Good morning. My name is Mary. I would like to welcome everyone to the JetBlue Airways Third Quarter 2020 Earnings Conference Call. As a reminder, today's call is being recorded. At this time, all participants are in a listen-only mode. I would like to turn the call over to JetBlue's Vice President of Investor Relations, David Fintzen. Please go ahead.

Thanks, Mary. Good morning, everyone, and thanks for joining us for our third quarter 2020 earnings call. This morning, we issued our earnings release, our investor update and the presentation that we'll reference during this call. All of those documents are available on our website at investor.jetblue.com and have been filed with the SEC. Joining me here in New York to discuss our results are Robin Hayes, our Chief Executive Officer, Joanna Geraghty, our President and Chief Operating Officer, and Steve Priest, our Chief Financial Officer. Also joining us for Q&A are Scott Laurence, Head of Revenue & Planning and Dave Clark, VP of Sales & Revenue Management. This morning's call includes forward-looking statements about future events. Actual results may differ materially from those expressed in forward-looking statements due to many factors, and therefore, investors should not place undue reliance on these statements. For additional information concerning factors that could cause results to differ from the forward-looking statements, please refer to our press release, 10-Q and other reports filed with the SEC. Also during the course of our call, we may discuss several non-GAAP financial measures. For reconciliation of these non-GAAP measures to GAAP measures, please refer to the table at the end of our earnings release, a copy of which is available on our website. And now I'd like to turn the call over to Robin Hayes, JetBlue’s CEO.

Thanks, Dave. Good morning, everyone, and thank you for joining us. I'd like to start with my thanks to our crew members for their dedication to our customers. I also want to thank our crew members for their sacrifice during the most difficult period in our 20-year history. We are now over seven months into the pandemic. And day in and day out, our crew members deliver on our mission to inspire humanity. Their dedication and passion for delivering outstanding service has been truly remarkable, especially as we work to restore our customers' confidence in air travel. We have responded to this unprecedented crisis with action, leading the industry with health and safety protocols to keep our crew members and customers safe. We're grateful that all of our teams are bringing our industry-leading safety from the ground up program to life every day. Our customers are recognizing their efforts, and we are seeing record high customer satisfaction scores as a result of their professionalism and care. Let's slide - let's turn to slide 4 of our presentation. In the third quarter, we reported an adjusted loss of $1.75 per share. Despite the ongoing demand challenges, we have worked to stabilize and protect JetBlue. Our efforts to raise liquidity, reshape our network and reduce our costs are bearing fruit and have helped us navigate the immediate crisis. We remain cautiously optimistic that we will see further steady improvement in bookings into the upcoming holiday season. We have seen signs of pent-up demand from customers who want to visit their family and friends or go on vacation. And we believe that we will remain extremely well positioned to serve these customers as they return to air travel. Moving now to slide 5. We are confident that our low-cost, low-fare leisure model with…

Thank you, Robin. I'd like to start by expressing my profound thanks and gratitude to our crew members for their extraordinary efforts, both on behalf of each other and on behalf of our customers and delivering day in and day out on the commitments we've made in our safety from the ground-up program. Our crew members are the face of JetBlue. And as customers become more confident and return to air travel, we know it will be our crew members who lead the way, convincing the flying public that with the safety measures we have undertaken and observed air travel is indeed safe for all. We continue to see new data that proves that the controlled aircraft cabin environment limits the transmission of COVID. Because how often, cabin air is continuously re-circulated, the top to bottom airflow patterns that avoid spreading bacteria and the hospital grade HEPA filters, which removed 99.9% of particles and bacteria. Independent research studies by Harvard, IATA and the Department of Defense, to name just a few, indicate that air travel is safe and the risk of contracting COVID-19 on board an aircraft, particularly when wearing a mask, is very low. Our customers are telling us that we are taking the right actions to keep them safe, with nearly 95% of customers who have flown with us during the pandemic saying they will fly JetBlue again in the very near future. Our Net Promoter scores are near an all-time high, with a 10-point increase reflecting that our crew members are doing an exceptional job delivering a safe experience during these unique times. This is simply remarkable. Customers trust JetBlue, and we remain their first airline of choice in our key markets. That said, the lack of uniformity in foreign and U.S. state government regulations related to…

