U.S. Markets open in 5 hrs 48 mins

Why did JetBlue’s revenue passenger miles grow so much in 2Q14?

Tejeshwari Chandrappa

A must-read overview of JetBlue’s second quarter 2014 earnings (Part 3 of 11)

(Continued from Part 2)

Growth in revenue passenger miles (or RPM)

Apart from the strong demand for air travel, JetBlue’s 5.7% growth in revenue passenger miles (or RPM) was due to expansion in capacity.

RPM is calculated as a product of load factor and available seat miles (or ASMs). The 0.3% decrease in load factor (the percentage of total seats occupied) was offset by a 6% increase in ASMs.

The increase in ASMs was possible through aircraft purchases. But this also adds to the airline’s fixed cost. If the added capacity isn’t used effectively, profit margins could also take a hit. Another possible way to increase revenue passenger miles without the fixed cost impact is through improvement in load factor or better use of existing capacity.

In 2Q14, JetBlue’s (JBLU) load factor was 84.6%, compared to Southwest’s (LUV) 83.9%, Delta’s (DAL) 86.3%, United’s (UAL) 85.3%, and American’s (AAL) 84%.

Capacity expansion plans

As of June 2014, there were 130 Airbus A320s, five Airbus A321s, and 60 EMBRAER 190 aircraft in JetBlue’s fleet. Two Airbus A321 aircraft that were delivered in 2Q14 are expected to be operational in 3Q14. JetBlue has firm orders for an additional six A321s for the rest of the year.

With the additional aircraft to be delivered, ASMs for the full year is expected to increase between 4% to 6% year-over-year and between 3% and 5% in 3Q14. Aircraft capital expenditure is estimated at $135 million in 3Q14 and $625 million for the full year. Non-aircraft capital expenditure—including facility improvements, spare parts, and aircraft improvements—is estimated at $65 million in 3Q14 and $325 million for the full year.

Continue to Part 4

Browse this series on Market Realist: