A key overview of JetBlue Airways (Part 12 of 12)
“Bringing humanity back to air travel”
JetBlue Airways (JBLU) is well positioned to serve its niche segment. It continues to add differentiated products to enhance the quality of passenger travel experience. Some of the newly introduced value-added products include:
- Mint: aircrafts with 16 lie-flat beds, complimentary food and beverage service, and live TV with 100 channels of DirecTV
- Fly-Fi: in-flight internet service
- Even More: Provides more spacious seats and faster security checks for an additional charge
- TrueBlue: enhancements to its customer loyalty program (read Part 6 of this series for more about Even More and TrueBlue)
JetBlue has lived up to its mission of “bringing humanity back to air travel” as reflected in its customer satisfaction scores. For the ninth consecutive year, it ranks first among low-cost carriers in J.D. Power’s customer satisfaction survey. JetBlue also received the highest score, 79, in the American Customer Satisfaction Index.
We will now see if JetBlue’s financials match its top-quality customer service.
JetBlue’s valuation in comparison to its peers
JetBlue has the highest fuel costs as a percentage of revenue. JetBlue’s and United Continental Holdings’ (UAL) cost per available seat miles has increased while the other airlines have made improvements through innovative cost cutting strategies. Delta Air Lines (DAL), for example, has invested in a refinery separate from the commonly used fuel hedging strategies—refer to Delta’s unique strategy: Owning a refinery to contain fuel costs for more information—to cut down on fuel costs.
JetBlue has planned to add more fuel-efficient A321s to bring down costs. It has reduced debt by $199 million in the first half of 2014. It also plans to repay an additional $185 million by the end of the year, which could bring down its leverage in 2014.
JetBlue’s low forward enterprise value to earnings before interest, tax, depreciation, and amortization (or EV/EBITDA) of 4.9x compared to its peers looks attractive too. As seen in the table, Southwest Airlines (LUV), Delta Air Lines, and American Airlines Group (AAL) have higher multiples supported by reducing costs and higher forward earnings before interest, tax, depreciation, and amortization (or EBITDA) multiples.
Although JetBlue’s costs are expected to increase in 2014, its forward EBITDA margin at 14% is close to its peers, and its stock is cheaper in terms of EV/EBITDA multiple. Also, JetBlue’s innovative product offerings have helped it sustain high customer satisfaction scores for almost a decade. Its shareholders have benefitted from a 74% appreciation in share price in one year as stock price increased from $6.54 in July 2013 to $11.41 in July 2014.
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