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.

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 every day. 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…

Thank you, Dave. Good morning, everyone, and thanks again, for joining us today. We're very pleased with our results this quarter. We reported a profit of $25 million, with a 7.5% operating margin despite $160 million of higher fuel expense versus last year. A strong revenue performance helped offset the impact of rising fuel cost. I joined Dave and the entire leadership team in thanking our crew members for their hard work and taking care of JetBlue customers and delivering solid financial performance this quarter. Revenue results showed continued significant improvement year-over-year, as passenger unit revenues for the quarter increased 13.2% compared to a year ago. Yield during the second quarter, was up 13.9% and load factor was down 0.5 points on 8.7% more capacity. We benefited from a positive pricing traction across all markets as the impact of fare increases implemented during the first quarter fully materialized. The shift in the Easter Passover holiday travel driver period from late March, early April last year to the end of April this year also help revenue growth during the quarter. Given our BFR and leisure focus, along with strong Northeast Florida traffic, the Easter and Passover holidays tend to have a greater impact on us, compared to many of our peers. We were especially encouraged by our strong performance in May, as PRASM increased 19% year-over-year, reflecting our efforts to improve revenue performance during shoulder periods, by among other actions, better accommodating business traffic. As evidenced by this trend, we saw a significant improvement in both yields and load factor on our East Coast short haul markets, such as Boston-Raleigh and Boston-Chicago. Leisure demand unexpectedly and somewhat suddenly lost momentum at the end of June, pressuring industry revenues. Because we have a very compressed booking for all of the large percentage…

[Operator Instructions] And at this time, we have a question from Michael Linenberg from Deutsche Bank.

I have 2 questions here. One, when you announced the order for the A320neos, I just saw that it was reported in Aviation Week that the airplane would have transatlantic capability from some of the East Coast cities. Is that accurate and if that's the case, is that something that you would consider?

We're really not looking at the A320neo as a transatlantic type of opportunity for us. I saw that as well in the trades and trust me, that's not how we're looking at that aircraft.

Okay, that's helpful. And then just my second question, when you look at where PRASM is for July and August, and you kind of look at where you're oil in CASM is expected to be up 13% to 15%. You know obviously, we're going to see some pressure on margins year-over-year, and I realized that the September schedules or -- excuse me, the third quarter schedule is already baked, I know Ed had mentioned about tweaking the fourth quarter. But it would -- if that differential persists that type of gap, you would think that the tweaking would be pretty material tweaking. I mean, what's your thoughts on that?

You know Michael, we take a look at obviously, the color that we added to Q3 and today and specifically, how we're looking at July and August. Again, I would take you up to what we're really doing from a capacity perspective at a macro level in sell. This capacity additions, the 68% for the year and 9% to 11% in Q3, again, the opportunities that we're seeing in Boston is unprecedented. And we're going to continue to seize upon those opportunities. We're at 100 trips a day and as I mentioned in my prepared remarks, we're moving to 150 working with Massport, investment opportunities and likewise, the same type of opportunities, different type of customer based per se, but down in the Caribbean. And when I look at now 25% of our flying at end of the year at the Caribbean and Latin America, again, that's where this capacity is being deployed. The rest of the capacity or the rest of our network is flat. So I think, tweaking, I wouldn't read too much into it. Just at this point, it's not lost on us, that oil, the forward curve, the crack spread, it's not lost on us but we're investing in the long term with what's happening in Boston and the Caribbean.

Our next question comes from Jamie Baker from JPMorgan. Jamie Baker - JP Morgan Chase & Co: Ed, we'd estimate your daily benefit associated with the FAA shut down and cessation of tax collection to be somewhere around, I don't know, $800,000, $900,000 a day benefit. I'm curious obviously, that wouldn't book all into August at this late time, but I'm wondering if you've upwardly adjusted your mathematics or if the guidance you gave us was pretty shut down guidance?

No, thanks for the question, Jamie. It would all be pre-shutdown. I don't think anyone's assured as to how long that will actually last, so I wouldn't bake it in the guidance.

Our next question comes from Gary Chase from Barclays Capital.

I wanted to ask just a little bit further on, I think the question that Mike was asking a few minutes earlier. I mean, I understood that you got these opportunities in Boston that you want to pursue. I guess the question is just given the results and given the environment, is there really nothing else in the core network that doesn't make sense to revisit from a capacity perspective. So I understood you’re not growing it, but is there may be an opportunity to pull down some of the extraneous flying in other parts of the network to help fund that growth?