Thank you, Joanna. I'd also like to add my thanks to our crew members and leaders. I could not be proud of their determination and efforts to keep each other and a customer safe and to ensure the financial sustainability of JetBlue. I'll start on slide 10 with a brief overview of our financial results for the quarter. Revenue was $492 million, down 76% year-over-year. Operating expenses were down 45% year-over-year. Excluding the benefit from CARES Act and charges related to fleet and voluntary lead programs for our crew members, operating expense was down 39% year-over-year. GAAP loss per diluted share was $1.44 and adjusted loss per diluted share was $1.75. Moving on to slide 11. Our average daily cash burn for the third quarter was $6.1 million, ahead of the $7 million to $9 million range we anticipated three months ago. This was the result of a modest improvement in demand beginning in August, variable cost savings achieved through a balanced approach to capacity and the many actions we took to minimize fixed costs across our business. For the fourth quarter, we estimate our daily cash burn to be between $4 million and $6 million. The sequential improvement reflects our continued actions to minimize cash costs. In addition, as Joanna mentioned, we are cautiously optimistic that the demand trends we saw in August and September will continue, and we are taking consequential capacity actions as needed to manage costs and support our revenue recovery. While we fall within the range will again depend on the pace of the revenue recovery we see during the quarter. At the end of September, our total liquidity, included restricted and unrestricted cash was $3.1 billion, or 38% of our 2019 revenue. During the quarter, we drew down $114 million from the CARES Act…

Thanks, everyone. Mary, we're ready for the question-and-answer session with the analysts. Please go ahead, with the instructions.

Thank you. [Operator Instructions] Our first question comes from Savi Syth with Raymond James.

Hey, good morning. Just on the cash burn. I was wondering, kind of towards the end of September, I think the indication of cash burn was coming in at the lower end of guidance. Is the difference that improved so much, related to kind of the fare sales that you had towards the end of September? And also, just what's the kind of the biggest drivers of the improvement that you're expecting from kind of Q3 to Q4, is that all revenue? Or do we see some cost benefits in there as well? Thanks.

Good morning Savi, its Steve here. I'll take that. I think it's about the balanced approach. So the $6.1 million of cash burn that we talked about Q3 was the average of the overall quarter. I think the way I would describe it, is that we're getting the balance right, between our capacity, our revenue and our cost structure. And the teams are doing a fantastic job of dynamically managing the capacity to the demand, which is really helping our overall cost -- our and obviously, our cash flow and performance. As we think about quarter three going into Q4, it's a continued steady increasing demand that we are, sort of, forecasting as we - sort of come through in terms of Q4. But it's also the ruthless focus that we've had on our overall cost structure as we continue to take things down. And that's why we are predicting sequential improvement from the $6.1 million in quarter three to the $4 million to $6 million that we forecast for Q4. So big thank you to our crew members. I think the work has been tremendous. And it's a balance of both revenue and cost.

Makes sense. And Steve, if I might follow-up, you mentioned the kind of trying to monetize the loyalty or raise liquidity with the loyalty program. I just wanted to clarify. I think you said with the treasury or capital market. So if you go with the treasury, you -- would you just swap out whatever collateral you have in there right now? Or is there an opportunity to kind of get more financing there?

Thank you, Savi. I think the way I would describe our approach with a very steady hand on the tiller, it's about having flexibility. Robin talked about the support we've had from the government in our prepared comments. We continue, obviously, to look to the federal government to wonder what's going to happen with CARES too. And we don't know what the outcome of that is at the moment. We also are not very clear ultimately what's going to happen to demand environment. So for me, it's about having the access to liquidity and continue to have the flexibility about what to draw and when. And so we are running a parallel path, both with the sort of federal government but also looking at a public market transaction. With regards to the government loan, we do have access up to $1.9 billion. So we've just drawn a small slither of that as we did the -- by the end of September with the $114 million. And so the loyalty program, if we chose to go down that route, would supplement the collateral that we've already committed. Obviously, if we decide to go forward, then we determine we need actual liquidity and go forward in the public markets then we'd obviously look at pledging the loyalty program in the public markets. But I think the overall message I would give the analysts and the investor community is that we've built flexibility, both in terms of the path we take but also in terms of assessing whether we need the liquidity or not in terms of the provisions we've put in place to go forward.

Got it. Thank you.

Our next question is from Hunter Keay with Wolf Research. Your line is open.

