JetBlue Airways – A Due Diligence

Could JetBlue potentially be a good long play?


JBLU – JetBlue Airways

JetBlue just reported its 1Q2017 result last week on April 25. Below is a table of the results comparing Q1 of 2017 and Q1 of 2016. I also added a link to the earning presentation slides.

Metric Q1 2017 Q1 2016 Year-Over-Year
Revenue $1.60 billion $1.62 billion (0.8%)
Total unit revenue 11.81 cents 12.41 cents (4.8%)
Cost per available seat miles excluding fuel 8.35 cents 8.08 cents 3.3%
Net income $85 million $199 million (59%)
Pre-tax margin 7.9% 20% N/A
Adjusted EPS $0.25 $0.59 (59%)

Looking at it from the surface, this may look bad from year-over-year (YoY) basis. Last year first quarter result was boosted an early Easter holiday which happened to be in March, but this year Easter is in April. This creates a tough comparison of results YoY. Additionally, the FAA lower the Newark airport to level 2 from level 3, thus ending the slot restriction of operations at the airport. This creates more competition for JetBlue for their New York to Florida market because Spirit Airlines have started 4 daily flights from Newark to Fort Lauderdale and 2 daily flights from Newark to Orlando beginning last fall. Another reason for the drop is due to rising fuel cost of 1.73/gallon compare to 1.43/gallon of last year. Non-fuel unit costs are also expecting to increase around 4.5% to 6.5%.

JetBlue Plans

So now that all the bad stuffs are out of the way, let us talk about the goods. JetBlue decided to cut capacity growth in order to get unit revenue growing again. In the earning presentation, JetBlue confirmed a strong outlook for Q2 with revenue per average seat mile (RASM) likely to rise 3% to 6% due to a double digit increase in April because of the Easter holiday. JetBlue also deferred its Airbus orders which will reduce capital expenditure in year 2018 to 2020 by as much as 800 million. JetBlue deferred 3 A321neos from 2018 to 2019, 8 A321neos from 2019 to 2023, and 5 A321neos from 2020 to 2024. This will boost free cash flow while JetBlue expand. Even with all these changes, the deferred plan won’t hinder their growth nor will it increase maintenance cost of the fleet. JetBlue oldest A320s is around 17 years old and the typical useful life is 25 years. Furthermore, JetBlue has 11 Airbus planes on order for 2018, followed by 13 orders each in 2019 and 2020. Additionally, six of the A321s arriving in 2017 will come in the fourth quarter, so most of the growth associated with those aircraft will fall in 2018. JetBlue’s project to add 12 seats to each of its A320s is also about to kick off. That will contribute some additional capacity growth over the next three years. JetBlue plan to grow 4% to 6% in Q2 and 5.5% to 7.5% for 2017.

JetBlue plan to grow starts with its Mint premium service. The Mint service has flat-bed seats and some can turn into semi-private suites, free wifi, early baggage claim, early boarding, and expedite screening process. Over the course of last 2 years, the LA route’s profit margin improved by 17 percentage points relative to the system average. The San Francisco route’s profit margin improved by 18 percentage points. Right now, JetBlue has route from LA to NY, Boston, and Ft. Lauderdale, SF to NY and Boston, Boston to Aruba and Barbados, and NY to Aruba, St. Lucia, Barbados, Grenada, and St. Maarten. JetBlue announced one daily Mint flight between NY and San Diego (SD) that will start in mid-August; the second Mint roundtrip will begin in October. Second, in early November, JetBlue will start using Mint-equipped planes for two daily roundtrips to Las Vegas and NY. Third, JetBlue decided to add a fourth daily Mint flight on the Boston-SF route beginning in July and it announced that it will add a fourth daily Mint flight from Boston to Los Angeles in late October. By offering more schedule choices on these key routes, JetBlue should be able to gain market share among business travelers. JetBlue will also launch twice daily Mint service from Boston to SD in December. This will be the fifth new Mint route of the seven that were announced last year. And JetBlue confirmed that New York-Seattle and Boston-Seattle are still in line for an upgrade to Mint service — presumably in early 2018.

Increasing the Mint service is not the only thing JetBlue plans to do. JetBlue received all the slots they wanted to fly to Mexico City. They are getting 4 slots this year. It will use these slots for twice-daily flights to its Orlando and Fort Lauderdale focus cities. JetBlue is likely to drop its current money-losing flights to those two cities, which depart Mexico City before 6 a.m. In 2018, JetBlue will receive two more slots, enabling two daily flights to LA. With convenient flight times, it should be able to earn much higher margins. JetBlue are also planning to expand in Havana as they filed an application to Department of Transportation for 7 weekly flights.


As airline industry is very capital intensive, airlines usually have huge debt. JetBlue has been focusing on bringing down its debt. Debt fell to 1.3 billion at the end of 1Q17 compared to at 1.8 billion at 1Q16. This decrease helped the airline bring down its total debt to EBITDA ratio from 1.64x at the end of 1Q16 to 0.83x at the end of 1Q17 and compared to American Airlines’ total debt-to-EBITDA ratio stands at 11.4x, United Continental’s at 9.3x, and Delta Air Lines’ at 3.2x at the end of 1Q17. JetBlue ended first quarter with 1.1 billion in cash and has been able to generate strong cash flow.

Disclosure Statement: I have a position in this. I believe they have good potential to grow and this is one of my long play. Please do your own research before making any decisions. Don’t make decisions based solely on the information here.