This is Dave, I'll also team with Robin up for commentary. As we take a look at now several years into this focus on our focus cities, right? Our core touching Boston, New York, Orlando, Fort Lauderdale, Southern California, L.A. and it's not lost on us what's happening down in San Juan, as well. Really, that which is in the network today is contributing, and so I think those opportunities end up being more doomed, the weak opportunities as you start to get into the seasonality of certain markets and those type of opportunities, but we now have -- we are either flying to or announced up to 70 cities that are all contributing as part of the network. Robin, additional commentary from your perspective?

Thanks for the good question, Gary. Clearly, it's something that we look at all the time. I think something we continue to be very pleased with, is the impact of competitive capacity change into the markets that we are growing. So we look at competitive capacity in markets like San Juan, and the Caribbean, Boston and even Fort Lauderdale, where we've seen actually as we look into quarter 4, some of the biggest competitive capacity reduction. And our network, to Dave's point, we think these are very good opportunities and strategic opportunities for JetBlue. In terms of revenue environment, yes, we really don't have much visibility past the end of August, at this point. And we are being relatively cautious, we feel confident about the revenue environment but we are being relatively cautious since we provided guidance given that what we saw in June. But as we look at Boston, as we look at executing our strategy then we continue to see clearly our better months being sufficiently some are off-peak months, as we start to see the impact of Boston. And the last point I'd make is, some of the markets that we've historically struggled with some of the sort of short haul East Coast market out of New York, those are markets that we continue to see very strong performance. And definitely, as we look to increase the amount of business travel that we -- as we look to increase number of business travelers we fly, we continue to see those markets benefit from that, and so to Dave's point, I think we feel very confident and very good about the overall shape of the network.

And Robin, if I could just follow up with one of the points you made. If I recall correctly, I mean, it was last year in the fall, beginning in the September time frame if I'm not mistaken, where you started to really highlight the differential between peak months and off-peak months and you described a lot of this process that would have been driven the positive comp in May. Should we be thinking that, that trend accelerated or are we getting to the point where -- because I would think that as we head into this fall, the contrast between peak and off-peak performance is going to be less than what we've been seeing, unless that trend has really accelerated in a way, I don't understand externally.

Obviously, we're not giving specific guidance past the end of August. I mean, I'll just leave it at a very macro comment that we continue to believe that we will see better year-on-year performance in our off-peak months compared to our peak months as we fill in the trough.

Our next question comes from Glenn Engel from Bank of America.

Couple of questions. One, when you look at the deceleration of your PRASM from second quarter to third quarter. Are there any markets that are leading the way down and how is the transcon doing well to the markets as a whole?

Glenn, it's Robin again. I think a lot of what we – the sudden drop-off that we saw in June, which I think is something that the industry experienced. The business markets held up well. We really thought out most impacted on some of our core leisure markets and particularly, Florida, which has been a market where we continue to grow PRASM, but at a slower rate than in the past. And I think transcon's actually held up pretty this summer. Some of the spare levels have been good.

And you mentioned that you were going to increase the amount of seats in the More Legroom product, will that reduce the number of seats per plane overall?

No, unchanged.

Our next question comes from Duane Pfenningwerth from Evercore partners.

It doesn't sound like you're in the mode of shrinking your fleet today. But wondering if you've done the analysis with respect to the market ability of 320s and the 190s. And specifically, how the market values look like today, relative to the debt you have against those aircraft, and are the 190s more marketable today than the 320s?

Duane, it's Dave. A couple of comments and I'll key up Ed for a little bit more specifics there. I think this recent announcement about a month ago, tied into what's happening with our A320 order book, the A320neos, the A321 plus the EMBRAER 190. As we take a look at -- your specific question is are we looking to reduce our fleet plan? I think we're actually just looking to smooth our skyline, and I think that Ed and Mark Powers in the team, really considerable efforts over the last several years and now with this recent announcement, this smoothing with all 3 fleet types, not only to take advantage of new technology but also to be prudent, the ability to dial it up or dial it back as necessary. So I think, again, specific to your question about looking to trim it. Our work has taken place, I mean it's really smoothing. Ed specific to you, A320 market ability, our EMBRAERs more specifics?

I think the comment I would make to that Duane, is that, what we've intended to use in the past to smooth that out or sale is -- what I think we'll use going forward, is probably lease returns. And so as we've had the ability to return A320s, we've actually renewed those leases as the network was suggesting that they wanted a higher percentage of A320s. I don't know that, that will -- going forward, we'll continue to renew those or not, but we have lease returns that can help us offset capacity into the future, and the 190, I think we're going to resolve that with the sales of delivery positions, as we announced on this call, 11 positions that we sold in 2013 and 2014.

