JetBlue: Double-Digit Upside As Takeover Prospects Highlight Undervaluation
In our last article, we turned investor's attention to the European airline industry, arguing that despite investors' focus on drama in the domestic airline industry, there was opportunity to be realized overseas, specifically in shares of Deutsche Lufthansa (OTCQX:DLAKY). But now, we would like to turn investor attention back to the domestic airline industry, where one of the nation's smaller players has become the subject of increased scrutiny: JetBlue Airways (NASDAQ:JBLU). As the industry continues to debate the potential outcome of the US Airways (LCC)-American Airlines (AAMRQ.PK) merger, speculation has increased regarding the fate of JetBlue, which has remained independent throughout the industry's multi-year consolidation. In our view, however, investors will ultimately realize meaningful upside in JetBlue either via a takeover of the airline, or on a standalone basis, for on a price-to-book basis, JetBlue is highly undervalued to both legacy and non-legacy airlines (although JetBlue's balance sheet is not as strong as that of several of its peers, such as Alaska Air Group (ALK) or Southwest (LUV), we will show that the company's liabilities are due at a stable and measured pace). This, combined with JetBlue's fundamental growth opportunities, will, in our view, lead to sustained returns for shareholders in both 2013 and beyond, with double digit upside potential possible under a range of scenarios, which we will detail below. Unless otherwise noted, financial statistics and managerial commentary will be sourced from JetBlue's latest 10-Q, its Q2 2013 earnings release, or its Q2 2013 earnings call.
Merger Fallout: Will JetBlue Deliver Green for Investors?
With the Department of Justice set on blocking the merger between US Airways and American Airlines, speculation has turned to American's alternatives should the merger indeed collapse. The merger with US Airways formed the core of American's bankruptcy exit, and should it fail, the company will be forced to turn to another alternative, such as emerging as a standalone company, with new equity issued to the company's existing creditors. Airline equities have fallen persistently since the merger lawsuit was disclosed, primarily due to fears that an independent American will be forced to grow capacity in an effort to compete with United (UAL) and Delta (DAL). And as most airline investors know, unbridled capacity growth is one of the key risks of investing in the airline sector. We, however, believe that even if American emerges from bankruptcy as a standalone airline, that capacity, while possibly increasing, will not grow at an unbridled rate. History has shown that such capacity growth benefits no one, including the airline that is growing capacity. The addition of multiple new routes, particularly in the eastern United States, where American's route network is weakest, may help grow American's revenue, but it will likely do little for its bottom line, and possibly weaken standalone results. American's current creditors, who would likely be repaid with newly issued AMR equity (assuming that there is no name change to a standalone American) must surely realize that large-scale capacity growth may not boost profits to acceptable levels. But, rather than expanding its own network, particularly in the eastern United States, American could potentially acquire it.
On August 16, Raymond James issued a new note on JetBlue, in which the firm upgraded the airline on the possibility that the company might end up being an acquisition target for an independent, post-bankruptcy American Airlines. As an examination of JetBlue's route-map shows, the airline's route network is concentrated in the eastern United States, with a particular focus on both New York and Boston. Although JetBlue maintains only 5% of intra-East Coast system capacity (as of the end of Q1 2013, using the latest data provided by JetBlue), the company holds 35% system capacity in Florida, and 29% capacity in Latin America & the Caribbean, as well as 24% trans-continental system capacity, something that may help American address it eastern presence far more effectively than counterproductive capacity growth ever could. As a standalone entity, American's balance sheet will be in a far better position to undertake a takeover of JetBlue, and in our view, investors should not discount the possibility of such an acquisition. However, a takeover by American Airlines is not the only possibility that investors should consider.
