MD&A Overview

We are a low-fare, low-cost passenger airline that provides high-quality customer service primarily on point-to-point routes. We offer our customers a differentiated product, with new aircraft, low fares, leather seats, up to 36 channels of free LiveTV and movie selections from FOX InFlight at every seat, pre-assigned seating and reliable performance. We focus on serving markets that previously were underserved and/or metropolitan areas that have had high average fares. We currently serve 34 destinations in 15 states, Puerto Rico, the Dominican Republic and The Bahamas, and intend to maintain a disciplined growth strategy. As of December 31, 2005, we operated 395 flights a day with a fleet of 85 Airbus A320 aircraft and seven EMBRAER 190 aircraft. We are committed to operating our scheduled flights whenever possible, as we believe our customers highly value completion rate. Although we delivered a 99.2% completion rate, this philosophy, along with operating at three of the most congested and delay-prone domestic airports, contributed to a 71.4% on-time performance in 2005, a decrease of 10.2 points from 2004, which was lower than all but one major U.S. airline.

The following chart demonstrates our growth:

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We expect to continue to grow. As of December 31, 2005, our firm aircraft orders consisted of 98 Airbus A320 aircraft and 94 EMBRAER 190 aircraft, plus options for an additional 50 Airbus A320 aircraft and 100 EMBRAER 190 aircraft. Our growth strategy involves adding additional frequencies on our existing routes, connecting new city pairs among destinations we already serve and entering new markets. During 2005, we initiated service from New York's John F. Kennedy International Airport, or JFK, to Boston, MA, Burbank, CA, Portland, OR and Ponce, Puerto Rico. We also increased our presence in the New York metropolitan market by commencing service from New Jersey’s Newark International Airport to Fort Lauderdale, Fort Myers, Orlando, Tampa and West Palm Beach, FL, and San Juan, Puerto Rico. In addition, we increased the frequency of service in many of our existing markets. In January 2006, we commenced service to Austin, Texas.

We derive our revenue primarily from transporting passengers on our aircraft. Passenger revenue was 95.3% of our operating revenues for the year ended December 31, 2005. Revenues generated from international routes accounted for 1.6% of our total passenger revenues in 2005. Because all of our fares are nonrefundable, revenue is recognized either when the transportation is provided or after the ticket or customer credit expires. We measure capacity in terms of available seat miles, which represents the number of seats available for passengers multiplied by the number of miles the seats are flown. Yield, or the average amount one passenger pays to fly one mile, is calculated by dividing passenger revenue by revenue passenger miles.

We strive to increase passenger revenue primarily by maintaining our high load factor, which is the percentage of aircraft seating capacity that is actually utilized. Based on published fares at our time of entry, our advance purchase fares were often 30% to 40% below those existing in markets prior to our entry, while our ‘‘walk-up’’ fares were generally up to 60% to 70% below the other major U.S. airlines' unrestricted ‘‘full coach’’ fares. Our low fares are designed to stimulate demand, particularly from fare-conscious leisure and business travelers who might otherwise have used alternate forms of transportation or would not have traveled at all. In addition to our regular fare structure, we frequently offer sale fares with shorter advance purchase requirements in most of the markets we serve and match the sale fares offered by other airlines.

Other revenue consists primarily of the fees charged to change or cancel customers’ reservations, the marketing component of TrueBlue point sales and revenues earned by our subsidiary, LiveTV, LLC, for the sale of, and on-going services provided for, in-flight entertainment systems sold to other airlines. During 2005, we launched a cobranded credit card in partnership with American Express enabling cardmembers to earn TrueBlue points that can be redeemed for award flights on JetBlue and JetBlue Getaways, which allows our customers to purchase travel packages including airfare, hotel and car rental.

We have low operating expenses because we operate only two types of aircraft, with high utilization and a single class of service, have a productive workforce, use advanced technologies and have low distribution costs. The largest components of our operating expenses are salaries, wages and benefits provided to our employees, including provisions for our profit sharing plan, when applicable, and aircraft fuel. In 2005, fuel prices reached unprecedented high levels resulting in fuel costs becoming our largest operating expense. The price and availability of aircraft fuel are extremely volatile due to global economic and geopolitical factors that we can neither control nor accurately predict. Sales and marketing expenses include advertising and fees paid to credit card companies. Our distribution costs tend to be lower than those of most other airlines on a per unit basis because all of our customers book through our website or our agents. Maintenance materials and repairs are expensed when incurred unless covered by a third party services contract. Because the average age of our aircraft is 2.5 years, all of our aircraft require less maintenance now than they will in the future. Our maintenance costs will increase significantly, both on an absolute basis and as a percentage of our unit costs, as our fleet ages. Other operating expenses consist of purchased services (including expenses related to fueling, ground handling, skycap, security and janitorial services), insurance, personnel expenses, professional fees, passenger refreshments, supplies, bad debts, communication costs and taxes other than payroll taxes, including fuel taxes.

