JetBlue Q3 Earnings: Hurricanes Force The Airline To Cut Capacity In Puerto Rico

As expected, JetBlue Corporation (NYSE:JBLU) delivered a rather mixed earnings report. Despite being on track to do well in the quarter, operations suffered significantly as adverse weather conditions forced the airline to cancel over 2,500 flights. Earnings and revenues beat on expectations, but came in relatively lower in comparison to the same period last year. The hurricanes accounted for a near 6 cent negative impact on the quarter’s earnings per share.

Even so, the company managed to report significantly better results than most of its competitors. While the hurricane related headwinds will continue to weigh on the airline’s performance in Q4, JetBlue’s strong underlying results could bode well for 2018.

Points To Note:

• Probably the most worrying news is the fact that the company has decided to reduce capacity in Puerto Rico for the foreseeable future, as the island begins to rebuild after Hurricane Maria. This comes as a major blow to the airline, which is the largest air carrier in the region. Management has decided to cut capacity by about 33% for the next few months as leisure trips to the country experience an understandable dip. We can expect to see capacity fully restored towards the end of 2018, when resorts and hotels begin to open up again. Until then, the company hopes to redeploy this capacity in other profitable leisure destinations.
• The RASM was impacted by a number of factors this time around. The metric was favorably impacted by about 30 basis points due to flight cancellations because of the hurricanes, while adversely affected by about 75 basis points due to ATC challenges and pricing pressures. The company expects RASM in Q4 to decline between 0-3%.
• The company also experienced increased costs in the quarter on the back of the hurricanes. Ex-fuel CASM increased by 2.7% in Q3. This figure includes both, the impact from the hurricanes and 1.4 points related to favorable timing of maintenance, and marketing expenses that shifted to Q4. Going forward, the company expects ex-fuel CASM to come in about 5-7% higher year-over-year on reduced capacity due to the hurricanes and the timing of expenses.
• On a positive note, the Mint markets continue to remain RASM and margin builders. The company witnessed a marked improvement in its most established Mint markets in the third quarter, as well. RASM improvement of over 12% in the Fort Lauderdale market during the quarter is testament to this fact.

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