JetBlue Airways Corporation - Analyst/Investor Day

| About: JetBlue Airways (JBLU)
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JetBlue Airways Corporation (NASDAQ:JBLU) February 15, 2012 8:30 AM ET


Lisa Studness-Reifer -

David Barger - Chief Executive officer, President, Director and Member of Airline Safety Committee

James G. Hnat - Head of Legal Department, Executive Vice President of Corporate Affairs, Secretary and General Counsel

Robin Hayes - Chief Commercial Officer and Executive Vice President

Dennis Corrigan - Vice President of Revenue Management

Martin St. George - Senior Vice President of Marketing & Commercial Strategy

Unknown Executive -

Scott Green - Former Vice President of Flight Operations

Mark D. Powers - Chief Financial Officer, Senior Vice President and Treasurer

Joanna L. Geraghty - Chief People Officer and Executive Vice President

Rob Maruster - Chief Operating Officer and Executive Vice President


Kevin Crissey - UBS Investment Bank, Research Division

William J. Greene - Morgan Stanley, Research Division

Michael Linenberg - Deutsche Bank AG, Research Division

Jamie N. Baker - JP Morgan Chase & Co, Research Division

James D. Parker - Raymond James & Associates, Inc., Research Division

Daniel McKenzie - Rodman & Renshaw, LLC, Research Division

Hunter K. Keay - Wolfe Trahan & Co.

Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division

Unknown Analyst

Glenn D. Engel - BofA Merrill Lynch, Research Division

Mark Streeter - JP Morgan Chase & Co, Research Division

Helane R. Becker - Dahlman Rose & Company, LLC, Research Division

Raymond Neidl - Maxim Group LLC, Research Division

Lisa Studness-Reifer

Good morning and welcome to JetBlue 2012 Analyst Day. I'm Lisa Reifer, Director of Investor Relations for JetBlue. We've got a great day planned for you today. And before we get started, I just want to go over a few housekeeping items. We plan to have Q&A throughout the presentation, and we just ask that you wait for the microphone to be brought to you so that those listening on the webcast can hear the question. [Operator Instructions]

I just want to refer you to our Safe Harbor statement. We will be making some forward-looking statements today. So please refer to our SEC filings for the risk factors that may impact our business. And with that I'd like to turn it over to Dave Barger, President and Chief Executive Officer.

David Barger

Great, thank you very much. Good morning, everybody. How are you doing? Good. Nice to have you here by the way. Thanks for joining us here today in Times Square here in New York City. It's nice for New York's hometown airlines to actually be in Time Square holding our Analyst Day today. And so we really just want to say thanks for joining us.

By the way, as you look at this room, and I know some are listening on the webcast, some are listening to the archive as well, if you see 2 aisles here, as far as we're going the A321, there is no intent for a 2-aisle aircraft here at NASDAQ. No, we're looking at and our fleet, but it's a really nice setting here.

By the way, speaking of NASDAQ, this April, we'll celebrate 10 years of being listed on the NASDAQ. We're really, really pleased with that relationship that we've seen over that decade. And it's interesting, too, because when you look back over time, the last time we really hosted an analyst day was right before we opened up Terminal 5 at JFK, and I think what we've learned as well, a lot going on, but this should be part of our annual cadence of communications.

We find that this is a nice time of the year to also give you an update, listen to your questions as well, engage in dialogue, and so certainly on a go-forward basis, you can expect to see that and play on an annual time frame as well. And it's nice to also think about what's transpired at Kennedy since that last visit where Terminal 5 as being mentioned as one of the top terminals in the world, and certainly in the United States. There's some exciting things that are going on at JFK, our home, and we'll continue with that, that expansion and dialogue, I'm sure, over the course of the day.

I think I also want to bring into focus, in that time frame, an awful lot was going on. And you'll hear about our first decade shortly from James Hnat. He leads Corporate Affairs for us, our General Counsel. So much of what was transpiring back then that strategy and slowing things down, and at the same time, moving into our second phase. I won't steal some of Jim's lines, but I'd like to think that, that which we covered out at Kennedy back in 2008, that plan has been paying off over the course of the next several years and it brings us forward here to 2012.

You'll hear from several leaders over the course of the morning, and again, we look forward to the dialogue that you have and leaders talking about, really, the execution of that strategy that's been developing over the last couple of years.

Now I think for headlines today, and you're going to hear so much detail as well from the presentations, but first headline I want to share with you that we're still a growth company. Now we've certainly learned what growth means and how much growth that we can digest. But we're a growth company, but doing so where it's profitable. And so you're going to see more of what we're doing in Boston. You're going to see more of what we're doing in the Caribbean and Latin America.

And we've certainly been focused in this area over the past couple of years, but profitable growth, I think, is certainly a theme that you'll be hearing over the course of the morning here at NASDAQ.

I think the second theme that you'll hear will be the continued focus on just the financial discipline. And again, you'll hear from Mark and the team. And again, the team, not just the CFO, talking about the strength of the balance sheet. Talking about how important net fuel has been. Talking about our different metrics, whether it's free cash flow, and moving into this next metric, a return metric. But you'll certainly see that continued discipline in place and whether it's financially, whether it's with the network, whether it's with the fleet plan, but we certainly learned that, that discipline is very, very important.

I think a third theme that you'll hear today embedded across the conversations of Joanna Geraghty in the people [ph] department; Rob Maruster, our Chief Operating Officer, but building customer loyalties for the plan that Robin Hayes, our Chief Commercial Officer, put in place, well, we just believe that culture in doing so, driving engagement with our crew members, 14,000 strong, many listening in on our webcast, that in the long term drives loyalty. That loyalty, that stickiness, if you will.

And here's before one of the known as a commodity business, we really believe is very important for our company. That's a hallmark to our success in the first decade. And this year, we plan to accommodate more than 28 million customers with our 14,000 crew members. And so the engagement of the crew member is certainly a theme that you're going to hear over the course of the day as well.

So I think for just opening comments setting the stage, and, yes, there's going to be some Powerpoints today. And we're not going to read the PowerPoints to you. I'm only engaged in dialogue, but I think it merits -- I'd like to just take your attention over to the right side of this slide. If you're listening on the webcast, JetBlue's second decade.

And the terms return on invested capital and airline, I think it's fair to say that they really haven't been in sentences, paragraphs, really in some of the last several years. And certainly, for many of you, we've heard, "Hey, listen, what's your return metrics? High performing. What kind of lens are you looking through?" And so look at this, especially with our age, in fact, on February 11, we just had our 12th birthday, and really excited about flying into our second decade. Pretty rare for a stand-alone company, post deregulation. But we welcome the fact that the industry is moving to a very disciplined phase from the standpoint of industry-wide return on invested capital metrics. Now we're younger, our model's look a little bit different. You know what's happened with consolidation, you know what's happened with reorganization, but it's certainly part of the language that's into our boardroom, into our leadership suite, and in fact, across the company.

Now this second phase that Jim will be talking about, well, I think I really give credit to Mark Powers talking about the importance of free cash flow. And if I go back to that 2007, 2008 time frame when we really slowed things down. By the way, we took an airplane every 10 days in 2006, 36 aircraft, right, as you run the math, and slowing things down in '07 and '08 and really pleased as we closed 2011 to drive free cash flow for our third straight year. And again, for a young company that's growing new fleets, that was an important phase in our company's history as well. And now all that's said, and that's as a lens that is important to us also, we know that a return, when you look at free cash flow, but it's not a return metric. And it's important to the lens and running the company and the discipline, but an ROIC metric is something that's very important.

And so to that end, and you'll hear much more on the topic today, how we calculate ROIC, the number that we look at in 2011. But on a go-forward basis, over the foreseeable future, our aim, our plan, is to really improve our ROIC by at least a point a year. And that's for the foreseeable future. And again, Mark will give you insight in terms of how we're calculating it, how we closed 2011.

And my earlier comments, we're still growing, we're as profitable, we're disciplined. And taking always a monthly look at the route network, and what it's contributing, what's happening, what's the competitive landscape? But certainly, introducing a return on invested capital trajectory growth on a year-over-year basis, we think is very, very important to us. We know it's very important to you investors, as well as analysts.

And along those lines, as we move into today's dialogue, the 3 themes that you're going to hear an awful lot about today, and hopefully you've heard these in the past, but our strategy of offerings, culture and foundation's a little bit of insight. You'll hear very, very shortly from Robin regarding the offerings. And so the fleet type, what's happening with 321s, 320s, 190s, the network across Boston, New York down through Florida, the Caribbean Latin America out to the West Coast. The different products that are in play, in-flight entertainment.

But certainly, as we look at what's happened from an operating perspective, as we closed 2011, we've seen industry-leading prize and performance as we're growing, which is a little bit different than I think what you've seen with many other airlines out in the landscape. This culture thing, and we get a lot of questions on culture. And you look at the history books, and we just still believe that an engaged workforce makes such a difference in what has heretofore been a commodity business.

And so I don't think that we've done maybe enough talking about just the inside of engagement and culture, and what that means to stickiness with customers driving loyalty, driving that prize and performance. And whether it's on the ground, whether it's on the air, I think again, we'll do more than maybe just talk about J.D. Power #7. We've talked a lot about awards, but what's the science that's inside of engagement?

The third issue of foundations, I think really read this as, sure, you have to run a solid airline. It's got to be safe, it's got to be secure. What about reliability? And it's tough with reliability in the New York airspace. I mean, real tough. You know it. Along those lines, also think about our focus on ex-fuel CASM. And we know that, really, the moat around our castle as we're into our second decade, what's so important from an ex-fuel CASM perspective, we have to be laser-focused on it. And certainly we've had some challenges. We want to be transparent on that. You have your models, your questions.

But please note that this is a company that as we look at improving return on invested capital metrics, we can't do that without a laserlight focus on our ex-fuel CASM as well as overall CASM. I think along those lines, we're looking for opportunities to use our balance sheet to bend the cost structure. We've got some opportunities to do that.

As we closed 2011, it was nice to see one of, if not, the strongest balance sheet over a trailing 12-month revenue. As we look at opportunities to, again, not just use the balance sheet, but maybe there's some risk strategy such as hedging and fuel and what's transpiring, you'll hear from Mark along the lines of what we're doing there as well.

And I think most importantly just being transparent, which takes me back to my opening comments. It's great to be at NASDAQ, it's great to be with you. We spend a lot of time on the road or at meetings or on calls with many of you, but really want to say thanks for joining us here in Times Square, our hometown. And over the course of the morning, who you'll hear from and just, again, providing insight. Just a moment, Jim Hnat, who's our EVP of Corporate Affairs.

Jim, if you could just raise your hand? Our General Counsel, he's the resident historian. He will walk you through the first decade plus. Robin Hayes, our Chief Commercial Officer, Robin walking us through the offerings. By the way, we really want to get into the Q&A over the course of the morning as well. So let us know if we're running a little bit long, so we can get your questions in. Joanna Geraghty, our Chief People Officer. Joanna, thank you. Talking about this engagement, culture, 14,000 crew members and growing.

Rob Maruster, Rob, our Chief Operating Officer, he's always wanted to operate in New York airspace, right? 20% of all flights scheduled in the world operating from Boston to Washington sometime over the course of the 24-hour time frame. Mark Powers, Mark, you and your team, I think certainly, with Lisa and Rob and just really, really good work that's taking place. Mark will bring us home talking about the financial metrics, talking more about ROIC, talking about our trajectory and some good time for questions as well.

I also just want to recognize other JetBlue crew leaders who are here. Can you just raise your hand? It's really nice to have you at NASDAQ as well. A lot of preparations that's taking place behind the scenes for a day like today, and it's great to have you here, too.

I'll close with the following comment. Just 2 days ago, we had -- so we're a young company, but how do we kick off a little bit of tradition? And it was great to be out at JFK at Terminal 5, but the original Terminal 5, that's the Saarinen building, the home of Transworld Airlines with TWA where we had our State of the Airline Address, which is webcast and it is archived. And I would tell you, as we talked about 2011, the year in review, probably about 750 crew members that were live out at Saarinen. And then we have leaders across all of our locations, we call it the leadership connection to bring home our message.

But I would tell you that return on invested capital was a major theme over the course of our broadcast with the State of the Airline. So this is not something that we're just bringing into NASDAQ today. We know we have to take it to the front line. But it was great to be able to, again, take off to you with our crew members with the State of the Airline. It's great to be here as well in Times Square.

So with that let me close by saying thanks again. Welcome, look forward to the dialogue today. And James Hnat will put you up for the last decade.

James G. Hnat

Thanks, Dave, and thanks to my colleagues. Welcome to NASDAQ here at Times Square. As New York's hometown airline, we're very happy to have you here. My name is James Hnat, General Counsel, Corporate Secretary of JetBlue. As Dave indicated, he's labeled me the historian. So in exchange, I promise to be kind when I write the book in the history of JetBlue. And to date, my colleagues have urged me to also say kind things in their chapters.

From my perspective, I realize everyone here is a student of the industry. So I'm not going to recite JetBlue from the very beginning, because I know you're familiar with the JetBlue history, having sat on every earnings call since our IPO. Many of you are familiar names, if not familiar faces. And so I've heard your voices. I think I probably could repeat many of your voices just by the sound and intonation of your voice in those earnings calls. I've also been to all of our Board of Directors meetings in the past decade. So that history, we've had an opportunity to watch the JetBlue story evolve.

While I would like to set the stage for my colleagues as they come up to present today is, where is JetBlue today versus the JetBlue that you may recall in 2000? Steve mentioned that Saturday was our 12th anniversary. Our first flight was February in 2000. And in that short amount of time, JetBlue's story has really evolved. It's been interesting watching the dialogue evolve. I also recall 10 years ago, this April, being right here in NASDAQ as we rang the bell with our IPO.

And in preparing for my remarks today, I pulled the original SEC filings for our IPO and reflected on the story and the position, what were some of our competitive strengths, what do we posture as our strategy? Interestingly, a lot of the DNA here remains the same at JetBlue. So when we talk about things like culture, when we talk about things like using technology, when we talk about things like a better customer service experience, when we talk about a highly-engaged and productive workforce, many of these strategies and advantages remain the same.

But we also -- I invite you to think about JetBlue through a different lens. Sort of a JetBlue 3.0. And as Dave said, we haven't spent time here with an analyst day in quite some time.

As you may recall that in the early years, it was all about CAGR. It was all about fast growth. And it was for a good reason, because you don't start an airline in New York by dipping your toes in the water very gently. So that was the time, we'll say, from 2000 to 2005 where it was fast growth, it was a new plane every 10 days, it was really expanding our footprint in the New York market.

As we grew in that time, we took another project towards launching a brand-new aircraft type, E190. I know Warren Christy is here and he's our VP of JetBlue University, and he came onboard specifically to launch the brand-new aircraft and a brand-new size and gauge aircraft force so we can penetrate different markets. The story was evolving very quickly. With that rapid growth, however, became rapid expansion.

2005, we start to realize that this is not sustainable. And we shift our focus and we evolved from CAGR-type model to liquidity. We knew that things like selling aircraft, getting out of leases, evolving the fleet complexion was necessary to move into our second decade. During that period, we also realized that to make it as JetBlue's hometown airline, we needed to invest in the right infrastructure. This is really when the discussions around Terminal 5 that JFK really began to take hold. As in liquidity, really moved into free cash flow. As Dave said, Mark has a lot of credit for coming on board and discussing FCF -- or FCF, free cash flow, his favorite city code, because that was about not growing just by relying on the capital markets, really earning our way to grow, talking about what's the next chapter of JetBlue and looking towards ROIC.

So here as we sit 2010, the return on invested capital has really evolved in the boardroom, has really evolved in the senior leadership discussions, and we know that this is why our investors look to us for return on invested capital. And over the years, the infrastructure we put in place transitioned to Sabre, Terminal 5, launching a new aircraft.

This is where we have come to tell the JetBlue story that we began as a contrary airline and remain a contrary airline. As you look at our original filings, so much of what we believed back then about seeing things a little differently to drive change in the industry. Folks said it couldn't be done, right? You can't run a domestic airline in JFK. Back then there was only one type of aircraft that could be run on a low-cost carrier. Back then, things like swot controls, no, we'll go out to JFK, leather seats. Even things LiveTV altitude, you'll hear from Robin, what are we doing to refresh the brand proposition? LiveTV 12 years later is not so revolutionary.

I think people forget that when JetBlue was founded, the iPod had not been introduced yet. And that's how quickly the JetBlue brand has evolved. So over our past 12 years, we've been very focused on building iconic brands, continuing our commitment to our crew members, continuing our commitment to our customers and continuing our commitment to our shareholders. If you take away one observation from the 12-year history of JetBlue, as I set the stage for my colleague Robin Hayes, we really move from growing fast, to growing up, to growing profitably. And as we tell our story today, we'd like you to think about JetBlue through the 3.0 lens, as we focus on growing profitably.

So with that, I'd like to introduce my colleague, Robin Hayes, to talk about our offerings at JetBlue.

