JetBlue Airways Corporation (JBLU) Q3 2013 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the JetBlue Airways Third Quarter 2013 Earnings Conference Call. My name is Therese, 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. And also on the call for Q&A is Robin Hayes, JetBlue's Chief Commercial Officer. [Operator Instructions] Please note that this conference call 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.

Thank you, Therese. Good morning, everyone, and thank you for joining us all today. We're very pleased to report our highest ever quarterly income of $71 million or $0.21 per diluted share. This marks our 14th consecutive quarter of profitability. Operating margin was 10.5%, an increase of 1.9 points compared to last year. Total revenues grew by 10.4% year-over-year as we saw a healthy demand environment and strong revenue performance throughout our network. We generated record revenues and achieved year-over-year improvements in yield, fare and load factor while growing capacity 5.1%. We ended the quarter with $954 million in cash and short-term investments. These strong results reflect the success of our network strategy and high-value geography and our focus on offering customers a differentiated product while maintaining competitive costs. Of course, running a safe, reliable operation with high-quality customer service is the best way to improve profitability in a consistent and sustainable fashion. Although we faced operational challenges during the peak summer travel period, we're very focused on improving our operational performance going forward. I would like to thank our 15,000 crew members for their hard work and continued dedication to serving our 30 million annual customers. The combination of our unparalleled JetBlue experience and strong brand once again allowed JetBlue to generate a revenue premium versus our competitors in many of our key markets. As Mark will discuss in greater detail, maintenance costs continued to drive the majority of our third quarter nonfuel unit cost inflation. While we faced significant cost challenges this year, we recognize maintaining a relative unit cost advantage versus the legacy carriers is critical to profitable sustainable growth. To that end, we have several structural cost initiatives underway in lowering unit costs over the long run and improving margins. These initiatives include the Sharklet retrofit on our current Airbus A320 fleet, which is scheduled to commence in early 2015. We expect installations to be completed on up to 110 A320 aircraft by the end of 2017. We believe this improvement will help us better manage our largest and most unpredictable cost by providing up to 3% in fuel savings. In addition, this morning, we announced significant changes to our fleet plan, which we believe will further significantly change our cost dynamic over the long run. As part of this effort, we have deferred 24 EMBRAER 190 aircraft, converted 18 A320 delivery positions to A321s and ordered 15 additional A321ceo current engine option aircraft. We believe these actions will enable JetBlue to better match capacity with demand throughout our network and lower costs. While the 100-seat EMBRAER E190 is critical to our continued success in Boston and San Juan, we believe these key markets can be addressed with our current fleet of 60 E190s. As our network matures, we believe larger gauge aircraft will allow us to better serve high-density markets and more effectively use our valuable airport slot portfolio in New York. These fleet changes provide greater network flexibility and will help us effectively manage our growth, particularly in Fort Lauderdale-Hollywood International Airport. As Mark will discuss in more detail, we anticipate the A321 single class configuration will also help us manage costs going forward. A321 configured with 190 seats is expected to have 10% to 15% lower unit costs than the 150-seat A320 aircraft that it will replace in the order book. We believe this fleet restructuring will result in better returns for our shareholders as we defer capital investment over the near term. We recently took delivery of our first Airbus A321 aircraft. As previously announced, a sub-fleet of A321s will power Mint, our premium offering on the New York to Los Angeles and New York to San Francisco markets. We believe the combination of price and product quality, including an unparalleled in-flight experience with the longest lie-flat beds in the only private suites in domestic business class, will make Mint a terrific success. We believe Mint, together with broadband in-flight connectivity, will help grow JetBlue's overall performance in these lucrative transcontinental markets. We're on track to launch Wi-Fi, our broadband in-flight connectivity product, next month. Wi-Fi is expected to deliver speeds of up to 12 megabytes per second per device, significantly faster than any other in-flight connectivity products available today in the U.S. domestic market. We believe this will become a game changer for the in-flight Wi-Fi experience. As we continue our efforts to be more responsive to our customers and become the leading carrier in the markets we serve, we recently enhanced our TrueBlue loyalty program with family pooling. JetBlue is the only major U.S. carrier to allow customers to earn and use points as a group for free. Members will be able to allocate all or a portion of their individual TrueBlue points into a group account. We believe the family pooling feature along with no points expiration introduced last quarter will help drive customer loyalty and improve margins. In closing, we're very pleased with our strong third quarter results. While we expect 2013 will be one of JetBlue's most profitable years ever, we have a number of initiatives underway designed to help build a long-term sustainable franchise for all of our stakeholders. We believe our unique business model will continue to generate improving and sustainable returns for our shareholders over the long term. As we build on our strategy to serve customers with a differentiated product and a competitive cost structure in our high-value geography, we remain committed to generating free cash flow and improving our return on invested capital metric by 1 percentage point per year, on average, for the foreseeable future. And with that, I would like to turn the call over to Mark for a more detailed review of our financial results.

