Aggressive Capacity Expansion, Lower Oil Prices Will Lift JetBlue’s Results

JetBlue (NASDAQ:JBLU) will announce its fourth quarter and full year 2014 results on Thursday, January 29. The low-cost airline is coming off good growth in the first three quarters of 2014 in which its profit rose to $313 million, from $121 million in the same period last year. ^[1] We figure JetBlue will continue to report growth in its results in the fourth quarter on gains from aggressive capacity expansion and lower crude oil prices. Other airlines – including Delta (NYSE:DAL), United (NYSE:UAL), American (NASDAQ:AAL), Southwest (NYSE:LUV) and Alaska (NYSE:ALK) – have already reported fourth quarter results, posting strong growth.

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Rapid Capacity Expansion Will Drive Top Line Growth

In the fourth quarter, JetBlue expanded its flying capacity by nearly 7% per year, focusing on trans-continental and mid-continental markets. The strong demand for air travel absorbed this entire increase in the carrier’s capacity, growing its fourth quarter passenger traffic by about 8% annually. ^[2] We figure this higher passenger traffic will lift JetBlue’s fourth quarter top line.

Lower Oil Prices And Non-Fuel Cost Measures Should Boost Profit

In addition, global crude oil prices fell sharply in the fourth quarter – from over $95 per barrel (Brent) in early October to under $60 per barrel by the end of December. As jet fuel costs constitute over a third of JetBlue’s total operating expense, this sharp fall in crude oil prices will expand JetBlue’s fourth quarter margin, boosting its profit.

The carrier has also been taking a number of steps to lower its non-fuel costs. JetBlue has added more Airbus A321s to its fleet. The carrier estimates that this new airplane is 12% more cost efficient than the Airbus A320, which currently constitutes the bulk of its fleet. In addition, JetBlue has equipped a number of its A320s with sharklets – curved extensions at wingtips – which improve the lift that an airplane generates from surrounding air. The installation of sharklets is estimated to improve the cost efficiency of A320s by 1-3%. ^[3] These non-fuel cost measures, lower fuel costs and higher top line will lift JetBlue’s fourth quarter profit.

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1. JetBlue’s 2014 Q3 earnings form 8-K, October 23 2014, www.jetblue.com [↩]
2. JetBlue Airways Reports December Traffic, November Traffic, October Traffic, January 13 2015, www.jetblue.com [↩]
3. JetBlue 2014 Analyst Day, November 19 2014, www.jetblue.com [↩]