Good morning. My name is Jerome. I would like to welcome everyone to the JetBlue Airways Second Quarter 2019 Earnings Conference Call. As a reminder, today’s call is being recorded. At this time, all participants are in a listen-only mode. I would now like to turn the call over to JetBlue’s Director of Investor Relations, David Fintzen. Please go ahead, sir.

Thanks, Jerome. Good morning everyone, and thanks for joining us for our second quarter 2019 earnings call. This morning we issued our earnings release, our investor update, and a presentation that we’ll 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; Joanna Geraghty, our President and Chief Operating Officer; and Steve Priest, our EVP, Chief Financial Officer. Also joining us for Q&A are Scott Laurence, Head of Revenue and Planning and Dave Clark, VP of Sales & Revenue Management. 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 [Technical Difficulty]

…hard work JetBlue is consistently recognized as one of the best airlines in the world. Earlier this month JetBlue was named number one domestic airline by Travel and Leisure and last month was the highest ranked U.S. Airlines at the World Airline Awards at the Paris Air Show. Before moving to our presentation, we would also like to take a moment to acknowledge and thank Marty St. George who departed JetBlue last month after 13 years and who had made a lasting contribution to our company. We all wish Marty all the best. We would also like to welcome Teri McClure to our Board who joins us after a distinguished career at UPS. We believe she is a great addition to the Board and we look forward to working together. Now let's start on slide four of our presentation. Our second quarter adjusted pretax income was $238 million or adjusted pretax -- our adjusted pretax margin was 11.3% and our adjusted earnings per share was $0.60. This quarter our financial performance was impacted positively by the calendar placement of Easter and Passover holidays, a strong closing revenue environment, and solid progress in our unit costs. In the second quarter, we continue to move towards our EPS goals in 2020, with steady progress on each of the five building blocks we laid out in our Investor Day last October. Our ancillary initiatives and network reallocation efforts contributed to RASM and we are pleased that we saw an improved revenue environment compared to earlier this year. On the cost side, we reached another important milestone and signed a long-term V2500 engine maintenance agreement for our A320 family. This accomplishment contributes to our now $257 million in 2020 run rate savings from our Structural Cost Program. This quarter we also made progress in…

Thank you, Robin. I'll start with our capacity outlook on slide 6. During the second quarter, our capacity grew 5.9%, slightly above the midpoint of our guidance range of 4.5% to 6.5%. This was due to a solid completion factor in the quarter despite runway construction in Fort Lauderdale and JFK, and smaller projects elsewhere in our network. For the third quarter of 2019, we expect capacity growth between 3% and 5%, which is unusually low for JetBlue. Our slower capacity growth this quarter reflects tactical cuts we announced earlier this year to mitigate softer RASM trends in trough periods. Our lower capacity also reflects the additional neo delays communicated by Airbus. We plan capacity growth between 5.5% and 6.5% for the full year 2019. We are taking actions to mitigate the delays by adjusting utilization of our existing fleet and the timing of our A320 restyling program. Our delivery stream remains fluid, and we expect to continue adjusting our schedules as needed. Moving to our network, we continue to grow our relevance in our focused cities. We recently announced our intention to fly non-stop between JFK and two international routes, Guadeloupe and San José Costa Rica. These new routes adds to our JFK Guayaquil service announced earlier this year as we further build on our VFR and leisure strength. In Boston, we are adjusting our network and expanding our markets. We recently announced plans to relocate our Houston operation from Hobby to Intercontinental Airport in October following feedback from our corporate customers in Boston and New York. This fall, our planned growth in Boston will come mainly in the shape of increased frequencies to business heavy markets such as Washington National and New York. We are also adding capacity in strong leisure markets such as Northeast to Florida. We…

