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

Results of Operations

Three Months Ended March 31, 2003 and 2002

        Our net income for the three months ended March 31, 2003 increased to $17.4 million from $13.0 million for the three months ended March 31, 2002. We had operating income of $34.5 million for the first quarter of 2003 compared to operating income of $23.4 million in 2002. Diluted earnings per share was $0.25 for the first quarter of 2003 compared with $0.23 for the same period in 2002.

        Our operating margin for the three months ended March 31, 2003 was 15.9% compared to 17.5% for the same period in 2002. The Company's operating results for the three months ended March 31, 2003 were negatively affected by an increase in fuel prices and poor weather conditions in the Northeast, including the President's Day snowstorm which forced the cancellation of all flights at JFK and several at Washington D.C.'s Dulles International Airport. Our operating results were also affected by reduced demand for air travel experienced by the airline industry in the days leading up to and following the outbreak of war with Iraq as well as lower seasonal traffic in 2003 with Easter and Passover falling in April compared to 2002 when they fell in March.

        Operating Revenues.     Operating revenues increased 62.8%, or $83.8 million, primarily due to an increase in passenger revenues. Increased passengers resulting from a 63.3% increase in departures and a 0.6 percentage point increase in load factor, or $106.0 million, partially offset by a 10.7% decrease in yield, or $25.2 million, drove the increase in passenger revenue of $80.8 million for the three months ended March 31, 2003. The decrease in yield was primarily the result of our average stage length increasing by 10.7% in 2003 compared to 2002 and timing of the holidays. Other revenue increased 68.9%, or $3.0 million, primarily due to increased change fees of $1.7 million resulting from more passengers.

        Operating Expenses.     Operating expenses increased 66.1%, or $72.7 million, due to an average of 16.5 additional aircraft in service in 2003. Operating capacity increased 80.7% to 2.92 billion available seat miles and an increase in transcontinental flights over 2002 contributed to a 10.7% increase in average stage length. Operating expenses per available seat mile decreased 8.2% to 6.25 cents for the three months ended March 31, 2003, despite a 57.4% increase in average fuel cost per gallon. In detail, operating costs per available seat mile were:

        Even with the 23.0% sequential increase in average fuel cost per gallon, cost per available seat mile decreased by .07 cents, or 1.1%, over the fourth quarter of 2002. The decrease was due primarily

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to our capacity increases being greater than our headcount and advertising increases as well as decreases in bad debts.

        Salaries, wages and benefits increased 69.5%, or $23.3 million, due to an increase in average full-time equivalent employees of 63.5%, higher wage rates and a $1.4 million higher provision for our profit sharing plan in 2003 compared to 2002. Cost per available seat mile decreased 6.3% as a result of higher capacity.

        Aircraft fuel expense increased 177%, or $23.0 million, due to 15.9 million more gallons of aircraft fuel consumed resulting in $9.9 million of additional fuel expense and a 57.4% increase in average fuel cost per gallon, or $13.1 million. Cost per available seat mile increased 53.8% primarily due to the increase in average fuel cost per gallon.

        Sales and marketing expense increased 16.0%, or $1.6 million, due to higher credit card fees resulting from increased passenger revenues offset by lower travel agent commissions following their elimination in April 2002. On a cost per available seat mile basis, sales and marketing expense decreased 36.1% due to the increase in available seat miles and lower commissions. We booked the majority of our reservations through a combination of our website (71.0% in 2003) and our own reservation agents (26.3% in 2003).

        Landing fees and other rents increased 63.9%, or $6.4 million, due to a 63.3% increase in departures and higher lease rates at our terminal at JFK. Cost per available seat mile decreased 9.7% due to higher capacity and an increase in average stage length.

        Aircraft rent increased 37.8%, or $3.6 million due to having 5.7 more average aircraft under operating leases during the three months ended March 31, 2003 compared to 2002. Cost per available seat mile decreased 23.7% due to a lower percentage of the aircraft fleet being leased .

        Depreciation and amortization increased 119%, or $5.6 million, due to having 10.8 more average owned aircraft during the three months ended March 31, 2003 compared to March 2002 and amortization of the technology purchased in the September 2002 LiveTV acquisition. Cost per available seat mile increased 20.7% primarily due to a higher percentage of the aircraft fleet being owned versus leased.

        Maintenance materials and repairs increased 74.9%, or $1.4 million, due to 16.5 more average operating aircraft in 2003 compared to 2002. The cost per available seat mile decreased 8.3% due to higher capacity offset by the completion of six airframe checks in 2003 compared to three in 2002.

        Other operating expenses increased 28.4%, or $7.8 million. Higher variable costs associated with increased capacity and number of passengers served, along with higher fuel taxes and higher costs associated with the unfavorable weather conditions experienced during 2003 were the primary reasons for the increase. Cost per available seat mile decreased 28.8% as a result of lower bad debts and the consolidation of LiveTV's operations in 2003.

        Other Income (Expense).     Interest expense increased 47.9%, or $2.0 million, due to the debt financing of nine additional aircraft resulting in $2.7 million of additional interest expense, offset by lower interest rates resulting in $0.7 million less interest expense. Capitalized interest decreased 21.3%, or $0.3 million, primarily due to lower predelivery deposit balances and lower interest rates. Interest income increased $0.5 million primarily due to higher cash and investment balances in 2003 . Other income also included losses on hedging activities of $0.2 million and gains of $1.3 million for the three months ended March 31, 2003 and 2002, respectively.

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        The following table sets forth our operating statistics for the three months ended March 31, 2003 and 2002:

(1)

Excludes direct costs associated with LiveTV third party sales of $209,000 which are unrelated to our airline operations.

Recent Developments

        Aircraft Order.     On April 23, 2003 we amended our purchase contract with AVSA, S.A.R.L. dated April 20, 1999, increasing our firm aircraft orders by 65, resulting in a total purchase commitment of approximately $4.5 billion through 2011. We ordered all aircraft for which we previously had options to purchase or for which we had purchase rights as well as 20 new firm orders and 50 new purchase options. Concurrently, we amended our previous agreement with International Aero Engines to increase our firm engine orders to correspond to the increase in firm aircraft ordered, while also ordering 11 additional spare engines.

        War Time Supplemental Appropriations Act.     On April 16, 2003 the President signed into law the Emergency War Time Supplemental Appropriations Act of 2003, which provides for compensation to domestic air carriers based on their proportional share of passenger security and air carrier infrastructure security fees paid by those carriers through the date of enactment of the legislation. This compensation is to be remitted to the carriers no later than 30 days from the date of the enactment of this legislation. We estimate that we may receive up to $20 million in compensation, subject to change based on final allocation among the carriers and review by the government. Additionally this new legislation provides for (i) the suspension of passenger security fees and air carrier infrastructure security fees from June 1, 2003 through September 30, 2003, (ii) $100 million in reimbursement to carriers for the direct costs associated with installing strengthened flight deck doors and (iii) the extension of the aviation war risk insurance provided by the government for one year to August 2004.

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Liquidity and Capital Resources

        At March 31, 2003, we had cash and cash equivalents of $238.9 million, compared to $246.8 million at December 31, 2002. Cash flows from operating activities were $31.7 million for the three months ended March 31, 2003 compared to $22.4 million for the three months ended March 31, 2002. The increase in operating cash flows was primarily due to the growth of our business. We rely primarily on operating cash flows to provide working capital. We presently have no lines of credit other than a short-term borrowing facility for certain aircraft predelivery deposits.

        Investing activities.     During the three months ended March 31, 2003, capital expenditures related to our purchase of flight equipment included expenditures of $96.5 million for three Airbus aircraft and $5.1 million for spare part purchases. Capital expenditures for other property and equipment, including ground equipment purchases and facilities improvements, were $7.8 million.

        During the three months ended March 31, 2002, capital expenditures related to our purchase of flight equipment included expenditures of $88.7 million for three Airbus aircraft and one spare engine and $6.3 million for spare part purchases. Capital expenditures for other property and equipment, including ground equipment purchases and facilities improvements, were $4.4 million.

        Financing activities.     Financing activities for the three months ended March 31, 2003 consisted primarily of the sale and leaseback over 20 years of three aircraft for $113.7 million with a U.S. leasing institution and the repayment of debt of $13.7 million.

        Financing activities for the three months ended March 31, 2002 consisted primarily of the incurrence of $104 million of 10- and 12- year floating rate equipment notes secured by three aircraft and the repayment of debt of $19.6 million. All the aircraft equipment notes were issued to various European banks.

        Commitments.     At March 31, 2003, maturities of long-term debt were $37.0 million for the remainder of 2003, $50.0 million in 2004, $52.2 million in 2005, $51.6 million in 2006, $51.7 million in 2007, $53.2 million in 2008 and $380.8 thereafter. There have been no material changes in our debt instruments or financial covenants from the information provide in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation included in our 2002 Form 10-K. In addition, at March 31, 2003, we were in compliance with the covenants of all of our debt and lease agreements.

        As of March 31, 2003, as amended in April 2003, we have firm purchase orders for 111 Airbus A320 aircraft and options to acquire 50 additional aircraft, which are scheduled for delivery (on a relatively even basis during each year) through 2012 as follows:

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(1)

Assumes all options are exercised.

        Committed expenditures for the firm aircraft and 18 spare engines, including estimated amounts for contractual price escalations and predelivery deposits, will be $480 million for the remainder of 2003, $540 million in 2004, $625 million in 2005, $580 million in 2006, $ 600 million in 2007, $530 million in 2008 and $1.1 billion thereafter. Lease financing has been arranged for two of our remaining 2003 deliveries. Although we believe that debt and/or lease financing should be available for our remaining aircraft deliveries, we cannot assure you that we will be able to secure financing on terms attractive to us, if at all, which may require us to modify our aircraft acquisition plans. Other capital expenditures for spare parts, ground purchases and facility improvements for the remainder of 2003 are projected to be approximately $65 million in the aggregate.

