One of the leading low-cost airlines JetBlue Airways Corporation (JBLU) reported first quarter 2012 adjusted earnings per share of 9 cents. The quarter’s earnings outpaced the Zacks Consensus Estimate by 2 cents and the year-ago earnings by 8 cents.

Despite the lingering macro concerns and surging fuel prices, the outperformance was attributable to fare hikes, which led to strong revenue.

Revenue

Total revenue climbed 18.9% year over year to $1.20 billion, surpassing the Zacks Consensus Estimate of $1.17 billion. Airlines traffic, measured in revenue passenger miles, grew 14.2% year over year. Capacity (or available seat miles) leaped 12% and load factor (percentage of seats filled with passengers) rose 150 basis points year over year to 82.9%.

Yield per passenger mile upped 5.9% year over year in the first quarter. Passenger revenue per available seat miles (PRASM or unit revenue) improved 8.0% year over year while operating revenue per available seat mile grew 6.1%. PRASM growth once again topped the domestic industry average, showing the company’s consistent success in attracting high yield business travelers, particularly in Boston.

Operating Expenses

Total operating expenses increased 15.2% year over year to $1.1 billion in the reported quarter. Steeper expenses were largely due to a 67.5% year-over-year rise in maintenance, materials and repairs expenses, and a 22.7% hike in fuel price.

Consolidated unit cost or cost per available seat mile (CASM), excluding fuel, slid 1.0% year over year. CASM, including fuel, rose 2.8% from the year-ago quarter.

Operating Income

Operating income almost doubled to $89 million from $45 million in the year-ago quarter. Operating margin improved 300 basis points year over year to 7.4%.

Liquidity

At the end of the first quarter, the company had $1.2 billion in unrestricted cash and short-term investments.

Guidance

The company expects CASM to increase 4-6% and 3.5-5.5% in the second quarter and fiscal 2012, respectively. Similarly, CASM excluding fuel, would increase 6.5-8.5% and 3-5%, respectively, in the second quarter and fiscal 2012. Additionally, JetBlue expects two-thirds of the increase to stem from higher maintenance expenses this year.

Capacity is expected to increase in the range of 4-6% for the second quarter and 6-8% for 2012.

Our Take

We believe JetBlue continues to benefit from its low-cost structure, strong brand name, its superior in-flight services, fuel hedging strategy, strong liquidity positions and a non-union workforce that bodes well in the present economy and leads to increased passenger count. Further, the company’s growing presence in the Caribbean and leading position in the Boston market support its robust future growth.

However, these positive are expected to be overshadowed by competitive threats from larger peers like Delta Air Lines Inc. (DAL), United Continental Holdings Inc. (UAL) and Southwest Airlines Co. (LUV), higher fuel prices and maintenance expenses along with the ongoing global economic volatilities that may limit the upside potential of the stock.

We are maintaining our long-term Underperform recommendation on United Continental. For the short term, the stock retains a Zacks #5 Roc (Strong Sell) Rank.

To read this article on Zacks.com click here.

Zacks Investment Research