The discounted U.S. airline JetBlue Airways Corporation (JBLU) reported a 6.1% year-over-year traffic increase in April 2011. Airline traffic is measured in billions of revenue passenger miles, which implies one mile flown by one passenger.

On a year-over-year basis, capacity (or, available seat miles) grew 7.1% while load factor (percentage of seats filled with passengers) fell 80 basis point (bps) to 79.7% from 80.5% in April 2010.

Despite escalating fuel prices and the March 11 catastrophe that took toll on Japan’s economy, JetBlue saw strong traffic in April compared to its largest rivals Delta Air Lines (DAL) and United Continental Holdings Inc. (UAL). Delta’s traffic increased 2.6%, while United Continental traffic inched up 1.1% in April. However, the low-cost carrier Southwest Airlines Co. (LUV) recorded the largest year-over-year increase of 8.7% in April traffic.

We remain concerned about the airline sector as a whole due to the rising fuel prices and the disaster in Japan that could stall the ongoing recovery of the U.S. airlines going forward.

Since JetBlue provides point-to-point services within its domestic routes, it was not affected by the devastating earthquake and tsunami. Additionally, we believe JetBlue is poised to grow even in the rising fuel environment. With a low cost structure and the youngest and efficient fleet, the carrier is combating rising fuel prices with increasing fares and fuel-hedging strategies.

The company has hedged approximately 43% of second quarter 2011 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, JetBlue remains focused on expanding its partnership footprint to enhance its international service and reap travel benefits. The company continues to make prudent investments in its business, and is well positioned to drive profitable growth with a strong financial position.

In addition, JetBlue’s growing presence in the Caribbean and Latin America, leading position in the Boston market, and unique position as the largest domestic carrier at John F. Kennedy International Airport auger well for future growth and top-line improvement. However, fuel price volatility, higher dependence on New York metropolitan market, competitive pressure and automated technology keeps us on the sidelines. Further, JetBlue does not pay any dividend to its shareholders.

Hence, we are currently 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
SOUTHWEST AIR (LUV): Free Stock Analysis Report
UNITED CONT HLD (UAL): Free Stock Analysis Report
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