Investors in JetBlue Airlines Corp. (JBLU) may need to buckle up and hang on during the first half of the year. Although the company is benefiting from lower fuel prices and cost effective fuel hedging, a major disruption is about to occur to one of the most important runways in its network.
According to the company’s recent 10K:
“In an effort to reduce delays and modernize the airport, the FAA and the Port Authority of New York and New Jersey, or PANYNJ, have been undertaking major construction work at JFK. Their plans include the creation of new taxiways and holding pads, runway widening and rehabilitation, as well as the installation of new ground radar, lighting and other navigation equipment. Most significantly, this project will include the closure and rehabilitation of the most important runway in our network. The JFK runway is scheduled to close from March 1 through June 30, 2010. While we believe the results of this project will ultimately help to alleviate some of the challenges of operating at JFK, our operations may be adversely impacted during the runway closure. In order to help mitigate the impact of this closure, we, and the other major domestic carriers operating at JFK have agreed to reduce flights throughout the closure period.”
The company reported that one of its bigger revenue drivers from October through April is its flights scheduled to Florida. I think the runway closure will have an adverse impact on a portion of these revenues.
The company did indicate that it was making adjustments for the closure, but I still think the stock may lag the first half of the year. I would use this as an opportunity to buy this stock lower --- somewhere in the lower $3s.
Overall, I think the company is well positioned with good cash liquidity and cost effective fuel hedging operations.
I also found this in the 10K:
“December 31, 2009, we had cash and cash equivalents of $896 million, as compared to cash and cash equivalents of $561 million at December 31, 2008. Cash flows provided by operating activities totaled $486 million in 2009 compared to cash flows used in operating activities of $17 million in 2008 and cash flows provided by operating activities of $358 million in 2007. The $503 million increase in cash flows from operations in 2009 compared to 2008 was primarily as a result of a 33% lower price of fuel in 2009 compared to 2008 and the $149 million in collateral we posted for margin calls related to our outstanding fuel hedge and interest rate swap contracts in 2008, most of which was returned to us during 2009.”
So take advantage of the upcoming runway closure to gain a better entry price on JBLU. We put a hold on the stock and a $3.25 price target.
Disclosure: No positions