For the quarterly period ended June 30, 2011

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to

Commission file number: 000-49728

(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

As of June 30, 2011, there were 296,880,550 shares outstanding of the registrant’s common stock, par value $.01.

 

 

JetBlue Airways Corporation
FORM 10-Q
INDEX

		Page #’s
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements			3
Condensed Consolidated Balance Sheets — June 30, 2011 and December 31, 2010			3
Consolidated Statements of Operations — Three and Six Months Ended June 30, 2011 and 2010			5
Condensed Consolidated Statements of Cash Flows — Six Months Ended June 30, 2011 and 2010			6
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. Quantitative and Qualitative Disclosures About Market Risk			28
Item 4. Controls and Procedures			28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			30
Item 1A. Risk Factors			30
Item 6. Exhibits			30
EX-10.1.Y
EX-10.31.A
EX-10.31.B
EX-10.32
EX-12.1
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART 1. FINANCIAL INFORMATION

See accompanying notes to condensed consolidated financial statements.

See accompanying notes to condensed consolidated financial statements.

See accompanying notes to condensed consolidated financial statements.

JETBLUE AIRWAYS CORPORATION

and $5 million, respectively, of other revenue related to this guarantee. The remaining $1 million received under this guarantee is subject to refund and is included in our air traffic liability as of June 30, 2011.

      New Accounting Pronouncements : On January 1, 2011, the September 2009 Emerging Issues Task Force updates to the Revenue Recognition topic of the Financial Accounting Standards Board’s, or FASB, Accounting Standards Codification, or Codification, rules became effective, which change the accounting for certain revenue arrangements. The new requirements change the allocation methods used in determining how to account for multiple element arrangements and may result in the ability to separately account for more deliverables, and potentially less revenue deferrals. Additionally, this new accounting treatment requires enhanced disclosures in financial statements. This new accounting treatment will impact any new contracts entered into by LiveTV, as well as any loyalty program or commercial partnership arrangements we may enter into or materially modify. Since adoption of this new accounting treatment, we have not entered into any new or materially modified contracts.

In May 2011, the FASB issued Accounting Standards Update 2011-04, or ASU 2011-04, amending the Fair Value Measurement topic of the Codification. The amendments in this update were intended to result in common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards, or IFRS. ASU 2011-04 expands and enhances current disclosures about fair value measurements and clarifies the FASB’s intent about the application of existing fair value measurement requirements in certain circumstances. These amendments are effective for fiscal years and interim periods beginning after December 15, 2011 and should be applied prospectively. Although we continue to review this update, we do not believe that it will have a material impact on our consolidated financial statements or the notes thereto.

In June 2011, the FASB issued Accounting Standards Update 2011-05, or ASU 2011-05, amending the Comprehensive Income topic of the Codification. This update changes the requirements for the presentation of other comprehensive income, eliminating the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity, among other things. ASU 2011-05 requires that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. These amendments are effective for fiscal years and interim periods beginning after December 15, 2011 and should be applied retrospectively. Since the update only requires a change in presentation, we do not expect that the adoption of this standard will have a material impact on our results of operations, cash flows or financial condition.

Note 2 — Stock-Based Compensation

      2011 Incentive Compensation Plan: At our Annual Shareholders Meeting held on May 26, 2011, our shareholders approved the new 2011 Incentive Compensation Plan, or 2011 Plan, which replaces the Amended and Restated 2002 Stock Incentive Plan, which was set to expire at the end of 2011. Upon inception, the 2011 Plan had 15.0 million shares of our common stock reserved for issuance. The 2011 Plan, by its terms, will terminate no later than May 2021. During June 2011, we granted an insignificant amount of restricted stock units and deferred stock units under the 2011 Plan.

      Amended and Restated 2002 Stock Incentive Plan : During the six months ended June 30, 2011, we granted approximately 2.7 million restricted stock units under our Amended and Restated 2002 Stock Incentive Plan, at a weighted average grant date fair value of $6.01 per share. We issued approximately 1.6 million shares of our common stock in connection with the vesting of restricted stock units during the six months ended June 30, 2011. At June 30, 2011, 4.6 million restricted stock units were unvested with a weighted average grant date fair value of $5.64 per share.

      Crewmember Stock Purchase Plan: In May 2011, our shareholders also approved the new 2011 Crewmember Stock Purchase Plan, or 2011 CSPP, to replace the original Crewmember Stock Purchase Plan, which was set to expire in April 2012. The 2011 CSPP has 8.0 million shares of our common stock reserved for issuance. The 2011 CSPP, by its terms, will terminate no later than the last business day of April 2021. All other terms of the 2011 CSPP are essentially the same as the original CSPP.

      LiveTV Equity Incentive Plan: In May 2011, we terminated the LiveTV Equity Incentive Plan, or LiveTV EIP. In exchange for the release of their rights under the LiveTV EIP, participants were granted restricted stock units under the Amended and Restated 2002 Stock Incentive Plan in May 2011.

