JetBlue (NASDAQ:JBLU) stock has taken a beating this year. At the time of this writing, JBLU stock was trading around $11.90 per share, up from its March, 23 low of 6.86. That rebound represents nearly a 40% increase. Conversely, though, the stock is currently down from its year high of $21.56 on February 13.
Jetblue is considered to be among carriers with the strongest balance sheet in the industry. The company’s cash and liquidity positions mean it can continue to operate even in a low revenue environment like the current one.
On April 30, JetBlue maintained $3.1 billion in liquidity. The company is in no immediate danger, and investors aren’t likely to initiate a sudden sell-off due to liquidity worries.
Cash Burn and JBLU Stock
JetBlue recently announced that their May cash burn should be below $10 million daily. During the second half of March, it was calculated at $18 million per day, so they are stanching the bleeding. Operating on the assumption that the company burns $10 million daily, based solely on liquidity, it would dry up in 310 days ($3.1 billion/$10 million per day).
That figure of under $10 million daily compares well to JetBlue’s larger competitors.
Delta (NYSE:DAL) was burning through $100 million daily at the end of March, with a goal of $50 million by the end of June. And United (NASDAQ:UAL) expects that they will average between $40-45 million in daily average cash burn during Q2 2020.
But both Delta and United are significantly larger companies, so such figures don’t allow for an apples-to-apples comparison.
Investors can get some sense of comparison, though. JetBlue had 2019 revenues of $8.1 billion. Delta and United posted 2019 revenues of $47 billion and $43.26 billion, respectively.
Those legacy carriers are roughly between 5-6 times larger than JetBlue, and their respective cash burn rates are also roughly 5-6 times as high as that of JetBlue. There’s not much of a difference between the efficiency with which each company has handled this crisis in terms of cash burn.
Alaska Air (NYSE:ALK) is JetBlue’s closest comparable competitor in terms of revenue. In 2019, they recorded $8.8 billion in revenue to Jetblue’s $8.1 billion.
We’ve already established that JetBlue is looking to keep cash burn at or below $10 million daily going forward. Alaska Air burned through $260 million of cash in April. That’s an average of $8.66 million daily.
Alaska Air is expecting a $200 million burn in June, which equates to $6.5 million daily. The company also reported liquidity of $2.9 billion on May, 4. JetBlue’s $3.1 billion of liquidity gives it no particular ability to weather this storm any longer than Air Alaska.
JBLU Stock Could Rebound Faster
JetBlue captures the majority of its revenue from the so-called VFR (Visiting Friends and Relatives) market, and fortunately for JetBlue, this sector tends to rebound fastest among major segments.
Leisure is next, and business travel is the laggard. So, when air traffic normalizes the company should be among the carriers to first see revenue. But there are so many assumptions baked into this idea.
Travel habits may look drastically different going forward than they did prior to this pandemic. I think that analyst excitement about the potential upside of JetBlue is overinflated. Considering that share prices reached a high of $26.91 in the previous five years, what factors justify it nearly doubling those highs?
That said, I do think the stock is going to rise. But there’s no compelling reason for me to believe that it’s going to march toward $20 per share any time soon.
The Bottom Line on JetBlue Stock
JetBlue in particular depends on leisure travel for revenue. With the hit that the economy has taken, it is fair to ask when might consumer spending on leisure travel rebound?
Although JetBlue caters less to business travel than legacy airlines such as Delta and United, they do rely on business travel. Zoom (NASDAQ:ZM), and other teleconference technology companies have proven that business can be conducted remotely.
Carriers have to currently be considering the ramifications that this will have going forward. Business meeting culture has certainly taken a hit during the pandemic, and it may look very different from now on.
If companies are confident that deals can be made, contracts signed, and business relationships cemented via Zoom, why fly as often? The cost savings alone are massive. And traveling for business is time-consuming. It’s not hard to envision that companies will be spending less on corporate travel from now on.
Leisure travel won’t be the same either. Why should investors believe that consumers will travel in droves in the next few years? It isn’t hard to imagine that people won’t have the money to visit relatives and friends and for vacations post-pandemic that we had pre-pandemic. And that is JetBlue’s bread and butter.
So while JetBlue certainly has the liquidity to continue operating and will continue to tick up, I’m skeptical. While many are bullish, I’d simply rate JetBlue as a hold.
At the time of this writing, Alex Sirois held no shares of any of the aforementioned stocks.
