JetBlue’s Earnings: Sandy Will Clip Growth From Higher Passenger Traffic

JetBlue (NASDAQ:JBLU) will announce its fourth quarter and full year 2012 earnings on Tuesday, January 29. Superstorm Sandy will weigh on the carrier’s fourth quarter profits. JetBlue currently forecasts a negative impact of $25-$30 million from the storm on its Q4 operating income. ^[1] To provide context, operating income was $113 million in the third quarter. ^[2] Additionally, rising maintenance costs due to aging aircraft fleet will also impact JetBlue’s margins. On the bright side, higher passenger traffic aided by capacity expansion will contribute to earnings growth.

For full year 2012, JetBlue will post impressive growth in both revenues and earnings due to a strong performance in the first three quarters. In the nine months ended September 30, 2012, revenues increased 13% year-over-year to $3.8 billion and net income doubled y-o-y to $127 million. ^[2]

We currently have a stock price estimate of $5.79 for the carrier, approximately 5% below its current market price.

See our complete analysis of JetBlue here

Superstorm Sandy

Sandy struck the northeast United States in the last week of October and first week of November, disrupting an estimated 15,000 flights. JetBlue’s hub in New York was also severely impacted by the storm and the carrier cancelled approximately 1,700 flights over a five-day period. As a result, it suffered revenue losses of around $20 million in October and $20-$25 million in November. ^[1]

Rising maintenance costs

Additionally, JetBlue’s fourth quarter profits will be impacted by rising maintenance costs. As of September 30, 2012, the oldest aircraft in JetBlue’s fleet was 12.8 years old and the average age of its aircraft fleet was 6.6 years, up from 5.9 years as of September 30, 2011. ^[2] As its fleet ages, it requires costlier and heavier maintenance which contributes to higher maintenance costs. Also, with expanding capacity, the carrier operates a greater number of aircraft which again contributes to higher maintenance costs.

In the nine months ended September 30, JetBlue’s aircraft maintenance and repair costs increased 56% y-o-y to $258 million. ^[2]

Higher passenger traffic

On the bright side, the negative impact from Sandy and rising maintenance costs will be partially offset by growth in passenger traffic. In the fourth quarter, JetBlue continued to raise its flying capacity with an emphasis on Latin and Caribbean routes. The carrier started service between New York’s John F. Kennedy airport and Caribbean destinations of Grand Cayman and Samana in the fourth quarter. In all, the carrier’s flying capacity rose around 5% y-o-y in Q4. As a result, passenger traffic expanded around 4% y-o-y. ^{[1] [3] [4]}

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1. JetBlue airways reports October traffic, November 15 2012, www.jetblue.com [↩] [↩] [↩]
2. 2012 Q3 10-Q, November 1 2012, www.jetblue.com [↩] [↩] [↩] [↩]
3. JetBlue airways reports November traffic, December 12 2012, www.jetblue.com [↩]
4. JetBlue airways reports October traffic, January 11 2012, www.jetblue.com [↩]