Good morning. My name is Tammy. And I would like to welcome everyone to the JetBlue Airways First Quarter 2019 Earnings Conference Call. As a reminder, today's call is being recorded. [Operator Instructions] I would now like to turn the call over to JetBlue's Director of Investor Relations, David Fintzen. Please go ahead.

Thanks, Tammy. Good morning, everyone, and thanks for joining us for our first quarter 2019 earnings call. This morning, we issued our earnings release, our investor update, and a presentation that we will reference during this call. All of those documents are available on our website at investor.jetblue.com and have been filed with the SEC. Joining me here in New York to discuss our results are Robin Hayes, our Chief Executive Officer; Marty St. George, our Chief Commercial Officer; Steve Priest, our EVP, Chief Financial Officer; and Joanna Geraghty, our President and Chief Operating Officer. 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 forward-looking statements, please refer to our press release, 10-Q, and other reports filed with the SEC. Also, during the course of our call, we may discuss several non-GAAP financial measures. For a reconciliation of these non-GAAP measures to GAAP measures, please refer to the tables at the end of our earnings release, a copy of which is available on our website. And now, I’ll turn the call over to Robin.

Thanks Dave. Good morning and thank you everyone for joining us. I'd like to start with my thanks to our more than 22,000 crew members across our network. We are very proud of our team and the work they do every day to deliver the JetBlue experience. Our customers noticed and recognized the work of our crew members. And as a result, JetBlue was awarded top honors as the best regional business class and passenger comfort in North America by trip adviser. We were also delighted that JetBlue was awarded a top spot amongst America’s best employers by Forbes. Starting on Slide 4 of our presentation. Our first quarter adjusted pre-tax income was $70 million. Our adjusted pre-tax margin was 3.7% and our adjusted earnings per share was $0.16. This quarter, our financial performance was impacted by the calendar placement of Easter and Passover holidays, the increased cost of the pilot contract, and as we disclosed in March a software revenue environment then initially expected. In recent years, we have repeatedly demonstrated our ability to adapt to the changing revenue environment. To date, 2019 is proving to be no different. In early March, we highlighted some specific pressure points in our network, as well as a softening in overall trough demand. To mitigate that headwind, we responded very quickly, lowered our scheduled capacity growth for a third year in a row, to the lowest annual rate since the 2009 recession. We believe we have seen the bottom of the softening RASM environment. Based on current bookings, we are cautiously optimistic about trends improving. In our industry, there are many factors, which we cannot control such as fuel prices and GDP, but there are plenty of areas that we do control at JetBlue, and we’re excited by our progress to continue…

Thank you, Robin. I’ll start with our capacity outlook on Slide 6. During the first quarter, our flown capacity growth was 10.1%, well above the upper end of our guidance range of 7.5% to 9.5%. This was due to strong completion factor in the quarter. This quarter we had fewer cancellations resulting from a lower number of significant winter storms than we expected in our original guidance from January. From the second quarter 2019, we expect capacity growth between 4.5% and 6.5%. For the full year, we continue to plan capacity growth between 4.5% and 6.5%. This annual growth rate is the updated guidance from early March. When we lowered our annual capacity by half a point to mitigate software RASM trends. As discussed in March, our capacity reduction for 2019 are focused on addressing specific points of softness in our network. These changes included reallocations in the Caribbean to Porto Rico, more broadly we made tactical reductions in underperforming markets to address off peak softness, mainly in the form of day a week adjustment. Regarding other parts of the network, during the first quarter we took another step in our efforts to reach our goal of 200 flights per day in Boston. Beginning this summer, we intend to deepen our schedules to increase relevance offering hourly service to Washington D.C. and the New York Metro area. We believe this move will benefit both leisure and business customers as we expect to fly to more nonstop destinations, operate more flights, and serve more customers than any other airline at Boston. We're delighted that for the eighth consecutive quarter Fort Lauderdale RASM growth outpaced our system average as we expand our domestic and international markets. Our unique model allows us to grow this key focus setting and appeals to both leisure…

