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JetBlue's Unit Revenues Drive Q4'16 Earnings; Capacity To Remain Restricted In Q1'17

JetBlue Corporation ( JBLU ), one of the low-cost carriers in the US, posted earnings of $0.50 per share for the December quarter, almost 11% lower on a year-on-year basis, despite the improvement in its unit revenue. While the airline's fuel cost came in lower compared to a year ago, higher unit costs (excluding fuel costs) dragged down the company's operating profits for the quarter. On the positive side, the New York-based airline's strategy to restrict its capacity growth to bring back its unit revenue in the positive range worked well, enabling the company to post a growth of 3% in its top-line during the quarter. With a decent set of 4Q'16 results, JetBlue saw an initial rally of almost 4.5% in its stock price, trading at $22.73 per share during the day. However, the rally was short-lived, as the market was quick to reverse its optimism, when the low-cost carrier announced an expected drop of 8%-9% in its unit revenue in the month of January due to unexpected harsh winter conditions. As a result, the carrier ended the day at $21.10 per share, 3.2% lower than the previous trading day.

As mentioned earlier, JetBlue managed to control the free fall in its unit revenue by regulating its capacity growth for the quarter. The carrier restricted its capacity growth to only 4.5% in the quarter, as opposed to 10.4% in the same quarter last year, which caused its unit revenue to fall by 1.7% in the December quarter versus 4.7% in the September quarter. Going forward, the airline will continue to keep its capacity in discipline until its unit revenue becomes positive again. JetBlue expects to grow its capacity at a rate of 4.5%-6.5% for the first quarter of 2017, and at 6.5%-8.5% for the full year 2017.

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On the cost side, JetBlue's average realized price for fuel rose to $1.56 per gallon in the current quarter, 5.4% higher on a sequential basis driven by the steep jump in crude oil prices in the last three months. However, the airline disclosed that it had hedged close to 25% of its fuel requirements, which enabled them to moderate the fuel expenses for the quarter. With the improving outlook for oil prices, JetBlue forecasts its March quarter fuel consumption to be around 194 million gallons and estimated fuel price to be $1.73 per gallon. This increase in fuel cost is likely to impact the airline's fuel expenditure, which could weigh heavily on its operating margins.

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Apart from the fuel costs, JetBlue also witnessed a rise in its non-fuel costs during the fourth quarter. This was largely due to higher salaries and maintenance expenses incurred during the quarter. The airline is likely to face a similar trend in the coming quarters, as it anticipates its unit costs (excluding fuel) to increase in the range of 3% to 5% in the first quarter of 2017. This could create a dent on the carrier's earnings for the quarter. However, for the full year, the airline plans to restrict the unit cost growth to 1%-3% in order to maintain its margins.

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In terms of the financial position, JetBlue repaid $220 million of scheduled debt and capital lease obligations during the quarter, and ended the year with a debt of $1.4 billion. Further, the airline expanded its share repurchase program to $500 million from $250 million through 2019. Of this, the carrier repurchased $120 million worth of its shares in the fourth quarter with an aim to enhance its capital structure. Going forward, the low-cost carrier expects to repay debt of approximately $50 million and $195 million in the March quarter and the full year 2017, respectively. Also, the airline plans to spend $305-$365 million in the first quarter and $1.2-$1.4 billion in the fiscal year on re-fleeting and maintenance of its airplanes.

Have more questions about JetBlue Corporation ( JBLU )? See the links below:

  • How Has JetBlue Performed In Comparison To Its Peers?
  • How Will The Mint Program Contribute Towards JetBlue's Long Term Growth?
  • The Increasing Significance Of Ancillary Services In The Aviation Industry
  • What Are The Initiatives Undertaken By JetBlue To Ensure Sustained Growth?
  • JetBlue's Operations In Boston And Its Struggle To Maintain Dominance
  • Millennials And Their Increasing Contribution Toward Air Travel
  • How Did JetBlue Perform Operationally In October?
  • Higher Expenses Weigh On JetBlue's Q3'16 Results, Even As Unit Revenues Improve
  • JetBlue's Q3'16 Earnings Preview: Reduction In Capacity Expansion To Arrest The Decline In Unit Revenues
  • How Did JetBlue Perform Operationally In September?
  • How Has The State Of Air Travel In The U.S. Changed Over The Years?
  • How Has JetBlue's Financial Position Improved Over The Last Few Years?
  • Is Renewable Diesel The Way Forward For The U.S. Aviation Industry?
  • How Did JetBlue Perform Operationally In August?
  • Can Passenger Airlines Revive The Growth In The Air Cargo Industry?
  • How Are The U.S. Carriers Taking Advantage Of The Restoration Of Diplomatic Ties Between U.S. And Mexico/Cuba?
  • How Are US Air Fares Correlated To Crude Oil Prices?

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for JetBlue Corporation

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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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