Note 3 — Long-term Debt and Capital Lease Obligations

Own Share-Lending Arrangement

     In June 2008, as more fully described in Note 2 of our 2010 Annual Report, we loaned 44.9 million shares of our common stock in conjunction with our 2008 $201 million convertible debt issuance. As of June 30, 2011, there were approximately 18.0 million shares outstanding under the share lending

agreement. The fair value of similar common shares not subject to our share lending arrangement, based upon our closing stock price, was approximately $110 million.

Other Indebtedness

     During the six months ended June 30, 2011, we issued $93 million in non-public floating rate equipment notes due through 2025 and $48 million, net of discount, in fixed rate equipment notes due through 2026, which are secured by three new Airbus A320 aircraft and two new EMBRAER 190 aircraft.

     We do not have any financial covenants associated with our debt agreements other than certain collateral ratio requirements in our spare parts pass-through certificates and spare engine financing issued in November 2006 and December 2007, respectively. If we fail to maintain these collateral ratios, we are required to provide additional collateral or redeem some or all of the equipment notes so that the ratios return to compliance. As a result of lower spare parts inventory balances and the associated reduced third party valuation of these parts, we pledged as collateral a previously unencumbered spare engine with a carrying value of approximately $7 million during the second quarter of 2011.

     Aircraft, engines and other equipment and facilities having a net book value of $3.67 billion at June 30, 2011 were pledged as security under various loan agreements.

     Our outstanding debt and capital lease obligations were reduced by $91 million as a result of principal payments made during the six months ended June 30, 2011. At June 30, 2011, the weighted average interest rate of all of our long-term debt was 4.53% and scheduled maturities were $96 million for the remainder of 2011, $193 million in 2012, $392 million in 2013, $612 million in 2014, $256 million in 2015 and $1.53 billion thereafter.

     The carrying amounts and estimated fair values of our long-term debt at June 30, 2011 and December 31, 2010 were as follows (in millions):

     The estimated fair values of our publicly held long-term debt were based on quoted market prices or other observable market inputs when instruments are not actively traded. The fair value of our non-public debt was estimated using discounted cash flow analysis based on our borrowing rates for instruments with similar terms. The fair values of our other financial instruments approximate their carrying values.

     We utilize a policy provider to provide credit support on the Class G-1 and Class G-2 certificates. The policy provider has unconditionally guaranteed the payment of interest on the certificates when due and the payment of principal on the certificates no later than 18 months after the final expected regular distribution date. The policy provider is MBIA Insurance Corporation (a subsidiary of MBIA, Inc.).

     A rollforward of the amounts included in accumulated other comprehensive income (loss), net of taxes, for the three and six months ended June 30, 2011 is as follows (in millions):

     The following table shows how we computed basic and diluted earnings per common share (dollars in millions; share data in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Numerator:
Net income		$	25			$	31			$	28			$	30
Effect of dilutive securities:
Interest on convertible debt, net of income taxes			3				3				2				6
Net income applicable to common stockholders after assumed conversion for diluted earnings per share		$	28			$	34			$	30			$	36
Denominator:
Weighted average shares outstanding for basic earnings per share			278,459				275,229				277,863				274,644
Effect of dilutive securities:
Employee stock options			1,795				2,603				1,937				2,506
Convertible debt			68,605				68,605				27,429				68,605
Adjusted weighted average shares outstanding and assumed conversions for diluted earnings per share			348,859				346,437				307,229				345,755
Shares excluded from EPS calculation (in millions):
Shares issuable upon conversion of our convertible debt as assumed conversion would be antidilutive			—				—				41.2				—
Shares issuable upon exercise of outstanding stock options or vesting of restricted stock units as assumed exercise would be antidilutive			22.3				22.5				23.1				25.8

     As of June 30, 2011, a total of approximately 18.0 million shares of our common stock, which were lent to our share borrower pursuant to the terms of our share lending agreement, as described more fully in Note 2 to our 2010 Form 10-K, were issued and outstanding for corporate law purposes. Holders of the borrowed shares have all the rights of a holder of our common stock. However, because the share borrower must return all borrowed shares to us (or identical shares or, in certain circumstances of default by the counterparty, the cash value thereof), the borrowed shares are not considered outstanding for the purpose of computing and reporting basic or diluted earnings (loss) per share.

Note 6 — Employee Retirement Plan

     We sponsor a retirement savings 401(k) defined contribution plan, or the Plan, a component of which is a profit sharing contribution for certain eligible employees. All employees are eligible to participate in the Plan. Our contributions expensed for the Plan for the three months ended June 30, 2011 and 2010 were $15 million and $13 million, respectively, and contributions expensed for the Plan for the six months ended June 30, 2011 and 2010 were $31 million and $27 million, respectively.

Note 7 — Commitments and Contingencies

     In June 2011, we amended our Airbus purchase agreement, deferring delivery of eight aircraft previously scheduled for delivery in 2014 through 2015 to 2017. Additionally, we cancelled the eight options previously scheduled for delivery in 2014 and 2015. In February 2011, we cancelled the orders for two EMBRAER 190 aircraft previously scheduled for delivery in 2013.

