JetBlue Q3 Earnings & Revenues Miss Estimates, Up Y/Y

New York-based airline JetBlue Airways Corporation (JBLU) reported third-quarter 2014 net income of $79 million or 24 cents per share as against $71 million or 21 cents in the year-ago quarter. However, adjusted earnings of 24 cents per share missed the Zacks Consensus Estimate of 26 cents.

Total operating revenue climbed 5.9% year over year to $1,529 million, missing the Zacks Consensus Estimate of $1,557 million. Revenue passenger miles for the third quarter increased 5.9% to 10.1 billion on a capacity increase of 4.5%, resulting in a third quarter load factor of 86.2%. This reflects an increase of 1.2 points year over year.

Operating Statistics

Airline traffic, measured in revenue passenger miles, increased 5.9% year over year in the reported quarter along with 4.5% growth in capacity. Moreover, load factor (percentage of seats filled with passengers) declined 1.2 basis points (bps) year over year to 86.2%.

Yield per passenger mile moved up 0.9% year over year in the reported quarter. Passenger revenue per available seat mile (PRASM) hiked 2.4% while operating revenue per available seat mile increased 1.4%.

Operating Income and Expenses

In the quarter under review, total operating expenses increased 5.7% year over year to $1,365 million, primarily owing to higher salaries and wages (up 12.3%) and other operating expenses (up 9.5%). JetBlue’s operating unit cost or cost per available seat mile (CASM) rose 1.2% year over year while excluding fuel and profit sharing, CASM increased 2.6% from the year-ago quarter.

Operating income came in at $164 million, up 7.9% year over year. Operating margin increased 20 bps year over year to 10.5%.

Balance Sheet

JetBlue ended the third quarter with unrestricted cash and short-term investments of $742 million. Total debt, at the end of the quarter, was $2,362 million compared with $2,585 million at the end of 2013.

Guidance

The company expects CASM for the fourth quarter to decrease 3–1% as against the last-year quarter, excluding fuel and profit sharing, the CASM for the same period is expected to rise in between 1.0% and 3.0%.

Likewise, CASM for full-year 2014 is expected to increase in the band of 0.5–2.5%. Excluding fuel and profit sharing, CASM is estimated to rise in the range of 2.5–4.5%. Capacity is expected to increase in the band of 5.0–7.0% in the fourth quarter while for 2014, it is expected to augment 4.0–6.0%.

JetBlue has decided to pay off $128 million regularly scheduled debt and capital lease obligations by the end of 2014.

Peer Releases

Delta Air Lines Inc. (DAL) reported third-quarter 2014 adjusted earnings of $1.20 per share, beating the Zacks Consensus Estimate of $1.18, while Southwest Airline Co.’s (LUV) earnings of 55 cents also steered ahead of our estimate of 53 cents. United Continental Holdings Inc. (UAL) posted a profit of $2.75 per share, higher than the Zacks Consensus Estimate of $2.70.

Our Analysis

We believe JetBlue will continue to benefit from increasing travel demand, network expansion, fleet re-designing, optimization of unit revenues, capital expenditure management and lower fuel prices. Additionally, emphasis on enhancing presence in major growth regions along with various Caribbean and Latin American markets will likely spur future growth.

However, the alarming outbreak of the Ebola virus may hugely impact the airline industry moving ahead.

JetBlue currently carries a Zacks Rank #3 (Hold).