JetBlue’s Earnings Hit Turbulence After Sandy And Higher Maintenance Costs

by Trefis Team
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Superstorm Sandy and higher maintenance costs offset growth from higher passenger traffic for JetBlue (NASDAQ:JBLU), which weighed on its profits in the fourth quarter. The carrier’s profits declined to $1 million from $23 million in the year-ago period. [1]

For full year 2012, profits increased 49% y-o-y to $128 million on higher flying capacity which drove growth in passenger traffic. [1]

See our complete analysis of JetBlue here

Higher passenger traffic

In the fourth quarter, JetBlue continued to raise its flying capacity with an emphasis on routes connecting Boston and destinations in Latin America and the Caribbean. In all, its flying capacity increased 4.8% y-o-y in the fourth quarter. Driven by higher flying capacity, passenger traffic for the carrier increased 4.3% y-o-y. Higher passenger traffic coupled with steady passenger fares increased passenger revenues by $48 million or 4.6% y-o-y to $1.1 billion in the fourth quarter. [1]

Superstorm Sandy and higher maintenance costs

However, higher passenger revenues were offset by the negative impact from Superstorm Sandy and higher maintenance costs and, as a result, profits declined in the fourth quarter.

Superstorm Sandy struck the northeast United States in the last week of October and first week of November. The storm severely impacted flight operations at several cities, including New York, which is a hub city for JetBlue. As a result, the carrier had to cancel approximately 1,700 flights. This impacted its operating income by around $25 million in the fourth quarter. [1] [2]

In addition, maintenance and repair costs for JetBlue increased by $18 million or 27% y-o-y to $80 million in the fourth quarter. With aging aircraft, the overall fleet maintenance and repair costs have been increasing. At the end of 2012, the oldest aircraft in JetBlue’s fleet was 13 years old and the average age of its fleet was around 6.9 years, up from around 6.1 years at the end of 2011. [1]

Outlook for 2013

For 2013, JetBlue plans to increase its flying capacity by 5.5%-7.5% on a year-over-year basis. The carrier will start service on several new routes, including New York-Albuquerque, San Juan-Punta Cana, San Juan-Santiago, Seattle-Anchorage, Boston-Philadelphia, Fort Lauderdale-Medellin and Fort Lauderdale-San Jose to achieve this expansion.

JetBlue will also take delivery of 16 new Airbus and Embraer aircraft in 2013, which will help it achieve this capacity expansion in 2013. [3]

We currently have a stock price estimate of $5.79 for JetBlue, approximately in-line with its current market price. We are in the process of incorporating fourth quarter earnings and will update our analysis shortly.

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Notes:
  1. Q4 and 2012 earning results – Form 8-K, January 29 2013, www.jetblue.com [] [] [] [] []
  2. JetBlue airways reports October traffic, November 15 2012, www.jetblue.com []
  3. Outlook at the end of Q4 2012 – Form 8-K, January 29 2013, www.jetblue.com []
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