Robin Hayes

Okay. Good morning, everyone. You hear me okay at the back? Good. Good morning. Thanks for joining us. NASDAQ, we really, really do appreciate that.

I want to talk to you about offerings. And what do we mean by offerings? Offerings are really -- think about in terms of revenue side of the house. What are the things that we are doing to drive industry-leading revenue performance? And if we just look at the first slide here, 4 areas that I really want to talk about today.

The first one is let's talk about the network, right. The building blocks, the foundation of any airline business. And what are some of the things that we have done in the last few years to really create a stronger network story. Business customers, you've heard us talk on the earnings call, you've heard us talk elsewhere about the importance of increasing the share of business customers to JetBlue.

So why is that, and what are the things we've done to make that happen? Thirdly, in terms of products and services. What are the additional products and services that we have developed to drive higher revenue margin? And finally, you'll get a lot of questions about partnership. [ph] we announced our 16th with JAL yesterday here to JFK and Boston. And we want to sort of lift the cloak of secrecy around partnership a bit and tell you a little bit about how those are doing. And we think all of those things together, if you're in the webcast to the right-hand side, important helping us drive industry-leading unit revenue performance.

So let's start with the network. Now Jim told our history of JetBlue and it's no secret for those of you who have been in New York for most of the last decade that JetBlue was really founded on a core leisure market. Florida, Transcon and I think for many years, it performed very well. It led to excellent peak performance, but the challenge was in the trough, it was bad. And as we grew, we just made that problem worse. And you can see on the left-hand side of the slide, there's sort of an outline of the traditional JetBlue margin by month.

And you can see in the peaks, it rocked. And you saw that, when we had that storm at the end of 2010, about last week. I mean, that's a big earnings week for JetBlue. But then in the trough, it was really poor. So we looked to that and said, we can't just keep growing and making this curve, making this kind of profile even work. We have to do things that are going to reduce the seasonality of our revenue performance. And so we knew we had to develop more diverse network, both in terms of where we flew, but more importantly, the customer that we work things sort of attracting.

So there's 2 things we really did. The one, we'll talk about this in a minute, we focused on Boston and building out a more business travel-focused in Boston. And secondly, we look -- as we grew our Latin America and Caribbean franchise, we focused not just on leisure market, package holiday markets, but we also focused on markets where there was a strongest in friends and family component. This is still seasonal to some degree, but it's less seasonal and it's more recession-resistant. And we saw that in the back end of 2008, 2009. So we're not going to talk about all the network today, we don't really have time. But we want to focus on the 2 areas where we have, I think, made the most change in the last 3 years, which is Boston and Latin America and the Caribbean.

So just to stress, as we talk about these changes, we are New York's hometown airline, New York remains our core. We're going to continue to find ways of growing New York where we can do that possibly and that's why we're very excited to be able to pick up the additional slots at LaGuardia. Maybe you have some questions on that later. We announced those on Monday in terms of where we're going to fly those 2. But JFK remains our core. And nothing we're doing in Boston and Latin America and the Caribbean is really a big sense of our core New York operation.

So let's talk about Boston. I think we've seen some dramatic growth in Boston. And we're going to talk about the business traveler today, but also -- we've also grown the leisure market out of Boston as well. Some of our competitors have made some quite significant reductions in leisure markets, too. There was an airline, U.S. Air closed a crew base, and in fact a few years ago. So we've grown the Caribbean, we've grown Florida for these markets. But what we really want to talk about today primarily is the business travel market.

And for those of you following on the webcast, the slide here shows the orange dot, and it shows the market that JetBlue has entered or more than doubled capacity since 2007. And there should be 27 orange dots on the slide, the 27 new markets. Dallas is the next one to open on May 1. And on Monday, we also announced a seasonal service between Boston and Nantucket, which is going to start on May 17.

Now we've been growing Boston very aggressively. And, yes, we get asked a lot of questions. Are you growing too quickly? We get a few questions, should you be growing more quickly? I think one of the things we are very cautious about is as we grow business markets, they take some time to ramp up the profitability. And we're going to talk about this later.

And so as we look at Boston, we've been really growing this at sort of 1 to 2 business markets per year because we don't want to float so many new markets into the mix too quickly, because I think it's going to be too big a drain on profitability. So we pace them, we're going to -- I think there's very legitimate questions about should the pacing be quicker, should it be slower? I mean, we feel good about the level of pacing we have right now. We'll come back to that in a minute.

In terms of the next slide here, the white dot slide, these are markets out of Boston where we're seeing our competitors reduce capacity since 2007 by 70% or more. And you can see that we've seen significant pax capacity with us in 21 total markets out of Boston. And it's really across-the-board. We've seen it in business markets like [ph] also Washington National Reagan Airport. We've seen -- we draw from Delta from March, in the March time frame coming up. We've seen reductions in the transcon and markets like San Francisco and San Diego. We've also seen changes coming up this summer in terms of other airlines pulling out of markets like Boston Orlando myself. We really -- we've seen as across-the-board and we continue to see them.

In terms of why did we target Boston, why did we go off to Boston? What made us think Boston would work? Boston has been a fragmented market for a long time. I remember working up there myself. It's sort of 20 years ago, and there was no dominant airline then, and there really wasn't one, hadn't been one recently. And so what we were able to do is identify market where there really was a relatively low cost of entry for us to focus in going in and growing it. And you can see through the slide here that we have grown our fleet share in Boston. This is over a 5-year period from 2007 to 2012. We've taken a quarter 2 snapshot that's kind of a fairly typical quarter for us. And we've grown our seat share to 23% of the market.

But I don't think that's the real story. I think the real story is also the amount of nonstop markets that we fly direct, up to 45 markets direct out of Boston now. And so even those airlines that may still have relatively high seat counts out of Boston, a lot of that is in terms of number of definitions they serve is very, very limited. So 45 destinations and counting.

And we're going to be approximately 100 days flights a day in the peak this summer. And we still believe there is room to grow to up to about 100 in flights out of Boston in the next sort of 3- to 4-year time horizon. And we believe that this growth, we believe the ability to effect competitive change, to appeal to both the business and the leisure market out of Boston is very important to our plan to build long-term pricing power and sustainability and defensibility in this market.

If we look at in terms of seats, I think we've also done a good job at making sure as we put this explosive growth in, that we continue to deliver strong revenue performance. And so this slide here, for those who's following on the net webcast entitled Success in Boston Network, you've seen that over the 5-year period, we've added 83% of seats versus our competitors where there's been a reduction of 10%, but we've managed to outperform them on a unit revenue basis by between 14% versus 9%.

So I think we've continued to deliver strong unit revenue performance despite this very severe growth rate. And this is really hard to do. I think it speaks to the power of our brand in the Boston area. I think the other thing that I just want to remind you of, is that in terms of total fleet out of the market, they've grown about 2% in this period. So it's not as if we've added a ton of incremental fleet into Boston. We are largely replacing seats and capacity that other airlines have withdrawn from.

I do think now we've reached a point in Boston where, as I mentioned earlier, the maturation of the business market tends to take longer. We're going to give you an example in a minute. But this year we have slightly slowed the growth. We've had 2 very strong years of growth. I think 2012, we're still going to grow Boston, but at a more moderate rate. And I think that's going to allow us now to start to harvest the benefits of a more mature network up in Boston.

We want to just give you an example of a typical Boston market, and we picked Boston, Washington, Dallas, because it's one of the earlier business markets that we started up, so we have now 3 year plus of history. It does take longer for these markets to mature. Very -- the first year of entry, we normally assume that we're going to make a loss in that market.

The second year, you are close to breakeven. Sometimes you're a bit below, sometimes you're a little bit higher. And then the third year is when you start to see the margin performance really accelerate. And this is, I would say, this is very typical for the markets that we see out of Boston.

And if you take Washington, Dallas now, and if the market has performed profitably for, and also we built our business custom mix in this particular market up to about 40%. And in terms of revenue share, it's also higher because the average fare paid by business travelers is higher.

And I think Dennis Corrigan who's here. He's our VP of Sales and Revenue Management. You may have some questions for Dennis in a minute. Dennis uses a phrase which I like, which is, "Relevance builds relevance." Every time you add a market to Boston, you make the other market better. We're going to come back to that point again in a minute.

Let's talk about Latin America and the Caribbean. I think this story is pretty well understood. I just want to go back a slide, and if I can do that? I'll just spread through. Okay. Very good, thanks. Same format as earlier. So the orange dots is the markets where we have significantly grown our capacity or entered as new market since 2007, and we've actually entered an importantly double capacity, more than 17 markets in part of the world.

And I mentioned this earlier, but this includes markets like Turks and Caicos and Punta Cana, which is very strong package holiday leisure market. But also VFR market and Santo Domingo, Santiago and the Dominican Republic, Kingston in Jamaica. We've really kind of taken a hedged position in this part of the world in terms of wanting exposure to both the VFR and the package leisure market.

And I mentioned this earlier, but just as the business market in Boston give us improved seasonal performance because business travelers, they do fly a lot in September, October, which have been historically weaker months for us. Then VFR customers also give us much more of a stronger all-year-round sort of business.

And I kind of showed this slide already, but this is a slide of markets where we have also seen a 70% or larger drop in capacity. We've certainly seen significant reductions in Puerto Rico capacity. But it's not just about U.S. carriers pulling down this region. We've also seen airlines like Air Jamaica and some of the regional flags reduce capacity in competitive JetBlue market.

And the stronger story here is even stronger than the one we've seen in Boston in terms of as we significantly added capacity, we've still been able to deliver impressive comparative unit revenue performance. So 210% of seats rerouted in the last 5 years versus other airlines, where those were actually reduced by 12% and yet we have stronger unit revenue growth.

And this is probably no surprise, so if you take Boston-Aruba as a market we've been in for some time. And we said this on the call before as well, these leisure markets tend to ramp up quickly to profitability. I think our brand, our cost structure, the average fares in this part of the world are ready to go in reduced fares, but still have strong yield, strong comparative yields, I think, has made this very successful for us, and they ramp up quickly and they stay profitable.

I think the other thing as we spoke of the growth and as we focused on Boston and the Caribbean and Latin America and we stuck with the plan, as we now have started to see the benefit of having just a much higher percentage of our routes in a mature phase. And we define a mature phase as the market as seen in 3 years or more. And a new market that's something a year or less.

And I think this is important, because this, again, this is back to our half-bond harvest, the returns on the investments that we've made in some of these new markups. And so you can see now as we enter 2012, 86% of our ASMs are in markets that we've been in for 3 years or more.

Now we get off the lot in terms of what is the next Boston? What is your next network plan? I just want to say this, that we continue to believe that significant growth opportunity exists for us both in Boston and Latin America and the Caribbean. And we talked about Boston, we talked earlier about we're going to start Dallas on the 1st of May. There's a number of other large business markets out of Boston that we do not fly to, that our corporate customers in Boston had a keyed interest that we do. And again, we're not going to add them all overnight, because these all take investments. But between now and 2015, we know that if we want to be truly relevant to the Boston corporate traveler, we have to fly to all of the markets that they need to fly to.

Secondly, on the Latin America Caribbean side, although I think we have done a good job in terms of our Caribbean penetration, a significant -- opportunity still exists for us in some of the northern rim and Central American markets. We have a very successful route to Bogota, Orlando and we have the approvals to fly between Fort Lauderdale and Bogota, I think you're going to expect to hear something soon on that. We have a lot of growth opportunities in our San Juan market. San Juan, I think we're going to sort of designate soon as a focus city, which should sort of give it similar status to JFK, Boston, Orlando, Fort Lauderdale and the L.A. basin.

But we had a lot of opportunities both out of Boston, Latin America and Caribbean. So as we look at the order book in the next few years, if we look at our network plan, we can continue to grow and harvest into these markets. We're not looking to make an investment in a new Boston or any new market anytime soon. And hopefully that kind of gives you a sense of comfort that we really are kind of reaching a tipping point here in terms of some the big network investments that we've made.

Let's talk about business customers. I've kind of alluded to this already. We started direct corporate sales in 2009. And that was our first corporate contract. If you're following on the webcast, it's the -- I just want to draw your attention to the blue part of the slides -- on the slide entitled Business Customers: Increasing Business Traveler Mix. We started in 2009.

I don't need to tell you, because whether you fly on business regularly, that in order to be truly attractive to a corporate traveler in the Boston area, you've got to have the network of place to fly that they want to fly. You want to have it scheduled. We have a -- we don't match departure-to-departure other airlines. Now our view is, providing we have a competitive schedule throughout the day, we can hit that sweet spot of, but you get the revenue performance without all of the investment in cost. So we have a fly to more markets, we have to invest in better schedules. That's part of the reason why with the recent announcement on Monday in DCA slot, we're going to go from 7 to 10 on Boston DCA. We only came in to save her just over 2 years ago. We really had no effective means to corporate travelers to sell out up to that point.

And so that takes time to mature. And in many of these corporate contracts, they tend to be on 2- to 3-year cycles. So if you now start to have a product of interest, it can take you to complete that cycle. And so all of these things just take time to come together. And I really think that as I look back what we've done in Boston, it was really only last year, I'd say for the first time, we had a schedule on a network that I think we've had interest to most -- the vast majority of our corporate customers.

But we do this in a very, very careful way. Costs are very important. And so despite all of the efforts we've done in Boston, we have a lot of corporate contracts out there now. We've seen a lot of growth. We do that with one account manager. We have 5 account managers in the whole United States, which is equivalent to what one of our competitor, who is following us, having Boston alone. And so one could argue, maybe we should sort of invest in a couple of more account managers there, and we will if we need to. But we want to be very careful, we do not want to build a legacy cost structure on the sales side of the house.

And so let's talk about Dennis' favorite phrase "Relevance breeds relevance." This is really now a slide which shows a number of markets, key business markets that we fly to out of Boston, and also the percentage of both business customers and what that means in revenue. And these numbers continue to grow. And I think the other point that I want to add, and this is what's behind the relevance breeds relevance comment, every new market that you add makes the other markets get better.

So we have a number of corporate customers who had pressed up the flight of Dallas out of Boston. We know that when we start and we can win their bid on [ph] Boston their business in Dallas, we will see more of those corporate customers on these other markets as well. And we see that every time we add a new market.

It's no secret like the business travelers pay more for their ticket. They tend to be booking at more short notice, they say prize seems like it's actually a little bit higher. And so being -- coming into the GDSs in a proper way in 2010, we were in there before but not in an easy way to book, has made a big difference as we've seen our GDS penetration go up.

On average, the yields that we get through the GDS channel are $35 to $40 higher that we get through our website, reflecting the different mix of business. And so it's well worth the additional premium that we see in terms of cost. So relevance breeds relevance. As we add Dallas, as we add new markets, all of these other markets will get better.

Some of you may have seen the article in the Wall Street Journal. I think it was a week today, it was last week, I believe, last Wednesday. And I think really that was a piece that was done and it was really less about us. I mean, I think Marty, our -- I think our VP Marty was quoted in it. But it really was a smorgasbord of quotes from travel managers and corporates in Boston.

And I think the other thing that we pride ourselves in is that we are easy to negotiate with. It doesn't mean that we are just pulling over on price. We want to negotiate the right price, but we're accessible, we're there. We have Mike Mercy our account manager up in Boston, if you do want to meet with him, he'll be at your office at the same week. If you have a deal struck, that you want to talk about work for your company, we're not bound by sort of a big corporate global welfare on corporate deals. Mike will make a call to chat or maybe I can call to Dennis, and we'll get it done and we'll put something in place. And we work with the corporate and tailoring program. So I think it's true to say that when we started it back in 2009, we were very aggressive on price because we had a product that maybe we're still evolving in terms of network and schedule.

But now, as we become more mature, our ability to focus more on our traditional fare structure with more modest discounts as our network and schedule have got better, gives us the opportunity over time to yield up this market even further.

So moving onto the third section, in terms of our products and services. I think that just as we built our network, just as we -- we have a strong brand. And I think it's we'll come onto that again in a minute, and tell you how we can leverage that. But we've taken a very deliberate approach in this area in terms of really taking a step back and saying, "What are the products and services that customers really value? And how can we deliver that with simplicity?" We do not want to repeat the mistakes of some of our competitors in terms of reinventing some of the infrastructure and investment in some -- in providing this product. We really wanted to keep it simple.

And we do appreciate in this area, we take a different approach to our competitors on things like [ph] and maybe you've got some questions on that -- I'm sure you have some questions on that, and we're happy to take those. But I want to talk about a couple of areas where we've seen some great success. Even More Space, let me start with that.

Even More Space is a product that cost us hardly anything to deliver, and it generated $120 million in 2011. And we continue to see a lot of traction in terms of our ability to yield up. I still don't think we've reached the sweet spot yet in terms of pricing, and we are currently reconfiguring our 190s to add more Even More Space seats on them.

We currently have 8 and we're going to increase that to 16 by the middle of this year, and we've done that without taking any seats off the aircraft. So we're going to maintain 100 seats on the aircraft. Because what we were finding in Boston where we have a lot of our E190s scheduled is there's a lot of demand for this product and we weren't always able to satisfy. Quite often the leisure traveler who is booking these seats weeks out and they weren't available for a business traveler.

