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JetBlue Stock Struggles After Earnings Report. Management Remains Bullish

Airline will add 3 Mint-configured A321s to its premium offering in 2018

Three A-321s will be configured for JetBlue's premium Mint program in 2018. Photo Tomás Del Coro from Las Vegas, Nevada, USA (CC BY 2.0)

Shares of JetBlue Airways Corporation (NASDAQ:JBLU) have declined 7% since last week’s Q4 2017 earnings release. The low-cost carrier announced a 2.2 percentage point decline in pre-tax margin and EPS decline of $0.09. According to these calculations, Hurricanes Irma and Maria were responsible for 50% of JetBlue’s year-over-year earnings per share dive. EPS (excluding $1.76 from non-recurring items) came in at $0.32.

The two storms had a devastating effect on leisure travel in Florida and the Caribbean. Puerto Rico is still recovering although recently, demand there has picked up unexpectedly. Demand and pricing are also on the upswing in other domestic markets. Because of the uptick, unit revenue guidance was raised in December and January. RASM (revenue per available seat mile) was forecast to decline as much as 3% but instead rose 1.8%.

Year-over-year, the bottom line decreased 36% because of higher costs. Average fuel cost per gallon jumped 21.6% to $1.99 (including fuel taxes). Management noted that JetBlue’s pre-tax margin continued to be slightly above peers’ industry average for Q4.

JetBlue (NASDAQ: JBLU) EPS decline due to two large hurricanes in Q4 2017. Luis Villa del Campo from Madrid, Spain (CC BY 2.0)

More Mint on the Way

Mint, JetBlue’s premium offering, is operating in line with expectations. Last year, the airline added 15 Mint A321 aircraft and another 3 Mint-configured A321’s will be added in 2018. New York and Boston routes to both San Diego and Las Vegas were recently converted and in the next few months, New York and Boston to Seattle will be added. New York City and Boston continue to be JetBlue’s highest margin hubs. All-Core A321s will continue to be deployed in Boston leisure markets which are expected to continue to drive margin.

During the earnings presentation, Chief Financial Officer Steve Priest confirmed JetBlue’s goal of leading the industry in terms of profitability, saying, “in the fourth quarter and 2017 we took actions to navigate a complex external environment, while striving to protect and enhance our margins. … We continue to demonstrate our ability to make progress in our commitments to all our stakeholders and to lay the foundation that will ultimately achieve superior margins.”

Forward-looking guidance included accelerated revenue growth for Q1 2018, with an expected 2.5% to 5.5% rise in RASM (revenue per available seat mile). However, a possible 28% year-over-year increase in fuel prices and 2% to 4% increase in non-fuel unit costs in the quarter could offset expected gains.

JetBlue is forecasting a decline in non-fuel unit costs due to savings from its structural cost program and easier year-over-year comps; also, thanks to President Trump’s corporate tax cuts, JetBlue’s effective tax rate is between 24% and 26% compared to 37% to 39% in past years. This tax windfall will also provide an earnings tailwind for the company in 2018.

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Kim Clark

Written by Kim Clark

Former CNN Radio News Network anchor Kim Clark is a freelance writer and editor, specializing in the aviation industry and financial markets. She currently freelances for S&P Global and works as a club and event Disc Jockey in Atlanta, Georgia, after having held positions doing news on radio morning shows and holding down the position of Music Director of commercial radio stations owned by Cumulus and Clear Channel.

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