Lisa Studness-Reifer David Barger - Co-Founder, Chief Executive Officer, Director and Member of Airline Safety Committee Mark D. Powers - Chief Financial Officer and Executive Vice President Robin Hayes - President

Michael Linenberg - Deutsche Bank AG, Research Division John D. Godyn - Morgan Stanley, Research Division David E.

Fintzen - Barclays Capital, Research Division Daniel McKenzie - The Buckingham Research Group Incorporated Duane Pfennigwerth - Evercore Partners Inc., Research Division Savanthi Syth - Raymond James & Associates, Inc., Research Division Glenn D. Engel - BofA Merrill Lynch, Research Division Helane R.

Becker - Cowen and Company, LLC, Research Division Thomas Kim - Goldman Sachs Group Inc., Research Division Kevin Crissey Hunter K. Keay - Wolfe Research, LLC

Thanks, Angela. Good morning, everyone, and thanks for joining us for our fourth quarter 2013 earnings call.

Joining us here in New York to discuss our results are Dave Barger, our CEO; Robin Hayes, our President; and Mark Powers, our CFO. This morning's call includes forward-looking statements about future events.

Actual results may differ materially from those expressed in the forward-looking statements due to many factors and, therefore, investors should not place undue reliance on these statements. For additional information concerning factors that could cause results to differ from the forward-looking statements, please refer to our press release, 10-K and other reports filed with the SEC.

Also during the course of our call, we may discuss several non-GAAP financial measures. For a reconciliation of these non-GAAP measures to GAAP measures, please refer to the tables at the end of our earnings release, a copy of which is available on our website.

And now, I'd like to turn the call over to Dave Barger, JetBlue's CEO.

Thank you, Lisa, and good morning, everyone. Thank you for joining us today.

Earlier today, we reported our 15th consecutive quarter and 5th consecutive year of profitability. For the full year, we increased the net income by over 30% to $168 million, or $0.52 per diluted share.

This represents our highest net income ever, making 2013 the most profitable year in our company's history. In 2013, we made significant strides in refreshing and strengthening our customer value proposition while building a sustainable defensible network and improving our financial performance.

Total revenues grew by 9.2%, driven by improved yields and high margin ancillary revenue. While fuel remained at elevated levels, full year operating margin improved nearly 0.5 points to 7.9%.

We also made significant improvements to the balance sheet. We used cash from operations to prepay $94 million of aircraft debt and purchase 2 EMBRAER 190s with cash, increasing our unencumbered asset base.

Cash from operations grew by $60 million, driving free cash flow of $121 million. We ended the year with approximately $627 million in cash and short-term investments.

In addition, JetBlue maintains $550 million in undrawn lines of credit. These results would not have been possible without the hard work of our 15,000 crew members who deliver the JetBlue experience to our customers every day.

JetBlue crewmembers are making a difference in our communities as well. In 2013, our crewmembers logged a total of 70,000 volunteer hours for nonprofit organizations.

I'd like to thank our crewmembers for all of their efforts over the past year in serving our customers and our communities. We look forward to recognizing our crewmembers in March with a profit sharing payout of $12 million.

We believe the JetBlue experience is an important reason why customers choose JetBlue over other carriers as evidenced by the revenue premium we continue to earn versus the industry in many of our key markets. 2013 was an exciting year, as we continued to innovate and enhance an industry-leading product and experience, driving improved unit revenue and ancillary revenue performance.

We continue to enrich our TrueBlue customer loyalty program, with the removal of points expiration and addition of family pooling, key differentiators in the industry. We also unveiled our new transcon premium product offering, Mint, which is scheduled to begin service in June 2014.

Together with our industry-leading in-flight connectivity product, Fly-Fi, which launched in December, we believe JetBlue will further differentiate itself from the competition, leading to improved revenue performance and margin expansion. We currently have 10 A320 aircraft equipped with Fly-Fi.

Based on initial feedback, during the first month of service, customers clearly love the unrivaled speed and capability Fly-Fi offers. We expect to upgrade our entire Airbus fleet this year at the rate of up to 15 aircraft per month and expect installation on the E190 fleet to be complete in 2015.

Airline partnerships continued to help expand the scope of our network throughout 2013. We now offer customers access to 900 destinations worldwide.

In 2013, revenue from partnerships increased to roughly $120 million, as we increased the total number of airline partnerships to 31, including our first 2 bilateral code share agreements with Emirates and South African Airways and 2 new one-way code share agreements with Aer Lingus and Qatar Airways. Just last week, we announced plans to enter a one-way code share agreement with Etihad.

We expect this momentum to continue in 2014 as we evolve interline agreements into code shares and pursue a handful of new interline relationships. Over the course of 2013, JetBlue improved its return on invested capital from 4.8% to 5.3%.

While we reported the most profitable year in our company's history, these results fell short of the return goals we set at our 2012 Analyst Day. The lingering impact of Hurricane Sandy, combined with more significant than expected EMBRAER 190 engine maintenance expense negatively impacted 2013 operating income by nearly $50 million.

That said, we remain fully committed to our goal of improving ROIC by 1 point per year on average. We believe our 2014 plan will fully make up ground on our ROIC underperformance in 2012 and 2013.

