JetBlue’s Earnings Rise On Capacity Expansion & Sale Of Its LiveTV Subsidiary

JetBlue‘s (NASDAQ:JBLU) second quarter results rose sharply on gains from its capacity expansion and sale of its LiveTV subsidiary, which provides in-flight entertainment options. The low-cost carrier’s second quarter profits rose to $230 million, from $36 million the year ago period. After excluding the gain from sale of its LiveTV subsidiary, JetBlue’s second quarter profits were $61 million, up nearly 70% year-over-year. ^[1] We figure this sharp growth in the carrier’s profits was a result of its strong top line growth.

We are in the process of incorporating JetBlue’s second quarter results in our analysis, and shall update our analysis shortly.

See our complete analysis of JetBlue here

Rapid Capacity Expansion Lifts Top Line

JetBlue’ second quarter top line rose by nearly 12% annually to $1.4 billion driven by capacity expansion. During the quarter, the low-cost carrier expanded its flying capacity by about 6% annually with a focus on Boston, Fort Lauderdale, the Caribbean and Latin America. ^[1] This rate of capacity expansion was the highest for any major U.S. airline in the second quarter, and in our view, highlights JetBlue’s strategy of growing its market share. Higher flying capacity in turn raised JetBlue’s second quarter passenger traffic. Additionally, the carrier’s unit revenue (amount collected from each passenger for a seat per mile flight) also rose sharply in the second quarter driven by its fare hikes and shift of Easter holiday traffic to April this year, from March last year. Effectively, higher passenger traffic and higher unit revenue lifted JetBlue’s top line.

Mint Service Will Diversify Passenger Base & Aid Margin Growth

Separately, JetBlue said that it is seeing strong response to its recently launched premium class Mint service. In mid-June, JetBlue launched this premium class service on its flights between New York and Los Angeles. This service includes 16 fully lie-flat beds, four of which are suites with privacy door. Flyers on this service get access to 100 channels from DirecTV and on-board WiFi. JetBlue launched this service at a one-way fare of $599, which compares to premium class fares of around $2000 from network carriers on this route. ^{[2] [3]} We figure this new service will help bring business travelers to JetBlue whose passenger base is currently dominated by leisure travelers. Additionally, higher fare Mint seats will help lift JetBlue’s average fare and margins, boosting its profitability. In its second quarter earnings announcement, JetBlue said that bookings for its Mint service remain strong. By mid-August, the carrier plans to include this service on all its flights between New York and Los Angeles. And, by October this year, the carrier plans to launch this premium class service on its flights between New York and San Francisco. So, we figure the effect of this service on JetBlue’s unit revenue will likely increase as the year progresses.

Third Quarter Capacity Outlook

In an investor update filed alongside its second quarter earnings, JetBlue said that it will expand its flying capacity by 3-5% in the third quarter. ^[4] And, with the sale of its LiveTV subsidiary, the carrier also anticipates its costs to increase more moderately in the coming months. In all, JetBlue looks poised to continue to grow its results in the second half of 2014.

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1. JetBlue’s 2014 Q2 earnings form 8-K, July 24 2014, www.jetblue.com [↩] [↩]
2. JetBlue’s Premium Transcontinental Service Mint Takes Off, June 15 2014, www.jetblue.com [↩]
3. JetBlue’s 2014 Q2 earnings transcript, July 24 2014, www.seekingalpha.com [↩]
4. JetBlue’s 2014 July investor update, July 24 2014, www.jetblue.com [↩]