I suspect the market is factoring economic disruption due to falling price of oil. Bank loan defaults, etc like 1998. Unintended consequences. Otherwise, jblu will do ok. Some has been priced in.
20% of the float is short on JBLU as of 12-15-2014.. I think is the highest among the airlines. After today I expect the short interest to go up. Should the airline blowout earnings, we may see a huge short squeeze. Given the low daily volumes, the shorts will have a hard time covering 22m shares.
Much of the short interest of nearly 15M shares, or 50% of the float is intact. May be reduced by 2M shares. With the Fed keeping interest rates low, and valuations for intermediary companies like Uber, etc, Zillow has the potential to exceed the high of $160/s.
Zillow and Trulia will not only benefit from economies of scale, reduced costs, but also from the network effect. Listings, brokers, banks will go to the site with the biggest number of customers. Trulia software is actually better than Zillow, imo.
The real estate biz still have hi transaction costs and that will come down. Zillow+Trulia may be the dominant player in this space.
I think the market is way underestimating the profits of airlines and in particular JBLU that has a short interest of 20%. This is huge given the limited liquidity of the stock. Hard to cover.
Meanwhile, look at the fuel situation. JBLU spent 36% of expenses on fuel amounting to 515M in 2014Q4. In terms of % barely changed from same Q in 2013. Due to hedging fuel costs stayed nearly the same from little over and under $3/gal. Now the hedges will be coming off as time goes by. Jet fuel is below $2/gal net of taxes and is coming down to catch up with crude drop. Personally, I think crude oil will hit $40/B at least. So $1.50/gal for jet fuel is possible. It would amount to nearly $1B annual savings of fuel. After tax it could be $600M, though the airline tax rates are much lower. That amounts to $2/share over the last quarter run rate of may be $1/year EPS. I think oil prices will stay low for a long time.
Meanwhile, JBLU wants to pack 15 more seats per A320 or 10% of capacity, cut weight by 1,000 lbs. Using thin and lighter seats with pitch still at 33 inches, the highest in the industry. Offering with and without baggage pricing for tickets.
Nothing is static in this biz and ticket prices could come down, thought they seem stable now with hi demand, especially domestic. Consider a PE of 10-12 and stock could be anywhere from $20-30/s. Airlines are certainly unloved, thanks to Warren Buffet and years of losses. So it is a contrarian bet. Takes some nerve to be in this space, Not for everybody!
Everybody is betting that oil prices will spike. That is why long term futures are hi. Oil company stocks like XOM, CVX are still close to all time highs. Airline forward PEs are low, especially the big airlines. Until recently few analysts were positive on airlines. Now they are barely positive.
Sooner or later the market will wake up and smell the coffee and realize that low oil prices are here to stay. This is not a financial crisis like in 2007-9. It is about structural changes in supply and demand.
The airline stock prices are discounting risks:
- oil price spikes back to $100/b
- ticket prices fall due to competition
- economy slow, traffic down
Southwest has the right strategy. They have standardized on the airplanes with the 737, controls, pilots ratings, parts, maintenance. No complicated seating arrangements. No complicated baggage fees or other nickel and dime charges. Last but not the least, among the highest passenger satisfaction scores in the industry. Low debt that will be paid off soon.
Now they are expanding to Latin America. Revenues should grow nicely.
JBLU has been paying off debt and that makes sense instead of dividends. Want dividends? Buy Exxon, Chevron, etc. Ma be invest in the 320neo or 321 321neo with compact light seats, but same pitch.
I agree with yor analysis. With the exception of aal, rest of airlines have unde water hedges or forward contracts. At least 30% of revenue goes to pay for jet fuel in 2014Q3 for most eairlines, especially regional airlines.
Crude oil dropped from $90 to 55/B in Q4. Average at $72.50/B. Q3 average was $95/B. That is a 25% reduction in fuel cost or more given the holiday spike in travel. I would say the average is closer to 30% reduction in fuel. Nearly double sequential profits. I think most of airline stocks do not reflect this. Some have short interest
I am long UAL and JBLU. They have been lagging. UAL has skinny margins. JBLU is a gas hog with hi short interest. Even 20% drop in jet fuel due to hedges in place double their earnings sequentially. Analysts got their Q4 earning estimates lackluster. Hi risk bet. Looking back. LUV would have been a better choice. I just do not add airlines.
About 20% of JBLU float is short. That is huge and difficult to cover. If price of oil stays below $50/b and ticket prices stable as it has happened so far, EPS could nearly double. Probably happen during 2nd, 3rd quarter travel seasons. Blowout earnings would force shorts to cover. Overshoot stock to $20/s in that time frame.
JBLU metrics are actually quite good. Nov-2014 volume increased 10% compared to year ago. Fares stayed about the same. LUV is simply a well run point to point regional airline.