Good morning, everybody. Robin, I realize your own pay is not your priority right now. But how do you think -- how are you and the Board thinking about what's going to shape drivers of executive compensation over the next few years given the prior drivers of target EPS and target ROIC are probably not appropriate for the next few years? Have you, sort of, have those discussions yet to sort of shape what drives the variable component of comp?

Sure. Hi, Hunter. Good morning. Yes, I mean, obviously, right now, we're focused on the short-term. As we've said before, and I laid out in my comments, we've -- we laid out a three-stage approach this about minimizing cash burn. We're building margins and then repairing the balance sheet. What we try to do is ensure that executive compensation targets align with our priorities as a business. So that's what we're focused on right now. I actually -- I think margins and EPS, I mean, our goal is to get us back on track with that as soon as possible. I think we've also taken a flexible approach to targets over the years where we've adjusted them to reflect what are the priorities of the time. I will remind you, though, that at least for next period of time and longer if we take the government loan, the exact comp is limited by the CARES Act restrictions. And so that is also something we have to be mindful of and ensure we comply with.

Understood. And then I'm sorry for the ridiculous specificity of this follow-up, but you're striking a tone of cautious optimism on holiday bookings. Did you write that script last week? I mean, do you -- because it feels like things got maybe a little bit worse over the last few days here over the weekend, at least. Is that - obviously, you've had the opportunity to edit that, of course, knowing what we know, but I just want to make sure we're not sort of like top ticking demand commentary to set expectations for the fourth quarter that maybe things are sort of worsening a little bit around the periphery?

Hunter, just a point of clarity, what are you looking at when you say things got worse over the weekend?

I'm looking at the positivity tests in the tri-state area in New York City area, Connecticut specifically. Again, like this is such a ridiculous specific question rather than I know, but…

Yeah. No, no, I just was making sure that you didn't have a secret source of data that we didn't see.

Okay. No, your point is taken, obviously, you've already answered the question. I get it. But I just -- I want to make sure that normally as of this morning, you still feel like this is realist on…

Yeah. Let me say one thing and then maybe hand it over to Joanna to more details. I think that what we did see back in the summer was our case count study gap in the Sunbelt. We did see an impact on bookings. We've talked about that before. We haven't seen that yet. So as case counts have started to come up around the country, we haven't seen that yet. I think some of that is just -- there's been a big pent-up demand for travel. We're also in the Thanksgiving holiday period, there's lots of students coming home and moving around Thanksgiving and we think that traffic is going to be -- hold up pretty well. But as we said before, this is a non-linear recovery path. We expect it to – ebb and wane, we give insight that we think we see. We're pretty plugged into what's going on in different jurisdictions around quarantines and sort of try to make an estimate around that. But as you know, Hunter, this thing can move very quickly. I think we have about 28 states or maybe 30 states now where the - our rate is sort of at or close to about 1.2% - sorry, 1.2, and we'll see what that makes. But right now, we're cautiously optimistic, and we continue to see that over the last several days, especially into the Thanksgiving and holiday period in December.

Great. Thanks, Robin. Appreciate it.

Our next question comes from Jamie Baker with JPMorgan. Your line is open.

Hey, good morning everybody. My first question is sort of a follow-up to Hunter’s. I know there's talk about New York abandoning the current quarantine structure or modifying it somehow. I've done a couple of quarantines myself. It's really mostly an honor system. You talked about Florida resilience. I mean, what I really care about is whether there would be a surge in bookings if New York resented the quarantine, your comments maybe make me think otherwise and that maybe people are just blowing off the quarantine, blowing off some of the recent headlines. Any further color on that?

Yes. I'll hand you over to our quarantine expert, Joanna, Jamie, for this one.

Thanks, Robin.

Hi, Jamie. How are you doing? Maybe to provide a little bit of color, when California came off the quarantine list, we saw upside in bookings. And so as we think about the Northeast and potential upside there, that's how we see it. I will say that when the quarantines were first put into place, we definitely saw more cancels and it's slowing. But as people have adjusted to those quarantines. And in the case of Connecticut, Massachusetts, with the testing out options, they understand the ability to reduce the link of the quarantine through a negative test or eliminate entirely. We've absolutely seen demand coming back. From our perspective, we're spending an enormous amount of time on testing. And maybe to provide a little color there. There's a lot of talk about a vaccine. We don't believe a vaccine is necessarily a panacea. We definitely think it's critical to longer-term recovery. But in terms of returning to something that even looks remotely like a pre-pandemic travel level, we're going to need to have in the short and medium term, a rapid testing strategy that balances the public health considerations economic recovery and allows countries and states to reopen or relax and eliminate what we see is largely ineffective quarantines and other travel restrictions. So we're spending a lot of time on that right now. Spending a lot of time with states and international, many of our Caribbean destinations. But we believe there's a combination of testing and longer-term vaccine that will be the method by which quarantines, which we believe are largely ineffective, will be reduced or eliminated.

