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JetBlue Vs. Southwest: Which Will Have Your Investment Cruising At A Higher Altitude?

Jim Swanson

In their February traffic releases, both JetBlue Airways Corporation (NASDAQ: JBLU) and Southwest Airlines Co (NYSE: LUV) indicated declines in RASM [Revenue Per Available Seat Mile].

In separate reports, Imperial Capital’s Michael Derchin lowered Q1 estimates for both airline companies.

RASM Declines

JetBlue indicated an RASM decline of 4-5 percent.

“The Easter shift is now expected to be a 6 point impact on March RASM, versus our 3 point estimate,” Derchin stated.

The analyst reduced the EPS estimate for Q1 from $0.34 to $0.26. The EPS estimates for FY2017 and FY2018 have been lowered from $1.85 to $1.75 and from $2.05 to $1.95, respectively. The change in the FY2017 estimate reflects a reduction in the RASM estimate from an increase of 0.5 percent to flat.

Southwest indicated an RASM decline of 2-3 percent, versus its prior guidance of 0-1 percent, “largely due to close-in yield weakness in February, which has already recovered in March,” Derchin wrote.

The analyst reduced the EPS estimate for Q1 from $0.75 to $0.65. The EPS estimates for FY2017 and FY2018 have been lowered from $4.00 to $3.90 and from $5.15 to $5.05, respectively. The change in the FY2017 estimate reflects a reduction in the RASM estimate from an increase of 0.5 percent to flat.

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Ratings And Upside

Derchin has Outperform ratings on both companies. The price target for JetBlue is at $29, representing 31 percent upside from the current levels, while the price target for Southwest is at $63, representing an upside of 15.6 percent.

“Looking past choppy 1Q17 results, JBLU’s outlook for the balance of FY17 is constructive,” Derchin commented. Separately, he mentioned, “FY18 is likely to be a reflection of LUV’s potential normalized earnings power.”

Latest Ratings for JBLU

Date Firm Action From To
Jan 2017 Argus Research Downgrades Buy Hold
Jan 2017 JP Morgan Upgrades Neutral Overweight
Jan 2017 Cowen & Co. Downgrades Outperform Market Perform

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