Thank you, Marty. Good morning everyone and thank you for joining us. I'll start on Slide 9 with some highlights from the first quarter. Revenue was $1.9 billion, up 6.7% year-over-year. Adjusted pre-tax margin was 3.7% down 2.7 points for the first quarter of last year, mainly due to calendar placements that impacted revenues and the increased cost of the pilot contract. We reported a $0.14 GAAP EPS per diluted share. Adjusted EPS was $0.16 per diluted share. Our adjusted effective tax rate this quarter was 28% and we continue to expect our effective tax rate to be approximately 26% for 2019. Moving to Slide 10, during the first quarter, CASM ex-fuel increased 0.9% year-over-year below the low end of our guidance of 1.5% to 3.5%. This includes a benefit of approximately 0.75 points and improved completion factors during the quarter, and represents a unit cost increase below the mid-point of our guidance range. For the second quarter, we expect CASM ex-fuel growth to range between 1.5% and 3.5%. As a reminder, both our first quarter and second quarter guidance include an approximate 3 percentage point increase from our pilot contract signed last August. This quarter we adopted new lease accounting standards and restated results back to 2017. The appendix section of this presentation includes details of the accounting changes to our income statement and balance sheet. Moving to Slide 11, we could not be prouder of the hard work across Jet blue to deliver on our commitments to hit our goals. We’re encouraged by the CASM ex-fuel progress we made in the first quarter and the progression we anticipate for the rest of the year. In the first half, we will continue to digest our first pilot contract. And despite our capacity reduction from early March, our guidance range…

Thanks everyone. Tammy, we’re now ready for the question-and-answer session with the analysts. Please go ahead with the instructions.

Thank you. [Operator Instructions] Our first question comes from the line of Rajeev Lalwani with Morgan Stanley.

Hi, good morning guys.

Good morning, Rajeev.

Robin, first a question for you, on the entry into the Transatlantic market and if you combine that with your exposure to Lat Am and Caribbean, how do you get comfortable and how do you get the board comfortable that the investment community isn't going to look at you like a legacy carrier and start derating your valuation?

Thanks Rajeev and good morning. I mean, right now about 30% of our capacity is exposed to international markets, about 70% domestic. I would say one of the most successful things we've done at JetBlue over the years is to diversify our network and that certainly has been very helpful when we've seen the growth in Boston. Now when we think about London and the opportunity that presents is really about making our focus it is in New York and Boston, more relevant. It's about adding the next market that we don’t like to and adding them so that we can fly to them and serve our customers. So, we said much more in terms of developing the maturity of our focus city markets and just flying to different geographies. And so, I think the investment community should feel good that we are taking a very measured approach to growth and that we are focusing on the markets where we can drive the highest returns out of New York and Boston.

Thanks. And Steve a question for you on the CASM side, you've obviously done a done a pretty good job so far. Now as we look forward and lap the pilot deal, what's going to be the cadence on unit costs? I'm trying to assess the potential for you sort of be consistently declining as opposed to sort of flat or up a bit?

Good morning, Rajeev and thank you very much for the question. I have to say I'm very, very pleased with the progress that we not only made in terms of CASM progression in 2018, but as you can see the progress, we made in quarter one. Admittedly, the completion factor helped, but we printed, even if you include the completion factor, we printed at the low end of the guidance for Q1. As you recall, we did lay out our CASM plan in January and we brought that down by half, and we're very comfortable about reiterating that plan for 2Q. As we've mentioned, we do cycle over the pilot deal as we get into the second half of this year and we do expect CASM ex-growth to turn negative at the midpoint of the guide as we sort of go forward. And this actually includes the impact of the half point reduction in capacity that we talked about. So, I'm very happy with the progression that we see, you'll continue to see an inflection point in the second half of the year, and this is very, very important to us as we continue to execute on our cost goals as part of the $2.50 to $3.00 EPS target that we have to 2020.

Thanks, I’ll leave it there.

Thank you, Rajeev.

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

Hi, thanks good morning.

Good morning, Duane.

Just on the full-year capacity it looks like it implies about below 4%, about 3.5% in the second half versus about 8% growth in the first half, any fuel for cadence by quarter? And I guess related just a follow-up to Rajeev, you know the same with sort of down CASM in the back half on that 3.5% growth rate, could you put a final point on cadence by quarter?

Hi Duane, it’s Marty. I'll take the first half of that and I’ll let Steve take the CASM comment. So, yes, we definitely have a capacity plan in 2019 that does decelerate the second half of the year. I don't have a number in the 3s, I have number in the 4s, but notwithstanding that is how we are seeing the year play out, mostly based on delivery schedules. As you know, and as we’ve already announced we had some changes to our original 321neo schedule. So, it’s not what we’d original expected when we were planning out the year, but again, I figure Airbus has reacted well and we look forward to taking the neo very, very soon. Steve on the cost?