Even More Speed is something that we've been rolling out this year. We're now up to 30 airports, so it's just shy of 50% of our network. And we currently offer this product as a free addition if you buy Even More Space, you have access to Even More Speed. And think of Even More Speed as a priority security lane at an airport. You don't have to be in a top tier of our traditional legacy program. You get this by paying a very reasonable premium and our customers really do appreciate it.

The way we have set the product up is we do have the ability to unbundle it and offer it separately if we choose to do that later this year. And I think we may well do a trial before the year is out. We have to do the math on that because we know that the other people buying Even More Space because of this product, but I think it's a trial that probably we need to do.

We have a credit card -- we have a great partnership with American Express. We have the credit card with them, as you know. Don't need to tell you that. Credit cards are important source of revenue to all airlines. And I think we recognize that some of our competitors have done a good job in the last few years bundling up some additional benefit with their card, and I think we know there's some additional features and benefits that we need to add to ours that we think is going to be very helpful in terms of driving additional revenue.

Let me talk about TrueBlue. It's another area we get a lot of questions about. TrueBlue is our loyalty program, been around for a long time, but underwent a major change 2 years ago where we moved from a traditional segment base or work program to revenue base. So you earn points on revenue, and you redeem based on the price of ticket.

I think we've certainly achieved in the last 3 years a lot of what we want to achieve in terms of making the program more relevant to more people and spreading the redemptions. I mean, the problem we had with our old scheme, where it was geared to every time people made or got a redemption, redeeming on a 1-hour flight was the same as a 5-hour flight. So all of the redemptions were falling onto our transforming Caribbean markets, and we wanted to spread that. And so by having a point-based system, we have been successful in spreading the shape of the redemption.

However, I think the need that if itch, it hasn't scratched yet is for those frequent travelers, whether they be business or leisure. We have a lot of people who commute on JetBlue every week between Florida and New York. And I think we constantly get feedback from that group to say, "It's not really meeting my needs." And so some of you are going to see us roll out this year is a program where we can recognize a group of more frequent flyers with additional set of benefits.

And we're not going to announce exactly what that is here today, we're going to do that later in the year. But it's going to include things like access to Even More Speed, access to priority boarding, and so these customers can kind of move through our system a bit more quickly and our crew members are -- have more tools in which they recognize overvalue of their loyalty.

And I think that our view is as we not only will this help us particularly in Boston and to some degree here in New York in terms of this sort of more frequent flyers, company flies more frequently, we think it's going to help build the utility and the value of the overall program. Like as you've got more people who are more motivated are engaged in the program, you see things like your credit card user penetration drop, your credit card usage go up, and so on.

There's also a number of other things that we need to do with the program. And you'll see us do that in a couple of years in terms of building our partnership earn and burn opportunities. We have a network that doesn't fly the world and some of -- a small percentage of our customers would value that, and also non-air redemptions. So the ability to being point examples of JetBlue Getaways. This is also something we have in our flights.

So let me talk about JetBlue Getaways. I truly believe this has been a super success story this year. This is a business under Martin's leadership and Grant MacCarthy who heads our Getaways team. We decided 2 or 3 years ago to really focus on growth, and we've had great results.

What we're measuring here in this chart entitled Products and Services: Getaways, for those of you following on the webcast, the blue bar is our net margin. This is our net margin and that is the margin that we made on the ground product, whether it's we're selling a package holiday with a hotel partner, whether we're selling a 2-night hotel in Vegas, whether we are selling a high car on insurance. That is the margin whether we get from that product.

And then the gray is an incremental air margin. So it's first of all, what to redeem a customer truly incremental to JetBlue or could we have sold out the -- we do some very elsewhere -- we do some very granular analysis, understand what that is. And secondly, we don't have to take up all the cost of carry. So maybe an incremental customer, but there's still some incremental cost from carrying that customer. And so we put that in terms of the total picture.

We made some big changes this program last year. We put in a new technology platform making it easy to book on our website. We invested, for the first time in advertising, so to build awareness with our customer. We launched a concierge service so 24/7 support any customer who books with us they and they have any concern, any issue they get to the hotel there upon, just call us 24/7, we'll take care of it for you. And we have some other exciting enhancements that we're going to make for this vacations program this year.

So why do we think is a big opportunity? And we look at something called attach rate. An attach rate is for every JetBlue flight, flying to a leisure market, like a Turks and Caicos or Montego Bay, et cetera. What percentage of customers on that flight had purchased a Getaway vacation? And it is our view that if you take markets like the Caribbean and certain other leisure markets like Vegas and Florida, we should be aiming 5% or 10% attach rate over the next few years.

At the moment, we're mid-to-low single digits. So you can see despite the efforts that we've made, there's still a lot of opportunity -- and we believe that over the next 3 or 4 years, the value of getaways can be very similar to what we see from our product Even More Speed today. So we do think it can be a source of significant value over time.

In terms of -- going to keep moving here. We also have a new connectivity product coming up, excited by our partnership with ViaSat, we truly believe this is the right point to jump on board with connectivity. It's going to enable us to offer a truly broadband service to altitude. Not only that, but JetBlue can control the pricing, the content, the way we design this program for customers.

And our LiveTV subsidiary is partnering with ViaSat exclusively to offer this product both for JetBlue and also in the United x Cal fleet that United now have inherited. We are still on schedule to have the first aircraft installed in the third quarter here this year, and then if that goes well, which it will, we'll start rolling out.

Now I think the main benefit -- this is going to be, I think this is going to give people another reason to fly JetBlue. So we think we see the main ability in our regular performance. But it's clearly some revenue as well in terms of flight. I'll give you an idea, it's estimated this year, 2012, the Wi-Fi market in North America is going to be worth about $200 million in terms of flight. I mean, if you just think about what our natural share of that could be in terms of -- I think you get a view in terms of where it could be. Now that's what margin like, because you do have to pay for the cost of the bandwidth in them.

This is a difficult slide to talk to, I'm really not. Yes, just to say that we talked today about some things that we are doing. We, at the end of the day, I think, we have a very strong brand. We have customers who I said a lot of loyalty to us and really have very strong repurchase in '10. I remember talking about that last analyst day, we had back in late 2008.

Customers trust us, and actually many of them opened to obtain a much bigger part in their travel decision-making process or we call it the travel ribbon, which looks beginning to end as a travel process. I think Getaways is a good example. We do think digital, we really see ourselves as a digital brand. The vast majority of our sales comes from We advertise now but only on online. And so we think digital is key to how we can build more tailored and personalized relationships with our customers.

And so you may have noticed a couple of weeks ago, the market leadership, Mike Stromer, our VP of Customer Connections, who's at the back there, and great partnership from IT as well, our IT team. We got a brand-new website, a brand-new mobile platform, and also an iPhone app. Now I know we are late to the game getting an iPhone -- I would proffer, but I believe our iPhone app is now out there as the very best. Not just because it deliver conversion in the website to your mobile device, but our iPhone app tailors it's content to you based on where you are in the travel process.

So if you have a flight that day and you're going to the airport, then we're going to deliver different content to you that if you've got a flight in 2 weeks' time. And we think it's that level of personalization with customers. It's going to allow us to develop additional products and services that they're going to value or want to buy.

We have a lot of things we're going to be rolling out later this year. So we have an iPhone app, we have an Android app. We have to catch up with our mobile boarding pass. We know we're behind on that. Deals engine, and I think the other great opportunity we have is we are really strong in social media. We have more followers on Facebook, we have more followers in Twitter, I think than any other U.S. airline.

But no brand is really truly, in this industry, integrated into social media. It's a link, too. and I think our opportunity is how can we bring our product and our brand and truly integrate that into people's homes in some of their own network. And I think you're going to see a lot more on that later this year.

And finally, let's talk about partnership. Another area of explosive growth for us, we announced our 16th partnership with JAL. Very excited to partner with JAL, both into Boston, with their new 787 and into JFK. To whine [indiscernible], we announced earlier this year, they'd actually be using our 2 flight facility. And we really see this area. And I think that we are still only -- I keep using this baseball analogy I get along. And so I'm going to say we're full of the fourth or fifth wicket in the first innings. If I'd do the cricket analogy, few of you know what I mean.

But I still think we are close to beginning in the end state in this journey. We've got 16 partners, mainly interline partnerships. We have a couple of one-way co-partnerships. We now connect to about 8 airports, would you believe? I think JFK is still obviously the most of it, but Boston, Orlando, Dallas, LAX, U.S., San Juan and Fort Myers connection with Cape Air. We couldn't be happier. We're going to continue to bring on probably a total of 6 partners or so this year.

But it's not just a number. It's also deepening the partnership. And I'm going to talk a little bit about the party code share in a minute.

One of the reasons it works so well, is here we take one of our larger partners from Europe. And I think the great thing about this business, I talked earlier about how I hoped that they'd peak and remove that seasonality. These airlines tend to have high loads factoring and be flying more customers when we have some gaps.

And so the ability for them to feed customers onto us and to help fill our trough [ph] is really helpful. And it's been very helpful in filling seats in May, June, September.

Now we are not going to tell you how exactly, how many, because we do think that is proprietary. But we're going to give you an example of a route, of a market that we have and we're going to tell you how it's going to make a difference. So first of all, I want to say that these partners spread customers everywhere. They follow every market in our network to some degree.

One of the great benefits of being a JFK-based airline is that traditionally coach fares in and out of New York have been some of the lowest entry points into the U.S. because airlines tend to gauge around on the premium cabin and they have a lot of capacity at the back. And so airlines who like our lingo, who very successfully work with our model, comprised their segments with our segments, and we -- our segments we price equivalent to what we would sell on And they can still undercut in many cases the traditional connections using other gateways to competitors who are selling more traditional straightway polling agreement; but it works.

JFK Boston we picked, because this is one of our better-performing markets. We have a lot of airlines who can't quite make the casework to get to Boston, but they have a lot of people who want go there. And in January 2012, you can see like 4 years ago, we're like almost 0. And in January 2012, we're now seeing 100 -- about 120 customers a day on that market, which represents about 5% of our total customers, and on average it's about 10 per flight. And it helps us even if that -- a lot of these customers are incremental, not arguing that all incremental, some of those seats we maybe could have sold anyway. But it helps us manage up the yield curve. They help us get the average fare up given the markets that we have sold.

So I know you're going away thinking it's flights on everywhere, I picked it where it tends to be higher, but I also want to acknowledge that there's a long way to go.

Now we get off a lot about code share, one-way code. One-way code is something you're going to see us increasingly do. That is their code on us. That really owns up international point-of-sale market, and so we are very interested in doing that. The leap from us to go from one-way code to two-way code is a big step. It's a big step because it creates some additional complexity on our side that we want to be very careful of getting into.

So we really need to be convinced that the benefits of going to two-way code over one-way code are important. I would expect at some point us to try two-way code in terms of proof-of-concept to make sure that is something that works well for us. But at the moment, our focus is really in building more interline and building one-way code with partners that we have interline relationships with.

People also ask us how's the result? Well, I think we continue to feel that it's -- of these actions, that have driven a lot of our relative revenue growth, outperforming vis-à-vis our competitors. So this slide here shows, for those following the webcast, The Result: Outpacing Domestic Industry PRASM.

This shows we indexed back to 2007 just to show the relative growth rate, and you see that we have significantly outperformed the unit revenue performance while continue to add capacity. And for those of you who maybe feel we grow too quickly and too crazily, just point out that our domestic ASM growth, if you go back 4 years, has actually risen about 4%. And if you think about how much we've grown in Boston, how much we've grown international, actually means that the rest of the network has actually reduced.

And L.A. ASM have actually fallen. And finally, in terms of revenue, you see some big swings in our revenue numbers, right? In terms of wow, that's up, and then that's down. And I'm not surprised by that. And I'm not surprised because part of what we've been deliberately trying to do is improve our revenue performance in the traditional trailer months, which for us is defined as January, May, September, October. And this slide shows over 4 years how indeed our revenue growth in those markets have outperformed the peaks.

And I think will continue to do so. Hopefully, the gap will close over time, right, as more of the market matures. But we continue to see an opportunity to outperform at least the growth level in the off-peak months in the years ahead.

That's the presentation. I'm sorry if I seem I didn't cover what you wanted me to cover, but we have plenty of time for questions. I'm also going to invite Scott Laurence. I mentioned Dennis is eloquent, but Scott Laurence this our VP of Network and Partnership, he's here as well. So I'm actually going to invite -- if you guys can come up, Scott and Dennis. We've had Martin in the crowd if we have anything marketing related, and help me fill some of the questions. I know some of you guys have met these in the analyst meeting and roadshows.

Okay, thank you. Let's get into questions.

Question-and-Answer Session

James G. Hnat

Yes, mic is coming around.

Kevin Crissey - UBS Investment Bank, Research Division

Kevin Crissey from UBS. Two quick ones. How are you selling Even More Speed and Even More Legroom through the GDS? And then I'll get to the second question.

James G. Hnat

Okay, I'll ask Dennis to take that.

Dennis Corrigan

Sure. The short answer is right now we aren't. As you know, there's not an industry-accepted solution. All the various GDSs have their own models and how they want to do merchandising. We're sort of waiting for some of the industry to coalesce, particularly using EMD functionality. That's probably sometime not till 2013. And at this point, we're trying to not have to support multiple solutions. We'd like to [indiscernible] support one.

Kevin Crissey - UBS Investment Bank, Research Division

And how are you sourcing your hotel inventory for the Getaway?

David Barger

I'll just try to turn that over to Marty since he's actually more familiar with...

Martin St. George

I'll take it. Most of the hotels in some of the leisure markets we sought directly that some -- also markets, we have market -- we have relationships with selected bed banks. I know we used to have a partnership with for sort of a customer supply and you just want to add a hotel and not buy the package to have a hotel. So it's a mixture.

David Barger

I think a couple of thoughts, one is the -- well, from our perspective, our growth, right, and our focus growth and doing so profitably. Right, this maturation I will go through a Robin just and demonstrate it but the Boston investment, some -- the ability to harvest, right? The relevance yield is even more relevant. So if that's happening from we think that's real positive. What with the same thing happening down in Latin America with the same thing happening with the partnerships as well so that's a good guy that's going on.

When we look at the industry, I think there's also some interesting opportunities that are continuing to unfold in the industry, too, right? And so many of you are writing about perfect consolidation. Yes, what's happening in the West, again, rightsizing of ASMs right into our suite spots, if you will across the Americas, North America, Central America, the Carribbean, down into as Robin alluded to the northern -- southern rim as well. And so we think those are some pretty nice opportunities for us as well so the industry is still rightsizing and there's an awful lot of -- I mean, there's 2 carriers in Dallas today that are very focused on what's happening with different models that are taking place. This creates opportunities for airlines such as ours. So -- and that's at an industry level, right. And so, I think that's something to take a look at as well. That's the consolidation phase. It's still unfolding and this chapter's still not closed out. You may want to pick up on additional files.

Unknown Executive

Yes. Maybe I'll [indiscernible].

Martin St. George

Indeed. I would say this, if you look back for the last couple of years and we talked about harvesting, we talked about slowing things a bit in Boston this year as we've matured and gained relevance. I would point this out, I think that the ideal situation that you've talked about over the last couple of years, I would actually put force that we've affected that situation. We've created that situation. In a lot of cases, I think of the growth, the places where we've grown in Boston, we have purposely looked at the ability to go in and take share to be a more efficient player in a lot of these markets.

So again, I think that, that growth that has been there has created this situation. So now when we look at the direction that we're going, now we look at a bigger base and a little bit slower growth rate in Boston. I think we have a chance to turn that into something that is, again, less focused on affecting change and frankly, focused on enjoying the benefits.

David Barger

I guess if I could just follow-up. I mean, it wasn't so much thinking just about the results specific to Boston. But there's always, if you're going to be a growth airline, there will always be a Boston, something that is maturing, something that's moving up the curve. Will there be better opportunities in Boston that allows the growth to come with better returns at the same time?

Unknown Executive

I'm sorry, that was in Boston, was that?

David Barger

Well, I'm just thinking that again...

Robin Hayes

Well, I think let's go back to like the problem we're trying to fix. I think that the things that we could do instead of Boston but it's not going to fix that seasonality issue. That's not our cone. So we'll end up ordering aircraft and they'll fly, what, in the peak and we won't have anything productive to do with them in the rest. So that's -- and so the Boston, when we made the bet on Boston a few a years ago, it was a long-term bet. What I would say now and I'm not going to get trapped into any baseball analogies where I always get wonked. But I think we've reached that tipping point now where we've put half the growth behind us.

We have a lot of market like Washington dollars back in year 1 or year 2 that again -- that's going to be moving into history. We've seen some of the effects -- a change that's got the fact of being able to talk about, in fact, in climate change. But I think we end up with a long-term debt that we look back on, say, you know what, that was a -- one of the most important strategic move that JetBlue ever made and it was successful.

