Good morning. My name is Charles. I would like to welcome everyone to the JetBlue Airways Third 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, Mr. David Fintzen. Sir, please go ahead.

Thanks, Charles. Good morning, everyone, and thanks for joining us for our third 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; Joanna Geraghty, our President and Chief Operating Officer; and Stephen Priest, our Chief Financial Officer. Also joining us for question-and-answer session are Scott Laurence, Head of Revenue and Planning; and Dave Clark, VP of Sales and 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 the 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 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'd like to turn the call over to Robin Hayes, JetBlue's CEO.

Thanks, Dave. Good morning, everyone, and thank you for joining us. I'd like to start with my thanks to our more than 22,000 crewmembers across JetBlue's network for their passion in delivering outstanding service to our customers through a busy and challenging summer. Starting on Slide 4 of our presentation. Third quarter adjusted pre-tax income was $239 million, adjusted pre-tax margin was 11.4%, and adjusted earnings per share was $0.59. We are pleased with our 2.4 points of pre-tax margin expansion and EPS growth. Our margins are expanding both on the absolute and relative basis even with a series of unique headwinds from the Latin/Caribbean region that ramped during the quarter. Our results were driven by the compounding benefits of the structural cost program that helped us beat the low end of our cost guidance. As we near the end of 2019, I want to thank all the teams at JetBlue for executing our plans, create long-term value for our customers and owners, including majority of crewmembers, who own JetBlue's stock. We are gaining traction on the building blocks we laid out at our last Investor Day and expect to make further progress in 2020. Despite the myths and pressures in international markets and near delays, we believe we are on track to deliver our goal of $2.50 to $3 of EPS in 2020. Furthermore, we are positioning JetBlue for continued success into the next decade. I'm particularly pleased with our improvement in unit costs. In the third quarter, we beat the low end of our CASM ex-fuel guidance despite over 0.5 point of capacity loss due to Hurricane Dorian. Our improved completion factor more than offset any storm impact and we believe this demonstrates the solid progress that Joanna and the team have made to strengthen the operation. Since…

Thank you, Robin. I'll start with our capacity outlook on Slide 6. During the third quarter, our capacity grew 4.8%, near the high end of our guidance range of 3% to 5%. Higher capacity growth was the result of solid improvement in completion factor. We are pleased with the benefits of our operational initiatives, which more than offset the impact of Hurricane Dorian and runway construction in Fort Lauderdale and JFK. I'd like to thank the JetBlue team for the steady operational improvement throughout the year. Since the beginning of the year, we have seen year-over-year improvements in all of our operating metrics including D0, A14 and completion factor. For the fourth quarter of 2019, we expect capacity growth between 4.5% and 6.5%. As a result, we now expect full year capacity to range between 6% and 7%. The increase of our capacity guidance for the year is due to expected improvements in completion factor carrying into the fourth quarter. Scheduled capacity growth for 2019 remains below our initial plan. Turning to our network. Let me start with New York. We're continuing to grow and develop our transcon network, most recently through added frequencies to the JFK-LAX market. We are currently the carrier that offers the most nonstop flights between New York and the L.A. Basin. We also continue to develop our long-haul VFR footprint with planned service between JFK and San Jose, Costa Rica; Guayaquil, Ecuador; and Georgetown, Guyana. In Boston, we continue to build our network, improve relevance and grow our customer base. We've been pleased with the unit trends in Boston overall, and we're particularly pleased with the growth and performance of the business markets. We now have 15 daily flights between Boston and DCA complementing the hourly service to New York. Both markets are exceeding our…