Thank you, Dave. Good morning, everyone. Thank you for joining us today. I apologize for the slightly weak voice. Note to self, when visiting Minnesota, take a coat. Anyway we are so pleased to report third quarter operating income today of $152 million. This is an increase of 35% compared to the third quarter 2012. These results are a credit to our 15,000 crew members, who do a great job taking care of our customers. Third quarter year-over-year passenger unit revenues, or PRASM, increased by 5.4% on a capacity increase of 5.1%. A solid demand and yield environment contributed to our record quarterly average fare of $164. That's a year-over-year increase of 6.5%. Although we saw strength throughout our network during the quarter, yield and unit revenues in Latin America and the Caribbean markets outpaced our system average. Today we continue to be very pleased with our success in this important region. Today we announced daily service from the Fort Lauderdale/Hollywood-focused cities to Montego Bay, Jamaica, and Punta Cana, Dominican Republic, beginning in May 2014. Boston short hauls also continued to perform well as we build relevance and increase corporate travel penetration. To that end, we recently announced 3 times daily service from Detroit and Boston commencing March 2014. We are now relevant to roughly 65% of Boston customers. 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. Increased relevance has been an important driver of our strong revenue performance in Boston. We also continue to be very pleased with our revenue performance in our hometown of New York. We recently celebrated the fifth anniversary of our award-winning Terminal 5 at JFK airport. Construction of T5i, our international expansion at JFK, is on track and is scheduled to open by 2015. Year-over-year, PRASM increased by 5% in July, 3% in August and 9% in September. Demand during the peak summer travel season was solid. September benefited from strong close in demand and strength in Boston short-haul business markets, reflecting the success of our efforts over the past years to de-seasonalize the network and increase corporate travel. With respect to ancillary revenue, ancillary revenue per customer was up 11% versus last year at $21. That's a quarterly record. Our Even More offering was once again a significant driver of ancillary revenue growth and remains on track to generate approximately $165 million of revenue this year. Total ancillary revenues in 2013 are expected to increase about 15% year-over-year. Moving to costs. Quarterly operating expenses increased 8.1% year-over-year or $95 million. Fuel, of course, remains our largest expense, comprising nearly 40% of the total. We continue to maintain a fuel hedge portfolio as a form of insurance. In the third quarter, we hedged approximately 29% of our fuel consumption. Additionally fixed forward price agreements, or FFPs, covered approximately 14% of our third quarter fuel consumption for a total of 43%. Including the impact of fuel hedging, FFPs and taxes, our fuel price in the third quarter was $3.14 a gallon. For the fourth quarter, we've hedged approximately 27% of our anticipated jet fuel requirements. Additionally FFPs cover approximately 12% of our projected fuel consumption. The underlying details of our FFP and hedge positions as of October 24 are more specifically described in our investor update, which will be filed with the SEC later today. The impact of hedges and taxes -- including the impact, rather, of hedges and taxes, we're estimating fourth quarter fuel price of $3.03 per gallon and full year fuel of $3.13. Excluding fuel and profit sharing, year-over-year third quarter unit costs increased by 4.9%. The primary driver of the year-over-year increase was maintenance expense, which accounted for approximately 50% of the increase. As discussed on prior earnings calls, we faced greater maintenance cost pressures this year related to the aging of our E190 fleet and the CF34 engine. Although maintenance expense has been a source of significant cost pressure this year, we expect to see year-over-year maintenance cost inflation slow in the fourth quarter. Also contributing to the year-over-year increase in third quarter unit costs were airport rents and landing fees, which increased 9.6% year-over-year on a year cost basis. This was driven in large part by higher airport rents in several of our key focus cities as we assumed a larger portion of that airport's total costs with corresponding decreases in competitive capacity. Moving to the balance sheet. We ended the third quarter with unrestricted cash and short-term investments of approximately $954 million or 18% of trailing '12 revenue. Not included in our cash balance is our line of credit with Morgan Stanley of $200 million and our revolving credit facility of $350 million. During the third quarter, we made debt and capital lease payments of approximately $70 million. Fourth quarter scheduled principal payments from debt and capital leases are expected to be $185 million. We also plan to redeem approximately $52 million of our 5.5% convertible bonds in December. With strong cash from operations and management capital commitments and debt maturities through the rest of the year, we believe JetBlue is positioned to maintain stronger liquidity through the fourth quarter and generate positive free cash flow. We expect to end the year with cash in a percent of trailing '12 revenue of roughly 15%. Strong cash from operations has enabled us to reduce outstanding debt and, as a result, decrease financial risk. Since 2008, we've paid down approximately 70 -- $700 million, rather, in adjusted net debt while growing our fleet 35%. S&P recently recognized the impact of these and other efforts by us, grading JetBlue's corporate rating 1 notch to B. Looking ahead to 2014, we have roughly $600 million in debt maturities that