JetBlue (JBLU) has reported its third-quarter earnings and all things are a go for more growth.
Most airlines have have had a very good quarter. Low fuel prices and increasing travel have given the sector a shot in the arm moving into Q4.
JBLU beat expectations, but given the competitive nature of airlines, and the tight margins, it wasn’t a huge win, yet a win all the same. Earnings beat by about 2%, but pre-tax income was up almost $200 million compared to the same quarter last year, and net income was $198 million compared to $79 million a year ago.
Most encouraging, though, was the fact that its capacity increased by 10%, much higher than the industry average.
In recent days, American Airlines (AAL) announced that it was going to begin offering “no frills” fares that would be cheap enough to compete with discount carriers on certain routes. But, what we see in JBLU’s numbers is that discount carriers offering more options are gaining popularity.
It will be interesting to see if AAL’s strategy can eat into JBLU market share, or whether it will just end up cannibalizing its more expensive seats.
Analysts expect total operating revenue for JBLU to increase 10% for the full year. Plus, short interest on the stock has dropped during October, which is a bullish sign for JetBlue stock.
JBLU is also planning to increase its long-haul flights from JFK to San Francisco and Boston to the Caribbean. Those routes are direct competitors of the larger airlines, so it won’t be a surprise when AAL and others find JBLU’s incursion into their markets troublesome.
JBLU continues to drop its ASM (the cost per average seat mile) — a key factor in margins and profitability — and remains below the ASM of the major carriers, and more on par with Southwest (LUV).
Another of JetBlue’s strengths is a bit more intangible — it’s the most-liked airline. According to a JD Power U.S. Airline Satisfaction Study, JBLU is the most-liked airline in both the traditional carrier and low-cost carrier rankings.
Customer satisfaction is huge in the industry. While consumers will spend up for a better experience, they are also very price inelastic and brand agnostic in general. When an airline can combine a great price with great service, it will have loyal customers who will not only use the carrier for short trips or family travel, but for business as well.
There are certainly plenty of road warriors who spend much of their business lives in airplanes, but with the advent of video technology, and the weak economy, smaller businesses are opting for less expensive ways to get things done (rather than hopping on a plane, staying in a hotel and buying a bunch of meals).
The larger carriers are still beholden to those uber-travelers, while the low-cost carriers have found a way to break that mold, and are profiting from all of their customers, regardless of where they sit.
Further, JBLU’s management team is as good as they come, so there’s plenty of headroom for the airline, and JetBlue stock.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