Thank you, Joanna. I'll start from Slide 9 with some highlights from the third quarter. Revenue was $2.1 billion, up 4% year-over-year. Adjusted pre-tax margin was 11.4%, up 2.4 points from the third quarter of last year. Our pre-tax margin was driven by solid progress in our cost control, partially offset by revenue challenges in the Latin/Caribbean region. Our GAAP pre-tax margin also includes a small gain from our investment in JetSuite equal to $15 million. We reported a $0.63 GAAP EPS per diluted share. Adjusted EPS is $0.59 per diluted share. Our adjusted effective tax rate this quarter was 26%, and we expect a similar effective tax rate to 2019. Moving to Slide 10. During the third quarter, CASM ex-fuel increased 0.3% year-over-year beating the low end of our guidance range of 0.5% to 2.5%. CASM ex-fuel growth was driven by ongoing structural cost program benefits, but also benefited by half point of timing due to expenses shifting from the third to the fourth quarter. Looking into the fourth quarter, we expect CASM ex-fuel growth to range between minus 1% and plus 1%. I'm thrilled with the progress we are making on better controlling our CASM ex-fuel. We entered the fourth quarter ahead of the plan for the year , admitted the retirement benefits, and we are well on pace to beat the midpoint to our original full year guidance of 1%. We have lowered our CASM ex-fuel guidance for 2019 to range between 0.5% and plus 1%. I am proud of the efforts of all of our crewmembers and leaders to overcome lower scheduled capacity growth, managing through runway construction in Fort Lauderdale and JFK, and mitigating the impact of NEO delays and Hurricane Dorian. As a reminder, this year, we also cycled through a 1.75 point headwind…

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

[Operator Instructions]. The first question comes from the line of Jamie Baker from JPMorgan.

Couple of housekeeping items. The commentary on transcon showing solid performance, you identified Mint as part of that. Could you provide some transcon color excluding the front cabin?

Transcon overall is performing well.

Okay, but it was close to monosyllabic. Very good. All right, I'll settle. Yes, I'll settle for that. At the Investor Day, loyalty was expected to contribute $0.35 to $0.55 in earnings. Actually, that wasn't all loyalty, but loyalty was part of that bucket. I may be mistaken, but I don't see any reference to loyalty at all in the presentation today. Is that an oversight? Or perhaps your modeling assumptions in this regard have changed somewhat?

No. We actually did mention it in the script. I think maybe what I'll point out is as you look at ancillary revenue overall, ancillary revenue is up 17% year-over-year. We're now at $33.60 per customer. Loyalty is the biggest component of that. It's the fastest and largest growing component. We've seen our co-brand portfolio more than double in the last 2 years and we are very optimistic about the future of our loyalty program.

And just a real quick one for Steve. At what point -- so we can kind of keep this in our calendars, at what point will you provide a guide further out than the $2.50 to $3? Assuming you're on track, which you have said several times today. When should we expect the subsequent guide?

I mean, to be honest, we would only revise guide if anything has changed. And when we went out back in 2018 at our Investor Day, we laid out the $2.50 to $3 with some macro assumptions associated with that, and that still stands as we go forward. As we sort of approach next year and we get to the end of this year and we go into the first quarter and our quarter 4 earnings call, you can expect us to sort of talk about a little bit further. But very, very pleased with the progress we continue to make. Very happy with the margin and EPS accretion that we've seen during 2019, and look forward to JetBlue continue to keep the momentum going forward.

Jamie, it's Robin. I just want to build on Steve's comment because I think you make a very important point. Right now, we are entirely focused on the $2.50 to $3. But as we've laid out, as we've talked about, we have a number of initiatives that will continue to deliver beyond 2020. We talked about our commitment to cost longer term, some of the fleet changes, and we are very excited about the EPS growth story we have beyond 2020 as well. And so we know that's something we're looking forward to showing at the right time. But right now, our focus is on the $2.50 to $3 and that's what we are executing too.

Next question comes from the line of Hunter Keay from Wolfe Research.

I wonder if you could give us a little update on the NEO delays. Are they all caught up? Or is the optimism that the deliveries will pick up again in early next year still based on some catch up that they have to do?