Okay. That's helpful. Second question for Steve. On the sale-leaseback activity, can you give us an idea as to the economics of the lease component? How monthly rates - any deals compared to what you were being offered before the downturn? And also, have you thought about any sort of revised lease versus own ratio going forward just in hopes of better variabilizing, which I guess is the increasingly popular term, variabilizing your cost structure?

Thanks, Jamie, and good morning. I'd sort of bifurcate the sale leaseback activity in terms of the work we did on some of the older vintage aircraft, the older A320s and the newer neos that we've been doing sale lease back on. I have been pleasantly surprised. I'm obviously not going to get into the economics on the call. But I've been pleasantly surprised about the transactions that we've managed to go forward with. We did them obviously towards the start of the last quarter. And the work has been done, and there was a pretty good demand for JetBlue metal. So I was pretty pleased with where we ended up with -- from a sort of rates perspective. And so the team and a big shout-out to the team, there were complex transactions and the work that the teams worked through to make that happen was outstanding. With regard to your question about sales-lease back, so I've been very public about my views of this over the last 3 years, which we have leaned because of the relatively strong position that JetBlue has had, the strength of our balance sheet, the cash that we've thrown off from operations meant that for the aircraft deliveries, we generally steered away from sale-lease backs. Obviously, we're in unprecedented times, and we've used this as a balance to continue to generate cash for JetBlue and bring cash into the business. And so in the short term, we have notched up our proportionality of the fleet is in the sale-lease back. But I certainly - looking forward back to pre-pandemic situation, we're genuinely more geared towards the ownership side of things on our fleet going forward.

Got it. Thank you both. Take care.

Thanks, Jamie.

Our next question comes from Duane Pfennigwerth with Evercore ISI. Your line is open.

Hey, thank you. Good morning. As much as I want to ask another quarantine New York question and play out my holiday – as much as I want to ask you another quarantine question, I won't. So just with respect to the value of a premium cabin right now in the early stages of recovery if you compare like-for-like, say, A320 high-density to A321, or A321 high-density to A321 with Mint. Which one is more profitable? And if you had a clean slate right now, would you be leaning more on density or premium?

I'll take it and then ask Dave to add any color. So at this point, both are performing about the same. We do like Mint in terms of providing the additional space and the additional opportunity for customers on longer haul travel. It's performing – TransCon is actually performing pretty well relative to our other markets. Dave, do you have anything you'd like to add?

I think you've covered it well. Clearly, customers appreciate the extra space an excellent product that goes with our cabin. So it's always been extremely popular. As mentioned before, the [indiscernible] on Transcon is coming back. You have to really knit out the mix of routes though because the high densities, which largely go down in the Caribbean are performing quite well in that region, given the strength of the Transcon traffic.

I think you pushed the pause button on it, but can you just tell us how you're thinking about the A320 refresh? And where that stands today and kind of where that would be in order of your priorities when you begin to invest again?

Hi, Duane, I'll pick that up. It's Steve here. We did initially put the full pause button on the 320 program. As of September, we have started back up again. It's pretty de minimis, Duane, to be honest, we're sort of doing one shell at a time. The big thing I would say is that, the vast majority of the capital expenditure that we had at our leased back program was already sunk. We sort of brought that into the fleet in terms of the kits, the seats, et cetera. But we've – obviously, our customers appreciate the Newark cabin as they sort of come through. So we're sort of steadily doing one at a time as we sort of go through as a very, very slow ramp. And then we'll – depending on the demand environment, depending on the revenue environment, we'll assess in 2021 when we start ramping things up again to complete the fleet.

Okay. Thank you.

Thanks, Duane. Have a good day.

Our next question comes from Catherine O’Brien with Goldman Sachs. Your line is open. Catherine O’Brien: Hey. Good morning, everyone. Thanks so much for the time. So this one for Steve, just a question on your structural cost program. I know before COVID, you'd already locked in above the high end of your $250 million to $300 million run rate target. And that was before the engine deal you've secured in time. But how should we think about the incremental cost savings we should be expecting next year versus maybe 2019, just from this program exclusively. So what of that cost savings of over 100 – over, excuse me, $300 million is flowing through in 2020? And then, what will be incremental next year? Thanks.