     During the second quarter of 2011, we extended the leases on four Airbus A320 aircraft, leases which were previously set to expire in 2012. These extensions resulted in an additional $19 million of lease commitments through 2015. In May 2011, we returned one EMBRAER E190 aircraft to its lessor, upon expiration of the lease term.

     As of June 30, 2011, our firm aircraft orders consisted of 52 Airbus A320 aircraft, 50 EMBRAER E190 aircraft and 14 spare engines scheduled for delivery through 2018. Committed expenditures for these aircraft, including the related flight equipment and estimated amounts for contractual price escalations and predelivery deposits, were approximately $200 million for the remainder of 2011, $460 million in 2012, $505 million in 2013, $655 million in 2014, $735 million in 2015 and $1.60 billion thereafter.

     In June 2011, we also executed a memorandum of understanding with Airbus to substitute 30 of our 52 remaining A320 aircraft deliveries with A321 aircraft and to place a new order for 40 A320 new engine option, or A320neo, aircraft with delivery tentatively scheduled to commence in 2017. We plan to execute a new purchase agreement incorporating the details of this memorandum of understanding with Airbus later this year.

     In March 2011, we executed a seven year agreement, subject to an optional three year extension, with ViaSat Inc. to develop and introduce in-flight broadband connectivity technology on our aircraft. Committed expenditures under this agreement include a minimum of $9 million through 2017 and an additional $22 million for minimum hardware and software purchases. Through our wholly-owned subsidiary LiveTV, we plan to partner with ViaSat to make this technology available to other airline customers in the future as well.

     As of June 30, 2011, we had approximately $31 million of restricted assets pledged under standby letters of credit related to certain of our leases which will expire at the end of the related lease terms. Additionally, we had $19 million pledged related to our workers compensation insurance policies and other business partner agreements, which will expire according to the terms of the related policies or agreements.

     In March 2010, we announced we will be combining our Darien, CT and Forest Hills, NY corporate offices and relocating to a new corporate headquarters in Long Island City, NY. In September 2010, we executed a 12 year lease for our new corporate headquarters in Long Island City. Other than this commitment related to this lease, we do not have any material obligations as of June 30, 2011 related to this corporate relocation, which is currently scheduled to commence in 2012.

Note 8 —Financial Derivative Instruments and Risk Management

     As part of our risk management strategy, we periodically purchase crude or heating oil option contracts or swap agreements to manage our exposure to the effect of changes in the price and availability of aircraft fuel. Prices for these commodities are normally highly correlated to aircraft fuel, making derivatives of them effective at providing short-term protection against sharp increases in average fuel prices. We also periodically enter into basis swaps for the differential between heating oil and jet fuel, as well as jet fuel swaps, to further limit the variability in fuel prices at various locations. To manage the variability of the cash flows associated with our variable rate debt, we have also entered into interest rate swaps. We do not hold or issue any derivative financial instruments for trading purposes.

      Aircraft fuel derivatives : We attempt to obtain cash flow hedge accounting treatment for each aircraft fuel derivative that we enter into. This treatment is provided for under the Derivatives and Hedging topic of the Codification, which allows for gains and losses on the effective portion of qualifying hedges to be deferred until the underlying planned jet fuel consumption occurs, rather than recognizing the gains and losses on these instruments into earnings during each period they are outstanding. The effective portion of

realized aircraft fuel hedging derivative gains and losses is recognized in fuel expense in the period the underlying fuel is consumed.

     Ineffectiveness results, in certain circumstances, when the change in the total fair value of the derivative instrument differs from the change in the value of our expected future cash outlays for the purchase of aircraft fuel and is recognized immediately in interest income and other. Likewise, if a hedge does not qualify for hedge accounting, the periodic changes in its fair value are recognized in the period of the change in interest income and other. When aircraft fuel is consumed and the related derivative contract settles, any gain or loss previously recorded in other comprehensive income is recognized in aircraft fuel expense. All cash flows related to our fuel hedging derivatives are classified as operating cash flows.

     Our current approach to fuel hedging is to enter into hedges on a discretionary basis without a specific target of hedge percentage needs in order to mitigate potential liquidity issues and cap fuel prices, when possible.

     The following table illustrates the approximate hedged percentages of our projected fuel usage by quarter as of June 30, 2011 related to our outstanding fuel hedging contracts that were designated as cash flow hedges for accounting purposes.

     We also have outstanding contracts, which we entered into in the first quarter of 2011, for approximately 5% of our projected consumption for the third and fourth quarters of 2011 using 3-way crude oil collars, which have not been designated as cash flow hedges for accounting purposes. We also enter into basis swaps, which we do not designate as cash flow hedges and adjust their fair value through earnings each period based on their current fair value. As of June 30, 2011, the fair value recorded for these contracts was immaterial.