Hunter, it's Steve here. I'll repeat that one. As we just referred to in our prepared comments, we were due to take 13 aircraft in 2019. We have taken 2 deliveries so far, expect another 4 by the end of the year. So 6 in 2019. We gave a pretty comprehensive update at July call, and nothing has materially changed as a result of that. We continue to work through the delays with Airbus and have discussions with them. It's certainly been a challenge for us, and as a result of that, it's resulted in us making some tactical adjustments, as you know, to restart in 2019 to protect the schedule in operations. And we'll continue to look for any further actions we need to take to mitigate if further delays come forth, but nothing has changed from the July call and the update that we gave then.

Okay. And then if you're tracking below the earnings guide or the CASM guide, is that $50 million of nonairline expense the bucket that you're willing to really cut deeply to hit the 2020 numbers given it's almost certainly a near-term P&L drag?

Well, actually, Hunter, I wouldn't really sort of start considering that at this point because we are making terrific momentum with regards to our unit costs, and I'm delighted, really delighted with the progress that we're making on our cost structure. I mean, if you look at quarter 3, as we just referred to, we were 20 basis points below the low end of our guidance range. When you look at the adjusted Q4, as a result of the 0.5 point shift in cost timing and the pilot deal that we're cycling over, you're seeing underlying negative CASM as we progressed to the second half of the year. So I'm not even thinking about that at the moment. The team at JetBlue is doing a fantastic job. We continue to execute, and I'm confident in the structured cost program and the associated impacts on CASMx.

Next question comes from the line of Catherine O'Brien from Goldman Sachs..

Could you walk us -- just give us some color on how we should be thinking about the cadence of your cost performance through next year? It'd be helpful if you could maybe remind us when you'll hit the full run rate for your structural cost-cutting program and then how we should think about the benefits on restyling and NEO deliveries?

It's Steve here. I just wanted to clarify, did you say the cadence of our cost structure through 2020?

Yes, just like how we should think about maybe when you'll hit the full 2020 run rate on the structural cost program and then how we should think about the benefits of the restyling program and NEO deliveries ramping up?

Thank you, Catie. I just wanted to make sure I heard you effectively. So again, I'm very pleased with the progress we've made with regard to the structural cost program. As we always alluded to, we give a detailed update in Q2 and Q4 on those earnings calls, but just to give you a sense of the progress we have made since July, we're currently sitting at $279 million as of the end of this quarter. So in the $250 million to $300 million, we're making very significant progress. Airports has been the biggest area this quarter with a nice mix of productivity and sourcing projects that we've taken forward. This continues to ramp. And we continue to be confident in the execution of the structural cost program as we get through to the end of 2019 to make sure we have that pillar in place as we cycle through 2020. And so, as I referred to in my prepared comments, you see the reiteration of the guide that we have 2020 on the CASM side, the minus 2.5 to the minus 0.5 on CASM. We are leaving quarter four exactly where we need to be leaving it in order to go into 2020 as we go forward. I think the only other point I'd make, you would continue to expect 2 elements actually. One, the restyling will continue to ramp as we progress through 2020. We will -- we do anticipate having 50 of the restyled aircraft completed by the end of 2019. And now we're continuing to ramp through, so you'll see the progress as we go through that. And the second thing, the only choppiness that we generally see is associated with our maintenance costs on a quarter-to-quarter basis as we are on the time and material contracts. So other than that, you should continue to see the momentum as you progress through 2020, and we're very confident in the plan that we've put in place.

Okay. I understood it. Maybe one quick follow-up to that one and I have something else on share repurchases. But -- so Steve, is that -- is the $279 million you just mentioned, is that running through your cost structure right now? Or is that what you've achieved in terms of what we should expect to see run through next year?

That's what you should assume runs through the 2020 P&L. We have obviously been taking the benefits of the structural cost program as we've been going through the various years. For example, we saw $30 million in 2017, we saw $60 million in 2018. You should expect just north of $100 million in 2019. And as I mentioned on my answer to Hunter, for us to be producing these levels of sort of CASM -- flattish CASM growth, you can see and certainly appreciate the amounts of structured cost benefits going through the P&L. So the $279 million is the cumulative run rate that one would see through the 2020 P&L.