Our 2014 plan calls for continued margin and ROIC expansion based primarily on our ability to execute our network strategy and enhance our product offering, while maintaining competitive costs. Specifically, on the revenue front, we believe new product enhancements, such as Mint and Fly-Fi, and ancillary revenue initiatives, including dynamic Even More pricing based on forecasted demand, together with a maturing network, will drive improved revenue performance.

As we continue to build on our revenue momentum, maintaining our cost advantage relative to the network carriers is simply critical. As we've discussed on prior calls, we expect the major unit cost driver in 2014 will be salaries, wages and benefits, which Mark will discuss in more detail.

At the same time, we have entered into flight-hour-based maintenance agreements to mitigate unexpected maintenance cost lags, and we're focused on making improvements in operational reliability to help us better manage cost inflation. In addition, we are transitioning our financial planning to a rolling 18-month platform, which we believe will help us better manage costs going forward through enhanced line-of-sight and greater local leader accountability and empowerment.

Over the longer term, we expect Airbus A321 aircraft and the Sharklet retrofit of our A320 fleet beginning in 2015 will help us significantly reshape our cost dynamic and improve margin performance. Finally, we expect to continue to strengthen the balance sheet, which is both EPS- and ROIC-accretive.

Since 2011, we have reduced total debt by approximately $550 million, resulting in lower interest expense and decreasing the financial risk within the business. We plan to continue to look for opportunities to prepay debt and purchase aircraft with cash in 2014.

In addition, we expect the fleet changes we announced in October to reduce capital expenditures by roughly $200 million through 2016. Before closing, I'd like to congratulate Robin on his recent promotion to President.

Robin now oversees both commercial and operational teams. We believe closer alignment between these teams will help us better execute our network strategy while maintaining competitive costs.

In closing, while we faced several significant challenges during 2013, we are pleased with our results overall. We are committed to improving returns for our owners, and we believe the best way to do so is by growing profitably at a sustainable rate over the long term.

I'm confident that in 2014 we'll continue to serve customers underserved by our competitors with our differentiated product and culture and deliver financial results that provide a better return for our shareholders. Before turning the call over to Mark, I'd like to highlight that we plan to hold our 2014 Analyst Day in November of this year.

Our Investor Relations team will be in touch with more details as we get closer to the day. And with that, I'd like to turn the call over to Mark for a more detailed review of our financial results.

Thank you, Dave. Good morning, everyone, and thank you again for joining us today.

I join Dave in congratulating our crewmembers on really a great quarter. This morning, we reported our highest ever quarterly operating income of $115 million.

That's an increase of $71 million compared to fourth quarter 2012. A healthy demand environment, particularly during the Thanksgiving and December holiday travel periods, drove higher yields compared to last year.

Quarterly average one-way fare increased 8.9% year-over-year to $169, driving fourth quarter Passenger unit revenues up 5.3%. Even with 8.3% more capacity, fourth quarter yields increased 6.5%.

Latin America and the Caribbean was our highest performing region in the fourth quarter. We're particularly pleased with the performance of our new Fort Lauderdale markets, many of which are already exceeding expectations.

Ancillary revenue, which is, of course, generally high-margin revenue, continued to show strong growth throughout 2013, up nearly 15% year-over-year to $670 million for the full year 2013. Total ancillary revenue in the fourth quarter was about $24 per customer.

That's up 18% year-over-year. Our Even More offering continued to exceed expectations, generating over $170 million in 2013 compared to roughly $115 million in 2012.

We believe Even More will continue to be an important source of high-margin revenue for JetBlue. Specifically, we expect Even More offering to generate approximately $190 million in 2014.

And we further expect total ancillary revenues in 2014 to increase approximately 15% year-over-year. Turning to cost performance.

Quarter operating expenses increased 8.7%, or $100 million. Fuel expenses, of course, remained the largest portion of our cost, comprising about $0.30 of the total operating expenses.

In the fourth quarter, we hedged 28% of our fuel consumption and covered another 12% of our consumption with fixed forward purchase agreements, or FFPs. Including the impact of fuel hedging and taxes, our fuel price in the fourth quarter was $3.10, down 3.1% from last year's per gallon price of $3.20.

We have currently covered approximately 19% of our expected full year 24 (sic) [2014] fuel consumption, using a combination of hedges and FFPs. For more specific details regarding our hedge position and estimated 2014 costs, please refer to the investor update, which I believe was filed with the SEC earlier today.

This is available on JetBlue's website. Excluding fuel and profit sharing, year-over-year fourth quarter unit costs increased by 0.6%.

That's in line with guidance. This increase was due mainly to maintenance expense, which was up 13% year-over-year on a unit cost basis.

We expect maintenance cost pressures to ease in 2014. Moving to the balance sheet.

During the fourth quarter, we made debt and capital lease payments of approximately $248 million. In addition, we prepaid approximately $94 million of outstanding debt secured by 4 A320 aircraft, thereby increasing our pool of unencumbered aircraft to include 21 A320s and 2 E190s.

This prepayment, interestingly enough, reduces interest expense by approximately 5% -- I'm sorry, $5 million in 2014. At year-end 2013, our adjusted net-to-cap ratio was approximately 59%, a 2.5 point improvement compared to 2012.

We believe deploying available cash to further strengthen the balance sheet is in the interest of shareholders. We intend to continue to improve the balance sheet in 2014, including, as Dave mentioned, purchasing aircraft with cash.