Good morning, Duane. Again, just to reiterate what I said to Rajeev. I’m very comfortable with the progress we’re making. We've purposely have been very transparent ever since that we went through the outside Investor Day in terms of laying out our cost guidance for 2019 and 2020 and even to a greater detail. So, it's a half by half as we did in 2018 and 2019. Irrespective of the lower capacity environment, which remain committed to the guide that we've got out there. The way I would also think about timing. We won’t at this stage breakout quarter 3 and quarter 4. As we’ve historically talked about, you do sometimes get a little bit of choppiness, particularly in maintenance cost between the respective quarters and that's why we've laid the halves out, but if you sort of thinking about your modeling, you should think about 3Q being pretty similar on a broad perspective to Q4.

Thanks. And then Robin. I think a portion of the attribution when you took down 1Q RASM guidance was softer macro or the economy. I wondered if you just update us or mark-to-market those views on what your business is telling you about the economy as we sit here today?

Thanks, Duane. I think again going back to early March. I think we called out a couple of things. We called out a couple of markets where we were seeing very low walk-up fares. We called out Transcon. We called out South Florida to the Caribbean and as we anticipated some of those fares have now come out, and then we also saw some what we described as broad-based economic softness across everywhere else. And I think what was uncertain to us at that time was with the sort of shop down related or was it something more broader than that. I think I'm very pleased to see that as we look forward. Some of the normality of those walk-up fares is restored and we continue to see very good close-in strength as well. So, I'm cautiously optimistic and we kind of – hopefully that is behind us and we can be more optimistic about months ahead.

Thank you. And if I could sneak one last one in, can you update us on how many of the A320s are restyled today and what that sort of percentage looks like as we roll through the year? Thanks for taking the questions.

I’m going to hand over to Joanna Duane, because she’s been running that.

Sure Robin. Hi Duane. So, we’re up 19 this year. It’s tracking nicely. Just a reminder of that, our restyling is coupled with our heavy check, so that we’re as efficient as we can be. We’ll be completing our full restyling campaign by the end of 2020.

Thank you.

Your next question comes from the line of Jamie Baker with JPMorgan.

Hi, good morning everybody. First question for anyone who wants to take it and the topic is loyalty. You had a slide on the topic at Investor Day, I didn't consider it, you know, real core thrust from that event, but I do think to say – I do think it's safe to say that at the industry level it’s a growing value driver, it’s something that investors increasingly care about. You’re obviously aware of Delta's progress, United's ambitions and so forth. Now, when I think about the value drivers for the issuing banks, so card member wealth and spend, the breadth of the underlying airline network, the sheer volume of card transactions, this seems like a competitive area where the big three are going to increasingly dominate at the expense of smaller operators like JetBlue, why am I wrong?

Hey, Jamie. It’s Marty. I’ll take that one.

Hi, Marty.

So, on the – and I’ll start by – you know one of the comments we made in the prepared remarks, which is our in-flight for customer this quarter was up 12% year-over-year, and, you know, the loyalty contribution of that was well above 12%, so we love the trajectory we’re on right now. We’ve talked about the benefits we’ve gotten from going from AmEx to Barclays, and very happy with that partnership. That being the case, you know, the bank keeps going up and, you know, we and Barclays both fully agree that this is something that is a great opportunity for both of us. I actually feel like the details of the contract that we have with Barclays has the two company’s interest aligned very, very closely, and I think it’s a lot of upside there. You know I – it’s worth remembering that TrueBlue is still a relatively young program, compared to others and I think it’s honestly why we’ve had, you know, that more than doubling of the portfolio since we transitioned. And that being the case, I think the opportunity for us is to continue to increase the value proposition of the TrueBlue point in general, and frankly I’ll point the two events that have done that. You know I’ve got – we’ve got – we have a partner in Hawaii and he is flying from Boston, Honolulu with a reciprocal royalty arrangement with JetBlue. And then, you know, I have to point out the flying to London, and then whatever else we end up flying in Europe. Two things are significant help in trying to improve the value proposition of JetBlue. I will also say that – and I’m not going to call specific airlines, but if you look at the value proposition of every deemed point at JetBlue versus certainly one of our biggest competitors, you know, we give a lot of utility to customers and that’s why customers have flocked to this credit card. But again, I think you are making a key point and that’s one that we talked about internally constantly, which is, you know, we never ever, ever stop raising the bar for more, and I think given the starting point around I think that JetBlue, TrueBlue versus the mature program, I think we actually have more potential than some of our competitors.