We would like to now introduce the possibility of a takeover of JetBlue not by American Airlines, but US Airways. Although there has not been speculation to suggest that such a deal is under consideration, we do not believe that such an outcome is outside the realm of possibility. The reason? US Airways CEO Doug Parker has never shied away from airline deal-making, and JetBlue's extensive list of airline partnerships (which now total 25) could offer US Airways a convenient solution to its own airline alliance issues. JetBlue's latest partnership is an interline agreement with British Airways, announced on August 15. The British Airways agreement connects the networks of JetBlue and British Airways on 18 trans-Atlantic routes, 50 JetBlue routes (both here in the United States and abroad), as well as over 100 non-London British Airways routes. US Airways, which is a member of the Star Alliance, has long played 2nd fiddle to United within the world's largest airline alliance, and is the only domestic legacy carrier to not lead one of the three global airline alliances (Delta at SkyTeam, American at Oneworld, and United at Star Alliance). The merger with American was, among other things, set to position the new combined American Airlines as the leader of a revitalized Oneworld. However, should the merger be blocked, US Airways would end up with its current position in the Star Alliance, and a CEO who has long believed in growing via acquisition. JetBlue, which has partnerships in place with many of leading airlines in each global airline alliance, would allow US Airways to gain partnerships with each airline alliance, positioning itself as an independent carrier, not one held back from prominence by United's heft.
JetBlue Airline Partnerships
Airline | Alliance | Flag Carrier? |
Aer Lingus | N/A | |
Air China | Star Alliance | |
American Airlines | Oneworld | N/A |
Asiana Airlines | Star Alliance | N/A |
British Airways | Oneworld | |
Cape Air | N/A | N/A |
Cathay Pacific | Oneworld | |
El Al Israel | N/A | |
Emirates | N/A | |
Etihad | N/A | |
Hawaiian Airlines | N/A | N/A |
Icelandair | N/A | |
Japan Airlines | Oneworld | |
Jet Airways | N/A | N/A |
Korean Air | SkyTeam | |
Lan Airlines | Oneworld | |
Lot Polish Airlines | Star Alliance | |
Lufthansa | Star Alliance | |
Qatar Airways | Oneworld* | Qatar |
Royal Air Maroc | N/A | |
Singapore Airlines | Star Alliance | |
South African Airways | Star Alliance | |
TAM Airlines | Oneworld** | N/A |
Turkish Airlines | Star Alliance | |
Virgin Atlantic | N/A | N/A |
*Qatar Airways has stated that it plans to complete its entrance into Oneworld by October 2013
** TAM will be exiting the Star Alliance by the end of Q2 2014 to join Lan Airlines in the Oneworld alliance
JetBlue's extensive list of partners includes leading international airlines in Oneworld and Star Alliance, as well as partnerships with three of the leading Persian Gulf airlines, which have historically eschewed large-scale deals. For example, Emirates currently has only two partnerships with American airlines: one is with JetBlue, and the other with Alaska Airlines. When the TAM's switch to Oneworld is accounted for, JetBlue has partnerships with seven of the Star Alliance's 27 member airlines, and seven of Oneworld's 14 member airlines (inclusive of Qatar Airways). And the partnerships JetBlue has inked are not with weaker members of these two alliances, but with leading members such as Cathay Pacific, Lufthansa, Singapore Airlines, and British Airways. These memberships, combined with JetBlue's domestic network, give its passengers a range of international travel options comparable to that of any of the three global alliances. And should these be combined with US Airways' own domestic and international networks, US Airways would no longer be in the shadow of United, but could position itself as the leading "independent" airline in the United States, one that hold elusive partnerships with three leading Persian Gulf airlines. Although JetBlue's partnerships with these 25 carriers are not traditional alliance partnerships (ones that include reciprocal benefits, such as free checked bags, lounge access, etc.), there is precedent for such deals. The most notable are the bilateral agreements struck between Alaska Airlines and Delta and American. Backed by the larger size of US Airways, a combined company may be in a materially superior bargaining position to negotiate deeper relationships with its partner airlines, ones that would offer more value to the combined airlines frequent flyer program members. In our view, we believe that should the merger between American Airlines and US Airways indeed fail, JetBlue will become a likely acquisition target, most likely for American Airlines, but perhaps US Airways as well. And should the merger indeed go through, it is likely that US Airways and American will need to offer more meaningful concessions, namely in the form of slot divestitures at Reagan National Airport. On a pro forma basis, the new American would control 67% of the total available slots at Reagan (US Airways itself controls 55% of total slots, and American controls 12%), with the 2nd largest carrier (Delta) controlling only 11%. The Department of Justice will likely demand significant divestitures to acquiesce to the merger, and JetBlue, with just 5% of total slots, could stand to benefit. The airline has already publicly stated that it wants the Department of Justice to force a divestiture, and the Department of Justice's newly combative stance towards the American-US Airways merger suggests that this will indeed be the case. JetBlue will likely face just two competitors in the race for more slots at Reagan National: Delta and Southwest (holding 12% and 4% of current slots). Although United holds 8% of current slots at Reagan National, the airline is unlikely to be interested in significantly increasing its presence there, given the hub status of Dulles International.