We expect to end the year with cash as a percent of trailing 12 months revenue of between 11% and 13%, excluding the benefit of the credit lines. With respect to CapEx and fleet.

JetBlue ended the quarter with 194 aircraft, including 130 A320s, 60 E190s and 4 A321s. We expect to take delivery of 9 A321s in 2014, all of which will be configured in our Mint product to prepare for service commencing in June 2014.

For the full year 2014, we're forecasting CapEx of approximately $935 million, with spending related primarily to aircraft deliveries. Major 9 aircraft investments in 2014 include Ka-band installs, revenue-generating IT infrastructure investments and the completion of T5, our international arrivals facility at JFK.

Turning to capacity. We expect Caribbean and Latin America capacity to be up about 17% year-over-year.

Fort Lauderdale capacity will be up roughly 15% year-over-year. Capacity in the rest of the network is expected to be relatively flat.

As a result, we plan to grow 2014 ASMs between 5% and 7% year-over-year. By region, we expect approximately 30% of our 2014 full year capacity will be in the Caribbean and Latin America region, approximately 30% in Florida, 25% in transcon markets and 5% in East Coast short-haul.

Turning to the revenue and cost outlook. We clearly got off to a rough start this year, with severe winter weather at the beginning of January.

Although winter storms in the Northeast are not unusual, infrastructure challenges at JFK, our largest base of operations, and the newly implemented pilot duty and rest rules under FAR 117 during this peak holiday travel period resulted in a very challenging operating environment. I'd like to thank our crewmembers for all their hard work during this very tough operational period.

We canceled approximately 1,800 JetBlue flights over that 6-day period. While we generally have a strong ability to recapture revenue when we cancel flights during weather events by re-accommodating our customers on other flights, rebooking options for our customers during this high-traffic period were very limited.

We estimate the winter storm reduced January total revenue by approximately $45 million. This was offset by roughly $15 million in cost savings, resulting in an estimated net impact of $30 million for the quarter.

Before turning to near-term revenue outlook, I would like to note a slight change in our revenue guidance cadence. Starting this quarter, we will provide quarterly PRASM guidance during the third month of each quarter in our traffic release.

We will continue to provide monthly PRASM guidance for the prompt month in our earnings calls and report monthly PRASM results in our traffic releases. Now finally, with respect to our revenue outlook.

We ended the year with strong holiday performance and expect to continue to -- which we expect to continue in 2014. We are encouraged by recent demand trends, particularly in our Florida, Caribbean and Latin America markets.

In addition, we're seeing favorable competitive capacity trends throughout most of our network. Again, while we got up to a slow start in January, we currently expect January PRASM to increase approximately between 6% and 7% year-over-year.

This includes a 1 point negative PRASM impact related to the January storms. The peak President's Day travel period currently looks strong.

Note, March year-over-year revenue comparisons will be negatively impacted by the shift in the Eastern Passover holidays from March last year to April this year. Historically, this holiday shift has impacted year-over-year monthly PRASM by approximately 7 to 8 points.

Moving to costs. Excluding fuel and profit sharing, CASM in the first quarter is expected to increase between 3% and 5% year-over-year.

This includes a 3-point CASM headwind related to the winter storms in January, specifically the 1,800 flight cancellations at the beginning of January reduced planned first quarter ASMs by approximately 2.7 points of CASM. Additionally, storm-related costs negatively impacted first quarter x fuel CASM by approximately half a point.

We expect the January storms to negatively impact full year CASM by approximately 1 point. Further, excluding fuel and profit sharing, CASM in 2014 is expected to increase between 3% and 5% year-over-year.

As Dave noted, salaries and wages are expected to comprise approximately 60% of this increase. As we've discussed on prior calls, we are committed to remaining peer competitive with respect to pilot's compensation.

We recently agreed to provide our pilots with a 20% pay increase in their base rate over the next 3 years to achieve this purpose. This pay raise equates to approximately $145 million over the next 3 years, $30 million in 2014, $50 million in 2015 and $65 million in 2016.

In addition, we expect to face additional cost pressures this year as we hire incremental pilots to help mitigate the impact of FAR 117, the FAA's new regulations regarding pilot flight time and in-duty rules. We also expect depreciation to comprise another 20% of the full year CASM x fuel and profit sharing increase.

This is due in part to a $12 million of accelerated depreciation related to the upgrade of IT infrastructure designed to support revenue growth. While we continue to be pleased with our current Web platform, we believe we have opportunities to improve our merchandising and retailing capabilities, as well as the self-service capabilities for our customers.

We're excited to announce that we will be partnering with Sabre, Datalex and IBM to provide an enhanced offering, which we believe will help us -- which will enable us to reduce our cost and further enhance our revenue-generating capabilities. We expect the first enhancements, including fare families and the ability to purchase on-board products on the Web, to begin rolling out in the second half of this year.

Finally, we expect to keep -- full year maintenance expense to decline year-over-year on a unit cost basis. Keep in mind, this year-over-year unit cost decrease will be heavily weighted towards the first half of the year.

We expect year-over-year unit maintenance cost to increase slightly in the second half of the year. And in closing, we're pleased with our record fourth quarter performance.

I'd like to thank our 1,500 -- 15,000 crewmembers for their terrific work this year and for delivering truly a great quarter. We're committed to expanding our margins through both revenue-improving cost control, which we believe will provide further and better returns for our shareholders.