Thanks, Catherine. Good morning. First of all, I would like to say how pleased in terms of where we are with our continuing focus on our cost structure. The structural cost program set us up extremely well to your point, I think for two reasons. One, it's really embedded a culture of cost consciousness across the whole of JetBlue. And secondly, there was a very significant number of initiatives that we've been able to build upon as we've navigated through the crisis. I think when I stand back and think about our cost structure, outside fuel, obviously, the biggest costs associated with both sort of labor, our crew members and our business partners from external spend perspective. And so the way we're thinking about this, Katy, is a couple of things. Number one, taking a real sort of focused look at taking fixed costs out of our business. And we've already started doing a lot of things in the short term, which will stand the test of time, so they truly will be structural as we sort of did before and building on the $320 million that we delivered coming into the 2020 year. The way we think about this is, obviously, we'll continue to use that -- those initiatives and additional cost savings as we go through '21. The thing we're thinking about is, as we get at some point in 2022 and back to some sort of normality around capacity is getting back on that industry-leading curve in terms of unit cost progression. We were leading consensus for the whole industry in 2020. We're top of the industry in 2019. And we're looking forward to at some point in 2022, getting back on to that unit cost progression that you saw in early 2020. Catherine O’Brien: Okay. Got it. And then probably another one for you, Steve, actually, just on the aircraft deferrals, with the neo delays over the last couple of years and then production cuts in the COVID era. Were any of these deferrals at the request of Airbus asking to push back deliveries? Or will these all push back at the request of JetBlue? And then should we assume that any of that $2 billion reduction in CapEx is concessions and delays? Or are those all aircraft just moving out of the period? Thanks.

Thanks, Kate. And I'll mention this in my prepared comments. I do want to again thank our partner Airbus. I think we've navigated this crisis together. It's been a partnership as we've had numerous discussions over the preceding months. Just to keep this very simple. It shells, right? We have moved over 50% of our A321 order book out of 2020, 2022 to a point in the future, which has delivered the reduction of the sort of $2 billion-ish of CapEx over those two years, so it's been a joint process. This is purely around deferral of aircraft. And I feel now that we've got the balance right between navigating the crisis we sort of go through this and bringing in sort of high margin, high-return aircraft to supplement the JetBlue fleet. Catherine O’Brien: Okay. Understood. Thank you.

Our next question comes from Joseph DeNardi from Stifel. Your line is open.

Okay. Good morning. Two easy ones for me. Steve, what level of ASMs do you think you need to fly to get CASM ex back to 2019?

Well, in terms of -- it's interesting when we sort of look at it with regards to 2022. There's a couple of things I would sort of say. So obviously, it depends on the demand and capacity recovery. But having deferred over sort of $2 billion -- around $2 billion of deferred CapEx, we are expecting less growth than we had with regards to the pre-COVID environment. And so the denominator and dose is going to be lower than we had expected in '22. But in terms of our overall cost structure, the initiatives that we've sort of taken going forward puts us in good shape, and that's why we're sort of assuming that we'll get back to sort of that level in 2022. But it's very, very early at this point, Joe, to start sort of thinking about exactly what capacity we're intending to fly. But this is the planned assumption that we're working through, and we'll continue to evolve that as we navigate through 2021 and getting towards that. But I remain confident in the tremendous work that the company and our crew members are doing to wrestle with our overall cost structure, to make sure we drive back to those efficiencies.

Okay. Steve, is it closer to 80% of 2019 capacity you need to get to or is it 95%?

I think the way I would describe it is, we have anticipated -- I mean, who knows what's going to happen in the demand environment. But by the time we're getting back into sort of 2022, I would expect us to be nearer to the higher end of the sort of 2019 capacity.

Okay. And then maybe a question for Dave or Joanna, just the mix of business versus leisure from a revenue standpoint for you all, and then kind of the importance of the business traffic to your pre-COVID earnings power? Thank you.

Sure. So, it's largely leisure. I mean there's very de minimis business travel in there. And as we've said, since the onset of this pandemic, we do believe leisure VFR traffic will be the sort of path to recovery out of this well before business travel. VFR tends to be quite resilient in times like this, and we're seeing that absolutely play out.

