that on behalf of our shareholders and, of course, respectful to our largest investors as well.

So in terms of route, though, meshing with Lufthansa, do you think it would be fair to say it would be more likely not being in the New York area but elsewhere, like in Orlando or other parts of your system?

For example, as we take a look at Lufthansa and, again, exchanging customers with Lufthansa as part of our commercial agreement, we look at New York, we look at Boston, we look at our focus in Orlando and in Orlando their newest North American gateway - by the way, Aer LIngus, that's their newest North American gateway as well. No, I think, you know, New York as well as our focus cities, I think that our network is really well positioned to take advantage of exchanging customers.

And just one more. Do you have the latest breakdown of your capacity by major market, especially in light of the big expansion in the Caribbean, how much does that represent these days?

To give you a feel for ASMs in the second quarter of 2009, Caribbean was 23% of our deployment of ASMs. Give you a feel for that - in 2007 it was 10% and East-West so for the most part it's transcon with 31%, give you a feel, again, 45% second quarter '07. Rounding that out, Florida 32% and then the shorter haul, medium haul markets 14%.

Your next question comes from Kevin Crissey - UBS.

With Continental purchasing and rolling out the LiveTV, direct TV service, can you talk about how that affects your ancillary and then how it affects your thoughts on charging for TV? Even if it's somewhat less than what Continental would do, it'd still be nice incremental revenue.

Kevin, Continental is the newest customer of LiveTV as we close the second quarter. We had 16 installs on the Continental fleet and what we're hearing back from Continental or what LiveTV is hearing is they're very pleased with the rollout. And as we take a look at the swipe model, you know, again the visibility is really to LiveTV in terms of the metrics that are taking place, and there are other swipe models as part of their portfolio. We take a look at, yes, that potentially is an opportunity for us if we want to take a look at converting to a swipe model, but we have to be really careful with this. You know, the nickel and diming, the perception of nickel and diming, the fact that it's been embedded into the price of a ticket with LiveTV, XM Radio, the WiFi experience, PDA - which, again, we think is the route forward as opposed to broadband - I think we're going to be real careful. Do we have the capability to pull that lever? Yes, we do. But maybe that's something that we can become a little bit more sophisticated as we make the conversion into Sabre. And, again, what does somebody pay as they got on board the airplane. And so I think we're a long way away from converting over to a swipe model at this point for our entire customer base.

And in terms of the financial impact, it's still most - I think we said last time mostly a 2010 event or maybe late in 2010 to really see the effects because they are rolling it on their network now and they should start to see the revenue starting to come in now, right?

Well, Kevin, I think that, you know, the relationship with Continental, as Dave said, we had, I think 12 at the end of the second quarter; we'll have 16 here, I think, currently. You know, it's a revenue sharing model, so certainly that's going to start to come into our other ancillary revenues this year. I think that on a year-over-year basis the impact will be larger in 2010, but we're going to start enjoying that revenue in 2009.

Your next question comes from [Kim Zader] - Imperial Capital.

Just real quickly I just wanted to confirm you repurchased it was 3 million of the 3-3/4 converts in the second quarter and 16 million in July?

That's correct.

And then do you intend to continue doing so, I guess, opportunistically, of course, going forward?

We will certainly be looking at buying some additional converts as we work towards that March 2010 date.

So impressive ancillary revenue growth this quarter. Now, you've referenced the split of ancillary revenues between passenger and other revenue. Could you remind us of which are booked in each bucket or which ancillary fees are booked in each bucket?

I think Lisa will get back to you on that. It's probably a fairly detailed answer.

Your next question comes from Stephen O'Hara - Sidoti & Company. Stephen O'Hara - Sidoti & Company: I'm just curious on the convert purchase, I mean, were they pretty much purchased at par or was there a small gain in the quarter?

Very, very slight gain. I mean, we're repurchasing those fairly close to par, but I think that's a good use of our capital at this point because the return to the put date is actually better than we can otherwise invest those funds. Stephen O'Hara - Sidoti & Company: And then just lastly, did you say there was a gain in the other operating expense line this quarter and if so how much was it?

There was. It was $11 million and it was related to a tax rebate that we received.

This concludes our session with investors and analysts. With that we will turn it over to Dave Barger for closing remarks.

Thanks, Anthony. In closing I'd like to thank everybody on the telephone for joining us, also on the webcast. And also a special callout to our 12,000 crew members - thanks so much for running a great operation, not just in the second quarter but as we take a look at the 2009 J.D. Power Award five years in a row and very, very pleased with the second quarter as we look to building strength over the course of 2009 and beyond. So, thank you very much for joining today and everybody have a good day.