Will The Tide Turn For JetBlue Airways Stock?

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The shares of JetBlue Airways (NASDAQ: JBLU) are trading 30% below pre-Covid levels despite relatively high passenger numbers at TSA checkpoints due to the anticipation of a prolonged dip in air travel demand. However, investors have been optimistic on Atlas Air stock (NASDAQ: AAWW), a global provider of leased aircraft and aviation operating services. Last year, Atlas Air stock surged 60% assisted by a strong air freight market where demand exceeded pre-pandemic levels. Atlas Air provides air cargo services whereas JetBlue serves passenger demand. While both companies cater to different customer groups, domestic cargo & passenger demand are key macroeconomic factors driving their top line. Does the optimism in Atlas Air stock indicate an upcoming surge in the air travel market? We compare the historical trends in revenues, margins, and valuation multiple of both companies in an interactive dashboard analysis, JetBlue Airways vs. Atlas Air – parts of which are highlighted below.

1. Revenue Growth

Atlas Air’s growth was higher than JetBlue’s before the pandemic, with Atlas Air’s revenues expanding by 14% p.a. from $1.8 billion in 2016 to $3.2 billion in 2019. JetBlue’s revenues grew by at an average rate of 7% p.a. from $6.6 billion in 2016 to $8.1 billion in 2019. JetBlue Airways reported a 60% top-line contraction in 2020 whereas Atlas Air observed a 17% growth.

  • Atlas Air segregates its operations into three segments, ACMI & CMI, Charter, and Dry Leasing. The ACMI segment provides cargo and passenger aircraft operating solutions including aircraft, crew, and maintenance, while customers take care of fuel, landing, navigation, and other costs. The CMI segment is similar to ACMI except that the aircraft is not provided by Atlas. The Charter segment provides a complete package where the customer pays a fixed fee that includes fuel, insurance, landing, navigation, etc.
  • The company’s ACMI, Charter, Dry Leasing, and Other segments contribute 37%, 57%, 5%, and 1% of total operating revenues, respectively. In the last few years, Atlas Air’s growth has been majorly driven by the Charter segment, which has more than doubled since 2016.
  • JetBlue Airways primarily earns its revenues from the sale of air tickets and other ancillary services such as freight & mail. In the past few years, continued capacity growth along with rising ticket prices have been key contributors assisting topline expansion.
  • JetBlue’s domestic business contributes a bulk of the revenues and has been the major factor strengthening investor confidence in recent months. (related: Optimism In Estee Lauder Stock A Trigger For Delta Air Lines?)
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2. Returns (Profits)

Coming to profitability, both companies have been reporting comparable net margin and operating cash margin in the past few years.

  • In 2018, Atlas Air reported net income margin and operating cash margin of 10% and 16%, respectively. The company generated $425 million of operating cash on operating revenue of $2.6 billion. Subsequently, invested $713 million in property, plant & equipment and raised $216 million in long-term debt.
  • Whereas, JetBlue Airways reported net income margin and operating cash margin of 2% and 16%, respectively. The company generated $1.2 billion of operating cash on revenues of $7.6 billion. Subsequently, invested $908 million in property, plant & equipment and returned $382 million to investors in share repurchases.
  • Both companies have been following an almost similar capital investment plan by re-investing a sizable portion of operating cash into the business.
  • Despite having a different target customer profile, B2C for JetBlue Airways and B2B for Atlas Air, the ratio of fixed assets (property, plant & equipment and operating leases) to total assets is comparable at 66%.

3. Risk

Atlas Air and JetBlue are similar from the perspective of financial leverage.

  • Financial leverage coupled with strong topline growth is a boon for investors. However, high interest expenses weigh on the bottom line if growth stalls.
  • In 2020, Atlas Air and JetBlue reported $2.3 billion and $4.4 billion of long-term debt, respectively. With $3 billion of cash & short-term investments, JetBlue has $1.4 billion of net debt.
  • Similarly, the $845 million of cash & short-term investments on Atlas Air’s balance sheet results in $1 billion of net debt. (related: Air Travel Demand To Push Boeing Stock Higher?)

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Jan 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
JBLU Return 5% 5% -33%
AAWW Return -7% -7% 67%
S&P 500 Return -2% -2% 109%
Trefis MS Portfolio Return -4% -4% 276%

[1] Month-to-date and year-to-date as of 1/12/2022
[2] Cumulative total returns since the end of 2016

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