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Only Testing Can Save JetBlue Airways

Recently, JetBlue Airways (NASDAQ:JBLU) CEO Robin Hayes confirmed that the company’s launch of transatlantic flights to London will be delayed to late 2021. With the devastation of the novel coronavirus, this news isn’t particularly surprising. It also is emblematic of the many troubles facing JBLU stock despite some encouraging data.

jetblue (JBLU) aircraft interior
Source: Shutterstock

As you probably heard, several names within the industry, including United Airlines (NASDAQ:UAL) and Southwest Airlines (NYSE:LUV) have moved higher in the markets due to rising passenger demand. According to screening data from the Transportation Security Administration, more than 12.7 million passengers traveled by air in the U.S.

To put this figure into context, only 10.45 million people flew in April and May combined. With more people returning to the airports, this bodes very well for JBLU stock, at least in theory.

Naturally, several analysts have taken the surge in demand as a signal to be bullish on the airliner industry again. However, I believe few are considering the quality of the increased demand. For instance, when you compare recent travel data to actual air passenger miles traveled, the demand picture suddenly looks far less rosy:

  • In March 2020, 35.1 million passengers flew a total of 41.2 billion miles, or 1,174 miles per passenger.
  • The following month, 3.3 million flew a total of 3.8 billion miles, or 1,169 miles per passenger.
  • In May, 7.2 million flew 3.9 billion miles, or only 542 miles per passenger.

Initially, you might think the shorter distances disproportionately benefit JBLU stock. After all, JetBlue is largely a domestic discount airliner. But with the pandemic, everyone is competing for these miles, making this industry an ugly game of musical chairs.

Miles Traveled Must Improve Substantially for JBLU Stock

Interestingly, in performing my research for this piece, I came across a Washington Post article regarding Amtrak’s decimation of demand. Because people are no longer interested in rail service, Amtrak will end daily service to hundreds of stations beginning Oct. 1.

Of course, JBLU stock has nothing to do with rail travel. Except that in the new normal, it does. Supposedly, Americans are ready to reclaim their lives. And the noticeable increase in air travel reflects this sentiment. However, if that were accurate, we shouldn’t see Amtrak reduce its services. After all, rail service is often cheaper and in some ways a more enjoyable form of travel than flying.

But enough people are sitting home that Amtrak is taking this drastic measure. Unless air travel statistics improve substantively, we’ll see the same cuts across the airline industry.

Unfortunately, no matter what JetBlue does to mitigate the coming storm, it might not save JBLU stock from volatility. At the present rate, U.S. air passenger miles traveled in the second quarter will be approximately 11.7 billion miles. With JetBlue’s market capitalization in Q2 around $2.7 billion, the ratio between the company’s market cap to total miles traveled comes out to 25.4%.

JBLU market cap vs. air miles traveled
Source: Chart by Josh Enomoto

Frankly, this is abnormal. In Q1 of this year, the ratio was just under 1.1%. From 2015 through 2019, the ratio averaged 0.67%. Presently, JetBlue’s market cap is $2.99 billion.

The air miles traveled in this country must improve, significantly and quickly. Because at the present environment, JetBlue’s historical allocation of total miles traveled means that its market cap should be around $127 million. And that implies a JBLU stock price of less than 50 cents.

If that sounds crazy, it is, and it won’t last. But that’s how bad things are right now.

Testing Is a Must to Restore Confidence

In order to have confidence in JBLU stock and the airliners, it’s not enough for passengers to return. They need to start flying greater distances. Currently, they’re only flying about half the miles they used to.

And that clues me into an important detail about this so-called airliner recovery: most people that are flying are probably doing so because they have to. If they were flying for leisure or for business trips, you’d expect the average miles traveled per passenger to be much greater than 542 miles.

Therefore, it’s becoming more apparent that more Americans are afraid of flying than mainstream media headlines are letting on. If they weren’t, you should see substantial demand improvements across multiple transaction platforms.

At this point, the only feasible way to alleviate traveling fears is to create mass-scale testing at airports and other transportation hubs. I’d take a long look at testing and diagnostics companies like Abbott Laboratories (NYSE:ABT) for potential clues. As well, it may be time to look at XpresSpa Group (NASDAQ:XSPA).

While XSPA is certainly risky and volatile, the fear of flying is worse than we imagined. Since a vaccine could be months away at best, testing is the most realistic catalyst for JBLU stock.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he holds a bullish options position in XSPA.

Article printed from InvestorPlace Media,

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