      Interest rate swaps : The interest rate hedges we had outstanding as of June 30, 2011 effectively swap floating rate for fixed rate, taking advantage of lower borrowing rates in existence at the time of the hedge transaction as compared to the date our original debt instruments were executed. As of June 30, 2011, we had $375 million in notional debt outstanding related to these swaps, which cover certain interest payments through August 2016. The notional amount decreases over time to match scheduled repayments of the related debt.

     All of our outstanding interest rate swap contracts qualify as cash flow hedges in accordance with the Derivatives and Hedging topic of the Codification. Since all of the critical terms of our swap agreements match the debt to which they pertain, there was no ineffectiveness relating to these interest rate swaps in 2011 or 2010, and all related unrealized losses were deferred in accumulated other comprehensive income. We recognized approximately $5 million and $4 million in additional interest expense as the related interest payments were made during the six months ended June 30, 2011 and 2010, respectively.

     Any outstanding derivative instrument exposes us to credit loss in the event of nonperformance by the counterparties to the agreements, but we do not expect that any of our six counterparties will fail to meet their obligations. The amount of such credit exposure is generally the fair value of our outstanding contracts. To manage credit risks, we select counterparties based on credit assessments, limit our overall

exposure to any single counterparty and monitor the market position with each counterparty. Some of our agreements require cash deposits if market risk exposure exceeds a specified threshold amount.

     The financial derivative instrument agreements we have with our counterparties may require us to fund all, or a portion of, outstanding loss positions related to these contracts prior to their scheduled maturities. The amount of collateral posted, if any, is periodically adjusted based on the fair value of the hedge contracts. Our policy is to offset the liabilities represented by these contracts with any cash collateral paid to the counterparties. We did not have any collateral posted related to our outstanding fuel hedge contracts at June 30, 2011 or December 31, 2010. We had $24 million and $30 million posted in collateral related to our interest rate derivatives which offset the hedge liability in other current liabilities at June 30, 2011 and December 31, 2010, respectively.

     The table below reflects quantitative information related to our derivative instruments and where these amounts are recorded in our financial statements (dollar amounts in millions):

Note 9 —Fair Value of Financial Instruments

     Under the Fair Value Measurements and Disclosures topic of the Codification, disclosures are required about how fair value is determined for assets and liabilities and a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows:

     The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following is a listing of our assets and liabilities required to be measured at fair value on a recurring basis and where they are classified within the hierarchy as of June 30, 2011 and December 31, 2010 (in millions).

     Refer to Note 3 for fair value information related to our outstanding debt obligations as of June 30, 2011. The following tables reflect the activity for the major classes of our assets and liabilities measured at fair value using level 3 inputs (in millions) for the three and six months ended June 30, 2011 and 2010:

      Cash and cash equivalents : Our cash and cash equivalents include money market securities and trade deposits and commercial paper which are readily convertible into cash with maturities of three months or less when purchased. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as level 1 within our fair value hierarchy.

      Available-for-sale investment securities: Included in our available-for-sale investment securities are certificates of deposit placed through an account registry service, or CDARS, and commercial paper with original maturities greater than 90 days but less than one year. We also held asset backed securities, which are considered variable rate demand notes with contractual maturities generally greater than ten years with interest reset dates often every 30 days or less. The fair values of these investments are based on observable

market data. We did not record any significant gains or losses on these securities during the six months ended June 30, 2011.

      Auction rate securities and related put option : In July 2010, all of our then outstanding auction rate securities were repurchased at par by UBS in accordance with the settlement agreement we had with UBS. The proceeds were used to terminate the outstanding balance on the line of credit with UBS. As a result, we no longer hold any trading securities at June 30, 2011, and the related put option was also terminated upon final sale of the investments. We had elected to apply the fair value option under the Financial Instruments topic of the Codification to the UBS put option in order to closely conform to our treatment of the underlying ARS.

      Interest Rate Swaps : The fair values of our interest rate swaps are initially based on inputs received from the counterparty. These values were corroborated by adjusting the active swap indications in quoted markets for similar terms (6 — 8 years) for the specific terms within our swap agreements. Since some of these inputs were not observable, they are classified as level 3 inputs in the hierarchy.

      Aircraft fuel derivatives : Our jet fuel swaps, heating oil and crude oil collars, and crude oil caps are not traded on public exchanges. Their fair values are determined using a market approach based on inputs that are readily available from public markets for commodities and energy trading activities; therefore, they are classified as level 2 inputs. The data inputs are combined into quantitative models and processes to generate forward curves and volatilities related to the specific terms of the underlying hedge contracts.

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Outlook

     We remain focused on generating unit revenue growth even with our increase in capacity and despite persistent challenges with the fuel pricing environment and domestic economy. During the second quarter of 2011, our operating revenue per available seat mile increased 13% on a capacity increase of 9%. Our average fares for the second quarter increased 14% to $158 over the same period in 2010. Average fuel prices over the same period increased 44%. Our growth is a result of seizing opportunities in the competitive landscape, particularly in Boston and the Caribbean and Latin America, where we have recently dedicated significant investments. Due to uncertain economic conditions, we do not anticipate unit revenue growth as strong as we experienced in the first half of the year for the remainder of 2011. However, our strong liquidity position affords us some flexibility to navigate the challenging fuel environment and to re-focus our efforts, if needed, to proactively respond to changes in the demand and pricing environments.

