I was starting to get optimistic about JetBlue (NASDAQ:JBLU). Investors who read my article in early July could sense my optimism for JBLU stock as a post-pandemic winner. That may still be the case. But recent remarks by chief executive officer Robin Hayes left me less optimistic, or perhaps just more cynical.
In an interview with Bloomberg TV, Hayes called for a renewed push for additional stimulus to help the overall economy and, in particular, the airlines. In some ways, Hayes just confirmed what we already knew. Airline traffic is increasing, but it’s far below a level that can bring profitability to the airlines.
Citing the airlines are in a “very, very critical stage,” Hayes said the airline industry may be forced to cut tens of thousands of jobs on Oct. 1. That’s the date when restrictions expire on the $25 billion in payroll aid the airlines received.
At the onset of the pandemic, I applauded Hayes for his candor. At the time I wrote, “…Hayes deserves credit for his candor. But candor is not enough to recommend buying JBLU stock at the moment.”
It’s safe to say, I feel the same way.
The Day of Reckoning Is Coming
Hayes went on to tell Bloomberg, “The day of reckoning is coming for the industry, because we can’t continue with where we are in terms of numbers of jobs we have and see demand at 25% to 30% of where we’d normally be.”
Rather than increasing flights, as they were projecting, airlines including JetBlue are set to continue cutting flights. Hayes says JetBlue will fly approximately 40% of its normal schedule. That’s 10 to 15 points below its earlier plan.
Why Airlines May Fare Better Than Cruise Lines
I suppose if there’s one thing you could say about airlines is, they’re not cruise lines. At least airlines have some revenue coming in the door. But as Nicolas Chahine detailed about his recent travels, revenue is still down.
It’s not fair to look at airline stocks on a year-over-year level. At the same time, it’s impossible to ignore the stark disparity. But even when you try to look at JBLU stock from where it was before the pandemic, the picture is bleak. The stock is up 42% from its March low. However, it’s still down nearly 46% from its year-to-date high in February.
Still, Chahine was taking a contrarian opinion that it was a good time to buy JBLU stock. Let’s be clear. Investing in airline stocks, any airline stock, is a risky proposition. Right now, any highlights that companies are reporting have to do with how well they are preserving cash. Now don’t get me wrong, shoring up the bottom line is an essential activity right now, but ultimately less bad only gets a company so far.
And let’s not forget the obvious. This is more than a question of confidence. It’s a question of having destinations that are open and ready for guests.
The Company Will Survive
At about the same time I wrote my article, Mark Hake wrote a complementary article that illustrated why JetBlue had enough cash to survive the pandemic. But for investors, surviving isn’t a reason to invest in JBLU stock.
And the reality is that the more candor we hear from Hayes, the less reason we have to believe that there is a reason to buy the stock.
If Not Now, When Should You Buy JBLU Stock?
I agree with many analysts who say if you wait for a vaccine, you’ve waited too long. As sour as I am on the industry at the moment, there’s little doubt in my mind that airline traffic will return. The fact that there is traffic now suggests that desire is there.
But leisure travel is one thing, business travel was the golden goose of the airline’s pre-pandemic business plan. There’s wide speculation that it will be a long time before business travel returns to anywhere near those levels. Susan Lichtenstein, managing partner at U.S.-based consultancy firm DigiTravel, says it might take until 2022 for business travel to return to 75% of pre-pandemic levels.
The fact that the airlines are putting the federal government on notice suggests that they have little confidence that a vaccine will be coming as early as promised. And that’s why JBLU stock may be a long-term winner, it’s just not a winner right now.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.