Executives
Lisa Studness-Reifer
David Barger - Chief Executive officer, President, Director and Member of Airline Safety Committee
Robin Hayes - Chief Commercial Officer and Executive Vice President
Martin St. George - Senior Vice President of Marketing & Commercial Strategy
Dennis Corrigan - Vice President of Revenue Management
Scott Laurence - Vice President of Network Planning
Robert Maruster - Chief Operating Officer and Executive Vice President
Mark D. Powers - Chief Financial Officer and Executive Vice President
Joanna L. Geraghty - Chief People Officer and Executive Vice President
James E. Leddy - Senior Vice President and Treasurer
Eash Sundaram - Chief Information Officer and Executive Vice President
Analysts
Jamie N. Baker - JP Morgan Chase & Co, Research Division
Michael Linenberg - Deutsche Bank AG, Research Division
Daniel McKenzie - The Buckingham Research Group Incorporated
Hunter K. Keay - Wolfe Trahan & Co.
Helane R. Becker - Cowen Securities LLC, Research Division
John D. Godyn - Morgan Stanley, Research Division
David E. Fintzen - Barclays Capital, Research Division
Savanthi Syth - Raymond James & Associates, Inc., Research Division
Kevin Crissey - UBS Investment Bank, Research Division
Mark Streeter - JP Morgan Chase & Co, Research Division
Michael W. Derchin - CRT Capital Group LLC, Research Division
JetBlue Airways Corporation (JBLU) 2013 Analyst Day March 20, 2013 9:00 AM ET
Lisa Studness-Reifer
Good morning, and welcome to JetBlue's 2013 Analyst Day. I'm Lisa Reifer, Director of Investor Relations for JetBlue. Thank you all for coming. We really got a great day planned for you today. Before we get started, I just want to go over a couple of housekeeping items. Similar to last year, we're going to have Q&A following each presentation. And so if you have a question, we just ask that you wait for the microphone to be brought to you so those listening on the webcast can hear your question. And then if you can say your name and where you're from before asking your question, that would be great. We're also going to have lunch served following the presentations in the drum [ph] behind you. And this year, we have actually a drawing for a couple of great prices. So if you haven't done so already, please put your business card in the JetBlue bag that we have in the back. We're about to get started.
Just before we get started, I just want to draw your attention to the Safe Harbor statement. We're going to be making some forward-looking statements today, so I please ask you to refer to our SEC filings for information about the risk factors that may affect our business. And with that, I'd like to turn it over to Dave Barger, JetBlue's President and Chief Executive Officer.
David Barger
Great. Lisa, thank you very much. Thanks. Appreciate it. Thank you. Appreciate it. Thank you. Good morning. Really, thank you so much for joining us here at our Analyst Day today. We really appreciate it. Lisa, in advance, I'd like to say thank you to you, Bob Mitchell [ph] of the Investor Relations team for pulling this together. Certainly, it takes a lot of effort, so thank you. Great turnout as well here at NASDAQ. And if I may, it's really nice to be here in Times Square, nice to be at NASDAQ. We were here last year as well. I think that we certainly can be called New York's hometown carrier. So thank you for joining us here in the room today. If you're listening on the webcast or at some point in the future, we've got an awful lot of play on the webcast as well with our own crew members as well, that's always nice. So thank you, again, for the support and the turnout today. And by the way, over the course of the day, we're clearly telling the JetBlue story on behalf of 15,000 JetBlue crew members who are making it happen day in and day out. And it's just a great team. And so really, I want to say thank you to the JetBlue team delivering that experience day in and day out. And also, just to introduce you to my executive team. We have a large turnout of JetBlue here today, and you'll hear from many of them, access to the group as well. Listen, at the end of the day, we talk about the business plan, but also the team that makes it happen day in and day out. So if you can just please stand as I call your name. Mark Powers, we'll hear a lot from Mark, our Chief Financial Officer. Thanks, Mark, appreciate that. Robin Hayes, our Chief Commercial Officer. Robin has a large module today. Rob Maruster, Chief Operating Officer, making it happen day in and day out. Joanna Geraghty. Joanna Geraghty is our Chief People Officer. Thanks, Joanna. Jim Hnat, he runs our General Counsel and also Executive Vice President of Corporate Affairs; Ethan Durham [ph], our Chief Information Officer as well. And thanks so much, lady and gentlemen, as well for the support. Probably some new faces as well that you'll hear from. Jim Leddy, could you stand? Senior Vice President and Treasurer who has significant modules. We talk about the balance sheet and what's happening behind the scenes. Rob Land, Senior Vice President down in Washington D.C. He's been busy lately with government affairs. Marty St. George. Marty, if you could please stand, Senior Vice President with Commercial and Marketing; and Jeff Martin. Where are you, Jeff? Great to have you. Senior Vice President, Operations. Thanks, Jeff. Joining us after a rather distinguished career down in another carrier down in Dallas, Texas. Great to have you as well, Jeff. And also, if you're an officer with the company or with JetBlue, please raise your hand. A lot of support that's here today, so thanks so much for what you do, day in and day out. Great, again, to have the turnout here at Analyst Day here in Times Square.
Some of what we'll tease out today, so we're now in our 14th year, right? So as we started flying back in the year 2000, right, February 11, and now, we're into our 14th year. So the teenage years and -- which is always an interesting timeframe for a company, and but we're very excited to be well into our second decade. And what we'll share with you today is really these attributes and why we think that they're so different. It really differentiates the space that we live in, in this airline industry in the United States, which is really more considerably over the last just couple of years, let alone 5 years, let alone since we've been flying back in the year 2000. And when we think about the competitive advantages that we have, the differentiated product, I think you'll hear a lot from Robin and the team regarding not just the product today, but also how we're looking at the product in the future. By the way, the product, the hard scape [ph], certainly important but again, the crew members making it happen day in and day out in our model. As we talk about our cost structure as well, that's very competitive, and again, creating the spot in which we live, Mark will go deeper in terms of the cost structure as well, how we're looking at it today, how we're looking at it in the future, how we're bending that cost curve as we're maturing as a company. And certainly, when you add the third piece of it, the high-value geography, and I think that's really important. When you start to think about the high-value geography, you put these 3 components together and we call it the sweet spot that we live in. It's the ability for us to take these 3 very significant attributes and compete against -- well, the hyper low-cost carriers or the discounters, and you know who they are, the type of product that they have and their geography, we know their cost structure. By the way, when we started the company, we know that just starting in New York, we were always going to have a cost challenge from the standpoint of flying in this geography and along those lines. So these 3 attributes allow us to compete effectively versus the discounters, the super low-cost guys. And then when you start to take a look at the network carriers, interesting what the term -- we're a network, too. So the legacy carriers, the network carriers. We think that when you combine, again, this product and how it's morphing over time, our cost structure, the relative advantage that we have versus the network carriers, and certainly, we know there's a disadvantage versus the discounters and you combine it with the geography, well, this allows us to live in really the sweet spot. And the theme that we've always said we're starting to crystallize around, how we continue to serve the underserved, which is really important because the discounters, well, that can be perceived as maybe the service product, it could be the pattern of service and we certainly get an awful lot of trials from those who are flying on the discount carriers. But also, the ability to really serve those who are underserved in our geography, the new network carriers. And again, the network carriers, when you get inside of this, it looks like this. And of course, Lisa, Rob and the team prepared a book for all of you. And again, if you're on the webcast, this is presented on the website as well on Page 5. When you start to get inside of the sweet spot, and again, as you look in your book and online, as we start to take a look at CASM, and of course, we're stage-length adjusted as we're comparing this, these are 2012 numbers, and we're also looking at the revenue side of the equation as well, we know where these carriers, right, the true network -- we know where they live. And by the way, we know that they're a product almost exclusively of bankruptcies, and certainly, M&A activity that's ongoing as well. We know that. We know that they live in the alliance world. We know that they can carry you from almost any place in the world to another spot in the world. We know that. And by the way, there are some outliers, other newer models, and again, they're depicted here from the standpoint of again, off of the horizontal, the vertical access when you look at costs, and you also look at revenue margins, if you will, in 2012. We know where these carriers live. We also know in our geography, this special geography, you can be a 5% player against a combination that's 20-plus percent. And again, that's 3 carriers out there, and again, one of those transactions is still in the process of going through review. We know that living in New York, in Boston, in places across Florida, the Caribbean, all the way in Southern California, the transcon, you'll hear more about that today as well, we know that we can compete against these carriers from the standpoint those who are underserved. And we also know as we're living in this space, there's other carriers that live in the space as well when you start to think of maybe their cost structure and their revenue model, but we'd argue not necessarily the product. And this is what is so different in terms of trial on our company. Once you trial, once you try JetBlue from the standpoint of it being sticky, it is sticky with repeat performance. And we're seeing that in Boston in a major way. Robin will take you deep inside Boston over the course of Analyst Day today. We know that as we compete against these carriers, right, the discounters, the low-cost carriers -- and by the way, as we look at our cost structure, we're pleased with our cost structure. We've had to put an awful lot of effort into also bending this cost curve, slowing the growth down. We know there's maturing aircraft, we know that we've got a population of crew members that are maturing as well, but the product also allows us to serve those who are underserved in these models. And so our goal as a leadership management team as we're moving forward, very focused on return on invested capital, driving those financials forward, is how we continue to move the sweet spot where we sit in between these 2 models, there is a space for a third model. How do we continue to move it north, minding our cost structure, but at the same time, really starting to see the revenue premium that we believe and we know that we see when we make the investment in a market or in markets over time.
By the way, last year, Joanna teased out Net Promoter Score, things like engagement. It matters. We have a direct relationship with our crew members, right? And so as we spend time -- and that's not code, we don't have third-party representation in our company. The engagement, are you going to go the extra mile? Truly, how long are you looking for this to be a career for you? This engagement, which drives Net Promoter Score, would you recommend JetBlue? All the way up in Boston going to Florida, VFR traffic, leisure, business, transcon, domestic, international, short, medium, long-haul, we'll take you inside of that in terms of we make decisions. And we believe that as we are now into our 14th year -- pre-verified air, by the way, on the backside of what's happened since 1978 when this industry deregulated, and also with the changes that have taken place over the last couple of years in this consolidating industry, that we can continue to drive the sweet spot further north, a very responsible cost structure and a product that's second to none. In fact, that's a -- I don't let our team use the word coach. We talk about the core product. And yes, okay, there is a -- this is our product, but it's very sticky from the standpoint of driving this model north. Listen, I'll close with this. It's a -- as we talk about, again, today, Robin, Mark, Jim, bringing you inside of whether it's the network's partnerships who want to provide more visibility in terms of this partnership model with what's working, by the way, as we're mainly harvesting that over JFK airport. Getting inside of customer enhancements, what's next? And we've teased a lot of that out. There's a lot of excitement that's happening in our company. And whether that's the WiFi model, whether that's Sharklets or some of the other type of the 321s coming, there's a lot of excitement that's happening across our company. There's other ancillary revenue opportunities as well. And so how do we continue to move that sweet spot, that RASM, core PRASM and RASM bubble further north, and at the same time, getting inside of cost control, right? And certainly, as we take a look at a maturing organization, responsible growth from the standpoint of not just x fuel CASM, also think all-in CASM. I always kind of like just chuckle, we're so focused on x fuel CASM, what about all-in CASM? Let's get inside of oil, let's get inside of fuel. Let's talk about fuel efficiency. Let's talk about single-engine taxing. Let's talk about things like utilizing NextGen. Of course, we'll talk about a hedging policy and what have you, but getting inside of that cost structure as well. And certainly, Mark and the team will bring you inside of that. And I think here, just an awful lot of, as we talk about just the financial viability, the sustainability of the company and getting inside of our capital structure and the hard work that has taken place over the last 5 years, but certainly, just even just last year. I mean it's nice to have aircraft that are free and clear in our portfolio literally as a 14 -year-old company. And when we look at cash from operations -- by the way, free cash flow is still very important as a metric for this company, and we'll take you inside of that. We didn't all of a sudden just migrate over to return on invested capital. Free cash flow is certainly a very, very important metric to the company as well. But at the end of the day, the lens that we're looking through is how do we keep improving this return on invested capital. We know you've got questions about it. You've been asking questions over the years, right, how do we make those decisions. And certainly, over the course of the day, we plan to bring you inside a great deal of detail, how we continue to drive this metric, a point plus per year for the foreseeable future. And I think that we've had a good track record of the work on that not just last year, let's put the storm to the side, but as we're looking at this year and beyond, right? This is the lens that we're looking through, this is the performance management metrics as well. So with that, listen, on behalf of the leadership team, on behalf of our 15,000 crew members, thanks for spending time with us today here at NASDAQ. Thanks for showing up at the Analyst Day, online as well. And with that, I'd like to turn the floor over to Robin Hayes, our Chief Commercial Officer. Robin?
Robin Hayes
Thanks, Dave. Welcome. Okay. Good morning, everybody. Are we doing okay? Everybody enjoying the first day of spring? Anyway, as Dave said, my name is Robin Hayes, I'm the Chief Commercial Officer at JetBlue and it's great to welcome you all to NASDAQ. As New York's hometown airline, we take great pride and joy of being located right here in the city of New York, and we're very passionate about that. Also, good morning to those of you following on the webcast, as Dave said, particularly our crew members. And I'm going to share a lot of information with you today about our network, about our customer, how we're thinking about things, but none of this is possible without the commitment and engagement of around 15,000 crew members who make it happen day to day. So as Dave said, engagement levels in our company are healthy and it's so important to everything we're trying to do. Okay, so let's get inside some of the information Dave was talking about. I'm going to talk to you about in terms of Dave talked to you about our -- the sweet spot. He talked to you about our relative revenue position. I'm going to talk to you about how we're going to -- what we're going to do to move that bubble north, as Dave referred to it. So let's start. We're going to start with some inside look on network. We're going to talk to you about how we're building, continue to build a sustainable mature network that's going to drive sustainable profits over the long term. We get a lot of questions about growth, so we're going to take you inside of a couple examples of why we think that growth is core to driving ROIC both in the short term and the longer term. We're also going to show some -- a bit more visibility on partnerships. For those of you here last year, we talked about that. We're going to share a little bit more about how we're really leveraging our network, leveraging our geography to drive increasing amount of partnership traffic.
And then the second half, we're going to focus on the customer. We're going to focus on what are we doing to win in this space. We have a very low core of customers, and we've also been diversifying that into more business travel. And we're going to talk about that. And finally, we're going to give you an insight into ancillary revenue and how we look at that and some thoughts there. Okay.
So just to recap, I know this will be familiar to many of you, but this is really how our network and how our customer has evolved in the last 5 years. So if you go back 5 years, we had a very strong New York franchise. It was a very strong ledger franchise, and it was -- we really, until 2009, we didn't really have any partners, airline partners at all. And I think we've done an amazing job in the last 5 years diversifying in a number of respects.
First of all, we've diversified our geography as we'll come on to a minute. New York, we're still New York's hometown airline, it's still our largest focus city, but we've significantly diversified. We've also diversified our customer. So in addition to some of the core ledger flies, we've increased our exposure to the higher fare-paying business travelers as well. Do we want more of that? Sure, we do. And we'll talk about some of the things we're going to do to make that happen. And we've also significantly increased our exposure into Caribbean and Latin America, markets that we've talked about before, markets that ramp up very quickly into possible returns.