we plan to refinance or retire. We recently closed a private placement EETC for 206 -- $226 million with a funding date in March 2014, which coincides with the final maturity of JetBlue's 2004-1 EETC, which will release 13 aircraft. With this transaction, we have taken a portion of the interest rate risk off the table while using existing unencumbered collateral. We believe this provides financial flexibility with our new deliveries with respect to CapEx and fleet. JetBlue ended the quarter with 189 aircraft, including 130 A320s and 59 E190s. Earlier this month, we took delivery of our very first A321, and we expect to take delivery of 1 E190 and 3 additional A320s before the end of the year. We estimate fourth quarter capital expenditures of about $275 million, $200 million for aircraft and $75 million for non-aircraft-related expenditures. We estimate full year CapEx of approximately $630 million, of which approximately $60 million relates to LiveTV. As Dave mentioned, in addition to the A320 Sharklet retrofit, we announced several significant changes to our fleet plan this morning, which, we believe, will allow JetBlue to better match capacity with customer demand. We are essentially: one, converting 18 future A320 delivery positions to A321s, rather, converting that -- let me say it again, A320 delivery positions to A321s; two, deferring 24 E190s; and three, taking delivery of 15 additional A320s in the near term. JetBlue plans to optimize its E190 fleet to approximately 60 aircraft. We'd like to thank EMBRAER, in particular, for being a strategic partner in reaching this agreement and helping JetBlue achieve our network and financial goals. The changes we announced this morning reduced our aircraft purchase obligations by roughly $200 million through 2016. The A321s are very attractive because they allow us to more efficiently serve high-density markets, particularly those to Florida and the Caribbean. We believe the A321 is well suited for these markets because we expect to achieve similar revenue at lower unit costs than the A320. The A321 will also allow us to optimize our lucrative slot portfolio in New York. In addition, we expect the A321s to help us better manage costs over the long run, specifically the A321 aircraft in single-class configuration are expected to benefit from a 10% to 15% CASM advantage versus our A320 aircraft. These cost savings are driven in large part by a 10% to 15% fuel-efficiency advantage. We also announced plans to purchase 20 additional A321neo aircraft. The aircraft, which we expect to begin delivering in 2018, will give us the flexibility to replace older and less fuel-efficient A320s in the future. Additionally aircraft equipped with the new engine option are expected to benefit from a 12% to 15% fuel savings relative to the current A320 aircraft. Specific fleet changes are more specifically outlined in the press release we issued this morning. Moving to capacity. We expect to increase fourth quarter capacity -- fourth quarter ASMs between 7% and 9% year-over-year. Approximately 1/3 of this increase is due to our reduced flying as a result of Hurricane Sandy in the fourth quarter of 2012. We expect 2013 full year ASMs to increase between 5.5% and 7.5% year-over-year, unchanged from previous guidance. Turning to the revenue outlook. Bookings are shaping up well from both a yield and load factor perspective. We are seeing significant strengths during the peak Thanksgiving holiday period. While still very early but first look at December holiday period is shaping up nicely as well. Now as we move through the last 3 months of the year, there are several items impacting year-over-year unit revenue comparisons. Recall, October PRASM last year included a 2-point benefit related to Hurricane Sandy as we were able to reaccomodate customers and recapture revenue while reducing ASMs in the last 2 days of the month. We currently expect October PRASM to increase by approximately 4% year-over-year, including this 2-point headwind. Moving on to November. The comps get easier due to the significant demand challenges we faced in the wake of Hurricane Sandy last year. However because the Sunday and Monday following Thanksgiving, 2 of our highest revenue days of the year, fall in December this year, we expect November year-over-year PRASM comparisons to be negatively impacted by the calendar shift. Therefore November is a difficult month to forecast. As for the CASM outlook, keep in mind, last year's fourth quarter CASM was negatively impacted by flight cancellations related to Sandy, resulting in a CASM tailwind in the fourth quarter this year due to higher ASMs. We expect fourth quarter CASM, excluding fuel and profit sharing, to be between negative 0.5% and positive 1.5%. For the full year 2013, we're forecasting CASM, excluding fuel and profit sharing, to be up between 2.5% to 4.5% versus 2012. Maintenance costs are expected to comprise approximately 2/3 of the full year CASM x fuel profit-sharing increase. We project CASM all-in will between -- will be between negative 1% and positive 1% for the fourth quarter and up between 1% and 3% for the full year. In closing, we're very pleased with our performance. Our initiatives to increase revenue continue to gain terrific traction. On the cost side, we recognize that we clearly have more work to do, both on a structural and a tactical perspective. The fleet-related actions today are another many steps in that direction. We are also focused on improving our productivity and running a reliable operation, which we believe will help further reduce costs. I'd like to thank our crew members for making our strong third quarter results possible. I continue to be impressed everyday by the work you do in delivering the JetBlue experience to our 30 million annual passengers. And with that, Therese, Dave, Robin and I are happy to take questions.