Thank you, Joanna. I will start from slide 9 with some highlights in the second quarter. Revenue was $2.1 billion up 9% year-over-year. Adjusted pre-tax margin was 11.3% up 3.2 points from the second quarter of last year. This is driven by calendar placement, the benefited revenue growth, the generally improved revenue environment and progress in our cost control. We reported a $0.59 GAAP EPS per diluted share. Adjusted EPS was $0.60 per diluted share. Our adjusted effective tax rate this quarter was 24%. We continue to expect our effective tax rate to be approximately 26% for 2019. Moving to slide 10. During the second quarter, CASM ex-Fuel increased 1.8% year-over-year near the lower end of our guidance range of 1.5% to 3.5%. CASM ex-Fuel growth was helped by ongoing structural cost program benefits but also benefited from the timing shift of marketing and other expenses. In the third quarter, we expect CASM ex-Fuel growth to range between 0.5% and 2.5%. The three factors, what we expect will impact our CASM ex-Fuel, growth this quarter include. Firstly, maintenance and marketing expenses shifted into the third quarter from earlier in the year. This is a headwind of approximately 1.5 points to the quarter. Secondly, as Joanna mentioned we expect 4% capacity growth this quarter and an unusually low growth rate for JetBlue. Lower capacity growth is driven by decision earlier in the year, to moderate capacity, to support our RASM and protect that margin as well as by small impact from the NEO delays. Finally, our plan certainly factors in some heightened impact from JFK construction during the third quarter. Taking a step back, when I look at our third quarter costs, in combination with our capacity growth and our performance in the first half we have clearly put JetBlue on…

Thanks, everyone. Jerome, we’re 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 Hunter Keay with Wolfe Research. You are now live.

Hi. Thank you. Can you give us a little bit more color on the 321neo delays, and any -- sort of what's happening there, and any indication to how quickly Airbus maybe able to catch up that will provide a little positive surprise as you think about 2020? Thanks.

Good morning, Hunter. This is Steve here. Thank you for the questions. At this stage, just a macro level, we're very disappointed with the continued delays to our A321neo program as a result of the Airbus production issues, including a further delay that we've received in the last week and half. Just success some more context, in 2019 we were due to receive 13 shelves, and as we said in our prepared remarks in the presentation, we will now receive a maximum of six. In 2020 we are due to receive 15, and now we expect to receive 14. Obviously the capacity is back-end loaded, and we don't have the full year benefits of flow through 2020 from the 2019 shelf. The good news is that we are working exclusively with Airbus to work through these production challenges, and get an understanding from what they are and working together as a team. And I am also pleased to say having got an early heads up in terms of where these deliveries are, but we remain on track with our cost commitments in 2019 as we've taken some tactical opportunities to tweak the restarting program to manage the capacity challenge in 2019. And we've got ahead of the impacts for the capacity around 3 points to 2020 to ensure that we remain intact with our EPS commitments to $2.50 to $3 for 2020. So it’s a disappointing situation for us, but we're ahead of it. We're working with Airbus, and we’ve got a good plan going forward.

Okay, Steve thanks. And then another one for you on the new agreement with the MTU, I'm a little surprised as you see go to the incumbent given how strongly you discussed the maintenance headwinds that you guys have seen in the past. Can you give us a little bit of color on how this agreement came to be? And anything you want to share with us in terms of maybe pricing concessions you've got? Or the degree of magnitude of -- really the deal roll-off your baseline expectations? Thanks.

Again great question. Just to be very clear they are not our incumbent. We have two other business partners that are currently doing the maintenance for our V2500 engines. Just for the audience on the call to give you some flavor around V2500 fleet, these are the engines that power our Airbus current engine options, which covers the A320s on the A321s. We have about 400 of those engines in the fleet. That fleet is bifurcated between something called pre-select engines and select ones. The pre-selected the older engines to select ones to the newer engines, amnesty the deal that we have secured to our partner MTU that we are delighted with – and we are delighted with the partnership to cover the older engines, the pre-select engines which is just over half of those 400 engines. Our target as always been to make sure that from a cost per maintenance event is in line with the market. And I'm confident not only through this deal but also with the rest of our engine deals that we will aim to get completed by the end of the year that we're making great progress on is to ensure that the cost per maintenance event for JetBlue is in line with the market. I'm obviously not going to get into any specific details about the commercial arrangements except that we have been very diligent about the process we've gone through. We've taken the required amount of time to make sure we've got the very best deal for JetBlue. And I'm very happy to be partner with MTU again. And we're very pleased with the future partnership as we go forward with the maintenance of those engines.

Thanks, Steve.