And we've also now developed a very significant portfolio of airline partnerships, again, which help leverage our high-value geography, particularly here in JFK.
So this is just, for those of you following on the webcast on Slide 10, network strength in high-value geography. And what this slide is showing us here is really, look at the green circles, size of the green circles so you can follow on your book, links really -- it's a measure of relative capacity. So this is where we have ASMs invested today. So you can see the largest circle is still New York. It's still our largest market, but you can see now how large Boston is getting. And this is last year's number. That gap is going to close further as we close out 2013.
You can also see that we have significant capacity in Orlando, Fort Lauderdale, the L.A. Basin, most of that is in our focus city in Long Beach. And then, San Juan is also a market that we have significantly grown. So I think the key point from here is we may only be a 5% player, right, and Dave mentioned that, there's plenty of 20% plus competitors out there, but we, in our opinion, have the fastest time [ph] that really matters. We're in the high-value geography. We're in the markets that we want to be in.
Just then look at the growth. So we've been very focused and disciplined in where we've grown. I think one of the changes in our company the last 5 years is that we have become much more focused about where we add growth, and also taking routes out where they're not performing. If we look at the size of the circle here, this is showing you the relative growth compared to last year. So the larger the circle, the more relative -- the bigger the increase in ASM as a percentage of ASMs last year. So we talked a lot about Boston. We talked a lot about Caribbean, particularly San Juan. You see that in this slide. You see the growth has been very focused in those 2 markets. You also see a fairly large bubble in Fort Lauderdale, right? Fort Lauderdale in South Florida, we're going to talk about that in a bit as well. That is a market that is profitable and is a market we've been extremely successful at. And we're going to talk about some of the opportunities in Fort Lauderdale in a minute.
The rest of the network has really been close to flat. There's some markets we've added, some markets we've trimmed, but we feel really, really good about the performance of all of our network. Now there's one area where we feel that we have been falling short, which we'll comment and talk about later on, but in its core, our network's performing well.
Now let's talk -- look at some of the growth areas. So when we stood up here last year, we gave you a fairly solid briefing on Boston and what we were trying to do. And what we said was we felt that we were at the point of harvesting those investments, of seeing those returns in Boston start to pay off. What we've got with this slide here and for those of you following on the webcast, I'm on now on Slide 12, is the blue bars are a measure of margin and the gray line is a measure of seat share. We have grown Boston significantly. Since 2009, we've added capacity growth of probably averaging 15% plus year-on-year in Boston. You can see, as we now look forward to 2012, how that investment has paid off. We've gone from a market in 2009, which was very low single-digit operating margin, to a market in 2012, where we closed at mid- to high-single digits op margin. That's a significant improvement. We only achieved that because of willingness to invest in that growth, to invest in the network that was strong and defensible, to invest in a network that appealed to business travelers. If we had stood there back in 2009 and said, hey, we're going to take a very incremental approach to this, sure, 2010 and 2011 probably would've looked a bit better than they ended up, but 2012 wouldn't have looked anything like this.
So when we talk about growth, when we talk about ROIC, I think everything we did in Boston was exactly the right thing to demonstrate ROIC and improve margins or returns in Boston. Boston's now at that phase where we can start to harvest the benefits of the investment. As we look further to 2013 and 2014, they'll get better than 2012, right, because the high-growth market, the high-growth years are behind us. We were at about 120 flights in the peak this summer. We said that has the capacity to go up to about 150. But going forward, the rate of growth now is going to be lower than we've seen in the few years behind us.
And so we look at Boston as really sort of -- this is I think, as we think about growth, as we think about returns, this was not possible without that investment in growth. Now we could've taken the view to grow that even more quickly, right? We could've gone back in 2009 and said, we're going to add 30%, 40%, we want to get to that point of maturity more quickly. That certainly would've led to bigger losses in the short term, right? 2010, 2011 would've looked worse than they did. So as we think about growth, we do balance the short term and the long term. We wanted to get to this point of reaching maturity, but we also made it then not to do it too quickly because I didn't want to put too much pressure on the short term. We're very serious about delivering on our ROIC commitment, both on a year-on-year basis and also for the longer term.
We also had a great partner. The other reason Boston's been successful, we've had a great partner in Massport as well, who's made significant investments in the facility. For those of you who've been through there, central checkpoint, significant upgrade in the facilities, and that's also been warmly welcomed by our customers. So as we look at Boston, I think we're very pleased about what we've achieved in Boston.
So let's now talk about San Juan. Yes, we really looked at San Juan as a market that's maybe 1 year or 2 behind Boston in terms of its growth rate. So it's -- you look in the bottom left-hand corner, that shows you the year-on-year ASM increases, that's right here. So you can see in 2011, 2012, we had 2 very significant years of growth in Boston but we were increasing capacity by close to 30%. We were presented a unique opportunity in the San Juan market with competitive capacity changes that we wanted to take advantage of. It was good for JetBlue. It's good for our shareholders that we take advantage of these opportunities. The growth this year, again, we're now about 40 flights a day in San Juan. We see the opportunity for that to go up to 50. So we're pretty much now -- we're 80% through the sort of growth curve. You can see the high investment years are really behind us in terms of growth. Boston in 2014 will start to become profitable again, right? But like we did with Boston, even though we've grown San Juan, even though we've increased capacity significantly, we've basically done that and ensured the franchise remains breakeven. So as I talked earlier about not growing too quickly, making sure that you were investing at a rate of growth that we could afford, we've done that in San Juan. We have managed to significantly increase capacity whilst maintaining a breakeven operation in San Juan, and this is a market that's going to deliver strong profits in 2014 and beyond. We are now the largest one -- the largest airline in Puerto Rico. That allows us to not only offer a lot of relevance to local customers, but also things like the new co-brand cards that we'll talk on later, we just launched in Puerto Rico. A lot of other good things happen once you become the #1 player in the market.
As we think about Puerto Rico as well, we think of not only customers traveling to and from Puerto Rico from all over the U.S. There, we see a significant amount of business traveling that market. We see a significant amount of vacations, a number of vacation travelers in that market. And we're growing San Juan, not just into the United States, but we're also growing San Juan internationally as well. We have 2 new markets opening here in the 1st of May. We've already announced Santiago in the DR and Punta Cana which come online. So again, as I showed you the growth on Boston, we expect San Juan to behave in exactly the same way as we ramp up towards much better returns because of the growth that we put in there.
Let's talk about Fort Lauderdale or South Florida. So we talked about Boston, we talked about San Juan. We would argue that we made the case growing both of those markets, significant growth in a relatively short space of time has yielded much better returns than had we not invested in that growth. We see Fort Lauderdale as the next big opportunity. It's a market that we're in today. It's a market that we have about 50-plus flights or so today. It's a market that we are profitable in today. It's a market where we have pretty good service, both in north into U.S. and also south internationally. We're growing our Latin America footprint into a number of markets that we've already announced and some that we haven't yet. It's a big catchment area. It's got a strong -- it's a large population center. It's got a lot of communities from many countries all over Caribbean and South America that travel frequently. There's a lot of business travel. It's a very rich demographic for us. It performs well today. So as we look at that and say, okay, as we look at Fort Lauderdale, how do we take Fort Lauderdale from where it is today to the potential to have returns that are at Boston's level and beyond, we see a tremendous opportunity here. We see the ability to take Fort Lauderdale up to possibly 100 flights a day. Now it's going to need some investments in the infrastructure down there, some investment in the airport but we see this as a very big opportunity.
The other really advantage of Fort Lauderdale has over Miami, which is the other large sort of airport in that catchment area, it's a cost difference of operating out of those 2 airports. If we think about what we're successful at doing, which is coming into a market, lowering the fare, stimulating new demand, we have -- the cost of operating from Fort Lauderdale versus Miami is 4x. Okay, Miami is 4x the price of operating at Fort Lauderdale. That gives us a very big competitive advantage by operating in and out of that market. So as we think about Boston, as we think about San Juan, we're also thinking about Fort Lauderdale. We see a significant opportunity to grow into this market as well and create strong returns very quickly.
And by the way, I talked about Boston and San Juan and how even its very worth, that was pretty much a breakeven operation. I can think Fort Lauderdale is starting from a much greater point of strength. So I think the investment cost in Fort Lauderdale is actually going to be even more advantageous than we saw in both Boston and San Juan.
Okay. So some color on the network. You may have some other questions later. I did mention one area that's underperforming, I haven't forgotten that. I will come back and talk about that in a while. Let's talk about partnerships. There's always a lot of interest in what's happening on the partnership side and just a recap of what we discussed last year, which is we take a slightly different approach to how many legacy airlines look at the space. For me and my leadership team, we probably have sort of our own -- the decades of experience that some of our legacy competitors, like we know the pitfalls of this stuff pretty well, and I think we learned from that. And so we learn -- we don't do a standard proration agreement, right, where the carrier with the short segment ends up with a very low relative fare. We really look at local yields. So when we set a flight to a partner, we're looking to collect a yield that's very close or at the same yield that we would expect to sell on our own website, jetblue.com. We're also very focused on gateways. So we'll say no to partners about if we're in an airport today and we maybe have 8, 12 flights and that partner wants to interline or coach after that gateway and we don't think we have enough critical mass to justify even make minor investments in that airport, we won't do it. We focus on the gateways where we think we can get the strongest returns.
In terms of some color then on how much this is worth, I think we gave some color last year but with a big quick tick in terms of -- we talked JFK, Boston we gave an example. This is a market that has grown significantly. We closed the year 2012 with revenue from partner airlines of over $80 million. 2013 will, as you can see from this chart, will be significantly above that. We then decrement that, we look at that and say, not all of that's incremental, right? Some of that -- this business tends to book earlier. Some of that's going to stop me selling a seat I would have sold locally. And so we decrement that, we've done a lot of increment -- sort of incrementality in our business and for what's that worth at incremental level. And we had roughly that number, $80 million-plus growth, that number in that incremental level, think about $40 million of incremental revenue that we would not have got had we not had these partner flows. Now this is a business I still think is in a fairly early stage of maturation. We have been increasing the number of airline partners that we have. You're going to see that again this year. We've only had one announcement this year but I think we have another one coming fairly soon, right, Scott? And more. But we're also going deeper with partners where we've really found a way of connecting with our partners. So we've already announced 2 to one-way code agreements this year with Aer Lingus and Qatar. We're very pleased with both of those. And as I think Dave has already said publicly, we are also expecting this year to fulfill our first two-way code, international two-way code agreements with one of our existing partners. Now as you know, because I had questions from some of you before, we've been very cautious about taking this step, it adds some complexity at our end that we want to manage very carefully, but we think we now have a way of managing this that's going to be very advantageous from sort of a revenue and margin perspective. And so expect the first two-way code announcement some point this year. It could be fairly early in the remainder of the year.
So what does that all mean in terms of CASM? So we look at how we're doing against our competitive set. So for those of you following on the webcast, I'm now on Slide 17. We look at our relative CASM, which we stated as adjust against the A4A domestic set of airlines. And I think because of our growth, because of our investments in markets like Boston, because of our strong core profitable new franchise, which we haven't really very much talked about today because it's very stable, it's very profitable and I think you're much more familiar with it but because of all of that, we've been able to grow our unit CASM more quickly than our competitors in the last 2 years. And this is something in terms of how I'm measured and how my team are measured, this is very important to what we're doing, right. For this -- for us to feel that our plan is working, we continue to have to close this gap. By the way, we're not celebrating at 98%. I mean, we think we made great strides. We think we've done some very challenging things and been successful but we're not celebrating at 98%. We have a goal to get to 100% and beyond, right. We have to -- back to the days, where Dave opened up with that sweet-spot slide, we have to drive this unit revenue performance higher. And so we're going to continue to grow that. Let's now talk to you about some things we're going to do to make that happen.
So that's let's just talk about sort of the customer profile and who we're targeting, who our customer is. Okay, so Dave showed you a sweet-spot slide with other airlines on it. I'm going to show you a sweet-spot slide that looks at our customer segmentation, but we have a very sophisticated customer segmentation analysis. We have over 40 individual segments, too complex to present here but this is a good representation of sort of I think some of the overall team. So on the horizontal access, we have customer spend. So that's how much a customer is spending with us per year. And then on the vertical access, we have the trip purpose. So let's start with who we don't target, okay? Because I think that's as important as who we do. So if you go up here on the left top-hand corner, we call them the road warriors, okay? These are customers that are really, really well served by other airlines, right. They are, right? But for the legacy airlines, they do this really well. They know how to manage this group, they know how to inspire this group, they know how to make this group feel really special. We get some of those customers and in Boston, we get quite a lot of those customers, right, because we have a unique presence there with our quality of our network and our schedule. But at a network level, we don't target those customers, right? Those are customers that are well served by some of our competitors. And then you go down to the bottom left-hand corner and I look at the ultra price-sensitive customers. Okay, this segment here in JetBlue market is worth about $3 billion. The size of the circle is roughly the size of the segment value in our markets per year.
There's other airlines who do that better than we do, right? If you want to pay $9 fare and you're willing to just kind of travel as you are with the clothes you're wearing, then they do it well. They do it better than we'll ever do it, right? Let's be honest. That's not who we're targeting. This high-value leisure segment, this has been the core segment for JetBlue since JetBlue was founded, okay? These are the customers that you hear say, I love JetBlue, the TVs are great. Every time I'm traveling with the kids, I want to fly JetBlue, I have a presence with JetBlue. This is our core franchise. This is our customer sweet spot. Where we have been making increasing strides is this other segment up here, which we call mixed wallet. That's slightly high-value segment in terms of what they spend and a more of a SKU of business travels but it's a mix. So a mixed wallet because these are customers that fly on leisure and on business. They're not the road warrior because they don't have the 20, 30, 50 segments a year that, that group has but they travel on business. They want to be taken care of, they're annoyed that they fill the card on the legacy competitor isn't really worth anything anymore and these are the customers that are turning to JetBlue. And a lot of the product set that we're developing is partly that. So as we think about who our customer is, we have the extremely high share of wallet in this segment here. We have [indiscernible] that's increasing the share of wallet in this segment right here called mixed wallet, okay? So we are really clear about who we're targeting and who we're not.
Okay, you hear us talk a lot about NPS, right, net promoter score. Anyone not familiar with what NPS is? Think of NPS as really a -- it's a customer recommendation. So when you have an experience, would you recommend that experience to a friend, right? It's a very strong proxy for repurchase intent or repurchase recommendation. Across the horizontal axis here for those of you following on the webcast, we're now on Slide 20, this is NPS. This is net promoter score. Last year, JetBlue closed the year with a net promoter score of 65%, okay? We believe that is a world-class NPS score, but we are in company that we find inspiring in the likes of Apple, right? That is how we compare ourselves. I mean, that is the sort of brand that we say, it's Apple, it's Google. These are the brands that have really got high NPS scores. We look at the airline industry, most of our competitors have a negative or low single-digit NPS score, right? And we can't look -- we're not happy saying we are 50, 60 points better NPS than our competitors. Because actually that's not very inspiring. We want to go from 65, we want to get better. We want to be where Apple is, which is a 70% plus, okay? But why does NPS matter? So what we've done here is we've looked at NPS and we looked at our relative CASM performance. We strongly believe from everything we see and we serve a -- we get back from close -- over 1 million customers a year, very specific data on how we're doing, we see a strong correlation between NPS and relative revenue performance. If you look here on the core leisure circle and for these -- for this slide, the circle -- size of circles don't mean anything. We've disguised the value of the segments, relative value of the size of the segments for this chart. Our core leisure franchise, our bread-and-butter, our Northeast Florida market, we outperformed our industry competitors in terms of unit revenue. We also have, relative to other segments, the highest NPS. There is a strong correlation between NPS and unit revenue. When we serve a customer, when we look at behavior of customers who have given up different NPS scores and we look at their tendency to repurchase, what they do next, there is an extremely strong correlation between NPS and revenue production.