William J. Greene - Morgan Stanley, Research Division

Bill Green, Morgan Stanley. Robin, when you think longer-term searches the long dufont [ph], what's the steady-state growth rate we should be thinking for ASMs? Where does that kind of average out maybe even beyond '12, just thinking longer-term?

Robin Hayes

What we said in the past is that in terms of your long-term growth rate and I think you're sort of talking, sort of single-digit -- mid-single-digit ASM.

William J. Greene - Morgan Stanley, Research Division

Raised to 46?

Robin Hayes

Yes. I mean, that's a number we sort of maybe in the 5 or 6 for possible. Yes, if the year growth's higher, there'll be year growth but it's slower.

William J. Greene - Morgan Stanley, Research Division

Okay, great. And then something we didn't talk about is how the dynamics in New York are going to change with the slots robbed of transaction? Obviously, you probably have a fairly substantial amount of business travelers as well but how do you think about what delta can do in LaGuardia and what that might mean for JetBlue? And how should we think about with that ultimately means for problem, et cetera?

Robin Hayes

Scott, I'll pass it over to you.

Scott Green

Yes. I think a couple of things, the first is when we look at the slot swab when we look at the results of that, to be very frank, I think we were pleased with that. If you look at the leisure franchise that we have in New York, you look at the way the capacity moves around. You look at our ability then go in and pick up some slots to enhance the LaGuardia border franchises. Yes, I will tell you again, we're primarily a leisure player in New York and I don't see anything that prohibits that. I think that we've got such a strong brand here. I think we've got such a strong position and an enhanced position at LaGuardia now. I feel great about that.

Robin Hayes

And I think though just a code. I mean, we've made a conscious decision not to focus the business traveler market in New York. I think that would be a full valiant with so many other large airlines both focused on that. But I think there's a very sizeable and possible leisure franchise than what we call business skills. So we have people in New York. We have a lot of business lines in New York, probably 15%, 20% of people will -- a lot of us on JFK for final business. But they're choosing us. We're not actually going out and targeting things with that group.

Michael Linenberg - Deutsche Bank AG, Research Division

A question for Robin, this is Mike Linenberg with Deutsche Bank. Back to New York because we did focus a lot on the Latin America and the Boston markets. In Boston, you've done a good job and you've sort of laid out the plan over the next 3, 4 years. You said filling from 100 to 150 departures. At Kennedy right now, where are you on departures and when we sort of think it out over the next 3 to 4 years, I mean, is that essentially capped or do you see opportunities to get slots?

We know you'll be able to do some growth through the replacement of A320s with A321s so there's up-gauging there. But are we really done with New York with respect to additional frequencies and/or new cities? Just your thoughts on that since that is where I think you still generate the majority of your revenue?

Robin Hayes

Sure. No, I mean, I think that we -- if we think about JFK and Scott if you want to chime in, but we weill continue to grow in other new markets from JFK. Now we talked earlier about the Caribbean and Latin America, that's still the opportunities that we think we'll do well out of JFK. And we have about 160 flights a day in and out of JFK and that number is going to grow but it's going to be a very modest growth rate in terms of ASMs. And at your point, I think it could be more about updating and upsizing a new market that's not necessarily a lot of additional frequencies. Anything Scott?

Scott Green

Yes, I think what I would say is the first piece is you'll probably see us change the complexion of it in New York and have it in an even bigger international footprint. I think some of that's going to be self-sourced in pulling frequencies from other points that's on the slots. I think the other piece is that given that our industry is not -- well, there's a lot of moving parts and I think there maybe some opportunity there we'll see in terms of slots. But I feel confident we can go forward and continue to expand internationally especially given the profit base that we're seeing and the performance that we're seeing.

Robin Hayes

I think we can move on to another caller.

Jamie N. Baker - JP Morgan Chase & Co, Research Division

Robin, Jamie Baker, JPMorgan. American Airlines has a pretty ambitious plan to expand the scope of their domestic and international codesharing. Obviously, we could say whether they ultimately execute on that plan. That's not what we're here for today. But how do their ambition potentially change? How you think about branding the network development in New York and why doesn't it move you closer to a formal alliance? Does it represent just pure margin that it represent risk for you? And if, I mean I've got a pretty thick skin if you think the question is irrelevant. You can just say, Jamie, it's irrelevant. I don't think about...

Robin Hayes

I got to say, it's never dull without you Jamie. I mean, you've heard us the term open architecture before. So -- I mean, we really look at alliance, our sort of partnership plan and we went don't have a particular label on any partner. If we can do a -- an effective commercial partnership then we can operate effectively together. We'll find a way of doing it. And so American is an extremely important partner. They feed us a lot of customers then we enjoy the partnership with that and just as we enjoy the partnership with all of our other partners as well. So we -- well, I don't see them any differently because of the changes they may be making. I think we said all of our partners. If there's more we can do together, that makes sense to both and a line somewhere open to it but we're not focused solely on the math and if anything, at the moment, we're still focused on bringing on new partners and building that base further.

Jamie N. Baker - JP Morgan Chase & Co, Research Division

And a follow-up to Slide 22, I guess, sort of a housekeeping item, you identified business revenue and I'm just wondering how you defined that? Is that anything inside of 17 or 7 days? Was it just revenue that's coming in corporate contractors? I mean, how do we frame those, the park you pointed out?

Robin Hayes

That is the foremost. That is..

David Barger

Yes it is big that with that. If you look at first, the behaviors, so what's inside 7 days approaches, no Saturday nights day, just so a capital and more corporate and general lot of small business on managed travel.

James D. Parker - Raymond James & Associates, Inc., Research Division

Robin, Jim Parker with Raymond James. I'd like to fly JetBlue. I think it has a better quality, a coach-lass service than the others and you get premium revenue but you also have premium costs and you're at the upper end of the low-cost carrier range. And I'm curious if you're able to quantify your strategy versus strategy of other airlines who were adding seats to aircraft and you're soon going to be committed to even more legroom. We're seeing other carriers like Southwest. We all can do the arithmetic. And boy, that's a high profit margin adding 6 feet. And I know at one time on your A320s, you had 162. And so would it be more profitable to have 12 additional seats as opposed to the extra or even more legroom?

Robin Hayes

Sure. I mean, I lost that genuity into the you want to add but I mean, first of all, Jim, it's a great question. And we look -- what I want to let you know us we look at a lot. It's 150, optimized. And I think, we believe it is and continues to be and the reason is this. If we have an additional seat on the aircraft, we have a 4-flight attendants that we trigger. And that's a big, big cost burden that you have there and then. And any customer I'm adding on top of the 150 is clearly either at a lower marginal yield. I'm not going to fly to focus where we are so our focus has really been on avoiding that expense, focusing on monetizing even more space and trying to drive more revenue because really, that is the flip side of not having those seats. So how can we monetize that? How can we monetize that further? And as we look at that, we forget about seasonality. Seasonality is what, once or twice a year, doesn't it? We still think we are -- we still believe we are optimized where we are.

Now A321, and mark my talk a bit about A321 in his presentations, is not give us an opportunity also. I mean that is a, in terms of a unit cabin aircraft, that's going to be out to try and help us. And we're not necessarily constrained there by the flight attendant issues and either over 200 and so I think that's going to become a more sort traditional seat optimization exercise. Is there anything to add? Let me finish this.

Mark D. Powers

Sure it's not exactly right and part of the other thing cue is sure, do I wish next week when it's President's Day next week and we know we're going to be charter block full heading to the Caribbean and Florida? Absolutely, but it's of old build-the-church per Easter Sunday probably if I have may coming right behind at September, October. It's going to be a lot of excess capacity. This is going to drive it to more marginal revenue and you dilute the entire base of what you've got already. So -- but Robin's right. That's when we continue to stare at. We probably hadn't announced with this equally twice a year.

Robin Hayes

If we wanted this flight attendant tipping claim, that maybe a different option. That's what you see what's with on the other airlines and not at that balance point.

Daniel McKenzie - Rodman & Renshaw, LLC, Research Division

Dale Mckenzie with Rodman & Renshaw. going back to the 4% to 6% growth that Jeff was targeting longer-term, how should we think about that in terms of any target same-store sales versus new growth? What percent of the flying should we expect that any year would be in new market? Is there any framework that you use for thinking about that?

Robin Hayes

Yes, I'm going to ask Scott to fill that question for me.

Scott Green

I mean, I think a couple of pieces. When you look, obviously, the fleet that's after the other growth rates, it's more difficult to maintain at that pace. I think there's a couple of things with pacing. The first is when you see a pacing business markets out of Boston, for example, we had a very purposeful Newark, DCA, Dallas. We move those out relatively slowly because the ramp up for those is more challenging than we see in leisure. So whether we can see a ramp up there somewhere between 6 and 18 months, the leisure side of this is leasing markets are ramping a profitability. It's in the first month we fly them in the Caribbean, especially the heavily leisure side of that.

So I think what you can expect from us is a balance that is saying more of the international growth, more into Central America, more in the Caribbean and then sort of this purposeful cadence of growth in Boston. And again, that now is simply the sort of a lot of the market to mature.

Robin Hayes

And Dan, it's how to predict the exact number. I mean, but we will continue to prune the network underneath. So for example, as part of our announcement on GTA to slow the impostor, we made a very difficult decision in Washington, Dallas, which we showed our crew members last week to significantly downsize the size of Dallas. And so a lot of that capacity going to DPA is actually just moving out from Dallas because we've -- it's going to perform a lot better for DCA.

Daniel McKenzie - Rodman & Renshaw, LLC, Research Division

If then for a second follow-up question here. If I could just come back to AMR for a second, obviously we haven't seen their restructuring plan. But from your perspective, it seems like an obvious revenue good guy that is sitting out there, especially in the New York market perhaps in the Boston market. At least from your perspective, what kind of opportunity is there from you from a network perspective that would make sense and expanding that potential and monetizing that potential opportunity?

Robin Hayes

I think that I don't necessarily look at anything the American may be going to any differently to what we've already seen. We definitely benefited from some of the capacity shifts that the market has made that on alone by the way other airlines have also retrenched in those markets. And we have a partnership that we appreciate. We have a relationship to ensure lowering American advantage which works off for both airlines. And so, I think we're just focused on maintaining the current relationship we have with American.

It's very good to have that feeding partnership and I think we're going to be driven by our network plan. I'm not worrying too much about what anyone else may be thinking. So it's Boston, it's Latin America and the Caribbean is maintaining other possibilities.

Hunter K. Keay - Wolfe Trahan & Co.

This is Hunter Keay from Wolfe Trahan. I'd like to ask you a couple on back fees, so you guys obviously you do $21 per passenger and it's for an hour which is fantastic. I'm not overlooking that. But as you shift now to the focus on ROIC, as I think about incremental contributions to the numerator from a first back fee with 0 change in the denominator. I mean, you even talked about the ergo mentality of the even more product. No, there's hardly any cost associated with it. How was that not just immediately accretive to ROIC? And is the brand outweighing the return metrics? Because I just -- how is that not immediately accretive to ROIC?

Robin Hayes

I did expect it. So look, I'll make a couple of points on first and then Dennis free to add in. I think, first of all, we believe we are seeing the revenue benefit in our core revenue performance. We have a lot of data now that shows -- I mean, it has been changed the other time, when it's in fact the -- is high, a very high with customers they start factoring it into the price and I think one of the reasons we've been so successful in outperforming some markets like Florida are our good yields and that revenue performance above our competitors is because we have this product advantage and we see that in our data. We survey customers, I think we survey customers far more than any other airline. We survey 30 customers every flight about their behavior.

We have panels of thousands of virtual customers and we understand how they're really looking at us really well.

As so will first of all Hunter we believe we're getting it anyway. Secondly that, we really -- I give Robin and his team a lot of credit. We have a very lean operational model. We have aircraft on minimum turn time. We book flights with one crew member, sometimes it's terrific it happens to be super with that course for one.

As soon as you start doing what some our competitor's done with back fees, you're going to start getting -- bulking out. You're going to have the start managing it at the gate. It's going to drive a significant additional cost in both aircraft turn time and also extra crew members in the airport. So what's focused very much is the equal 5 minutes out of 10 last year kept combined with lease starting models. Let's get out operating costs down. The part of that means, from a commercial proposition, we have to deliver something him something that works.

So when we look at the revenue that we seem to be getting the core fare and the custom behavior of the sous chef that we think and I -- when we look at the operational costs, know 5 minutes on the turn is one aircraft. We just can't get it to pipe out. So it's really less about the ground and just more about how we look at the economics. So Dennis, anything to add?

Dennis Corrigan


Hunter K. Keay - Wolfe Trahan & Co.

Yes. No, that's great. And so on that, I know last week I think you guys raised your second bag here from $35 to $40. So what when into that? Are you trying to legislate behavior? Are you trying to have fewer second-checked bags? I mean, how many people actually start check their second bag now? I mean, is this an earnings thing? Is it an operational thing in [indiscernible]?

Hunter K. Keay - Wolfe Trahan & Co.

It gives you more leases, that works for you?

David Barger

So we got Ross and Jeff as well, right? I mean, you guys are working your hands so go ahead. We're close to Europe.

Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division

Rob, it's Jeff Kauffman from Sterne Agee. I want to go back to the LiveTV and the on aircraft offering, which you were discussing. You talked about the $200 million swipe market. Can help us understand a little bit better what KA band does that isn't being offered. Can you talk a little bit about how you keep LiveTV relevant? Is this something that's more focused on your product, making your product better? Is this eventually a competitive weapon that you can lease out and monetize the way you've done with LiveTV in the United?

Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division

You guys have worked hard to fill those tough trouble periods that you showed on the slide. Can you free train for us how big the remaining opportunity is and then how much is attainable in the next couple of years versus very long-term?

Robin Hayes

Dennis, will you take that?

Dennis Corrigan

Yes sir. I think you go back to the point where we're certainly pleased. I will use the baseball analogy since I can put the right nationality for it. I would say, probably on that front, we're maybe bottom of the fourth or the top of the fifth. I mean, I think as we continue to build out our business network in Boston, I mean, you can look at what we call our top 10 business markets in Boston and you can go down and just count out what's missing. I mean, #1 was Dallas, right? So that's coming in May. There's a whole hose behind it. And I'll say it as Robin said before you but the next route you add to your route portfolio makes you that much more attractive to a corporate travel manager when you walk in the door.

And so I think we still have plenty of headroom to go on both some very large corporations up in New England as well as getting ourselves a more attractive to small medium and I think that's where we really see some of the growth. I don't that the market that really any of us in the industry has passed all that well. I think it's weird looking at a product you probably won't see from 1 year, 1 1/2 year but I think it will actually help us a long way on that run.

David Barger

So we'd be around at lunch time. So we didn't get your question then please find us over lunch and we'll be happy to answer in. 10 minutes late, we'll go back at 10:15.


Joanna L. Geraghty

Good morning, everyone. My name is Joanna Geraghty, I am the Chief People Officer of JetBlue. We have creative titles for many of our roles. Mark likes to use CFO as the Chief Fun Officer from time to time. My goal today is to convince all of you that the break should have been re-purposed to talk more about culture.

What does every airline have? Well, they have planes, they have a product offering and they have employees. And lots of airlines have the same planes and the same product offering but people are in fact, the only sustainable competitive advantage. An airline has and culture is what an airline does. At JetBlue, culture is a very big word that is used in a very specific and measurable way. Here are a few words our customers use to describe our more than 14,000 employees or crew members as they are known at JetBlue. Caring, helpful, friendly, one above and beyond. If you flown JetBlue, these words may and hopefully do, strike a chord with you.

And in a ferociously competitive industry, where often price is the distinction without a difference, customer service can and often is the only differentiating factor. The reasons why customers choose JetBlue, the reasons why customers promote JetBlue and the reason why investments in our culture matters. If the jury was out and no longer is, engaged crew members are more productive and provide better service than disengaged crew members.

Specifically at JetBlue, our data confirms that highly engaged crew members have fewer sick days, are more productive, are more likely to be rated as advanced, are more likely to receive compliments from our customers, are more likely to wow our customers and in the case of pilots are more likely to exit the aircraft cabin and offer a friendly greeting to our customers.

At JetBlue, however, we've been able to take this one step further and know what drivers make for a highly engaged crew member and how this influences customer loyalty.

We measure customer loyalty by using customer net promoters score. We receive responses from over 50,000 customers per month, more than 600,000 customer reviews per year. And using a calculation that subtracts the bottom scores or percentage of detractors from the top scores or percentage of promoters, we arrive at a customer loyalty score. The metric is used across the United States at many well-known customer-centric brands, Apple, Trader Joe's, American Express, PwC and Intuit, to name a few.

However, we believe that our use of the metrics and our ability to tie it to revenue on the far right side of the above slide and crew member engagement on the far left of the above slide puts JetBlue in an analytical position unlike others utilizing this methodology. First, we can tie the score to incremental revenue. Second, we know what factors influence customer behavior. And third, through our engagement model, we know what customer behavior influence customer reaction and this provides us with an unprecedented ability to measure course correct and leverage the JetBlue culture to produce results.