Excellent. Solid answer, Marty. And second just a small issue related to guidance. You know I’ve attributed the 300-basis point TRASM range to be reflective of one, a more leisure oriented and therefore potentially sickle passenger base, and two, systems that at least historically were perhaps not the most cutting edge. When I think about further corporate penetrations, particularly the one implying, is it fair to ask whether you’ll migrate to that industry standard, 200 basis point range, and if so when? Small name?

You know, honestly, I – you know, we are less than two years into guiding by the quarter like this. And the one thing I’d say about JetBlue is, although we are a, you know, a relatively established carrier, we still take a lot of bookings very close in, even though, we are very heavily leisure. I mean right now for May, you know, we basically have half of May on the books; and we were weak from the start of the month. June, we have less than a third on the books. The most important thing for us is that the number that we give you is a number that is not going to result in misses or misleading.

Sure.

I mean frankly when we get to the point where, you know, if our booking growth changes, because we’re more predictable, I’d love to have a smaller range, but the most important thing is we want to make sure we made our commitments. So, I’ll never say never, but, you know, based on our history at least for the five or six quarters, we have been doing this. I think we’re actually pretty good at it, but I do appreciate that range when we have so little on the books.

Marty, thanks for the answers. Take care.

And Jamie, before you sign off, I think you’re going to have very busy day on Thursday with a number of other earnings calls, but I wish you a very happy birthday anyway.

Keeping the JetBlue tradition alive. Thank you, Robin. I appreciate that.

Your next question comes from the line of Catherine O'Brien with Goldman Sachs. Catherine O’Brien : Hi, good morning everyone.

Good morning, Catherine. Catherine O’Brien : Hi. So, with respect to your cost guidance, I want to confirm that any start-up costs related to Transatlantic service, anything for airport costs or ETOPS are baked into that flat to up 1% CAGR? And if so, will this cost always contemplate in the guidance or have you found additional cost savings to fund those?

Good morning, Catherine. I’ll pick that up. Yes, I – those costs are certainly included in our guide, and we will consistently do that. The progression we have continued to make on our structural cost program, the structure of the company means that we are apparently looking at these things. So, you know, there’s ebbs and flows in terms of our cost structures we guide forward. So, some of the incremental costs associated with this are obviously being contemplated and incorporated in the guide. And so, we are very happy with where we stand on that. Catherine O’Brien : And maybe one quick follow-up to that one, Steve. Could you just give us the number for the update on where you are in the run rate for the $250 million to $300 million? I believe at year-end you had $199 million?

Yes, I’m very happy to do that. Just as a reminder for everybody, the cadence that we have in terms of the detailed update on the structural cost program is Q2 and Q4 where we get into quite a lot of detail. So, the next detailed update will be July. But I’m very pleased to say our run rate for 2020 is currently sitting at $224 million. We continue to make terrific progress, and I think this quarter, I’ll define as being very focused around our sourcing efforts. One of the biggest sourcing contracts that we drove forward during the quarter was with our partner Sabre as we concluded the CSS RFP. So, very happy with the continued progress on the accounting standard $224 million. Catherine O’Brien : Congratulations on that. And maybe just one quick one for Marty, so at the midpoint, your guidance implies acceleration from the March quarter, even excluding that impact of Easter. What’s driving that? Is that all the turnaround in the Transcon? Or that, you know, the 50% and one third of bookings you have in April and May? Or you know just that much better than we saw in the March quarter? Any color there will be really helpful.

Hi, Kate. Thanks for the question. You know I think the fundamental issue; it goes back to what we had said earlier about what we saw in the first quarter and going into the second, is that it’s very heavily sort for peak versus trough related. It’s actually – the environment feels kind of like it did in the first half of 2017 where we had really solid results in peaks, but a little more challenged in the troughs, and I think, you know, part of the acceleration is the fact that the third quarter does have, on a relative basis – excuse me, second quarter has, on a relative basis, a few more peak days. And the second thing is, you know, we talked earlier – actually in late 2018 about the initiatives we were undertaking, you know, whether its fee changes, network changes etcetera, and, you know, those do fold in as the year goes forward. So, you know, I think that from a progression perspective, you know, this is sort of what hope further in the year other than that blip sort of between, you know, end of February until middle of April, but, you know, based on what we’re seeing in the books right now, you know, we’re cautiously optimistic about what’s going forward. Catherine O’Brien : Thank you very much.

Our next question comes from the line of Brandon Oglenski with Barclays.

Hi, good morning everyone, and thanks for taking my question.

Good morning, Brandon.

