JetBlue Q1 Earnings: Shares Rally As Company Beats On Earnings

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JetBlue Corporation (NYSE:JBLU) posted modest earnings figures to start the year. The company managed to beat earnings by a cent, while missing on revenues marginally. In the same quarter last year, the airline had posted solid figures on the back of additional holiday travel, brought in by an early Easter. This time around, however, Easter was pushed to April, and the impact was reflected in the lower-than-expected revenues. Further, revenues were also hurt by a 1.8% drop in passenger revenues.

Additionally, despite beating the consensus estimate, earnings fell steeply year-over-year,consequently impacting the profit margin and earnings per share. That said, the company has made some tactical adjustments in the past few months which could show positive results as early as next quarter. The earnings beat and hope of a better 2017, pushed the stock price up by 3.3% post the call.

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Key Highlights:

  • RASM (revenue per available seat mile) declined by about 4.2% in the quarter. However, after adjusting for calendar impacts, the first quarter RASM is estimated to have declined by only 1.2%. As mentioned previously, the timing of Easter adversely impacted the first quarter by 2.3 percentage points. The January calendar, hit by harsh winter conditions, negatively impacted the quarter by about 1 percentage points. Fortunately, weather and higher completion factor did not hurt RASM much in the quarter. That said, JetBlue has begun implementing certain strategies to better the key metric in the coming months.
  • JetBlue has restricted capacity over the last few quarters in an attempt to increase margins above the industry standard. So far, this strategy has been effective. Good news is that, the first quarter benefitted from this initiative as well. Capacity growth in the quarter was restricted to a modest 4.2% thereby nudging RASM up. These efforts have led to a sequential improvement in the monthly RASM performance throughout the quarter.
  • As mentioned in previous call, the Mint markets continue to be a RASM and margin builders. The company witnessed a marked improvement in its most established Mint markets in the first quarter as well. To put this into perspective, RASM increased by about 10% in March and 6% in the first quarter for the two New York markets.
  • Additionally, the company has worked tirelessly to reduce costs in the recent few quarters. The ex-fuel costs came in higher by 3.3% year-over-year, closer to the low end of the guidance range. This was primarily due to higher wages, increased fleet maintenance costs, and a decline in stage length. JetBlue expects ex-fuel CASM to peak in the second quarter in the 4.5-6.5% range. Despite this jump, however, management is confident that CASM ex-fuel will fall in the range of 1.5-3.5%.
  • Furthermore, the company announced the signing-on of a new CFO, Stephen Priest, who is determined to revise the cost structure and improve margins significantly in the coming months.

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