A detail, and then just a quick little one. In your $3.33 fuel guidance, can you just comment what the hedge impact is on that?

I'm not sure that we're giving guidance specifically on our hedge position. You could probably calculate that from the investor guidance. I will you that for this quarter, we had a $5 million offset related to hedging in the second quarter.

Our next question comes from Bill Greene from Morgan Stanley.

I know you just renegotiated with Airbus and EMBRAER and what not. But in light of the AMR deal is there any reason to go back to Airbus or do you have a most favored nation status in that contract that would allow you to change the pricing terms on your order?

Hi, Bill, it's Ed. We're very happy with the terms that we came to with Airbus. I don't see any reason to go back and revisit those.

Okay. And then if we look at kind of, folks obviously, look at the slowing RASM, the CASM, sort of growth that we're going to face here. Do you think the revenue is maximized by not having a first bag fee at this point?

Interesting, Bill, I think the -- we're not -- when you look at the first bag free on JetBlue, but it's absolutely a core to our brand, and we know that customers book us because they're aware of that, and by the way, very much aware of it as we start to get into the Caribbean/Latin America with our baggage policy as well. So it's something that's core of who we are, and we have not had discussions about turning it on. Robin, additional commentary?

No. I don't think so. Until today's point, we continue to see good chairship because of the not having a bag fee. And also, the point I've made before, that the way either we run our operations in a very low cost and lead way, and you start adding bag fees and you start getting more cabins bulk out and you start adding turn points that we just did recently, reduced our turn time and take some more time off. And also there's many of us here at JetBlue which again freeze our aircraft time into the network. And as soon as you start adding some of these outlets, product contextures you start to lose other gain, and I think you just pay for it in a different way.

Okay. Dave, just one quick question on timing of the pilot election. Do you have some milestones we should watch for?

Sure, you got it, Bill. It's full transparency. So we're in election period that begin earlier today that runs through the August 16 time frame. And so I will be advised on the 16th of the company's continued relationship with the pilots. Obviously, it's -- I'm very hopeful and the team is that our pilots continue to seek the direct relationship, probably all of our crew members, 13,000 plus strong, that we've seen over the 10-plus years that we've been flying as opposed to candidly having third party representation and paying for their voice to be heard. So look at the 16th of August is when we've been advised by the National Mediation Board. That's an interesting topic all on its own, as for the results of the election.

Our next question comes from Jim Higgins from Ticonderoga Securities.

You mentioned some operational initiatives underway to lower cost. Is there anything noteworthy enough there to give us some more color on?

Hi, Jim, it's Ed. I don't think there's anything that I would bake into a forecast. I would think it's just a continuous process at JetBlue where we try to get more efficient. Some of the things that we're looking at is the ground time, the amount of time an aircraft spends on the ground, improving turn times, that type of thing, but it's more of a continuous process.

And Jim, it's Dave. I just want to add on to Ed's commentary is you'll start to see it. Analysts will see it. Customers will see it. For example, like Kennedy, we now have 7 gates, weather permitting that we're using the two-door operation. And Terminal 5, by the way, was designed to allow for that type of opportunity for us. It was designed for A321s to be candid as well. So we do this where we can. We're doing this throughout our network where we can, and let's face it. At the end of the day, you get the airplane back quicker, have the ability to clean it and dispatch it as well, so and customers absolutely love it. So that's just a little bit of the color behind Ed's comments.

Our next question comes from Dan Mackenzie from Rodman & Renshaw. Daniel McKenzie - Rodman & Renshaw, LLC: I appreciate the commentary on competitive capacity. JetBlue has done quite well in this regard. So the ability to execute has been there. Looking ahead Southwest, and they announced that is planning to go year international sooner rather than later. And Southwest, of course, has a sizable presence in both of JetBlue's focus cities, in particular Orlando and Fort Lauderdale. And who knows what they will ultimately do? But it does seem logical to conclude that both cities would be natural launch cities for the carriers. So I guess my first question is really a two parter. First, where we at relative to the endgame of the Florida focus cities? And then related to that, as you think about what network footprint is going to deliver the best thing for the bulk, in terms of revenues, does it make sense to continue focusing on both or does it make sense to focus on one or the other?