Hey, good morning. Robin, in your prepared remarks, you know, you talk about the focus on margins and obviously we agree that, you know, to hit your EPS guide for next year you do need to see continued improvement. But you did mention, you know, putting building blocks in place on the ancillary side and I think you guys have really, you know, highlighted that you’ve been giving traction there, so do you just feel like you’re leaving money on the table right now with how you transact with your customers? Or does this go back to that loyalty discussion?

No. Thanks, Brandon. No, I think – again, we won’t go into all the building blocks now because we talked about them before, but, you know, I think that we continue to feel very confident about the revenue trajectory at JetBlue both from a flown perspective and ancillary, and Marty has already touched on that. You know I think Marty gave an answer earlier, which I wholeheartedly agree with that, our opportunity on loyalty is that we’re coming from a point where we’ve been behind everybody else. And so, we are seeing a lot of strong growth in that area. You know I also – we’ve created longer term new ancillary revenue streams. You know we’ve created a JetBlue travel product subsidiary, which is now up and running in Fort Lauderdale, and we’re very excited about where that will last to grow longer-term. You know we’ve created a very strong brand in the leisure travel industry, and we need to do more to monetize that. You know Marty talked about Fare Options later in the year as well. So, we’re excited about that. And then, really now the thing that we – the challenges over the years, and I’m delighted to see how much progress we are starting to make is on the cost side. You know we’ve left margin on the table over the years because we’ve done a nice job on the revenue side, but we’ve also seen high unit cost growth. And so, that is what we are all about and I think putting those things together will allow us to drive those superior margins into 2020 and beyond.

Okay. And I guess along those lines, on the structural cost program, it sounds like you’ve achieved a lot of the run rate that you will set out to initially at least Steve. What are priorities as you look into the back half of the year? Is this really just the, you know, the restyling and the A321 growth that’s going to drive unit economics favorably for you?

Hi, Brandon. I have to say the journey continues. We have executed and continued to execute over 160 such initiatives that are impacting our CASM ex at JetBlue, and the journey is not complete yet, and candidly the journey will never be over. We make commitments to our owners that we will have flattish CASM, not only through 2020, but beyond. And so, when we are executing these contracts, we’re looking through two lenses. Number one, how do we make sure that we continue to stretch in short-term and deliver the $2.50 to $3.00 in 2020, but also at the same time, resetting the cost trajectory for JetBlue as we enter the next decade, and I’ll give you some key examples. As there’s no secret as far as my primary focus at JetBlue. In terms of our business priority, the structural cost PRASM is my Number 1 priority from a business standpoint. And one of the largest areas that we have at JetBlue around the structure of the cost is around maintenance. So, we will continue to focus along with some of the initiatives as we progress through the year. But as ever, we will put the finishing touches to the loyalty maintenance agreements as we progress through the – this – next quarter and the remaining half of 2019.

I appreciate it Steve, thanks.

Thanks Brandon.

Our next question comes from the line of Michael Linenberg with Deutsche Bank.

Yes, hi. I just – I want to follow up on Cate O'Brien's question. Steve, just on the cost next year, you know, in addition to ETOPS and startup, you know, your inducting the A320s, is the plan to directly expense those costs? Or you – will you also – will some or all of them be capitalized? And then, what's the underlying – can you remind us what the capacity growth is planned for 2020?

Good morning, Michael. I’m Steve here.

Hi.

We will take the usual approach, which is when we have costs associated with startup with the license of A320 coming to the fleet or the LR, it primarily will be on expense item that sits in the P&L. Obviously, you know, whether its CapEx involved like the purchase of aircrafts and engines, that will obviously be capitalized, but primarily this will be a source of an expense item. With regards to the capacity that we laid out in 2020, we laid out the guide both from a 2019 and 2020 perspective when we went through the Investor Day, back in August. Note that capacity guide ensures that we get to a CASM level of between minus 0.5% and minus 2.5% from a CASM standpoint. So, on the A220, as I mentioned before, our first aircraft comes in at the back end of 2020, so it’s rather de minimis in terms of the overall capacity guide for 2020.

Okay, great. Very good, and just the second question to Marty, I know you sort of still call Long Beach out as either a focus city or market that – where you’re leading, but are we at a point now where your revenue generation at LAX is either equal to or greater than Long Beach as we look into 2019?

Hi, Mike.

Hi.

