JetBlue Airways (JBLU) Gains on Bullish Capacity Guidance

Shares of JetBlue Airways CorporationJBLU gained significantly following the company's announcement of trimming its capacity guidance for full-year 2017. Shares of the low-cost carrier were up as much as 1.28% on the news during early trading on Feb 6, 2017. However, all the gains were eaten away during the course of the day and the stock ended the trading session at $19.50, flat with the closing price on Feb 3.

Capacity-related fears had gripped airline investors in the recent past (particularly in 2015). The fears were re-ignited last month, when American Airlines Group AAL , while releasing fourth-quarter results, hinted at increasing domestic capacity while reducing the same internationally in 2017. Generally, carriers are forced to reduce fares as unit revenues decline in the face of capacity outpacing demand growth.

Against this backdrop, JetBlue's decision to trim capacity growth is undoubtedly prudent. The Long Island City, NY- based carrier now expects available seat miles (ASMs: a measure of capacity) for full-year 2017 to grow in the band of 5.5% to 7.5% (prior guidance, issued last month while releasing fourth quarter results, had hinted at capacity growth in the band 6.5-8.5%). Capacity for the first quarter is still expected to grow in the band of 4.5-6.5%.

The decision of JetBlue to trim 2017 capacity comes at a time when most airline heavyweights like Delta Air Lines DAL and Southwest Airlines LUV are looking to curb capacity growth with the aim of returning to unit revenue growth.

Moreover, increasing labor costs are hurting the bottom line of carriers as they are inking more and more labor deals. Like its peers, JetBlue too expects unit costs to keep rising. Consequently, consolidated operating cost per available seat mile, excluding fuel, is expected to increase in the band of 1.5-3.5% for 2017 (old guidance: 1% to 3%). The metric is still expected to grow in the band of 3% to 5% in the first quarter of 2017.

JetBlue Airways Corporation Price

JetBlue Airways Corporation Price | JetBlue Airways Corporation Quote

Zacks Rank

JetBlue Airways currently carries a Zacks Rank # 3 (Hold). You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here .

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

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

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