If you’re a well-managed discount airline, this is a great market, just ask JetBlue (JBLU).
There are so many tailwinds for smart low-cost airlines that it is prime time to get in before they take off and all that’s left is to watch is them heading into the sky.
First, because low-cost carriers are keenly focused on value, they have hedged their fuel costs forward, and any downward change in those hedges becomes a great opportunity to extend their discounts on their biggest expense.
With oil hitting seven-year lows recently, this is a boon to smart transport companies like JBLU.
JBLU Is Smartly Leveraging Lower Oil Prices
While some may argue that JBLU hasn’t taken as much advantage of the rout in oil prices as other airlines, its fuel costs are still lower than expected, and now JetBlue can buy up more cheap fuel to extend its availability further out than anticipated.
Plummeting fuel costs is an enormous benefit to an ambitious airline company like JBLU. Full-service airlines like Delta (DAL), meanwhile, manage various priorities to find margins and fill airplanes, while JBLU focuses on offering the best prices on all its routes to its customers.
What’s more, JBLU is focusing less on margins than on volume and quality of service. To this end, JBLU has more legroom than competitors, more fuel-efficient airplanes, personal TVs and free WiFi. If you’ve wondered why JBLU has returned more than 40% this year, that’s why.
So the rout in oil gives JetBlue more room to add significant value to the customer experience. That beats a loyalty program for most travelers who aren’t road warriors.
JetBlue Is Expanding Its Markets
Second, JBLU is expanding its market strategically. It’s heading to Cuba from its JFK hub in New York City, which is going to be a major market in coming years.
New York City has one of the largest Puerto Rican populations per capita in the U.S. When Castro came to power in Cuba, many Cubans couldn’t get into the U.S., so they immigrated to Puerto Rico. As visas became available, they came to the U.S. So, many Puerto Rican Americans have Cuban roots. And up until now, it has been challenging to go back and see family. Now that Cuban is open to the U.S. public, it has become a coveted destination for American travelers looking for the excitement of seeing Cuba for the first time.
JBLU also added daily flights to Barbados as well, which is a very popular destination. The daily flights answer an existing demand, so this is simply tapping into that demand and not risking a new market.
JBLU also operates out of two of the East Coast’s major airports — JFK in New York City and Logan in Boston — and has proven to be able to run with the big dogs in these locations. It’s the No. 2 airline by occupancy at JFK and it has almost twice as many flights than any other airline out of Logan.
Fuel prices, as well as momentum players, have taken the stock to new heights, but underlying this recent move is a company that offers a lot of fundamental opportunities in this competitive sector.