Your next question comes from the line of Jamie Baker with JPMorgan. You are now live.

Hey, good morning, team JetBlue. You cited strength in closing yields is benefiting the second quarter continuing into third. You call that the transcon. Would you associate this simply with further recovery from the first quarter trough? Or are we actually now punching into positive year-on-year territory? I'm just trying to square the current trends with the pressures that we saw last winter?

Sure. Hi, Jamie, thanks. So I'd describe it as current positive trending. If you look at what we're seeing tremendous transcon strengths some of the things that we predicted back in March associated with the challenges in the transcon markets those were temporary as we saw in the market. Market has strengthened during the second quarter. In Q2 there were quite a number of low tactical fares and those exited the market during the quarter. So -- we continue to see that strong demand in our Transcon markets into the 3Q. And this region is now a tailwind for us. The other area of strength really is the Northeast Florida strengths both in yield and in load factor also are very strong for us.

Great color. And second question probably for Steve or Robin. Back to costs. You know, you’re clearly quite close to achieving the mid-range of the -- $250 million to $300 million target. But despite this your margin gap to peers isn't really showing much momentum if any. I'm not beating you up on this necessarily, but could you articulate what will potentially close the margin gap from here? I mean, I know that 2020 [ph] should help. I know you're bullish on loyalty despite being a smaller operator. The cost performance has been strong, everybody has acknowledge that but if that doesn't resolve in margin gap closure -- again relative basis what will?

Hi, Jamie, Steve here. I'll put that one up.

Thanks.

As I said I'm delighted with the progress we continue to make on the structural cost program and thank you for recognizing that progress across the JetBlue organization. I would point you to our Investor Day presentation back in October of last year and the core five building blocks that we have which will drive us towards this margin contraction with in comparison to the years back. It's not just about the structural cost program but the work that we’ve been doing on the network reallocation is obviously bringing dividends. The fare options process that we are going to be launching as we come into sort of 2020. We're excited about and that’s going to drive forward. We're making significant progress with the fleet dynamics with regards to restyling and the NEOs that will come into the fleet. And I've talked about the costs and obviously we've got capital allocation. The other thing I would like to, point you to is the predominant benefits that we think about with regards to building blocks refer to CASM ex-Fuel and RASM. And there is another area that we believe is not fully recognized in terms of the opportunity and that's around fuel efficiency. That's ultimately going to manifest itself through both the network and the fleet building blocks, as we have the restarting I've mentioned A320 -- A321 growth on a proportionate basis because as a shows come in and obviously the benefits for the NEO. That benefit of the fuel efficiency, should lead to around three points of efficiency in the 2020 plan. And I'll give you some perspective, that each point is close about $0.05 of EPS. So, we've got a great plan ahead of us. We are executing. And the 2020 building blocks will ensure that we drive forward with margin accretions as we go forward.

That's great color. Thanks, Steve. I appreciate it.

Thanks, Jamie.

Your next question comes from Rajeev Lalwani with Morgan Stanley. Rajeev you are now live.

I had a question on RASM. As you think about next year in heading some of your targets as you mentioned and just now Steve that’s a big part of it hitting the $2.50 to $3, I mean, how do you -- how do you get there. Well a single digit, mid-single digits RASM, if we're going to have an industry environment where capacity growth assuming the max gets normalize, which may be double or triple, where we're seeing today. And if you layer that in with Marty's departure I mean one could be a bit more concerned with being able to hit those top line targets. So just trying to get some comfort there?

Thanks Rajeev. It's Robin and good morning. I'll respond to your question about Marty. And then I'll allow the team to address your comment more specifically. Because I think we have some revenue initiatives as Steve already outlined that you need to ask. But -- welcoming we miss Marty a lot after 13 years, but I think one of the Marty's greatest legacy is we're building a great talent bench on the new team. So, we now have -- obviously we made John as been in the seat of the year. We have leaders like Scott Laurence and Dave Clark who are here and will part of that team. And so, I'm very confident that -- as much as we will miss Marty we're not going to skip a beat in terms of our ability to execute on these commercial initiatives. So, having maximum individuals, I'm going to hand it over to talk about some of the revenue items you raised.