Understood. And then just quickly on the share repurchase. Can you remind us how much -- I know you had $0.07 plus in your $2.50 to $3 target when you first introduced it, but was the $800 million new program you introduced this quarter, was that at all contemplated in the $2.50 to $3? Or is that incremental?

Great question, Catie. I'd say, when we went back at our Investor Day in 2018, I obviously didn't want to get ahead of the Board and we had the existing authorization in place. So the $0.07 -- the rest $0.07 that we talked about at our Investor Day in 2018 only assume the completion of the existing $750 million share purchase program and didn't contemplate any benefits for any subsequent share purchase agreements.

Next question comes from the line of Brandon Oglenski from Barclays.

I guess, Robin, as you stick with the EPS guidance next year, it does look like you'll have to get maybe slightly better revenue performance, and I understand that you have Fare Options 2.0 coming, but I guess, my question will be if we are in the current environment, is that enough or you to need to see improvement in the marketplace to hit those revenue targets?

I'm going to ask Joanna to take that.

Sure, thanks. So I think it's worth pointing out that 2/3 of our revenue initiatives for 2020 are yet to come, and we're confident in low-single-digit RASM growth for 2020. Let me just walk you through what's behind that. So we've got 4 initiatives, 3 -- that are $350 million to $400 million worth of revenue. Fare Options launches this quarter that represents about $150 million as we think about the benefit. We're pretty conservative in the assumptions around the upsell and take rate. And as you look at what other carriers have experienced, particularly those that implemented their basic economy later, they've really learned from what has worked and what hasn't worked, and so we are confident that we can ramp up Fare Options much faster than what some of the carriers, who were early to launch basic economy, were able to do. I will also mention that Fare Options provides a platform for additional revenue initiatives beyond Fare Options late into '20 and even beyond into 2021. We've also got our network reallocation efforts. We have another $50 million coming into 2020 from those, and I'll just point out that every city, every route has to earn its way into the network and not only if we had planned network reallocation efforts, but we also take advantage of opportunities where we see something underperforming and not the ability to, in a meaningful way, turn it around such as our actions in Mexico City this past week to ensure that we're protecting our margins. And then obviously, we have JetBlue Travel Products, which represents $25 million, and the progress there is really -- there is a 1% attach rate that we believe we can really drive upward in the next year or so, and then loyalty is also a significant contributor. So these four revenue initiatives, we believe, will comfortably get us into low-single-digit RASM growth for 2020 and we think that plan even works in a negative RASM environment -- negative industry RASM environment.

Okay. Actually that's very thorough. I appreciate that, Joanna. And maybe on JetBlue Travel Products, is that what's driving your other revenue growth right now? It seems pretty significant by the way.

I'm going to just ask Dave to take that.

Thanks for the question. This is Dave. We've got a number of different pieces adding. I wouldn't call JetBlue Travel Products specifically on the other, but we've got a number of things just across the whole ancillary stream. It's really driving good growth in those areas.

Brandon, maybe I'll take that question a little bit more to JetBlue Travel Products because, again, this is a plan that we are sort of preparing to optimize next year. And as Joanna said, the core opportunity there is to -- when you fly JetBlue and you book through jetblue.com, between 1% and 1.5% of customers are attaching an additional product for sell-through the OTAs when you buy JetBlue, that number is significantly higher. So the team has been making a lot of very solid progress into 2019, and I really -- I'm very confident around the $25 million number that we are building for 2020. And the team has also identified some other travel-related products that will be rolling out into the 2020 period as well. So very excited about what we're seeing there.

Next question comes from the line of Joseph DeNardi from Stifel.