Thanks for the question. You know we’ve specifically called out LA Basin as our focal point in the basin and I think because of the benefits we’re getting from our franchise, not just at Long Beach, but also at LAX and even at Burbank where we’ve added some additional Transcon service. So, from that perspective, you know, Mint has been wildly successful at LAX, and I think a public data shows that. I actually haven’t done the math as far as whether LAX total revenue is generating more, but I’d say some nail on head, I’m pretty sure it does. But again, we don't – we don't even really look at it that way and, you know, frankly its sort of – it’s a basin level conversation for us.

Okay, very good. Thanks Marty. Thanks everyone.

Our next question comes from the line of Kevin Crissey with Citigroup.

Hi, thanks everybody. Thanks for the time. Can you talk about the JFK Terminal project completion and the objectives for that?

Good morning, Kevin. Steve here, I'll pick that up. I think the way I would describe the JFK Terminal project is making sure that JetBlue has the right facilities for growth as we go through the next decade. This is a long-term perspective for JetBlue, and if you think about some of the potential challenges for growth in some of the key urban areas across the United States, gates access, terminal access is something that is obviously critical to the ongoing growth and I'm delighted that my predecessor did extremely good job in terms of securing rights around JFK and also delighted that the Governor of New York decided to back the JetBlue proposal for developments of Terminal 6 and Terminal 7 in addition to our award-winning Terminal 5 at JFK. So, we're excited about the prospect. The other key thing that we've made sure that we've done going forward is that we're doing this in partnership. So, we will not be using JetBlue's balance sheet in terms of the funding, et cetera to make this happen. We would be doing this in partnership with JFK Millennium Partners and we couldn't be happier with the team that we are working with. But again, this is not something that you should be thinking about, between now and the end of this decade, it's a long-term perspective and it's something that would ensure that we've got the right access for JetBlue as we migrate to the next decade.

Perfect, thank you. And then, if we could switch over to maybe the – Robin, you were discussing the – I know if it's vacations now at this point. Can you talk about where the systems to stand and status on and your progression on the cross-sell of other products? I know, you touched on it, but maybe you could go into a little more as to where we're heading on that?

Sure. Thanks, Kevin and good morning. Yes, we have – as you know, we've hired a new President of JetBlue Travel Products, Andres Barry, and he now built his team; they are based down in Fort Lauderdale and we – had went through a number of challenges last year with the website. I'm very pleased to say that those are behind us and we have started to see that business grow very significantly. And in addition, Andres and his team is thinking about new opportunities in the travel space in the sort of very asset light way where we see opportunities to continue to grow on high-margin ancillary revenue. As I said before, only a very – given that we have leisure network between – only between – only 1% to 2% of customers flying on JetBlue are buying some additional travel-related products and so we think that's a very big opportunity for us. The acquisition cost of these customers is very de minimis because they're flying us anyway and the investments that we're making into this business are relatively modest compared to our sort of overall CapEx. So, it's very asset light. So, as we said fairly modest in the next couple of years, but something that will continue to grow and when we think about EPS growth beyond 2020, it will be much more significant part of our ability to sustain that EPS growth.

Thank you very much for the time.

Our next question comes from the line of Savi Syth with Raymond James.

Hi, good morning. This is Matt on for Savi. I was wondering if you could talk about your longer-term capacity growth given the outlook of the lower end of that mid-to-high single-digit range you previously provided. What is the likely mix is both stage and gauge in 2019 and 2020 and should we expect the market focus to be similar in 2020 as it was in 2019?

Hi, Matt, it's Marty. As far as long-term guide and we don't guide more than a quarter at a time other than the annual guide we give without a lot of color on it and mid to high single digits is where we are and where we've been. We're going to move around that range based on our margin goals and I think if you look at what we've done in 2019, you've seen us do that. Notwithstanding what we've seen as far as fuel, we run this place with that sort of, I would call, high fuel cost mentality. I mean, we're not going to – I used this line before, you don't cheer for balls and strikes in the game and there is a lot of volatility – and lot of volatility we feel right now that we're trying not to get too hung up on. I think we're very comfortable that the guide that we've laid out that mid-to-high single-digit number, that's what works best for JetBlue, and I've been here for 13 years, I was here we were growing in the 20s. That's very, very challenging for us as far as maintaining the quality and maintaining commitments to our shareholders. So, I think what you're see right now, I think is what we think is best for JetBlue, and I think is best for JetBlue in long-term. With respect to – I think for stage versus gauge that moves back and forth year-to-year. This year is a little bit heavier on stage, mostly because of the redeployment of Long Beach short hauls into Transcons. But that’s going to move going forward, I would look at that as a long-term predictor. I want to make that clear because it's – this is not necessarily a long-term trend.