I think that JBLU should have stuck with the 1st free bag policy. Implemented thin back cushion seats, kept same leg room, reduced weight. Added more seats. These are short haul flights, not sure about use of Mint. Operations need to be simple. Just like LUV.
Anyway, jet fuel is dirt cheap. In my humble opinion, 4Q2014 EPS should 25 cents just from fuel savings compared to prev Q. Only 25% of fuel was hedged. Analysts are negative on the stock. Huge short interest at 20% plus. We could see a short squeeze
Besides the falling price of jet fuel, what JBLU got in its favor are:
1. Using seats that have thinner cushion and frame, the company plants to add 15 seats per A320/321 or increasing capacity by 15% while saving 1,000 lbs weight Big increase in revenue with minimal incremental cost. Seat pitch at 33" is still greater that just about every airline.
2. The company will delay taking delivery of the A320/321 neo due to the increase in seats. Big savings in capex.
3. The company will offer tiered pricing with options for luggage choices, etc. Passengers can still get free first bag if they choose the pricier ticket. Then the company is offering Mint seats that are like business class.
4. In this Q only 25% of the fuel has been hedged. Fuel makes up for 37% of the expenses. I do not think the big drop in jet fuel is priced in. There is a lot skepticism that crude oil price will quickly recover. I do not think so. The Saudis play the long game.
5. Airlines have pricing power with just a few carriers around, for now.
I would suggest that you download income statement from their website to Excel. A lot of the jet fuel had been hedged until recently. Now the hedges are coming off. Look at jet fuel cost, went from $3.50/gal to $1.90/gal approx. Fuel is 37% of cost so far. Do the math. Hard to believe. They could be making at the rate of $2/s, unless there is recession or huge price pressure. Jet Blue stock lags other carriers.
Somebody please check the math.
Baggage fees will po a lot of customers who favor the airline. Keep seat pitch same, but seat back cushion can be thinned out. Use alloy frame and reduce weight.
Oil and commodity cycles last decades. Peak in 1981 at $42 and bottomed out in 1998. Peak in 2007 at $140 and it will a long time to bottom out. Very different from financial crisis rebound. Here it is about advances in technology, new reserves. Meanwhile, airlines have become very efficient and they made money at $120 oil.
However, traders and big guys like Pickens, Hamm are betting that oil will got back to $100 this year. That is why airlines are selling at a huge discount. Some have huge short interest.
I bought a new position today because of potential upside due fall in oil prices. The price of oil has fallen more than 30% this year. Since the airlines have pricing power due to reduced competition, a lot of the savings will go to bottom line. Most of these savings have not been priced in. Furthermore, the price oil will continue to fall like it did in 1980s. I think $40-60/b range is possible. Fuel is 30% of operating costs, so there are huge operating leverages. I suspect the new CEO will nickel and dime the passengers to boost profits.
The oil industry and Wall Street believe the fall in oil prices is temporary. I don't think so. Exploration, drilling, production tech has improved significantly. Huge reserves have been found worldwide. Plus shale. Look at the price of natural gas. Used to be $15/MBTU, now around $3-4/MBTU.
I think that $20/s for JBLU is possible.
Those hedges will be coming off soon. Fuel is 30% of e lenses. Plug in those numbers. The EPS look too good that I wonder if I made a mistake. Did the same with JBLU where fuel is 36% of expenses.
I think WS thinks that next year oil prices will go back above $100/B. I don't think so. New reserves, new drilling tech, etc will keep supply up. Dead growth is lame. Increase energy efficiency due to new tech too.
I think the airlines in general are mispriced. They used to loose a lot of money over the years. However, they consolidated via mergers, cut costs, nickeled and dimed on extras and learnt how to make money at $100 oil. With exceptions like SAVE, they have low PEs. JBLU got a bad rap due to the Saint Valentine Day fasco.
I figure based on the oil price chart, 25% hedged fuel, that the cost of jet fuel dropped by 20% from Q3 to Q4/2014. Or $100M of the 515M jet fuel cost in Q3. With nearly 300M shares, that is $0.33/s pre tax, or around $0.25/s after tax approximately. With old analyst estimates unchanged at 0.26/s base on higher fuel prices, we could get blowout earnings on Jan-29. I have not seen ticket price erosions during the holidays. 20% of available float is short. So we could see a huge short squeeze. Airlines start reporting on Jan-20. So we will get an idea of what is going on.
I think oil prices will stay weak for a while like starting in 1985.
Most analysts are clueless. Have you met any? Most are 24-28 runts with all sorts of liberal arts. The good ones do not focus of airlines, they are chasing Ali Baba, or FB. Barely any coverage on JBLU. The company is a little conservative but has low debt. They will become efficient over time. Their focus has been on the consumer.
I suggest anybody investing on JBLU look at their website financials and reports. Give a lot of info.