Steve, it seems like over the past couple of years, there have been more headwinds than tailwinds to your kind of accomplishing the 2020 CASM story. So should we just kind of forget about the favorable end of that range, the down 2.5%, and focus more on maybe the higher end? Or is the kind of the lower end of the range still in play?

Joe, it's Steve. Good to speak to you. I think you said it all actually in your initial point, which is we have had a number of headwinds as we went into this whole program in the $2.50 to $3, and we still went forward. But as you've seen, in particular on the cost side of the house, we have overexecuted as we've gone through 2018 and 2019. And we've continued to take those headwinds in our stride. The NEO delays, be it sort of capacity adjustments, be it the continued challenge of ATC delays in the Northeast. So -- and obviously the Latin revenue that Joanna referred to in her prepared comments. So I think what you're seeing from the JetBlue leadership team and the wider JetBlue team is a relentless focus on execution. And I'm personally delighted with what we've been seeing over the last 2 years. The old JetBlue, you'd have heard a number of excuses, and you're not getting that from this team. We're absolutely focused on delivering our plan and executing too. So we will continue to do that despite any headwinds that continue to come forward towards us.

Okay. That's helpful, Steve. And then Robin, just your commentary around tariffs, the assumption that it leads to higher fares for consumers means I think that you would be paying higher prices for those aircraft. So can you just maybe walk us through when all this actually starts to materialize? When you have to make decisions? And what your kind of thinking, a little bit more detail, is around that?

Sure. Thanks, Joe. I'll keep my comments high level because I'm obviously not going to comment on sort of JetBlue specific conversations we're having with Airbus, but overall I think that these tariffs are extremely detrimental to the industry and JetBlue. Other airlines have said similar things. I think the concern is that it's an issue that could continue to escalate. There are other complaints in front of the WTO, which could lead the EU to issue tariffs if that goes in their direction next year. And so we're concerned about just where we are now, but also where it could become -- where it could go. Now in terms of mitigation, and -- we have our 220s on order, which will be assembled here in the U.S. Our concern about the way the tariff has been imposed, it was imposed on airplanes that have already been ordered. I mean, unlike many products, aircraft have a purchase cycle time that are years, in some cases, ahead of when they are taken. We've also been a big supporter of Airbus production in Mobile. In fact, the first airplane came off the production line down there. I was there with other JetBlue leaders. So we're, in a macro sense, concerned about sort of the tariff environment where it could go. In terms of sort of JetBlue specific commentary, I'm not going to get into -- on that with this call. Obviously, we're working that to with Airbus and it's very -- it's too early to say where that leads us at this point. Right now though, we're not making any changes to our 2019 or 2020 aircraft delivery assumptions.

Next question comes from the line of Duane Pfennigwerth from Evercore.

What is the profile of the international markets that are still working well for you versus those that are not? I noticed you're cutting Mexico City, I think, from all points on the East Coast. And I think the industry commentary about Mexico in particular is actually pretty good. So what are you seeing as a better use for those aircraft?

Maybe I'll talk broadly speaking about the Latin region. So as we think about Latin, in Q3, there were obviously some significant capacity pressures into Q3. As we think about moving into Q4, capacity in the broader Latin region decreases to a degree, so we expect improvements there. As we look at some of the more challenged areas that we mentioned in our September report, those headwinds will continue into Q4. That said, we've made adjustments to try to mitigate the impact of some of those unique challenges. As we look at the Caribbean, it is an area where we have the ability to redeploy capacity into different markets. And we've done that in Punta Cana. In the past, we've done it in other areas. Customers will continue to travel through the Caribbean region for vacations, and they will just go to other islands to the extent that there are areas that they would prefer to not travel to. As we think about points of strength in the Caribbean, the leisure Caribbean markets continue to perform well for us and our long-haul VFR markets also continue to perform well for us. The Caribbean overall, we have had a long history operating in this region and it's a region where there are normal puts and takes. This year, we've obviously seen a bit more pressure, but based on our experience, this is temporary in nature and it will move. It's a great fit for our model. We are very committed to the region. And it's an area that produces outstanding margins, and the returns that we see there more than offset the volatility. In terms of Mexico reappointment, Scott, would you like to take that?