Business markets. We touched on this earlier, we do well, right? I mean, we are pretty much at the unit revenue average from an industry point of view. We have strong NPS. But as we are most -- more successful in Boston, as we continue that maturation cycle, you'll see that business market bubble continue to travel into the -- up into the corner there.
Let's talk about transcon, right. I talked earlier about there's an area of our business that is underperforming, right? There has to be. If everything's so great, won't your margins and unit revenue better than it is, right? What's holding you back? So let's talk about transcon. Let's talk about transcon in 2 different ways. Let's talk about Red Eye transcon. A significant majority of our Red Eye flying -- transcon flying is Red Eye. Now why that matters is that in the airline industry, you are not going to get the same unit revenue performance on a Red Eye flight as you do on a daylight flight, okay? By the way, that doesn't matter because the way you look at Red Eye flying is you're using an asset that you've already got, is driving utilization. So providing when I look at my marginal revenue and I look at the marginal cost of providing that capacity, providing that is positive, it's already accretive. So we look at that Red Eye transcon flying saying, you know what? It's kind of where we expect it to be, right? We do have a lot. As a percentage, we have a lot more Red Eye flying than many of our competitors. The bit that we're not happy with is the transcon daylight flying, okay? We have investment in daylight transcon flights from markets like New York and Boston to LAX and San Francisco, that's where most of that capacity goes. And we are underperforming. Now we believe very strongly we have to be in these markets because we have to be relevant. We want to be well into the business travel in Boston or a business travel in New York and we don't target business travelers in New York but we get a lot of them. If we want to be irrelevant, we have to fly to the large markets they want to go. So we don't think coming out is an option. We think actually that would make everything else worse. If we didn't fly from San Francisco, we didn't fly from Boston, San Francisco and L.A., it would make Raleigh dull, JFK, Pittsburgh, it would make everything else look worse because some of your less relevant are those corporate travelers who look for that relevance. So we have different solutions.
When we analyze why we are missing this goal, there's 2 reasons. The first one is we know from our customer research and from our feedback, there's a lot of customers who fly us across the rest of the network, so they shop away from us on transcon. Why? Because we don't have a Wi-Fi offering. Increasingly, customers are not wanting to be disconnected. They will live with a 50-, 90-minute flight. They do not want to fly 5, 6 hours across the country and not feel connected. So we know we have a big disadvantage there, going to come onto that in a minute. The other issue we have when we look at it from a unit revenue performance, is there is a fairly significant premium, paid premium market. I'm not talking about customers who pay for coach and get premium, right? There is a very significant premium, pay premium market to daylight transcon markets like LAX and San Francisco, okay? We don't compete in that space today, right? That is when we do our analysis and we look coach C for coach C, we're competitive. We can't hide behind that. But we make the decision to allocate the space on the aircraft in the way that we see fit. So for us to be truly competitive, we've given this a lot of thought and we've decided that in addition to the Wi-Fi offering, the other thing that we need to add to our portfolio to compete in this space is a premium offering on the transcon. So we will be rolling out next year a premium offering on our core daylight transcon market. We're going to do it in a very JetBlue way, okay? So when customers get on JetBlue, they're going to say, wow, this is the most incredible core experience, I didn't use the word coach, Dave. This is the most incredible core experience I get and I'm very happy with the price point. They're going to feel the same about our premium transcon experience. We're going to have a product that will wow customers and we're going to be able to do it profitably at a price point that will wow customers as well. So watch out for that next year. We'll be announcing more details about that later on this year as we kind of get closer to the rollout period. I'm sure there will be questions on that and we we'll take those at the end.
Okay. Let's talk a little bit about ancillary revenue, okay? And I'm going to anticipate the first dire questions from Hunter, so I'm going to get ahead of that with this chart. He's going to ask it anyway, right? We look very carefully, we know ancillary revenues are important. We know one of the ways we're going to improve returns is by driving more ancillary revenue, more high-margin ancillary revenue, so we're very focused on that. So please don't misinterpret anything I'm saying that we are not focused on this as important. But it's a bit more complicated than the analysis at face value sometimes we lead you to believe. So what this chart is showing, and now I'm on Slide 21 for those following on the webcast, is this is plotting revenue across the horizontal access, NPS impact on the vertical access and the size of the bubble is what we believe the net contribution of that product offering is. So when we look at, for example, ancillary revenue stream like Even More, right? So we now -- we have Even More space on all of our aircraft. We increased number of Even More spaces from the 190 last year. We now have Even More Speed, which is a fast-track security offering, which you can now buy on a stand-alone basis for either $10 or $15. We have the that now across all of our domestic U.S. airports and as new airports come online, it will be included. So we look at that as highly, highly accretive, okay? There's almost a 0 cost of production. Customers love it because they don't perceive it as a takeaway, and they love the fact that at a very affordable acceptable price point, I can get even more. So it scores well from a -- it's high revenue so its circle is high because the contribution level is extremely high, and the NPS is positive, right? When customers are offered this, they feel even better about JetBlue than they did before. And we know that's important because we know NPS links to core revenue production.
Let's talk about first bag. We don't charge for the first bag today. We take a lot of questions on that, right? I hear some very high numbers in terms of what people think that could be worth. This is why we don't charge for the first bag today. Sure the revenue number is pretty big, right? That's why it's on this side of the chart at a gross level. But when I look at what that's going to do to my NPS, when I look at my core leisure flight where people are checking bags today for the most part and we're seeing large revenue premiums over our competitors who do charge, when I see customer awareness with the fact that we don't have a first bag fee, is now a significant majority of our customers. So all of those things point to the fact that, you know what? If I start charging for the first bag, the contribution is actually much lower than we think because people are pricing it into the fare, the NPS will fall, which impacts directly their willingness to repurchase because we know if customer NPS falls, their value to JetBlue falls and we have an operational cost of correcting it. Rob Maruster and the operational team at JetBlue have done amazing work in the last couple of years in driving operational efficiency into our company. We have some of the shortest turn times in the industry. Our crew members are engaged at turning aircraft quickly. We have put spares back into the system as we got smarter at how we run our spare count. We have crew members who are extremely productive and amazing at turning aircraft, right? We are focused on that. We're focused on being efficient from the turn, efficient boarding flights and deplaning customers at the other end. That's where we focus our energy, right? If you end up delaying a significant number of flights for 4, 5 minutes while you gate check those last 15 bags, and we all know what happens when airlines charges both bags, it costs time, it costs money. So when we look at first bag and we wrote all these things together, we see a much smaller contribution than maybe some people think. So we frankly, as of now, we've taken the view that the view -- decline -- the view is just not worth the time.
Let's talk about ancillary streams we're really excited about we think are going to drive significant enhancements to our returns in the next few years. We're going to talk Even More, TrueBlue and Wi-Fi. These are my last 3 slides. Even More. This is a product set you are very familiar with, some of you have ridden and hopefully many of you have enjoyed. We've seen very significant revenue growth in the last few years. Our revenue growth in Even More is continuing to outgrow faster than our core passenger growth. We are saying Even More will be worth about $165 million this year. Now you may have some questions for Dennis Corrigan later, who's our VP of Sales and Revenue Management, in terms of what then -- what do you think that can go to? We're not saying we've optimized, we're not saying $165 million is the best it can be. There is a number of product features that we don't have today we know that will improve this number. We don't sell through the GDS' yet we know our corporate customers are yearning for it. We need to fix that. That's a IT development that Ishud [ph] is going to be helping us with, right, Ish [ph]? We don't sell subscription models or annual passes or bundled offerings, right? At the moment, it's sold just on a transactional level, right? We know that's worth a significant amount of money. Again that we need some high fee enhancements before we can start selling that. We also repriced Even More by flights, so we price it by route, we don't price it by flight. The time flown between JFK and Buffalo, every seat on every flight, it doesn't matter what day of the week it is, it's the same flight. We will know that isn't right. We will know by revenue managing down to an individual flight level that we can do better. So when we look at those things, we can say, you know what? We've probably think on a like-for-like basis if you take growth out, we're about 80%, 80%, 85% of what we think this can be. We know that's more we can do. And so, as a team, we're very focused in the next couple of years turning on some of these additional features and products allow that number to grow.
TrueBlue. We do have a loyalty program. We're really pleased with our loyalty program. We were the first airline in the United States to go the full earn and burn on a price-paid basis rather than mileage basis. And you're now seeing some of our competitors copy that. But we know in terms of -- compared to some of our legacy competitors, this is a program still in relative infancy. You'll get on a JetBlue flight today and 2/3 of those customers won't even be TrueBlue members. So we know we have a lot more that we can do. In terms of the value of this, if someone who is not a member today becomes a TrueBlue member, their value for JetBlue goes up 2.5x. If a nonmember today becomes a member with a co-brand card, so we have a wonderful partnership with American Express here in the United States, Santander and the Commonwealth of Puerto Rico, they become 5x more valuable to us. And by the way, as you go up here, it's not just the point -- it's not just the revenue earned on JetBlue, it's also the amount of partner points that we are earning, right? So this gray bar here, that is the value of that partnership in terms of what we're getting from the financial card partners. That's really, really high margins revenue. And then if a member with a code brand becomes a Mosaic customer, Mosaic is our sort of badge for our most frequent flyers, that's 6x more valuable. So we are extremely focused as a team and it's one of our leading parts in the commercial team to accelerate the maturity of this program so we can realize some of the value that we know that's out there more quickly. It's a significant source of revenue today. You saw that from the large circle earlier but we know it's worth more. So we have just relaunched the American Express card in the U.S. We've launched that with some additional enhancements. We have a great new card that was launched beginning of last -- end of last year in the Commonwealth of Puerto Rico with Santander. We're very optimistic that's going to become, in the next couple of years, probably the most significant co-brand card in the Commonwealth. And we are also -- as we build more and more international point of sales presence in other international markets, we'll also look at adding cards there as well where there's a big enough critical mass to make that worthwhile. There's also some enhancements to the TrueBlue program that we'll be rolling out later this year that again will help us move customers up this value curve. Every 1,000 customers we can move from being a nonmember to Mosaic is worth about $6.5 million in terms of contribution.
My last slide on Wi-Fi. So we're very excited that we are very close to having our first Wi-Fi aircraft. As some of you may not know, JetBlue will be the first airline in the world to equip its fleet with a full-band Wi-Fi at altitudes. It's been a great collaboration to our LiveTV subsidiary and also ViaSat. And what you'll see here is a real-life simulation that we run -- we developed last year, in partnership with ViaSat, where we did a number of test flights on competitive products, so we got GoGo, Row 44 and Panasonic, which is the -- doing a lot other offerings today. And then on the left-hand side here, for those of you on the webcast, I don't think you're seeing this video so you'll have to pretend it's like a radio and listen to my commentary. But on the left-hand side, this is the Exede Internet offering, which is we're going to brand Fly-Fi by Exede. And this is a -- this is happening in realtime, and then we're showing how the other competitive products are building at the same time. You can see here, this offering is significantly faster than any of our competitors. We are loading 10 websites, 10 of the more commonly used websites. We've picked the websites that tend to be fairly heavy in terms of data usage. And you can see that Exede is now onloading the 7th and we still have out there, we have our competitors, no one's got past the surf website yet. Not only is it fast, and not only is it accessible because we set to win a -- at least start by offering this as a free service, in terms of a core offering. But if every customer on the aircraft chooses to use it, they will be able to. If you take some of our competitive products at the moment, that bandwidth is shared, but you know that. You'll get on a competitor's flight and sometimes it will work okay, and sometimes it will be terrible, you won't get on. Because it's sharing bandwidth. This product has been developed in the flights by -- powered by Exede Internet. It's been developed in a way that every customer could enjoy that experience at the same time. We think the monetization opportunities that come through media partners and advertisers, by having everyone on an aircraft having access to free Internet, far outweighs the marginal cost of charging customers. By the way, we will charge customers if they want a premium experience. But if you want to go on and download Netflix and watch videos, you're going to do that. You can't do that on these other products, but you're going to do that. You'll pay for that right, because that is using a fair amount of data usage. You want to go on, surf the Internet, do a few minutes of YouTube, Facebook, email, that's a free offering. And we're going to find a way, if we can, of keeping it free longer-term, and we have some ideas about how to make that happen.
So for example, I talked to you about the value of becoming a TrueBlue member. I also said that 2/3 of customers on our flight aren't TrueBlue members today. Imagine, if you had to become a TrueBlue member to get access to free Internet, right? I can't think of a lower-cost acquisition cost for a new TrueBlue member than that. And so that's one idea, not announcing that. We have others as well. But we believe that the -- we think it's a truly transformational event. We think, to get on an aircraft and have a Wi-Fi Internet experience pretty close to what you can experience on the ground, we think it's going to change the way customers, whether they be business travelers or leisure travelers, look at what they expect. And that's good for LiveTV as well, because this is a product that is also available to other airlines in that sort of joint collaboration between LiveTV and ViaSat, and we think there's going to be a lot of interest in the product once things are up and running.
How am I doing for time? Okay. So that's me, done. And I really appreciate your attention and your time. Before we get into questions, which we will do, thanks, Jamie, I just would like to invite 3 members of my leadership team up on stage here. I think I'm blessed with a very strong leadership team, with a lot of strength and depth that helps us tackle and think through some of these issues. So I'd like to invite Martin St. George, who's our Senior Vice President in Marketing and Commercial Strategy; Scott Laurence, our Vice President of Network Planning and Partnership; and Dennis Corrigan, our Vice President of Revenue Management and Sales. And they will assist me with the Q&A. So first question, and might you introduce yourself as well?
Question-and-Answer Session
Jamie N. Baker - JP Morgan Chase & Co, Research Division
Jamie Baker with JPMorgan. And I'm willing to bet that I may also be one of the only Exede customers in the room. I can vouch for the product, it's very fast. Back to Slide 19, for a moment, on the road warrior status, or your version to targeting those passengers, except when they sort of fall into your lap in Boston. I jotted down a couple of things that are important to me when I'm traveling on business. First, I want to fly from LaGuardia, so maybe that doesn't really work here. I want to move through security quickly, I want to board in a low-stress way, I want to avoid RJs, and I want to be able to fly nonstop. So you can deliver a lot of that to me and I guess, I'm just -- I mean, I sort of get why you're not really targeting, but would it be that much of a management diversion? Would it be that expensive of a prospect? And isn't the introduction of Exede and a premium product sort of contradicting what you said there? Because I spend a lot more when I'm in that bubble than when I'm in the middle.
