JetBlue’s 1Q Profits Surge Due To Capacity Additions And Low Fuel Costs

JetBlue Airways’ (NASDAQ: JBLU) stock price soared close to 7% to $21 per share on Tuesday, as the airline reported an impressive growth in its first quarter earnings, despite severe weather conditions. The airline posted a net profit of $137 million ^[1], almost 56% higher than its net profit in the previous quarter, matching the analysts EPS estimate of 40 cents per share. The airline’s rapid capacity increase coupled with strong US air travel demand resulted in a considerable increase in its airline’s unit revenue. Further, the weak crude oil prices complemented the bottom-line growth during the quarter.

We currently have a price estimate of $18 per share for JetBlue, approximately 13% behind its current market price.

See our complete analysis for JetBlue Airways here

Rapid Capacity Expansions Boost Revenue

JetBlue continued to expand its flying capacity at a high rate to increase its market share. During the latest quarter, the low-cost carrier’s capacity rose by 9.6% on a year-on-year basis, resulting in an increase of 11.1% in its passenger traffic. This was the second highest capacity addition in the industry, after Alaska, which posted a capacity increase of close to 11% during the quarter. As a result, JetBlue’s load factor increased 1.2% to 84.3% during the quarter.

Besides, JetBlue’s excessive exposure to the domestic markets helped the airline to overcome the negative effect of currency fluctuations, which led to an increase of 4.5% in the airline’s unit revenue during the quarter. This is higher than the airline’s previous guidance of 3-4% growth and is by far the best unit revenue growth recorded by any US airline in this quarter. Consequently, JetBlue posted consolidated revenue of $1.52 billion in the March quarter, 13% higher than the revenue earned in the same period last year.

Lower Fuel Expenses Drive Bottom-line Growth

Due to the depressed crude oil prices, JetBlue’s fuel price for the quarter averaged $2.06 per gallon, down 34% versus the first quarter of 2014. This resulted in a 27.8% decline in the aircraft fuel expense to $335 million during the quarter. Overall, the airline reported total operational expense of $1.27 billion for the quarter, 2.9% lower than the last year. This improved the airline’s operating income to $253 million, or an operating margin of 16.6%, substantially higher than the 3.1% margin earned last year.

Outlook

JetBlue aims to increase its flying capacity by 5.5-7.5% in the second quarter and by 7-9% for the full year ^[2], in line with its prior guidance. During the second quarter, the airline expects its unit costs (excluding fuel and profit sharing) to increase by 1-3% on a year-on-year basis. The airline has hedged approximately 20% of its second quarter fuel requirements, which will enable it to realize an average fuel price of $2.11 per gallon in the next quarter. For the rest of the year, the airline has already hedged approximately 14% of projected fuel consumption.

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1. JetBlue Announces First Quarter 2015 Results, 28th April 2015, www.jetblue.com [↩]
2. JetBlue’s Investor Update, 28th April 2015, www.jetblue.com [↩]