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At a time when most large U.S. airlines, including Delta (NYSE:DAL) and United (NYSE:UAL), are growing their profits through a combination of cost controls, higher fares, and capacity discipline, JetBlue (NASDAQ:JBLU) is growing its profits by adding significant flying capacity to its network. During 2009-12, the carrier added flying capacity at a compounded annual growth rate of over 7%, and in 2013 it plans to raise this by 5.5%-7.5% on a year-over-year basis.

This significant capacity addition is driving growth in JetBlue's passenger traffic, which in turn is growing its revenues and profits. We take a deeper look at some of the markets that JetBlue has expanded to in the recent past and the markets it plans to expand to in the near future. We currently have a stock price estimate of $7.50 for JetBlue, approximately 20% ahead of its current market price.

Boston and Latin/Caribbean Markets Lead in JetBlue's Capacity Expansion

Around 2007-08, JetBlue had a highly concentrated network focused at serving transcontinental and Florida markets connecting New York. But over the last five years, the carrier has successfully diversified to other markets such as Boston, Caribbean, and Latin America. This has reduced its vulnerability to system delays or storms impacting operations in the Northeast. Today, JetBlue has a significant presence in high value geographies that include New York and Boston in the northeast, Orlando and Fort Lauderdale in Florida, San Juan in the Caribbean, and Long Beach on the West Coast.

Boston was one of the first major markets that JetBlue invested in outside of New York. The carrier built its Boston network to target business as well as leisure travelers. During 2009-12, JetBlue added significant flying capacity to the Boston market, raising its seat share from 15% in 2009 to 24% in 2012. In the first quarter of 2013, the carrier raised its Boston flying capacity by another three percentage points from the prior-year period. Looking ahead, in the near future, JetBlue plans to continue to raise its capacity in this market.

San Juan in the Caribbean is the other market that JetBlue has focused on over the last three years. In 2011 and 2012, the carrier increased its annual flying capacity in this market by nearly 30% each year, and it anticipates it will add slightly over 10% in 2013.

Fort Lauderdale Will Likely Play a Prominent Role in Driving Future Capacity Additions

Over the next few years, JetBlue sees significant capacity addition opportunities in the Fort Lauderdale market. This strategically located city enables JetBlue to expand its services in the fast-growing Caribbean and Latin American markets. Since 2008, JetBlue has entered or doubled its capacity between Fort Lauderdale and eight cities located in the Caribbean and Latin America, and the carrier has identified 19 more potential growth markets located in this geography where it can expand to from Fort Lauderdale in the near future.

Another significant advantage of operating out of Fort Lauderdale vis-a-vis Miami, which also serves as a base to expand to the Caribbean and Latin American destinations, is that the cost of operating out of Fort Lauderdale is nearly one-fourth that of Miami. Currently, JetBlue operates around 50 flights a day out of Fort Lauderdale and sees potential to raise this to 100 flights a day.

Disclosure: No positions.

Source: JetBlue's Growth Takes Flight With Capacity Expansion