After crashing due to the novel coronavirus, are airline names like JetBlue (NASDAQ:JBLU) a great place to bottom fish? It depends. On one hand, government intervention means we probably won’t see JBLU stock probably won’t go to zero.
On the other hand, it could be years before air travel rebounds. Yet, while the industry’s near-term prospects do not look promising, this airline in particular may be a great buy even as shares have bounced back from their 52-week lows.
Why? For one, JetBlue doesn’t have the bloated cost structure part-and-parcel with legacy carriers like American Airlines (NASDAQ:AAL). In fact, just before the pandemic, the company announced it shaved $314 million off its cost base. Also, the discount airline avoided the whole Boeing (NYSE:BA) 737 Max debacle, another factor setting them apart from many of their rivals.
Is this enough to help the airline bounce back quicker than anticipated? That remains to be seen. Yet, relative to rivals, JBLU may be a better way to play a potential air travel rebound. So, let’s dive in, and find out why.
JBLU Stock, the Pandemic, and What’s Next
Like its larger rivals, the airline took advantage of loans and grants provided by the CARES Act stimulus package. In total, JetBlue received around $936 million in funds. Is this enough to keep the carrier afloat while air travel volume remains depressed?
As I’ve discussed in prior airline stock analysis, the CARES Act may not be a “silver bullet” for the airline industry. Also, the CARES Act funds come with many strings attached. Accepting the money limits their ability to furlough workers. And in the case of JetBlue, the airline was forced to continue operating certain routes in order to qualify for the funds.
Yet, they may have what it takes to weather the storm. Going into this crisis, JetBlue had one of the strongest balance sheets in the industry. Add in the CARES Act funds, and the company may have enough liquidity to ride things out.
Also, the company is taking active steps to reduce its cash burn further, as low passenger traffic makes flying many of its routes highly unprofitable. For example, JetBlue is lobbying the Department of Transportation to allow them to suspend flights at 16 U.S. airports, including Chicago’s O’Hare.
So it seems the airline is in relatively decent shape as it contends with the pandemic. But what’s next for the company? While a rebound could be years off, they may be able to recover much faster than the larger airlines.
Why JetBlue Could Bounce Back Quicker Than Rivals
As this Seeking Alpha contributor recently pointed out, this airline differs from others in that it’s not a “hub-and-spoke” carrier. In other words, instead of routing flights through a centralized “hub” airport, JetBlue’s focus is on direct flights from one city to another (also known as point-to-point).
This could be an advantage for the airline coming out of the pandemic. Why? Using the point-to-point model, JetBlue could restart operations with minimal delays.
Yet, being more nimble than peers may not matter if air travel remains depressed. As InvestorPlace’s Brad Moon wrote on April 20, it’s still unknown how soon passengers return to the skies. However, investors don’t seem so concerned.
The specter of “shelter-in-place” orders coming to an end has helped to boost airline stocks as of late. JBLU stock is no exception. The carrier’s shares have bounced back from their March lows of around $6.61 per share and now trade above $10 per share.
Nevertheless, shares have plenty of catch-up to do before they get back to prior price levels. Before the outbreak, shares were trading at prices above $20 per share. But, this could mean opportunity. If air travel bounces back quicker than anticipated, shares could easily double within a short time frame.
Despite Risks, JBLU Stock Is Worthwhile Buy
It’s a long road to recovery for the airline industry. Yet, in the case of JetBlue, today may be the perfect time to buy.
With a relatively stronger balance sheet, they may be able to ride things out better than legacy carriers. With a more nimble business model, they could “return to normal” much quicker as well.
Shares may not recover for a least a few quarters. But a year from now, buying JBLU stock today could wind up being a smart move in hindsight.
Thomas Niel, contributor to InvestorPlace, has written single-stock analysis since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.
