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JetBlue Airways (JBLU) commenced operations in February, 2000 and is currently the sixth largest passenger airline in the United States. The carrier differentiates itself in numerous ways, including through an efficient point-to-point route system, as opposed to the traditional hub-and-spoke network. Based at New York’s JFK airport, JetBlue flies primarily between domestic destinations, but is expanding in the Caribbean and Latin America. JetBlue’s structure allows it to benefit from a relatively low cost base, alleviating earnings fluctuations. However, the company is dependent on business conditions in the Northeast and air transporters’ earnings are inherently volatile.

Expansion of capacity (available-seat-miles) and air traffic (revenue passenger miles) has outpaced the broader airline industry since the company’s inception. In fact, in 2010, the carrier’s available seating capacity was up 7% year over year, and 22% higher than in 2006. For comparison, Delta Air Lines’ (DAL) available-seat-miles rose only 1% in 2010.  In this way, while major carriers have been limiting their service increases within the U.S., JetBlue has bolstered its domestic market share substantially.

Building its presence in the skies has not come without a price, though. Financing fleet expenditures with debt, common stock, and operating leases has put a strain on the balance sheet, led to inflated interest and aircraft rent costs, and diluted profitability. As of the end of 2010, JetBlue operated a fuel-efficient fleet of 160 aircraft, consisting of 115 Airbus A320s and 45 EMBRAER 190s. 

Moreover, JetBlue plans to increase its fleet count to meet risiing demand. An adherence to its delivery schedule would bring the fleet total to 169, 180 and 235 by the end of 2011, 2012, and 2015, respectively. This is not set in stone, though, as delivery deferrals or the exercising of options to purchase more aircraft may alter these amounts. Nevertheless, it appears that JetBlue will continue on a top-line growth track, as it further penetrates the market.    

During 2010, about two-thirds of JetBlue’s capacity was on routes between either the East and West Coast, or the Northeast and Florida. New York (mostly JFK) continues to account for the bulk of service. That said, during 2010, JetBlue grew its capacity at Boston’s Logan Airport an aggressive 30%, and this initiative will persist during 2011. Boston is providing JetBlue, traditionally a leisure travel player, with a rising proportion of higher-fare business flyers. 

Additionally, in 2009, JetBlue began to rapidly boost its number of Caribbean destinations. The region accounted for 23% of all capacity in 2010. For 2011, the carrier intends to further enhance the proportion of Caribbean travel, as well as Latin American. These routes, targeted to be 25% of total available-seat-miles in 2011, are operated at a high rate of return to the company, and are thus also higher margined.

Management is focused on several aspects of its business aimed at attracting travelers. For one, its customer loyalty program, TrueBlue, has been redesigned to make frequent flyer benefits more attractive. Second, JetBlue wholly owns LiveTV, a provider of in-flight entertainment, voice communication, and data connectivity services, available on each flight. Third, similar to point-to-point counterpart Southwest (LUV), the carrier provides service to many smaller cities, particularly in the Northeast, that majors do not reach.

For 2011, we are estimating share-earnings growth of nearly 30% from the 2010 figure. As alluded to earlier, economic conditions in the Northeast are a key driver of JetBlue’s earnings. Results also hinge on fuel costs, a factor that management has taken a greater effort to alleviate in recent years, through price hedging. Finally, JetBlue is realizing a jump in its average airfare, supported partly by industry fundamentals. Consolidation, marked by the combinations of Delta and Northwest, along with UAL and Continental, forming United Continental (UAL) and the pending marriage of Southwest and AirTran (AAI), should help bring down excess capacity, keeping occupancy rates aloft.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.