The discounted U.S. airline JetBlue Airways Corporation (JBLU) reported a 7.2% year-over-year traffic increase in June 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 10% while load factor (percentage of seats filled with passengers) fell 210 basis points (bps) to 82.1% from 84.2% in June 2010.
Despite rising fuel prices, JetBlue, Southwest Airlines Co. (LUV) and American Airlines, a wholly owned subsidiary of AMR Corporation (AMR), saw strong traffic in June compared to its rivals Delta Air Lines (DAL) and United Continental Holdings Inc. (UAL). Southwest Airlines recorded a 7.5% increase in June traffic while American Airlines saw a 1.3% uptick. Delta Air Lines and United Continental’s traffic dipped 0.9% and 1.5%, respectively, in June.
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 an 8% year-over-year increase in unit revenue for the month of June, measured by passenger revenue per available seat mile (PRASM), a key metric in airlines.
The company has hedged approximately 43% of projected fuel requirements for second quarter 2011 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. JetBlue has solidified its position as the largest airline serving Boston Logan International Airport through various partnerships entered into in the past.
In addition, the company continues to make prudent investments and enjoys a strong financial position. 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 JFK airport also 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.
We are currently maintaining our long-term Neutral recommendation on JetBlue. For the short term, the stock retains a Zacks #2 (Buy) Rank.
AMR CORP (AMR): Free Stock Analysis Report
DELTA AIR LINES (DAL): Free Stock Analysis Report
JETBLUE AIRWAYS (JBLU): Free Stock Analysis Report
SOUTHWEST AIR (LUV): Free Stock Analysis Report
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