Low cost American carrier JetBlue Airways Corporation (JBLU, Financial) has outperformed the airline industry this year as the stock is up close to 30% YTD. Despite the company’s stunning performance, investors have been skeptical about the company’s prospects. Due to concerns regarding overcapacity and a steep increase in oil price, investors have taken a dim view of the stock. However, I think the concerns are overblown and the stock still warrants a buy. Let’s take a look at the reasons that make JetBlue a buy.
JetBlue Airways Reports Traffic Numbers for May
JetBlue’s has been making smart investments to add more routes. The company’s growth initiatives have been widely successful. As evident from the table below, JetBlue reported strong traffic for the month of May. Given that the company is adding more routes, I think the company’s sales will continue to move higher.
| Ă‚ | May-15 | May-14 | % Change |
| Revenue passenger miles | 3,468,055 | 3,199,276 | 8.40% |
| Available seat miles | 4,048,048 | 3,755,844 | 7.80% |
| Load factor | 85.70% | 85.20% | 0.5 pts. |
| Revenue passengers | 2,957,534 | 2,736,782 | 8.10% |
| Departures | 26,594 | 24,952 | 6.60% |
| Average stage length | 1,074 | 1,077 | -0.30% |
Oil
Investors and a few analysts have taken a dim view on airline stocks due to the concern regarding increases in oil price. Goldman Sachs, however, came out with a report predicting oil prices to fall to $45 per barrel by October. While it’s impossible to accurately predict oil prices, it’s unlikely that oil will reach last year’s level anytime soon.
JetBlue has hedged 17% of its oil consumption for 2015 and predicts a cost under $2.00 per gallon for 2015. JetBlue has stated its business plan revolves around oil at $90 per barrel and the company will not change it irrespective of short term changes in the price of oil.
Additional Mint Coast-To-Coast Service
JetBlue stated that it will add additional flights to its popular Mint experience from New York's John F. Kennedy Airport (JFK) to Los Angeles International Airport (LAX) and San Francisco International Airport (SFO).Ă‚
Starting in October, JetBlue will offer up to six daily Mint flights between New York and San Francisco. JetBlue will also advance additional service between New York and Los Angeles beginning October 25, with up to 10 daily flights by February when the air company takes delivery of its latest A321 Mint aircraft.
When it launched Mint in June 2014, JetBlue once again disrupted the air travel status quo with an uplifting take on the premium experience that features extraordinary service from specifically trained JetBlue crewmembers.
Growth plans
New York is still the company's biggest market, and JetBlue is looking to add slots if conceivable.
In the meantime, the company is excited by the arrival of JetBlue's new A321s, which consists of 190 seats -- compared to 150 seats on the A320s that are the spine of its fleet.
JetBlue has numerous flights from JFK to Florida and the Caribbean. On those routes, it could possibly offer the same number of seats with one or two fewer flights per day by replacing the A320 with the A321. This would free up room for new growth prospects.
Air stream
Amazon Prime will be a chief attraction of Fly Fi, JetBlue's satellite onboard Internet service. The airline states that Fly Fi boasts speeds of 12 to 20 megabits per second, much faster than the existing inflight standard.
Fly Fi has two types of service available:
1- Free of charge for general Internet cruising.
2- Additional charges for file transfers and downloads.
Amazon Prime will fall under the free section.
It's a great advantage for Prime members, but they shouldn't hurry to alter their existing tickets to JetBlue flights just yet. Fly Fi is still in beta; once it comes out of that phase later this year, it will switch embrace the Prime offerings. Fly Fi is presently available only in selected JetBlue planes, with the airline targeting for full roll-out "as swiftly as possible."
Conclusion
Unlike other airline stocks, JetBlue has managed to reward investors as the stock is up 28% YTD. The company’s growth plans look pleasing and I expect it to move higher in the coming months. In addition, oil prices are expected to stay near $60 per barrel for the remainder of 2015 as well as 2016. This will act as a long-term tailwind as fuel expenses account for a large portion of the company’s expense. Hence, for the reasons mentioned above, I think JetBlue is a great buy.