The prospects of a takeover of JetBlue are likely to rise should the merger between American Airlines and US Airways fall through, given the airline's eastern network (attractive to American), as well as its roster of airline partnerships (which may tempt US Airways by allowing it to position itself as the United States' leading independent carrier). However, we do not believe in investing in a company simply on the basis of takeover speculation. There must be an underlying thesis to support an investment. And with JetBlue, the thesis lies in both the company's valuation and its standalone prospects. Below we will address both of these categories, starting with JetBlue's valuation (as well as its financial profile)
Valuation & Financials: An Unwarranted Discount
An examination of the domestic airline industry shows that on a price-to-book basis, JetBlue trades far below both its legacy airline peers (United, Delta, and US Airways), non-legacy peers such as Hawaiian Holdings (HA) or Southwest, and low-cost peers such as Spirit (SAVE).
Domestic Airline Industry Price-to-Book Valuation (in Thousands of $)
Legacy Carriers
Closing Price (8/20/13) | $15.80 | $19.19 | $30.06 |
Shares Outstanding | 192,016,784 | 857,950,580 | 355,903,723 |
Stockholder's Equity | $1,254,000 | ($1,184,000) | $1,217,000 |
Book Value per Share | $6.53 | ($1.38) | $3.42 |
Price-to-Book | 2.42x | -13.91x | 8.79x |
Non-Legacy Carriers
Closing Price (8/20/13) | $6.26 | $58.44 | $7.24 | $13.15 |
Shares Outstanding | 282,326,947 | 69,869,825 | 52,134,740 | 706,213,905 |
Stockholder's Equity | $1,932,000 | $1,543,000 | $274,703 | $6,781,000 |
Book Value per Share | $6.84 | $22.08 | $5.27 | $9.60 |
Price-to-Book | 0.92x | 2.65x | 1.37x | 1.37x |
Low-Cost & Regional Carriers
Closing Price (8/20/13) | $30.72 | $95.08 | $13.00 | $11.93 |
Shares Outstanding | 72,620,546 | 18,872,360 | 52,026,668 | 49,334,176 |
Stockholder's Equity | $658,438 | $432,304 | $1,411,223 | $543,500 |
Book Value per Share | $9.07 | $22.91 | $27.12 | $11.02 |
Price-to-Book | 3.39x | 4.15x | 0.48x | 1.08x |
As the analysis above shows, JetBlue has the domestic airline industry's 2nd lowest price-to-book multiple, ahead of only SkyWest (SKYW), and trades at a sizeable discount to each of the three segments of the domestic airline industry.
JetBlue Valuation Discount
JetBlue | Legacy Carriers* | Non-Legacy Carriers | Low-Cost & Regional Carriers | Domestic Airline Industry | SPDR S&P 500** | SPDR S&P 600** | |
Average Price-to-Book | 0.92x | 5.61x | 1.58x | 2.28x | 2.66x | ||
Share Price at Multiple | $6.26 | $38.37 | $10.80 | $15.59 | $18.19 | $16.14 | $14.09 |
Implied Upside | N/A | +512.94% | +72.52% | +149.04% | +190.58% | +157.83% | +125.08% |
*Excludes Delta, which currently has negative stockholder's equity
** As of the close of trading on August 20, 2013
Were JetBlue to simply trade at a price-to-book multiple in-line with its non-legacy peers, the company's share price would need to rise by over 70% to do so. JetBlue trades at a sizeable discount to the each segment of the domestic airline industry, the industry as a whole, and both the S&P 500 and S&P 600 (for those that ascribe value to sell-side price targets, JetBlue is trading 20.61% below its consensus price target of $7.55). Now comes the inevitable question of why JetBlue trades at such a sizeable discount to its peers. In our view, the reason lies in an incorrect view of JetBlue's balance sheet, which on the surface, is weaker than most of its peers, particularly in the non-legacy segment, where both Alaska Air and Southwest hold net cash balances. However, we believe that over the course of 2013 and 2014, perceptions of JetBlue's balance sheet will change as the company continues its deleveraging, which has been a multi-year process.
