Low cost airline JetBlue Airways (NYSE:JBLU) has scheduled its Q1 2012 earnings release on Thursday, Apr 26. JetBlue has leveraged well on its low cost structure and efficient fleet while enticing the customers with value added services at the same time. This low cost structure model has certainly given the company an edge over other market players such as Southwest (NYSE:LUV) and United Continental (NYSE:UAL). An increasing focus towards international markets, primarily Asia Pacific and Caribbean markets is an interesting activity to look for in the earning announcement. Another focus area in this earnings release is the increasing airway traffic and efficient cost management strategies for JetBlue.
Improving Load Factor and Airway Traffic
Prior to earnings, JetBlue has shown encouraging quarterly numbers on airway traffic with a 14.2% rise in the RPMs (Revenue Passenger Miles) compared to Q1 2011. This growth is attributed to a 12% rise in ASM (Available Seat Miles) accompanied by a 1.6 point rise in the occupancy rate. With the improving macroeconomic conditions, the revenue passengers have also grown by 13.5% this quarter. The Trefis price estimate for JetBlue rises to $8 from $7.80 assuming that the improving load factor increases occupancy by 0.5% y-o-y till 2015.
Exceptional Cost Management Structures
With many airlines relying heavily on debt increasing and being vulnerable to external factors like fuel prices, maintaining revenue growth is becoming increasingly difficult. Having an average age of 6.1 years, JetBlue has leveraged low maintenance costs of its young fleet to compensate for rising oil prices and stay ahead of the other market players.
However, the carrier is expecting significant cost pressures on maintenance expense in 2012. At the same time, it has also hedged 42% of the fuel costs for Q1 2012 to control the rising fuel cost. Regarding financing required for aircraft purchase, the company is planning to utilize its cash to fulfill its payment obligations for delivery of seven Airbus 320 aircraft in 2012. Overall, JetBlue has been operating soundly to compensate for the cost pressures including fuel volatility and the trends are expected to continue.
Increasing Focus on Asia Pacific and Caribbean Markets
JetBlue has been extending its reach to international markets with Caribbean and Asia Pacific region being the primary targets. Recently, it entered into an interline partnership with Japan Airlines and Korean Air giving customers more choice on the Asia Pacific networks covered by these two airlines. In addition, JetBlue is also initiating non-stop flights connecting South Florida with Bogota, Colombia’s capital from May 7, 2012. These interline partnerships combined with new flight launch enhance its international service, and fuel an increase in international market share for JetBlue.
The Trefis price estimate for JetBlue is $7.84, ~70% higher than the market price.