[Operator Instructions] Your first question comes from Mike Linenberg with Deutsche Bank.

I have 2 questions. Mark, I want to go back to the deferrals of the EMBRAER 190s, and then, of course, there's some additions of some A321s. You mentioned that through 2016, you would see a benefit of, I think, $200 million on the CapEx side. I guess that's presumably between now and 2016.

Yes.

Can you just give us the base, what the number is, where it is and what it's going to?

In terms of our number of aircraft deliveries, I think that's probably in the press release. But I would say, just going through '14, 15' and '16 real quick... Mark Streeter - JP Morgan Chase & Co, Research Division: I mean, the base of CapEx. The CapEx -- yes, the CapEx.

Sure. And I believe we also have -- when we do file our 10-Q, this will also be disclosed. It does increase our CapEx by $1.8 billion. Now let me put that in perspective. Most of that $1.8 billion occurs post-2018. So when you -- even if you look at the exhibit on the press release today, you'll see that with the -- essentially, the deferral of the E190s offsets the 15 incremental classic or ceo additions. And so post '18, with the -- which is when, of course, the neos start delivering, that's when we have the additional -- the neos that we're ordering today, coupled then with the scheduled delivery starting in 2020 of the EMBRAER aircraft.

Okay, great. And then just my second question. This is probably for Dave and/or Robin. When we think about capacity growth next year, maybe an early read on what you think what that number will be, and then how the Fort Lauderdale ramp-up fits into that. I've seen -- Dave, I know I've seen some of your tweets, Fort Lauderdale 100. And I think today, what are you at, 40, 45 departures or so. So that 100, how does that figure into next year's ASM growth plan? Anything on that would be great.

Great. Michael, it's -- obviously, we won't provide guidance on what our growth is looking like in 2014. That said, we remain committed to something that looks like, again, mid-single digits plus in terms of growth on a year-over-year basis on ASMs. That's what we've been saying over the last several years. We've been demonstrating that. You look at this year's capacity for the full year, so as you look at 2014 and beyond, I think that that's -- it will give you a feel, right, for our continued focus on that growth level. Specific to Fort Lauderdale, interesting in Fort Lauderdale-Hollywood International Airport, in the Dania area, right, I mean, it's a lot of fun spending time down there. The -- we were as low as the high 40s over the course of the summertime frame. We're as high the mid-60s going into the winter schedule that's currently published. And so when we look at Fort Lauderdale-Hollywood international Airport and its growth plan with FLL 100, I mean, today's announcements are indicative of what we're doing. I mean, when you start to take a look at connecting the dots with Montego Bay with Punta Cana, cities that we currently fly, very efficient as we've added service into Colombia, into Costa Rica, throughout the Caribbean. By the way, as we're adding service into the United States, I mean, hooking up places like Western and Central Mass. I mean, the -- we think when we're looking at focusing our growth pattern on South Florida, think a lot about what we did up in Boston, but it's a different type of schedule. I mean, we're committed to it. We're going to grow it. We're going to move briskly. And, Mike, I think it's -- we're sharing this well. I just can't think of another airport in the United States where $2.3 billion worth of investment is taking place with the expansion of the southern runway, with a new international arrivals facility, with airside improvements in addition to the runway and land site improvements. And the cost for employment to use that airport relative to Miami with a superior experience, I mean, it's just not even close. And so we're really -- these aircraft next year -- again, we're still building Boston. We're still building South Florida and can't be more excited than what we're looking at doing with Fort Lauderdale 100.

Your next question comes from the line of John Godyn with Morgan Stanley.

Dave and Mark, I was hoping to just follow up on the Mint service that's coming in 2014. And I was hoping that -- not for the purposes of guidance or anything, but just -- I was hoping you could offer sort of a simple framework for thinking about how that's going to kind of hit the numbers? What are the main moving parts? I mean, I have to imagine that CASM x fuel, it's a little bit of a mix negative in that sense. Is it accretive to PRASM? Is it margin accretive? How are you thinking about the spool time there? Of course, it's a market that you kind of have a presence in. Has there been any response already? Is there anything that you could kind of tell us as we look out to 2014 and start to sort of -- start to think about modeling this?

John, it's -- a couple of comments, and I'll queue Robin up for additional color. Again, keep in mind that Mint between Kennedy Airport and LAX and SFO, that service really commences into Southern California in midyear June of 2014. So we're still a fair piece away from actually that making its way into the landscape in any meaningful way with its numbers. Now all that said, prior to today's announcement, 11 of 30 A321s are dedicated to the Mint product. So there will be exclusive Mint between -- again, that experience between JFK and LAX and San Francisco. Why are we doing it? We're doing it because, as we've shared in the past as recent as our Investor Day earlier this year, we were lagging when we look at our Net Promoter Score, which is a direct relationship to unit revenues in the transcontinental markets and not just because of the lack of a premium experience. I'm not going to use the word cabin, a premium experience, but because we also didn't have Wi-Fi. And so the Wi-Fi, and I'll queue up Robin at this point, that issue combined with Mint as it makes its way into Southern California earlier, Northern California, later into 2014, 2015 because of aircraft deliveries, there's no doubt, it will have a higher cost structure on those aircraft, no doubt. But we're doing it because we absolutely see a very nice improvement from unit revenue. Robin, additional color.

Thanks, Dave. John, if I remind you what we shared at our investor update in terms of a commitment to get to industry PRASM while growing, now one of the areas where we shared where we underperformed industry within transcon, as Dave said, a large part of that was not having access to the paid, stress the word paid, premium market, particularly in very rich and very deep markets like New York-LA, New York-San Francisco. So we think by developing a Mint product, first of all, we get access to that. Secondly when we look at the transcon pricing environment today, and I don't want to get into what I think competitors may or may not to do because I just don't know, but people are clearly overpaying for what they get. And so I think our ability to come in and disrupt that market, create a much lower price point and significantly expand the premium market, I think is so core to what we do today and so core to who we are. So I have no doubt that we'll be successful in doing that, and we will see a significant margin bump because of it. In terms of thinking about the costs and the margin side as well, think about we have 320s flying yesterday. With the 321, we already touched on the very low incremental cost of the 321 versus 320. So the cost of -- incremental costs of like flying a 321 in that market versus a 320, when we think about the significant revenue enhancement that we're going to get for that extra fun experience, I won't use the word cabin, when you throw those together, you can see that it's going to be very accretive to earnings.

Okay, that's very helpful color. And, Dave, you sort of mentioned that before today's announcement there are 11 A321s dedicated to Mint. And I couldn't help but notice that in some of Mark's comments, he was sort of very specific on some of the A321 operating stats in single-class configuration. I mean, should we be viewing this fleet reorg here a little bit in the context of a continued expansion of Mint service across your aircraft types? I mean, are we laying the foundation for that?