Domestic Airline Industry Debt-to-Equity (in Thousands of $)
Airline | Debt | Net Cash | Stockholder's Equity | Debt-to-Equity | Net Debt-to-Equity |
$5,851,000 | ($2,229,000) | $1,254,000 | 466.59% | 177.75% | |
$12,221,000 | ($8,298,000) | ($1,184,000) | N/A | N/A | |
$11,966,000 | ($6,002,000) | $1,217,000 | 983.24% | 493.18% | |
Legacy Carrier Average | 724.92% | 335.47% | |||
$2,820,000 | ($1,877,000) | $1,932,000 | 145.96% | 97.15% | |
$924,000 | $505,000 | $1,543,000 | 59.88% | 0% | |
$769,934 | ($292,346) | $274,703 | 280.28% | 106.42% | |
$2,934,000 | $459,000 | $6,781,000 | 43.27% | 0% | |
Non-Legacy Carrier Average | 132.35% | 50.89% | |||
$0 | $0 | $658,438 | 0% | 0% | |
$145,113 | $246,170 | $432,304 | 33.57% | 0% | |
$1,556,050 | ($909,988) | $1,411,223 | 110.26% | 64.48% | |
$1,982,000 | $1,743,200 | $543,500 | 364.67% | 320.74% | |
Low-Cost & Regional Average | 127.13% | 96.31% | |||
Industry Average | 226.16% | 114.52% |
JetBlue's balance sheet, while not the strongest in the domestic airline industry, is certainly not the weakest, at least when measured by both debt-to-equity and net debt-to-equity. On both metrics, JetBlue's leverage is below the overall industry average, and yet the company's price-to-book multiple is still well below that of the overall industry. And CFO Mark Powers has explicitly stated that JetBlue intends to use future operating cash flow to further deleverage its balance sheet. We note that since 2008, JetBlue's net debt-EBITDAR has fallen from 7.8x to 4.0x in 2012, despite a 30% increase in the size of JetBlue's fleet, as the company has prudently balanced its approach to deploying capital between investing in its business and strengthening its balance sheet.
JetBlue holds a total of 16 unencumbered aircraft on its balance sheet, consisting of 15 Airbus A320s and one Embraer E-190, representing 13.11% of JetBlue's total owned aircraft (with an average age of 6.9 years, JetBlue's fleet is the youngest in the United States). An analysis of JetBlue's total liabilities (inclusive of non-financial debt liabilities) shows that the company's contractual liabilities are spread out at a manageable rate through 2017.
JetBlue Liabilities, 2013-2018 (in Millions of $)
2013 | 2014 | 2015 | 206 | 2017 | |
Debt & Capital Leases | $310 | $683 | $354 | $539 | $249 |
Other Leases | $96 | $195 | $765 | $128 | $116 |
Equipment Purchase Obligations | $185 | $525 | $745 | $765 | $575 |
Financing Obligations | $437 | $502 | $462 | $402 | $376 |
Total | $1,028 | $1,905 | $1,754 | $1,834 | $1,316 |
JetBlue's total contractual liabilities do not exceed $2 billion in any year through the end of 2017, and the company ended Q2 2013 with $943 million in cash & investments (and $550 million in undrawn credit lines), giving JetBlue a solid foundation off of which to continue investing in both its business as well as trimming its overall debt load further. Consensus forecasts (based on data from Thomson Reuters) project that JetBlue's debt-to-EBITDA will fall to 2.62x by the end of 2015, down from 4.21x at the end of 2012, as JetBlue's continued long-term growth in both revenue and earnings fortify the company's balance sheet.