     We continue to leverage our presence as the largest domestic carrier at both New York’s John F. Kennedy Airport, or JFK, and Boston’s Logan International Airport, or Logan. Attracting and building a loyal base of business travelers is a critical component of our growth strategy, particularly in Boston. We also continue to build our portfolio of strategic commercial partnerships to allow our customers further access to our network and beyond. To this end, during the second quarter, we announced two new commercial partnerships, with Icelandair, the flagship carrier of Iceland, and Qatar Airways, the national airline of the State of Qatar and one of the world’s fastest growing airlines.

     Our disciplined growth strategy includes managing capacity as well as the growth, size and age of our fleet. We remain focused on our operations in Boston and the Caribbean and Latin America, especially as competitive reductions continue in those regions. This includes our focus on our growth in San Juan, Puerto Rico, where we recently became the largest airline serving Puerto Rico. Most recently, we have announced plans to begin service to La Romana, Dominican Republic and Liberia, Costa Rica in November 2011, and St. Croix and St. Thomas in the U.S. Virgin Islands in December, 2011. Our growth in these regions allow for us to diversify our leisure and visiting friends and family traffic.

     In June 2011, we amended our Airbus purchase agreement, deferring delivery of eight aircraft previously scheduled for delivery in 2014 and 2015 to 2017. Additionally, we cancelled eight options previously available for delivery in 2014 and 2015. During the second quarter, we returned one EMBRAER E190 aircraft to its lessor upon the expiration of its lease term. We also extended the leases on four Airbus A320 aircraft, leases which were previously set to expire in 2012. We expect our operating aircraft to consist of 120 Airbus A320 aircraft and 49 EMBRAER 190 aircraft at the end of 2011. We have one of the youngest and most fuel efficient fleets in the industry, with an average age of 5.7 years, which we believe gives us a competitive advantage.

     In June 2011, we also executed a memorandum of understanding with Airbus to substitute 30 of our 52 remaining A320 aircraft deliveries with A321 aircraft and to place a new order for 40 A320 new engine option, or A320neo, aircraft with delivery tentatively scheduled to commence in 2017. We plan to execute a new purchase agreement, incorporating the details of this memorandum of understanding with Airbus later this year.

     In addition to the above fleet adjustments, all of our A320 and A321 deliveries beginning in 2013 will be equipped with sharklet wing tips, which we expect to improve our fuel efficiency by roughly 3%. We anticipate that the improved fuel efficiency of these new aircraft as well as the A320neo aircraft will provide significant savings against our largest and most unpredictable cost.

     We believe our strong brand and the JetBlue Experience are core elements of our continued success. To that end, we continually seek to enhance our product and provide our customers with superior service. In June 2011, we re-branded and expanded our popular Even More Legroom offering, now known as Even More Space, to include extra legroom plus early boarding and early access to overhead bin space. Additionally, we introduced Even More Speed, which offers customers the option to enjoy an expedited

security experience in select JetBlue airports. Earlier in 2011, we executed an agreement with ViaSat Inc. to develop and introduce state of the art in-flight broadband connectivity technology on our aircraft.

     The price and availability of aircraft fuel, which is our single largest operating expense, are extremely volatile due to global economic and geopolitical factors that we can neither control nor accurately predict. During 2011, fuel prices have remained volatile. We actively manage the volume and diversification of our fuel hedge portfolio. We effectively hedged 43% of our total second quarter 2011 fuel consumption. As of June 30, 2011, we had outstanding fuel hedge contracts covering approximately 48% of our forecasted consumption for the third quarter of 2011, 42% for the full year 2011, and 15% for the full year 2012. We will continue to monitor fuel prices closely and expect to take advantage of fuel hedging opportunities in order to provide some protection against significant volatility and increases in fuel prices.

     We expect our full-year operating capacity to increase approximately 6% to 8% over 2010 primarily as a result of our growth in Boston and the Caribbean and Latin America including San Juan, Puerto Rico and the net addition of four EMBRAER 190 and four Airbus A320 aircraft to our operating fleet. Assuming fuel prices of $3.24 per gallon, including fuel taxes and net of effective hedges, our cost per available seat mile for 2011 is expected to increase by 14% to 16% over 2010. This expected increase is a result of higher fuel prices and higher maintenance costs.

Results of Operations

     Our operating revenue per available seat mile for the quarter increased 13% over the same period in 2010. Our average fares for the quarter increased 14% over 2010 to $158, while our load factor decreased 0.5 points to 81.5% from a year ago. Our on-time performance, defined by the Department of Transportation, or DOT, as arrival within 14 minutes of schedule, was 72.7% in the second quarter of 2011 compared to 83.2% for the same period in 2010, while our completion factor was 99.2% in each of 2011 and 2010.

