Airline stocks have recovered a lot of lost ground since the start of the novel coronavirus pandemic. With every passing week, the number of domestic passengers is growing, and the markets are rewarding airlines accordingly. However, many people are wondering whether this bull run can last, considering the slow pace of our recovery. JetBlue (NASDAQ:JBLU) is bearing the brunt of this pessimistic outlook. JBLU stock is still down almost 45% over the last six months.

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However, I reiterate that JBLU stock is not a bad one for your portfolio. The carrier is consistently ranked as one of the best in customer service and came into this crisis with the second-best balance sheet in its peer group. The company and American Airlines (NASDAQ:AAL) have recently announced a partnership that will help during the recovery period.

Don’t get me wrong I know that the company is also risky, considering that it will take time for demand to return, and airlines will have to change how they operate — leading to higher costs. But on balance, there isn’t enough to suggest that JetBlue is in hot water.

Higher Costs Are the “New Normal”

To protect passengers, JetBlue has launched an initiative to make sure social distancing is maintained on its flights. Steps include temperature checks, mandatory face masks for the cabin crew and passengers, and blocking specific seats within the aircraft.

These initiatives are not unique to JetBlue — all major airlines are taking steps to ensure passenger safety during this time.

In many ways, it was a given that this needed to happen because cruise lines and airplanes have people in close quarters for a very long time, and that’s why there was no workaround concerning these costs.

However, these costs will also lead to depressed bottom lines for the foreseeable future.

Strong Balance Sheet Sets JBLU Stock Apart

JetBlue stock lost a lot of value from mid-March onwards due to panic-induced selling. I believe that was a bit strange, considering the carrier went into the crisis with one of the best balance sheets in its peer group.

Although the company has raised a lot of cash during the pandemic, there’s no reason to believe it will become unmanageable. At the end of May, the company had cash of $3.1 billion in its kitty. That should provide it with ample liquidity through this crisis.

Meanwhile, cash burn is coming down. At the height of the pandemic, JetBlue was burning through $18 million, but that figure is now down to $10 million in May. Management hopes to bring down the number further to between $7 million and $9 million per day by Q3.

JetBlue is also in a unique position since it is mostly a domestic carrier. International travel is still limping, but with states reopening in the U.S., domestic carriers have an advantage over the competition. The airline is also making sure it travels on routes that have respectable traffic.

Partnership With American Airlines

JetBlue recently announced a strategic partnership with American Airlines to speed up the recovery for both carriers. The agreement covers codeshare and loyalty benefits that will enhance the offerings of each airline in New York and Boston.

JetBlue customers will be introduced to more than 60 new routes operated by American, while American’s customers will get access to over 130 new JetBlue routes. The partnership is a bright spot for both carriers and their customers.

Risks

The biggest issue that investors will have with JetBlue is the timing of the recovery. Before the novel coronavirus, management issued EPS guidance of $2.50 to $3.00. That was extraordinarily ambitious, but EPS rose 218.33% year over year in 2019, so you can understand where the optimism was stemming from.

Nevertheless, these estimates are now obsolete, and 2020 is shaping up to be a very tough year for the company.

The big question on everyone’s mind is when will demand return to a healthy level. Analysts estimates don’t foresee that happening anytime soon, but I believe the forecasts are bearish.

We will have a better understanding of where demand stands next year, potentially after a Covid-19 vaccine is widely available.

How to Play JBLU Stock

Every industry expert will tell you that airlines are having a tough time and that it will take years for demand to recover. However, considering the nature of the crisis, this is not surprising.

But the carriers who are using this time to shore up their liquidity and reduce costs stand to benefit significantly once things normalize.

Data from the Transportation Security Administration shows that demand is increasing with every passing week. July 19 saw passenger throughput at  747,422, a healthy climb over the month-ago figure of 587,908 passengers. The figure is still substantially less than the 2,727,355 the agency recorded a year ago on the same date. But we are making progress.

It will be a couple of tough years, but JetBlue can weather this crisis. The summer should bring some much-needed revenue from vacationers, and there will be greater flexibility to cut costs once the CARES Act restrictions expire in September.

For all these reasons, I would say that JBLU stock still offers a lot of upside, so long as you are in for the long haul.