JetBlue Airways Coverage Launch: $7 Trefis Price Estimate


Shutterstock photo

JetBlue Airways ( JBLU ) is the 6th largest passenger carrier in the United States based on revenue passenger miles as reported by those airlines. JetBlue operates on point-to-point routes with its fleet of 115 Airbus A320 aircraft and around 45 EMBRAER 190 aircraft - the youngest and most fuel-efficient fleet of any major U.S airline. As of December 31, 2010, it served 63 destinations in 21 states, Puerto Rico, and eleven countries in the Caribbean and Latin America. It competes with American Airlines ( AMR ), Delta Airlines ( DAL ), Southwest Airlines ( LUV ) and U.S. Airways ( LCC ).

Launch of Coverage on JetBlue Airways: $7 Price Estimate

We've broken down our analysis of JetBlue Airways into three main business segments:

1. JetBlue Airways US

2. JetBlue Airways International

3. Cargo and Other Businesses

U.S. Airline Industry at a Glance

Commercial aviation helps generate more than $730 billion in economic activity and supports almost 11 million U.S. jobs. As the U.S. and world economies continue recovering from the recent economic downturn, the aviation sector will make a strong contribution towards revitalizing the job market. The U.S. airlines industry suffered a major setback in 2008 due to the recession that reduced both business and leisure air travel.

Since then, the U.S. economy has slowly recovered leading to an increase in demand for air travel in 2010 and consequently higher average fares. Traffic demand is highly correlated with economic growth and consumer spending accounts for nearly 70% of economic activity in the U.S. Based on expectations for the an economic recovery in the coming years, we believe this will lead to strong demand for airline travel.

JetBlue's Niche … A Low-Cost Structure

JetBlue has been recognized as a "value airline" based on its service, style, and cost structure. It is known for its award winning customer service and free TV as much as for its competitive fares. The company offers its customers the best coach products in markets it serves with a strong core product and reasonably priced optional upgrades.

The company's major strength lies in its low-cost structure. Adjusted for state length, JetBlue has lower units costs on average than most major carriers. JetBlue has lower passenger yield than most of its competitors, which has increased its U.S market share over the years. Its low-cost structure is facilitated by its reliance on the youngest and most fuel efficient fleet of any major US airline, relying largely on AirBus A320 and EMBRAER 190 jets, that help reduce the maintenance capital expenditure and service its point-to-point route structure.

The hub-and-spoke system concentrates most of an airline's operations at a limited number of central hub cities and serves most other destinations in the system by providing one stop or connecting service through the hub. Any issue at a hub such as bad weather or security problems can create delays throughout the system. By not concentrating operations through one or more central transfer points, its point-to-point route structure allows for direct non-stop routing than the hub-and-spoke model and therefore enables it to reduce delays and total trip time.

See our full analysis for JetBlue Airways here

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
More Headlines for: AMR , DAL , JBLU , LCC , LUV

More from Trefis




Follow on:

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by