Good morning, Dan, Dave. Couple of comments and then Robin will add in as well. I mean specific to your questions regarding Southwest and the integration with AirTran but my response of you with regard to our plan and our success, and there's been plenty of competitive pressures in that part of the world, whether it's down in Fort Lauderdale, whether it's in Miami, whether it's international flag carriers and taking our success, by the way, throughout Caribbean and Latin America, from Boston, from New York, from Orlando, from Fort Lauderdale, intra-Caribbean as well, first-time routes like Bogota to Orlando or the new Liberia route for us as well, so when I look at really our commitment, it's really now 25% of our ASMs and growing, and so specific to Orlando, Fort Lauderdale, these are nice opportunities. Orlando today has 60 departures in the peak summer time frame. Fort Lauderdale is just under 50. Made some recent facility moves to allow for the greater facilitation of international connections through both of those opportunities. So I look at our product and its relevance to the VFR Traffic, to the business traffic. By the way, Puerto Rico, 8 -- less than 10% of the traffic is tourism. There's plenty of business traffic to and from the Commonwealth of Puerto Rico and let alone, the VFR traffic as well. So our product, the relevance, multiple cities, let's face it. There's always going to be, and they're going to continue to be competitive pressures in that part of the world, and I feel really good about our opportunities in Orlando and Lauderdale in addition to our current footprint. Robin, anything else you want to add there.

Okay. Great. Dan, back to you. Daniel McKenzie - Rodman & Renshaw, LLC: And I guess, related to that, I appreciate that you are executing. There's no question about that. But I wonder if maybe I can approach the season from another perspective, and that is I'm wondering if you can revisit your thoughts about M&A and in particular, we now have a precedent from 2 major low-cost carriers merging. And I guess what I'm wondering in particular, is if M&A could be a path for helping JetBlue to deliver better returns?

Dan, I appreciate the question, and our path forward is organic growth, our own airplanes, our own people and a strategic partnerships with this open architecture. Now 11 carriers, we announced that regarding guidance that there'll be 2 more announced this year. We believe that's the path forward, just work for this company for the first 10-plus years and that's our plan on a go forward basis.

Our next question comes from Helane Becker from Dahlman Rose. Helane Becker - Dahlman Rose & Company, LLC: So, Dave, it seems like you need another city like Boston or New York. Have you given that any thought? Are there any other markets that would measure up?

And I'll also have Robin chime in. I think really taking Boston from 100 to 150, it's -- you could almost take a look at our order book in the next 5 years and all of the aircraft could be dedicated almost to Boston. Let alone these Caribbean opportunities that we have, the occasional opportunities announced today from Westchester County down to Nassau in the Bahamas. So when we look at our current network in Boston, there's still a lot of growth. Robin, additional color on Helane's question.

Good question, Helane. I think as we discussed many times before, we've made some significant investments in market like Boston and San Juan, and we're really here to stay, of course. We're really here to finish the job. We're really here to make sure that it's something that is sustainable and profitable for the longer term, and I think important that we're not distracted by chasing sort of new dreams and opportunities. We certainly have a lot of ideas going forward, as the future growth potential for JetBlue, but I think in terms of the Boston and Caribbean, New York, Orlando, Fort Lauderdale, Long Beach, we have enough to keep it busy for the next 3 to 4 years. Helane Becker - Dahlman Rose & Company, LLC: Okay. And then, can I just ask an unrelated question? Your fuel cost. See even with the hedges seems to be higher than the peer group. Is there some reason that's accounting for that?

Hi, Helane, it's Ed. I think it's our concentration in the Caribbean, so if you look at about 25% of our capacity being in the Caribbean, we tend to pay a higher fuel cost down there.

Our next question comes from Kevin Crissey from UBS.

Let me post this. It's a little bit difficult question, but I think it needs to be asked. If someone invested that could care less where you fly, what you fly and the products onboard, and I'm just focusing purely on the financial returns overtime, why would I buy your stock given that you're earning about the same amount of money today as you were 10 years ago with 3x as many ASM?

Hi, Kevin. Good morning, it's Dave. When I look at where we're positioned in the industry today, and we're investing and we're growing our footprint in relative to other companies, I believe that investors should be looking at not just what's happening with New York and our franchise, but what we're doing in Boston, what we're doing down in the Caribbean over the last several years. And so we get it as a management team, return on invested capital, and I think that some would say that we shouldn't take another airplane, and as I look at it as a young company into our second decade, but still investing with new aircraft and then our franchise, that this is absolutely a story that should be followed and an investment that is very, very good for the future. And so when we're compared to other carriers that have been around for 70 years or the product of M&A activity and bankruptcies, I think you have to look through that. I candidly do. And are we the proper investment for everybody? Maybe not. But I certainly think a prudent and smart investor who knows what we're doing, we're absolutely a very good investment.

