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Southwest Vs. JetBlue: What is the Best Airline Stock Now? - Stocks in the News

Southwest Airlines Co ( LUV ) and JetBlue Airways Corp ( JBLU ) are two of the most recognized names in the airline industry. In recent years, they rose to prominence as low-cost alternatives to legacy carriers Delta Airlines ( DAL ), United Continental Holdings Inc ( UAL ), and American Airlines Grp ( AAL ).

However, due to aging fleets and rising unit costs, Southwest and JetBlue can no longer rely on low-costs to set themselves apart from the competition; the cost gap between Southwest and JetBlue and legacy carriers is slowly staring to narrow. It's a brand new environment for these airlines, and both carriers are implementing similar yet unique business strategies to reflect this new market. Which of these two airlines is the best airline stock now?

Industry as a Whole

In order to answer this question, let's take a look at the airline industry as a whole. This particular industry is sensitive to adjustments in economic growth, and tends to fluctuate with the state of the economy and real gross domestic product growth (GDP).

The recent drop in crude oil prices , due to an over-supplied oil market and a decrease in demand, has been quite the pleasant surprise, resulting in lower jet fuel prices and boosting the bottom line of stocks in the airline market.

Investors can expect solid earnings and growth rates to continue in 2015. Looking forward, research firm International Air Transport Association (IATA) has projected a rise in the industry's total profit to $25 billion, up significantly from $19.9 billion in 2014. IATA has also forecasted earnings of $7.08 per passenger in this year, which has increased 17.6% year over year. The firm maintains that crude prices will continue in the downward trend in 2015; the average price is expected to linger near $85 per barrel.

In addition to these numbers, IATA predicts that cargo will witness the highest growth increase in 2015 since 2010; cargo volumes are estimated to see growth of 4.5% this year, surpassing the 4.3% observed in 2014.

New Initiatives

With the positive industry outlook in mind, both Southwest and JetBlue have been making some big changes, allowing the airlines to take in the positive side effects of the good profit numbers.

Southwest, in the past few years or so, has become much more assertive, making themselves a bigger contender in the coveted, lucrative travel markets. Not only are they courting business travelers with refundable "Business Select" fares and other free amenities, but Southwest is now serving more cities than ever before. New York City, Boston, Chicago, Atlanta, and Denver are just a few cities the airline serves at their main airports, making it a much more viable selection for business travelers.

Southwest has also been adding bigger planes to its fleet. Over the past few years, the airline has purchased approximately 80 Boeing 737-800s with 175 seats, all while continuing to phase out 122-seaters 737-500s and 117-seaters 717s. Thanks to a report by Bloomberg , Southwest is now installing seats with a width of 17.8 inches, giving it the widest 737 seat of any U.S. airline.

Like Southwest, JetBlue has chosen to upgrade its fleet. The airline is in the process of switching most of its aircraft orders from 100- and 150-seaters to 190-seat Airbus A321s, planes that have lower unit costs. JetBlue has also added flights to various business markets in order to win more corporate travel contracts, and is introducing premium seating on cross-country flights from New York City to Los Angeles and San Francisco.

In 2015, JetBlue is planning to roll out "fare families," a revenue system that unbundles current amenities like one free checked bag and free high-speed Wi-Fi.

Southwest vs. JetBlue

Southwest JetBlue
Zacks Rank #2 (Buy) #2 (Buy)
Zacks Industry Rank 103/265 (Top 39%) 103/265 (Top 39%)
Projected EPS Growth 74.20% 138.96%
Net Margin 6.11% 6.89%
Debt/Equity 0.44 0.78
Price to Cash Flow $12.45 $9.98
Historic Cash Flow Growth 25.60% 26.74%
Year Over Year Growth Estimate 252.78% 3,611.11%
Last EPS Surprise 9.26% 13.04%

Based on these numbers, JetBlue Airways is poised to have a great 2015. With a high rank on the Zacks Rank (#2) and a stunning year over year growth estimate of 3,611.11% in the green, JetBlue is continuing to make a name for itself. Their earnings per share (EPS) is expected to grow almost 140% this year, and combined with their fleet improvements and increase in amenities options for travelers, JetBlue is a hot stock to buy now. While Southwest's numbers fall slightly below JetBlue's in almost every category, Southwest is still a dependable choice for investors. The airline's projected EPS growth is a solid 74.20% for the year, while their net margin is a respectable 6.11% compared to the airline industry's net margin of 3.90%

Bottom Line

Both Southwest and JetBlue are airline stocks that investors should consider seriously. Southwest has proven their gaining power over the past few years, and is an airline that will not let you down. However, JetBlue is slowly starting to close the margin and valuation gaps between itself and Southwest, potentially leading to high share price gains.

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SOUTHWEST AIR (LUV): Free Stock Analysis Report

JETBLUE AIRWAYS (JBLU): Free Stock Analysis Report

DELTA AIR LINES (DAL): Free Stock Analysis Report

UNITED CONT HLD (UAL): Free Stock Analysis Report

AMER AIRLINES (AAL): 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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