And with that, Dave, Robin and I are ready to take questions, operator.

Thanks, everyone. Angela, we're now ready for the Q&A sessions with the analysts.

Could you please you give the instructions?

A couple of questions here. The slots, did you bid on the LaGuardia slots?

And then I guess with respect to the DCA slots, I guess you're in a position where you have a right of refusal on, I don't know if it's 8 slot pairs. What's the timing on that?

When do we hear on the resolution of that process?

It's Robin, I'll take that. Yes, we did bid on the LaGuardia slots, and we were unfortunately unsuccessful on that DCA.

Interesting, DCA slots is well-known, and we expect to make that announcement very soon.

Okay. Very good.

And then I want to go back to a comment, Dave, that you made regarding ROIC, that you indicated that you thought 2014 you would make up for the shortfall in 2013 and 2012. And so, just doing the math, we get to a 7% number.

So, one, did I hear that right? And then, two, based on the management incentive plan tied to ROIC that I know was rolled out earlier in 2013, I believe the 8-K, the thresholds of where you would -- what you would have to achieve in order to be compensated were redacted from that document.

Based on your performance for 2013, will you receive compensation, or is that something that we have to wait for the proxy to be filed to see that?

Sure. The -- and thank you, Michael.

It's a -- first of all, let's talk about the ROIC over the last couple of years. When you look back when we announced this as a metric and the industry moving into this metric, we had a gap in our first year of 0.2 points.

Second year, of a gap, this past year has been announced this morning, of 0.5, right? So your math is accurate.

And yes, those were the words that I used in terms of that we believe that our plan this year drives a 7.0-plus percent return on invested capital. And so, when we take a look at, again, what's embedded inside of that -- again, we announced this in early 2012 as a metric, and I'll talk about the incentive program in just a moment, things such as, again, margin expansion and what's involved in the margin expansion, as were the maturity of the route system, the ancillary revenue initiatives.

When you start to take a look at partnership traffic, right, I mean the core business, if you will, let alone, again, opening up the new routes as we continue to expand upon Boston, expand upon Fort Lauderdale/Hollywood, it's a -- when we look at that business -- and then, as we go into the cost pressures as well. Where we're seeing the flattening, if you will, of maintenance, this is a conscious decision in terms of driving mainly the compensation for the pilot crew across our company.

As we look at, again, the -- above the line, the cost structure and then the balance sheet as well and opportunities that Mark and his team have put forth with the balance sheet, we absolutely do believe that the 2014 plan yields this ROIC metric that we've committed to back in early 2012. And we don't stop there, Michael.

I mean, it continues on. You start to take a look at Sharklets, the A321 platform, other investments that we've made.

And let's not lose sight of why do we invest in Mint? We invested in Mint because we were lagging in terms of our performance on the transcon.

Things like Fly-Fi. This is a big deal when somebody has the Fly-Fi experience versus the current Internet experience that's available on the landscape.

Your second comment. Michael, it's a 3-year program that we've put into place from the standpoint of longer-term incentive compensation for the executive team.

And so, it's a -- we just started this over the course of the past year. So it's still -- we're still in the midst of that right now.

And so, put in place last year and it's really a rolling 3-year plan.

I wanted to follow up a little bit on the ROIC comment there, Dave. Actually, when I look at invested capital this year versus last year, I was -- it was down a little bit, which was sort of impressive to me.

I'm just curious if you could elaborate on any plans in 2014 to drive that number lower and if that's -- to what extent that's part of what's driving the goal for ROIC higher?

Are you referring -- this is Mark, John? With respect to sort of the year-over-year capital commitments, or the cap commitments, in 2014?

The total invested capital number potential for that to come down as a driver of ROIC improvement.

The way I describe, actually, our CapEx, it is up year-over-year '12 to '13 -- '13, '14, rather. But as I look at the specific investments, they are all investments that are really going to be short term in terms of cost and revenue payback, specifically.

Obviously, we have the Mint product 9 airplanes. That's a fair amount of our CapEx this year.

Not surprising, an A321 is a little bit more expensive than an A320. But in addition to the airplane side, this T5i thing that I don't know if you've seen out at JFK, once that is completed, and hopefully, it would be before Thanksgiving of this year, but I don't want to jinx it with our real estate guys, it will daily save an airplane of time right away coupled with all of the other cost savings that, that thing will generate.

The other opportunities are purchasing aircraft with cash. While Jim Leddy and his team has done really a good job managing the cost of our debt when we do purchase aircrafts with debt to something south of 4.5%, there's nothing like buying revenue-accretive assets with cash.

We've also shown no hesitancy to prepay debt, particularly debt that is in excess of that 4.5% rate. We will continue to look at that and prepay debt, particularly when it's associated with the release of aircraft.

And then just sort of look at some of our other capital expenditures. We made that reference in my remarks to the IBM, Sabre, Datalex plan.

The business plan that we reviewed, and I don't want to overcommit the revenue team and the IT team, but it's a really fast payback in terms of revenue upside. So the CapEx is a little high.

The good news is we're still generating well in excess of -- at least projected to generate well in excess of $100 million of free cash flow. But these investments, I think, we're really focused on things that in near-term -- in the near-term horizon, really do generate good revenue, particularly ancillary revenue, and save a lot of good cash.

