Aggressive Capacity Expansion, Lower Oil Prices Lift JetBlue’s Earnings

JetBlue‘s (NASDAQ:JBLU) fourth quarter revenue rose by 6% per year to $1.4 billion on gains from rapid capacity expansion. Meanwhile, lower oil prices complemented this top line growth to lift the carrier’s fourth quarter profit to $88 million, from $47 million in the same period in 2013. With these results, major U.S. airlines, including American, United, Delta, Southwest, JetBlue and Alaska, have each posted solid growth in their results in the fourth quarter. For full year 2014, JetBlue posted a profit of $401 million, up from $168 million in 2013. ^[1]

Looking ahead, with rising demand for air travel and lower oil prices, JetBlue is well positioned to continue growing its earnings in 2015. We currently have a price estimate of $16 for JetBlue, slightly below its current market price.

See our complete analysis of JetBlue here

Rapid Capacity Expansion Drove Top Line Growth

In the fourth quarter, JetBlue expanded its flying capacity by 7% per year, focusing on trans-continental and mid-continental routes. This was among the highest rates of capacity addition for any major U.S. airline in the fourth quarter. The growing demand for air travel absorbed the entire increase in the carrier’s flying capacity, lifting its passenger traffic by over 8% per year in the fourth quarter. ^[1] Higher passenger traffic in turn raised the carrier’s top line. This aggressive capacity expansion by JetBlue reaffirms that the carrier is seeking to grow its market share in the U.S. In our view, JetBlue’s low-cost operating model provides it with a competitive advantage. The carrier can profitably offer lower fares than network carriers to attract passengers and grow its market share.

Lower Oil Prices Boost Profit

In addition to this capacity expansion, JetBlue’s fourth quarter results were helped by the sharp fall in global crude oil prices in the fourth quarter. Oil prices (Brent) declined from over $95 per barrel in early October, to under $60 per barrel by the year end. This decline in prices lowered JetBlue’s jet fuel expense by 7% – or $30 million – year-over-year in the fourth quarter, boosting its profit. ^[1] However, despite lower oil prices, JetBlue said on its earnings call that it will continue to take measures to improve its profitability (see How Is JetBlue Planning To Improve Its Profitability?). The company also plans to continue to expand its capacity at a high rate in the first quarter, by 11-13% annually. ^[1] We figure gains from this aggressive capacity expansion and an improved operating environment should continue to drive growth in JetBlue’s results in 2015.

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1. JetBlue’s 2014 Q4 earnings form 8-K, January 29 2015, www.jetblue.com [↩] [↩] [↩] [↩]