One of the leading low-cost airlines
JetBlue Airways Corporation
) reported second quarter 2012 adjusted earnings per share (EPS) of
16 cents, beating the Zacks Consensus Estimate by a penny. Earnings
also doubled from the year-ago earnings.
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The company delivered the best-ever earnings in the company's
history on the back of strong demand from leisure and business
travelers. The company's strategy of expanding its network
footprint in two major growth regions, Boston and the Caribbean
& Latin America is paying off well amid uncertain economic
Total revenue climbed 11% year over year to $1.277 billion but
missed the Zacks Consensus Estimate of $1.287 billion. Airline
traffic, measured in revenue passenger miles, grew 10.5% year over
year. Capacity (or available seat miles) leaped 5.5% and load
factor (percentage of seats filled with passengers) rose 380 basis
points year over year to 85.3%.
Yield per passenger mile inched up 1.3% year over year in the
second quarter. Passenger revenue per available seat miles (PRASM
or unit revenue) improved 6.1% year over year while operating
revenue per available seat mile grew 5.3%.
Total operating expenses increased 7.7% year over year to $82
million in the reported quarter. Steeper expenses were largely due
to a 58.7% 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 5.6% year over year. CASM, including fuel,
rose 2.1% from the year-ago quarter.
Operating income shot up 51% year over year to $130 million.
Operating margin improved 270 basis points to 10.2% from the
At the end of the second quarter, the company had $1.2 billion in
unrestricted cash and short-term investments.
The company expects CASM to increase 1-3% and 1-3% in the third
quarter and fiscal 2012, respectively. Similarly, CASM excluding
fuel would increase 4.6-6.5% and 2.5-4.5%, respectively, in the
third quarter and fiscal 2012. Additionally, JetBlue expects most
of this year's increase to stem from higher maintenance expenses
and profit sharing expense.
Capacity is expected to increase in the range of 7-9% for the third
quarter and 6.5-8.5% for 2012.
The estimated fuel price, including taxes and hedges, is
approximately $3.13 per gallon for the third quarter and $3.18 for
2012. JetBlue has hedged approximately 27% of its projected fuel
requirements for both the third quarter and fiscal 2012 using a
combination of collars, crude call options and jet fuel swaps.
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 growth.
This healthy outlook is expected to overshadow the increase in
maintenance expenses, fuel price volatility, competitive threats
from larger peers like
Delta Air Lines Inc.
United Continental Holdings Inc.
Southwest Airlines Co.
) and the ongoing global economic instabilities that might limit
the upside potential of the stock.
We currently have a long-term Outperform recommendation on JetBlue.
For the short term, the stock retains a Zacks #2 (Buy) Rank.