Unless you’ve just woken out of a coma, you know that the novel coronavirus imposed a disproportionate impact on the travel industry. Airliners like JetBlue Airways (NASDAQ:JBLU) have been shunned by travelers. Thus, JBLU stock finds itself down more than half of its value at year’s start.
That’s an awful predicament because JetBlue, more so than the industry’s big dogs like United Airlines (NASDAQ:UAL) or Delta Air Lines (NYSE:DAL), depends on high-volume business. Like other discount airliners, JetBlue exists to serve as many passengers as possible with the minimum number of frills and creature comforts.
In the pre-pandemic era, this business model catapulted JBLU stock in the first half of last decade.
But in the new normal of social distancing, this model is just not going to work. On social media and in the blogosphere, many travelers have complained about a blatant dichotomy: airport operators strictly enforce social distancing, but airliners don’t (necessarily) abide by the same rules.
Of course, airliners must mitigate the damage somehow. Naturally, this means cutting routes wherever possible, which inevitably leads to more passengers on the same plane.
Amid all this ugliness, there is some light. According to NPR, “more Americans are not just looking to book future trips, but they’re also boarding planes and starting to fly again.” Further, the Transportation Security Administration says nearly 320,000 people were screened at its airport security checkpoints across the country on May 21, just before the Memorial Day weekend. That’s the highest number in two months.
Is it time to buy JBLU stock?
A Host of Ugly Realities Await JBLU Stock
While the uptick is encouraging, it’s not entirely unexpected. We’re now at the early stages of the busy season for airliners. As well, most states have gradually lifted their shelter-in-place restrictions, allowing willing passengers to have a purpose for their travels. But that alone doesn’t justify a position in JBLU stock.
As NPR noted, the TSA checkpoints on a year-to-year comparison represented a drop of 88%. Thus, the high volume that some passengers have witnessed (as I mentioned above) is very deceptive. Airliners haven’t recovered – they’re merely flying fewer planes to accommodate the decimation in the passenger base.
Moreover, if this economic malaise continues, the airliners are very redundant. Currently, if the industry is operating at 12% capacity roughly speaking, then we only need a fraction of the competitors we have today. Where the actual capacity ends up in the new normal will give us an idea of how ugly the coming game of musical chairs will be.
Unfortunately, we have strong evidence that this game will be very ugly indeed. First, rental car giant Hertz Global (NYSE:HTZ) recently filed for bankruptcy. Obviously, without airliner demand, Hertz essentially had to park around 700,000 of its rental cars.
I find it telling that management deduced that bankruptcy was the best path forward. If airliner demand were to return soon, perhaps they would have done everything they can to avoid it. Also, the filing gives you an idea that the travel that’s occurring is mostly personal, not business-related.
Second, the International Air Transport Association disclosed that the global airline industry’s health could lag the underlying world economy. Therefore, “a return to the level of 2019 does not occur until 2023, taking around two years longer than global GDP.”
Economic Outlook Is Poor for JetBlue
Granted, JetBlue is largely a domestic airliner. But that doesn’t mean JBLU stock won’t be impacted by a global industry downturn. For one, the company has routes to Latin America and the Caribbean. As well, JetBlue often flies international passengers who will ultimately depart from a major hub.
Most importantly, the economy is absolutely terrible. In April, the Bureau of Labor Statistics reported 20.5 million Americans lost their jobs. Over a nine-week period, nearly 39 million workers have filed for unemployment benefits.
As you know, most of the big, early numbers of jobless claims came from the service sector as restaurants, movie theaters and other high-contact businesses shut down. That millions are still filing initial claims suggests that higher-paying, white-collar jobs are now getting axed.
It’s not surprising. In the business world and the personal, everyone is adjusting to the new normal. And that equates to making do with less. Ultimately, this deflationary environment makes me skeptical about JBLU stock.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.