2017 was a fairly flat year for JetBlue Airways Corp. (JBLU, Financial) as the stock was down nearly 0.5%.
The stock is off to a dull start this year as it has fallen more than 14% year to date. Shares of the low-cost carrier have been on a downhill slide since United Continental Holdings Inc. (UAL, Financial) announced its plans to grow its capacity at a rate of 4% to 6% a year over the next several years.
JetBlue reported better-than-expected first-quarter results on April 24. For the quarter, the airline posted earnings per share of 27 cents, surpassing the analyst estimate by 8 cents. Its net income came in at $88 million, up 7% year over year.
Revenue came in at $1.75 billion, in line with expectations. Revenue grew 9.5% year over year. In addition, crude oil prices have increased significantly over the past 12 months, which has negatively impacted the company's profit margin.
Crude oil price chart
Source: Macrotrends
The airline’s average fuel price per gallon jumped almost 25% year over year. JetBlue, however, was able to counter the impact of higher fuel prices with robust revenue growth.
Over the last 10 years, it has gained a strong foothold in Boston. While New York remains the company’s primary base of operations, Boston produces the highest profit margin among its six major cities.
While JetBlue has been able to gain a strong foothold in Boston, it still does not have an expanded route network like the other airlines in its main hubs. The low-cost carrier, however, is aggressively adding new routes to strengthen its position further and improve its standing with Boston-based business travelers.
Apart from this, JetBlue is number three in terms of airline quality.
For the current quarter, management anticipates non-fuel unit cost growth in the range of 2% to 4%. However, the cost structure will be considerably enhanced in the second half of the year as it has several cost-saving levers to keep non-fuel unit costs flat over the next several years.
The low-cost carrier is successfully executing its multiyear program to decrease its structural costs by almost $300 million per year. On the other hand, it is planning to expand seat capacity for its Airbus A320 aircraft. In addition, the company’s management recently announced the appointment of Joanna Geraghty as chief operating officer.
Although the low-cost carrier is aggressively trying to keep its non-fuel costs in check, it also needs to increase its unit revenue, especially in the existing high-oil price environment, to maintain its profit margin. The company’s revenue per available seat per mile is projected to decline slightly in the current quarter, but it appears to be in a good position to attain unit revenue growth after that.
Conclusion
JetBlue has been performing amazingly well over the past several quarters. It continues to expand capacity with the purchase of new aircraft. The most significant thing, however, is the company is almost debt-free.
On the other hand, the airline is cutting flights at its worst-performing focus city, while adding more flights to more reliable hubs like Boston.
The stock currently trades at a bargain price-earnings ratio of 10.69, considerably lower than the industry average of almost 14. As a result, investors should consider buying JetBlue at its current market price.
Disclosure: I do not hold a position in the stocks mentioned in this article.