Three Months Ended June 30, 2011 and 2010

     We reported net income of $25 million for the three months ended June 30, 2011, compared to $31 million for the three months ended June 30, 2010. Diluted earnings per share were $0.08 for the second quarter of 2011 compared to $0.10 for 2010. Our operating income for the three months ended June 30, 2011 was $86 million compared to $95 million for the same period last year, and our pre-tax margin decreased 1.8 points from 2010 to 3.8%.

      Operating Revenues. Operating revenues increased 22%, or $211 million, over the same period in 2010, primarily due to a 23%, or $195 million, increase in passenger revenues. The increase in passenger revenues was largely attributable to a 9% increase in capacity along with a 14% increase in yield over the second quarter of 2010. This includes revenue from our re-branded Even More Space seats, which increased approximately $10 million.

     Other revenue increased 17%, or $16 million, primarily due to a $4 million increase in marketing related revenues. Additionally, we had a $4 million increase in LiveTV third party revenues, $2 million increase in baggage fees and a $2 million increase in rental income.

      Operating Expenses. Operating expenses increased 26%, or $220 million, over the same period in 2010, primarily due to higher fuel prices and increased maintenance costs. Operating capacity increased 9% to 9.44 billion available seat miles. Operating expenses per available seat mile increased 16% to 11.28 cents for the three months ended June 30, 2011. Excluding fuel, our cost per available seat mile for the three months ended June 30, 2011 was 2% higher compared to the same period in 2010. In detail, operating costs per available seat mile were as follows (percent changes are based on unrounded numbers):

     Aircraft fuel expense increased 58%, or $160 million, due to a 44% increase in average fuel cost per gallon, or $133 million after the impact of fuel hedging, and an increase of 12 million gallons of aircraft fuel consumed, resulting in $27 million in additional fuel expense. We recorded $5 million in effective fuel hedge gains during the second quarter of 2011 versus $2 million in effective fuel hedge losses during the same period in 2010. Our average fuel cost per gallon was $3.31 for the second quarter of 2011 compared to $2.30 for the second quarter of 2010. Cost per available seat mile increased 45% primarily due to the increase in fuel price.

     Salaries, wages and benefits increased 8%, or $17 million, primarily due to increases in wages and related benefits as a result of pay increases for many of our larger work groups and the increasing seniority levels of our crewmembers. Additionally, we had a 12% increase in the average number of full-time equivalent pilots and flight attendants needed to support our growth plans. Cost per available seat mile decreased 1% primarily due to the increase in capacity.

     Landing fees and other rents increased 10%, or $5 million, primarily due to a 10% increase in departures over 2010. Airport rental rates increased due to increased rates in existing markets, the opening of five new cities since the second quarter of 2010 and expanded operations in Boston. These rate increases were slightly offset by lower average landing fee rates. Cost per available seat mile increased 1% due to increased departures.

     Depreciation and amortization increased 8%, or $4 million, primarily due to having an average of 104 owned and capital leased aircraft in 2011 compared to 96 in 2010. Cost per available seat mile decreased 1% due to the increase in capacity.

     Aircraft rent increased 16%, or $5 million, due to our leasing of six used aircraft during the second half of 2010. Cost per available seat mile increased 6% due to a higher percentage of our fleet being leased.

     Sales and marketing expense increased 18%, or $8 million, due to $5 million in higher credit card fees resulting from the increased average fares and $3 million in higher advertising costs. On a cost per available seat mile basis, sales and marketing expense increased 8% primarily due to increased fares and higher advertising expense.

     Maintenance, materials, and repairs increased 29%, or $13 million, due to 13.6 additional average operating aircraft in 2011 compared to the same period in 2010, the gradual aging of our fleet, and aircraft coming off of warranty. The average age of our fleet increased to 5.7 years as of June 30, 2011 compared to

4.8 years as of June 30, 2010. Maintenance expense is expected to increase significantly as our fleet ages, resulting in the need for additional repairs over time. Cost per available seat mile increased 18% primarily due to the gradual aging of our fleet.

     Other operating expenses increased 7%, or $8 million, primarily due to an increase in variable costs as a result of 10% more departures versus 2010 and operating out of five additional cities opened since the second quarter of 2010. Cost per available seat mile decreased 2% primarily due the increase in capacity.

      Other Income (Expense). Interest expense increased 2%, or $1 million, primarily due to new debt issued.

     Interest income and other increased 127%, or $1 million, primarily due to fuel hedging ineffectiveness. Additionally, in the second quarter of 2011, we recorded a $1 million loss to adjust the fair market value of derivative instruments not classified as cash flow hedges. Accounting ineffectiveness on our crude and heating oil derivative instruments classified as cash flow hedges resulted in an insignificant loss in 2011, compared to a $2 million loss in 2010. We are unable to predict what the amount of ineffectiveness will be related to these instruments, or the potential loss of hedge accounting, which is determined on a derivative-by-derivative basis, due to the volatility in the forward markets for these commodities.

