The discounted U.S. airline JetBlue Airways Corporation (JBLU) reported a 7.1% year-over-year traffic increase in March 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 4.2% and load factor (percentage of seats filled with passengers) rose 230 basis point (bps) to 83.6% from 81.3% in March 2010.
JetBlue reported stronger March traffic results compared to its largest rivals Delta Air Lines (DAL) and United Continental Holdings Inc. (UAL). Delta’ traffic inched up 0.5%, while United Continental traffic dipped 2.2% in March.
We believe overall economic conditions continue to show signs of improvement in the form of increased demand and improved yield. JetBlue benefited from this global economic recovery. Since JetBlue provides point-to-point services within its domestic routes, the company has not been affected by the severe natural calamity in Japan.
However, surging fuel cost will have adverse effects on the company’s profitability. But, to some extent, the losses will be minimized due to JetBlue’s hedging strategy to manage fuel price volatility.
The low-cost carrier Southwest Airlines Co. (LUV) recorded a 9.8% year-over-year rise in March traffic. This was well above JetBlue’s air traffic growth of 7.1%.
JetBlue is well positioned for growth due to its low cost, strong brand name, its superior in-flight services including LiveTV, hedging program and a nonunionized workforce. Management expects 2011 to be a profitable year based on an improving revenue environment and continues to focus on achieving long-term sustainable growth.
In the first quarter of 2011, JetBlue’s traffic climbed 7% to 6.9 billion from 6.5 billion in the year-ago quarter. This increase was based on higher capacity (up 1% year over year) and expanded load factor (up 460 bps year over year).
We believe JetBlue will continue to benefit from rising demand, higher fares, cost control measures, additional ancillary revenue opportunities and future commercial partnerships. However, fuel price volatility, higher dependence on the New York metropolitan market, competitive pressures and automated technology keep us on the sidelines. Furthermore, JetBlue does not pay any dividend to its shareholders.
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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