One of the leading low-cost airlines -
JetBlue Airways Corporation
) reported third-quarter 2012 adjusted earnings per share (EPS)
of 14 cents, beating the Zacks Consensus Estimate by 2 cents.
Earnings also increased by a significant margin from the year-ago
During the last ten quarters (inclusive of this quarter)
JetBlue continues to generate profitability. Moreover, massive
contribution from Boston and the Caribbean & Latin American
operational units coupled with effective cost control measures
and improved operational efficiency has resulted in such
Total revenue climbed 9.4% year over year to $1.308 billion
and also in line with the Zacks Consensus Estimate. Airline
traffic, measured in revenue passenger miles, grew 8.9% year over
year. Capacity (or available seat miles) leaped 8.6% and load
factor (percentage of seats filled with passengers) rose 30 basis
points year over year to 84.8%.
Yield per passenger mile inched up 0.8% year over year in the
third quarter. Passenger revenue per available seat miles (PRASM
or unit revenue) improved 1.1% year over year while operating
revenue per available seat mile grew 0.7%.
Total operating expenses increased 9.8% year over year to $1.2
billion in the reported quarter. Steeper expenses were largely
due to a 44.4% year-over-year rise in maintenance, materials and
repairs expenses as a result of aging fleet.
Consolidated unit cost or cost per available seat mile (CASM),
excluding fuel, grew 3.7% year over year. CASM, including fuel,
rose 1.1% from the year-ago quarter.
Operating income increased 5% year over year to $113 million.
Operating margin fell 40 basis points to 8.6% from the year-ago
At the end of the third quarter, the company had $1.1 billion
in unrestricted cash and short-term investments.
The company expects CASM to increase 2-4% and 1.5-3.5% in the
fourth quarter and fiscal 2012, respectively. Similarly, CASM
excluding fuel would increase 2-4% in the fourth quarter and
fiscal 2012. Additionally, JetBlue expects most of this year's
increase to stem from higher maintenance expenses.
Capacity is expected to increase in the range of 5-7% for the
third quarter and 7-9% for 2012.
We believe JetBlue continues to benefit from its low-cost
structure and improving travel demand that bode well in the
present economy. JetBlue's expansion of service into new and
untapped markets in Boston and in the Caribbean remains
encouraging. Further, growing partnerships, cost-control
measures, ancillary revenue opportunities and robust liquidity
profile are the long-term beneficiaries of the company's
However, rising fuel price and competitive threats from larger
peers like Delta Air Lines Inc. (
), United Continental Holdings Inc. (
) and Southwest Airlines Co. (
) and the ongoing global economic instabilities might limit the
upside potential of the stock. Additionally, maintenance expenses
will likely climb due to gradual aging of the fleet. The company
foresees heavy maintenance check-ups associated with A320
aircraft acquired in the mid-2000s.
We currently have a long-term Neutral recommendation on
JetBlue. For the short term, the stock retains a Zacks #4 (Sell)
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