Our next question comes from Brandon Oglenski with Barclays. Your line is open.

Hey, good morning, everyone. Thanks for taking my question. Joanna, I want to come back to a response, you had to one of the questions. I think you mentioned testing. Do you guys think that could play a bigger role? And can you be proactive in helping bridge the gap between authorities and travel restrictions? And I guess, as a follow-up to that, who's going to bear the cost of that if it is a solution?

Sure. So we are absolutely being proactive with regard to testing from a few angles. First, we're actively working with governments, states, whether it's states or international governments to put into place a consistent testing framework. First, that customers understand, part of the challenges, they're all different. So that creates a level of confusion for customers. And then ultimately, that countries and states will, upon providing proof of a negative test, allow a customer to test out of or reduce the length of these quarantines. Right now, as we see it, there's home testing options, which we've announced one, and we're working on a few others, and then also looking at pre-departure testing facilities in the airport. Environment, there's a number of locations that have rolled those out. We're also exploring that. At the end of the day, we believe we need a cost-effective, so very inexpensive, rapid, think five minutes antigen test that can accurately detect COVID in both symptomatic and asymptomatic people. So ideally, a test that can be applied on a pre-departure basis or even one that you could use in your home, think of like a lateral flow pregnancy test that you could actually take before you leave that you could do on your own. And I think that's how we see kind of the future moving. In terms of who would bear the cost, obviously, it depends on whether it's a government initiative, whether it's an airline initiative right now, the cost of test, they're all PCR tests largely are about $150, give or take, that we're not adding any kind of revenue share or anything of that. We're just passing on the cost of the test to customers when they purchase through Bolt, which is our current partner. But we haven't explored how we would cost share anything around testing. We think you need a very inexpensive $10, $15 test. And the key here is a test that can detect COVID in asymptomatic people. Right now, there are not any tests out there that are antigen rapid test that can actually detect, COVID in asymptomatic people. The PCR test that many of you take that we take, that's sort of the gold standard. That's pretty expensive. It needs to be administered by a clinician, by a doctor. And we do not see that as a longer-term cost effective solution.

Yeah. I guess you kind of answered it, but there is a lot of price elasticity there, right, if things get too expensive?

Sorry, this thing is clicked. So a lot of price elasticity with testing?

Yeah. I guess, on your customer base, right?

Yeah. I mean, I don't think it's something that customers necessarily are going to be willing to -- it's not something, I think we envision passing on through our far or anything in that nature. This is something, I think, we -- as we are right now, setting up a partnership with various companies. And customers would reach out and directly procure the test from those companies and pay for it on their own.

All right. Thank you.

Our next question comes from Mike Linenberg with Deutsche Bank. Your line is open.

Hey. Good morning, everybody. Hey Joanna, I thought, I heard you mention that you had sort of finished up the work with American, on the loyalty program. And I'm just curious, what elements of the partnership can you rollout now before DOT, DOJ approval? Or can you proceed without their blessing at this point?

Sure. I'm going to have Scott take that one.

Hey Mike. It's Scott here. How are you? So again, I think we want to be respectful of, what we're doing with regulators. And again, I think as we move forward with that, obviously, we're excited about all the elements of this, including frequent traveler. But I think the -- our focus, obviously, is bringing low fares and growth to the Northeast points and a faster recovery. So again, I think it's sort of what we could do. We're moving toward, I think, a close on this. And I think we'll be in a better position to kind of move forward more holistically. So I don't think it's a matter of what we can do, versus what we want to do. I believe that we're moving forward in a timeframe that allows us to kind of move in a way that makes sense.

Okay. Great, that's helpful. And then, just on my second question. And Scott, this is maybe for you, and/or Dave, when you look at just your yields relative to others, you guys are running a lot a bit higher? I mean, you've been in positive territory for the past couple of quarters, but your loads are also a lot lower. And I realize that some of that may be a function of blocking the Middle seat. And I know that I think it was mid-October, you sort of modified that to go from blocking the middle seat to maybe booking up to, I think, 70% or something. And then it looks like maybe in early December that goes away. You haven't seen anything maybe to counteract that. How should we think about though the yield trends, as that lifts? Are we going to get, as we move into the fourth quarter? Will we see lower yields, higher, higher loads and ultimately, a better RASM there? I mean, do you feel like maybe you're leaving some revenue on the table, because you have this middle seat block? So sort of a multi-pronged question, however best you can answer? Thank you.