So let's first talk about the pie in the middle of the slide. The factors that influence how a customer rates JetBlue. One customer at the endpoint is driven by the following factors: value at the bottom, the light blue slice, which is satisfaction with the flight; process, delays, cleanliness of airplane seats and airport gate experience; product, 17% of an MCS point, which is LiveTV, our seats, the legroom and comfort and food, snacks and beverages; and finally, people, 36% of a customer MPS point. People is the customer's experience with our crew members at the airport.

Are they helpful? Are they friendly? Are they welcoming? Are they appreciative? In-flight, are our flight attendants helpful, kind, welcoming? Is there an experience of camaraderie among the flight attendants and the flight crew on the flight? And in the cockpit, do our pilots exit the cockpits to provide a friendly greeting to customers? Do they keep our customers informed during the flight and even more importantly, in the case of an irregular operation.

When we look at what drives the people portion of the MPS point, we have learned that highly engaged crew members provide for a significantly enhanced customer experience.

So what makes for a highly engaged crew member at JetBlue? We measure engagement by looking at 5 criteria: teamwork, discretionary effort, do our crew members go above and beyond? The value of your relationship with your leader, one reason why we believe union free and direct is so important. Pride in JetBlue, ownership and an interest in our future and what we call the wow factor. Wow factor is friendly and helpful, a large portion of that people component of the MPS point.

And we've compared crew member engagement to our operational metrics: on time, performance, AMS compliments, in-flight helpful customer scores, pilot communication MPS scores and other customers facing metrics. By understanding that these impact customer-facing metrics, we know that highly engaged crew members directly affect customer MPS, which drives incremental revenue. And in case you're wondering, our 2011 crew member engagement score overall was 70%.

We have 20 engaged crew members for every disengaged crew member, according to Gallup, a world class ratio is 2:1. For those in the room who aren't good at math, we have twice that number. So by measuring our culture, knowing what makes for a highly engaged crew member, building action plans to focus on areas of opportunity, we know we're impacting bottom-line results. We also know that every MPS point is worth actual dollar figures to our company. So mathematically, it makes sense for us to invest in our culture to support crew member engagement because crew member engagement drives customer MPS and the more promoters you have, the more these promoters will recommend JetBlue to families and friends. As Mark likes to say, he would prefer to see a promoter over a billboard in Times Square?

And here's the part you should care about the most. Our investments are low-cost, high-margin activities. We invest in education from technical training to leadership training and coaching. We share customer MPS data with our pilot and our captain leadership programs so that they can understand how their greeting and customer experience directly impact flights.

We also know it has an even greater impact in the case of an irregular operation. We share monthly customer MPS scores with our airports along with customer comments specific to those airports. We are building crew member programs that go to the heart of the moving obstacles or things that get in the way of crew members getting their job done. And we invest in values committees, and alternative structure that allows us to collaboratively and directly work with our peer elective front line crew members on things the matter most to them and that matter to the business. And while union free is clearly an answerable part of our corporate strategy, a strategy that we believe sets JetBlue apart in an industry with an otherwise broken labor model, we must see union free but with highly engaged crew members. We invest in communications among all crew members. Transparency and accessibility is key to JetBlue. And we invest in analytics and surveys and follow-up action plans to help us identify what is working and what isn't working. We are metric-driven, data-driven and action-oriented.

Our intention is to overwhelm the response to any crack in our culture because it is our belief that while it is hard to maintain a great culture, it's impossible to restore a broken one.

You may be wondering about investment such as salaries and benefits. That's a fair ask but we don't necessarily consider salaries and benefits to be a driver of culture. It's more of a ticket to entry. Our weights philosophy is pure average with appropriate incentives for better productivity. Rob will cover that in his section.

In short, while many companies claim culture matters, we at JetBlue know that culture matters most. It is the critical differentiator that separates us from our competitors. We measure it, analyze it and react to it everyday in realtime in order to deliver a more perfect and perfectable product. Year-after-year, the market that is the flying public speaks to us and as long as they continue to use words like friendly, helpful and caring, we know that our culture is vital and worthy of our continued investment.

Any questions with respect to this area, Rob and I are going to tag team on some of the labor issues following his presentation but if they're specific questions for culture, happy to take those now.

Jamie N. Baker - JP Morgan Chase & Co, Research Division

Jamie Baker again, still JP Morgan. Just a question on where most of your pilots are sourced these days in pharma-cultural perspective, if there are any airlines that you won't hire from?

Joanna L. Geraghty

Good question. So there are no airlines we won't hire from. We have a pretty in depth motto where we partner with our pilots and obviously the recruitment team to ensure that pilots that are selected fit the job we culture. We'd like to say that we hire for aptitude -- sorry, hire attitude, train for aptitude. But obviously there are certain criteria that we do look at because high levels of engagement are extremely important at JetBlue. We don't want the Pilot that's not going to exit the cockpit and give a greeting. So we have a series of questions we ask that try draw that kind of engagement level out of our pilots but there's no airlines specifically that we will not hire from.

Unknown Analyst

In 2011, if you look at JetBlue's on time, it was at the bottom but if you look to consumer complaints, it was at the top. What do you do to -- since you obviously have in New York lots of the regular operations. What are you doing that's craving such as a mismatch?

Joanna L. Geraghty

When you consider compliments are at the top.

Unknown Analyst

Or consumer complaints are very few?

Joanna L. Geraghty

Right. Yes. Okay.

Unknown Analyst

They're good?

Joanna L. Geraghty

Yes, they're good. Yes. Okay. So we obviously do a lot but one of the great things we do is we are so focused on data and metrics and understanding what drives customer behavior. We know that if a pilot exits the cockpit during an irregular operation to exit the cockpit not just sits in cockpit and provides an announcement exit, he gets on the intercom and speaks to a whole flight. That can have a dramatic impact on a customer's perception about flights. Rob, and maybe you want to speak quickly to there's actually a statistic that we usually talk about pilots and what they can do in the event of an irregular operation to swing an MPS score from a negative detractor into a premotor?

Robin Hayes

I'm sorry I took my mic off. I'm relaxing over here. Yes, we haven't seen that in Salt Lake City that I talked about we do a lot of surveys data MPS and we really slice and dice that data in 7 different ways by root, by customers segment, by time of day, by day of week, delay. And what we're able to -- it's no secret if your flight's delayed, it's the largest and most important factor in turning a promoter into a detractor, right?

We -- every customer gives us a response to 1 and 10. If you have to choose between 1 and 6 or detractor, you and I will tenure a promoter. And what we've been able to do learn to this data are one of some of the things we can do to offset that change. So the point Jan is talking about is if a pilot comes out into the cabin and explains and communicates clearly, we have Andres Sandoval, our Vice President of flight operations are back, the reason for that delay and keep the customers informed when we can offset entirely 60 minutes of delay through that act. Once you start going above 60 minutes of delay, you start to mitigate but you don't offset.

Joanna L. Geraghty

And we know that the airport crew members have a greater experience and a greater influence on the point on an MPS point when it's an on-time flight but when it becomes a irregular, the pilot and the entire crew member that start to have a greater influence on...

David Barger

But I think behind the question, it is the DOC customer complaints. I think -- yes. I mean, Rob can talk a bit more to that because that's a different -- it's a different set of things they're looking at, right?

Jamie N. Baker - JP Morgan Chase & Co, Research Division

Raymond James. Can you quantify if there is a significant difference in your pilot group being union versus non-union?

Joanna L. Geraghty

When you say quantify?

Jamie N. Baker - JP Morgan Chase & Co, Research Division

Would you be lower costs or higher costs if you were union? I'll let you -- obviously, have better service it appears from your cruise and more customer friendly. I'm curious if your cost, pilot cost would be different if you were union versus non-union?

Joanna L. Geraghty

So we believe our costs would be significantly higher if we were union. There's obviously more than just salaries and wages and benefits and I think what you're seeing was American and kind of the challenge that they're experiencing in terms of entering Chapter 11 and were driven principally by their labor model. What we do is we have a flexibility where we can actually work collaboratively with our pilots to reach consensus-driven decisions. So there isn't such a thing as concessions or takeaways. We actually try to reach in decisions that works for both involved.

So we believe if we were union, the cost would be significantly higher but would also constrain our ability to be flexible and nimble, which is a tremendous advantage when you're looking at the kind of growth that we're experiencing, rolling out new products. When you look in the flight attendant world, we took a flight attendant off the aircraft several years back. That would be a very difficult thing to do if you were union without bargaining with the flight attendant union.

David Barger

Hey, Joanna, if I could and was it Jim that asked that question? Jim, I think of it a little bit of a different way as opposed to just from a cost perspective because I think we've been through a lot with our pilot for the last couple of years. In terms of catching them up to peer competitive pay structures and their work roles look very similarly. In fact, I think there's things that our pilots enjoyed today that are somewhat outliers to industry relative to premium models.

So in our peak season, with our pilots are highly productive and can pick up a lot of extra time. But I think we think of it more on the lines on the cultural side. So our ability to conduct business with our labor groups, particularly our pilots, were always at the table if you will. So the example and we'll talk about in the cost presentation but we have the ability to change work rules anytime we want if we're in alignment with what our corporate and pilot interests are. We have a process that we can use to do that. I don't have to wait for a CBA to come up for amendment 5 years from now. And I'm talking like major issues.

If Robin seem wants to be really flexible and do something different, we have an ability to do that. So I don't think of it so much as just a raw cost, are you better off being non-union or not. I think of it in terms of the business process as well as not having a national agenda inside the company the size of JetBlue. And I think that would be very difficult for us.

Hunter K. Keay - Wolfe Trahan & Co.

Okay from Wolfe Trahan. Joanna, is -- can you confirm is the milk furlough policy written into every employment contract with the pilots and how big of a deal is that in terms of keeping unions out? If that were to go away, would you be unionized in a month?

Joanna L. Geraghty

No, I don't think so. I mean, I think the new furlough policy, it's in the pilot employment agreement. It's in our technical operations and employment agreement, basically in any employment group we have with the licensed crew member. But we also practice policy across the company. So it's our belief that there's a greater cost that are furloughing than not furloughing.

And what we try to find is, for example, we recently pulled down service at Dallas and we applied a no furlough policy to that market. This was actually over the last weekend and sound positions elsewhere in the network for our crew members in Dallas. We're moving the maintenance phase from Dallas to Reagan National where we're going to have a greater footprint.

So the furlough policy, we view it as flexible arrangements with our crew members so that in the event of an economic downturn, we'll have places for them but it's also commitment that they're not going to get laid off because the cultural impact of doing something like that would be one that would be tough to sustain in the culture that is a JetBlue. So...

Daniel McKenzie - Rodman & Renshaw, LLC, Research Division

Dan McKenzie, Rodman & Renshaw again, how do you get labor to buy into the corporate objective of a return on invested capital? Why should that matter to the pilot? Why should it matter to the flight attendants?

Joanna L. Geraghty

It matters not a lot because it's about long-term sustainable growth. It's about being here. It's about not filing for Chapter 11. It's about organic growth. It's about no mergers and acquisitions. It should matter the most a lot. The most that we dig around JetBlue is ultimately what will preserve JetBlue and enable us to be different from every other airlines on through Chapter 11 or merge with somebody else.

And one thing we are seeing is a lot of discussion into our frontline workgroups about ROIC, about cost metrics, about ensuring that there's a line of sight to corporate measures that drive performance and corporate measures that Wall Street cares about and ultimately how our crew members do that.

Rob Maruster

Thank you, Joanna, and good morning, everyone. When Mark originally asked me to come talk about cost at our Investor Day, I was immediately reminded those at various famous Gary Larson's far side cartoon where there's 2 deers standing there and 1 has a huge target on his belly and the other deer's standing next to him saying bummer of a birthmark hell. But cartoons aside, as one who spends most of the money that Robin produces, I think it makes a lot of sense to talk about our cost structure both now and where it's headed and also what we're doing about it.

I'm going to walk through this presentation just giving a very high-level overview of a couple of slides that you all in this room know too well but then break it down into a couple of categories. If I could touch on fuel, particular what we're doing about fuel, both now and into the future. I'm going to spend a couple of moments talking about labor delivered and what we're doing with our crew members and I think it's really important to also acknowledge the construct that Joanna spoke to not just with crew member engagements but what kind of labor model we're actually building here and how it provides really good flexibility for Robin's commercial team but I think long-term sustainability from a crew member's standpoint so it's mutual self-interest.

And then I'm to spend a couple of moments touching on maintenance because I think maintenance is something that I think is near into a bliss in my heart but also something that you're -- you need to know a little bit more detail about. And then we'll talk about wrapping up with a couple of investment areas with the perspective or the lens of ROIC on them. What are the areas that we're thinking about making some investments in the operation and then wrap up with Q&A. And I'll probably ask Mark to help me out through Q&A.

This is a current snapshot of what our x fuel chasms numbers are state win and adjusted to 1,000 miles versus industry peers. If I were to think of a couple of headlines and I look at the slide like this, one is we have a very competitive cost position today. Cue is -- and I think it's a -- it's so much fun to work with Robin because I think it's really challenging to find ways to really efficiently and effectively deliver the products and services that his team does in the offering sense. But I'd also like to think about our platform being one of very, very high value but on a low cost platform.

And I think of other company examples outside of the aviation industry like Starbucks. You walk into a Starbucks, there's a huge menu but at the base level of Starbucks, it's really about 2 different types of beverage platforms. And I do think we have a lot of restraint when it comes to legacy-like cost. I think the codeshare example that Robin used was an excellent one earlier.

The headline here is we have to maintain this advantage. If we don't maintain this advantage, the commercial team cannot go into markets and effectuate competitive change in the future and we won't be able to grow sustainably. So this is a very, very core focus of ours both now and into the future. This is a picture that I know a lot of you know very well. We don't think about this in absolute terms. We're aware that our GAAP relative to legacy has shrunk.

Quite honestly, a lot has happened in the business over the last several years trying to be a growing airline completing out some infrastructure is a tough comparison with those that have gone through restructuring and our synergizing costs out in through mergers and acquisitions.

But I do want you to know this is a GAAP that we monitor very, very closely. Aside from the obvious things that I'm sure many of you know, 6 years ago, we used to have a stage link that's close to 1,400 miles. Today, we're less than 1,100 miles. There are some structural issues. Departures are up and our crew members and aircraft are getting older particularly with a recession-type economy, we have seen attrition rates falling over the last several years. We still have an attrition level but we are seeing attrition rates at historical lows.

But it's also important to understand over these last several years, we made some pretty good investments in infrastructure to enable our sustainable growth plans but with the lens of return on invested capital. I think of things like Terminal 5. I think of things like investing on what we're doing in Boston, for instance, in terms of additional gates. Reworking the whole lobby environment should be more pleasant for business customers in Boston. I think of things like Saber. I think of things like new HR systems, new finance systems.

These infrastructure issues that I think are going to lower our cost over time but also were key investments and that's while we were a relatively smaller size but they're all with the lens of return on invested capital top-of-mind. Now specifically, I want to talk about a couple of broad categories. First, I want to start with fuel. If there's 2 takeaways or at least 2 thoughts that comes to my mind when I think of fuel at JetBlue, one is we're doing structural things in terms of products to be more efficient relative to our fuel-burn.

I think of things like winglets, Sharklets and winglets on our A320s. We expect to take our first delivery of an A320 with forward fit Sharklets in mid-2013. And around the same time, we don't have a hard date yet, around the same time, we also expect to get the exact same Sharklet for a retrofit program for our existing fleet of 120 A320s. This is big dollars. This is $40 million to $50 million on about $3.25 per gallon in terms of cost savings that we would realize.

I mean the reality of today is we have non-wing unlimited A320 flying against the lot winglet at 737s and it's the competitive disadvantage. So think structural and when I think of the order book in the future, with the A320 and A321neo, I'm very excited not just from what we can do with the aircraft commercially speaking but also just an extra 12% to 15%, I mean a true step change function with Sharklets and the geared turbo fan engine that we're going to be getting from Pratt & Whitney, very exciting technologies on the horizon.

But it's not just those types of things that play into our management of fuel. We have an aggressive buying program of under Mark's team relative to how do you tanker appropriately and then what do you do about all your Caribbean markets where you pay about $0.40 higher per gallon? How do you manage that very aggressively? Not with hedges. I'm talking about the day of how do you manage those in-the-plane expenses. One metric that we look at and study religiously on a monthly basis -- and I also think I happen to think it's a very good cultural barometer is our pilot's use of single-engine taxi.

At JetBlue, it is somewhere between 80% and 90% depending on how we measure it. It's a little bit funky with how we actually assign that metric to it with what data we take from the aircraft in the amount of time that we actually expect the pilots to use it. But it's almost 90%. I mean, it's a very, very strong compliance rate and I owe a debt of gratitude to our professional pilots who I think who are doing an absolutely a terrific job of managing fuel-burning where they can.

But they also gets into some of the blocking and tackling also of how do you dispatch flights? How do you more effectively flight plan? How do we manage the fuel load and all the weight of the aircraft? It's literally a daily, weekly, monthly core focus of ours. So it's not just structural but it's also behavioral. And we're going to talk about NextGen here. This is more than aviation sharp. We're going to talk about NextGen just a couple of minutes when we get to my final slide.