Okay. That's helpful.

And just to clarify, and not to say you won't sort of get there over time, but it feels like it's a little bit early to be including capital returns to shareholders as one of those factors that might be sort of driving invested capital lower. Is that fair?

I'll be very simple. Yes.

Okay. Fair enough.

And If I could just ask one more, Dave, on a separate topic, just the topic of new American. They did list that they've already implemented a number of changes in LaGuardia, not that, that's your primary base in New York.

But I'm just curious if you've seen any behavioral changes out of them and also within the context of the code share that you have with them. Have you seen any kind of behavioral changes at all?

Sure, John, thank you, and have not. It's just -- it's so early in the process, and we're very much aware of what's been -- early announcements, for example, over at LaGuardia.

But no behavioral changes and really nothing has changed with any partnership that we've had in the past with the previous American Airlines, right? And so, obviously, they're pretty busy at this point in time.

So thanks, John.

Maybe a question that starts for Rob. In terms of sort of the shift of growth more towards Lat Am and Lauderdale, how are those -- how do those markets pool up historically or how are you thinking about market development in '14 relative to past years?

I mean, is that -- is there a thought process that maybe those markets pool up faster, is that kind of baked into the 2014 plan?

Yes. Good morning, David.

I'll take that. We've said before and it continues to be true that as we add markets into Latin America and the Caribbean, whether that be from New York or Fort Lauderdale or other Blue cities, but these are markets that tend to ramp up very quickly to profitability.

And we continue to see that today and we continue to believe that going on into next year. When we think about Fort Lauderdale into next year in terms of ASM, it will remain our fastest-growing market.

And then just any ability to kind of put a little bit of a number to that in the sense of how the curve might look differently than other markets in terms of, I don't know, however you want to measure it in terms of margin performance over the first year, a year or 2, or just some metric just to kind of understand the difference?

I mean, obviously, we won't put some specific numbers to it. I mean, I think it's something we can maybe give more color to when we get to the Investor Day at the end of November, like we did last time in terms of Boston case study.

But now these are markets, they tend to be one a day as opposed to kind of a multi-frequency investment that you see in a market like Boston. So clearly, from a sort of a cost point of view ramps up -- you don't have the investment in the early days, ramps up much quicker and a lot of these are daily patterns that we're adding and we're going to markets that have been historically constrained by very high fares.

The economies are growing relatively quickly. But the important thing to remember is there's a market there that will fly if the fares come down.

And I think that's what we've done in Columbia, that's what we've done in Costa Rica and that's what we'll continue doing in other markets that we add.

Okay. And just maybe a quick one just for Mark.

The $30 million, $50 million and $65 million in terms of incremental staff cost, is that just the rates or does that include the higher FTE counts that you mentioned?

No, that was just the rates.

I guess a couple questions here. I guess, first off, we are seeing some of the -- some of your competitors introduce Dish TV and other in-flight entertainment systems.

So as the competitive landscape for in-flight entertainment appears to be changing, that, of course, raises the logical question of whether now or is the right time or not to potentially spin off LiveTV. So I guess I wondered if you could help us understand how the strategic landscape may or may not be affecting your thinking about the best way to unlock value from LiveTV from where we sit today?

It's Mark. By the way, the whole notion that other airlines are adopting this product is not bad news, particularly from the LiveTV perspective.

It is -- if you had -- if you'd not had the opportunity to fly Ka, we urge you to do so. It is a knockout.

Connectivity is just such an important product for us. But to that point, as you think about LiveTV, the in-flight entertainment and now obviously the connectivity aspects are core to the JetBlue brand.

But you don't need actually own the company to maintain that the ability to retain that core aspect. And so, we will continue to look at, as we move forward, strategic options that are obviously in the best interest of, amongst others, our shareholders.

So there we are. It's great.

I can't say how excited I am that we have that product now up in the air, that we have 10 airplanes and 15 per month being modified with that connectivity. It's an absolute knockout.

Fantastic. And I guess secondly here, where are we at in terms of the Latin American footprint out of Fort Lauderdale?

I guess, I don't know what you can share in terms of the number of markets you ultimately want to serve in. And I'd just, I mean, route authorities to that part of the world are not always easy get -- easy to get.

I'm just wondering if you can also talk about that as a potential constraint to growth looking ahead as well?

Great, Dan. Good morning.

Just a couple of comments, and then, Robin, if you can add some color. First of all, just the earlier question also came off regarding Fort Lauderdale-Hollywood International Airport by Dave.

That investment with Broward County is just really significant. And I just want to use this to take this opportunity to call them out because there's not many places in the United States where $2 billion worth of infrastructure is going in to play as airfield, landside.

And then when you start to take a look, and know I'm repeating that which we've talked about in the past, this cost per employment advantage at that airport versus Miami is really, really significant. And so, everything that's in play down at that airport, again, with the terminal, the international facility, the expansion of that facility as well, very, very positive.

Now all that said, we've got to make sure the staff as well as we add international flying, so this is an issue that we've seen across any of the gateway entrances into the United States. And so, this whole issue of CBP and staffing to ensure that it can support Lima and Port au Prince and what's next -- and, listen, I'm going to be transparent, that's still a gap.

All that said, Robin, little color on that one [ph]?

Sure. So as we think about Fort Lauderdale-Hollywood, I mean, our plan is to take that up to approximately 100 flights a day.