Sure. I'll take it. And then I'll ask Dave or Scott to add some color. So as we've said since the onset, the Middle seat block has largely been about rebuilding customer confidence in travel. And w absolutely recognize that longer term it's not something that's sustainable and that as loads come back, the cost of the middle seat block is quite expensive. And so what you've seen us announce through December 1 is that we are letting seats just below 70%, and we'll continue to increase those lids longer-term based upon what the recent safety studies have come out saying that the aircraft cabin is inherently safe, safer than most indoor events. And so as we see into the holidays upside, frankly, as seats open up both in terms of fair, but also in terms of load.

Great. Thanks, Joanna.

Thanks.

Your next question comes from Joe Caiado with Credit Suisse. Please go ahead.

Hi. Good morning, everyone. Thanks very much. Steve, your Q4 average daily cash burn outlook excludes any onetime costs associated with severance or employee separation-related expenses. Is that right? And if so, could you just tell us what those expenses are expected to be in Q4? And if you got it for 2021 as well, please?

Hi, Joe. It's Steve. You're correct. It's excluded. We actually -- obviously, in the sort of public statement, and I'll answer in the prepared comments. The opt-out provision that we took about special item in Q2 is $58 million. And so that is absolute lion's share of what you're going to see with regards to that in terms of what we know at the moment. We've - our crewmembers have really sort of stepped up, and I won't say it's opportunity to thank them to support us through that. Obviously, with regard to slide 21, we're not sort of getting into any of that yet because we don't know what the future holds. But the lion's share, the absolute lion's share has already been booked in Q3.

Got it. Thanks for clarifying that. And then just a quick follow-up, maybe for Joanna. I think as part of your revenue initiatives, you highlighted on the slide an upgrade of the revenue management optimization system. And I'm just curious, didn't you recently upgrade the RM system in the last year or two? And so can you describe exactly what this upgrade is and what capabilities you're unlocking with that? Thanks for the time everyone.

Sure. Dave Clark is very excited to talk about our new RM system, so I'll pass it over to him.

Sure. Thanks for the question. As mentioned, we're in the process of upgrading to Sabre's newest version of the revenue management system called Revenue Optimizer. We have been talking about this for a few years. This is part of our continuous improvement of revenue management tools, which was part of our 2018 Investor Day. It's a more sophisticated system. We'll have better abilities to forecast demand, understand customer elasticity, things like that. Planning to cut over later this quarter and reworking the team process, the business process and the team structure to maximize the benefits of the new tool. So I'm excited later this quarter when we start using it in production.

Thanks for the color.

Our next question is from Andrew Didora with Bank of America. Your line is open.

Hi, good morning, everyone. My first question is for Robin or Joanna. Just on, obviously, leisure has been leading the recovery here. General consensus is that leisure continues to outperform corporate over the next few years, you clearly have this major oriented network. And based on your comments today, it doesn't really seem like your Northeast flying is as big of a hindrance as maybe it could be. But just when I look at your total revenue growth here, it's been more in line with network carriers and your 4Q kind projection is similar to them as well. I guess my question is, what do you think is the catalyst for JetBlue to begin to outperform on the top line? Or do you think just this big fight for the leisure traveler might prevent that from happening? Would love to get your thoughts there.

Yes. No. Thanks, I'll maybe start that and then pass over to Joanna. Look, the Northeast issue has been very, very significant. We saw in Q2, for example, and we all know this, how the Northeast was the most impacted in terms of coronavirus. And I think we did a really, really good job in Q2, bringing down our OpEx accordingly. As we've gone into Q3, we are still whilst, of course, the Northeast states have done a terrific job over the last few months on keeping the case count down. There are still significant parts of New York that people come and visit that aren't open. So Broadway, for example, is shut down well into next year. So I do think that some of the demand trends that we've seen into the Northeast, both business and leisure. And then we also have -- Joanna talked about the quarantines. And yes, compliance the quarantines, I would say, is mixed at best, and I'm being kind, but nevertheless, it is a barrier for people to fly. And we also see positive traction when states create test out exceptions for quarantine -- that is a positive catalyst. So I can't understate -- I mean, I think the team has done a terrific job mitigating the impact. We were the first airline to redeploy a large amount of new flying. Those 30 new routes. We've done it again, but -- and those act is a good mitigant. And so I think that we will continue to do that. We will continue to manage that accordingly, but we're going to continue, I think, to see headwinds into the Northeast for the coming months. And I think as we think about Thanksgiving, we're encouraging states to think about a testing option. I mean, if people are coming back for Thanksgiving and quarantine in at home, yes, but what we're seeing now, of course, is virus spread in people's homes. So actually testing either before you leave or when you get here, actually you could have, I think, a really positive impact on public health as well as helping us, I think, deal with some of the demand headwinds that quarantine bring. Joanna, anything to add?