Next on the labor front, and we struggled with what slide you pull because quite candidly, every single department inside JetBlue has its own separate labor metrics. So if pilots sits cost per block hour, it's also credit of blocks. With airport crew members, it's labor cost per departure. But on a macro sense in industry, this -- I think it's broadly representative of our philosophy on efficiency and productivity.

I remember a time when I first came here in 2005, where because we're growing so fast and trying to get ahead of this, this metric was very close to what Delta's is at 111, very, very high. So you see the 71, 769 but it used to be in the mid-90s of encroaching upon 100 and it was very much a management decision to we have to be more efficient.

And I think even this year, in the context of 2012, for management, management staff or management crew leaders if you will, pay freezes and holding headcount flat relative to 2011. So what -- in the context of driving other productivity, we also believe that we have to set the example for all of our crew members. Now when I think of what we're doing about labor costs in general, I think of 3 big things. I think one is how do we drive more productivity with our existing model? So what is the daily blocking and tackling we can do? I'll give you an example of that. Sandy Sandoval, who leads our flight ops team in the back, he's worked over the last 3 months to develop a model that our crew services team and our system control center can use to say, here's how much money we're planning to spend today and here's how much we've spent. And how do we hot wash at the end of the day, how we actually ran the operation? Not just, can we get cruise to airplanes? Did we staff at the right way? That's the traditional kind of operations mode but, how are we running the business of operations? Are we running doing things for convenience? Or are we really utilizing every single resource at our disposal every single day?

Also from a Salt Lake support center, as well as all of our airports, we're very aggressive in terms of our use of our part-time and full-time crew members, as well as seasonal. In fact, in our airports across our 73 airports, over 50 have seasonal crew members. So we'll show up. I mean, and we all see it. We -- all of us tend to actually teach orientations as part of our cultural model but in the fall you'll see all these new hires coming in and they're with us for 4 months. Because quite honestly, Fort Myers and West Palm Beach and cities like that, Robin's team will double the flight load in our peak season and then we'd back it off during the peak summer. And It actually works for us because one, there's a lot of people that seeks seasonal work and it works for those local markets. But in essence, we also create a pipeline. So if other full-time openings in other cities come open, now with got a known quantity in the pipeline of people already in the framework to go work in some of those other cities.

Another category about what are we doing about labor in general, we absolutely question everything we do everyday. And we're not afraid to make difficult decisions. In fact, Robin alluded to it earlier what Washington Dallas, we're closing a maintenance space there and we're closing a provisioning center there and we're drastically reducing our airport crew members but we're also flexible and nimble enough to open it in Washington National because we're going to be almost 20 trips a day.

Now if I were in a traditional labor model, it's really hard to do. But I think, with our commitment to our crew members, it's a no furlough policy but I would say even relative to pilots is that we commit via individual agreements 70 hours a month. So we could actually furlough 1,000 pilots tomorrow but the reality is we'd still be paying them 70 hours a month to sit them home. Why is that a better model? well, it's a better model, I believe because, one, our pilots won't have things negotiated away on their behalf without them being at the table if they don't sign on the dotted line; but two, having individual agreements with a lot of our certificated workers serves as a wonderful corporate governance valve, if you will, of not overcommitting to things you can't afford if seasonality or the economy goes in a different direction.

So I think of it as being we all have the best interest of a profitable JetBlue in the future and it really works for us. Were still building out that labor model.

Finally, we're going to touch on this, another core area but we are not afraid to make investments in areas that we think will lower our unit costs over time. And we're going to talk about another area here in a slide or 2 but one other area I would point out is our airport. And we have some uniqueness. We get a lot of credibility for being very technically savvy in our airports and having a great customer experience, in fact, still at JFKT5, I've never seen another airline that has customers self-drop their bags on a bag belt. We have that at JFK. And it works for us because it doesn't injure our crew members doing the lift, clean, jerk of 100-pound bag onto a bag belt and customers are happy to do it.

But I think with respect to the airports in particular, why a customer is still coming to the airport to get a document, I don't understand. And we think that the airport environment is right for yet another leap in terms of technical technology investment but one that could also yield very, very significant customer benefits. And the headline there is we still have a lot of our crew members that are in the transaction business and we're trying to get them into the service and recovery business.

I'd rather have 2.5 gate crew member on a significantly delayed flight rolling out the beverage cart and the meal carts for customers getting on the announcement on the PA apologizing, keeping them informed as opposed to pounding out yet another boarding pass or a bag tag in the front of the house. So it really gets into what's core within JetBlue and what are we willing to focus on.

I want to give a little bit of color to maintenance and at -- we're going to go through some of the plateau that we'll talk on the ensuing slide. It bares just for a moment talking about the vintage of 2005 and 2006 when it was like a moving ski rope trying to grab it in terms of the growth that we were trying to manage within the company. I mean, 36 deliveries net 31 in 2006 and opening 16 cities. I would fear for that. And I never experienced such growth that was phenomenal.

But also, as we floated, think of those 2 years as those aircraft and people have gotten older together. So in some the chasm comps that we have on a shrinking stage length departures up, it's a lot of headwind. It's a lot of headwind going into the future that we've had to attempt to offset via other means. But that's part of the reason why we're reaching a new maintenance plateau. With respect to maintenance chasm, a couple of thoughts here. One is that we're reaching a new plateau in 2012 but also headlines, it's a flattening.

So we're reaching a new plateau and I want to give a little bit of color to this because there are a lot of initiatives that are in place or have already been in place or continuing on to attempt to bend this curve. But even at the new plateau, we are significantly lower than our legacy peers because we don't have engine shops all over the place that has to get retooled. We don't have a HMV hangers all over the place with massive fixed infrastructure's cost. Primarily where in the line maintenance business and we use a lot of great business partners to help us manage those expenses.

We are working very steadfastly with our OEMs both with Airbus, both with Embraer, with IAE, NTU, as well as General Electric to manage these expenses down. Think of this as we're looking for other partners to help us in this regard. We have great heavy maintenance partners in Avios/Aeromans [ph]. Also PEMCO and TIMCO. We're looking for others. As the fleet continues to grow, we need more partners to maintain our aircraft and we're also looking for other partners beyond Embraer who is our sole heavy maintenance provider in Nashville to help us with that airplane as well.

That would tell you, no Dave Ramage, who's our Head of Maintenance and his whole team I think of great news like Mike Curtis, internally our Director of Engineering. It has been a huge amount of work to work with in particular Embraer to manage our E190 expenses down. Why do I say down? Well, when you take a new aircraft in to a fleet, you tend to see everything first and you tend to be the first to work on it. You end up having, I think, a much larger responsibility in terms of working not only with the manufacturer but with all of the suppliers to that aircraft.

So think of this as a quarterly visit with Embraer and it's been marked what 2.5 years we've been working this one. But finally, we're starting to see some very good progress of heavy check costs on per check cost basis coming down from 2011 into 2012. But keep in mind, this, for 2012, we have 18 E190s going through heavy checks this year. So think of all those initial deliveries in 2005 and 2006 with the E190s. We have a very large number of going through some key heavy checks this year.

And then finally, a lot of really good work by Mark and his team to help us with our flight hour agreements with both NTU and then working towards getting our GE engine, which is on the E190, also under an FHA contract longer-term. So we don't just look at this curve and say, "Good gosh golly, isn't this bad?" We've actually been very, very aggressively trying to manage this but also flatten it and bring it down where we can. So I don't consider beyond 2012 there to be significant additional plateaus. I think of this as a curve that's going to be flattening.

I want to talk about a significant area of investment we have made infrastructure investments not because we just because but because we had to, to scale the business appropriately. We have one last area that I think of is being core to with a ROIC lens on being in need of investment and that's our system control center. And quite tentatively, is the reason we need to make an investment here is we have to create a new capability for us to operate again in this geography, plain and simple.

We need to get our crew members in our system control center out of the transaction, manual transaction business and into the decision-making business. And I'll give you an example. I'll give you 2 examples. During the Hurricane Irene that hit here late last summer, we canceled 1,452 flights. I'll never forget that number. And last year, it was just such a fun year we shut down the airline like 5x with winter storms and a hurricane coming in New York. But it took us 60 hours, 6-0, 60 hours to process all of those cancellations and reset all of the air crews for that event.

Now you might say, well, Gee, Rob, it's going to take a while, that's a really big event. Yes, but we think we have a technical path within probably 18 months to have that happen in 6 to 12 hours versus 60 hours so we're spending the time thinking about when can we recover, when shall we start the airline back and not having to have people heads down, just processing transactions.

The other example that I think about is what our maintenance rather due is on a daily basis, particularly with our A320 fleet. It is a daily grind get our most efficient aircraft on the transcon flight not only to maximize, take advantage of the best fuel burn, but also to minimize customer disruptions via technical stops that we have to make. It takes them hours to go through the daily task of assigning aircraft to all of those flights.

Again, we think this is an area where tools can help us better. I think of this as an area where over the next 3 years or so, we're going to spend between $10 million and $20 million upgrading our technology, not just to be more efficient and lower our cost but also to create an operating capability in this northeast geography.

That leaves kind of everything else. What are we doing with the supply chain? How are we managing our contracts? The pennies and the nickels of running the day, the day of airline, are we as efficient as we can be with work rules and productivity? Because we have to keep that CASM advantage. I also think it's worth noting that we're also -- we're not -- we don't have hubris enough to think that we do everything perfectly, and as conditions change, so should we.

So if there are key things that we think we could better use business partners for, whether it's back office or whatever it would be, we're not afraid to make those decisions. So we're currently in the process of literally evaluating almost everything that we do and asking, are we as efficient as we can be for one, and two, can somebody else do it better to lower our unit cost going forward? Because we know we're in the customer service business and we know we're in the culture business and we know we're in the business of delivering an incredible product offering, but we should also know enough to know when we're not really good at something, or if something is more of a hobby versus core to the airline. So you're going to be hearing much more about this as we move forward.

And by the way, when I say questioning everything we do, I think Robin mentioned it earlier, it includes our own process. I mean, last year, not only was it 5 minutes to ground time but it was an aircraft return to the schedule to be used by the schedule team to put it into revenue service. We're going to ask that again. We should also be asking that over and over again. Is everything we're doing as efficient as it can be in the context of JetBlue?

And finally, I wouldn't be this yellow [ph] if I didn't talk about operations for just a moment. And I'm not going to bore you with my soapbox of the game within a game that gets played regarding DOT's statistics. But you can see here, we compare ourselves every single month to -- and actually, weekly to 8 other airlines -- excuse me, 7 other airlines that we call the exchange carriers. Think of them as the major airlines. We alternate operational data every week and it maps itself up to the monthly DOT report where 15 carriers now report.

The blue line also represents -- yes, with 75% of our route network focused in Boston and New York area, we're very, very dependent upon what happens here. And I'm sure you saw the New York Times article, the 50% of the nation's air traffic delays or flight delays start and end here in the Northeast and more in particular, in New York.

So when you read the monthly DOT report, you kind of have to look behind it just a little bit and when you look behind it, you'll see -- some of the 3 worst large airports are New York, LaGuardia and JFK, which is our home base of operations here. Further complicating this, by the way, is the fact that, if I took all of 2011, so think of all of 2011, and I looked at New York in particular, as I delve a little bit deeper and I took Continental United in particular, and I stripped away Hurricane Irene and the 2 other blizzards that shut down New York, I can only find one operational day. This is using DOT data. I can only find one operational day where Continental canceled more than 10% of their flight schedule. But I can find 53 days where ExpressJet canceled more than 10% of its schedule.

And by the way, in April of 2012, at least looking forward from the OAG data, from what I can tell, only 40% of Delta's flight at LaGuardia, in April of '12, with their new schedule, is going to be reported through the DOT. Almost 60% of all of their flight activity at LaGuardia is going to circumvent the DOT report because they're on carriers less than $1 billion that don't have to report.

And I don't have to tell you this, but we don't have a lot of domestic codeshares or flights that we can go take out on a moment's notice when the weather goes poor here in New York. And I only say that in the context of -- we know that our customers know this and, at least New Yorkers know this, and they know that we're probably going to complete our flight and we're probably going to do everything we can to trade and swap swaps on data [ph] to get flights on time as on time as they could be. But it is something we monitor very, very closely.

The other note here, we want to be as reliable as we can. If I by keep driving reliability higher and higher and higher, it actually lowers our cost. All those disruption costs in terms of crew misconnects and bag misconnects. And we don't connect a lot, but we certainly depend on aircraft rotations to complete the schedule, focusing on core reliability. It's absolutely a daily focus of ours. In fact, when we run unimpeded, JetBlue operates in the mid-90% range, 94%, 93%, 95% A 14 on a daily basis.

And then finally and then we'll open up to your questions. This is where NextGen is going to help. And you're going to see us, we have an FAA grant to outfit 35 Airbus A320s here in the second quarter to test 80 SB out. We're big believers or at least I am in the best equipped, best served model.

And finally, I think with FAA reauthorization actually passing, I saw the President signed it yesterday, thank goodness, it looks like we're finally going to have some investment towards NextGen in the future. And I do think it's going to help the air space. But I also think while additional swaps are great, some of that has to be taken for reliability, because we've all blocked up, in essence, in New York around the inefficiencies here the tri-state area.

But with that, I would love to -- Mark and I would love to ask for your help as well. Open up to what questions you all might have. I'll wait for the mics.

Unknown Attendee

Your last comment was really pretty interesting. How many airplane equivalents do you think you could create using the new technology that might come through the FAA reauthorization?

Rob Maruster

I don't have the number on how many aircraft, airplane equivalent, and I could probably get you some data on -- the best way to do it would be to compare block time from 15 years ago to block time today for a similar route and then extrapolate some sort of number. But I do know it's great to have Dave sitting on the NextGen Advisory Committee within the FAA and actually helping usher this along. We can get you the number though, if we can extrapolate into it.

Unknown Analyst

Phil Green [ph], Morgan Stanley. You went through a number of productivity metrics and initiatives that you have in place. What do you think that ultimately does to FTEs per aircraft? So how can that evolve over time? Is there a sort of step function or is it sort of the gradual kind of moving lower overtime?

Rob Maruster

I think it's more gradual. In fact, I mean, Mark, you may want to speak to this. We don't have like a hard and fast goal. I don't -- we don't use necessarily FTEs per aircraft as an ultimate metric. Our goal is very much departmental. How do I maximize productivity within a particular function? But I would say, as we come across additional areas of productivity, it's more of a gradual slow as opposed to step change, unless we have an area of big investment. So in particular, I'll be using the example again, the airport example it probably is a step change, and we would be much more aggressive in communicating what that is, when that investment occurs. So we're not there yet.

Mark D. Powers

And Phil, I'm not entirely wed to the headcount in every -- as the metric in every department. Check out this dealing with expensive metal. And I'd rather maybe trade that number of heads off against ROA. So it's not hard and fast particularly in every department like the comps.

Unknown Analyst

Okay. And then when the benchmarking that put up there, you versus other airlines, you didn't have some of the other low-cost carriers in there but when you compare yourself to other LTCs, what are the sources of differential because you're toward the upper end of that in terms of cost? What are the sources of differences and can you get at those at all or do you even want to?

Mark D. Powers

Probably, for sure, yes. We have -- I think you'll be talking about allegiance or save, entirely different business model. Our goal is not to actually try to deliver their kind of products. Ours is a unique product. For sure, some of their savings is a result of the type of product and engagement, if you will. They deliver to their customers. We've taken a different path. I'd also say, we're also in, to paraphrase why do you run banks, that's where the money is, why do you fly in the Northeast, that's where the people are. There are attendant costs and headcounts consequences related to where we choose to build our franchise.

Rob Maruster

Bill, I would add to that and I agree with everything Mark said. I would add to that and also say that we don't necessarily have a model that is intent on just minimizing costs. We try to minimize cost within the framework of our commercial strategies that we're trying to execute too. And also a lot of this is timing. So you know there's other LTCs I could put up here that haven't gone through big maintenance hurdles that are on maintenance holidays that are going to have a different cost structure than we do.

And I would also say that we're not model that has tried to get the lowest CASM by taking in on the backs of labor. And I'll use a pilot example, we pair our pilots on the E190s, 90% of the base rate of the 320. It wasn't that way 5 or 6 years ago. So in essence, we've built a model so that we can be more efficient with minimizing moves between aircraft. But when you start doing a like-for-like, it gets kind of difficult on some of the timing and also the structural issues attached to it.

Rob Maruster

I think it's exactly as you spoke to. I will just for -- from a -- we're taking a very different view of this, Gary. I mean, the way we built the plan for 2012, I mean, we had all the major cost centers, for instance, present to the entire executive team. And then we also had back then should everybody that could answer every question in the room, that the senior team would have, and I credit Mark for setting up that process.

