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Strong Demand Aids JetBlue's March Traffic, Bullish Q1 View

Zacks Equity Research
Updated
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Joining the likes of Delta Air Lines, Inc. DAL, American Airlines Group Inc. AAL and United Continental Holdings, Inc. UAL, the low-cost carrier JetBlue Airways Corporation JBLU issued an upbeat view on unit revenues for first-quarter 2018.

JetBlue is scheduled to unveil its first-quarter results on Apr 24. The company issued the bullish forecast while releasing its March traffic report.
 

Robust Air Travel Demand Boosts Traffic

Traffic, measured in revenue passenger miles (RPMs), improved 7.3% year over year to 4.38 billion. On a year-over-year basis, consolidated capacity (or available seat miles/ASMs) also expanded 3.3% to 4.92 billion.

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With traffic growth outpacing capacity expansion, load factor (percentage of seats filled with passengers) registered a rise of 330 basis points year over year to 89%. Strong demand for air travel contributed to the increase in load factor. In fact, this Long Island City, NY-based carrier transported 3.65 billion passengers in March, reflecting an improvement of 4.7% on a year-over-year basis.

This Zacks Rank #3 (Hold) company registered a completion factor (system wide) of 93.6% in the same month, with 64.2% flights on schedule. Notably, completion factor decreased from the February reading of 98.4% as many flights were cancelled in March due to weather-related disruptions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upbeat Q1 Forecast

JetBlue now expects revenue per available seat mile (RASM: a key measure of unit revenues) to increase approximately 6.1% year over year (previous guidance anticipated the metric to grow in the 3.5-5.5% band). Strong demand for air travel contributed to the bullish view. The metric was boosted to the tune of 2.5 points owing to the timing of Easter in March.

Additionally, lower completion factor due to the increase in flight cancellations boosted first-quarter unit revenues to the tune of approximately one point. Lower completion factor implies higher flight cancellations and a reduction in capacity. This, in turn, leads to increase in unit revenues.

Consequently, JetBlue slashed its projection on capacity growth to 3.3% from the previously anticipated 3.5-5.5%. The trimming of the capacity growth projection is encouraging.

Price Performance

The above-mentioned bullish projections failed to please investors. This is quite evident from the 0.2% decline in the JetBlue stock’s closing price on Apr 11. The main reason behind the downside was the spike in oil prices. On Apr 11, U.S. crude prices reached the highest level of $66.82 a barrel since December 2014. Mounting tensions in the Middle East and the resultant fears of supplies being disrupted contributed to the upsurge.

We note that high oil prices do not bode well for companies in the airline space as fuel costs account for a significant chunk of their expenditures.

In fact, not only yesterday, oil prices have been on an uptrend lately and were up approximately 8% in the January-March period. Given the inversely proportional relation between oil prices and airline stocks, this increase in crude prices is expected to hurt results for carriers, including JetBlue in the soon-to-be-reported quarter.

Furthermore, JetBlue has not had a healthy run on the bourse lately, with its stock price declining 9.1% in the January-March period.


 

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JetBlue Airways Corporation (JBLU) : Free Stock Analysis Report
 
Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
United Continental Holdings, Inc. (UAL) : Free Stock Analysis Report
 
American Airlines Group Inc. (AAL) : Free Stock Analysis Report
 
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Zacks Investment Research