Six Months Ended June 30, 2011 and 2010

     We reported net income of $28 million for the six months ended June 30, 2011, compared to $30 million for the six months ended June 30, 2010. Diluted earnings per share were $0.10 for the six months ended June 30, 2011 compared to $0.11 for the same period in 2010. Our operating income for the six months ended June 30, 2011 was $131 million compared to $138 million for the same period last year, and our pre-tax margin decreased 0.5 points from 2010 to 2.3%.

      Operating Revenues. Operating revenues increased 19%, or $352 million, over the same period in 2010, primarily due to a 19%, or $315 million, increase in passenger revenues. The increase in passenger revenues was largely attributable to a 5% increase in capacity along with an 11% increase in yield over the first half of 2010. This includes $15 million increase in Even More Space fees as a result of increased capacity and revised pricing.

     Other revenue increased 21%, or $37 million, primarily due to a $13 million increase in marketing related revenues, of which $5 million related to an increase in revenue recognized related to the guarantee associated with our co-branded credit card agreement. We also had a $9 million increase in third party revenues for LiveTV. Change fees increased 10%, or $5 million, over the same period in 2010 as a result of several change fee waivers implemented during the first half of 2010 in conjunction with our system migration. Additionally, rental income increased approximately $3 million, baggage fees increased approximately $2 million and inflight sales revenue increased $2 million.

      Operating Expenses. Operating expenses increased 21%, or $359 million, over the same period in 2010, primarily due to higher fuel prices and increased maintenance costs. Operating capacity increased 5% to 17.95 billion available seat miles. Operating expenses per available seat mile increased 16% to 11.32 cents for the six months ended June 30, 2011. Excluding fuel, our cost per available seat mile for the six months ended June 30, 2011 was 4% higher compared to the same period in 2010. In detail, operating costs per available seat mile were as follows (percent changes are based on unrounded numbers):

     Aircraft fuel expense increased 49%, or $259 million, due to a 40% increase in average fuel cost per gallon, or $225 million after the impact of fuel hedging, and an increase of 16 million gallons of aircraft fuel consumed, resulting in $34 million in additional fuel expense. We recorded $7 million in effective fuel hedge gains during 2011 versus an immaterial amount in effective fuel hedge losses during 2010. Our average fuel cost per gallon was $3.14 for the six months ended June 30, 2011 compared to $2.25 for the same period in 2010. Cost per available seat mile increased 42% primarily due to the increase in fuel price.

     Salaries, wages and benefits increased 8%, or $33 million, primarily due to increases in wages and related benefits as a result of pay increases for many of our larger work groups and the increasing seniority levels of our crewmembers. Additionally, we had a 9% increase in the average number of full-time equivalent pilots and flight attendants needed to support our growth plans. These increases were partially offset by an additional $6 million of expense associated with higher staffing levels in the first quarter of 2010 related to the implementation of our new customer service system. Cost per available seat mile increased 3% primarily due to an increase in full-time equivalent employees and pay rate adjustments.

     Landing fees and other rents increased 7%, or $8 million, primarily due to a 7% increase in departures over 2010. Airport rental rates increased due to increased rates in existing markets, the opening of five new cities since the second quarter of 2010, and expanded operations in Boston. These rate increases were slightly offset in lower average landing fee rates. Cost per available seat mile increased 2% due to increased departures.

     Depreciation and amortization increased 3%, or $3 million, primarily due to having an average of 103 owned and capital leased aircraft in 2011 compared to 96 in 2010. Cost per available seat mile decreased 2% due to the increase in capacity.

     Aircraft rent increased 13%, or $8 million, due to our leasing of six used aircraft during the second half of 2010. Cost per available seat mile increased 7% due to a higher percentage of our fleet being leased.

     Sales and marketing expense increased 16%, or $13 million, due to $6 million in higher credit card fees resulting from the increased average fares and $6 million in higher advertising costs. Additionally, we incurred $1 million in higher commissions in 2011 related to our participation in GDSs and OTAs. On a cost per available seat mile basis, sales and marketing expense increased 10% primarily due to increased fares and higher advertising costs.

     Maintenance, materials, and repairs increased 32%, or $26 million, due to 12 additional average operating aircraft in 2011 compared to the same period in 2010, the gradual aging of our fleet and aircraft coming off of warranty. The average age of our fleet increased to 5.7 years as of June 30, 2011 compared to 4.8 years as of June 30, 2010. Maintenance expense is expected to increase significantly as our fleet ages, resulting in the need for additional repairs over time. Cost per available seat mile increased 26% primarily due to the gradual aging of our fleet.

     Other operating expenses increased 3%, or $9 million, primarily due an increase in variable costs as a result of 7% more departures versus 2010 and operating out of five additional cities opened since the second quarter of 2010. These increases were offset by $13 million in one time costs related to the implementation of our new customer service system incurred in 2010. Cost per available seat mile decreased 1% due to the increase in capacity.

      Other Income (Expense). Interest expense decreased 2%, or $2 million, primarily due to lower average principal balances outstanding on our debt.

