JetBlue to Gain from Route Expansion amid Rising Fleet Costs - Analyst Blog

On Dec 12, 2014, we issued an updated research report on JetBlue Airways Corporation (JBLU). Low fuel prices coupled with increased demand for air travel will continue to boost profits for the company. 

 

JetBlue delivered positive earnings surprise in only one quarter, with an average miss of 21.43%. The company reported third-quarter 2014 financial results wherein both the top and the bottom line missed the Zacks Consensus Estimate. 

 

JetBlue is making continued progress with its product and service offering expansion on board as well as on ground to aid growth in ancillary revenues and enhance ticket pricing flexibility. Recently, the company teamed up with content providers like Coursera, FOX, HarperCollins Publishers, National Geographic and Rouxbe to deliver passengers more free content than any other U.S carrier. Meanwhile, the Fly-Fi Hub is the new gateway to JetBlue's Fly-Fi offering, the fastest Wi-Fi. 

 

With a low cost structure, the company continues to successfully expand its network in major growth regions – Boston, Fort Lauderdale, the Caribbean and Latin America. The company has also initiated a daily non-stop service from Salt Lake City International Airport to Orlando International Airport. JetBlue flyers availing this new route will also enjoy unlimited free snacks and non-alcoholic drinks. To support this growth momentum, the carrier introduced new twice-weekly flights to Caribbean city, Curaçao. We believe adding such new routes will help enhance JetBlue's growth and strengthen its network against other group members.

 

However, escalating maintenance costs remains a major headwind for the company and a large part of this increase can be attributed to the higher costs associated with the use of older E190 fleet and CF34 engines. Additionally, higher depreciation owing to increased IT infrastructure spending and landing fees could drag margins in the upcoming quarters.

 

Although JetBlue has won slots at DCA, its rival Southwest Airlines Co. (LUV), has grabbed an even bigger chunk of slots at the same airport. Southwest Airlines has decided to extend daily departures from DCA to 44 from the current 17, thus increasing its operations from the airport more than 2.5 times. We believe JetBlue will face stiff price competition in DCA owing Southwest Airlines' extended presence.

 

JetBlue currently carries a Zacks Rank #3 (Hold). Better-ranked stocks which belong to the same industry include Alaska Air Group, Inc. (ALK) and American Airlines Group Inc. (AAL). Both the stocks sport a Zacks Rank #1 (Strong Buy).