JetBlue Posts In-line Q2 Earnings; Top & Bottom Lines Up Y/Y

Zacks

Ney York-based airline JetBlue Airways Corporation (JBLU) reported second-quarter 2014 adjusted earnings of 19 cents per share, in line with the Zacks Consensus Estimate. Earnings, however, comfortably exceeded the year-ago adjusted earnings of 11 cents. The company’s consistent efforts to upgrade its products and services to cater to customers’ needs resulted in the year-over-year growth.

Total operating revenue climbed 11.8% year over year to $1.493 billion, almost in line with the Zacks Consensus Estimate of $1.499 billion. However, the stock got a mixed reaction from investors as it declined nearly 2% on Thursday trade on Nasdaq, but managed to recover the loss during after-market trade.

Notably, the carrier gained $242 million from the sale of its wholly owned subsidiary LiveTV.

Operating Statistics

Airline traffic, measured in revenue passenger miles, increased 5.7% year over year in the reported quarter along with 6.0% growth in capacity. However, load factor (percentage of seats filled with passengers) declined 30 basis points (bps) year over year to 84.6%.

Yield per passenger mile moved up 6.3% year over year in the second quarter. Passenger revenue per available seat mile (:PRASM) moved up 6.0% while operating revenue per available seat mile increased 5.6%. The shift of Easter from March to April impacted second quarter PRASM to the tune of 2%.

Operating Income and Expenses

In the quarter under review, total operating expenses increased 9.8% year over year to $1.35 billion, primarily due to higher marketing expenses (up 27.3%), salaries and wages (up 13.2%), other operating expenses (up 25.2%), and depreciation and amortization (up 9.8%). JetBlue’s operating unit cost or cost per available seat mile (CASM) rose 3.5% year over year while excluding fuel and profit sharing, CASM increased 5.1% from the year-ago quarter.

Operating income came in at $141.0 million, up 38.2% year over year. Operating margin decreased 180 bps year over year to 9.4%.

Balance Sheet

JetBlue ended the second quarter with unrestricted cash and short-term investments of $797.0 million. Total debt at the end of the quarter was $2,386 million compared with $2,585 million at the end of 2013.

Guidance

The company expects CASM to increase 0.5–2.5% and CASM, excluding fuel and profit sharing, to range between 1.0% and 3.0% in the second quarter.

Likewise, CASM for full-year 2014 is expected to increase in the band of 1.0–3.0%. Excluding fuel and profit sharing, CASM is estimated to rise in the range of 2.5–4.5%. Decrease in full-year unit cost excluding fuel and profit sharing from previous guidance is due to reduction of operating expenses in the second half of the year as a result of the divestment of LiveTV.

Capacity is expected to increase in the range of 3.0–5.0% in the third quarter while for 2014, it is expected to augment 4.0–6.0%.

JetBlue plans to repay debt and capital lease obligations to the tune of $58 million in the third quarter and $185 million in the rest of 2014.

Further, JetBlue expects average fuel price per gallon, including hedges and fuel taxes, of $3.08 in the third quarter. The company has hedged approximately 30% of its projected fuel requirements for the ongoing quarter.

Peer Releases

Delta Air Lines Inc. (DAL) reported second-quarter 2014 adjusted earnings of $1.04 per share, beating the Zacks Consensus Estimate of $1.03, while Southwest Airline Co.’s (LUV) earnings of 70 cents also steered ahead of our estimate of 61 cents. United Continental Holdings Inc. (UAL) posted a profit of $2.34 per share, much higher than the Zacks Consensus Estimate of $2.22.

Our Analysis

We believe JetBlue will continue to benefit from increasing travel demand, network expansion, fleet re-designing, optimization of unit revenues, capital expenditure management and disciplined growth. Additionally, emphasis on expanding in major growth regions along with various Caribbean and Latin American markets will likely support future growth. In addition, winning of slot pairs at Washington’s Reagan Airport is also expected to boost the carrier’s performance.

JetBlue currently carries a Zacks Rank #2 (Buy).

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