JetBlue’s Q3’16 Earnings Preview: Reduction In Capacity Expansion To Arrest The Decline In Unit Revenues

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JBLU: JetBlue Airways logo
JBLU
JetBlue Airways

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Key Trends:

  • JetBlue revised its capacity guidance for the full year from 8.5% – 10.5% to 8.0% – 9.5% to manage its declining unit revenues and increasing fuel cost. Yet, its capacity growth still remains fairly high as compared to its peers. In the third quarter, the company plans to grow its capacity at a rate much lower than that seen in the year so far. The reduction in capacity is likely to arrest the fall seen in unit revenues.
  • However, the growth in revenues due to capacity expansion is expected to be partially offset by the impact of declining PRASM, although Latin America would likely see a turnaround.
  • We have recently seen some recovery in oil prices, owing to the OPEC countries’ decision to restrict their combined oil output between 32.5 and 33 million barrels per day, a potential reduction of 200 to 700 MBPD (thousand barrels per day) compared to the output in August. However, the increase is unlikely to have any material impact on the fuel expenditure of the airline in the quarter, as the prices continue to be much lower than the historical $100 per barrel.
  • The company is concentrating on cutting its non-fuel expenditure by promoting operational expertise, to offset higher fuel costs. However, after falling for the first two quarters, JetBlue’s unit cost is expected to grow at 1% – 3% y-o-y in the third quarter. Consequently, we can expect the operating margins to decline slightly.
Relevant Articles
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See Our Complete Analysis For JetBlue here

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for JetBlue Corporation

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