JetBlue’s Earnings Catch A Tailwind From Higher Passenger Traffic
JetBlue (NYSE:JBLU) posted growth in revenues and earnings in the third quarter on higher passenger traffic and yield partially offset by higher maintenance costs. The carrier added significant capacity that enabled growth in passenger traffic. Revenue increased 9.4% y-o-y to $1.3 billion and net income increased to $45 million compared to $35 million in the year-ago period. [1]
JetBlue plans to continue to raise its capacity between 5% and 7% in the fourth quarter, and, if it is able maintain its load factor, it could post impressive top-line growth for the full year 2012.
Increase in passenger traffic drives growth in earnings
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The carrier increased its capacity with an emphasis on routes connecting its hub at Boston and Latin and Caribbean international routes. Its available seat miles (ASMs) increased 8.6% y-o-y in the third quarter. This increase in capacity was balanced as the carrier was also able to increase its load factor by 0.3 points y-o-y to 84.8% in the same period. As a result, its passenger traffic increased 8.9% y-o-y. Driven by the increase in passenger traffic and aided by marginal growth in yield, passenger revenue increased 9.8% y-o-y to $1.2 billion in the third quarter. [1]
Fuel costs rise marginally
However, revenue growth was partially offset by higher fuel and maintenance expenses. Fuel costs increased 5.9% y-o-y to $481 million in the third quarter. Higher capacity increased the amount of fuel consumed from 139 million gallons in Q3 2011 to 152 million gallons in Q3 2012. [1] This increase was partially offset by lower per gallon price of fuel. JetBlue incurred an average price of $3.17 per gallon compared to $3.25 per gallon in the year-ago period. Based on prices of crude oil in mid-October, the carrier anticipates to incur an average fuel price of $3.25 per gallon in the fourth quarter and $3.22 per gallon for the full year 2012. [1]
Higher maintenance costs impact earnings
In addition, non-fuel costs particularly aircraft maintenance costs increased significantly for JetBlue. The average age of its fleet is around 6.3 years and with increasing age the fleet now requires costlier and heavier maintenance checks. Its maintenance costs increased 44% y-o-y to $85 million in the third quarter. [1] The carrier anticipates these costs to continue to rise in the fourth quarter.
On the whole, JetBlue posted strong growth in its third quarter earnings driven by higher passenger traffic. Going forward, by leveraging its low cost operating model and anticipating growth in the current stable demand environment, the carrier is likely to post strong growth in earnings in the fourth quarter and full year 2012.
We currently have a stock price estimate of $5.80 for the carrier, approximately 10% above its current market price. We are in the process of incorporating the third quarter earnings and will update our analysis shortly.
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