Sure. So Mexico redeployment is very interesting for us because I think we see a lot of strength in the nonmid-transcon, so you're going to see some daylight transcon flying from that, a mix of some Northeast to Florida and then seasonally additional -- actually Northeast to Caribbean capacity. So that for us is a really positive margin change and we're really excited about that.

And then just for my follow-up, JetBlue used to spend a lot of time talking about partnerships and partnership revenue, just noticing some of your recent announcements there. Can you talk about to what extent that's still important? And what are the attributes of partners that are attractive to you? To what extent is credit quality or the fact that a partner will be a going concern in 5 years an important attribute?

This is Scott. Thanks for the question. Look, I think, we've got 50 partners that are out there and that works very well for us. It's an incredibly important part of the business and it produces for us. I think what we look for in a partner is the amount of connecting seats they fly into our focus cities, that tends to be a big deciding factor for us. And look, we manage volatility with partners, we've done that in the past and we'll probably have to do that going into the future with a portfolio as large as we have. So again, I think, we look at the potential for connections and revenue production.

Next question comes from the line of Michael Linenberg from Deutsche Bank.

Yes, this actually touches on some of the previous questions, but maybe just a little bit more specific. As I look to, like Cuba, for example, you've one of the largest footprints in Cuba than any U.S. carrier. Then just following the changes that the administration -- the changes, the restrictions that were reimposed earlier this year, did you -- have you guys seen a meaningful fall off in demand and then sort of as a result have you responded with your supply to that market? Just curious.

This is Scott again. I will take that one. I think the first piece is we've seen that impact in Havana, not at some of the secondary cities in Cuba. The impact corresponded almost directly to the customers that were flying under that category. And so I think, again, we continue to watch Cuba, we continue to see some of the changes there. And like Joanna noted earlier, each one of our cities and flights has to earn its way into the network. Cuba continues to do that. So we're excited about that. I think the other piece is, right, we have utilized the E190 in Cuba as a competitive tool. It's the right-sized airplane for what we're doing and when we see demand reduced, we are able to use those downgauges effectively to ensure that the economics there work for us.

Right. Then maybe, Scott -- this may be to you as well. Just the announcement out about this interline agreement that you guys announced with Norwegian, I saw something out there that indicated that you'd also be servicing them at T5. Is that accurate? I wasn't even sure if you had the space to handle the number of flights that they have into Kennedy.

This is Scott. I will take that one. We do handle some partners at T5. At this point, we haven't looked at that as part of the discussion with Norwegian. Again, I would just stress here. This is part of the kind of relationships we have with 50 other carriers. It's very similar to that. Some of these relationships are closer than others and they involve things like handling, but we'll see where that goes as we move forward in this discussion.

Next question comes from the line of Helane Becker from Cowen.

Just a couple of things on what you're seeing in some of your secondary focused cities, and how you're planning to get through, let's say this winter, as you ramp up capacity in New York, Boston and Fort Lauderdale, Boston and Fort Lauderdale specifically. How are you thinking about recovering from operations affected by weather and air traffic control delays?

Helane, I'll take it. JetBlue operates in the most congested airspace than any U.S. carrier. We've got a solid operating plan that will take us through the winter and snow storms and other events. I think if you look at our performance this summer, in the face of 2 significant runway construction projects in both Fort Lauderdale and JFK, and I mentioned the JFK one continues through November, we improved operational performance year-over-year. So I think we've got a great team on the operations side that is dedicated to continuing to deliver a great experience for our customers, even in the face of Mother Nature and the significant air traffic control delays that we experience in the network footprint that we operate.

Next question comes from the line of Darryl Genovesi from Vertical Research.