Our next question comes from Hunter Keay from Wolfe Trahan. Hunter Keay - Wolfe Trahan & Co.: Just a quick one, Ed, for you. I know we talked about the FAA suspension and the impact on revenue. But is it true, how can I verify this? Is it true you're also paying $0.15 less per gallon for your jet fuel during the shutdown?

I have to tell you, Hunter, I am unaware of that if that's the case. Hunter Keay - Wolfe Trahan & Co.: Okay. That was some sort of tax of the FAA levy which is not being collected on jet fuel but I could be mistaken. Just want to verify that. Okay. Well I can follow up later on. And on your growth a little bit, two-part question, I guess. I hope you can just maybe take a second and walk us through how you evaluate growth? Is it -- do you grow if it's profitable? Do you grow if it's earnings accretive? Do you grow if it's ROIC accretive? What are the steps you look at? And second part, it seems to me that you guys view positive free cash flow as kind of a green light to grow. If given CapEx increases next year, fuel continues to increase and looks like 2012 is a free cash flow negative year, how would you justify growth at that point in time?

Hunter, I think we've been pretty clear that we're going to plan each year to have positive free cash flow. So I think the thing that we're really concentrating on is not diluting shareholders while continuing to invest in JetBlue. If you look at the fact that I don't think that we could be a successful airline if we just focus on JFK, so over those past few years, you've seen us look for other opportunities to invest in, additional focus to these, which will give us both operational efficiencies as well as the ability to have a pricing power within the market. And so those markets that we've chosen to invest in are Boston and the Caribbean, as well as in Florida. And we believe that, that's the right path forward. It is going to require some investments to accomplish. I think a longer term business plan and at that -- while we continue to grow and others are shrinking, we're probably not going to have the same financial results as they do from an ROIC perspective but that doesn't mean that we don't have the same targets long term that they do. Hunter Keay - Wolfe Trahan & Co.: I guess, what drives the decision to not grow? What drives the decision to shrink? That's the question and I guess, not shrink but grow at a slower clip, I guess.

I think we have to obviously watch the economy overall and whether something fundamentally has happened that would suggest that there's going to be longer term, slower growth rates, competitive pressures in particular markets. Yes, those would suggest that you should maybe change your focus longer term, but we have a very long-term perspective versus reacting to things that are happening in the market this quarter or next quarter.

Our next question comes from Michael Derchin from CRT Capital Group.

As part of the Delta-US Air slot swap, there's going to be some divestiture of slots at LaGuardia, and I was just wondering would that be of any interest to you guys?

Yes, Michael. Both the opportunities to acquire a slot swap of that value is a great interest to JetBlue.

Our next question comes from Ray Neidl with Maxim Group.

Just looking at your capital structure. Your free cash flow seems adequate. Your cash levels are more than adequate going forward. Your debt-to-capitalization ratio seems a little bit on the high side. What's -- in some certain environment that we're in heading into the fall, what do you feel would be the best capital structure? You're going to be working on that to try and pay down some debt or increase your debt-to-capitalization ratio?

Yes, thanks for the question, Ray. I think what we'll be focus on, and we tend to look at our liquidity as being a good thing, so we have relatively high liquidity in relative to competitors, $1.2 billion in cash that we talked about in the script. If we felt like there was a need to invest some of that liquidity, we are most likely purchase aircraft. And over the longer term, we're very focused on continuing to delever the company to some extent, but I think that would be more or less paying off debt as it becomes due.

Okay. Great and just with all the uncertainty going on with the banks and so forth, how do you find the barring rate, the leasing rates for aircraft going forward since you've been pretty aggressive in taking aircraft?

The lease rates, obviously, on used aircraft are very favorable. We tend not to look at leasing new aircraft, so I really couldn't comment on that.

Okay. Great. And one last thing, if EMBRAER does as they said they'd go with the larger aircraft, which I think they will, will that have any bearing on your decision on your fleet mix?

I think right now we're pretty committed to the fleet mix that we signed up for. Obviously, we would continue and evaluate any new aircraft that came out, but I would probably air on the side of keeping things simple.

At this time, I'll now turn the conference back to Mr. Barger.

Great. Thank you very much, Kim. I appreciate everybody's time and the questions over the course of today's call. To our crew members, thanks for an excellent job in the second quarter. We look forward to talking to you in approximately 3 months. Have a great day. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.