But when I think of all the operating departments, at least from a labor standpoint, we are very flat CASM looking this year in 2012. And I think of this, I mean, my head is around, how do I keep it flat into the future? And that, by the way, also means I have to find out ways, I mean, or at least, our department has to find ways to offset known increases. So when you talk of your 5, 6 and 7 of the 10 or 12 years seniority scale, there's some of the largest year-on-year increases and that's been some of the increases last couple of years. But I think with the exception of maintenance, I think of the world very much and probably Mark does as well have been very flat.

Mark D. Powers

Yes. I mean, we were discussing this on break, but the ROIC is also proven to be very, very important and that it is a situation where if I want to fund this, I have to fund it from something else, as opposed to just funding things with incremental dollars and with incremental heads with incremental cost. So ROIC, well, we'll talk about the commitment in a minute, I think it's been a very, very effective tool internally for us to get our arms around serves here or some here. It's got to come out of something. I mean, so while the dollars perhaps saved associated with the management freeze and the wage freeze are, in a relevant sense, not huge. I think it's very, very important mindset that we've adopted.

Mark D. Powers

I think you would need to -- as we've said on the earnings call, out of that are working to the maintenance side. So the goal is to get to that number x that little problem.

Rob Maruster

I think it's very much the mind set. I mean, it's hard to tell people to go budget to an ROIC. I mean, that's the best metric we have is, hey, it's flat. We want flat or better is really what we tend to do via our departmental plan and that's really our internal goal.

Daniel McKenzie - Rodman & Renshaw, LLC, Research Division

Thanks for the commentary on the flat CASM. I just wanted to go back and see if I can tilt back a little bit further, the labor CASM that is. I thought I heard you say you could furlough 1,000 pilots tomorrow and still pay everybody 70 hours a week. And so correct my understanding, but what I really heard was that you're overstaffed by 1,000 pilots. So first...

Rob Maruster

No, no. We have a labor model where all of our pilots have individual agreements. And we also have an no-furlough policy, we talk about it every single day. And look, I also worked no-furlough policy so it didn't. So I came from Delta for 12 years, so I'm very uniquely aware of what promises that aren't kept are all about. The practical reality of our model is we're always inherently going to be very efficient with pilots because the risk of overhire is -- I won't -- I don't want to offload them. I mean, that's just not a model that we think about. And contractually, they all get paid 70 hours per month, whether they work or if they don't work.

So it's very pro-labor, but it's also very pro-company in driving high productivity. And inherently, and that is you don't furlough because it wouldn't make business [indiscernible]. So -- and we do have a no-furlough policy. I mean, we talk about it every single day, whether it's contractually written or whether it's action. I mean, that's the mechanics of how our pilots work. No, we do not overstaff 1,000 pilots.

Mark D. Powers

We have a different conversation. That would be a different presentation.

Rob Maruster

That's right. And our pilots, by the way, fly on average much more than we benchmark to other carriers, and they're incentivized to do so.

Rob Maruster

Well, we run -- we actually try to target what we call bid devisors. So in essence, we plan the airline for our pilots to fly 84, 85 hours a month. And as the month kind of gets closer and we get into the month, some fly more, some fly less, those that fly more, make a premium for it. And it works particularly well in our peak seasons when we add a lot more block hours. So it's a model that's working very well for us.

Glenn D. Engel - BofA Merrill Lynch, Research Division

Glenn Engel of BofA. Your aircraft utilization has come down quite a bit over the last 5 years, some of it's dropping red eye, some of it, is there opportunity to boost that up again?

David Barger

I'd probably defer that to Scott, what do you want to do, or Robin in the aircraft utilization.

Robin Hayes

The aircraft utilization has come down recently wherein the past couple of years, opportunities, particularly maybe in A321 should that do, to increase the utilization or is it red eye and other network type of asset.

Rob Maruster

Yes, I think, a couple of things, the reasons it's come down is we have had a focus on things like shorter haul flying in Boston and San Juan. We do a lot of back of the clock flying throughout the Caribbeans. I think there is a limited opportunity to do more of that.

We're very careful at looking at the marginal cost versus the marginal revenue, obviously. But there are places where having a 24-hour operation, a, is very efficient. And b, what we see is customers are actually that marginal revenue is a bit less marginal, so our flights that depart Santo Domingo at 2:00 in the morning don't perform significantly worse on a revenue basis than those that those that leave at 10:00 in the morning. So I think as we continue to expand our international footprint, there's an opportunity to do a bit more flying in the back of the clock.

Mark D. Powers

Any other questions while we are transitioning maybe from the cost side of foundations to the other side? Okay. Well, I got to tell you, this is a great day. It's great to -- I feel like I'm actually sort of at home. A lot of familiar faces here. And I won't pretend to tell you how long I've been in the airline business, but it's a long time and it's great to see so many friends, so many great supporters of JetBlue, so many great financial partners of JetBlue.

We really do appreciate your support. We don't want -- we do not take it for granted. I think, Joanne when you said that our aim of building a sustainable standalone organically growing valuable profitable franchise, it's really up to you guys to help us with that and we really do appreciate and hopefully in your support.

I know that you all have busy schedules and we also want to thank you for spending a bit chunk of a probably a fairly busy day with us today, so thank you, again. And so I'm going to talk a little bit about just as soon as I can find the clicker, is this the clicker. I'm going to spend a little bit of time talking about the other side of the foundation, that Rob spoke about. I'll quickly try to talk a little bit about the balance sheet. And then I'll end up with a little bit of a discussion in ROIC.

Liquidity. Clearly, it's roughly 27% trailing 12 cap -- trailing 12 revenue. We have a fairly high cash balance. I would agree with some of you who quickly observed in an era of 0.5% returns, I think actually, Jamie, you said that on the earnings call, pointing out to my boss that I'm not earning a lot of money on our cash that we folks so cherish. Coupled with frankly the notion that we've proven the ability to generate significant amounts of cash from operations, largely driven by the network and operating strategies that were outlined today.

So I will freely admit that this is probably on the high-end of where we want the cash balance to be. For this reason, as we move forward and as I think we've indicated on the earnings calls, I'm very comfortable in continuing to pursue opportunistically priced prepayment opportunities on our debt as well as taking a really hard look at purchasing significant portions of the aircraft that we will be acquiring with cash. We're also going to look at possibly prepaying some of the higher price aircraft-related debt. So again, I would freely admit that we're probably at the high side of the cash side, but we're looking at ways to reduce debt.

Debt coverage. Yes, we have a significant amount of debt, with aircraft leases at 7x, probably about a little over $4 billion. Having said that though, we have made significant improvements to our coverage ratios, I would say, largely driven by earnings growth that outpaces the growth of debt. Again, largely, I would say, driven by a network strategy that's working, coupled with the benefits of slower growth and maturing markets.

We will continue to retire debt as scheduled. We are not looking to relever, if you will, the aircraft that are released as we pay the final payments on aircraft-related debt. And again, I think in the past 3 or 4 years, if I'm not mistaken, we've probably prepaid as much as $150 million of debt. We'll continue to do so as well again to manage our coverage ratios.

Incidentally, a lot of our prepayments and debt management have been focused on higher-priced debt. And so today, we enjoy one of the relatively lowest weighted average cost of debt with the average cost of about 4.5%, and so we'll continue to manage this actively.

With respect to future maturities, here again, this is -- maybe a bit of an odd chart for those of you in the back, but this depicts regularly scheduled and aircraft-related debt one of the double ATCs, we have a large double ATC secured by spare parts and what-not, and of course, our friends' convertible notes.

It's our general intention to satisfy these obligations with cash from operations. Another way of saying that is in '06, we introduced the concept of sustainable growth, which is to say, we will sustain our operations with cash from operations rather than accessing capital markets, rather than diluting an already pretty healthy shareholder base. Now that we do have the flexibility to conceive, particularly with the final payment on a newer aircraft and double ATCs, to the extent that the cash from operations is not sufficient, we do have the flexibility, again, terms and pricing are being competitive to refinance those aircraft as a source of cash, but our current intention is to typically just avoid any sort of large convert or other type of equity-related capital market raise to meet our obligations. Again, our primary preference is to meet obligations with cash from operations.

Fleet actions. Thriving with the large carriers, and the general rule is that the fleet plan will dictate what network planning does. We tried to sort of turn it around a little bit and actually sort of do it logically and say, Scott, what do you need, where can you make money profitably? And then let's try to meet that demand with the right aircraft and the right numbers.

So as a consequence, really starting in '05, '06, we have done a lot of surgery to the shape of our order commitments, as well as the shape of our fleet, specifically since, I think '05, we've probably sold 19 aircraft, we've leased 2 or so. But over the period of time, we've deferred over 120 aircraft delivery positions, all with the view of letting the network dictate the fleet plan as opposed to the production needs of somebody to lose dictating what Scott has to take.

So as depicted here are the net incremental deliveries, both on the Airbus and on the EMBRAER side on the top, and you can see the net impact of prior deferrals in the gray bars below the axis. We will continue to evaluate future deliveries. We will continue to evaluate the shape of this book moving forward. We will continue to ask networks what they need, where they can make money, and we will continue to filter whatever we purchase with free cash flow, with our liquidity, with our commitment to sustainable growth and now with respect to our commitment to improve our returns to our invested capital.

I should note just in passing that we did convert last year about 30 of our A320 delivery positions to A321s. I don't really know what the final interior will be, but assuming a 30 to 40 incremental seat count on the A321, particularly in some of the really high density, high-margin routes, to take Boston to the Caribbean, or JFK to the Caribbean or San Juan. The A321 is going to provide us tremendous seat cost advantages over our current platform.

I should also note that this airplane will be coming equipped with the often promised winglets, which will provide us a significant range and fuel advantages. I'm really excited about this airplane. I just -- you get the price right, it's a good airplane. And I've just left you -- I'm going to keep on flipping here, because, I recognize that I'm the only thing standing here between you and lunch. So mindful of that as well.

We discussed the details of our hedging program, I think, on several earnings calls and the details are in the investors update that which is on file of course. I just wanted to underscore one of the things that didn't say.

We view our investments in hedging which typically is cost less colors and that sort of thing, so it's not a lot of money upfront in terms of placing the trade. But we do it really as a form of insurance. In the extreme, it's like buying home and liability insurance. To put this in perspective, and while it's true that's since the onset of the program, we've made about $40 million or current positions of about $40 million to the good.

I don't think that's the right way to look at this, because that's kind of like a speculative type of a framework. I think the right way to look at it is -- Brent, and we're -- we, by the way, are now sort of turning our head around to Brent. If Brent goes to 120, with respect to our current hedge positions, how much would we save? If Brent goes to 140, how much would we save? And think of this chart, of course, if Brent goes to 120, we would save $37 million. If Brent went to 140, God forbid, we would be saving $109 million.

I think the other piece of our hedging strategy has been that we will try to stay sort of within the other airline practices. We're not making crazy trades. We're not going to bet the ranch like some others may have done. It's just not, but rather we try to stay within sort of the general framework of what other airlines, notably competitors, are doing.

Okay, final slide. So repeat from days by then I just wanted to use this as a way to reiterate our commitment to provide a 1% on average increase in ROIC for the foreseeable future. Hopefully, today's conversation has outlined the ways in which we have and will continue to fulfill that trajectory, where we are trying to, of course, at the same time, meet those other key metrics.

And by the way, free cash flow hasn't gone away. I think free cash flow is still a great governor on growth, cash from operations minus CapEx. It's a very effective way to govern capital expenditures. It's highly complementary with return on invested capital. And again, I think that as Dave was mentioning in '06, it was really the metric by which we said free cash flow is important, it is a valuation, basis of valuation but it really was an effective way to make sure we got CapEx under control.

So without ignoring our commitment to that sustainable growth which, by the way, is that term of ours which is we will grow with cash from operations. We will grow with cash on the basis of funds generated by this airline. We will not access capital markets as Jim outlined earlier. We will not grow on your backs with dilutive actions. We will continue to adhere to sustainable growth to free cash flow to our cash and metrics.

But at the same time, I think adding a ROIC dimension is first of all, time, I think you would all agree that it's probably time. A lot of people in this room have a lot of responsibilities for bringing us to this place. But it really helped us focus on the denominator, of the current denominator. How do I think you were talking about that in one of your pieces? It's a denominator issue. Buying your planes with cash is good for the denominator to get a productive asset from -- in a profitable area and I'm not impacting the denominator. That often keeps us focused on profitable growth.

The conversation that's really interesting is the conversation that within JetBlue is really focused on making those choices between this activity that's nice to have and this activity that generates that return. Not to say that some of the things that relate to or maybe have a more difficult connection with returns are gone but they're covered by posting that generate excess returns. It's been a very, very interesting dynamic that's been brought I think to the way that we consider investments.

So with that, I think that I would like to acknowledge, we have a lot of finance people here from my team, who have really been doing all the work. Raise your hands, please if you're with JetBlue Finance? Just raise your hands and please feel free to talk to them, if you will, or visit with them perspective over lunch. And I also have probably the most important person in this room, no, David, it's not you. It's actually my wonderful wife in the back, Teri [ph]. You can ask her any questions but, I don't know, she's just probably could get her MBA, so she actually may have some interesting perspective on ROIC.

With that, let's open up any questions and look at all these -- Dave, if you would like to join me, too, because I think there's going to be some kind of interesting things.

Unknown Analyst

Vilman Shores [ph] with Bleacher and Company [ph]. Mark, what is kind of a target leverage in the context of taking a lot of aircraft deliveries? Does it stop at maybe foreign change? Or does -- you continue to go down to 3? Maybe you can get some further improvements on credit ratings, so that financing becomes even cheaper.

Mark D. Powers

I would say, if you look at kind of our debt balance over the past maybe year or 2, it hasn't grown at all. For example, last year, we took somewhere in the neighborhood of 9 aircraft, the debt balance only increased by $100 million. It's that kind of pace that I like, there were this disproportionate number of assets that are coming into the system, but really trying to manage the overall debt down to a reasonable level.

And I can't make a commitment as to whether I think I have that thing for 4 to 3, 6, we're not on that schedule yet. But clearly, as we explore how we engage a better ROIC, managing that denominator, is a big focus. Again, it's complementary to the metrics that we've had on free cash flow, but its taking one step beyond.

Unknown Analyst

And I guess my follow-up would be what type of opportunities could present themselves maybe out there that might cause you to maybe change, if you will, your view is a little bit on leverage and maybe the emphasis on free cash flow?

Mark D. Powers

Well, it was -- that's a great question. We had this -- we actually had that conversation when we were considering the slot purchase. The slot purchase is a once-in-a-lifetime deal. I've been in this business since '83, starting with New York Air. That portfolio slot just doesn't happen everyday. We wanted the slot. So we're going to bid to win those slots. It was interesting to note, however, from my perspective, I wanted to get this slot. It's interesting to know, however, Scott Lawrence, from the network, was saying, "Don't impair free cash flow." So that's the kind of conversation that we actively engage in, free cash flow does matter so just as an illustration, we will probably continue to [indiscernible] adhere to that kind of discipline.

Unknown Executive

Mark, [indiscernible] has asked what I think our ROICs is.

Unknown Analyst

That's my question side. What's the current ROIC? What is your goal, and how is it measured?

Mark D. Powers

How is this is going to change my credit rating? Not. Good question. We're still in committee. Great question. By our calculation, our current ROIC is 4%. And let me be a little bit more precise because there are a lot of ways to calculate ROIC. We calculate it as follows on an after-tax basis. The numerator is operating income, that's one of your questions, too, right? Okay. Operating income plus imputed interest on aircraft plus interest income. The denominator is book equity posted plus debt on capital leases and 7x aircraft run and we're using year-end numbers for purpose these operations. Using those calculations, our year-end 2011 ROIC was 4%. I could write these out for you guys later if you want.

Mark Streeter - JP Morgan Chase & Co, Research Division

Mark Streeter, JPMorgan, in the back of the room. A question for you on the winglets or sharklets the on legacy A320 fleet. My understanding is that it's been a long process to get approval, and it's much more expensive than on the Boeing aircraft. I'm wondering, is there a fuel price where you will pull the trigger on that program? Do you need fuel to be $100 per barrel? How should we think about the returns on that?

Mark D. Powers

It's weighing in the money right now. I mean, it's not to be flipped. But we don't have a final offer in terms of the retrofit price from Airbus but assuming that it's in the neighborhood that I want it to be, I would do note to trail 160 airplanes today.

Mark Streeter - JP Morgan Chase & Co, Research Division

And how far is it in the money? Can you give us a sense or is it $10 or $20 move?

Mark D. Powers

I mean, again, critical pieces missing. Ryan, somewhere in the back there -- needs to get a final offer from Airbus on cost of the retrofit hardware and the time to -- and the work scope required to it to actually implement the change. So it's hard for me to say, but again, I'm using sort of assumptions that we've been using in the past, it's something that you just do now.

Mark Streeter - JP Morgan Chase & Co, Research Division

Okay. Great. And then the second question, notwithstanding everything you said about paying cash for aircraft and repaying all your aircraft debt. When you next look to finance aircraft, can you talk little bit about how we should think about how you're going to plan for that in the future? I don't think you're going to pay for cash forever for airplanes or unencumbered everything. So are you looking at double ATCs, that bank debt. Can you talk little bit about your philosophy there?