Robin Hayes
Thanks, Jamie. Marty, you want to take that?
Martin St. George
Sure, and thanks, Jamie, thanks for the question. Yes, I think it's actually a very simple answer. I think Robin said earlier, in Boston, we do target those customers and we do very well penetrating that bubble, so -- and that bubble, that actually is part of our focus. I think our biggest challenge in New York is really a challenge of opportunity cost. As you know, most of the airports in metro New York is block-controlled and going back to some of the things we've shown earlier, if you look at our results in places like the Caribbean, a lot of our leisure markets, these are very, very strong markets. So that's one of the reasons why we have been pretty aggressive at acquiring slots in New York because we do want to grow here. But in a place like Kennedy, it's sort of a 0-sum game. If we did 4 [ph] to 5 flights to Raleigh, it means less flights to San Juan, less flights to Santo Domingo, which tend to be very profitable for us. So I'm not saying never, but right now, we think the best allocation of assets is to make that a primary target in a place like Boston, where we don't have that opportunity cost.
Dennis Corrigan
Yes, and I think -- hi, Jamie. Just by -- in virtue, being in New York, it is, as you know, one of the biggest [indiscernible] places to travel or indeed out there, we do get business there, as you know. I have a sales team that actually just increased in New York, but what we're after is in markets where we have relevant schedules. So New York to Florida from, like now LaGuardia as well as Kennedy, we do well on a business leisure there. Transcon, obviously a very big business market, but puts us to be the guy that's going to go LaGuardia to -- I'll start naming off Chicago, Dallas, yada, yada, yada. Marty is right. The opportunity costs of doing that far outweigh the opportunity.
Robin Hayes
Next question?
Michael Linenberg - Deutsche Bank AG, Research Division
Mike Linenberg with Deutsche Bank. I just -- one clarification, and I just want to ask about the premium product. If you go back, I guess a couple of pages to where you're -- the closing of the PRASM gap, and it's the PRASM percent versus the A4A domestic. Is that just behind that -- underlying that, is that stage length adjusted, number 1 and number 2, is that just the main line or does that include main line plus the regional partners?
Dennis Corrigan
Yes, hi, Jamie.
Robin Hayes
Michael.
Dennis Corrigan
It is stage-length adjusted first and its main line domestic.
Robin Hayes
Michael. You mean, Michael.
Dennis Corrigan
I'm sorry. I'm sorry. I just see, Jamie. [indiscernible] the same [indiscernible] question.
Michael Linenberg - Deutsche Bank AG, Research Division
You know what? Jamie, that's okay. And then just my second question on the premium product, is, I guess, is one of the drivers -- I believe you will be taking delivery of the A321s, and when you think about how many seats you can put on that airplane relative to the range of that aircraft, is that going to be the airplane that you target, or will the premium product be on the smaller A320s? And I noticed, Robin, you said it was for the daytime product. Presumably, you would also have that better product on the Red Eye product, right? Because that's where people want it.
Robin Hayes
Scott, do you want to take that one?
Scott Laurence
Sure. So clearly, the Red Eyes and a couple of markets are interested. The -- we'll utilize the airplane with that product. The footprint of the A321 cabin gives us the flexibility to participate in the coach market and still have something with a premium product that makes sense. So that airplane certainly is very capable as we take delivery of that airplane with Sharklets. It's not an issue of range or capability of the airplane, but just the square footage involved and making sure that we can continue to offer a great product and do so with a very reasonable CASM.
Robin Hayes
And just to clarify, Michael, my comment. When I'm talking about daylight, I mean, there are markets that we fly to late in the evening and come back, that's a Red Eye. When we're flying 6 a day to L.A, although some of them come back in the Red Eye, we count that as a daylight transcon market, so my apologies.
Daniel McKenzie - The Buckingham Research Group Incorporated
Dan McKenzie from Buckingham. I appreciate the pillars to your network strategy and to the revenue strategy. If I can give you a pushback on one of those pillars, utilization flying, low cost but also low revenue. And one of the things we've seen from Southwest and your legacy peers is that flying doesn't make sense for one major reason, in that it's not just the revenues that are impacted on the utilization flying, it also undermines, and I don't want to say classless because that might be hyperbole, but hurts or damages your revenues throughout the rest of the day. And so, if I can just kind of come back at that core strategy and help me understand or help portfolio managers understand why that drives margin, why it just doesn't make sense to add 3 to 5 daytime frequencies as opposed to adding San Francisco or Los Angeles to Fort Lauderdale?
Robin Hayes
Sure. Great question, Dan. Thanks. Scott, I'm going to throw that one to you.
Scott Laurence
Sure thing. I think the first piece is we do see a RASM gap when we fly overnight, and there is some potential for dilution of daylight flying. But fundamentally, if I were to add daylight flying on the transcon, I've got to go buy a $45 million airplane to do it. So when we look at this and say is it a good use of the asset, is it a good use of the airplane, especially if it's a potential for a one-a-day market, because the airplane is going to sit overnight if I don't fly it. If the revenue exceeds the marginal revenue that I'm going to see with this flying, exceeds the marginal cost plus a decent buffer to account for things like increased maintenance costs, increased complexity, the station operating expenses, things like that, certainly, this is a position that we don't take lightly and we don't just willy-nilly, add the Red Eye flying. But it makes a lot of sense for us when you look at our cost footprint and you compare it to some of the network carriers, and even carriers like Southwest, we're able to do that more efficiently than those guys. And so we're able to certainly subsist and exist and be profitable with the overnight marginal revenues associated.
Daniel McKenzie - The Buckingham Research Group Incorporated
Second question, Florida, the decision to double your departures out of Florida from, I guess, 50 to 100, how -- I guess, can you share, first of all, over what period of time you would plan to do that? And if you can share that, if you can just talk about -- I guess, what I'm really getting at is the gate and operational infrastructure that will be there. So for example, Southwest is also growing very aggressively at Fort Lauderdale. How confident are you that a competitor can't come in and take away and utilize some of the infrastructure that you have targeted for this growth?
Robin Hayes
Actually I'm going to -- Rob, would you mind just coming out and taking that? Because it's a great question and maybe parts of the second part and then maybe, Scott, you could answer the question about the timeline.
Robert Maruster
Where's Dan? Hey, Dan, Rob Maruster. Good to see you. I think what we're trying to do is basically replicate the template that we utilized in Boston, and to a certain extent, JFK, where I think we have a very willing airport authority in the Broward County aviation department. Kent George and team, we've sort of declared the multiyear approach to how we want to grow into a larger infrastructure. I think the key for us in Fort Lauderdale was actually moving from Terminal 1 to Terminal 3, which is right next door to a -- what will be a new Terminal 4, that's being built in 3 phases up to 2017. So I think the challenge for us has been declaring what the revenue plan has -- was going to be, and Scott and team have done a great job of doing it. And then I think we're going to send a dedicated team down there, and I mean, dedicated, it's not just the people that run the day-to-day, but people that can build around our growth. And we really like the opportunity in Fort Lauderdale and Hollywood because the airport, basically, is a shared-expense airport, where infrastructure investments are shared across all the airlines. It's a very low-cost airport, and that's primarily the reason. But we view our growth very much like we did Boston, where we worked with Massport, got ahead of it, said this is what the network plan is, here's how we phase into it, and we're basically replicating that template down in South Florida as well.
Robin Hayes
And just to add, I mean, Kent George and the team has been kind of -- been terrific partners here as well. I omitted to say that. And before Scott answers the first part of your question, Dan, sorry for doing that out of sequence. I just saw Walt down there. Key balancer [ph], he did a -- he's the guy that's spending a lot of time down there with his team, fixing it. But Scott, can you talk about not just the timing of Fort Lauderdale, but just -- we don't have more than one of these markets in an investment phase at the same time.
Scott Laurence
Absolutely. And I think, obviously, we're looking to meter the growth in a way that's very efficient and effective, with Rob's one and with [indiscernible] in the airport. The other thing about Fort Lauderdale is we're building off a significant base. As we sit there, we'll peak at 63 flights during this peak season. So we're talking about adding 30 flights, but part of this is a lot of that is pointed into the international. And as we do that, we see a couple of things. The first is the ramp up is relatively quick to profitability there. We've seen that as we've entered markets. We see markets like -- we enter Bogota, we're profitable the first month and very profitable. It's one of our top markets and we saw as we added that. And the same expectation with Medellin, as we enter there. So part of this is, in terms of the timing, it is metering this out in a way that both allows us to keep the market producing, and producing in a way that's efficient that we can work at the airport. So when we work on international arrivals today, we have to be very careful about how we schedule those airplanes arriving in Fort Lauderdale, because of the way the terminal floor arrivals work and because of congestion in the terminal. We don't want our customers to have a Miami-like experience where they're in the custom's line for 90 minutes. This is not only a cheaper airport but is a better point of entry into the U.S. It is a better airport and it's going to be a better experience. But in order to do that, we've got to ramp it up in a way that works for the operation, that doesn't put us into the deep investment phase that we saw with Boston, we're seeing with San Juan, and basically, it allows us to make that investment, to move forward. As we see San Juan mature, as we've seen Boston mature, we see a -- the ability to do so in Fort Lauderdale, in a complementary way. So I think the answer is as we move towards 2017, I know you specifically asked that question, as we move towards 2017, you're going to see us ramping up, slowly, but very consistently.
Robin Hayes
Okay. Next question?
Hunter K. Keay - Wolfe Trahan & Co.
It's Hunter Keay, Wolfe Trahan. The target you have for growth in Boston, 150 departures and 100 in Fort Lauderdale, I just -- it feels very arbitrary and it feels very kind of like a pre-crisis way of thinking for an airline to [indiscernible].
Robin Hayes
It feels what?
Hunter K. Keay - Wolfe Trahan & Co.
They feel kind of like almost a pre-crisis, like for how an airline thinks about growth. And it's a very round -- those are very round numbers, right? 150 to 100. So how do you specifically tie those numbers to expanding your ROIC? I mean, where do I draw the line between Boston at 150 and tie that directly to ROIC as like a growth hurdle rate?
Robin Hayes
Great. Great question. Scott, you're busy, can you -- because you came up with those numbers.
Scott Laurence
I think the first thing is, and something I'm very excited to say publicly, is that listen, the round numbers are just associated with -- Boston, 150, is really Boston, 146. And we will end up with 150 flights when we talk about the peak. They're not arbitrary numbers. San Juan, 50, maybe San Juan, 52. We go out and we look at what the potential for the market is and where we can drive returns and what the approximate size is. It's not that we've gone out and said, listen, we need 150 flights in Boston, let's just go do it. We look at what the peak size of Boston's been, what we think the market can support, what we've seen in terms of effecting competitive change. And I will tell you, we look at where -- frankly, we can go out and since we deliver a better product, where we're going to be able to take customers from competitors, and we size it based on that. We look at that. We see what we're achieving. We move forward. But there's a lot of analysis that goes behind it. It's not arbitrary. And I would say this, in terms of ROIC and what we're looking at with a target, certainly, when we look in the long term, we say 3 years from now, what are we doing, what is this going to be producing in terms of ROIC? And you saw that with Boston, right, where we made a relatively -- an investment there that went down, you saw the margin in the slide go down and then come back up. We have an eye toward the long-term ROIC goal, with each of these markets and we're not just saying listen, I want to capture this much share. We know that we can be profitable. We know that's what the airport and the community can support in terms of service. And we have a pretty good model in terms of what we think our competitors are able to support, in terms of capacity long term as well.
Robin Hayes
And just to build on that one point, I mean, Boston, specifically, the other thing we look at, we didn't talk about today, is relevance, right? So particularly, for the business traveler, we know once you get part -- and relevance is, every 1,000 people walking into the airport, how many of them can you take to where they want to go direct? And I think that -- linked to the 150 is also -- we're going to get to a point of relevance. We're already at that, now, maturation phase, where we park that -- you get to a point where your relevance to corporate just improved, so every point of relevance you add is actually more than 1% of value, with the other markets get better as well. So Hunter, as we talk about 150, we knew we had to get to a certain point of relevance as well for the corporate traveler out there, and to Scott's point, 145, 155, I know exactly where it's going to end up, should be around 150.
Hunter K. Keay - Wolfe Trahan & Co.
All right. Yes, That's helpful to think about it that way, I think. And on the ROIC discussion, and maybe this is better for Mark or Jim later on, but if you want to take a stab, that would be great, too. Jared told me, on the way over here, I didn't realize this, your adjusted net debt-to-EBITDA is actually the highest in all the airline stock that we cover mostly, basically all the U.S. majors and Copa. But is the goal that you expand your ROIC, just for the numerator to outrun the denominator, and at what point do you start to think, well, as the growth decelerates in these markets and our airline becomes more mature, it can be sort of a deleveraging story as well? With, at that point, you should be generating pretty consistent free cash. So at what point do we think about ROIC getting higher from multiple sources of help?
Robin Hayes
Mark, did you want to?
Hunter K. Keay - Wolfe Trahan & Co.
I might be jumping the gun as far as the discussion, but...
Mark D. Powers
Yes, and I apologize for jumping the gun, because that's actually one of Jim Leddy's money slides. So why don't we -- if we don't mind, we have a good story on that, a lot of good work on that. So good story.
Robin Hayes
Which one answered more quickly as well, right? Maybe we can...
Unknown Analyst
Eric Tanner [ph] over here from Gcaz [ph]. I have a question. Back in 2010, when the interline agreement with American Airlines was announced, that came after United consolidated at New York and Delta expanded a lot at LaGuardia and JFK, and American kind of made it pretty clear that they wanted to see kind of an expanded co-chair agreement with JetBlue. Post-merger, it seems that the fundamentals for American, especially in New York and Boston, haven't really changed. What's the JetBlue feeling on that situation?
Robin Hayes
Sure. I'll take that one. I mean, I don't want to speculate on American, may or may not be thinking about New York or Boston. I think that's something that you should ask them. I mean, look, let me answer this, though. We built an open architecture platform that allows us to deepen the relationship with any partner, in a way we can find a way of doing it that makes sense for them and for us. And so if down the line, there was a way of expanding this partnership that'd work with JetBlue and American then, of course, we'd want to do that. I mean, we've already announced the expansion of the 2 one-way co-chair relationships this week with Qatar and Aer Lingus. So I think we're open to it. We have to wait and see to see if that is something that makes sense for American, if that's something that they want to proceed with. But the beauty of our open architecture is that if there's a relationship that may not be developing over here, there's one that we can mine over here and vice versa. And I think we've really focused on the development of the 2-way code this year. That's a big step, as we acknowledge that. We appreciate that. And we're going to take that step in the international market, first, where we are successfully feeding some of our international partners. And we're focused on that right now.
Lisa Studness-Reifer
We're going to take one more question, and we have actually time built in at the end of the morning for more Q&A, but we do want to try to respect the schedule somewhat. So let's just take one more question and then go to break. Thanks.
Helane R. Becker - Cowen Securities LLC, Research Division
It's Helane Becker with Cowen Securities. So just a question, as you expand out your international markets and as you think about the places where you're serving, do you have customs and border protection support for this? And do you have use of waiver support and some of the other things that you're going to need, that Washington is threatening to take away because of the whole budget cuts and sequestering and so on? And have you -- or are you concerned about that at all as we roll out into April?
