Five Reasons Why JetBlue is the Best Airline Stock

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Jun 22, 2015

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 prospect. Due to concerns regarding overcapacity and a steep increase in oil prices, 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 May traffic

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 of airline stocks due to the concern regarding increase in oil price. Goldman Sachs (GS, Financial), however, came out with a report predicting oil prices would 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 any time 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 augment additional flights of its admired Mint experience from New York's John F. Kennedy Airport (JFK) to Los Angeles International Airport (LAX) and San Francisco International Airport (SFO). The schedule development proposed to customers regarding new options to travel between JFK and the West Coast with an inexpensive premium experience that is above and beyond the old-fashioned standard that customers have come to expect from other airlines.

In October 2015, 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.

Meanwhile launching Mint in June 2014, JetBlue has once more disrupted the air travel status quo with an uplifting take on the premium experience that features a thoughtful product proposing and extraordinary service from specifically trained JetBlue crewmembers.

Growth plans

In accounting the company’s near-term growth opportunities in Florida, JetBlue is also functioning to cover the way for longer-term growth. In New York, still its major market, JetBlue is still 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 –Â compared to 150 seats on the A320s that are the spine of its fleet.

JetBlue has numerous flights from JFK on some routes 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. This would free up room for new growth prospects.

Air stream

Amazon (AMZN, Financial) Prime will be a chief attraction of Fly Fi, JetBlue's satellite launched onboard Internet service. The airline states that Fly Fi boasts speeds of 12 to 20 megabits per second, expressively 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 hasten 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 twitch to embrace the Prime offerings. Fly Fi is presently available only in selected JetBlue planes, with the airline targeting for full rollout "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 consequently, 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.