     Interest income and other increased 270%, or $3 million, primarily due to changes in fuel hedging ineffectiveness. Additionally, during 2011, we recorded a $1 million gain to adjust the fair market value of derivative instruments not classified as cash flow hedges. Accounting ineffectiveness on our crude and heating oil derivative instruments classified as cash flow hedges was an insignificant gain in 2011 versus a loss of $2 million in 2010. We are unable to predict what the amount of ineffectiveness will be related to these instruments, or the potential loss of hedge accounting, which is determined on a derivative-by-derivative basis, due to the volatility in the forward markets for these commodities.

     The following table sets forth our operating statistics for the three months ended June 30, 2011 and 2010:

Liquidity and Capital Resources

     At June 30, 2011, we had unrestricted cash and cash equivalents of $575 million and short term investments of $598 million compared to cash and cash equivalents of $465 million and short term investments of $495 million at December 31, 2010. Cash flows from operating activities were $406 million and $356 million for the six months ended June 30, 2011 and 2010, respectively. The increase in operating cash flows reflects the 10% increase in average fares and the 40% higher price of fuel in 2011 compared to 2010. We rely primarily on operating cash flows to provide working capital.

      Investing Activities. During the six months ended June 30, 2011, capital expenditures related to our purchase of flight equipment included $156 million for three Airbus A320 aircraft and two EMBRAER E190 aircraft, $24 million for flight equipment deposits and $12 million for spare part purchases. Capital expenditures for other property and equipment, including ground equipment purchases, facilities improvements, and LiveTV inventory, were $36 million. Investing activities also included the net purchase of $110 million in investment securities.

     During the six months ended June 30, 2010, capital expenditures related to our purchase of flight equipment included $65 million for two aircraft and two spare engines, $20 million for flight equipment deposits and $8 million for spare part purchases. Capital expenditures for other property and equipment, including ground equipment purchases, facilities improvements, and LiveTV inventory, were $58 million. Investing activities also included the net purchase of $437 million in investment securities.

      Financing Activities. Financing activities for the six months ended June 30, 2011 consisted of (1), scheduled maturities of $92 million of debt and capital lease obligations, (2) our issuance of $48 million in fixed rate equipment notes and $93 million in non-public floating rate equipment notes secured by three Airbus A320 aircraft and two EMBRAER 190 aircraft, (3) the repayment of $8 million in principal related to our construction obligation for Terminal 5 and (4) $3 million in treasury shares related to the withholding of taxes, upon the vesting of restricted stock units.

     We may in the future issue, in one or more public offerings, debt securities, pass-through certificates, common stock, preferred stock and/or other securities. At this time, we have no plans to sell any such securities.

     Financing activities for the six months ended June 30, 2010 consisted of (1) the required repurchase of $155 million of our 3.75% convertible debentures due 2035, (2) repaying a net $17 million on our line of credit collateralized by our auction rate securities, (3) scheduled maturities of $84 million of debt and capital lease obligations, (4) our issuance of $47 million in fixed rate equipment notes and $19 million in non-public floating rate equipment notes secured by two EMBRAER 190 aircraft and four spare engines, and (5) reimbursement of construction costs incurred for Terminal 5 of $9 million.

      Working Capital. We had working capital of $252 million and $275 million at June 30, 2011 and December 31, 2010, respectively. Our working capital includes the fair value of our short term fuel hedge derivatives, which was an asset of $9 million and $19 million at June 30, 2011 and December 31, 2010, respectively.

     We expect to meet our obligations as they become due through available cash, investment securities and internally generated funds, supplemented as necessary by financing activities, as they may be available to us. We expect to generate positive working capital through our operations. However, we cannot predict what the effect on our business might be from the extremely competitive environment we are operating in or from events that are beyond our control, such as volatile fuel prices, economic conditions, weather-related disruptions, the impact of airline bankruptcies or consolidations, U.S. military actions or acts of terrorism. We believe the working capital available to us will be sufficient to meet our cash requirements for at least the next 12 months.

Contractual Obligations

     Our noncancelable contractual obligations at June 30, 2011, include the following (in millions):

     There have been no material changes in the terms of our debt instruments from the information provided in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of

Operations-Liquidity and Capital Resources included in our 2010 Form 10-K. We are not subject to any financial covenants in any of our debt obligations. We have approximately $31 million of restricted cash pledged under standby letters of credit related to certain of our leases which will expire at the end of the related lease terms.

     As of June 30, 2011, we operated a fleet of 119 Airbus A320 aircraft and 46 EMBRAER 190 aircraft, of which 101 were owned, 60 were leased under operating leases and four were leased under capital leases. The average age of our operating fleet was 5.7 years at June 30, 2011. In June 2011, we amended our Airbus A320 purchase agreement, deferring eight aircraft previously scheduled for delivery in 2014 and 2015 to 2017, and canceling eight options previously available for delivery in 2014 and 2015. In February 2011, we cancelled the orders for two EMBRAER 190 aircraft previously scheduled for delivery in 2013. As of June 30, 2011, we had on order 52 Airbus A320 aircraft and 50 EMBRAER 190 aircraft; with options to acquire 59 additional EMBRAER 190 aircraft as follows: