ROBIN HAYES ADDRESS TO INTERNATIONAL AVIATION CLUB WASHINGTON | OCTOBER 9, 2015

As prepared, not necessarily as delivered

INTRODUCTION

Thank you, Ken, and all of the Board of the International Aviation Club for the opportunity to address you today. It’s great to see so many familiar faces from across our industry and to be in Washington. I’ve been spending a tremendous amount of time here in recent months with so many pressing issues – whether it’s ATC reform, excessive taxation, PFCs, Open Skies…the list goes on and on.

Before I dive into some of these areas, let me first share a bit about JetBlue—how we started, where we are today, and what we wish to accomplish in the future. The JetBlue story is all about people. And before I start, let me recognize, with great pride, the JetBlue Crewmembers in the audience who make our airline the success it is today.

JETBLUE TODAY – A CHANGED INDUSTRY

This year marks a special milestone for JetBlue. It’s the 15th anniversary of our first low-fare flight— Flight 1 from Kennedy Airport to Fort Lauderdale. Over these 15 years here in the US, JetBlue has grown up and made a place for itself in a fiercely competitive industry, against a backdrop of incredible change both domestically and abroad.

Here in the US, countless airline brands have disappeared through bankruptcy, shutdown, or consolidation – icons like TWA, Continental and Northwest, upstarts like America West and AirTran, and before that, Eastern, Pan Am and Braniff. It’s been almost Darwinian – survival of the fittest – and JetBlue emerged not only a survivor but a winner. In just 15 years, we’ve gone from start-up known as ‘JetWho?’ to a Fortune 500 company with a brand recognized globally and hundreds of customer service accolades under our belt.

The airline shakeout of the past decade has had a profound effect on the structure of the US industry. We now only have three hub-and-spoke megacarriers; Southwest following its acquisition of AirTran; and a handful of other low cost competitors like JetBlue and Alaska.

The three big legacy airlines combine to control about 60% of the US market nationwide – which results in even higher concentration in some cities. Add in Southwest and that figure jumps to 80%. JetBlue, by contrast, is just a 5% player. Yet as an innovator and a market disruptor, JetBlue plays a critical role in ensuring the US airline industry remains competitive despite the consolidation of market share and market power in the hands of just four big players.

Since 2000, JetBlue has created more than 18,000 jobs across our network. This year alone, we’ll add more than 2,000 new jobs. This past spring, we were recognized by Forbes as one of the Top 20 Best Places to Work in America. Our crewmembers’ engagement, passion, and focus on our customers sets JetBlue apart from competitors and explains the success of our unique model.

While I’m here, I do want to clear up a bit of a misconception about JetBlue that I often hear. Many people still think of JetBlue as the airline you take from the Northeast to Florida. While that remains an important part of our network, JetBlue has rapidly evolved over the past decade and is today a leading international airline. Our model has always been about entering markets where the incumbents charge high fares, offer poor service, or both, and then stimulating traffic with affordable prices and best-in-class service. We discovered that a lot of international markets fit this bill perfectly.

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In fact, we now fly to 20 nations across North, South and Central America. Last week we announced plans to add our 21st country, Ecuador, and we also launched service to Mexico City. Caribbean and Latin American flying now represents about one-third of our route system.

So, as you can see, we’ve come a long way since Flight #1 to Fort Lauderdale.

OPEN SKIES

JetBlue’s successful international growth has been enabled in large part by Open Skies, the aviation policy pioneered by the United States. The access Open Skies affords JetBlue to international markets – both directly and through our 44 codeshare and interline agreements – has been a boon to our ability to expand and create those 18,000 jobs both here and abroad. It’s also been a critical tool for us to be able to compete against the mega-carriers I mentioned earlier.

Like other small airlines who have a big stake in preserving America’s Open Skies policy, we’ve spent an awful lot of time this year countering the barrage of rhetoric and misinformation our legacy competitors have been trying to advance as they take aim at the Middle East airlines.

We don’t speak for the Gulf carriers who have responded in great detail to these allegations, but nations around the world have long taken steps to support their industry in different ways. For example, here in the US, the airline industry has received tens of billions of dollars in assistance through things like the Fly America Act, Chapter 11 protection, the Air Transportation Safety and Stabilization Act, tax credits, incentives for flights to cities and to move jobs, and also to open maintenance hangars, to name just a few. If you pore through the legacy carriers’ filings with a critical eye, it’s clear many of their arguments against the Gulf carriers don’t pass the straight face test.

What is indisputable is that legacies have failed to prove that they’ve suffered harm, much less that there’s been any breach of our Open Skies agreements with the UAE and Qatar. That’s why you hear so many people, so many travel and consumer organizations, and so many US passenger and cargo airlines and their employees challenging the legacy opinion, saying ‘this just doesn’t add up!’

Open Skies works because countries abide by their commitments and refrain from restricting airline traffic. Open Skies creates a balance of opportunities and encourages competition; it does not guarantee each side a set cut of the benefits.

What the legacy airlines are asking for would give other countries the green light to come here, open consultations with us, and seek to throttle the growth of US airlines to protect the market share of their flag carriers. It could also have a profound effect on the ability of US cargo carriers to compete as countries would seek to amend agreements to favor their national airlines.

I am convinced that the risk is significant – many of the US Open Skies agreements could start to unravel. For younger, pro-customer airlines like JetBlue who are still growing and rely on these treaties to expand, that sort of risk is unacceptable.

Part of me wonders when the Big Three says they favor Open Skies whether it’s really true. Surely now they have all they need, their interests are best served in rolling up the drawbridge and going back to a more protectionist era of high fares and limited choice.

The administration now faces a choice: it can choose to go back on its Open Skies commitments and protect the legacy airlines from the competition of the Gulf carriers; or it can stand with US consumers, businesses and cities across the country, as well as the passenger and cargo airlines in our coalition that depend on our network of Open Skies agreements to help them grow. Our airlines rely on these Open Skies agreements to grow US jobs, despite assertions to the contrary that Open Skies flying kills US jobs.

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JOINT VENTURES

We believe the real motive for the legacy carriers’ assault is about maintaining their significant share of the US market, together with their European joint venture partners, by limiting new entrants and new competition.

US airlines have almost completely ignored the fast growing regions of the world that the Gulf carriers serve. The only overlap with the US carriers consists of precisely two nonstop city-pairs: Washington to Dubai and New York to Milan, both of which are JetBlue codeshare routes, by the way.

That Milan service, a so-called fifth freedom route, sometimes seems to be the biggest bone of contention among the legacies, and it’s rather odd when you consider that fifth freedom flying is commonplace across the globe. The legacy carriers conveniently ignore the fact that US airlines have long operated fifth-freedom hubs at Tokyo Narita.

It really boggles the mind how a single route from Milan to New York – which has grown the market and stimulated traffic on US carriers flying the route, as well – is being mischaracterized as the downfall of an entire industry. As envisioned by Open Skies, fifth-freedom service has expanded the number of flights, improved the quality of service, and lowered fares.

Long before this JFK-Milan route was in the spotlight, you could fly:

 A US airline from either Tokyo to Seoul or from Amsterdam to Bombay,  A Hong Kong airline from New York to Vancouver,  A Canadian airline from Santiago to Buenos Aires,  An Egyptian carrier from Bangkok to Kuala Lumpur,  A Kuwaiti airline from New York to London,  An Indian airline from New York to Paris,  A German airline from Singapore to Jakarta

The point is, this is not something as sneaky as it has been made out to be.

And of course let’s not forget how critical fifth-freedom rights are for our cargo airlines to ply their global trade.

What’s clear is that grants of antitrust immunity, coupled with metal-neutrality, have created a perverse incentive for the legacies to prop up flying by their European partners. If, for example, Lufthansa and Air France lose revenue on their flights due to competition from the Gulf carriers, their US legacy partners will suffer financial consequences under their metal-neutral JVs. Those Lufthansa and Air France flights, of course, are not employing US pilots and flight attendants.

Still, defending the market share of European alliance partners appears to be driving the legacies’ campaign against the Gulf airlines. One must ask, however, whether it should be the goal of US aviation policy to prop up the revenues of foreign airlines and especially if this is done at the cost of denying American consumers a competitive choice. Surely, the answer is a resounding “no.”

