Warren Buffett’s dumping of his airline holdings, while well-publicized, didn’t include JetBlue Airways (NASDAQ:JBLU). Still, some shareholders might have reconsidered their long positions in JBLU stock.
And admittedly, airline stocks haven’t been 2020’s best performers so far.
It’s all about the lockdown orders, the social distancing, and the general mayhem caused by the novel coronavirus. Many planes were grounded and the travel industry took a beating
Or in Buffett’s words, “I mean, believe me, no joy being a CEO of an airline.”
But maybe, just maybe, things aren’t as bad as they seem for JetBlue. A closer look at the company’s fiscal position and the potential for a travel-market rebound may convince you that JBLU stock could, in time, fly again.
Not Great, but Not Too Bad
No reasonable investor would assess JetBlue’s financial health in 2020 as great. Still, an argument could be made that the company’s fiscal position is fairly solid given the challenging circumstances.
Or at least, JetBlue CEO Robin Hayes seems to think so. He cites the reduction in the company’s rate of cash burn. That’s important because some commentators have criticized airlines for burning through cash too quickly.
So, what exactly has JetBlue been doing to minimize the company’s cash-burn rate? Hayes cites three things, starting with “deep capacity cuts to our schedules.” That’s not great news for JetBlue’s employees, no doubt, but it’s likely a necessary measure in a revenue-poor environment.
With that, the JetBlue CEO revealed the company’s other two cash burn-reducing actions. “We have now reduced our CAPEX plan by $1.3 billion between now and the end of 2022, and by the end of May, we anticipate we will have lowered our operating expenses by approximately 50% year over year,” Hayes stated.
These are sensible albeit unpleasant actions to take for JetBlue. In any case, the company’s liquidity position was $3.1 billion by the end of April, so that should buy some time for JetBlue to weather the air-travel-demand collapse.
Have Passengers, Will Travel
Firming up its fiscal position isn’t enough, however. The travel industry can’t exist unless people are traveling. And that’s not entirely up to the travelers themselves as lockdown orders need to be lifted.
Thankfully for JBLU stockholders, there are signs a letup in the restrictions as well as a pickup in air-travel activity. For instance, Cowen analyst Helane Becker observed an increase in airline demand in Colorado, Texas and Florida.
“As states open, we expect the airlines to see demand for regional traffic increase,” she said. Moreover, the analyst specifically cited an increase in sales of JetBlue’s flights from the U.S. northeast to Florida.
Importantly, passengers are coming back and that, more than any other factor, will allow JetBlue’s planes to fly again. This was impossible in the middle of April, only approximately 87,000 passengers went through TSA checkpoints on a daily basis.
That’s almost unimaginably low as the daily count was around 2.2 million just a year earlier. But by May 17 it increased to 250,000 passengers per day. It’s all about the baby steps, folks.
There’s also hope on the horizon as travel restrictions could soon ease abroad. For example, Italy is set to allow travel between some European countries starting June 3. Greece and Germany could open their borders to travel as early as June 15. And starting in July, Spain is expected to allow foreign tourists into the country.
All in all, perhaps Raymond James airline analyst Savanthi Syth summarized it best by suggesting that the pickup in air-travel activity offers “flickers of hope” for embattled aviation firms.
The Takeaway on JBLU Stock
Was Warren Buffett wrong to dump his airline stocks? Only time will tell, but the flickers of hope in the air-travel market suggest the possibility of better times ahead for JBLU stockholders.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.