Steve, can you just update us on where you are in your progress towards getting the transatlantic service going? I guess you have some ETOPS investments to make and some -- probably some customs stuff that you need to do. Can you just give us a sense of sort of what's already taken place and what the potential cost hit from that is in 2020?

Darryl, I'll pass it over to Joanna with regards to the transatlantic action. So Joanna, over to you.

Thanks, Steve. So the work is well underway. We have kicked off our ETOPS certification process with the Federal Aviation Administration, that's about an 18-month to two year process. We're confident we've got an external party that's supporting us with this. It's done it before. And we're confident that we'll move through the process as outlined by the regulations. In terms of our -- the airport that we're going to fly to and spot access, we continue to work those issues in parallel, and we'll be reporting back at a later date as to what airport we have chosen and looking forward to that time.

And, Darryl, with regards to your cost question, any cost associated with the launch of the transatlantic service within 2020 CASM, it's included within the guides, just for clarity.

Okay. And then just quickly on this tariff issue. I guess, following up on, I think, Joe's question, it seems like a lot of the -- lot of the trouble for JetBlue specifically, as far as I can tell, is related specifically to this ACF option. I think that's what's caused some of the delays in Hamburg. And also I think that does in someways kind of preclude you from trying to take more Airbus deliveries out of Mobile, Alabama. How important is that ACF option for you guys overall? Is it something that you would forego if this tariff stuff lingers on?

Darryl, it's Robin. I'll take that. Actually, I was over in Hamburg a few weeks ago with the Airbus team. So I'm pretty familiar with this issue. I mean, just some background. As you know, we ended up delaying the NEOs from what we originally ordered and we sort of bought some CEOs forward and we did that because of the initial engine challenges around the GTF, and we didn't want to have engines on wing until they had gone through more than modifications that have now been underway. That left us in a position really where for simplicity and cost, the right thing for us was to move to the new ACF configuration. At some point, Airbus will move completely to the ACF configuration and it's really -- it's too late and not the right thing to go back to a non-ACF configuration. I'm not even sure Airbus will have the manufacturing capabilities to do it. And what tends to happen, Airbus' approach is to produce some of the initial -- of any kind of new config in Hamburg if it's a 321 or Toulouse if it's 320, and then move that to Mobile a bit later in the process. And so it's not just the configuration that drives Mobile, it's also the production rate. It's still a much lower production rate than, say, Hamburg or Toulouse. So, again, all of those issues that we're currently working -- I'm actually, to build on the point Steve made, I'm extremely proud of the fact that we face significant challenges with these NEO delays and yet we haven't walked away from our cost guidance. We have found other ways to mitigate the very significant impact that these delays have been bringing. Into 2020, we have built some conservatism into our delivery plan and right now we're comfortable with what we've already guided, which is the 2-point reduction.

Next question comes from the line of Rajeev Lalwani from Morgan Stanley.

Steve, question for you. The team talked about CASM longer term beyond 2020 as being flattish. Do you think you could potentially do a bit better than that? Or maybe the other way to ask it is, what are you including in that number? I would think you'd have some pretty nice opportunities given what you're going to do next year based on your guide and then later in the A220s, the gross structural cost continuing to ramp, et cetera. So why can't you do flat to down longer term given what I described?

Rajeev, thank you very much for the question. Again, just reiterating your comments, I'm delighted with the progress that we've continued to make in '19 and through the potential for 2020 and the guide that we have and the execution that's going on. I'm not going to get ahead of myself at this point. We've only sort of guided through to 2020. For me, when I think about what makes we are growing flattish CASM, we've always said mid- to high single-digit capacity growth is the right source of growth level for sort of JetBlue. And our ongoing focus on structural cost program through the end of this decade and beyond should facilitate flattish CASM going forward. You're absolutely correct. We're very, very happy to have the A220s on order. And as we've said before, they're going to be the game changer for JetBlue as we migrate through sort of particularly '23, '24 and beyond. But again, I'm not going to go ahead of myself. We've guided through 2020. We are actually focused on execution. The only final point I would make is through the structural cost program, through the initiatives that we're doing, whether they are engine deals, whether they are fleet deals, whether longer-term contractual deals. We have got key eye onto the next decade and it's not just a very short-term focus.