Not necessarily at all, John. It's -- I think when we look at, again, markets in the world where the customer actually pays, right, for a premium experience, we know for sure that there's 2 that we fly in at Southern California and Northern California, so LAX and San Francisco, specifically. And so we're going to be very focused on rolling that product out. And who knows if there's additional opportunities, right, as we have shared most recently. As we were traveling, hey, listen, we'll take a look at that, as you know, as we were up in Boston recently. We're a large operation in Boston. I mean, we're as high as 116 trips, 52 nonstop city pairs. I mean, there is already quite a bit of interest in that product up there. But this transaction, the transactions that we're announcing today, the fleet issues -- I tell you just to comment on this core product, and again, I stay away from the word coach, I mean, the core experience 321, think high-density, Northeast down to Florida, the Caribbean, let alone allowing us the opportunity to have the geography to also offer Mint on 11 of those aircraft. I mean, this is a perfect aircraft for the high-density markets and to better utilize our slot portfolio up in the Northeast, specifically in New York, and that's behind the additional A321s at this point in time.

Your next question comes from the line of David Fintzen with Barclays.

Just another question to kind of follow up on a couple of the previous questions around fleet. And when we're looking at this revised order book over the next couple of years, I mean, it feels like, obviously, the shell count is lower. But if we just kind of take the current utilization, I mean, it feels like ASM production out of this fleet, this revised fleet, should be about the same as what we were thinking, and it just seems like you're kind of set up for the 7% to 8% ASM growth range over the next couple of years. Is that the right -- I mean, I know you don't want to have explicit guidance, but is that kind of the right way to think about it, or is there something underneath in terms of maybe 320s coming out that's changing, that we're not entirely seeing?

No, you broke the code. It's -- there's nothing else coming out. We do have -- just a footnote, but we do have the flexibility to return some aircraft, actually, throughout this entire period from '16 all the way through '24. And so the dynamic of -- the ability to respond better to what Robin and the network team want to do in terms of capacity remains there. Having said that, these -- the lease rate -- the lease return and lease rate markets are pretty favorable to airlines right now.

Okay. Okay, that helps. And then just maybe a quick -- just a quick followup on -- you guys have done some really -- some tactical adjustments to September, holding capacity flat. I mean, I know October, there is a lot to weed through in terms of Sandy impact. But it just looks like in the schedule, some of that continues. And I'm just kind of curious how that sort of experiment in September played out relative to your expectations, and then how much of that can we expect to see carry forward.

Yes. David, it's Robin. I'll take that. I mean, I think it -- if we think about September, and I think we've said this, you've got to remember the September before showed some very big increases on the year before. So to a certain extent, I think it was just about kind of getting September back in line. I look at September 13 and I look at September 11 and really think about that over 2 years. For October, November, December, it -- our capacity does look quite choppy. I mean, I think part of that is to do with the Sandy hangover, which Mark talked about, which certainly took a slug of ASMs out. And then even into December, you're seeing significant passenger increases in December versus November. You've got to remember, as Mark touched on, 2 of our peak days of flying moved from November into December, which has quite a big impact on capacity. We also have the 321s coming to the fleet right at the end of the year. That will be flying over the peak holiday period as well. And so both of those, I think, go to quality of those ASMs that you're seeing in December is extremely high.

Okay. So really, the -- really, that was a September phenomenon, and it's a little bit back to more, call it, normal scheduling with all the caveats and calendar moving around?

Sure, yes. Absolutely.

Your next question comes from Jamie Baker with JPMorgan. Jamie N. Baker - JP Morgan Chase & Co, Research Division: Dave, when I look at the other U.S. names that I follow, it's comparatively easy to pick out what the drivers of margin improvement are going to be in 2014. You've got momentum at Delta; potential for some margin recovery at United; depending on your fuel view, you could see a nice tailwind at Airways. But it's not clear to me where the 2014 drivers are for JetBlue. So first, what confidence do you have that you can break out of the 7% operating margin range next year where you've basically been for 3 years now? And second, what should we expect those drivers to be? Sharklets are 2015. The E190 changes don't seem to impact next year. Higher density 321s probably help on the margin. How should we be thinking about the incremental drivers in '14?