So maybe if I could just pick up. I think I would describe JetBlue's revenue framework as one of the momentum. We outlined a series of building blocks at our Investor Day, equating to between $350 million and $400 million of revenue by 2020. And we're really at the front half of those initiatives. They are broken down into several categories network. We've made a number of network changes. The long beach redeployments, we had a series of changes, last fall into earlier this year around optimizing our network. We just announced a series of changes. We expect $100 million to $120 million of run rate benefit associated with those changes by 2020. And those changes largely benefit some of our key points of strength. So, Boston, Fort Lauderdale and then adjusting Long Beach into our point of strength around transcon. We also have a series initiatives around the product offering. So, Fare Options 2.0 that has not happened yet. So, we have that to look forward to. And then if you look at the ancillary changes that we made last year, we're very pleased with the development that we've seen associated with our ancillary changes. This quarter alone, ancillary revenue was up 15% for customer year-over-year. We're now at $33 a customer, an all-time high for JetBlue. If you look at the drivers behind that, bag fees up 15% year-over-year, change fees even more space continue to grow into the double-digits. Loyalty, I know we've spoken about that, but we think there's tremendous upside for loyalties growing at a rate of 24% year-over-year. So, as you look at these revenue building blocks, we're very energized by what the future holds.

That's helpful. And then Robin, one for you specifically. And as obviously lots of discussion around the $2.50 to $3 and you are obviously well on your way to meeting that range. What will happen if you don't use start evaluating strategic alternatives? I mean, that certainly something that investors are talking about. I'd love to just get your thoughts on sort of Plan B, even if you may not want to go there?

Yeah. No, we're very focused on the $2.50 to $3. We're making great progress. In fact, we just did a fairly significant review internally where we went to each of these items. We've updated macro assumptions. And when you talk about some of the initiatives that got outline and then Steve talked about the sort of fuel efficiency which we don't think is in most people’s forecast. I mean, we are confident that the time we have in place we will get us to $2.50 to $3. And we're focused on that, and we're not distracted by anything else.

Okay. I'll leave there. Thank you.

Your next question comes from Savi Syth with Raymond James. You're now live.

Hi. Good morning. Just -- I have a couple of clarifying questions. Just on the restyling. I know you had previously thought you get about 60 done this year, I was wondering what the new plan was? And also just on the 2020 deliveries. The total 14, does that include 14 plus the seven that's pushed out from this deal or just 14 total? And what I'm trying to get out is as you kind of look at 2020 capacity growth, does the two points you make up for the two points? Or that's going to be the two-point pressure mean that you probably be growing at the lower half of that kind of mid to high single-digit range versus upper half previously?

Great. I'll the first half on restyling and then I'll flip it over to Steve to give you a little more color on the NEOs. So, the program is on track for completion through the end of 2020. We would expect just about 50 this year. With some of the NEO deals, we've made tax adjustments to our restyling campaign, so that we could save some ASMs associated with restyling to make up for the loss for the NEO delays. We've completed 28 NEOs -- sorry -- 28 restyled aircraft to date. The customer results are fantastic. We're seeing about seven-point increase in net promoter score versus the A320s that have not been restyled. So, we think the program is great. It's well on track to complete by the end of 2020, and we're very excited by the initial results of the first 28. Steve, over to you for the NEO.

Hi. Good morning Savi. Yeah. Let me just give you a little bit of clarity. So, originally when we talked about it on Investor Day, we were into the -- we assumed you we would receive 15 A321neos in 2020 and now it's 14. On the face of it you might think well, that's not significant. What's really driving the capacity reduction is the fact that we have assumed 13 shelves in 2019, and that was pretty much back-end loaded and that is a maximum of 6. So when you get to the full year impact of those, it has about a 2-point reduction in our original capacity assumptions for 2020. To sorts of give you a bit of a sense of that, we were -- this is in higher end of our mid to high-single-digit capacity growth assumption for 2020. And with that 2-point reduction, we saw just under the midpoint of that mid to high-single-digit growth. So that gives you a sense in terms of the impact of the shelves and the impacts on our capacity in 2020.