Robin Hayes
Thanks, Helane. Great question. I'm going to invite my colleague, Rob, back, who -- we create the plan, he actually has to make it work. So...
Robert Maruster
Thanks, Helane. I think my short answer would be we try to tackle that as locally as possible. So every time we're in South Florida, we meet with the port of Fort Lauderdale, Fort Everglades, customs and border patrol team. We do the same thing in New York at JFK. We do the same thing in Boston. Constantly giving them feedback about how we're doing with line weights, we measure it incessantly, the airport community does, and we're always providing feedback. I think if there were one thing I would just offer is, from a future standpoint, I think 2014, from a budgetary standpoint, homeland security, customs and border patrol, is going to be better in '14 than it is in '13, and I think '15 is going to be better than '14. I think there are some near-term challenges that are stressing a lot of airports. But to Scott's earlier point, we try to address that schedule-by-schedule, and making sure that we're working within what their current budgetary constraints are. So it's something we really look at in conjunction with Jim, not his team, corporate affairs, corporate security, our operational team, literally we look at it weekly. So it's very much a local issue, but on a national level, I think things will get better after 2013.
Robin Hayes
Okay. So I really appreciate your attention and you listening to us tell our story and our vision for growing earnings that we feel passionately about. My thanks to the team, as well, for coming up here, and thank you to answering questions. We're going to go into a break now. For those of you on the webcast, we'll be reconvening at...
Lisa Studness-Reifer
In about 10 minutes.
Robin Hayes
At 10:32. Thank you.
[Break]
Mark D. Powers
Why don't we all sit down, please. Hi, guys, is this loud enough? So now here comes really the highlight of the day, costs. Yes. Note to self, whatever the issue, an IT wants to enhance and accelerate even more space and he strikes, he gets, it's a really good time to get the business plan done and submitted, we'll sign it now. I'm going to -- I've got to take like 30 minutes or so, I'd like to try to maybe go through 4 or 5 slides very quickly. And then I'm going to ask Rob to join me and I'm going to surprise you, Joanna, and ask you to join me as well, since you and Rob are my 2 biggest cost centers, so that would be fun to share the joy.
So costs. So we're trimming Dave's slide in multi ways. This is now a sort of a version of that competitive position slide, which is really intended to show why costs matter. In 2 ways. Number one, and you sort of think of it against the legacies and against the pure low-cost carriers. Let's start on this end first. Low-cost carriers. We know who we are. We know we are not going to have Spirit's cost structure. It's just not going to happen. Amongst other things, because we don't have their products and other things. So we're not going to go there. And we're okay with that. So politely, I guess sometimes being benchmarked against Spirit or the like is an interesting exercise but not terribly meaningful because that's just not the space we play in. Again, competitively, we are competing against this group and you are so polite, Robin, when you sort of described how we attract that customer, but it's really providing that service that the low-cost, pure low-cost can't provide. The key here though is that costs still matter because we have got to price our revenue such that we can make money, i.e., ROIC. So it's got to be such that making the jump from the $9 to what we're charging, by the way, apples-to-apples $9 plus whatever they charge for a water or a seat or whatever, so all-in, our carriers have got to be competitive, attractive and such that you can make that jump. Two or 3 years ago, that would have been an aspiration. I think if you guys look at the traffic and sort of what's been happening when we compete with those kinds of carriers, Robin and his team have been doing very, very well, which in fact is kind of one of the reasons underlying our confidence behind Fort Lauderdale.
So costs matter. Costs also matter as we compete against the larger carriers up here, some of whom share my backgrounds where -- I'm an alumni of at least a couple of those. I know that some of the other people in the commercial team also share that checkered past. Network carriers have big networks. They have -- they produce essentially connections. That's not what we do. We have got to be able to compete though against those big networks on the basis of a competitive cost structure, a gap in our CASM relative to the legacy carriers. That's an important part of how we will fund our future growth. It's so important that Mr. Barger is actually measuring me on making sure that, that gap doesn't get tighter. I know that all of you probably have measured sort of the CASM gap with adjustments and whatnot so there's a whole raft of numbers you can come up with but we are focused on maintaining if not expanding that CASM gap as between ourselves and the people who live up in this area.
Now you all know that the world has changed. You can't rely on the legacy guys sort of making mistakes and just sort of floundering. No, I mean, they have gotten very, very aggressive, very keen, and it's very dynamic, particularly from costs, it's a very dynamic situation. So when we are looking at maintaining that cost gap, it is literally a dynamic day-to-day sort of thing. You can't just sort of do your annual budget, put it on the shelf and then come back in December and see how you did. We look at it all the time. Again, we're looking at it, even today, as we look at and try to cost out what's happening with that merger happening in -- what's that merger? The big one? Yes, that one. What's going to be the impact on them and their CASM, and what does that do to us? This is how we grow those. So you just can't put this up on the shelf. It's very dynamic. We're thinking about CASM as adjusted or not adjusted, whatever, but this is really the foundation for our growth.
A little context behind cost as well. We are, as you know, as reflected on that prior slide rather, we are lower than the legacies on the right and only slightly ahead of the guys on the left. More context. We also happen to choose to operate in some of the higher cost geographies in the world. Not a bad trait because that actually is also where the money is. We are, as I say, rigorous about costs, transformational and non-transformational, changes to our cost structure. Transformational. The winglets -- I'm sorry, Sharklets. I actually made that mistake and called them winglets at the announcement and Airbus was filming it. So now [indiscernible] because I should've said Sharklets. Sharklets. Okay, so you can't tell Airbus, but it's actually performing better than we thought, both in terms of time to climb and fuel burn savings. Over 3% on the range routes. It's so impressive in fact that not only are our future Airbuses going to have them, but we're going to look at possibly retrofitting most of our own and some of our leased suite of A320s to get those benefits as well. Very, very impressive fast payback.
We are looking at the Neo. The A320 Neo starts to deliver in '18. I wish it were sooner but that's like a 15% plus of fuel burn advantage. When fuel is 40% of your cost, that's a big deal.
Other transformational things that we're seeing, we've been looking at outsourcing options. In fact, we've actually pursued a lot of that. But beyond sort of that big transformational thing, we carry, what, 40 million or 29 million passengers, 40 million ASMs, 265,000 departures. And on a seat mile basis, you probably make net-net, maybe less than $0.01. It's a real nickels and dimes and even fractions of pennies business. And one of the really, really nice things that seems to be fairly unique at JetBlue is the culture is so strong that they are willing to really attack costs, not on a big transformational big basis but on we call it a just-one-more or just-one-less basis. It's just a fraction of a penny over the scale of our operation can produce a lot. In fact, that's really kind of how we manage our business. And we are actually at, candidly, the glove level. And by that, I mean, the work gloves at our technical -- our tech operations, don't throw it away, wash them. That's the kind of detail that our culture operates at. And the other good thing about the culture is it doesn't require a CFO to come in and make all these ideas, report or suggestions. It just happens. And that's a really powerful statement behind our costs.
Now I do want to focus on just actually, again, looking at the competitors on the right side, we expect that our -- to be flat. We're not complacent through '13. That perhaps is a presumptuous statement because it's very dynamic, and if they bring it down, we've got to bring it down. So again, it's not a frozen thing, but this is really the engine that enables Scott to say, "Pierce, here's how we're going to plan Fort Lauderdale." That's the pace that we're going to grow Boston and whatnot.
I do want to just sort of focus on 2 key areas and then I'm going to ask, again, Joanna and Rob to join for Q&A. During last year's earnings calls, we spent a lot of time talking about maintenance, and we talked a lot about maintenance cost inflation and bending that curve. We're not here to take a victory lap. Maintenance costs still are inflating probably higher than ASMs and inflation, but we have certainly brought that cost down from a 30% handle to a mid single-digit number through a lot of things, including flight hour agreements, maintenance caps on some of our heavy overhaul work. In fact, we are right about in the middle of General Electric, of course, you guys are here today. Looking at our flight hour agreement on the CF34 engine, which is the engine on the E190. So we're doing a lot of things and we are really bringing component repair and flight hour agreement, that sort of thing. One of the things we're not probably going to do, I say with some assurance today, is build a big maintenance base. I think we can probably nod our head vigorously on that one. But again, so maintenance is a key focus. In context, again, our maintenance costs do reflect our average ages, fleet age is only about 6.5. So relative to other airlines, it is very, very low. But again, just sort of the year-over-year pace had been, frankly, I thought, a little unsustainable, and so we've really gotten, I think, ahead of that and we'll continue to do so with Jeff Martin and Rob Maruster and team.
The other thing that is obvious is our crew member, crew member productivity. Again, a few context, if you look at our productivity, we are very productive. If you look at our crew member wages, again, we are very, very productive relative to other airlines. But for sure, our crew base is aging with seniority. And at the same time, we're not unmindful of the fact that, amongst other things, the training rules, the qualification rules are stressing a sense in terms of the availability of pilots. We also know that, we're mindful of the fact that a number of other airlines are looking at significant raises in some of their wages. We remain committed to the proposition that our pilots in particular and other work groups should be on parity, if you will, with our peer set, just working through that, and Joanna can certainly bring some more color to that because you're right in the midst of it. So that's something we're all working through. The good news is we maintain a direct relationship with our crew members and all work groups, and we have really very, very positive relations with these various committees that represent these work groups in sort of a non-union way but in a very helpful constructive way. And that's where we're at. So more to follow but we certainly feel good for where we are in terms of wages. Through the year, we'll make some adjustments to that but we certainly feel good in terms of where our CASM is there. And again, I mean, these are pressures that Joanna and team and, in fact, all of us, are looking on and working on. So there we are with cost, just very high level. And cost is not, by the way, just CASM. If you also look at our operating costs and do a regression analysis against other airlines on the basis of fuel efficiency, aircraft utilization, daily departures, you come up with a regression line, in all of these cases as well, JetBlue remains significantly well under the regression line in a very, very favorable way. So cost is important. It's frankly how we're going to grow both ends or how we're going to grow that sweet spot in a meaningful way. And we are very, very focused. Again, we have a huge culture that enables us to really focus on those fractions of a penny. And again, you don't need this leadership team to go out and look for those. It's actually the people that are closest to the spend and the savings who actually do provide us huge leverage and huge savings. So hopefully, I'm keeping it in time. I'm looking at my timekeeper here, Lisa. And so let me ask -- can you guys join me? This by the way is a surprise to Joanna, so I'm getting the icy stare.
Joanna L. Geraghty
I'm used to it with Mark.
Mark D. Powers
Yes. Come on, get up here, guys, this is a lot of fun. So Rob and Joanna, please. And again, just to remind everybody, Joanna is in charge of the people department, which is roughly a lot of the spend. So the first question comes from John at Morgan Stanley.
John D. Godyn - Morgan Stanley, Research Division
John Godyn at Morgan Stanley. Mark, if we had no capacity growth and we just thought about a best guess as to what a core inflation unit cost kind of number would look like in a year where the aircraft at a year, all the employees at a year, just core inflation, how do we think about that number for JetBlue?
Mark D. Powers
Let's go back to -- I think this is the number. So let me footnote that but the current guidance is 1 to 3 is, I think, kind of that core number that we'd like to see. I would also say, however, again, our year-over-year CASM increase has got to be from the top a big eye on what's happening to our legacy competitors because we cannot let that gap close. So you can either look at it from just a JetBlue-only perspective, what I think probably is the more meaningful, and I'm looking at Dave because, in fact, this is how a lot of us are getting measured from a performance perspective is relative to the people against whom we talk about affecting competitive change, that's really the key number.
John D. Godyn - Morgan Stanley, Research Division
And just to clarify that, so capacity growth in 2013 has no positive impact on costs?
Mark D. Powers
Well, for sure, well, I mean, in 2013, we're taking 7 buses and 4 E190s. I mean, for sure, adding capacity to the ASM denominator will have a positive impact to some extent but that still has been in the range of kind of the 5%, 5% to 6% growth rate that we've been talking about.
John D. Godyn - Morgan Stanley, Research Division
Okay. Got it. And then just the second question, you mentioned that the cost gap, I think, to the network carriers is probably going to stay constant. How do you feel the cost gap to other low-cost carriers, the ultra low-cost carriers, is going to evolve over the next few years and how does that influence the strategy?
Mark D. Powers
We -- again, there's sort of 2 pieces, and Scott, maybe you can also add to this as well, but the sort of 2 pieces is we're trying to predict what their costs are going to be but then we need to make money off of what we price that ticket against that low-cost carrier. So it's really is it's not just matching or thinking about what their cost is but you need to make enough money off of that. And that's really kind of the 2-step dynamic when you look at the left side of that. I mean, do you want to add anything or do want to pass that?
Scott Laurence
I think it's a couple of things. The gap, when we talk about our gap to network carriers, I think we need a similar gap, where we send them, and that sweet spot is there because of this gap, it's in both places in terms of cost. I mean, we're going to see the ultra low-cost guys, they're going to have cost pressure as well as they mature. They've got growth rates to offset that. But again, I think -- I'm confident we can maintain a gap on both sides of this, that works very effectively. Certainly, we're not up at nights worrying about that gap contracting and we're not really seeing that.
Mark D. Powers
Again, John, I think, the part of -- to validate the thought process that he goes through, just look at what's happened to competitive traffic between ourselves and low-cost carriers in the past couple of years. I mean, you watch it all the time. So I think that's sort of the proof, if you will, is in Robin's team's success. How about some of the tough questions for Rob Maruster and Joanna?
Robert Maruster
Happy to have you take all of them, Mark.
Mark D. Powers
Any other questions on maintenance, on wages, on direct relationship? Helane, hi.
Helane R. Becker - Cowen Securities LLC, Research Division
So this is my question about wages, and it's really pilot wages. There are some people who think that we may be developing a pilot shortage, and you alluded to some of the pressures that you're going to see. So as the majors wind up retiring a lot of pilots over the next say 5 years to 8 years, obviously, it's going to move down the curve, it's going to be more and more difficult maybe to hire people, more expensive to hire people. So how do you think about building those costs into keeping a 1% to 3% cost increase going forward?
Joanna L. Geraghty
Sure, thanks. So obviously, it's important for JetBlue to maintain a degree of competitiveness with our competition because we do want to ensure we have pilots to fly our planes. We actually don't think it's going to be an attraction issue, just macro. Last year, JetBlue hired about 2,500 crew members. We had 80,000 applicants for those crew members. Last week, we opened up the pilot hiring window for about 100 positions and we had 3,500 pilots in that window that we were looking to hire. So for JetBlue, and then specifically pilots, we don't believe it's going to be an attraction issue. What we're focused on is ensuring it doesn't become a retention issue. We tend to have a pretty good degree of visibility into retention issues for pilots because any pilots that may be considering going to another airline will have a prior request, a record request from that airline, so we're monitoring those, we see about 2 a month. We have a less than 1% turnover for our pilot ranks. But we are mindful of some of the pattern bargaining that's going on with respect to the pilot wages at some of the network carriers and we're currently in discussions, trying to collaborate with our pilot workgroup to determine what's the right wage level for those crew members. We have an incredibly productive pilot group. When you look at metrics such as single-engine taxi, we're leaders in the industry. So for JetBlue, it's about maintaining costs, maintaining efficiency and paying competitively so that our crew members feel that they're fairly compensated.
