JetBlue Vs. Southwest: Which Will Have Your Investment Cruising At A Higher Altitude?

In their February traffic releases, both JetBlue Airways Corporation JBLU and Southwest Airlines Co LUV indicated declines in RASM [Revenue Per Available Seat Mile].

In separate reports, Imperial Capital’s Michael Derchin lowered Q1 estimates for both airline companies.

RASM Declines

JetBlue indicated an RASM decline of 4-5 percent.

“The Easter shift is now expected to be a 6 point impact on March RASM, versus our 3 point estimate,” Derchin stated.

The analyst reduced the EPS estimate for Q1 from $0.34 to $0.26. The EPS estimates for FY2017 and FY2018 have been lowered from $1.85 to $1.75 and from $2.05 to $1.95, respectively. The change in the FY2017 estimate reflects a reduction in the RASM estimate from an increase of 0.5 percent to flat.

Southwest indicated an RASM decline of 2-3 percent, versus its prior guidance of 0-1 percent, “largely due to close-in yield weakness in February, which has already recovered in March,” Derchin wrote.

The analyst reduced the EPS estimate for Q1 from $0.75 to $0.65. The EPS estimates for FY2017 and FY2018 have been lowered from $4.00 to $3.90 and from $5.15 to $5.05, respectively. The change in the FY2017 estimate reflects a reduction in the RASM estimate from an increase of 0.5 percent to flat.

Related Link: Potential Losers If Trump Terminates U.S.-Cuba Relations

Ratings And Upside

Derchin has Outperform ratings on both companies. The price target for JetBlue is at $29, representing 31 percent upside from the current levels, while the price target for Southwest is at $63, representing an upside of 15.6 percent.

“Looking past choppy 1Q17 results, JBLU’s outlook for the balance of FY17 is constructive,” Derchin commented. Separately, he mentioned, “FY18 is likely to be a reflection of LUV’s potential normalized earnings power.”