Sure. And, Jamie, I think it's a -- first of all, as I look at this year, and granted, we're obviously talking about Q3 today, but I look at this year as a tale of 2 semesters. I mean, in the first half of the year, it was disappointing as we look at cost challenges, specific to 3 -- the CF34, right. That's how we started the year. And then we had a President's weekend that didn't materialize at all as we're closing out the second quarter -- the sluggish first quarter -- excuse me, the second sluggish quarter as we were trailing the pack, when we talk about operating margins. And then I think of -- as you look at the operating margin in this quarter, as we're looking at strength that Robin talked about with the bookings early for December but the bookings going into Q4, I think that continues as we move into 2014. One of the levers -- I think the levers continue to be -- when we look at, first of all, the network, it's maturing of places like Boston. I mean, it's a -- we're very pleased with year-over-year performance as we look at the investments that we've made in places like Boston. And just going down the coast, I mean, New York continues to perform quite well for us even though there's quite a bit of OAL activity taking place in New York. When we look at Florida, this investment -- not just when we think about South Florida, the investment -- by the way we're doing that off of a very profitable base, unlike what we had in Boston where we had to build, really, a corporate network to support what we're doing in Boston, first time ever for business flyers in a place like Boston. What we're seeing in terms of Latin America is it's lapping on a year-over-year performance. So I think one is the maturity of markets. By the way, in Q3, 4% of our markets were open less than a year when we think about that on a year-over-year basis. So we've learned a lot about, again, new markets. As we move into things like ancillary revenues, and as we saw in ancillary revenue number in the $21 range in terms of per customer, the ability to improve on the ancillary revenue initiatives, Jamie, again, whether it's the Even More offering, whether it's what we end up doing with Fly-Fi, driving loyalty in core fares, let alone whatever we end up doing with Wi-Fi offering. So think -- again, levers on, again, the ancillaries, including things like package travel, and also highlight the partnership traffic. I mean, it's -- these are significant, when we think about airlines like Turkish, airlines like JAL, airlines like Emirates adding service into places like Boston, and I'm sure more. The 2-way codeshare that's in place with Emirates and more being announced in the near future. So I think there's plenty of levers that we're quite confident, that we take a look at improving our margins on a year-over-year basis and staying there. And this is before we get below the line with things like the cost issues with maintenance. You're right, the Sharklets aren't going to play out for a couple of years. 321s won't play out for a couple of years. But we also have some very exciting initiatives within the airline as well to become more efficient as we look at our system operations that are in the airports. Back over to you, Jamie. Jamie N. Baker - JP Morgan Chase & Co, Research Division: I appreciate the color, Dave. And as a followup to John's question earlier, in the event that you do decide to roll Mint beyond 11 aircraft, how much out-of-service time would you expect to be required for retrofit? I assume the 11 Mint planes come directly from the factory that way.

Yes. It's -- Jamie, let me let Robin talk a little bit about that.

Yes. Jamie, what we would do is -- as we think about the 321s from the book we have, we would just convert the 321s that are scheduled for delivery after these 11. Converting those as they come out the factory from what we call high density to the low density is very straightforward. So they arrive in-service in the configuration we want.

Your next question comes from the line of Savi Syth with Raymond James. Savanthi Syth - Raymond James & Associates, Inc., Research Division: Just a few small followup questions, really. In the A321s, are the first 11 A321s all going to be with the Mint configuration?

No. The first 4 are actually coming in high density, and then the 11 thereafter will be coming in the low-density configuration. Savanthi Syth - Raymond James & Associates, Inc., Research Division: Got it. And is the pilot wage rate, is there a difference between A320 and A321, or is it the same?

No, same. Savanthi Syth - Raymond James & Associates, Inc., Research Division: Okay. And then just my last quick followup question was on the pilot arbitration issue. Is there any update there?

Actually, the -- I think we've pretty much said it all last quarter, not much to add. Lawyers are still engaged in substantial motion practice on the various elements of the damages phase where they seem to be fully ensconced in the damages phase and more to follow, I guess.

Your question comes from the line of Duane Pfennigwerth with Evercore.

Most of my questions have been asked. Just a couple quick ones here. Can you repeat what you said about November? And historically, how much is Thanksgiving return travel worth to the month?

I'll take that. It's Robin. We haven't matched the -- I know other -- some other carriers do this. We don't actually break out the value of the Thanksgiving return. Although we're not certainly guiding, let me use some kind of words to try and help with how we're looking at November and December. So a bit more color on November, there is clearly a good guide. I think I recollect last year, we said around a $25 million revenue hit to November because of Sandy. I don't think we converted that to a PRASM number, but I mean, that can kind of -- I guess you can kind of back into that. The 2 of our top 10 revenue days are those Sunday and Monday after Thanksgiving. And so both of those slide into December. So as I think about November, it's choppy and, I guess, kind of not terribly exciting as we think about revenue when we look at those 2 things combined. When we look at December though, the combination of the Thanksgiving return and the holiday period, which is a traditional period of strength for JetBlue, as we look at those now, and of course, the weather can always throw a spanner in the works in December, but as we look at those now, December is looking extremely strong.

Your next question comes from the line of Hunter Keay with Wolfe Research.

Dave, did I hear you add the words "on average" when you said you're looking for ROIC improvement of 1 percentage point per year? I think that's new. I thought before you just said you're going to improve your return on invested capital by 1 percentage point per year. Is that a change?

No.

Are you going to hit it this year?

Well, it's early in the year. By the way, let's go back to wordsmithing, Hunter. There, as we have said, on a year-over-year basis, improving our ROIC by 1 point, on average, on a year-over-year basis. So that's been very specific. The -- and regarding the year, hey, listen, we're sitting here closing out October, moving into November. It's early. There's no doubt additional color I gave it earlier on the call, not pleased regarding what transpired with maintenance costs tied on to the EMBRAER or not having a President's Day weekend. So there's tale of 2 semesters, weak, disappointing in the first half of the year and then strength into the second half of the year. So again, this fiscal remains very much bedrock in terms of how we're running the company, how we're allocating capital, how we're driving executive compensation. So I mean no wordsmithing. I mean, this is how we're running the business.