We are sort of, we kind of -- as we think about quarter four, we're around 60 flights a day, higher at the peak, obviously. Next year, think about sort of close to 70, 75 flights a day on average.

And in terms of the new routes that we add, as we think about domestic versus international, we think of about 2/3 international, 1/3 domestic. That's how we're thinking about that growth.

So clearly, we still have a number of markets that we're looking at. I'm not going to go into what those are, but we don't sort of the impediment to open skies in that part of the world as an issue.

There are still plenty of markets we don't serve today that we do have access to.

Just a question on DCA. If you're successful there, would that impact your growth plans this year?

And if not, where would you likely fund growth at DCA?

I'll take that. Duane, yes, clearly, if we are successful in DCA, then that is flying that will need to be funded from elsewhere in our network and in terms of what that is, that's not something we're going to go into here or hope we'll disclose here.

Okay. That's helpful.

And then just one for Mark. You probably won't bite on this, but I wonder if you'd let us know, because some airlines actually do share this, what you think your cost of capital is?

This could be either a real short answer or we could have a day of conversation on it. But as I said, I know what my debt to cap is, I know what my debt rate is.

And with the said policies, it's anybody's guess but there is free cap -- cost to capital in this, so, I'll leave it for people smarter than me to come up with cost of equity.

A couple of questions on the revenue front. On the unit revenue guidance for the first quarter, I realize that there are the headwinds.

I was just wondering how much benefit you're getting maybe from just the weak Sandy-related demand last year?

Yes, no. Clearly, when we think about February, we did have what we called a Sandy hangover, which was a lot of the school systems here in the Northeast canceled their holidays and that did impact on travel.

So clearly, as we go into February, that should be a favorable comp for us. But then we get into March and the Easter/Passover does slip from March back into April, so that would be a drag on March but then it's our win for April.

So you think those 2 negate each other?

We're not providing specific numbers outside the number in January that we have provided. But, I mean, if you -- let me just say this, as you kind of look to the peaks and troughs, and you kind of looked at -- you take a step back and how do we see core demand, core demand is strong.

Sure. And then just, you talked about the partnerships and moving from interline to code share and kind of to 2 way codes.

I was just wondering, what's the -- how much more beneficial is 1-way code versus inline -- or a 2-way code versus a 1-way code and just how meaningful that is, is it to your profitability?

No, I think the partnership has been a journey for us. I mean, I think the first stage of this journey, we were very focused on sort of breadth and we've created over 30 -- we're up to 31 partnerships now.

There will be a few more as we come into later this year. But I think where we're now focused more is, okay, which of these are performing well?

Where do we have strong alignment with the partner? And how can we beat that?

So you see that going to 1-way code. And now we have a very small number of partners where we are now not just moving to 2-way code but looking at other areas of cooperation, like FFP.

And I think the example I'll hold up really is an extremely strategic partnership. It's one we have with Emirates.

I mean, the ability to, as they had a flight from Dubai to Boston, which is happening here on March 10, to our ability then look around and say we can, because of the demand coming off that flight, we can now make a Boston-Detroit service work. Let's add that.

I mean, I think that's the level of kind of cooperation and integration that is great, but not just our shareholders, but also all of our crewmembers, because it means more jobs for -- certainly more growth for JetBlue crewmembers, it means more growth for our pilot group and other groups and we couldn't be more excited. So see the emphasis in future years moving to deepening relationship rather than just adding new ones.

So, Robin, is that then we should see that kind of the trough period, the RASM improvement better continuing? Is that what this implies?

Or how does this kind of get reflected?

Yes. I mean, I think we continue to see -- if you look at our revenue trajectory in partnerships, we continue to see the same trajectory there.

Now I've been pointing out more this is now coming from deepening rather than broadening our partner set.

Got it. And just one last quick question on the cost side, I was just wondering how many more pilots is necessary to kind of meet FAR 117 requirements?

I honestly don't know. I think it's about 5%, but if that's not the answer, I'll get back to you, but I think that's it.

A couple of questions, please. One is on other revenue.

It had been running up to about 6% year-over-year and it ran up 16% to 17% in this fourth quarter, what drove the acceleration?

If you remember, Glenn -- it's Robin, we did adjust change fee during the course of the year, so we continue to see the disproportionate positive impacts of that into the fourth quarter. That will run into the next quarter as well, until we cycle against that and it continues strong performance perhaps by Even More over the peak holiday.

Boston has been an area for growth. You didn't highlight that for 2014.

Why not?

Well, because I was talking about Fort Lauderdale was our fastest growth market and Boston is going to continue to see a growth next year above our sort of system average.

And the additional flying you do in the Caribbean, would that tend to have a PRASM that's lower or higher than the system average? In general, is your Latin PRASMs that different from the system average?

Our Latin PRASM compares very favorably to system average. And I think, again, I just want to stress the ability to start serving markets where they suffered over the years from competitors' charging really high fares.

If we can come in lower fares but still see a relatively strong revenue performance compared to the rest of our network allows us, I think, to continue to see a rich stream of opportunity in that part of the world.

And finally, any money stuck in Venezuela or anywhere else?

I hope not.

Yes, I hope not. No.

We don't fly there.

Just a couple of questions. I thought that you announced the 6th flight a day between I think JFK and L.A.

