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Following the recent addition of regional airports with questionable benefits to the Jetblue (JBLU) route network, many were left wondering if Jetblue's route network and expansion strategy could prove to be harmful to the company's success. However debate over the role of the FAA's next-generation navigation system in Jetblue's airport choices yielded the consensus that the navigational upgrades had the potential to allow Jetblue to find success in markets where others have failed. In a quarter that saw increasing passenger traffic and increasing revenues, investors were let down by a hefty increase in maintenance costs. Said maintenance increases subsequently took a sizable bite out of the company's profits for the period. Following the earnings report shares fell from a high of $7.20 to around $6.60, representing about an 8.3% change in share price. Downgrades by firms such as Bank of America (BAC) did little to change short-term opinion. While shares may have taken a hit following the earnings announcement, there remain several compelling reasons for investors to further research JBLU.

Relationship With Aer Lingus

The Jetblue and Aer Lingus one-way code-share agreement has the potential to evolve into a full-fledged alliance on routes. While Jetblue CEO David Barger has made very clear that Jetblue will not look into purchasing Aer Lingus by stating "I do not really think that it's a proper use of our shareholders' capital," opportunity still exists for both airlines to benefit from a mutual partnership. In 2013 Aer Lingus officially moved into Terminal 5 at Kennedy Airport in New York, further supporting the interline agreement that Aer Lingus and Jetblue had already established. In February 2013, Aer Lingus and Jet Blue announced that their code-share agreement would become expanded such that a passenger on an Aer Lingus flight could be ticketed into a flight operated by Jetblue but sold under the Aer Lingus name. This announcement served as a major step after the two airlines' interline agreement in which one could buy connecting flights though the airlines under multiple tickets and brands, but not as a single scheduled series of flights. In April 2013, a Bloomberg news article highlighted the Aer Lingus acquisition of three Boeing (BA) 757 jets to be used on routes that connected to Jetblue operating bases. The move towards a full two-way code-share in which passengers could purchase Jetblue flights operated by Aer Lingus was suggested and discussed at the end of the latest earnings conference call (transcript can be found here). The one-way code-share agreement allows passengers ticketed on Aer Lingus flights to connect to 33 U.S. cities via Jetblue.

Network Expansion

Jetblue has taken steps to grow both the size of its fleet and the number of destinations served. Among the highlights of Jetblue route expansion are:

  • Two flights daily from Worcester, MA, to Florida, one to Orlando, and one to Ft. Lauderdale.

  • One daily regular service flight from Hartford, CT, to Tampa, FL, and one seasonal daily flight from Hartford, to Fort Myers, FL.

  • Direct service from Kennedy Airport in New York, to Albuquerque, New Mexico.

Additionally, Jetblue is taking delivery of 40 new Airbus A320neo aircraft and converting 30 outstanding A320 orders into the larger A321 aircraft. This will allow Jetblue to continue to serve a variety of various destinations in which Jetblue's current fleet of Airbus A320 and Embraer 190 aircraft would not efficiently serve. While initial research suggested that some of these airports may not be conducive to Jetblue success, follow up has since demonstrated that failure may not be the case.

Free from the Furlough

There were recently three-hour delays in air traffic at Kennedy Airport in New York, due to the air traffic controller furloughs as a result of the budget sequester. The end of the furlough for air traffic controllers is a plus as Jetblue operates a hub at Kennedy Airport.

Value for Shareholders

Shareholders looking for intrinsic value after the lackluster earnings reports should look towards the information listed above as rationale for considering an investment in JBLU. The blossoming relationship with Aer Lingus has the potential to benefit both carriers. Industry executives such as Ben Baldanza of Spirit Airlines (SAVE) have made clear that they believe that mergers and acquisitions would help grow the price gap between legacy carriers and the low cost segment. Industry consolidation will continue to nourish the benefits of the code-share agreement with Aer Lingus. Essentially, for the time being, Jetblue will gain traffic on routes where Aer Lingus passengers and bags are "delivered" for transfer to Jetblue flights. Additionally the addition of new Airbus aircraft will make new city combinations, that were previously poor candidates for profitability with Jetblue's current fleet, much more appealing. Finally, the end of the short-lived controller furloughs means that traffic will not be impacted with the substantial three-hour delays that plagued Jetblue's New York Kennedy hub. While not the most significant of problems, the sequester had the potential to impact Jetblue operations out of its hub, including the Aer Lingus code-share agreement.

Source: Jetblue: The Airline That Still Can

Additional disclosure: One should conduct further research and their own due diligence when considering these investment ideas. These ideas alone should not be the only grounds for making an investment.