Yes. No, I wasn't -- to be clear, Dave, I wasn't trying to get cute with words. It just seemed like it was a different thing that I haven't heard from you guys before, and I thought maybe the implication was that you weren't going to get there this year. And it's not that early in the year, I would just say. I mean, it's November. I think we should have a pretty good picture of whether or not that's going to happen right now. But I guess the followup question is if you're not going to hit the ROIC target of 1 percentage point expansion, why are you ordering aircraft? I know you're deferring in the near term. But what hurdle rate has been hit to justify another $1.8 billion of capital committed?

Well, again, as we -- I think as we explained earlier and even into -- you take a look at some of the documents -- first of all, a lot of those numbers, Hunter, when you take a look at the A321 and the neo platform, it's a -- those airplanes are 2018 and beyond. And so when we think about the ability to be in the order book for a very popular aircraft and power plant, it's very important for us to be out there. So I think that, first of all, the $1.8 billion, I would really draw your attention more to what's happened over the course of the next 3 years as Mark commented about $200 million less CapEx, as we're talking about what we believe is the rightsizing of the EMBRAER fleet. Again, we're very appreciative of EMBRAER in helping us build a place like Boston to the largest level that an airline has ever had in Boston, using those aircraft to cross the Caribbean. And then when you take a look at opportunities to grow Fort Lauderdale-Hollywood International Airport, specifically, with the addition of these current engine options and, again, later today, we'll show you the years in which these aircraft are being delivered in '15, '16 and '17, we think this is the right decision for us. So there is a -- we're really pleased with not just 321s and even rightsizing the 320s because there's conversion, rightsizing the 190s, but also the Sharklet retrofit. This is a big deal in terms of retrofitting over 100 of our aircraft. We're seeing performance today that's north of 3% fuel saving. So, Hunter, as I look at how we're building the company, we think this is absolutely the right move on behalf of the shareholders.

Your next question comes from the line of Dan McKenzie with Buckingham Research.

A couple of questions here. Number one, Mark, can you talk about the relationship with ViaSat and whether or not there's an economic component tied to that partnership?

There's nothing new to announce. It's the relationship with, I think, ViaSat, we described in our sourcing agreement, and that's pretty much what it is right now.

Okay, all right. And then -- I'm sorry, go ahead.

No, please go ahead.

Secondly, the -- I guess you referenced corporate revenues in the commentary. And I'm wondering if you can elaborate a little bit further, specifically how you're measuring the corporate revenues, what benchmark you're using and what the goals are and, essentially, what initiatives are underway currently to help drive those results?

Robin, do you want to take that? That's...

Sure. Thanks, Dan. It is actually good timing. We're on the back -- last Tuesday, Dennis Corrigan and I and others spent some time up in Boston with our sales team and over 20 corporate travel managers of our largest corporates in Boston, really hearing them from directly what are some of the things that we need to be talking about and thinking about in the next 12 to 18 months as we develop this business stream, things like as we've added network relevance in Boston. We're up about 70% now with the announcement of Detroit. As we think about some of the enhancements we've made to the TrueBlue program in the last 12 months, whether that be the introduction of Mosaic, whether that is the move of expiry on points and, finally, the ability for families to pool points, we continue to expand a number of corporate agreements we have contracted directly with the corporates. We have some things we'll be announcing next year in terms of small-medium corporate space that we think is going to give us more traction there. So overall, very, very pleased with the progress that we're making. And I talked a lot about Boston, but we do also have corporate business elsewhere across our network. And we're seeing good growth in all of those, but particularly in Boston, where we fly to, by far and away, more nonstop than any other carrier out there.

Your next question comes from Glenn Engel with Bank of America.

A couple data questions and a followup on cost. On the data side, can you tell us what the ROIC is in the trailing 12 months, and what the operating cash flow is in the third quarter? And a bigger question is, is this like -- I think we'll be closed to your fifth year, where your costs are growing more than your -- than the industry as a whole. When do you start seeing your costs growing -- starting to gain ground again versus the industry?

Looking quickly through the script, we did mention the cash from operations, did we not? Is that in the script that we talked about, third quarter cash from operations? I think I may have mentioned it. Anyway we'll look though that while we're doing it. All right, we have not announced and probably wouldn't until at least till the end of the year, where we are with respect to ROIC. It was, I think, a policy decision we made, which is I'd be in a never-ending ROIC tracking game. So we'll be announcing that at the end of the year. And for sure -- I think Dave has said it very, very well earlier, which is the -- some of the cost issues that we've had this year just really are -- we're not really pleased about it at all. For sure, it had a negative impact on ROIC. And just to focus on maintenance, for example, we got on top of that. And all of our risks and exposure on maintenance, we're diligently working to cover with flight-hour agreements. But in -- just beyond not only the flyer agreement with GE and the CF34, but we're looking to better manage the aging of our fleet through flight agreements covering heavy maintenance and the 33K [ph] motors and other key components of the maintenance world, so more to follow on that next year. But for sure, as I indicated, the pace of that cost growth inflation on maintenance, keeping in mind, it's only 15% of total CASM anyway, but -- or CASM x anyway. So we expect that to abate, as I think we've mentioned in the prior things. I think, finally, we also -- Dave, he also mentioned something that more to follow, and I don't think we're in a position to speak as United did earlier this week. But I think there are some really exciting opportunities in terms of cost control just by looking at our operating performance and...

Wouldn't though the pilot pay increase and installing Wi-Fi and the premium cabins, wouldn't that all make it very difficult to have your cost below the rate of inflation next year?