Is that your daytime flight with the new product in it?

Go ahead, Robin.

I'll have to get back -- I know we added a flight and when we do, we do fluctuate numbers -- flights per day depending on the season. Our Mint product goes on sale from June 15 and at that point, we'll be out -- we're not fully rolled out.

We'll be up to 7 a day.

Okay. And then do you know, as you adjust that transcon product, what percent of your capacity growth this year is directly related to that?

It's relatively small. I mean, we are taking 9 aircraft this year that will be Mint configured.

They will form the basis of the year L.A. operations to start.

Our transcon air sends in total about 25%. L.A.

is a part of that, obviously, but we have a lot of other markets as well. So, pretty small in total.

Okay. And then I was wondering if I could ask a slightly different question on the pilot issue.

I think one of the things I asked about at your last Investor Day was with pilot retention. And I'm just wondering how that's really going.

And I know some of the majors have been calling back some of their furloughed pilots. I don't know if any of them were hired by you guys, but I was just wondering if you were having any issues with pilot retention this early into the whole issue?

Helane, not really. I mean, pilot attrition really has been very, very low in our company.

And over the last -- oh, maybe over the last couple of years, we started to see a little bit of an uptick. But, I mean, from really low single digit, just a little uptick, because the now combined network carriers were calling back pilots, right?

So, some of that still is continuing into this year. By the way, we planned for that.

It's early, it's less than a month into it, but we're below what we were already planning for the year from the standpoint of attrition. And so there's a couple pieces in play.

I mean, with our current growth, right, of aircraft, plus what's happening with any impact on FAR 117, call it another 5% added in for our pilot base because of the new flight and duty time regulation. And then we've got the dynamic of what's happening across the industry with callbacks.

Interesting to note, though, I mean, as we have -- as we'd have hiring days here in Queens in our support center, it's amazing in terms of the -- just the number of people that -- pilots are applying for positions at our company. It's terrific.

The pipeline is very, very deep.

Okay. That's good to hear.

And then just my last question, Dave, with CBP in Abu Dhabi now. As you think about the code share with Emirates and Etihad, that becomes a domestic flight as they connect in.

So, have you thought about what that partner revenue could be that you could potentially share with us?

I think it's early. I mean, as we look at -- by the way, just as you look at these facilities across the world.

I mean, first of all, we want to make sure that we're staffed and the gateway is here in the United States, right? And it's nice to see what's happened over at Kennedy.

For example, with the implementation of the kiosks, which really helped a great deal. That's happening across the country.

You start to get into Abu Dhabi, looking like Dublin or whatever the case might be. There's no doubt about it, that it's a benefit due less elapsed time to connect here at JFK.

That's positive, right? And so, it's early in terms of what that might mean for those customers departing Abu Dhabi, connecting to Buffalo or Chicago, or whatever the case might be, but it's going to be beneficial.

You see this Aer Lingus arrive from Dublin and with the connecting time across the hallway if you continue on, it's a seamless connection in Terminal 5. And so we're excited about it.

But headline like I mentioned with Fort Lauderdale earlier, we have to make sure that we have the staffing, the resources, the automation in place to handle that current arrival of traffic across these gateways same as the United States.

I wanted to just get your thoughts about how your peers are thinking about the expansion in the Caribbean and how is that affecting your medium-term outlook in terms of the second half and maybe a little bit further forward.

Yes. Thanks, Tom.

I mean, I just kind of building on the comment I made earlier. I mean, we continue to see Caribbean and Latin America as the sort of the fastest-growing part of our network, particularly out of South Florida, Fort Lauderdale-Hollywood.

Just to add to Dave's comments, I mean, one of the key things that underpins that in Fort Lauderdale is the understanding that the Broward County team have there are making sure we're investing in infrastructure, they're keeping cost low. That's a huge cost advantage operating out at Fort Lauderdale versus Miami, and that allows us to look at opportunities and make them work from there.

So we're going to continue to grow. We've already announced some new markets into Latin America and the Caribbean for next year.

We started operating to Haiti in the fourth quarter and expect more announcements to come. We are now a couple of months into our Fort Lauderdale-Lima service, Peru, the farthest south we've ever been.

We are excited about that, but more to come. It continues to be a kind of world focus for JetBlue.

Can I ask if you can comment on the incremental margin? Like how does it compare to other parts of your network?

I mean, I can appreciate you might not be able to give the exact sort of numbers, but could you comment as to whether the incremental margin is higher or lower relative to the system?

No. We don't break it out in terms of how it compares.

But in terms of the driver of ROIC and margin, we see it as a very core part of what we're doing.

If I could just ask one last question, this might be more for Mark. But what's your thought on the -- or can you give us some guidance as to what the incremental rollout of the new aircraft deliveries we'll have over 2014-15?

There's a couple of pieces to that. First of all, the economics of the A320s in particular are favorable.

We've just been looking at some flight profs [ph] on when your -- basically your costs are largely the same, carrying forward more passengers, it's pretty easy to predict. I would highlight, though, that we are taking the airplanes that are -- need to have life to be certified and that sort of thing.

So the airplanes themselves, the Mint product will not be flying from the time that they're here. The first, I think, 1 or 2 airplanes will actually be in certification programs before they fly.