In our view, our analysis of JetBlue's financial position, as well as that of the overall United States airline industry has shown that JetBlue's deep price-to-book discount to the sector is unwarranted. The company's balance sheet is not as weak as it appears, and we believe that as JetBlue shows that its ability to deleverage further is fully intact, investors will be rewarded as the valuation gap with its peers is closed. However, valuation is but one of the reasons for what we see as meaningful upside in shares of JetBlue. The company's fundamental position is sound, and as cost pressures ease in the 2nd half of the year, we expect an improvement in sentiment.
Fundamental Position: An Improving 2nd Half
In Q2 2013, JetBlue's total revenues grew by 4.5%, but an increase in operating expenses (up 7.5% on a consolidated basis) pushed the company's overall profit margin down to 7.6%, versus 10.2% a year ago, as maintenance costs rose by 30.6% to $111 million. This surge in costs is tied to a strategic decision by JetBlue's executives to accelerate engine restoration on the company's Embraer E-190 fleet, which has begun to see "peripheral issues." The General Electric (GE) engines that power the E-190 fleet began experiencing problems in 2012, and given that the E-190 accounts for 59 of JetBlue's 186 planes, the company decided to act proactively. However, the widespread nature of these problems suggested that these engine issues were not isolated incidents, but rather possibly a design flaw. To that end, JetBlue and GE inked a new maintenance agreement in June to shift more of overall E-190 engine maintenance costs to GE, and with this agreement now in effect, we believe that maintenance costs are likely to decline in the 2nd half.
During Q2 2013, JetBlue's available seat miles rose by 7.8% as the company moved to expand its network, and with only a 7.3% increase in revenue passenger miles, load factor dipped to 84.9%, down 40 basis points from a year ago. Pro forma operating expenses per available seat mile (excluding fuel and profit sharing) rose by 3.3% year-over-year, driven in large part by maintenance costs. There was also yield softness during Q2 2013, with yields falling 2.8% to 13.4 cents. But, some of the softness seen in Q2 was due to a shift in the timing of both Easter and Passover, which affects JetBlue more than other carriers due to its concentration in Florida and the Northeast. CEO David Barger noted on the company's earnings call that the shift of these holidays into Q1 2013 reduced Q2 PRASM by 200 basis points. Furthermore, it appears that this softness is temporary, with CFO Mark Powers noting that July yields have recovered strongly. JetBlue released operational results for July in mid-August, with PRASM growing by 7.3% year-over-year on a 6.8% capacity increase, pushing load factor to 87.6% for the month, up 40 basis points versus July 2012. August PRASM is projected to rise 4% year-over-year at the midpoint of guidance Full-year capacity is set to increase by 6.5% at the midpoint of guidance, with costs per seat mile set to rise 3.5% at the midpoint of guidance (versus March guidance of 2% at the midpoint), due primarily to a forecasted reduction in available seat miles, but unchanged (on an absolute basis) operating costs. 66% of the year-over-year increase in operating expenses per seat mile is due to E-190 maintenance cost increases. JetBlue is also planning on continuing its fleet investments, with a total of 8 new planes set to be delivered by the end of the year (3 A320's, 4 A321's, and 1 E-190).
