(JBLU) JetBlue Airways Reiterated at Neutral

We remain on the sidelines on the discounted U.S. airline JetBlue Airways Corporation (JBLU) following its first quarter results and rising fuel prices.

JetBlue reported first quarter adjusted earnings per share of a penny, which was in line with the Zacks Consensus Estimate but double the year-ago earnings. The steeply rising fuel prices led to increased operating costs, and reduced profitability. Total revenue improved on the back of strong revenue generated from the Boston and Caribbean networks.

We believe rising fuel prices will remain a major headwind for the company going forward. Additionally, higher dependence on theNew York metropolitan market, competitive pressure from its largest rivals Delta Air Lines (DAL) and United Continental Holdings Inc. (UAL), and automated technology may limit the upside potential of the stock.

JetBlue expects higher fuel prices to increase its operating unit cost or cost per available seat mile (CASM) by 18% to 20% for the second quarter and 15% to 17% for the full year. Excluding fuel, unit cost is expected to increase only 3% to 5% and 0% and 2% for the second quarter and the full-year, respectively.

However, the company should be able to pass some potions of the increased fuel cost to its customers in the form of fare hikes and extra fees. In addition, JetBlue manages fuel price volatility to some extent through hedging. The company has hedged approximately 43% of second quarter projected fuel requirements and 35% for fiscal 2011, with a combination of crude call options and collars, jet fuel swaps and heating oil collars.

Further, we believe JetBlue is poised to benefit from strong revenue, cost control measures, additional ancillary revenue opportunities, schedule optimization and future commercial partnerships. JetBlue has one of the strongest liquidity positions in the U.S. airline industry.

In addition, the company’s growing presence in Boston and Caribbean, and its unique position as the largest domestic carrier at JohnF. Kennedy International Airportwill allow it to grow its top line in the future.

Moreover, JetBlue is the only non-unionized airline in the industry and has the most fuel-efficient fleet among the major U.S. carriers that adds to its advantage.

Hence, we are maintaining our long-term Neutral recommendation on JetBlue supported by the Zacks #3 (Hold) Rank.

DELTA AIR LINES (DAL): Free Stock Analysis Report

JETBLUE AIRWAYS (JBLU): Free Stock Analysis Report

UNITED CONT HLD (UAL): Free Stock Analysis Report

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