Mark D. Powers

I'm looking at -- I'm trying to maintain our weighted average cost of debt. My philosophy is that I'm willing to give up loan-to-value to manage a good cost of debt. Some of you probably aware, we will be willing to look at loan-to-value this is heresy for an airline treasurer who typically tries to finance everything as much as possible. I mean, we'd look at an LTV to start the supply. As long as I got a rate that is close to managing our current cost of debt.

This philosophy is -- the timing here is just amazing. I mean, in terms of LIBOR spreads and what-not. So in exception to my policy or thoughts that we could finance as much as 7 of our deliveries next year, A320 deliveries next year, would be tremendously good opportunistic debt pricing.

Mark Streeter - JP Morgan Chase & Co, Research Division

And do you think that's more price effective in the bank market or in the public market for double ATC?

Mark D. Powers

Talk to Connie there, she knows. We could actually have a debate within here. I mean, double ATC pricing, you got to have enough mass to actually make those fees worthwhile. I think there are some pockets of present bank debt that make are very, very compelling. So it's -- we're not done with our process, but we will be looking opportunistically, right Ryan, at well priced offers.

James D. Parker - Raymond James & Associates, Inc., Research Division

Jim Parker with Raymond James. And it's probably a question for Dave as well and it's a LiveTV question which is not a core airline asset. And if we look at -- and LiveTV is not a core airline asset. And it appears that perhaps Wi-Fi may become the more advantageous, lower cost, less weight to carry in the aircraft. And I'm curious, would it not improve returns and add shareholder value to dispose of this asset, LiveTV, and use that cash with which to buy back stock?

Mark D. Powers

Two questions. We'll come to the buyback stock in a minute. The first question and if I'm misspeaking cost and just give me a minute of those English. But the confusion is that several years ago, we were actively looking at selling that property. If you recall, gas was at $1.47, and they -- we were also scrambling for cash. So we were looking at selling that property. Events happens, including a nice investment from [indiscernible] really took the heat off of us to basically try to monetize that.

My assessment is that long-term, guys with an airline mentality are probably the wrong kind of guys to manage something that's as valuable and as growth oriented and as exciting in some respects, from a technology perspective as something like LiveTV. But I also think that it's premature, because I think the whole promise, I mean, they just got the satellites, how many months? 22,500 over the Equator, south of Tucson, Arizona. They just got it up there and we're just now starting to speak to it or it speak to us, whatever the case may be. It's pretty mature.

The promise of KA is, I'd love to be able to show you what the success or of 8 aircraft that we'll have some time next year -- this year, I'm sorry, what it can really do. I'd love to show some customers, potential or otherwise and start to build the value. The nice thing about having liquidity today is I don't need to sell that property prematurely. We can sell it at the right time. You're absolutely right.

Again, I just would freely admit airlines nickels and dimes and gas, probably the wrong kind of guys to nurture that kind of opportunity. But in the meantime, it's -- we are not ready at all to sell it.

Unknown Executive

And I would offer the same but going up as long as we're in a position to have this phase developed and it's nice because at least in North America, Live is so real in this part of the world. By the way, it is they can help us with ABC at that altitude because that's the one channel we don't have by the Superbowl it wasn't on ABC right as we're working through that operating but LiveTV, you have live radio, the broadband, Jim mentioned iPod was even invented right when we began probably in that regard public and the NASDAQ.

And we can kind of see how that develops us well with the broadband, what that brings into the aircraft. Are people going to be watching Apple TV, what kind of see how that plays above the nice thing about is where the position to see how it develops and then to see what makes sense in the future. Right now, we've got it had called develop just the core of the brand as well Jim, couple of years ago when oil was still at $1.47, let me tell you something, we're looking at everything and what core, or what's not core in this company. So including LiveTV, I think we're in a good place right now.

Let me get to your second question which is bank shares. I mean, we talk about it all the time. I've taken a stance, I'd rather prepay debt, notable convertible debt over buying shares. [indiscernible] Converts back. As you know, we've been actively doing that. Say it's interest expense, some of that has got that 6.75 handles we have other, the 5.5, a big number particularly relative to our cost of capital.

So it's good for the numerator, it buying those converts is good for the denominator. It has the added benefit of basically taking out as the done 10 million shares of equity, 8 million shares of equity that we've actually been able to take off the EPS calculation by virtue of those prepaid in the converts. So candidly my sort of bias is as long as there's converts in the markets, get to the right price, I'll buy those before I would buy down equity.

Helane R. Becker - Dahlman Rose & Company, LLC, Research Division

It's Helane Becker, with Dahlman Rose. What about the La Tanza [ph] position? They have made it clear that they would like to monetize everything that they can, including potentially their JetBlue investment. So what about using some cash to buy back that stock, I think you have right of first refusal?

Mark D. Powers

We have the right of first refusal, not much to say on that. I would tell, you just, Dave, I would let you chime in. But, they have been a terrific addition to our Board of Directors. And very, very, very engaging, high-value added I think that again we don't really know a lot, I'll let you sort of pick it up because we did have that comment from...

David Barger

Helena, we are aware that Kristof comments at a similar type of conference right over in Germany, some of you may have been there. And back in 2011 regarding the evaluation of that, which was strategic assets and we were also commented into his response, including BMI and other carriers.

And so we're aware of that comment and but I can tell you right now, really parroting with Mark's comments, we had a board meeting last week, Lufthansa board members were just front and center. Here and whole day over at Long Island City we will be moving here in the next 60 days, and they've been very, very thoughtful partners. So we'll see what develops in the global landscape. I mean, many of you live in that space and see what's going on globally, right and if you look at and my love and what's happening with alliance is and right now, I'll tell you, last week, we had great participation for the Lufthansa Group but step up [indiscernible].

Michael Linenberg - Deutsche Bank AG, Research Division

Mike Linenberg with Deutsche Bank. Just a question on appreciate the 1 percentage point improvement in ROIC per year and appreciate the point about the fact that it's -- the focus is on the denominator. When you look at I think in the slide deck, at pages 52 and 53, and you look at your CapEx and you look at the debt maturities over the next couple of years, is it fair to say though that the improvement is going to be largely driven more by changes in the numerator and is that how we should think about it?

Mark D. Powers

It's actually both, again, it's actually hard to sort of split it out. A good network, a maturing network, throughout all that cash, that enables me the luxury, if you will, to buy assets with cash for the prepaid debt, so while it may be identified as a denominator issue or a numerator issue, we have to continue to generate this cash from operations that enables us the flexibility to reduce this denominator. But in the near term, I guess sort of the chicken egg is the network strategy, the operating strategy, getting CASM under control, moving forward on that basis really does view the flexibility to address the denominator.

David Barger

Mark, if I may, just want to pick up on that because how the management team is also looking at that on a -- not just a when we get to advances, weekly advances. I mean, the team has put together, really looking forecast over the course of the year internally on a weekly basis, revenue all in CASM, specifically at fuel CASM, what's really happening within the company?

Mark, your team and specifically Mike, Tim and others working on this forecast have when you're looking at how we believe are going to close the year, from our return on invested capital perspective, moving all these different dials let me go back to the Lufthansa comment, because when I think about the Lufthansa Group and step on talking about the importance of ex fuel CASM, not just the importance but I mean, what are you doing about it? What are you doing about maintenance escalation? On the airframe and power plant, what suppliers? I mean, it's just -- I mean, it's really 360-degree effort because we know if there's opportunities, whether it's numerator, whether it's denominator, again, it's plenty of opportunities in there. But that's how the team is also looking at it on a weekly basis.

Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division

Jeff Kauffman, Sterne Agee. I want to follow-up on 2 questions, one was Jim's, and one was Mike's. When you look at LiveTV, how do think about kind of where we draw the boundaries around it? Is it just the TV product, is it the satellite? How do we measure the revenue generation or the profit generations to the company? Is it just what happens on board? Is it part of the revenue premium that you attribute to that? How do you measure what that's worth to the company and the follow-up on ROIC?

Mark D. Powers

Let me call on Robin to sort of address that because, I mean, Robin is really focused on with that product that KA product can do for JetBlue but that's really a proxy for what that product can be for not only other airlines but other transportation type environments.

Robin Hayes

TV. First of all, let me talk about TV as a product. We still believe that, even with connectivity, TV is going to remain a core part of the experience. If you look at what people are watching on board our flights today, it's predominantly live news and live sports and we're seeing that shift. We don't think it's going to change. It's going to be really hard to deliver their content through a Wi-Fi KA pipe. And even if we can, it's going to be really expensive for the customers to do that.

So TV and under that radar, you going to continue to have a KU DirecTV antenna and a KA Wi-Fi antenna. In terms of how important it is, we believe the fact we offer free TV on our flight is the single most important thing that differentiates us from our competitors and we see that time and time again. I don't want to go on and on about customer research, but we segment every part of that customer experience. We have customers who've never flown in JetBlue, who've flown JetBlue once, who fly JetBlue a lot. What's important for you and how do you change your behavior your repurchase intent based on all these different attributes. And if we stop offering them, how will that change? TV and back fees, number 1, number 2, which is why we differentiate ourselves in that area.

In terms of LiveTV, and I think the unique thing that we have is there's no one else where an airline and a design and develop, LiveTV is a best-in-class operation, it may not have the global scale of [indiscernible] regional but in terms of the engineers in that company what they've done with the technology to access the part that it's a world class operations. So we bring all of those together, we say KA plus the TV is the winning combination.

And by the way, the 321 is going to give up the chance to also think about moving to the next generation LiveTV system. It's going to be lighter. It's going to be more reliable. And so it makes sense to that as well actually a more cost-effective solution and a better experience. Does that answer the question?

Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division

My question was kind of how you counted the revenue attributable to that/. Do you allocate some portion f your ticket premium and say without LiveTV, we wouldn't generate...

Robin Hayes

Yes, it then goes back to how that part of the experience drives customers behavior and approaches JetBlue and TV without breaking out the specifics, TV and back these are the 2 biggest differentiating factors that we have.

Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division

All right. And then just a quicker follow-up on ROIC. If you I look at your forecast and just a forecast. I understand this 300 basis points over the next 3 years, if I look at the numerator, your primary drivers are really going to be revenue growth and margin on the revenue growth. And if I look at the denominator, assuming that they get an equity right now, it's going to be debt paid now. So out of the 300 basis points you're looking to achieve, are you thinking roughly 1/3, 1/3, 1/3 revenue margin, debt pay down, how do you allocate that 300 basis points theoretically across the 3 buckets?

Mark D. Powers

This is going to be -- candidly ROIC's going to be largely driven by here given the cash to enhance where we're going. But this is the plan we discussed today. Network's changing the mix, addressing the troughs, the product. It's amazing what Joanna said in terms of actually being able to quantify all these culture stuff that we've been talking about for years. It's there, it's real. The foundation focused on cost. Not without access that Rob has become the CASM because he has it all, right? It is a nickels investment. So the first and foremost is going to start right here, and hopefully, give me a little bit of your denominator to buy with cash and pay stuff down. That was a segued projected.

David Barger

Was only appreciable the recipient.

Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division

Is the website regularly how you're checking ROIC and.

Mark D. Powers

Coming of the feel about their Lisa and about this she's business coming, probably not there yet.

Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division

Was any talk about from the composition irrespective including ROIC component of your variable comps anything like that?

Mark D. Powers

Yes, well, there is. In fact, by the way, I would imagine what the analyst day next year, we're certainly going to give you visibility in terms of how we perform over the course of 2012, right? So we look forward to that, and again, at this point plus, right over the course of the year. Yes, there is and but what we've would also learn within the Board of Directors and within specifically the comp committee is what you have goals that are in place as a young company performance management and keep them in place for a period of time.

And so as we take a look at things like candidly, I mean, you can see it in the proxy, operating margin and ex fuel CASM, what Net Promoter Score. But keep that for a couple of years to see how we're tracking on a year-over-year basis. But, by the way, from a board perspective, leadership perspective, right into the company, right into state of the airline this from the front line. ROIC, the shareholders have to be part of the equation for the long-term, as we're running our company so yes, it's a specifically tied into leadership comp today. It's part of the discussion I think it's from the for the next couple of years.

Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division

Last one, Scott. On the network. How's Alaska going? How's the Anchorage service going? And any thoughts of maybe expanding deeper into Alaska, maybe even some us intra Alaska service at some point?

Unknown Executive

Is it deeper or higher into Alaska, right? We're going to go colder. So we entered Anchorage last summer from Long Beach. We're going to be continuing that service seasonally this year.

Our goal is to be in Alaska annually from Long Beach. I think we would look at other gateways, frankly I think we see a lot of potential in Alaska. I think the markets like Fairbanks and other points, I don't think we'll be at a point where we'll be looking at intra Alaska service, but as we look forward to the next summer initial bookings we feel very good about that, and I think in Alaska, we're there to stay.

David Barger

Let's have one more question...

Raymond Neidl - Maxim Group LLC, Research Division

Ray Neidl from Maxim Group. And I was just wondering a couple of clarifications. One, you talked about the cochair one way. What's the problem with doing it 2 ways, is there any extra cost, any extra complication to that?

Robin Hayes

Yes, that is right. The difference is, if another airline has that code on us, they're responsible for selling and servicing that flight. So there's a schedule change, airline cancels, it's their responsibility. Once we stop selling our code on OA segment, we take that responsibility.

So the time the flight we had to contact every customer, cancel the flight by there is a great partners past one-way code now then we have to take that responsibility. As we think about our cost structure, those are investment 2-way code, we have to trade airport crew members, and develop dedicated team and still make and we haven't been in disclosure.

It's very important when you are selling code that you disposed the customer the operating carrier not yourself and is a huge undertaking and many airlines have been fined in the past, including us by not doing that effectively and so we don't rule it out but we don't rush into it either.

Raymond Neidl - Maxim Group LLC, Research Division

And a very broad question for management, do your point your opinion on new government rules and regulations regarding your advertising pricing, and was the present at this budget hold new pile of taxes on the traffic?

Rob Maruster

From a government perspective, what our position on whether it's the transparency in pricing, which is now in place, we've always been transparent and so we're fully supportive of that. And I think there's obviously some companies where it's rather interesting in terms of what you end up paying for.

So we find that we're actually even more competitive with a greater transparency in terms of the additional fees, taxes, et cetera. So obviously we're in compliance with that because that statute. When you start to take a look at FAA reauthorization and the budget discussions and super committees, the one super committee right tied into how we go into like knockdown with the deficit reduction. I'll tell you, there is a 17 taxes today and you start talking about number 18, number 19 right a segment based fee or of all things, increasing the 9 11 security surcharge. I mean, when you start talking about an industry eventually driving the economy but to add additional taxes to drive down the deficit, it's heinous.

And I think from an a perspective, a JetBlue perspective, we're certainly making our position known on that and to tell you the truth, and I'll close with this, right back to David's comment, earlier about NextGen, if you want to allocate more taxes to the customer but those taxes will find their way not to the general fund but to investing in the use of satellite technology, to drive additional throughput in New York, or to drive whatever it might be, just greater throughput, efficiency, elapsed time, fuel burn whatever performance metric you want to use and we're spending a lot of time with the NextGen well have added. Because really the consumer at the end of the day is going to benefit. If those taxes are improving this, modernizing the air traffic control system and that's the disconnect that's taking place I think right now with the industry. And also what's happening not just this administration, but previous administration so we'll see how it plays over time. I mean, enough with an overtaxed industry. We're not cigarettes, we're not tobacco, right? We should be able to look at driving the economy in the United States. If I may, maybe just to bring it to a close, I'm showing the Jetway's going to be on a aircraft here in a moment.

I'll bring my team up as well. There's lunch that's behind you over here in the NASDAQ donut and we just want to say thank you for joining us today from an analysts perspective, the shareholders perspective, interested in the company, obviously a lot of JetBlue leadership is here as well and we're smarter when we spend time with you and I mean that very sincerely, we are, it could be on the road, it could during Q&A, on an earnings call, it could be at settings like this, this is part of the annual cadence as well in terms of Analyst Day. It's great to be at NASDAQ.

And as I think about really the -- as I think about, here we go, this guy right here, it's -- this is real. And so Jim, thanks for levels setting the history where we've been over time. And the historical context I think is important, this hypergrowth into a period of liquidity, into a period of return metrics, which we've talked about today and I think in a very transparent way and how we're going to do it. Well, I mean, the offering's certainly very, very important. The cultural aspect is very, very important as well. And you put these 3 pieces of the plan together to really drive a return metric that makes sense. It makes sense to shareholder returns for all of you, it makes sense for our customers, it makes sense for our crew members as well.

So on behalf of the JetBlue team, thank you very much, Jim, Mark, thank you, Robin, Rob, Joanna, really appreciate it. I think we have a dynamic team and we look forward to spending time with you over lunch. It's right behind the curtain. Thanks so much for your support at JetBlue. On the webcast, thanks for listening in as well. Have a great day. Thank you.

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