How Did JetBlue Perform In Q1?

JetBlue Corporation (NASDAQ:JBLU) reported quite a positive earnings this time around. Like its competitors, the airline faced stiff increases in its fuel costs which took a toll on profitability. That said, this rise in costs was more than offset by a strong unit revenue growth recorded in the quarter. Additionally, the company’s tax rate fell by quite a bit in Q1 due to the impact of the latest corporate tax reform, which consequently, helped drive earnings per share up from $0.24 to $0.27. The company was able to surpass both, the revenue and earnings analyst estimates, quite easily.

Despite the positive earnings, the airline’s stock price didn’t move up as expected. We believe that the company has been undervalued at the moment. In this respect, we have created an interactive dashboard to best elaborate on our valuation method and reasoning. Please click on the link to make changes and arrive at your own price estimate.

• JetBlue recorded a stellar RASM performance this time around. The key metric came in around 6.1%, representing the highest figure among all its North American peers. That said, it would be noteworthy to mention that this result was influenced by two unusual factors. First, the figure came in about 2 percentage points higher as a result of a shift in the timing of the Easter holiday. Second, adverse weather conditions led to a higher number of flight cancellations through the quarter, which again, positively impacted the RASM by about 1 percentage point. While these factors are not exclusive to JetBlue, they appear to have affected its results more positively than its competitors.
• As mentioned above, JetBlue’s operations were hurt significantly through the quarter on heavy winter storms that disrupted performance across two of its major focus cities – Boston and New York. Understandably, this led to a number of flights getting cancelled, because of which, the company fell short of its aim to grow capacity by about 3.5-5.5%. Further, these cancellations also put immense pressure on the airline’s non-fuel unit costs. Despite this, the company was able to curb the key metric growth to about 3.1% due to improved costs efficiencies and a shift in the timing of some maintenance expenses.
• Going forward, the company could see its pre-tax margin fall by a dramatic 10 percentage points year over year in Q2. This is primarily because costs, both fuel and non-fuel, are expected to jump by quite a margin this time. Further, unit revenues in the quarter are expected to decline by about 0-3% in the upcoming quarter on unfavorable Easter timings and tough year over year comparisons.
• That said, management expects things in the second half to improve notably. In this respect, JetBlue expects its non-fuel costs to decline by about 2-4% through Q3 and Q4, as the company benefits from easy comparisons and better cost saving initiatives. Further, RASM is expected to grow solidly through the second half, as well. All these factors should also aid EPS growth, unless of course, fuel costs jump to an unprecedented rate.