JetBlue Airways Corp. (NASDAQ: JBLU) debuted its new service route between Boston and Phoenix on Thursday, another positive sign that the burgeoning airline stock is not only holding its own against its larger competitors but providing a reason for stockholder spirits to take off.
The airline is offering $99 introductory fares for travel on the new route, which must be booked by Saturday for travel through Oct. 30. The new route marks JetBlue’s 38th nonstop destination from Logan International Airport and also caps off the summer season with an overall 30% service increase in Boston.
The company is now gaining revenue, too. While JBLU earnings history is mixed, including a quarterly loss earlier this year, its second-quarter profit was $30 million (10 cents a share), compared to $20 million (7 cents a share), in the same period a year ago. Shares of JBLU are up +11% year-to-date against the Dow’s -1% and NASDAQ’s -3%, though JetBlue stock has been very volatile since April. While not huge with a market cap of about $1.8 billion, it’s besting airlines like Airtran (NYSE: AAI), down -11% year-to-date, AMR Corp (NYSE: AMR), which operates American and is down -18% year-to-date, and Delta (NYSE: DAL), down -5%.
With growth plans already in motion in Boston, the low cost American airline is now focusing on Washington and Latin America, and planning to boost available seat miles by +8% for 2010. At Reagan National Airport in D.C., JetBlue will begin service Nov. 1 with nine flights a day – to Boston, Orlando, and Fort Lauderdale.
The airline, now just over a decade old, is certainly on the move to grow in capacity — while capacity discipline is in large part credited with enabling airline industry recovery last quarter. JetBlue, which had in the last few years slowed its capacity growth, is now being regarded by peers as breaking ranks. The prevailing notion is that additional routes and planes cause the industry as a whole to lose money.
And for a company that promised to slow things down in 2007, its success is uncertain. At Reagan, for instance, there is a problem of limited slot availability — making the airport a tough place to grow. Right now it costs +50% more to fly from Reagan National than it does from Baltimore, and much of the service provided by US Airways (NYSE: LCC) is on 50-passenger or less small airplanes. But the company shrugs such worries off, as it’s already become the largest domestic carrier at both New York’s Kennedy Airport and Boston’s Logan. And, it plans to fly 100-seat regional jets and 150-seat Airbus A320 jets.
Analysts, though, can’t seem to agree on JetBlue stock and its outlook. Mike Derchin of CRT Capital Group has a $9 target and a “buy” while Helane Becker of Dahlman Rose has a “hold” and a $5.50 target price. But good news may be ahead. The United and Continental Airlines $3.2 billion merger set to go down Sept. 17 could help JBLU. If the new airline — to be the largest U.S.– shuts down hubs in smaller markets, something analysts expect, closures may help discount carriers like JetBlue.
And let’s not forget its customer-friendly approach. In a time when airlines charge extra for any and every addition, JetBlue promotes itself as the airline with “more leg room” than most airlines (at 34 inches for a standard coach seat, it is indeed on the roomier side as marketing claims but hardly a plush). And its “even more legroom” perk — offering 38 inches of legroom and early boarding — pulls in millions each year. The company also offers gimmicky — but, let’s face it, effectively marketed — $10 flights once a year. To top it off, it’s one of only two major airlines with no first-bag fees.
In the end, for an airline bucking convention for customer loyalty, it could be a lesson other airlines should think to follow. And investors could do well if they board JetBlue now before takeoff.
As of this writing, Burke Speaker did not own a position in any of the stocks named here.
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