Yes. I mean, I think I'd just add, leisure VFR is what we are built to do. It's what we were founded on, and we got a product, a price point, a cost structure all built for leisure. And as we navigate through this crisis and see that, that's where the demand is. We are uniquely positioned to meet that demand and recover more quickly when carriers that are overly reliant on business travel.

Understood. Thank you. And then my second question just for Steve. I know you get this -- you probably get this question a lot, but just wanted to get your thoughts on where you think kind of liquidity requirements move to sort of on the back end of the pandemic? And I ask because you clearly have a couple of years' worth of liquidity on your balance sheet right now at fourth quarter cash burn levels. So just trying to get a -- just trying to figure out how quickly the balance sheet can be repaired once we start to see demand recover more robustly here? Thank you.

Thanks, Andrew. And I'll make this brief. I've again, been delighted with the work the treasury team have done. I've described it before as having a steady hand on the tiller. We've been flexible. We've been measured in terms of how we've gone through and raise liquidity coming into the crisis with one of the strongest balance sheets in the industry. We kept about 10% to 12% cash of trailing 12 months revenue. I think undoubtedly, Andrew, we are in a position where the industry as a whole will be rethinking that going forward. Obviously, we're in a once in a generational pandemic but at the same time, I think those that have had stronger balance sheets like us coming into this will obviously benefit going forward. So we'll certainly assess that as we come out to the size. During the pandemic, as we are at the moment, having over $3 billion in the bank and sort of navigating that through making sure that I can speak well at night. And balance sheet repair is absolutely at the forefront of our thinking. We've got to get down to eliminate the cash burn, really focus on the margins and start driving positive cash from operations. But, as Robin said in his prepared comments, the balance sheet repair is right at the front of our thinking as we come out this side of the crisis.

Thank you everyone.

Thank you.

Our last question comes from Myles Walton from UBS. Your line is open.

Great. Thanks. So the last couple of quarters, last quarter and then this upcoming quarter, you're looking at, your guiding to a 30% incremental drop through. And Steve, maybe just looking into 2021, is that an appropriate drop-through to be looking at for operating earnings relative to revenue growth? Or are there other costs perhaps coming back to the system that you've maybe avoided or better cost savings that are going to be in the structural run rate?

Hi, Myles. I think I'd start off with a couple of the headwinds. I think that generally, people have got to sort of think about, obviously, in the very, very short-term, you're going to sort of have a bit of a peak in terms of medical costs as you sort of come out the back end of the quarter where people have put some elective procedures off, et cetera. But the biggest two that I think we've got a navigate in the sort of immediate future, is rents and landing fees, where you think about the sort of public entities and the airports where they have less traffic going through. So, that puts natural pressure on the cost structure. And in addition, as the volumes of our customers go up, thinking about sort of the amount of sort of cleaning services and initiatives that the industry as a whole has got to put forward. So when I think about the headwinds they are probably the couple. In terms of the work that we're doing in terms of the tailwinds, that's really, as I've said before in my previous answers to questions. We've done a tremendous job at JetBlue through the structural cost program. We've really taken a HAM into some of the bigger cost items. Think about engine maintenance, think about heavy maintenance. Think about taking fixed costs out. But also predominantly over the last few months, we've been shifting fixed cost to variable. We've done some outsourcing from an airport standpoint. We've done some in-sourcing to drive millions of dollars of benefits in our tech UPS organization. We're bringing some heavy maintenance work. So we're leaving no stone unturned to make sure we get back on to that sort of 2020 -- early 2020 trajectory as we get into the sort of 2022 financial year. So I'm pleased with the progress we're making.

Okay. I’ll leave that one. Thanks.

Thank you very much, Myles.

And that concludes our third quarter 2020 conference call. Thanks for joining us. Have a great day.

And again, that will conclude today's conference. Thank you for your participation.