JetBlue Airways (NYSE:JBLU) posted revenue of $1.3 billion in Q2, up 11% compared to the year-ago quarter.  Net income increased to $52 million, or $0.16 per diluted share, from $25 million, or $0.08 per diluted share, in the second quarter of 2011. The growth was driven by continuing capacity expansion, higher passenger traffic and marginally higher passenger fares, offset by higher maintenance costs for the airline.
On the whole, JetBlue posted good numbers and its outlook for the remainder of 2012 remains stable due to increasing passenger traffic, particularly on Latin and Caribbean routes. However, any further deterioration in the eurozone crisis or steep hikes in crude oil prices can impact our forecast.
Capacity expansion and higher passenger traffic drive growth
JetBlue continued to add capacity particularly on Latin and Caribbean international routes to cater to increasing demand for flights on these routes. Available Seat Miles (ASM), an indicator of capacity, increased 5.5% y-o-y. Revenue Passenger Miles (RPM), an indicator of passenger traffic, increased 10.5% y-o-y. Load factor increased by a significant 3.8 points y-o-y to 85.3%. And, average passenger fare increased marginally from $158.01 to $159.58 over the same period. This resulted in impressive top-line growth of 11% compared to the year-ago quarter.
The airline indicates y-o-y capacity expansion in the range of 7%-9% for the third quarter. This, coupled with increasing demand for flights on domestic, Latin and Caribbean routes, should lead to continued y-o-y growth in top-line for Q3.
Rising aircraft maintenance costs impact margins
However, rising maintenance costs due to an aging fleet impacted the airline’s margins for the quarter. Operating costs attributable to maintenance and repairs increased nearly 59% to $85 million in Q2 compared to $54 million in the same period last year. Also, the airline anticipates its Cost per Available Seat Mile (CASM), excluding fuel, to increase in the range of 4.5%-6.5% y-o-y in the third quarter. To help control rising maintenance costs, the airline sold and replaced six older spare engines during the quarter.
The airline incurred 2.4% y-o-y increase in fuel expense driven by increased capacity, partially offset by lower average fuel prices. It incurred average fuel price of $3.22 per gallon for Q2 compared to $3.31 per gallon in the prior year quarter. It anticipates to incur an average price per gallon of jet fuel, of $3.13 in Q3 2012 and $3.18 for full year 2012.
On the whole, JetBlue posted good numbers on continuing growth in passenger traffic on Latin and Caribbean routes, offset by higher maintenance costs. In view of the relatively low average per gallon fuel price anticipated for the remainder of 2012 and continuing growth in demand for flights, we anticipate a stable outlook for the airline for the rest of the year.
However, if a worsening euro-crisis with global consequences dampens demand for flights, or crude oil prices rise significantly, then our forecast for a stable outlook could be affected.
We currently have a stock price estimate of $8.84 for JetBlue, significantly above its current market price. We are in the process of incorporating the second quarter results and will update our analysis shortly.