So – since the US carriers and Gulf carriers compete directly on only two routes and since we really can’t believe that Milan to New York is really the principal concern – we believe the campaign against the Gulf carriers is ultimately about the legacies’ concern regarding their European joint venture partners.

The three largest US airlines each have multiple grants of antitrust immunity with overseas partners. It’s a tremendous benefit for them that’s predicated on the existence of Open Skies agreements between the US and the other airlines’ home nations.

People who in the past might have flown American or Delta to Europe and onward with British Airways or Air France to Africa or Asia might now fly JetBlue and Emirates instead. Why shouldn’t consumers have that choice?

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Joint ventures have given three already dominant US airlines even greater scale and control in some of the most lucrative international markets, such as New York to Paris or LA to London. If you take a quick look at the North Atlantic market, it may look as if a dozen airlines provide service. But when you go under the surface, it’s really just three big mega-alliances controlling 87% of the traffic. Of top 30 US – Europe routes, over half have 100% of its seats operated by joint venture carriers.

Consumers effectively have very little choice in markets where JVs have a stranglehold – and they also face higher fares. That runs afoul of everything JetBlue has stood for during the past 15 years.

We’re talking about European airlines, but don’t be fooled. There is not a consensus on this debate in Europe, either. To quote our counterparts at British Airways and Iberia, "It is a matter of grave concern to see protectionism raising its ugly head at the first sign of effective competition from the Gulf countries."

We don’t object to joint ventures or antitrust immunity grants, provided they are producing the consumer benefits the airlines claimed they would. The problem is that today there are no checks and balances to ensure promises made are promises kept. When DOT grants immunity for carriers, it does not revisit the matter – that really needs to change.

We’ve asked DOT to begin conducting periodic reviews of immunized joint ventures every 3 to 5 years. We think this is a fair and reasonable request, one that is consistent with the statutory framework for antitrust immunity and clearly in the public interest. Airlines tout the benefits of their joint ventures in their applications for antitrust immunity, so we’re simply asking that the government hold them to those promises. This already happens in places like Australia where regular reviews are mandated by the government – and airlines have found a way to operate under this regime.

ACCESS TO OPPORTUNITIES

Whether it’s Open Skies or joint ventures, the big issue we’re talking about here is competition. The challenge for our industry and the government is how we create the kind of environment where all airlines – and, in particular, smaller carriers and new entrants – can thrive.

With the concentration of power I talked about earlier, both domestically through the past decade’s consolidation and internationally through the growth of immunized joint ventures, it makes it awfully hard for smaller carriers like JetBlue to compete.

As we’ve acquired slots in congested airports over the years through divestitures and investments – which has not been easy – we’ve been able to expand markets and lower fares. That’s very good news for airports and consumers.

Younger airlines like JetBlue need this kind of access to slot-controlled airports in order to gain a foothold and compete effectively in an industry now so heavily concentrated in the hands of deep-pocketed mega- carriers. We have fought for access, paid for it when we’ve had to, and always delivered proven results in the way of low fares and public benefit.

We see this playing out on the domestic front but also internationally in places where alliance carriers have a grip on airport slots and facilities. For instance, just last week we began service to Mexico City, an important destination we’ve wanted to serve for many years.

We encountered significant barriers to entry both in securing commercially viable takeoff and landing slots and the real estate needed to support our operation. Meanwhile, Aeromexico and Delta have asked authorities to approve and immunize a transborder joint venture that would only increase their already dominant presence in Mexico City. We’ve objected to this proposal and asked the DOT to address these barriers to entry before any grant of immunity. As we shared with the DOT, the process for securing slots at Mexico City is opaque, confusing, politicized and extremely difficult for new entrants.

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We believe that when the government considers any application for an immunized alliance, like the Aeromexico-Delta deal, it should focus on the ability of new entrant and low cost carriers to access slots and gates at constrained airports. The barriers for new entrants have long been too high, and many of these airlines have been rebuffed in their efforts.