Okay, great. I appreciate the clarification there. And going back again, longer-term growth, could you talk about operational considerations implications of certain operating multiple sub-fleets, particularly starting in 2021, if I am not getting ahead of myself here transitioning from the E190 to the A220, as well as having a second Mint configuration.

Yes, hi, this is Joanna. So, I mean, we currently have, obviously, the 190 and the 320, there are – and the 321, there are different performance standards with even those fleets. So, we're confident that we can manage multiple sub-fleets and then obviously working on the plan to exit out of the E190 – I mean, transition into the A220 over the next year or so. So, we're confident with the transition plans that we have in that.

Alright. Thank you very much.

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

Hi. Thanks. Good morning, everybody. I just want to follow up on Mike's question, you compared the start-up costs with the LR to the 220; I thought you excluded some of the A220 costs from 0% to 1% CAGR, just to be clear and – expense, Steve, I want to make sure you're going to include that in the CAGR target and what you're talking about the CAGR target. Can you also tell me what's going on with these pilot CBA implementation costs you are excluding to? Thank you.

Good morning, Hunter. Good to hear from you. So, let me just be really, really clear about our 0% to 1% guide. We specifically talked about the E190 transition to the A220 as being out side of our 0% to 1% CAGR, when we announced that at the Investor Day in 2016. And so, there were some relatively de minimis transition costs as we went out of the E190 – projecting stat E190 to 220s, which had a pretty de minimis small impact in the 2020 guide. So that's really, really clear. When it comes to the LR, any operating costs associated with the LR and the transition to those are that might – may come in June of 2020 are included in the 0% to 1% guide. So, there will be no further impact on the 0% to 1% outside of the previous guidance we gave with regards to the E190 to the 220 transition. So, hopefully that's clear. We've said that consistently ever since the end of 2016 and that message certainly has not changed to any of our investors and we are absolutely committed to the 0% to 1% and I’m very happy with the progress. With regards to your second question, obviously, there was two key items with regards to the pilots negotiation and agreement that we went forward with, a change to sort of one-off transition cost. The first one with regards to the signature of the program and a signing bonus; the second item was the IT costs associated with the transition to go from the direct relationship to the new agreement going forward. Those are relatively de minimis amount that was just getting mocked up this quarter that was aligned to the final elements of the IT transition. So that's what that relates to, but it's incredibly de minimis and that really sets – it puts a bar around the one-off costs associated with the transition with regards to the pilots agreement. So hopefully those two items are very clear and I’m pleased to follow up if you don't have clarity on those two items.

Yes. No. Steve, that's great, thank you very much. And then maybe this is one for you, Rob, and it looks like you guys added the longer-term EPS target to the proxy as part of your long-term comp payout. I know that the answer to this is both are important, I know that, but is it fair to assume that maybe the EPS target has slightly sort of pulled ahead of the CASM ex target in terms of you're driving priorities, like if you were forced to make a decision to sacrifice one over the other. Is it fair to assume that EPS has maybe sort of pulled ahead a little bit of the CASM ex?

No. I think, I mean, I view our CASM ex performance as integral and central to achieving our EPS goals. I mean, they are one and the same. We – to accomplish it to $2.50 to $3.00, we laid out five building blocks and there were some revenue initiatives and then also the importance of the Structural Cost program. I think we made two changes to the bonus structure this year. So, for example – so for our third annual management bonus, we have now moved the last year, the combination of margin and ex-fuel CASM was 50% of that management bonus from this year going forward, it's actually 67%. So, it's two-thirds. The other one that we're measuring is customer satisfaction. So that is – takes the – so we have now going forward a third on margin, a third on ex-fuel CASM and a third on customer NPS. So, again that up weights the importance of both margin and ex-fuel CASM and then part of the LTIP incentive and we were getting this question at the Analyst Day going forward, we've made the change. So, for those leaders like me and others who are part of the LTIP that measured going forward on both ROIC and EPS, so that the compensation of the leadership team is directly aligned to those goals. And then also, we will continue to track that. But I think we had that question and I think we've closed loop on that to make sure the incentive of the leadership team is aligned with those EPS goals.

Thank you very much.

Our next question comes from the line of Helane Becker with Cowen.

Thanks very much, operator. Thanks for the time, team. I just have two questions. One is, can you just talk about what you're seeing in Puerto Rico specifically? Has the market recovered there now? And I know you talked about some weakness in Florida, the Caribbean, but I'm wondering if you could speak about PR specifically. And then the other question I have is with respect to your balance sheet growth, I think, Steve, you said that you were at 28% debt-to-cap at the end of the quarter. So, what's the goal for that and if you're there, any plans to increase the existing share repurchase program? Thank you.

