Shares of JetBlue Airways (NASDAQ:JBLU) have declined 15.8% so far this year on the back of several headwinds.
A major headwind for airline companies is the upsurge in oil prices. Crude oil prices have hit record highs this year since 2014. As fuel expense claims the major chunk of airline operating costs, a spike in the commodity’s price does not bode well for the airline companies’ health.
In this context, JetBlue has been grappling with the high-cost woes, hurting its bottom-line growth in turn. During the second quarter, the company’s earnings decreased significantly, primarily due to fuel costs. Fuel costs increased approximately 42% to $2.28 per gallon in the period. The same is likely to affect the company’s third quarter results as well. Fuel costs, net of hedges, are anticipated to be even higher at $2.33 per gallon in the ongoing quarter.
JetBlue’s unit revenue performance in the second quarter was also disappointing. Operating revenue per available seat mile (RASM) dipped 1.2% to 12.74 cents. The metric was negatively impacted by the shift in holiday travel into the first quarter.
In the past few months, JetBlue was embroiled in a controversy regarding its pilot contract. The issue ended recently with pilots ratifying a contract for a pay commensurate with industry standards among other clauses. Though a positive for the pilots, such deals eat into the profits of the company, thus hampering the bottom line. In fact, the company has raised the projection for non-fuel unit costs during the third quarter as well as the full year following the pilot contract ratification.
It now anticipates the metric to rise in the 3-5% band, up from the previous guidance of 1-3% increase. The same for 2018 is predicted to expand 0.5-2%. Earlier outlook was a year-over-year change between -1% and 1%. The company further expects a one-time expense of $70-$80 million in 2018 including a $50-million ratification incentive.
Moreover, JetBlue’s operations were significantly disrupted by the storms striking in the beginning of the year. The carrier had to cancel multiple flights due to the January and March natural calamities, which affected its top line.
The above negatives clearly validate the company’s Zacks Rank #5 (Strong Sell). So we advise investors to steer clear of this stock at the moment.
Some better-ranked stocks in the broader Transportation sector are SkyWest (NASDAQ:SKYW), GATX Corporation (NYSE:GATX) and Trinity Industries (NYSE:TRN). While SkyWest and Trinity sport a Zacks Rank #1 (Strong Buy), GATX carries a Zacks Rank #2 (Buy).
Shares of SkyWest, GATX and Trinity have surged more than 76%, 38% and 30%, respectively, in a year.
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