JetBlue Beats EPS - Analyst Blog

By Zacks | October 29, 2012 AAA

One of the leading low-cost airlines - JetBlue Airways Corporation (JBLU) reported third-quarter 2012 adjusted earnings per share (EPS) of 14 cents, beating the Zacks Consensus Estimate by 2 cents. Earnings also increased by a significant margin from the year-ago earnings.

During the last ten quarters (inclusive of this quarter) JetBlue continues to generate profitability. Moreover, massive contribution from Boston and the Caribbean & Latin American operational units coupled with effective cost control measures and improved operational efficiency has resulted in such profitability.    

Revenue

Total revenue climbed 9.4% year over year to $1.308 billion and also in line with the Zacks Consensus Estimate. Airline traffic, measured in revenue passenger miles, grew 8.9% year over year. Capacity (or available seat miles) leaped 8.6% and load factor (percentage of seats filled with passengers) rose 30 basis points year over year to 84.8%.

Yield per passenger mile inched up 0.8% year over year in the third quarter. Passenger revenue per available seat miles (PRASM or unit revenue) improved 1.1% year over year while operating revenue per available seat mile grew 0.7%.

Operating Expenses

Total operating expenses increased 9.8% year over year to $1.2 billion in the reported quarter. Steeper expenses were largely due to a 44.4% year-over-year rise in maintenance, materials and repairs expenses as a result of aging fleet.

Consolidated unit cost or cost per available seat mile (CASM), excluding fuel, grew 3.7% year over year. CASM, including fuel, rose 1.1% from the year-ago quarter.

Operating Income

Operating income increased 5% year over year to $113 million. Operating margin fell 40 basis points to 8.6% from the year-ago quarter.

Liquidity

At the end of the third quarter, the company had $1.1 billion in unrestricted cash and short-term investments.

Guidance

The company expects CASM to increase 2-4% and 1.5-3.5% in the fourth quarter and fiscal 2012, respectively. Similarly, CASM excluding fuel would increase 2-4% in the fourth quarter and fiscal 2012. Additionally, JetBlue expects most of this year's increase to stem from higher maintenance expenses.

Capacity is expected to increase in the range of 5-7% for the third quarter and 7-9% for 2012.

Our Take

We believe JetBlue continues to benefit from its low-cost structure and improving travel demand that bode well in the present economy. JetBlue's expansion of service into new and untapped markets in Boston and in the Caribbean remains encouraging. Further, growing partnerships, cost-control measures, ancillary revenue opportunities and robust liquidity profile are the long-term beneficiaries of the company's growth.

However, rising fuel price and competitive threats from larger peers like Delta Air Lines Inc. (DAL), United Continental Holdings Inc. (UAL) and Southwest Airlines Co. (LUV) and the ongoing global economic instabilities might limit the upside potential of the stock. Additionally, maintenance expenses will likely climb due to gradual aging of the fleet. The company foresees heavy maintenance check-ups associated with A320 aircraft acquired in the mid-2000s.

We currently have a long-term Neutral recommendation on JetBlue. For the short term, the stock retains a Zacks #4 (Sell) Rank.

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