Hi, Helane, it's Marty, I'll take the first question on Puerto Rico. Actually, I'll start talking about the Caribbean overall. We specifically carved out Puerto Rico because the trends there are different than we're seeing in the rest of the Caribbean. And obviously, because of the storms, there's a lot of noise in there. I think even if you look on a year or two basis, Puerto Rico is now larger than it was three years ago and producing solid RASM growth over that time period. We have seen a change in the complexion of the customers. It's a little bit more VFR focused, but frankly, we've had a good holiday – excuse me, a good vacation season really sort of October, November for the last few really big hotels opened. So, it's been a nice – it's been a nice mix there and I do want to mention that after the storms, obviously, we had a big impact – we had several hundred crew members down there. It's been tough in the Island overall. But we are very bullish on Puerto Rico, just like we were before the storms and look forward to future growth there.

Hi, Helane, Steve here. I just wanted to give a little bit of color because there is some noise in terms of the adjusted debt-to-cap this quarter as we adopted the lease accounting change. So, just to make sure that we bought as much transparency as possible, we did restate our results back to 2017 under the new accounting rules, and for those of you that want to get into any the detail, as a reminder in, Appendix B of the earnings deck we've laid out all the details for you. So, pertaining specifically to your question Helane, our debt to cap – our adjusted debt-to-cap is roughly about 5 points lower than it was under the old accounting rules, and that's primarily as a result of our leased aircraft. We have 42 leased aircraft at JetBlue and where they were traditionally done with the old rule of thumb of 7 times the annual lease payments and the change is fundamentally attributed to three specific areas of on the aircraft leases. One is the length of the remaining aircraft leases that we have. Secondly, is the interest rate that one discounts on. And third is probably the most materialize and is when we do the present value calculation. It's done off the cash lease payment rather than expense line on the P&L. And therefore, where you've had a high to low payment on the lease that that obviously benefits our adjusted debt-to-cap, so that's why – under the new accounting method it would have gone from 29% at the end of last quarter to 28% to the end of this quarter, I suppose, in terms of what does this mean for us going forward, I'm incredibly comfortable with our balance sheet. We have one of the strongest balance sheets in the industry. I'm very, very pleased with our price to capital allocation, and frankly, we are running a balance sheet with investment grade metrics, and we're not going to change our approach to capital allocation, just because of a restatement associated accounting change. So, very happy with where we are. We'll continue to take a balanced approach, and we'll continue to look at where we spend our CapEx and how we proactively return capital to our owners as we did in quarter one.

That's very helpful. Thanks very much.

No problem. Thanks for you and have a good day.

And Tammy, we’ll take one more question from the analysts.

Our next question comes from the line of Jack Atkins with Stephens.

Hi, good morning. Thank you very much for taking my questions. Just first one here is on the transatlantic flying. Could you kind of walk us through some of the key milestones that you'll be looking to head over the next two years as you work to ramp that service?

Sure. It's Robin. I'll keep it really tight because of the time. So, the aircraft are coming in 2021. We've executed that amendment with Airbus. The item that is on the critical path before that, which is we are very focused on is the ability to fly extended range operations across the Atlantic. In other words, ETOPS certification, so we have a whole team set up around that and we are very confident that we will be able to hit those timelines. We have a lot of people in our company who have had similar experience at other airlines. And really, those are the big lift items; in terms of everything else in terms of the product and schedule and working through with the different London airports that we are considering that is all in hand and easily will be accomplished ahead of that 2021 plan.

Okay. That's fantastic. Just one last follow-up on that, if I could, Rob, and I guess as you think about sort of your next round of negotiations from a labor perspective and your ongoing negotiations with your flight attendants, are there any sort of concessions or changes that need to be made in terms of how your labor agreements work with regard to the transatlantic flying? Anything that may be in new contract, if you're flying over to Europe, that sort of, wasn't there before.

I will pass on to you, Joanna.

Sure. Thanks. So obviously negotiations are ongoing. They're quite productive. Our first contract for pilots took about four years. We expect in place to be in the similar range three to four years, and the team will continue to work on the various work rules and different provisions under the contract.

Okay, that's great. Thank you for the time.

And that concludes our first quarter 2019 conference call. Thanks for joining us. Have a great day.

And again, that will conclude today's conference call. Thank you for your participation.