        During 2003, we entered into non-cancelable operating leases for four aircraft, three of which have terms of 20 years and one of which has a 12 year term. Future minimum payments under these leases, including new facilities and equipment, will be $11.9 million for the remainder of 2003, $13.3 million for 2004, $14.2 million for 2005, $14.3 million for 2006, $14.0 million for 2007, $12.9 million for 2008 and $115.9 million thereafter.

        We operated a fleet of 41 Airbus A320 aircraft, of which 21 are owned and 20 are leased under operating leases as of March 31, 2003. The average age of our fleet was 16.8 months at March 31, 2003. In February 2003, we received approval from the Federal Aviation Administration, or the FAA, and the Department of Transportation to increase the number of aircraft we are allowed to operate to up to 70 aircraft through March 2005. As the size of our fleet increases, we anticipate the submission of another application to the FAA and the DOT requesting authorization to operate additional aircraft.

        We have $12.9 million of restricted cash pledged under standby letters of credit related to leases which expire at the end of the related lease terms. These balances are classified under other long-term assets in our consolidated balance sheets.

        Working capital.     Our working capital was $11.1 million as of March 31, 2003. We expect to continue generating positive working capital through our operations. However, we cannot predict whether current trends and conditions will continue, or how the effects of competition or other factors that are beyond our control will affect us, such as increased fuel prices, the impact to the aircraft finance market and the magnitude of financing we could arrange if any of the airlines in bankruptcy were to liquidate, or the likelihood of continued U.S. military involvement in Iraq, the Middle East or other regions. We still need to obtain financing for all but two of our ordered aircraft, as our anticipated cash flows from operations are not expected to be adequate to cover the acquisition cost of these aircraft. Assuming that we obtain this financing and utilize the pre-delivery short-term borrowing

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facility available to us, we believe the working capital available to us will be sufficient to meet our cash requirements for at least the next 12 months.

Critical Accounting Policies and Estimates

        There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation included in our 2002 Form 10-K.

Other Information

        Long Beach Update.     In February 2003, the City of Long Beach, American Airlines, Alaska Airlines and JetBlue agreed to a settlement regarding the non-commuter departure slots, which is subject to approval by the FAA. Of the original 27 slots granted to us in May 2001, we will return five slots to the City of Long Beach, leaving us with 22 slots. Of the five slots returned to the City of Long Beach, three will be given to American and two will go to Alaska. Subject to a 90-day call, which must be made by October 1, 2003, both JetBlue and American will be able to temporarily use one slot each of Alaska's allocated slots. If not called, then the temporary allocation becomes permanent. The agreement also provides for a priority allocation procedure should supplemental slots above the 41 current slots become available.

        Outlook.     We expect our operating capacity for 2003 to be approximately 55-60% over 2002 with the addition of 16 new aircraft during 2003. Average stage length is expected to increase to approximately 1,230 miles in 2003, which should result in lower passenger revenues per available seat mile. Unit costs are expected to be slightly lower for the remainder of 2003 with our fixed costs being spread over higher projected available seat miles. We have hedged approximately 80% of our remaining 2003 fuel requirements, which we believe will result in lower fuel prices than incurred during the first quarter. We continue to add service, as reflected by the new daily nonstop service between New York and San Diego, CA, our 22 ^nd destination, which will begin June 2003.

        Forward-Looking Information.     This report contains forward-looking statements relating to future events and our future performance including, without limitation, statements regarding financial forecasts or projections, our expectations, beliefs, intentions or future strategies that are signified by the words "expects", "anticipates", "intends", "believes" or similar language. Our actual results and the timing of certain events could differ materially from those expressed in the forward-looking statements. All forward-looking statements included in this report are based on information available to us on the date of this report. It is routine for our internal projections and expectations to change as the year or each quarter in the year progress, and therefore it should be clearly understood that the internal projections and beliefs upon which we base our expectations may change prior to the end of each quarter or the year. Although these expectations may change, we may not inform you if they do. Our policy is generally to provide our expectations only once per quarter, and not to update that information until the next quarter.

        You should understand that many important factors, in addition to those discussed in this report, could cause our results to differ materially from those expressed in the forward-looking statements. These factors include, in addition to other possible factors not listed, the war in Iraq and potential hostilities in the Middle East or other regions, our ability to implement our growth strategy and our dependence on the New York market, our fixed obligations and our limited operating history, seasonal fluctuations in our operating results, increases in maintenance costs, fuel prices and interest rates, our competitive environment, our reliance on sole suppliers and one type of aircraft, government regulation, our failure to properly integrate LiveTV or enforce its patents, the loss of key personnel and potential problems with our workforce including work stoppages, and continuing changes in the airline industry following the September 11th terrorist attacks and the increased risk of additional attacks.

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        Additional information concerning these and other factors is contained in the our Securities and Exchange Commission filings, including but not limited to, our 2002 Form 10-K.