One other note on the point of access:

As the US aviation landscape has evolved and consolidated through mergers and bankruptcies, the government must also evolve in how it interacts and views the industry. For instance, when limited foreign route authorities are being allocated, smaller carriers like JetBlue need to have a fair and equal shot at gaining access to new markets.

Historically, route authorities have been directed toward airlines that offer big network connectivity. In places where Open Skies doesn’t exist, we’d like to see a bias toward helping more consumer-friendly airlines offering lower fares and great customer service, so the international marketplace can be developed and opened to genuine competition instead of merely making the few big carriers even bigger.

WASHINGTON

As you can see, there is no shortage of issues we’re tracking on the international front. Here in Washington, the story is much the same.

When you think about commercial aviation, it’s truly an economic engine of the United States, with more than 8% of all jobs attributable to the sector. If there was ever an industry that deserves bipartisan support, this is it.

Investment in infrastructure is a big theme for JetBlue. We’re not just thinking about the airlines – we’re thinking about high speed rail to reduce congestion in places like the Northeast Corridor; roadway access improvements to help people get to airports more easily; and a focus on intermodal connections. On this point, I would like to commend the leadership of Orlando International Airport who have demonstrated a great vision for their region in their South Terminal development project.

Of all the issues on the Hill, the one we think deserves the most focus is the modernization of our air traffic control system and ATC reform in general.

As a country, we have not done a very good job of prioritizing investment in ATC, which although very safe, is still a World War II-era ground-based system. Our air traffic controllers do a terrific job safely managing the volume of traffic in our skies, but the reality is our country’s aviation infrastructure is outdated and in dire need of modernization.

And our FAA leadership has done as much as they can within the current system, as they face unpredictable funding.

JetBlue has been a supporter of the FAA’s NextGen program from the get-go. We have not only provided people and expertise to advancing the issue but we’ve also made significant investments in our fleet to be able to reap the benefits of NextGen.

We’ve seen real benefits from NextGen, but we need more alignment in this important transformation. We also need to direct infrastructure improvements into the regions of the country where they’ll produce the most benefits, like the Northeast Corridor. The pace of change really needs to accelerate, especially in New York, which is the busiest air travel market in the country and has the most to gain from NextGen improvements.

Aside from modernization, our industry is almost unanimously aligned in supporting efforts to separate the FAA’s air traffic control function into a self-funded, government-chartered non-profit entity. We already have the safest skies in the world but this model, which has proven to work very well in places like

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Canada, could help us be more efficient and enhance safety even further through longer-term investments in technology. These projects are much easier to fund in the capital markets than on Capitol Hill.

The United States is essentially the only advanced nation where you find the same agency regulating safety and operating the ATC function. At JetBlue, we’re concerned that if we don’t take the opportunity now to invest and align our efforts in supporting air traffic control, it could be another decade – or more – before we have another chance. And by then, we could be in real ATC crisis mode.

We think our first-rate air traffic controllers – who are America’s aviation safety professionals – deserve the security of consistent funding, so they’re not subject to congressional budget cycles. I really want to thank the NATCA leadership for their willingness to listen to new ideas.

We plan to continue to meet with members of Congress to advance this effort during the coming weeks and months so that we get a truly transformational FAA bill. Hats off to Chairman Shuster for bravely looking ahead, across party lines, to benefit the air traffic control professionals and air travelers alike with a means to secure the long-term investment, stability and increased safety that we all strive for.

CLOSE

JetBlue has always been a contrarian airline – a disruptor, if you will – and we’ve often taken a different view than other airlines. After the past decade of consolidation, there are some fundamental questions we need to address as an industry and a nation, and I’ve touched on just a few of those today.

For JetBlue, it comes down to ensuring that smaller airlines have the opportunity to continue to be force for good in this industry – whether that’s Open Skies, airport access, joint ventures, foreign route authorities, or a truly competitive landscape. We think this is ultimately going to require a different approach here in Washington to ensure a policy framework that reflects the overwhelming consolidation of power in our industry that now exists with the US megacarriers.

Thank you again for having me here today. It was a pleasure speaking with you and sharing a bit about JetBlue and how we’re thinking about the landscape.

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