No. I -- when I said inflation, I said the maintenance cost year-over-year of cost inflation rate.

I meant and I'm thinking overall cost inflation.

For sure, we have some headwinds next year. I mean, absolutely, we are committed to paying pilot peer wages, and there is no doubt that we lag that. We are on -- in process of ongoing conversations with our pilot groups on that particular topic, probably not -- it's probably premature, really, to talk kind of where our thinking is right now on the pilot pay. That's probably a conversation we better -- it's best to have with our pilots first than on an earnings call. But for sure, that will be a source of headwind next year. And the whole Mint thing is on -- other than seats and some of the training and product, I'm not viewing that as candidly, it's not in my top 5 of headwinds as I think about next year. I would caution just a little bit of in the interest of disclosure, our benefits this year have been really, really, if you will, very, very good in terms of claims and whatnot. The -- our people department converted us wisely to a new plan. I don't know the dynamics of deductibles and where people are filing. We may see a bit of an increase on benefits in the fourth quarter of this year, but beyond that, I'm not really expecting anything else.

Your next question comes from Helane Becker with Cowen.

So I just have 1 question, because most of them have been answered, on total healthcare costs for 2014. As you think about guidance for costs, total unit costs for next year, how should we think about healthcare costs with all the changes in the rules and regulations?

As I just said, I think we got ahead of it last year. So don't expect sort of this big astronomical change year-over-year, credit to our team. We made the change early. So there it is.

Okay. And then do you have any concerns about finding pilots with the new change in rules, the sort of 1,500-hour rule that kind of reduces the pilot application pool?

No. I -- Dave, do you want to take that? I mean...

Sure, more than happy to. It's -- Helane, no, we believe that, really, the -- when we look at attraction, really, of pilots, we don't believe that's an issue, right. As we look at longer term, and again, Mark commented on it, you look at retaining pilots, right. That's the issue. I think we're well positioned. Again, as the number of applicants that we're seeing and prospective applicants, we feel good about that. We just want to make sure that we're retaining the pilot workforce.

Do you have an estimate, Dave, for what it takes to make captain at JetBlue?

Is that number of years?

Yes, yes. Sorry about that.

Roughly 6, 6.5 years is the timeframe, right, in terms of upgrading into the left seat. And again, it's not -- so much of its lifestyle, too, right, you want to live in days and do you want to be on reserve and what have you, right? So it can happen a little bit earlier, and some people do it later.

No. I mean -- but I would just think that 6 or 6.5 years and new equipment would be a big attraction in terms of retaining.

Yes. And there is no doubt. And of course, at the end of the day, right, it's job security. It's quality of life, right. It's compensation, and it's benefit, right. So it's -- and as Mark mentioned, I mean, ongoing conversations with our pilots, we'll certainly continue to have and then share right with a larger audience when appropriate.

Your next question comes from Bob McAdoo with Imperial Capital.

Just a quick one. Can you back over what the spool-up period is for putting Fly-Fi on?

Sure. It's a -- and Robin, I'll queue you up a little bit. You've been living with LiveTV and -- but the -- its very nice to have our first A320 through the supplemental type certification process as well, right. And so, Robin, as you move -- I mean, that was really the heavy lift on the A320. But, Robin?

Yes. No, thanks for the question, Bob. We're in the very final stages of testing now. We believe we're literally just a few weeks away from a commercial launch. We already have 1 aircraft fitted out with this flying around in our network at the moment as a test. We will then start to roll out later this year. The aim is to complete the 320 fleet next year, which is 2014, and the E190 fleet is running about 9 months behind that currently.

So mid-2015 kind of thing?

Yes. Mid to late 2015, hopefully. 85% of our ASMs will be covered by the end of next year.

Our final question comes from Thomas Kim with Goldman Sachs.

Can you give us an idea of initial interest in the Mint service in terms of forward bookings?

Yes. Robin, as we're -- I mean, it's still a long way out, right, but initial interest?

So we only put 4 days on sale originally because it was -- it's very much sort of just a test launch. We had an introductory fare. Those went very quickly. And I think we may still have a few seats left, but not many. And then we've put it so far out, obviously. And then when we load the schedule load coming up in November into the next summer, at that point, that's when we'll put more of the Mint products on sale. But again, it's very early. I mean, the people buying this early are really those sort of curious about the product, wanting to try. It's obvious, fairly late booking market overall.

Absolutely. I certainly appreciate the color. And then just a minor question. With regard to the deferral in the E190s, was there any additional cost incurred? And would it have been booked already, or should we anticipate it, it could cost in Q4?

The terms of that are confidential, but they were reflective of a great relationship we have with EMBRAER.

Okay. So anything -- so that deferral, did it happen in this -- the Q4 or Q3?

Literally signed it a couple of days ago.

Okay So if anything happens, we would see it potentially in Q4. So it wouldn't have been reflected last quarter.

Thank you. Mr. Barger, we have no further questions at this time.

Thank you so much, Therese. I appreciate that. And I'd like to thank everyone for joining us today on this conference call regarding our third quarter earnings. Specifically, I'd like to thank our 15,000 crew members. This was the highest ever quarter income that we've seen and also our 14th consecutive quarter of profitability. So thanks, folks, much for delivering the JetBlue experience. We'll talk to you again next quarter. Thank you.

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