We are maintaining our Neutral recommendation on
) - a low-cost passenger airline. The company is characterized by
a cost-efficient business model, expansion of operations and
beneficial partnerships. However, rising fuel price, competitive
threats and the ongoing global economic instabilities might limit
the upside potential of the stock.
For the three month period from July to September, JetBlue
performed impressively and posted earnings per share ahead of our
expectation. Revenue also stood in line with the Zacks Consensus
Estimate. The results were buoyed by substantial contribution
from certain regional units coupled with improved operational
Looking ahead, we expect JetBlue to continue benefiting from
growing travel demand, schedule optimization, disposal or
replacement of old aircraft, managed capital expenditures and
disciplined growth. The company is also making continued progress
in expanding its product and service offerings on board and on
the ground to aid growth in ancillary revenues and enhance ticket
JetBlue continues to successfully expand its network footprint in
two major regions - Boston, and the Caribbean and Latin America.
For 2013, the company expects the Boston market to drive its
growth momentum through the alliance with Massport that would
provide additional infrastructural facilities. We believe
optimizing schedule across networks enhances JetBlue's growth and
strengthens its network than other industry players such as
United Continental Holdings Inc.
Delta Air Lines Inc.
Additionally, JetBlue is effectively managing its fuel hedge
portfolio to endure surging fuel prices and the ongoing market
turmoil. The company has hedged approximately 27% of its
projected fuel requirements for both the fourth quarter and
fiscal 2012 using a combination of collars, crude call options
and jet fuel swaps.
Nevertheless, operating within the airline industry, JetBlue
remains exposed to the effects of fuel price volatility, which
remains one of the major challenging factors. The company's
ability to pass on the increased cost of fuel to its customers is
limited by the competitive nature of the airline industry. Thus,
even a small change in fuel prices can significantly affect
The domestic airline industry is under pressure due to low profit
margins, high fixed expense and significant price competition.
JetBlue Airways faces significant opposition with respect to
routes, services, fares, flight schedules, types of aircraft,
code-sharing relationships, capacity, in-flight entertainment
systems and frequent flyer programs.
Hence, we do not see any near-term strong driving catalyst for
the company that currently holds a Zacks # 3 Rank (short-term
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