Despite new, daily novel coronavirus cases falling significantly since their summer peak, many investors remain jittery about the airline industry. I get it. Among the hardest-hit sectors, several companies within the space suffered a cruel blow. And the volatility included discount specialists like JetBlue Airways (NASDAQ:JBLU). The thing is, even being a cheap carrier, nobody wanted to fly during the darkest days of the pandemic, sending JBLU stock lower.
Nonetheless, investors can rely on history as their guide. Obviously, no pandemic has slowed humanity’s progress. So, as dark as this time might be — and yes, it’s an awful period for our nation — this too shall pass. Furthermore, it’s an opportunity for forward-thinking buyers.
Sure, I get the argument that investors should wait for stronger signals before you get involved with something like JBLU stock. The thing is, when you finally get that signal, it will already be too late — at least if outsized growth is part of your strategy. Without any risk, you cannot accrue much reward. That’s not just investing, that’s life.
Before we dive into the details, let me throw out a caveat: JBLU stock is not a play where you can expect to be rich tomorrow. Certainly, the pandemic and the many challenges we face today represent highly dynamic variables. Therefore, JetBlue could see some turbulence. But over a five-year run, stakeholders will likely be very pleased at the end of it.
That said, this is not a completely speculative idea. According to checkpoint travel data from the Transportation Security Administration, air passenger volumes have started to rise to the high 30% to low 40% range relative to their year-ago levels.
JBLU Stock to Benefit Later From Customer-Centric Approach
As you know, one of the pivotal reasons why JetBlue has been successful over the years its high load factor. A profitability metric for individual flights, a higher load factor allows an airliner to collect more money across a fixed cost.
Between 2003 and 2019, JetBlue’s average load factor was 83.9%. In the same period, the average load factor for U.S.-based carriers was 72.6%. This isn’t too surprising, given that JBLU stock is levered toward discounted flights.
Click to Enlarge
Unfortunately, the coronavirus changed everything in the friendly skies. At the latest count (June 2020), JetBlue is looking at a load factor of 47.4%, while the average U.S. carrier is looking much prettier at 56.1%. As you’d expect, this has had a detrimental impact on JetBlue’s revenue and earnings.
Still, JBLU stock may actually be in a prime position despite not currently winning the load factor race. For one thing, JetBlue Airways CEO Robin Hayes noted that the month of June was flight capacity at 25% to 30% of normal scheduling. So, it’s too early to make major pronouncements about profitability concerns.
Second, JetBlue has maintained its stance on customer service and addressing concerns. Therefore, until early July, the company committed to blocking certain seats to ensure best-possible social distancing.
Clearly, as Hayes suggested, this isn’t a sustainable business model. Also, it gives other airliners an edge in terms of aggressive pricing policies. But the steps that JetBlue is taking now cements to customers that their concerns come first. That said, I’ve noticed that other airliners who also are not winning the load factor race right now have done the same thing JetBlue is doing, taking care of the people around them.
That might not make business sense presently, but the rewards will eventually come.
JetBlue May Have Some “Safety” Margin
Finally, investors should note that up until this terrible time, JetBlue has never furloughed a crew member in its 20-year history. Unfortunately, that might change. Despite taking a $935 million lifeline under the CARES Act, a leaked memo indicates that the company may be forced to lay off 300 people, its first pink-slipping.
But here’s the thing: 300 people isn’t a bad number. Other devastated airliners are looking at four-digit layoffs easily. And given the utter devastation in the industry — remember, at one point, passenger volume was sitting at low-single digits year-over-year — this fact is huge for JBLU stock.
Of course, nobody wants to see anybody lose their jobs. But when U.S. carriers are collectively facing close to 100,000 layoffs, 300 is a very good number.
Additionally, this also suggests that JetBlue has some margin to play with. As the CEO acknowledged, the company will emerge out of this pandemic a smaller firm. But by starting off with a conservative layoff number, it could potentially make more cuts if necessary.
Therefore, I wouldn’t worry too much about the load factor. It will come back up as the industry dusts itself off. And with a five-year plan, that should provide plenty of time to see JBLU stock soar.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.