And, Joanna, or maybe for you, Scott, a question for you. We've seen a good amount of interest in building out LatAm South Florida from American, Delta, how do you look at that as a risk longer term? Do you see it as a threat? Or do you think you operate in different parts of the network such that there shouldn't be much overlap, even if they are building out South Florida and so on?

This is Scott. I'll take that one. Look, I think, we always watch what our competitors are doing and overlap between Miami and Fort Lauderdale. It's certainly something that we watch very closely. In this case, I think, we'll continue to monitor the impacts here with Delta and American as we do with all our competitors. I don't see a big impact for us given the LatAm issues.

Next question comes from the line of Savi Syth of Raymond James.

I just have kind of one follow-up on the domestic RASM commentary about it moderating. I'm guessing just, Joanna, based on your comment that it was broad-based that that you're seeing, and I'm curious what you think is driving that. Is it just a fact that we don't have the fuel pressure anymore? Do we have kind of too much supply in the domestic market? Or is there some kind of slowing in demand going on?

Yes, maybe a little more color on that. So as we think about Q3, we outperformed the industry in domestic RASM in Q3. We also pointed out in our reguide about 1 point of domestic softness and that was largely in the back half of Q3. Demand remains steady, but consistent with the rest of the industry, we're seeing RASM deceleration largely associated with capacity ticking higher as we move into Q4. I'll also point out something unique to JetBlue. We're seeing about 0.5 point of RASM pressure tied to the NEOs because of the delays and the closing nature of the delays. We've been put in a position where we're flying a suboptimal schedule, so that obviously also pressures RASM.

Perfect. And I know, Joanna, you mentioned that that was short term in nature. When do you think that -- is there any clarity as to when that will ease up? Or is it kind of depends on when you get the NEOs?

In terms of the NEO question, yes. The NEO, we believe, is short-term nature, obviously, based on the information that we know, managing to the existing delivery schedule, but we do believe that's short-term in nature.

Meaning just 4Q?

Correct.

Operator, we'll take one last call from the analysts.

Your last question comes from the line of Joe Caiado from Crédit Suisse.

Just a couple of quick clarification ones. First maybe for Robin or Joanna on Fare Options 2.0. Just how should we think about the rollout and the ramp up in that initiative? Is the plan to roll it out in the domestic market first and then international? And when do you expect to have that fully rolled out system-wide?

So we're looking at rolling it out at the back half of quarter 4. It ramps very quickly, largely system-wide, but there will be some markets where we will not offer it.

Okay. Got it. And then Steve, a quick follow-up for you. I'm just curious which bucket of the structural cost program is outperforming your expectations and driving a stronger underlying cost performance? Is it the tech ops bucket? Do you continue to find incremental opportunities there like wondering maybe this new contract that you just announced with AAR, looks like that might be incremental to the program?

Joe, thank you for the question. I have to say the 4 buckets that we laid out at the 2016 Investor Day, I've been delighted by the progress of all of them. Obviously, we did a warmup exercise at the time and obviously that was 2.5 years ago, as we've sort of worked through. So there's been some puts and takes, but we've gone through that. I think -- I mean, the one that has probably overachieved, as you probably saw from the July and this call update has been distribution, where we've actually overperformed in terms of the original one. But having said that, all of the other buckets that we've taken forward are progressing very, very nicely, and they have to do for us to be at $279 million as at the end of this quarter. So very happy with all the progress, happy with the progress in [indiscernible]. We're progressing quite nicely with some of those longer-term contracts that will impact beyond 2020, but happy with all buckets overall.

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

And, again, that will conclude today's conference. Thank you for your participation. Have a great day.