The airline industry is one of the most heavily taxed in the U.S., with taxes and fees accounting for approximately 20% of the total fare charged to a customer. Airlines are obligated to fund all of these taxes and fees regardless of their ability to pass these charges on to the customer. Additionally, if the TSA changes the way the Aviation Security Infrastructure Fee is assessed, our security costs may be higher.

Our operating margin, which measures operating income as a percentage of operating revenues, was 2.8% in 2005 and 8.8% in 2004, which were higher than most other major U.S. airlines, according to reports by those airlines.

The highest levels of traffic and revenue on our routes to and from Florida are generally realized from October through April, and on our routes to and from the western United States in the summer. Many of our areas of operations in the Northeast experience bad weather conditions in the winter, causing increased costs associated with deicing aircraft, cancelled flights and accommodating displaced passengers. Our Florida routes experience bad weather conditions in the summer and fall due to thunderstorms and hurricanes. As we enter new markets, we could be subject to additional seasonal variations along with competitive responses to our entry by other airlines. Given our high proportion of fixed costs, this seasonality may cause our results of operations to vary from quarter to quarter.

In 2005, several major airlines have reported losses, resulting in the fifth consecutive year of industry losses. The financial pressures caused by continued losses and record high fuel prices resulted in additional carriers filing for bankruptcy protection. In September 2005, Northwest Airlines and Delta Air Lines each filed for bankruptcy protection. Delta Air Lines announced that in 2006 they would cease operating Song, the low-fare operation which they started in 2003 to compete directly with us. Independence Air, which initially filed for bankruptcy protection in 2005, ceased operations in January 2006. The airlines currently operating in bankruptcy may emerge with substantially lower costs and be able to compete more vigorously. Also in the fall of 2005, two major domestic airlines, US Airways and America West, merged, which could enable the combined entity to better compete.

In an effort to become more profitable, in 2005 other major airlines shifted some of their domestic capacity to their international routes, where they are better able to include fuel surcharges in their fares. As our route structure is primarily domestic U.S., we have been unable to completely recover the increased cost of fuel through fare increases due to the more competitive nature of the domestic airline industry. We expect the airline industry to remain intensely competitive, especially if adverse economic conditions and high fuel prices persist. Our ability to meet these competitive pressures depends on, among other things, operating at costs equal to or lower than our competitors and providing high quality customer service. Although we have been able to raise capital and continue to grow, the highly competitive nature of the airline industry could prevent us from attaining the passenger traffic or yields required to maintain profitable operations in new and existing markets.

Outlook for 2006

We expect our operating capacity to increase approximately 28% to 30% over 2005 with the addition of 16 new Airbus A320 and 19 EMBRAER 190 aircraft in 2006. The EMBRAER 190 is expected to represent 6% of our total estimated 2006 available seat miles. Average stage length is expected to decrease 8% in 2006 due to the shorter average stage length of the EMBRAER 190. We will incur higher maintenance costs; however, the unit cost increase is expected to be partially offset by our fixed costs being spread over higher projected available seat miles. Fuel costs have risen sharply in 2005 and may increase further. Although we have hedged 30% of our anticipated fuel requirements for 2006, we expect to incur higher fuel costs. Assuming fuel prices of $1.98 per gallon, net of effective hedges, our cost per available seat mile is expected to increase by 10% to 12% over 2005 and our operating margin is expected to be between 2% and 4% with an anticipated net loss for the full year.

We took delivery of and placed into revenue service seven EMBRAER 190 aircraft beginning in November 2005. The addition of the EMBRAER 190 to our fleet will increase our flexibility and better position us to take advantage of market opportunities. We intend to capitalize on revenue opportunities that would not have been available to us with only one aircraft type in our fleet, such as establishing non-stop service in markets where carriers currently do not provide non-stop service. Our completion factor and utilization on this aircraft has been lower than we planned, which was not unexpected for the launch of a new aircraft type. The operating performance and reliability of these aircraft are expected to improve as we gain additional experience and fully integrate it into our operations.

In December 2004, the Financial Accounting Standards Board, or FASB, issued SFAS No. 123(R), Share-Based Payment, which will require us to record stock-based compensation expense for all employee stock options and our stock purchase plan using the fair value method beginning in 2006. This change will have a significant impact on our results of operations, although it will have no impact on our overall cash flow or financial position. It will also affect our ability to provide accurate guidance on our future reported financial results due to the difficulty in projecting the stock price used to establish the value of stock options. We estimate that we will record approximately $20 million in non-cash stock-based compensation expense in 2006. See Note 1 to our consolidated financial statements for the pro forma impact this standard would have had on our reported financial results. We have made changes to our compensation strategies to reduce the future impact of this accounting change by shortening vesting periods and eliminating large one-time grants. In addition, SFAS No. 123(R) will impact how income taxes are recorded in our financial statements as the tax deduction for certain option grants is only allowed at the time the taxable event takes place, which could cause variability in our effective tax rate through the year as these events occur. SFAS 123(R) does not permit companies to predict whether these events will occur.