Discount U.S. airline JetBlue Airways Corporation (JBLU) reported a 10.6% year-over-year traffic increase in May 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 8.9% and load factor (percentage of seats filled with passengers) rose 130 basis points to 82.6% from 81.3% in May 2010.
Despite escalating fuel prices, JetBlue and Southwest Airlines Co. (LUV) saw strong traffic in May compared to its rivals Delta Air Lines (DAL), a wholly owned subsidiary of AMR Corporation (AMR) — American Airlines — and United Continental Holdings Inc. (UAL).
Both JetBlue and Southwest recorded the same increase in May traffic, owing to strong domestic performances. Delta’s traffic increased 2.2%, while American Airlines' traffic inched up 1.1%. United Continental is the only carrier that reported a decline of 0.3% in the month.
We believe JetBlue is poised to grow even in a rising fuel price environment. With a low cost structure and the youngest fleet, the carrier is combating rising fuel prices with increased fares and fuel-hedging strategies.
JetBlue expects a 19% year-over-year increase in unit revenue for the month of May, measured by passenger revenue per available seat mile (PRASM), a key metric in airlines. For the second quarter, PRASM is expected to rise 13% to 15% from the year-ago quarter.
The company has hedged approximately 43% of projected fuel requirements for the second quarter 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 and enjoys 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 the New York metropolitan market, competitive pressure and automated technology keep us on the sidelines. Further, JetBlue does not pay any dividend to its shareholders.
Moreover, International Air Transport Association (IATA) cut its 2011 overall profit outlook by a massive 54% to $4 billion due to rising fuel prices, the disaster in Japan and the ongoing turmoil in North Africa and the Middle East.
This is the second time the IATA reduced its profit forecast in the last 6 months. Now, U.S. carriers are expected to generate profits of $1.2 billion compared with the prior outlook of $3.2 billion provided in March.
Hence, we are currently maintaining our long-term Neutral recommendation on JetBlue supported by the Zacks #3 Rank (Hold).
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