That's helpful. Thank you, guys. And then just a follow-up on that, so when you think about kind of the – actually, just a follow-up on the kind of stage length side of things. It looks like for the full year, it increased about 1 point, and then looks like 3Q is on the up one. So it seems like the stage length is increasing. Is that of -- every kind of assuming as -- kind of a higher stage length of the year for next year as well, because it seems like we are exiting the year with a pretty high stage length growth?

No. I wouldn't assume a higher stage length growth for next year.

Okay. All right, thanks.

Your next question comes from Helane Becker with Cowen. You are now live.

Thanks very much, operator. Hi, everybody. Thank you very much for the time. I just have two questions. One with all of the demonstrations that are going on in Puerto Rico, I was just kind of wondering if you could talk about how that’s impacting if at all your business? And the second question I had was with respect to the competitive situation in Boston. I was kind of wondering if you could just address that a little bit? It seems like there's been a big increase in competitive capacity growth, and I'm just kind of wondering how you're handling that? So those are my questions. Thank you.

Great. Thanks Helane. As far as San Juan concerned, we're obviously monitoring the situation very closely. As of today, we have not seen any material financial impact and we are very committed to Puerto Rico. It's a great focus City for JetBlue. Shifting to your question on Boston, maybe I'll address it in two parts. First just what we're seeing in terms of the JetBlue experience in Boston, and I'll address the capacity point you raised. We are very profitable in Boston, solid. We are committed to winning in Boston. We've built the network in Boston based on carrying customer where they want to go. We are focused on local customers where we see a very clear first choice preference for JetBlue. We've got the best people, the best products and a point-to-point model that is just perfect for the Boston geography. We are investing in meaningful ways in our Boston franchise. We've started with the strong leisure franchise. We continue maintain this, and have now grown a great business franchise. If you take a look at what we're doing up there, we've got 15 daily departures between Boston and DCA. We've hourly departures across our New York City area airports where we're allocating flights to important business markets that our customers have told us they want to fly to. Transcon is performing very well. We're launching Europe in 2021 to deliver European relevance to our Boston customers. We have a strong loyal base of corporate customers. We're investing with Mass Port. They are great business partner for JetBlue. Bottom line, it’s solidly profitable with great growth potential. And we are all very energized here with regard to Boston performance. With regard to your capacity point, I describe it as puts and takes. Some competitors are adding capacity, others are pulling capacity. You know, while the net capacity does accelerate a bit in Q4 it's still well within the range of what we have historically seen in Boston so we are quite comfortable with it.

That's very helpful. Thanks, Joanna.

Your next question comes from Duane Pfennigwerth with Evercore. You are now live.

Hey, thank you. Not sure if Scott is on the line or who wants to comment, but I wonder if you could talk a little bit about changes you're seeing in the booking curve. Further out, it feels like there's good availability of very low fares. Close-in things feel pretty tight. So do you find that you start a month down in RASM and make it up closing? And do you feel like monthly revenue production is more reliant on closing yield strength versus earlier in the year on this time last year?

Good morning, Duane. Thanks for the question. This is Dave Clark. I'll take this one. We're seeing good strength throughout the booking curve. We're certainly in some periods where intentionally getting ahead a bit farther away where we think we have ability to gain because we had lower load factor and some empty seats. But then looking very clearly to making sure that we have the right pricing and inventory in place for that closing yield strength so really trying to optimize the whole range of the booking curve based on the latest customer behavior we're seeing.

So you wouldn't say from an industry perspective that we're more reliant on closing yield strength?

We've seen a little moment in that direction over the past sort of year or two, but nothing too large.

Okay. Thanks. And then sorry to stumble on the same issue again but why would neo delays cause you to slow the A320 restyle? It seems intuitively it would -- you would want to accelerate it?

Yes. I mean at the end of the day we know that the benefit of the ASMs we had for the neos outweighs the number of seats we're adding for the restyling campaign. So by slowing that we're able to get -- 150 seats of A320s flying around. The incremental 12 seats just isn't enough to make up for the loss in ASMs associated with the neo delays.

Okay. So the pacing on the restyle is not changing? Or are you slowing the restyle also?

So we've always communicated that the restyling campaign will be done by the end of 2020. We just adjusted the timing within the restyling campaigns that we can ensure that -- we can offset the ASM impact from neos -- from the neo delays.

