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JetBlue Airways (JBLU) Suffers From Cost Woes: Time to Dump?

We have issued an updated research report on JetBlue Airways CorporationJBLU on Aug 27. Due to multiple headwinds, shares of the company have declined 16.7% on a year-to-date basis compared with the industry 's fall of 14.8%.

Reasons for Dismal Performance

High fuel costs have been putting pressure on the bottom line for quite some time, with second-quarter 2018 results reflecting the same. During the quarter, fuel costs increased approximately 42% to $2.28 per gallon. In fact, the company anticipates third-quarter fuel costs, net of hedges to be $2.33 per gallon. Moreover, operating revenue per available seat mile (RASM) declined 1.2% to 12.74 cents. The metric was affected by the shift in holiday travel into the first quarter. With a view to reduce costs, the company has decided to trim workforce through layoffs, buyouts and attrition.

Furthermore, ratification of the four-year agreement with the pilots represented by Air Line Pilots Association has led the company to raise outlook for non-fuel unit costs for the third quarter as well as the full year. The metric is currently projected in the range of 3-5%, higher than the previous guidance of 1-3%. Similarly, the same for 2018 is anticipated to expand 0.5-2% year over year compared with the earlier outlook of -1% and 1%.The carrier also expects a one-time expense of $70-$80 million in 2018 including a $50-million ratification incentive. Such additional costs are expected to dent the bottom line in the coming quarters.

Additionally, the Long Island City, New York based company's business has suffered this year from flight cancellations due to weather-related disruptions.

Bearish Reading & Zacks Rank

The negativity revolving around the stock can be gauged from the Zacks Consensus Estimate being revised 27.1% downward in the past 60 days for current-quarter earnings. The bearish Zacks Rank #5 (Strong Sell) carried by JetBlue Airways reflects these headwinds. The unfavorable rank implies that investors should get rid of the stock from their respective portfolios now. Going by the proven model, Sell-rated stocks (#4 or 5) are likely to underperform the broader market over the next one to three months.

Stocks to Consider

A few better-ranked stocks in the broader Transportation Sector are Atlas Air Worldwide Holdings, Inc. AAWW , GATX Corporation GATX and SkyWest, Inc. SKYW . While Atlas Air Worldwide and GATX carries a Zacks Rank #2 (Buy), SkyWest sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Shares of Atlas Air Worldwide, GATX and SkyWest have gained 3.7%, 26.7% and 15.1% in the last six months, respectively.

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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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