JetBlue Airways: A Balanced View - Analyst Blog

On May 30, 2014, we issued an updated research report on JetBlue Airways Corporation ( JBLU ). The carrier reported weak first-quarter 2014 results with both the top and the bottom lines missing the Zacks Consensus Estimate. However, network expansion, cost control and increased focus on differentiated product offerings is expected to drive the company's performance, going forward. JetBlue currently carries a Zacks Rank #3 (Hold).

JetBlue remains focused on generating a 7% return on invested capital (ROIC) based on cost control, maximization of revenues and a stronger balance sheet. To achieve the ROIC goal, the company is concentrating on delivering safe and excellent service to its customers along with the expansion and implementation of valuable strategic initiatives.

JetBlue is also banking heavily on the new services offered from Fort Lauderdale to different locations in North America, the Caribbean and Latin America. To support this growth momentum, the carrier expects to introduce new flights to Cartagena, Las Vegas, Pittsburgh and Jacksonville from the end of Oct 2014. Further, continuous growth in JetBlue's TrueBlue and Even More product is expected to push up the carrier's ancillary revenues by 10-15% in 2014.

Notably, JetBlue has won 40 new take-off and landing slots at Reagan National Airport (DCA) in Washington DC, including the 16 that it leased from American Airlines. The company also plans to add 24 daily round trip departures from DCA to eight cities in 2014. To support this goal, the company has decided to eliminate trans-continental flying from Washington Dulles and has closed several other non-profitable routes.

However, increase in pilot compensation is expected to affect the company's cost going forward. The new stringent pilot duty and rest rules under FAR117 has increased JetBlue's expenses as the company has had to hire more pilots to comply with the aforementioned rules.

Although JetBlue has won slots at DCA, its rival Southwest Airlines Co. ( LUV ) has grabbed an even bigger chunk of slots at the same airport. Southwest Airlines has decided to extend daily departures from DCA to 44 from the current 17, thus providing stiff price competition to JBLU in the airport.

Apart from DCA, Southwest Airlines has also acquired 12 pairs of slots at New York's LaGuardia International Airport (LGA), in a bid to vie for the lucrative New York market, which incidentally is a strong base for JetBlue. We thus remain cautious on the stock at the moment.

Key Picks from the Sector

Better-placed stocks worth considering within this sector include American Airlines Group Inc. ( AAL ) and Delta Airlines Inc. ( DAL ). Both stocks currently carry a Zacks Rank #1 (Strong Buy).

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JETBLUE AIRWAYS (JBLU): Free Stock Analysis Report

AMER AIRLINES (AAL): Free Stock Analysis Report

SOUTHWEST AIR (LUV): Free Stock Analysis Report

DELTA AIR LINES (DAL): Free Stock Analysis Report

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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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