Okay. And then just lastly two points lower capacity next year on neo delays -- two points lower than what?

I'll take that, Duane. Good morning. Two points lower than guide that we gave at our Investor Day. So if you recall in October 2018, we laid out a very comprehensive plan through 2020 that include our capacity assumptions, our fleet assumptions, our CASM guidance, targets et cetera. So we're just referring back to what we laid at our Investor Day.

Which was high single-digits? Or what was that -- what would you say that?

It was at the upper end of our mid to high single digits sweet spot. Because -- as we always talk at JetBlue in terms of ensuring that we maintain our continued growth in margins and on our point about relevance in our focus it is. The sweet spot of the growth is mid to high single digits. For 2020 we had -- in the Investor Day in 2018, we talked about being at the upper end of that. And now with these changes to the neo deliveries is more soft towards the midpoint of that range.

Thank you.

Your next question comes from Catherine O'Brien with Goldman Sachs. You are now live.

Hey! Good morning everyone. So maybe a quick modeling one for Steve, could you just maybe walk us through some of the puts and takes, assuming you guys have hit the midpoint of your third quarter CASM ex guidance. Would the swing factor in the fourth quarter that could get us maybe closer to the bottom end or higher end of that 2019 CASM ex guide? Thanks.

No problem. Good morning, Catherine. Maybe I can just give a little bit around the timing. Because as I mentioned in prepared comments, I mean in prepared comments, you've got a sense of a little bit of a movement. The first thing I wanted to say is I'm upset July 2 the progress you've made in addressing out to the cost structure. As we mentioned on previous calls, our CASM progression is also a little choppy on a quarter-to-quarter basis. So, with regards to H1 and I think this is personal because it does impact three and four so just to give you some visibility. And half 1, we printed 1.4% CASM ex growth which was below the low end of our guide. Obviously with the strong traction from the Structural Cost Program, but we had a one point timing benefit. If you take that half one timing benefit it reverses in the second half. Around 2/3 of it impacts Q3. And about 1/3 of it goes into Q4. And at that one point around half of it is maintenance timing. And as a reminder we have honored time of material contract for the V2500 engine, so you've got some timing. About 1/4 of the point is our marketing spend. And the remainder is the mix of the spend items including IT spend. So that explains the half one to half two and the split between Q3 and Q4. I think that sort of then reflects with regards to Q4, we obviously have a situation where we don't have the pilot contract that we've already cycled through. We have a much lower timing impact that we had in Q3. The structural compact -- the Structural Cost Program continues to ramp into Q4 and we have much more normalized JetBlue capacity growth in Q4. So that's why you see the timing shift into H2. It's more impact for Q3 but less impacted in Q4 and we don't have some of those not headwinds that we're experiencing in Q3 for that flowing through to Q4, hopefully Catherine that gets into the essence of the question that you are raising.

Yeah. Sure no that's all really helpful. I guess I was also wondering if there is anything in the Structural Cost Program or other things that we're looking at that maybe could go a little better or maybe not. It might just swing you a little bit and where you are at the full year…

So I mean…

…anything like that which we are aware of?

So I mean the point I would refer to here is not on our full-year CASM guide. And we've done that intentionally because of the progress that we're committed to make on the Structural Cost Program. We have over 160 initiatives that we have either executed or we're working through. There are 100 kinds of those that we've actually done. We're working on the remaining 50 and that will be undoubtedly more to come. So, great progress is getting made. And so we've made very clear. We've clearly put our guide out there that you can refer to for the rest of the year.

Okay. Great thanks. And maybe there is one quick one on Fare Options 2.0 here. So I know you're saying that that should get rolled out a little bit as we've kind go into 2020. Do you have any thoughts on when maybe we'll see the testing programs, on the initial rollout is? Just any updates on timing there that will be great?

Yeah. Sure. So to just reminder, we believe we'll see about $125 million to $175 million RASM benefit steady state, that steady state will occur sort of the end of 2020 into 2021. We're currently tracking to launch Fare Options towards the end of 2019 and we're working on the communication plan as we speak around what -- how we will roll that out and how we'll communicate out the various elements of Fare Options in advance of what actually gets loaded onto our website.

