JetBlue Airways Corporation: JBLU Stock Is Ready to Fly High With Fleet Expansion

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JetBlue Airways Corporation (NASDAQ:JBLU) reported strong second-quarter earnings. The biggest item from the JBLU earnings report was the addition of 30 Airbus planes that it will receive over the next several years. JetBlue stock is ready for liftoff with aggressive expansion in the United States and several new international routes. The airliner is also one of the top five American airlines, and it is doing everything it can to win over customers and reward shareholders.

JBLU, JetBlue Stock

JetBlue announced plans to add 30 additional A321 aircraft from Airbus over the next 7 years. Deliveries will begin in 2017 for the first 15 on this amended deal.

JBLU is putting a big emphasis on improving the number of daily flights it offers in key cites. In March 2017, JetBlue will offer more than 140 daily flights from Fort Lauderdale, one of the company’s fastest growing cities and one airport where it is the number one airline. Boston, another airport where JBLU is a top airline, will get more daily flights as JetBlue pushes for 150 or more daily flights from Boston.

JBLU was also the first domestic airline to target Cuba as a tourist destination as Americans can travel there freely for the first time in more than 50 years. JetBlue announced Thursday plans for tickets as low as $99. Flights begin in August for JBLU to several Cuban destinations.

Mint Continues to Set the Tone for JBLU

JetBlue launched Mint, its premium airline offering back in 2014. The creation was seen as an upgrade to outdated business class and an opportunity to gain share by offering something unique, but continuing to put value in front of customers.

Mint is the only domestic premium service to offer lay-flat seating. Other Mint perks are free drinks and curated food, hospitality trained crew and a Birchbox gift. Only 5% of transcontinental flights over 1,800 miles offer lay-flat seating.

The additional Airbus planes are expected to contribute to Mint expansion. As president and CEO, Robin Hayes said, “We have only scratched the surface on what Mint can do to disrupt the valuable coast-to-coast market.” Mint has helped boost revenue per seat rates and also attracted new corporate clients. It has also helped JBLU continue its dominance in the J.D. Power awards for customer satisfaction for low-cost carriers. Aside from the business class perks, most JetBlue flights have more legroom than other airlines, offer free snacks, more premium TV channels and free in-flight WIFI.

Mint expansion is targeted for Fort Lauderdale, Las Vegas, San Diego and Seattle. With these expansion efforts, JetBlue Mint will offer 70 plus daily flights to 13 destinations. Further expansion is said to be announced later this year. JBLU believes it will end 2016 with 37 A321 (17 Mint configured), and there will be 52 A321 (31 Mint configured) by the end of 2017.

JBLU reported strong second-quarter figures last week. Operating income improved 11% in the quarter to $313 million. Revenue came in at $1.6 billion. Capacity increased 11.1% and passenger miles increased 10.3% to 11.6 billion — two important airline metrics. In addition, JetBlue’s load factor was 85%.

In 2015, JBLU reported revenue of $6.4 billion, an increase of 10.3%. Its operating margin was 19% for the full year, a huge improvement from the 8.9% in the prior fiscal year. Passengers increased 9.4% and passenger miles increased 10.3%, as the company continued its expansion.

Another area that can’t be overlooked concerning JBLU stock is the company’s rapid pace of paying off debt. JBLU is paying cash on the remaining six 2016 Airbus deliveries. JetBlue has over $1.5 billion in cash and an undrawn $600 million credit line. Debt stood at $1.7 billion at the end of the second quarter. The company reported debt of $1.8 billion to end then the prior year. As a result, interest expenses are down double digits in both quarters of 2016.

JetBlue stock is one of many publicly traded airline options for investors. What makes JBLU stand out in my mind is its opportunity to grow and gain market share versus its rivals with new products like Mint. Take a look at the following chart:

Airline 2015 Passengers Fleet Size Destinations Daily Flights
American Airlines 201.2 million 964 339 6,500
Delta 179.4 million 801 322 5,400
Southwest 144.6 million 714 98 3,800
JetBlue 35.1 million 213 97 900
Alaska Air 31.9 million 147 112 1,000

Investors should note the huge gap between JBLU and United Continental Holdings Inc (NYSE:UAL). From first place to third place, the difference is 57 million passengers. The gap from third to fourth is nearly 110 million passengers. JetBlue trails the other top six in number of destinations, which will change by the end of 2016, and daily flights, another area it is working to improve. The gap in fleet size should also improve as JBLU continues to invest in new airbuses.

When valuing airlines, investors have put a slight premium on JBLU shares, Southwest Airlines Co (NYSE:LUV) and Alaska Air Group, Inc. (NYSE:ALK) shares. All three of these stocks trade with price-to-earnings ratios above eight. The other three trade at less than 7 times current fiscal year estimates. Both Southwest and Alaska trade at more than one time annual revenue, while JetBlue ranks in the middle trading at 0.9 times annual revenue.

The two largest airlines, American Airlines Group Inc (NASDAQ:AAL) and Delta Air Lines, Inc. (NYSE:DAL) are both expected to see revenue decline during the current year. Estimates call for JBLU revenue to increase 2.8% this year and 7.5% next year.

Bottom Line on JetBlue Stock

JetBlue has grown substantially since its founding in 1998. The airline is among the top five in the United States, and it is the No.1 airline in several of its key markets. Expansion is coming in terms of fleet size, passenger seats and international offerings.

JBLU shares currently trade around $17, putting it towards the low end of its 52-week range. In 2016, shares are down 23.5%, after two impressive years prior. All of these factors make it particularly attractive compared to its peers, as JetBlue stock looks ready to take off soon.

As of this writing, Chris Katje did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/08/jblu-jetblue-stock-fleet-expansion/.

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