Mark D. Powers
Do you want to add to that one?
Robert Maruster
Yes. Helane, the only thing I would add to it is I think every pilot in the United States has a spreadsheet that tallies every single dollar they're going to make until they're 65 years old. And I think, to Joanna's point, as long as we're competitive with wages, that solves for part of it, I think relative seniority is the other piece that impacts that spreadsheet. And I think the retirements in the industry, particularly at the legacy airlines, is a big deal. But the fact that we're growing, I think, is also playing to our favor a little bit. If there's one thing that, I think, is an issue that we need to watch carefully with this is our relative age. So our pilots are generally younger than almost every legacy airline because they all walked off the bottom 1/3 over the last decade and now they have a large senior workforce. So it's something we're going to have to stay really attuned to, but to Joanna's point, retention is really something that's top of mind for us going forward.
Joanna L. Geraghty
And just on the relative age piece, we're trying to learn from lessons of the past, to what the legacy carriers have done in terms of extending pay scales out 15 years, paying at 25 years, things of that nature. We don't want to go down that path. We're very mindful of ensuring we don't pay simply for longevity but that we pay for performance. So if you look at our inflight crew member group, we just announced raises with that group but we're not actually extending the pay scales. We're paying in the form of pay for performance. So it's tied to the metrics. And if you're at the top end of the pay scale, you have an opportunity to earn more if you're performing better. So really trying to do things differently and not fall into the same pitfalls that our competition has fallen into.
Mark D. Powers
We have David?
David E. Fintzen - Barclays Capital, Research Division
Dave Fintzen from Barclays. Just a question, how should we think about differences in airport costs? I mean, obviously, New York, very high cost geography. Boston, high cost but I would think lower cost than New York. And San Juan, I think, relatively inexpensive. I mean, when I think about that 1% to 3%, shouldn't you be getting a noticeable benefit from growing away from New York particularly, not just in airport cost but just less congestion cost and easier operation, less irregular ops, all those things? I would just think you would get more cost benefit from that over time.
Robert Maruster
David, that's a great question. I mean, I think it's why we're such a believer in things like next gen and technique being core to our future. I mean, I think -- when I think about Boston, by the way, it's probably easy to say it's a lower-cost airport but let's not forget that in 1999, it was the most congested airport in the United States and had the longest delays of any major airport. So our growth footprint and making sure that we're being smart about the airspace, working with the FAA on technique and procedure, we spend a lot of time in airborne holding in the northeast. And you all saw it last fall when the weather kind of winds up the East Coast and comes driving up the East Coast, I mean, that Superstorm Sandy basically took a swath of our entire network all the way from Puerto Rico and the DR through offshore Florida and then right up into the Northeast. So I do think the impact can be disparate to us on a cost basis where I don't have a focus city in Houston to kind of lay back on to say the weather is generally good there. We're in an environment where there's a ground delay program every other day in the peak season. So technique, future technology, enhancements, if you believe the next-gen business case, 20% efficiency in the future, I'd like to think at least half of that or some portion of it can be used for reliability as well. Over time, we hope this gets better to your point but I also think you can't just look at the real estate cost with some of the footprint because congestion is a big issue for us.
Mark D. Powers
And just to follow on that keyword, which is reliability. For sure, safety is nonnegotiable. When you focus on maintenance costs, sometimes there's good maintenance CASM, particularly when it enhances reliability because if your first flight is late in the day, it cascades and apologies publicly to Mr. Mark Streeter and his family who sort of experienced the other side of reliability yesterday. And again, apologies, Mark, wherever you are.
Robert Maruster
More directly though, it gets better in the future but we have a lot of runway ahead of us. So like even South Florida, what we're talking about, a lot of airport construction, it's kind of our experience what we've been through in Boston the last several years. It's going to be a couple of years before we'll see some significant operating benefit from where we're going to grow next, but I do believe we'll get there.
David E. Fintzen - Barclays Capital, Research Division
But if I take a step back and think about where we stand now, if I put sort of JFK or La Guardia at the sort of the top, is there a noticeable cost difference in Boston or is it just all in very similar to New York?
Mark D. Powers
Operational and landing costs, there's 2 pieces to that.
Robert Maruster
It's less expensive than New York, but it's not as cost effective as like what we're going to be doing in South Florida and San Juan.
Savanthi Syth - Raymond James & Associates, Inc., Research Division
Savi Syth with Raymond James. Just to follow-up on Helane's question on the pilot cost side. The legacy carriers are seeing significant cost inflation with the new pilot contracts now. JetBlue probably doesn't have that issue because they still have a lot of cuts but it does move up the industry average. Is that reflected in your 2013 cost or is that something that we should expect ahead?
Mark D. Powers
Effective days.
Joanna L. Geraghty
Right. We're currently in the midst of meeting with our pilots, so it's not reflected in the 2013 costs. What we'd be looking at is 2014 costs. But again, we're literally day 2 into collaborating with our pilots around what those numbers should look like and we're going to ask for things in return so that we can try to offset some of the costs, those R&A [ph] cost but also the revenue front.
Mark D. Powers
The other thing, as you look at say the Delta agreement, there was scope relief, and there's a whole bunch of other relief, so the -- the hard part is sort of not fixing on x number of years that's per hour from a Delta perspective or from the other carriers involved, there's a lot of other things that they've been able to recalibrate, flow-throughs [ph] and whatnot. That's part of your challenge too as you look at this. Anything else on that?
Robert Maruster
I think within our 2013 numbers, we adjusted our pilot pay for kind of industry competitiveness, 2% on the basic wage, 3% on the retirement side. So that is in our 2013 numbers. That's a difference from last year. We're working through, as Joanna suggested, what it should be for 2014. But broadly, we have a model that wants to be industry competitive. And that means on the going up and that means on the going down but we really -- we think that being competitive maintains our attractiveness as a destination airline for our pilots.
Mark D. Powers
So one more question, if there is one? Anymore questions on costs? If not, it's my -- thank you guys very much. It's my great pleasure at this point to introduce our new Treasurer and new SVP, Jim Leddy, who'll talk about the great work he's been doing on cash and the balance sheet. Please?
James E. Leddy
Thanks, Mark. Thanks. Good morning. So I'm Jim Leddy, I joined JetBlue about 5 months ago, and it's just a great time to join this company. I feel very fortunate. I see a number of our finance team members here today. And I -- we feel very fortunate for a number of reasons, but really because the operating commercial teams that you just heard from generate a lot of cash, and that creates a high-class problem for finance people. And so we're very fortunate to have the operating teams and the commercial teams and our 15,000 crew members producing that type of cash flow. So I'm going to talk to you today about cash, our debt stack, liquidity, risk management and all that fun stuff for finance people. But really, the message is it starts from strong cash from operations, $0.5 billion in 2010, just shy of $700 million in 2012, and we're continuing to move the dial in the right direction as it relates to cash from operations.
I think that there's a lot of flexibility, and it really goes to Hunter's question around de-risking, delevering the balance sheet and, at the same time, growing our productive asset base. I have a couple of slides to give you a little more detail, but that's a general theme. And that proves right into our liquidity.
I have a -- the next slide is really going into a little more detail, but we dialed down our cash position in 2012, and that was intentional, and it was really about maintaining a very low risk, solid liquidity profile, but really a flatter, more intelligent use of a greater portion of our cash. And that's really focused on reducing the drag on ROIC that a lot of cash sitting at 0% provides and investing in our business in all of the things that Robin and Rob and Mark and Dave talked to you about.
And then you really can't talk about cash or protecting our capital without talking about managing almost a volatile and largest expense line, which is fuel, but I also like to touch briefly on how we think about managing the cost of our debt, or interest rate risk management.
So just starting with liquidity, really, the decision we made to move from that kind of high-20s in terms of our cash position as a percentage of revenue, down to what we feel is kind of a more rational or reasonable level somewhere between 13% and 17%, it'll probably move within that, was really about a mindset change of moving from thinking about liquidity as just short-term cash investments or cash on the balance sheet and really a more holistic liquidity stack.
And our ability to do that was really driven by a number of things: industry fundamentals improving; capacity rationalization; a stronger global macroeconomic outlook; our own strong operating performance over the last couple of years and looking forward; and really, a number of value-creative opportunities that have presented themselves in 2012 to generate raw returns for our shareholders but, at the same time, remaining low risk, solid liquidity profile. And so how do we get there?
This slide just shows you kind of a waterfall in terms of our sources and uses of cash in 2012. So we started from the very strong base and once again generated record operating cash flow close to $700 million. So the first 2 things I want to highlight is -- the first one being -- the ring-fenced area is really what we did around our debt. Long-term debt reduction on a net basis of $300 million, 75% of that, about $220 million, was a reduction of very high-coupon debt, north of 6% as compared to our weighted average cost of debt right now somewhere between 4% and 4.5%. That's taking $10 million a year of our interest expense line and moving the denominator down in terms of the ROIC calculation. So that's the kind of value-creative activity that we were thinking about in terms of reshaping our liquidity position and utilizing our cash.
The next thing I wanted to highlight was the $200 million just to the right. We talked about this on our earnings call. We made a decision to prepay some 2013 aircraft-related commitments, both predelivery deposits as well as final aircraft payments in exchange for extremely favorable commercial terms. And we're talking about returns more in line with our ROIC targets and rest in line with earning 20 or 30 basis points on short-term investments.
So once again, the strength of our balance sheet and the strength of our operating cash flow has given us the flexibility to do this and really make intelligent decisions to create value and returns for our shareholders.
Before I move on, I just wanted to mention, in the other buckets here, we've done a couple of other interesting, valuable things with our cash. The international terminal that we're building -- international arrivals terminal that we're building out at JFK, which we refer to as T5i, we're funding that investment completely internally with our own cash, saving the company interest expense or less [ph] if we were -- decided to fund it through the PA. The other thing we did -- we're doing is we're -- the investments that you saw about Fly-Fi and all the technology, and Rob and Robin's teams, we're funding those internally as well.
And before I move on, I just want to mention that we also bought back 4 million shares in 2012 as part of our 5-year program to repurchase a total of about 20 million or 25 million shares. So about $25 million was related to share buybacks. And really, the purpose of that is to neutralize the equity dilution impact of our employees' stocks, stock rewards as part of our long-term incentive programs.
So just once again, value-creative cash deployment, and we're focused on driving return on invested capital.
So why was the $750 million roughly number -- why did that make sense? This slide just gives you a visual on how we're thinking about liquidity. It's really about moving from just thinking about liquidity as cash, short-term cash on the balance sheet, to really a liquidity stack and giving us the flexibility to make those good business decisions with our cash. So really, what we have is really, from a total liquidity prospective, still very low-risk solid liquidity but a different mix. We really just changed the mix.
We have a growing number of unencumbered assets. At the end of 2011, we had one free and clear aircraft. At the end of 2012, that was 11. And then at the end of 2013, depending on how the year plays out, it'll probably be somewhere between 18 and 22 free and clear aircraft. That gives us a lot of leverage in terms of a liquidity trigger going forward, and we continue to de-risk the balance sheet and grow that unencumbered asset base.
In addition to that, we're in the process of enhancing our credit facilities. We did some in 2012, and we're continuing to work on that. And that's just a very inexpensive form of liquidity that we could then utilize our cash in more intelligent ways. So more on that to come.
So just staying on cash before I move on to the debt side of the balance sheet. Dave mentioned in his opening remarks we have a strong focus on free cash flow. I think -- and you can see from this chart, we've been moving that dial in the right direction. The anomaly in 2012 was intentional. We would have been about $75 million for the good in 2012 hadn't we made the decision to make the prepayment in aircraft. I mean, said another way, we could have taken that $200 million and paid down debt. We wouldn't have impacted the free cash flow number.
So we really -- free cash flow is a very important metric as we make capital deployment decisions, as we make investment decisions and as we think about running our business. We factored into our near-term forecasting 1 year to 18 months, and we factored into our 5-year model. But we didn't want to let a very useful reported metric get in the way of making a good business decision and really leveraging the strength of our balance sheet to create returns for our shareholders, which is what that prepayment basically achieved. So more to come on free cash flow going forward.
Just moving on to the debt side of the balance sheet. This slide shows the next 5 years in terms of our scheduled maturities. And the key thing I wanted you to take away from this is that in 2013 and 2014, the current plan is to pay down our scheduled debt with cash from operations. We're evaluating our financing opportunities as it relates to our new deliveries. We have 14 total aircraft being delivered this year, 10 next year. We're going to continue to utilize the extremely attractive ECA, export credit agency financing as it relates to our Brazilian deliveries, the -- our EMBRAERs. We're currently in the process of evaluating both the private financing markets, as well as the capital markets as it relates to the Airbus deliveries we have later in 2013 and then thinking ahead to the 321s that we have -- the 9 321s we have in 2014. But another way to say it is we're funding our incremental growth internally on an unlevered basis. Any new debt we're adding is replacing our scheduled debt maturities on a slower basis. So to answer your question, Hunter, we are dialing down the balance sheet, the debt balance, and growing our productive asset base. And we're able to do that through our strong cash from operations. So we're going to continue to grow our unencumbered asset base, and we're going to continue to move the balance sheet dial in the right direction.
Just want to wrap up the balance sheet discussion, really about our goal around the balance sheet is sustained balance sheet improvement. We've been able to move our leverage metrics in the right direction. We have -- the net debt to EBITDAR is continuing to go where we expect that to go, fairly significantly lower in 2013. We're dialing down our debt-to-cap ratio, and we've taken $1 billion out of our long-term debt on a net-debt basis over the last 5 years while growing our fleet by 30%.
So we're going to continue to operate the business this way. This is just a good way to operate the business. And it hasn't gone unnoticed. In December, Standard & Poor's upgraded our outlook from stable to positive. Couple of months later, Fitch gave us a bump in our rating from B- to B. And in both cases, they cited strong operating performance, consistent profitability and our ability to delever the balance sheet and continue to drive strong operating cash flow. So I can't really emphasize enough that our operating performance has given us the flexibility to focus on return on invested capital and really move the denominator down in that -- in the ROIC calculation, as well as all the things that Robin and Dave and Mark talked to you about in terms of cost and revenue that are moving the numerator up. So we're going to continue to drive the balance sheet like this, and we feel pretty good about it.
So I just want to wrap up. We can't really talk about cash or capital preservation without talking about fuel. And the thing -- the way that we think about fuel is really holistically across the company, and I'm going to break that holistic column in really into 2 components. We have what I'll call the financial risk management aspect of it, or hedging, and then just as importantly, or even more importantly, what we do around the operating and technology side of the business.