Thank you very much.

Your next question comes from [indiscernible] with Vertical Research Partners. You are now live.

Good morning, everyone. Thanks for the time. Steve, you took 200 basis points out of your 2020 capacity plan, but you still maintained your negative 0.5% to negative 2.5% CASM ex-guide. Would you just comment on given how far out into the future that is? What is the CASM ex impact that you would attribute to the capacity reduction and then assuming that that's a significant number? Where are you running ahead of plan to offset that?

Hi, Dal. Good to hear from you. Just to give you some context on macroeconomics, two points of capacity is circa like one point of CASM within the year. So that sort of gives you a lot of pressure. As I mentioned in my prepared remarks, whilst we're disappointed in the delays, because it is the line of sights on it and then enable us to get some visibility and gives us time to get our fixed cost structure and start sort of adjusting that. And as I mentioned earlier, we've continued to make various steady and good progress on the Structural Cost Program with 160 initiatives going forward. So, there is always going to be puts and takes in the industry. These are going to be changes to capacity, but we're ruthlessly focused on the execution of our $2.50 to $3 EPS target for 2020 and more money accordingly.

Great. Thanks very much. And then, hey Joanna, can you just provide an update on the loyalty component of your commercial building blocks that you laid out at the Investor Day last year. Just wondering how you see that plan unfolding -- I think like $40 million in there. So, just wondering how you see that number today and what if any are the kind of moving pieces in your forecast there?

Yeah. So, there is a number of initiatives around loyalty. We've obviously seen strong performance. It's actually growing faster than ancillaries as a whole. And that's largely due to our co-brand card with Barclays. We're extremely happy with our relationship. I think as I mentioned it's growing 24%. There were a number of tactical initiatives that we're focused on largely around due to math statement credits that will open the booking flow, pre-populating applications in different channels, looking at additional earn and burn opportunities to increase utility at the program. We've also recently announced a new VP of loyalty and there is a tremendous opportunity here we believe to really increase the value of this program in terms of both its utility, but also just overall value to JetBlue. It's a very immature program relative to other carriers. And when you think about upside in our plan, this is where I would view the upside being.

Great. Thanks a lot everybody. Good quarter.

Your next question comes from Mike Linenberg with Deutsche Bank. You are now live.

Hey, good morning, everybody. Robin, just a clarification. I think I have not heard you say about RASM trends are accelerating from those -- network from the second half of 2019. And I look at the guide versus what you giving the second quarter really doesn't seem to be the case. But then you made them referencing RASM on an absolute basis. Did I miss you on that?

Sure Mike, thanks for the question. This is Dave Clark. If you look at our all in RASM and you clean it up for the holiday placement and then compare the second quarter to the third quarter, we feel good about the acceleration we're seeing sequentially.

Okay, that's helpful. And Dave actually to you or Scott my second question, when I see you call out of a market like JFK Charlotte and I think over the years we've seen – other sort of you know New York to medium size business type markets, I think Columbus is another that I can think of. The question is, is that a market where you might still be able to generate a profit but because of the flight constraints that Kennedy, its far more -- makes much more sense for JetBlue to target kind of lot of Looper than as a Costa Rica using a bigger airplane, just thoughts on that? What drove that decision?

Sure Mike, its Scott. I listen -- I think a couple of things about that. The first is, in something like JFK to Charlotte, you know the routes that we cancel are performing below system average. And that was a good example of one. The other piece was we took that and given limited gate space in Charlotte, we buttress the Boston schedule and added the frequency there. And JFK, we clearly do have slight constraints and we are optimizing those and continue to optimize those in anticipation of operating to Europe soon as well. So look it's not a matter in some cases of huge loss making, it's a matter of optimization.

If I can just add, I think one of the things I think you're seeing is that, we are taking action when we see soft spots in the network whether it was some of the changes to Long Beach or network optimization 1.0 or network options and optimization 2.0. The team is being proactive and making network adjustments as needed.

Great. Thanks everyone. Thanks Joanna.

Your next question comes from Brandon Oglenski with Barclays. You are now live.

