When it comes to getting rid of the amazing amount of whitespace CF can generate in your page there are quite for tricks to getting around this from multipletags to server filters that you can use.
With Railo its a little more simplier. Log in to your admin panel, go to "Output" in the left hand side and check "Whitespace management: Removes all white spaces in the output that follow a white space".
@Ray: It will do nothing to it since it only affects the response stream. All the whitespace that is generated there will be affected but not the rest.
@Tom K: We cannot really measure it since the amount of time it takes is outperformed by the lower load time it has since it's only transferring less bytes. Of course if you otherwise would transfer tons of data, it would be very effective.
Just as a background info: Railo checks the response stream and supresses every whitespace that follows a whitespace.
just like to add that there is a slight danger with this feature - it can mangle output in textareas. well, mangle is a bit strong, but it'll get rid of the all the extra newlines. probably not a problem for most but it is something to watch out for.
unfortunately there's a known bug in Railo where using cfsetting to stop it adjusting the whitespace doesn't work once it's turned on at a server level. I started digging through the Railo source the other day to see if I could get to the bottom of the issue but it was too ambitious a project for the early hours of the morning :)