So just staying on the financial and hedging component, we take a portfolio approach to hedging fuel. We really look at it as insurance. Insurance on the near term to medium term. That's really what hedging provides. And it's really insurance against volatile spikes in fuel. That's really what we're protecting against. And we do it on a very balanced and measured basis. And we utilize a number of instruments, really not putting all of our eggs in one basket. And really, our goal around hedging is to -- on a cost-benefit basis, optimize that cost of insurance versus the potential benefit and, just as importantly, building in flexibility. Because you don't want to just think about a volatile spike in fuel, you want to think about a Draconian drop in fuel is why, like what happened after 2008 and 2009. And by utilizing a mix of standard caps and options -- I'm sorry, forward contracts and collars, we also add into that a couple of different instruments. We add into that physical contracts that guarantee physical delivery of fuel in certain locations for a specified price. And what that does is it limits our net settlement liability in those scenarios where oil drops in a violent way. Additionally, we use plain vanilla options, and that's defining our risk upfront. We know our liability. We pay the cash up front. And if there is -- we have protection on the upside. And if there is a Draconian drop, we are able to participate in those -- in that in terms of buying at lower prices. So we're not just focused on the upside, we're focused on providing that flexibility. And we think that's a prudent way to manage risk.
Moving on to the operational and technology side. Rob and his team do an incredible job across the company just in terms of execution and implementing technology solutions. You see the picture here of the Sharklet. Mark alluded to it before. All of our new Airbus deliveries starting this year will be fitted with Sharklets. We're currently in the process with working on -- working with Airbus on retrofitting the existing fleet. And Sharklets are basically a wing extension that reduce drag either by increasing load or increasing range. And this is just an incredible innovation that's going to provide fuel efficiency for a long time going forward.
In addition to that, Rob and his team are excellent at utilizing things like RNP software, which is approach optimization. And this basically just eliminates the time in the air and, therefore, limits -- reducing the amount of fuel burn. In addition to that, we utilize a single-engine taxi, which I believe Joanna alluded to, which is once again reducing the time that the engines are burning fuel while you're on the ground. And we do a lot of international flying, so we utilize tankering to reduce the price premium impact that we have when we're purchasing fuel in international locations.
So that's just a little bit about how we're thinking about managing risk, how we manage fuel. And that's all I have. I'm happy to be here and happy to answer any questions.
Michael Linenberg - Deutsche Bank AG, Research Division
It's Mike Linenberg with Deutsche Bank. Two questions. You talked about the $200 million prepayment on that CapEx deal, and you talked about that it was done at returns on invested capital that you want to achieve as a company. Now I know the stated goal is to improve 1 percentage point per annum, and I know that was off of a base of around 4%. What is -- what do you think is the appropriate ROIC target? Or what was the implicit in that statement? Is that like a 10%-type return? How...
James E. Leddy
Well, just to the commercial sensitivities, I don't want to specifically say the return that we achieved with that deal. But it's fair to say you know our current return on invested capital from 2012. It's more in line with that than with sitting in the bank earning 20 basis points. I really can't say any more than that. And in terms of do we have an absolute target level for return on invested capital as we plan and we budget? We have internal targets on return on invested capital, and that's how we're measured. But obviously, it's in line with the 1% improvement a year.
Michael Linenberg - Deutsche Bank AG, Research Division
Okay, great. And then just my second question, you had the churn here on liquidity, flexibility and access. And you broke it out, and I was just -- on the other there, the $259 million, you have a sizable slot portfolio at airports where they're difficult to get into, Kennedy, LaGuardia, Newark, and it's growing. You picked up slots at DCA. Are those in that $259 million? And if they're not, is there -- do you have a feel for the value on that?
James E. Leddy
Are you referring to what we did [indiscernible] slots?
Michael Linenberg - Deutsche Bank AG, Research Division
Yes, the other unencumbered assets. Do you include the slots in that?
James E. Leddy
If we had it in cash -- if we had -- if they were paid with before in cash, which I believe, Mark, they were, then they would be in that number. Or is that...
Michael Linenberg - Deutsche Bank AG, Research Division
They're incremental.
James E. Leddy
That's incremental. Yes, you're right. It's a nice collateral, and it's driving me crazy. So I guess they're -- how do you put this, we'll -- and he'll figure how to use it.
Kevin Crissey - UBS Investment Bank, Research Division
Kevin Crissey, UBS. Appreciating that fuel hedging is a type of insurance, but when I think about insurance at 15%, 20% insurance levels, if my house burns down, I'm still in a lot of trouble. So what does -- I mean, you've got all kinds of options and all this. You've got people who actually have to manage this and track this. Just get rid of the program and -- for 15%. If it were 65% or 70%, then it's protection. I'm not sure what this protects an investor against. Can you maybe refute that?
James E. Leddy
Sure. And you're referring to the fact that we might hedge 20%, 30%, 40% but not 100%?
Kevin Crissey - UBS Investment Bank, Research Division
Right.
James E. Leddy
So what will...
Kevin Crissey - UBS Investment Bank, Research Division
Just looking at the portfolio, and it looks -- unless I'm misunderstanding the percentages, they all look like 20% or [indiscernible].
James E. Leddy
Well, those percentages were as of the time that we published the 10-K. We're actually a little higher in terms of our absolute percentage, but we'll really never be above 50%. And I'll give you a little color on why. I think it's fair to say that in an environment where, barring a massive geopolitical event, in an environment where fuel is rising, there's going to be some level of revenue offset. Right? Because every -- fuel is a great equalizer in the airline industry. So there's going to be some level of revenue offset. We model that, we estimate it. And so we balance our hedging portfolio to kind of be the plug on a portion of that. And once again, it's aimed at really the near term, protecting our cash, our liquidity really over 1 year or 18 months. I think all of the technology improvements and the operational things that we do are more focused on the long term. Right? We've got the neo coming in a couple of years. That's going to be a game changer on fuel. So we balance it. It's a holistic approach. Hedging is important. I think it's really important. And I can't stress enough the importance of building in that flexibility because the last thing you want is a gigantic cash liability. And if you go to an 80%, 90% hedging profile, really, option premium is just too expensive to even entertain that. So you'd have to be in a situation where you're heavy on caps and forwards, and I don't know if any airline wants to put themselves in that position.
Kevin Crissey - UBS Investment Bank, Research Division
Yes. Just to be clear, I was not recommending that, but I was...
James E. Leddy
No, no. I didn't think you were. I was kind of going beyond just to kind of give you how we think about it.
David Barger
He's done a really nice job as well of using -- leveraging a great relationship with World Fuels. And a lot of that hedged portfolio is actually not a technical hedge. It's fixed-forward purchases. It's essentially World Fuel who's largely responsible for buying our gas and delivering it and helping us get it into the planes. And so we have a really good relationship there, which, again, it's fixed, it's forward by the airport, and -- but it acts essentially as a great way of purchasing real insurance, about purchasing insurance.
Hunter K. Keay - Wolfe Trahan & Co.
It's Hunter Keay, Wolfe Trahan again. You -- in your cash flow, operating cash flow number last year, you had about a $200 million working capital good guy. And that, from what we can tell, seems to be a little bit anomalistic. How are you free cash flow positive? And especially with this year, and especially when you factor in maybe in the possibility of maybe another dotted line like you have on Slide 38, the dotted box, the $200 million air prepayment, is there going to be a dotted box again in 2013? And what should we expect from a working capital tailwind or headwind on the operating cash flow side this year?
Mark D. Powers
I'll answer the dotted box. Never say never. But it's all about terms. So I was there and I heard your objection when we delayed this the last week of the year. And he's being modest, but [indiscernible] going to. We can't will free cash flow in a sense, and Jim reminded me don't let a useful metric get in the way of value accretion. So I'll never say never. But it was a fairly unique situation where one of our good partners needed some dollars, and so -- which drove some pretty good terms. I mean, if that happens again and it gets you those kinds of returns, it's probably a really good use for our cash. So -- but ignoring that, do you want to talk about that side of free cash flow?
James E. Leddy
I'll probably have to get back to you, Hunter, on the details behind the working capital question. But in general, that's really driven mostly by our -- the fact that we get paid before we actually operate the business. And we have that liability on the balance sheet that moves up fairly up and down seasonally, and so that working capital -- that's the biggest working capital driver on our balance sheet. And so it's not necessarily a headwind. It's more of the dynamics of the way that liability moves on the balance sheet.
Hunter K. Keay - Wolfe Trahan & Co.
Okay. Another one on Slide 36. Your -- the waterfall chart of how you use the excess cash to sort of create yourself an ROIC tailwind, it looks like this sort of deflation of the cash cushion provided the entire ROIC tailwind. You're not going to have the ability to do that again next year, starting off a lower base. So -- and margins were up in 2012 versus 2011. So should we expect later margin acceleration to fund sort of the higher acceleration in income? I mean -- again, you're not going to be able to work this stuff down again. Your cash balance is already kind of where you need it to be. So how do you drive the ROIC higher in an environment where you already had a pretty good year. You know what I mean?
James E. Leddy
Well, I would say that number one, we're going to continue to grow operating cash flow. So we're at $700 million now. We'll be well north of that at the -- in 2013. And we're going to continue to delever the balance sheet. I mean, we just completed the refinancing of our -- of the secured debt that we had on our training facilities in the hangar down in Orlando. So we were able to -- while that is net debt neutral, we're able to take out $1 million a year in interest expense. So we have more opportunities. We're going to continue to do that. Are we going to get another commercial opportunity like the one Mark mentioned? I don't know, but we're going to -- we have the flexibility to take advantage of that. And that $700 million was really just a snapshot at the end of 2012. Actually, right now, we're sitting well north of that, and we -- this business generates a lot of cash. And so we're going to have opportunities like that again. So I think the message is, is we're dialing the numerator and the denominator both at the same time. It's not one versus the other, and we're going to be focused on both.
Daniel McKenzie - The Buckingham Research Group Incorporated
Jim...
James E. Leddy
Sorry. [indiscernible] for the question? I know John has a question over here. Oh, sorry.
Daniel McKenzie - The Buckingham Research Group Incorporated
Dan McKenzie from Buckingham Research. When I sit in investor meetings, one of the biggest points of resistance that I get on the JetBlue story is in fact free cash flow. So I know -- I understand they were -- that a useful metric get in the way of good decisions, but a lot of investors simply will dismiss JetBlue as an investment because of the free cash flow issues. So I get the transparency on return on invested capital, growing that by 1 percentage point a year. Is there some kind of general philosophy that you can talk about in terms of free cash flow as we go ahead to maybe eliminating the volatility in that particular item?
Mark D. Powers
Let's go back to the free cash flow page. You were [indiscernible].
James E. Leddy
I would just say, in general, we utilize it when we model. It's important. It's an incredibly important metric. We're focused on it. But once again, would I make the decision again to create returns for our shareholders while temporarily going negative on a short-term metric? Yes, I would do it again. It's just -- you don't -- you need to take advantage of those commercial opportunities. I think it was the right thing to do for our shareholders, and I would do it again.
Mark D. Powers
The key is, just historically, if you remember -- actually, the entire industry, probably not until 5 years ago, actually largely ignored free cash flow. Right? So not to date ourselves -- you're nodding -- acknowledgment, I guess. So that's actually almost as new a phenomena as is ROIC, at least amongst the domestic markets. It was a very, very and remains a very, very effective way to monitor our rate of growth, sustainable growth. Now as you were mentioning -- Robin was mentioning, we're self funding now. We're not coming back to the capital markets. We don't need to go to the debt markets to fund the activities that we do. But free cash flow in particular was a really good way to look at cash from operations, margin expansion against capital committed. And that is really the dynamic of the tool. And as long as we're maintaining a disciplined thought process around free cash flow as a way to better monitor your rate of growth and the market maturities, that sort of pace for everything else, if we have a temporary dip that makes you guys money and free cash flow, we should do it.
Daniel McKenzie - The Buckingham Research Group Incorporated
Second question, a topic that is not in the presentation, Lufthansa. I'm wondering if you can just talk about the status of that relationship, whether or not they would continue to be a part of JetBlue, the capital structure, or whether they would want to -- I don't know if there's -- whatever perspective you can share?
James E. Leddy
Sure. I looked at Jim, our general counsel who's sort of in the middle of writing the proxy statement. But first, they are great shareholders. 16% plus or minus, Jim? That's the current percentage. They are active and hugely, hugely useful members of the Board of Directors. Number two is they did a transaction last year that was brilliant. I wish I thought about it, but they basically did a convert using their JetBlue shares. And so I think there's, what, maybe 4 years left on the convert. They are evidently trading very well. There are convertibles to JetBlue shares, meaning that any sort of perceived overhang as to when Lufthansa sells the shares, gone, because they've got to -- they potentially have to settle in shares upon maturity of convert. Now the bond itself allows them also to settle with cash, so they could probably even do this again with the shares. So I think that the fair splash overhang of 16% of the shares going in the market, at least through the duration of the current convert, gone. Brilliant transaction. So it's a great way for them to raise a lot of money on JetBlue shares, and I think probably showing the strength of the JetBlue share in Europe because it's largely sold in Europe.
John D. Godyn - Morgan Stanley, Research Division
John Godyn at Morgan Stanley. I'm just curious, outside of sort of the normal kind of core operating type of framework and the drivers of free cash flow that we've been talking about, is there anything on the balance sheet that's monetizable that could sort of surprise us in the next few years, that can generate cash? And I guess one thing that I'm thinking about would be perhaps LiveTV that's sort of come up historically.
James E. Leddy
I can -- I'm looking at Robin here who helps us sort of monitor that big investment. And hopes are high, Robin, that the KA-band is going to take off. And LiveTV really has been with [indiscernible] working on the development of that platform. And it's -- yes, we have our expectations, we're looking at it. We're not looking -- we're not managing it to monetize it. We're managing it to build that business. But there is obviously something there. It's not material enough to be reported separately for SEC purposes, and I look forward to that day when it is.
John D. Godyn - Morgan Stanley, Research Division
And just to follow up on a similar topic, and this might be for Robin as well, but when we think about this Fly-Fi initiative and the impact on LiveTV and the cannibalization there, how do we think about the potential for that?
Robin Hayes
Well, thanks for the question. I see it as accretive. I mean, I think that the opportunity to continue to enjoy a live TV experience -- I mean, LiveTV -- the cheapest way of delivering significant LiveTV content to the aircraft is going to remain through the TV antenna. KA is amazing, it's a step change, but the price point is still not such that it's cheaper to deliver content that way. So I still think, for carriers like JetBlue and others, you'll see a dual system. Longer term, I see a tremendous opportunity with KA because the -- at the end of day, we had a lot of customers who wanted LiveTV. They couldn't get past the CapEx cost of installing it on the aircraft. I think the difference with KA, it's a much lower installation cost than TV because you're not putting all those units in the back of the seats. And so I think it's potentially a bigger market than free LiveTV was in terms of the overall customer base. And -- we'll see. I mean, in addition to JetBlue, we also have a contract to install it on some of the United fleet, and we have other possibilities and we'll proceed -- see how it all plays out.
Mark Streeter - JP Morgan Chase & Co, Research Division
Mark Streeter, JPMorgan. Mark, thanks for the apology. The kids still love the TVs and the pop and chips last night, even though they were up late. So it worked out in the end.
James E. Leddy
Another great vacation.
Mark Streeter - JP Morgan Chase & Co, Research Division
Exactly. Half-day vacation. A couple of questions for you and Jim. Number one, on the Sharklet retrofit for the existing fleet, I know you're anxious to do that. What's holding up that process right now? Is there anything on the technology side with that wing? Or is it just an issue of price?