Hey, good morning everyone. Steve, I'm sorry if you answer this to Darryl's question. But I just want to come back to the 2020 CASM ex guide of down 50 best to 250. You know with capacity growth coming in a little bit lower and I think you said, you're going to move around the restyling program, but still haven’t completed by the end of the year. I guess what changed on the cost side that you still feel confident in that range?

I think Brandon if you look in the rear view mirror and I think a case of trying to give you some sort of faith points in terms of where we are and are particularly focused on Q3 to give you some of sense of where the progress we're making. We're currently growing Q3 at 4% capacity which is below the mid -- of the mid to high single digit capacity growth. We've got 0.1 of pilot contract headwinds in the quarter and we have 1.5 points of timing that's moved from the first half into Q3. And we're printing a midpoint of 1.5 CASM. This is clearly a result of cost efficiencies driven by the stretch of cost program and clearly progress across the holiday JetBlue in terms of how we're driving this forward. So we have a momentum case. As I mentioned earlier to Darryl, there are always going to be puts and takes in industry and Joanna referred to the capacity changes that we make. We have to react in an appropriate way to take this forward. Since we launched the structure cost program at the end of 2016, we have taken capacity down four times proactively, because of what we've seen in the market. So this is not unusual for us. Again we've gain early heads up on this, so it enables us to think about our planning process for 2020. And as I said, we are absolutely focused on delivering our commitments of the $2.50 to $3 of EPS for 2020. And that's how we’re taking this forward.

Okay. I appreciate that Steve. And then Joanna if you don't mind, you guys haven't launched Fare Options 2.0, but I'm assuming that it's going to come with more ancillary focused fare at the low end I would guess. My question would be as you face more and more competition with basic economy fares in the market, do you feel that it's actually limited your revenue production this year in any way. Just because you have to compete at those lower fare levels, but can't necessarily recoup at all?

Yeah, I mean we're excited about what Fare Options 2.0 is going to bring. I can't speak to whether or not have we had it in place earlier, whether there would be differences in how customers purchase fares. I think at the end of the day, we know it will provide us with an opportunity to better compete at both ends of the spectrum. It gives additional options for customers whether you're extremely price sensitive or whether you're somebody who wants a more inclusive offering. We have markets today where ULCC carriers are in and we think that this will provide options to some customers that might not have necessarily considered JetBlue because on an OTA when the fares are displayed, our fare shows up as higher because it's an all inclusive offering. So whether that contributed to loss of revenue is anybody's guess. I think we're excited about where it's going to take us for the future and I think the good news is unlike most carriers that have already launch basic economy and are seeing the results, we still have all of this ahead of us.

Okay. Appreciate it. Thank you.

Your next question comes from Jose Caiado with Credit Suisse. You're now live.

Hey, thanks very much. Good morning, everyone. Robin, big picture question that I'd love to get your thoughts on. As a U.S. operator of Airbus aircraft soon to be an all Airbus operator, what is your position or your view on the potential for the U.S. to impose tariffs on European aircraft, potentially as early as this summer after we get a WTO ruling. I mean what recourse is available to JetBlue in that case, would you have to just take all of your Airbus aircraft from Alabama maybe, or would you just have to pay the tariffs, and therefore higher prices for the aircraft?

Thanks for the question Joe, and actually we did actually testify on this issue against the proposed tariffs. I mean, there clearly needs to be a settlement here between the U.S. and Europe because this will end up in a tit for tat that will be bad for both Airbus, bad for Boeing and bad for all operators. And so we're confident that eventually that will get resolved. Right now I think it's not helpful speculating as to how likely that is. But it will be devastating the whole airline industry whether you are going with Airbus operator if tariffs get imposed.

Yeah, it certainly would. Thanks, I appreciate your insight there Robin. Just maybe a quick follow up on the neo delays, and I know that you're transatlantic launch is still a few years away. But right now is there any reason to think that the planned launch in 2021 would be impacted by those delays, maybe get pushed to the right a bit, or do you think you'll all be caught up on deliveries by then.

We don't anticipate any impact to our 2021 European plans with the neo delays.

Okay great. Thanks everyone.

And that concludes our second quarter 2013 conference call. Thanks for joining us. Have a great day.

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