We are maintaining our long-term Neutral recommendation on the
JetBlue Airways Corporation
) following the second quarter results and the company's outlook.
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The company delivered the best-ever earnings in the second quarter,
outpacing the Zacks Consensus Estimate and the year-ago earnings 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 growth.
JetBlue is the only non-unionized airline in the industry with the
flexibility to manage its cost structure. We believe JetBlue
remains one of the youngest carriers to possess the most
fuel-efficient fleet among its peers. Growing partnerships, cost
control measures, ancillary revenue opportunities, fleet
restructuring and robust liquidity profile are the long-term
beneficiaries of the company's growth.
Further, JetBlue is taking profitable actions to endure surging
fuel prices and ongoing market turmoil. Fare hikes and fuel hedging
are the two effective tools to combat the rising fuel expenses. In
addition, the company has started to manage fuel volatility through
Fixed Forward Price agreements also.
However, rising fuel price, competitive threats from larger peers
Delta Air Lines Inc.
United Continental Holdings Inc
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.
Further, the company's maintenance partner, Aveos, was liquidated
in March this year, which has resulted in increased expenses for
the company in the first quarter and the second quarter of 2012. As
the company seeks to find another partner, the liquidation will
lead to further rise in maintenance costs for the remainder of the
As a result, the Zacks Consensus Estimate for JetBlue remains
unchanged at 17 cents over the last 7 days, but it fell two cents
in the last 30 days for the third quarter. The estimate represents
a significant growth of 37.50% from the year-ago quarter.
For fiscal 2012, the estimate is pegged at 51 cents, flat over the
last 7 days but 4 cents below the last 30 days. This represents a
substantial increase of 81.59% annually.
Consequently, the stock also holds a short-term Hold rating with
the Zacks # 3 Rank.