James E. Leddy
We're very close, actually. We have a -- as we've announced, we have an LOI, we have a handshake on the price. Candidly, what's holding it up is a small little glitch, which is Airbus needs to have a certain number of these things sold before it's officially launched. I think they're pretty close to that number. And so with that in hand, we'll be ready to go. And I believe Ursula [ph], you're looking at maybe as many as, on a true basis, as many as 4 a month. So once that -- once there's a little bit of a ramp-up, we could be modifying these about 4 a month. Do keep in mind that the modification on the retro versus the 4 fit [ph] is very, very different because of aerodynamics and bending when -- a little bit more involved to install it on a retrofit basis. But as we do the math, it's a pretty short payback.
Mark Streeter - JP Morgan Chase & Co, Research Division
Great. And when you and Jim think about -- I'm going back really to Slide 39, you've got the spare parts EETC coming due next year. You had mentioned some of the late 2013 A320s, and you have the 321s next year. Delta has been in a similar position to you in terms of repaying debt and getting leverage lower, yet they've also been very active in the capital markets and locking in today's low interest rate environment. So when you think about your desire to grow the unencumbered asset base, you have these refinancing opportunities, you have these aircrafts that are coming due and so forth, how are you balancing trying to lock in 4% money versus trying to whittle down debt and manage that unencumbered asset base?
James E. Leddy
That's a great question. I actually meant to address it on the balance sheet page. I kind of sped through it so I'm glad that you asked it. So regarding the Airbuses, right now, the private financing markets are extremely attractive. They're actually more attractive than the capital markets for us. There's a lot of demand for that type of secured financing. So the EMBRAERs, we'll put off to the side because we've got the ECA financing on that, and that's just great financing. But the way I'd answer it is we're really kind of opportunistic about it. We're working with a number of our banking partners on the end of the year. And then in terms of locking in the current interest rate environment, we have a big effort on my finance team right now. We're taking a look at our fixed to float mix, how that naturally kind of morphs into a greater fixed portion, taking a look at what the Fed is doing right now. We're thinking about probably quantitative easing between now and '15, kind of locking in a greater portion of that fix. I think most of the debt you're seeing come out from our competitors are skewing towards more fixed than float. We're certainly of that mindset. My team right now is working on kind of whether we can manage that naturally over that timeframe, or do we need to supplement it by entering into some interest rate swaps. The 5-year and 10-year spreads have come out a little bit obviously with some of the things going in around the market. So we're working on that right now. It's a big focus for us right now. And our goal is really to lock in a stronger portion of fixed to kind of lock in that weighted average cost of debt.
Mark Streeter - JP Morgan Chase & Co, Research Division
And just a preference with the legacy collateral, if you will, the older spare parts, the older A320s that are rolling off at EETCs, do you think you'll just add those to the unencumbered asset pool? Or do you think you'll throw them into -- along with some of the new deliveries and have sort of a mixed bag of collateral?
James E. Leddy
The way we're planning right now, we have extremely strong operating cash flow. The plan right now is to really just pay debt down and really finance the new deliveries at the extremely attractive rates. So we've got higher coupon debt coming off. We're refinancing a lower level at more attractive rates. And so we're able to dial down the balance sheet, at the same time that the long-term debt balance. And at the same time, allow those other unencumbered assets to come into our portfolio and give us more liquidity leverage. So really, all of those dials are moving in the right direction, and we're kind of working that realtime.
Mark Streeter - JP Morgan Chase & Co, Research Division
Jim, excluding the present bank market so it's not necessarily EE versus [indiscernible]...
James E. Leddy
Yes, I don't even know if we'll need the list that a EETC provides. And the private markets -- the point I made earlier is the private markets right now are actually more attractive, and the demand is there.
Michael W. Derchin - CRT Capital Group LLC, Research Division
Mike Derchin, CRT Capital. The ancillary revenue goal is, I think, very important because there's a lot of revenue and there's usually few costs associated with generating that revenue. I just wonder how much of IT is involved in implementing some of your future plans there? Specifically, I'm thinking about kind of variable pricing on Even More, for example, would seem like an area.
James E. Leddy
So did he talk to you during the break? Because I've already agreed to fund him. But it's CapEx -- I mean, just -- he should be on the comments too. But there's just a basic execution site where you can sell the seats on the airplane or at the gate. You don't need a lot of IT to do that. But beyond that, to get a little more granular to what Robin was talking about, Eash?
Eash Sundaram
Thanks, Mark. This is quite a bit of work being done on the IT site, building a platform so we can roll out these systems pretty quick, major efforts put in addressing CRM. That's pretty significant for that. Also getting into self service where we can sell ancillary services to our customers through these channels much quicker. That's something we are working on. Marty, you want to take some of these things?
Martin St. George
Sure. Thanks, Eash. We're actually making some small investments right now in this exact area. One of them is sort of the beginning steps of our next generation of CRM. We're in a situation right now where we have a fantastic customer database. We know a lot about our customers. We're not in a great situation from mining that day-to-day to actually monetizing it. So there's -- actually, we're changing business partners in one very specific area as far as having a better offer model so we can actually push more offers to our customers aggressively. And we're deep into our CRM plan right now with Eash's help.
Unknown Analyst
Can you comment on what the spread difference is between your current floating debt borrowing capacity and what you'd have on -- if you did fixed rate? Just the spread part, not the yield curve part.
James E. Leddy
You mean versus our current portfolio of existing debt? Or what we're seeing in the markets on a fixed versus float base?
Unknown Analyst
If you go into the market today and you were going to borrow fixed secured using aircraft or floating, however you would decide to do it, what's the spread difference?
James E. Leddy
Just to kind of ballpark it, what we're seeing is, on a fixed basis, a 10-year sub -- right around 4% or even sub 4%. And on a floating basis, you're talking about anywhere between 230 basis points and maybe 280 basis points above LIBOR. So not too different than the actual swap markets in terms of the spreads there. So it's a good time to be in the market for financing, I think.
Unknown Analyst
Would you need to do a LIBOR floor if you did floating? Or would you be able to just do a regular LIBOR?
James E. Leddy
The question is do we need to do a LIBOR floor?
Unknown Analyst
Would it be that spread over a minimum LIBOR of, say, 1%? Or would it be just versus plain old LIBOR?
James E. Leddy
First, correct me if I'm wrong, I think it's just plain old LIBOR. Right? I'm looking at my [indiscernible] who's much smarter than me on that.
Unknown Executive
[indiscernible] of course Jim.
Unknown Analyst
Just on the Wi-Fi product, what kind of a CapEx requirement is there over the next few years? And I believe the costs per megabyte is much lower in providing that. I was wondering if you have any color on the operating cost?
James E. Leddy
Do you want to take that? CapEx? She's negotiating a little rate.
Robin Hayes
Yes, we haven't disclosed the CapEx number publicly, so I won't comment -- I would just point out my comment earlier around it, say it is a lower investment per installation than TV. In terms of the per-megabit cost, I mean, KA is significantly lower cost than other providers today, which is what allows us to bring that product to market as a free offering. Because the -- once the investment is there in terms of the installation, the ongoing operating cost is really -- compared to the cost of providing TV today is really a very small incremental factor to talk about.
Unknown Analyst
So on Slide 21, I think, what kind of revenue are you assuming there -- generation are you assuming for that? And then as a follow up, down the road, could you see not putting any feedback TVs as the spread-out becomes more like you?
Robin Hayes
No, it's a great question. In terms of the revenue generation, I won't comment too much on that because we're not ready to sort of share our plans. But we have some very compelling things planned. We want eyeballs. We want -- success for us is everyone using free Wi-Fi. The value to that, to our immediate partners and advertisers and others and partners is extremely strong. The ability to drive TrueBlue membership by offering that is extremely strong. We see hotel groups doing that today. In terms of do I think the feedback is going to go, I think that is a long way away because it's still -- people still want wide content, and there's still a number of barriers. There's digital media like -- that inhibit that content through the Internet, and I think that's going to be a number of years before that is resolved. I do think one day, down the line, I think potentially there will be a way of delivering that content to the aircraft. We've got one of our competitors who are currently delivering some limited TV through a satellite-based KU [ph] system. I think it's like 4 or 5 channels. We have a LiveTV system today on our aircraft with 136 TV and XM Radio. We're delivering more than we did in 100 channels to United. And with our new 321 rollout, we're using that to also move up to the next-generation LiveTV systems. So we'll be delivering more content. So a way out -- and by the way, despite all of the data, what the data says is that despite the proliferation of devices, TV viewership is going up in the United States today. It's not coming down. So people are multitasking. Anyone in the room with teenagers like I have, you see this, where they've got 3 or 4 screens and devices, they're multitasking. The ability to recreate that in the aircraft customers is really compelling and something will drive a lot of value for us longer term. Thanks.
James E. Leddy
Do you want to close it? Any more questions? Thank you.
David Barger
Mark, stand up. Jim, stay up. Robin, come on up. Good. Thank you. Maybe before we do come to close, a lot has been covered today. Right? And other questions that you might have regarding what Robin was talking about, what Mark was talking about, what Jim was talking about, members of the team talking about, is there anything else that's on your mind before we do come to close?
And then a raffle. Right? Must be present to win. Sorry on the webcast. And also then lunch.
Well, great. If you could stay up here and -- Rob, can you come on up, please, which is great. Eash, can you come up please? Jim, can you please come up? Joanna, please come up.
Yes, this is closing thoughts. First of all, this team is excited. And this team is representing our office or team here, our leadership team, and we're excited. And we've shared an awful lot with you today, attempting to be -- let's keep moving into transparency and what's happening within our company. And so the turnout that we have here, again at the NASDAQ in Times Square, it's #hometownairline, right, Jenny? I mean it's a -- other airlines can't say that. We're really excited about what's happening in our 14th year. And so thank you for taking almost 3 hours out of your day, analysts, investors or whatever the case might be, taking a look again at our company. So there's a lot of excitement that's taking place. And by the way, as we sit here with our leadership team, of course it's 15,000 crewmembers day in and day out, the execution, delivering the JetBlue experience, and we couldn't be more pleased with what that means. And my opening slides, I'm just going to go right back into those slides to share with you -- and again, it's how we're thinking about the world. Again, this team is -- again, the excitement that's moving through the organization. We had a week ago, on Monday, our third annual state of the airline. And so -- and we talked about things like Fort Lauderdale, Hollywood 100, part of that's also how do we market internally about Boston 150 or Fort Lauderdale 100. And so as we had 900 crewmembers in the hangar, over 5,000 people, crewmembers who are also, as we know, listening in on the webcast and then hitting that webcast, much of the same language that we're sharing here, we're sharing with our crewmembers, right? Because they have to have a seat at the table. And so when we look at again -- if there's a headline that we would share with you today, there is a space where we take a look at investing in airlines. Yes, there's the network, there's the legacy model, there's the discount deals that you model, but there is a third model. And so the sweet spot, which is made up really of these components, when we think about -- you get inside the differentiated products, I can't tell you how excited we are with what was rolled out, just teased today regarding what's happening with things like 321s. By the way, excitement with the 320s, excitement with the 190s as well. We started talking about premium in addition to core. Right? And Fly-Fi, that was a tough one. Free Fly-Fi. That was a really tough one. That's exciting. Or things like what's happened -- we've been waiting years really for the Sharklet application. I mean, some really great stuff that's happened. And so when we look at just what's happening with the product, right, we know that it's sticky. We know that engagement matters with our crewmembers. We know Net Promoter Score is sticky. This is how we're driving decisions really at the end of the day. And so very, very important.
By the way, the cost side of the equation. It was interesting how deep we went into the -- really the capital structure of the company and how we're looking at the balance sheet and also in terms of the commercial side of the equation. Right? And certainly, we've had some migration of cost ex fuel CASM over the years. There is tremendous discipline that's taking place across our company when it comes to ex-fuel CASM and all-in CASM. We're not growing the airline, right, to try to rightsize the footprint from the standpoint of CASM growth. This is a team -- again, from a performance standpoint, we're measured on these items. Again, whether it's Net Promoter Score, whether it's that gap for the legacy carriers when it comes to x-fuel CASM, we're measured on that. That's part of performance management at our company. Very, very important.
And then we look at this geography. You can be a 5% player in the domestic landscape. You don't have to be 20%. And there's soon to be 3 airlines that are greater than 20% as a result of bankruptcies, reorganization and mergers. Hats off to them. They're tough to compete against, and that's what we have to compete against. But when you start to get inside of -- and there's another one, right, in terms of another acquisition, right, that tends to play down in a different space, but you don't have to be 20-plus percent. Our geography as the largest airline at Logan Airport ever by the way, [indiscernible] AG as we take a look at that and what's happening, and we attempted to get inside of what's happening with margins. We're not taking a victory lap, we're not striking the ball on the 10. There's a lot of good stuff that's happening in places like Boston, the 5 New York area airports, including what's happening with T5i over at JFK as well. As you start to move through, it's not a secret as well, like things like our nation's capital. We weren't there not too long ago. We're at 19 today. You start to get into places like Florida, the Caribbean, transcons that we talked about. Take a look at the new terminal in Long Beach, California. It took a long time. Beautiful facility out in that part of the world. Geography matters. When you get inside of again the sweet spot, our goal, we don't want to be these guys. We made a decision on day one not to be these guys. And so our plan is to continue to move the center of gravity on the sweet spot, always serving the underserved. There's plenty of people who are underserved up here, and there's plenty of people who are underserved here, and moving that sweet spot north and that's what our plan is. There is a third model as the industry here in our country is certainly morphed in a significant way with what's happening with consolidation, just since we started flying, the brands, the consolidation, the hubs really that are no longer in place. So there is absolutely a space here from the standpoint of the sweet spot. We live there, we love it there, and we like being disruptive there. And that's what our plan is on a go-forward basis.
I'll close with this. We're moving all kinds of different pieces as we start talking about improving that return on invested capital metric. By the way, free cash flow is still very, very important to this company's metrics, starting back in the 2007, 2008 timeframe when we slowed it down. We're excited about what's happening with the network. We're excited with the math that we gave you with the partnerships. I'm surprised there wasn't more questions there. We're excited with what's happening with the customer enhancements. We're incredibly excited about these opportunities from an ancillary perspective to purchase up, improve that core experience, not nickel and diming. Net Promoter Score matters, it's sticky. We can see this working in Boston. We're going to take it down in terms of growing other geography. We talked about Fort Lauderdale, Hollywood. We've talked about San Juan. Excited about it.
Cost control, we're excited about it. We know that if we lose focus from a cost perspective, we can't go into a new market and be profitable versus these other guys. We know that this is a lifeblood of this company. And when you start talking about the balance sheet, the capital structure, very excited as well. Things like cash from operations, as you talked about, Jim, really allowing us lots of dials to really improve our return on invested capital metric so that you're looking at us as a long-term sustainable airline here in, certainly, North America, but across our geography of the Americas.
That team is excited. And I just want to say to all of you here today at NASDAQ here at Times Square, thanks for your time today. Thanks for the questions as well. Thanks for the interest level. On the webcast, thanks for listening in as well, but we'll put you off in here, close to the top of the hour. Lisa, really appreciate your support pulling this together. Rob Mitchell, others, thanks so much for your support. Great stuff. This is a team that's very excited about 2013 and beyond. Thanks for your time today, and we'll see you at lunch. By the way, those of you on the webcast, you can click off. Those of you in the room, we have a giveaway here shortly. Thanks so much. Appreciate it.
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