And the first one, I think, the first Mint, is the end of mid-February. In any case, so there's a little bit of the profitability of those aircraft will be impacted simply because there's a lot of work to do before they're all sort of -- you have a critical mass to fly the route and then we get the certification that's required.

But, Mike, I don't want to sound like a nervous salesman, but putting out 40 more seats on an airplane with all the commonality and the -- a lower sort of higher cost. Yes, it works.

That really does justify why we've actually converted a lot of our 320s moving forward to 321s.

I guess, Mark, to follow on to that, putting more seats on the airplane, you're getting a larger airplane to get more seats, seems like an efficient -- kind of efficient way. But you could do that by being more dense with your seating configuration, understanding that, that's not exactly your brand and probably would lose me as customer, but it might get a lot of other folks, because you'd be able to offer a lower fare.

Can you talk about why you guys are going for the middle kind of segment, kind of below the corporate network carriers but above the ultra-low-cost carriers? Why is that the target market again and why not go with a more dense configuration?

So you've actually paraphrased the questions that I ask Robin every quarter, and, obviously, we're referring to the A320, which has 150 seats and every quarter, the math is so compelling. But go ahead, Robin.

Let me take your first question first, if I may. In terms of why did we go after the market that is kind of you describe in the middle, we look at it like this.

The majority of the American public, and it includes the international public, is underserved by the other airlines. There's a small group of customers who travel a lot.

Some would call them the road warriors who I think are well served by our network legacy competitors. And then you have another group of ultra flight sensitive customers who go down to the other end of the market, to the ultra low cost.

There's room for both those models. We believe the vast majority of people are underserved by those 2 models.

And so that's where we fit in. And so that is why we are so attracted to this kind of serving the underserved segments.

In terms of why we have more seats in the 320 or the 190, it's really an economic decision. I mean, when we look at adding a row or 2 rows of seats into the 320, not only do we sort of displace potentially the Even More revenue is that we sell, but we did an additional flight attendant, and that's a big cabin overhang, that's a big cost that you get.

And then the revenue you're generating with an extra 6 to 12 seats, you're chasing the lowest fare, even when you're running a full flight, you're than chasing the lowest fares out there. And so the fares that you're getting for that last sort of, if you like, that last 6 or 12 seats are a fraction of the average fare in that airline.

So when you run the math, what it says to us is our config at the moment on the 320 and 190 is absolutely optimized.

Okay. Great.

And can you tell us how many routes you guys cut last year and if you expect there to be any cuts this year?

When you say cuts, you mean sort of deflying a market?

Correct.

I don't have that on me. We can maybe provide that to you as a follow-up.

There's been some, is that -- I mean, I haven't been...

Oh, yes.

So you guys talked about being positive with free cash flow this year, CapEx is going to be up by about $300 million. So should I just go ahead and assume that operating cash flow is going to be up by $300 million too or is there some, like, DNA or working capital tailwinds you're assuming in that number?

You should assume it will be up year-over-year, by what amount, I'll let you drive your model. But cash from operations will be up, of course.

By about a like amount, you're saying, by $300 million or so?

It will be up.

Okay. All right.

And, Mark, as we think about CASM x fuel sort of longer-term, thank you for giving us the color on the annual pilot increases. Should we think about, if we hold capacity sort of level at the 6% growth rate, should we think about you guys facing this 3-ish percent sort of baseline CASM x fuel growth annually as this contract comes through for the next 3 years?

Or are there other sources of the business that I might be under appreciating, like on the maintenance line or something, where you're actually going to see year-over-year decline to sort of offset that?

I'm reluctant sort of, particularly when it comes to guiding CASM in the future, that go beyond this year. So let me just comment on our guidance this year.

As we look at the 3 to 5 CASM guidance that we provided earlier today, I will tell you that it is -- that range is higher than our original 2014 plan. And as we noted, that does include the approximate 1 point impact of the storm and, notably, related costs and ASM increases -- decreases.

Clearly, addressing that cost number, and particularly the 5% range, has been and will be an item of intense focus throughout JetBlue in the days and weeks and months ahead. Having said that, again, I'm reluctant to sort of say assume 3% for the indefinite 5-year period.

Okay. And just one more quick one, if I may.

A lot of the -- you guys have done a good job working your cash balance down over the last couple of years and that's clear you're going to do it again this year, given the year end guidance of 11% of 13% of LTM revenues. Beyond that and I think that helps your ROIC come down -- come up a little bit as you've worked that invested capital base down, running checks out of savings.

But beyond that, it becomes a margin story to sustain that ROIC acceleration essentially you're anticipating. So I guess the question is, what sort of initiatives do you have to grow margins to sustain -- I don't know if I'm thinking about that properly -- do you expect the cash flow to come entirely from better margins from operations?

Because, again, you've written a lot of checks, like I said, out of your savings account. How do you sustain that?

Well, again, I mean, I guess I don't view it as one item contributing to ROIC. It's cost, it's revenue, it's balance sheet.

There's a mix of all 3. And so in some respects, you look at a new capital project, and that return on that capital project competes with Jim Leddy's ability to prepay 6.5% debt.

So there's no hard and fast -- okay, I mean, we're not sitting here saying, we are only going to work on margin-related activities. Internally, we look at it as sort of 3 legs to the stool and it all competes and contributes.

That concludes our fourth quarter 2013 conference call. Thanks, everyone, for joining us.

We'll talk to you again in 3 months. Take care.