JetBlue is also continuing to optimize its network and product offerings, and we believe that further details on these two fronts in the weeks and months to come will lift sentiment surrounding shares of JetBlue. With 29% of system capacity in Latin America and the Caribbean, JetBlue has emerged as one of the leading carriers to the region, primarily via its Fort Lauderdale hub. The company has identified a total of 18 potential new Latin American markets it could possibly enter in the next several years. JetBlue's Fort Lauderdale presence gives it a meaningful cost advantage in the Latin American market relative to American Airlines, whose Miami hub features an enplanement cost around three times higher than that of Fort Lauderdale, restraining American's ability to compete on cost with JetBlue in this growing market. And the company is also taking steps to create a better experience for its customers. JetBlue has eliminated the expiration of TrueBlue points, in a move designed to increase customer loyalty. To date, only around 33% of JetBlue's customers are members of its frequent flyer program, and internal data shows that the average TrueBlue member generates two-and-a-half times as much annual revenue as the average non-TrueBlue customer. Therefore, with such a low penetration rate, efforts to drive traction within the TrueBlue program offer the potential for material increases in revenue based on average annual customer value. In conjunction with removing its points expiration policy, JetBlue has been taking steps to strengthen its partnerships. In addition to its new agreement with British Airways, the company struck a bilateral codesharing agreement with South African Airways in late July, expanding a partnership that has been in place since 2011. The agreement covers South African Airways flights in both Washington D.C. and New York, and connects JetBlue customers to destinations in South Africa as well as Senegal. And perhaps more importantly, in May, JetBlue inked a new bilateral codesharing agreement with Emirates. As we noted above, JetBlue is one of only a few domestic carriers to hold a partnership with a Persian Gulf carrier, and this agreement, currently under regulatory review, will allow TrueBlue members to earn frequent flyer points for Emirates flights, as well as seamless check-in and baggage transfer.
However, the most notable development at JetBlue has to do with the company's August 5th announcement that it will begin offering premium seating options on its New York-Los Angeles and New York-San Francisco routes, the nation's busiest and most profitable airline routes (due to their heavy concentration of business-related travel), with revenue that is 50% higher than any other airline route in the United States. This initiative goes to the heart of what is perhaps JetBlue's most important long-term challenge: what does the airline stand for? The company's own investor presentations freely show that it is positioned somewhere between low-cost carriers such as Spirit and Southwest and legacy carriers such as American and United. JetBlue, while certainly not a legacy carrier, is not a true low-cost carrier either. With benefits such as one free checked bag, live television in every seat, and free snacks and drinks in coach, JetBlue offers a markedly superior experience to other non-legacy carriers. The pending addition of free in-flight Wi-Fi, powered by ViaSat's (VSAT) Exede platform will only add to JetBlue's customer appeal, with the rollout set to begin in late 2013 and 2014. However, all of this serves to highlight what may be a longer-term dilemma for JetBlue. True low cost carriers are continuing to expand their route offerings, offering inexpensive air travel for passengers that care only about the cost of the ticket, and are willing to tolerate what will otherwise likely be a plain travel experience. And legacy carriers, with their cost structures reshaped through bankruptcy, are re-investing in their service offerings, wooing both business travelers and those who have a desire to pay more for the convenience of a stronger domestic and global route network. Although JetBlue has what is likely an unrivaled track record in customer satisfaction (the company has won the North American J.D. Power & Associates Airline Satisfaction Study for nine consecutive years, including 2013; the airline also topped the low-cost category in 2013 as well) that is no assurance that the company will be able to maintain its track record of customer loyalty. And given that JetBlue is not a true traditional low-cost carrier, its absence from the premium market has left a palpable mark on its financial performance. The Wall Street Journal has shown that most round trip premium cabin fares on the New York-Los Angeles and New York-San Francisco routes are easily above $4,000. JetBlue's round-trip coach fares on these two routes start at under $700. Assuming that JetBlue can translate its low-cost nature to the premium segment, JetBlue will be in a position to undercut traditional legacy carriers and their premium cabins fares. Early reviews for JetBlue's premium offering, while admittedly based on video and screenshots provided by JetBlue, essentially conclude the same thing. They argue that JetBlue's new premium cabin offering is unlikely to match the experience provided by legacy carriers, but concede that the spread in service quality may be made up via lower fares, particularly for small business owners and leisure travelers that desire a premium travel experience. We expect more information on JetBlue's premium initiatives in the 2nd half of the year.
In the 2nd half of 2013, JetBlue is poised for a meaningful return to growth. EPS fell nearly 38% in the first half of the year relative to 2012 as maintenance costs weighed down JetBlue's profitability. But in the 2nd half of the year, JetBlue is poised to double its EPS to $0.28, based on current consensus estimates, with full-year EPS growth coming in at 12.5%. In 2014, however, earnings growth is set to accelerate to over 33%, with EPS rising to $0.60 as JetBlue's cost pressures ease. With revenue growth set to remain steady in 2014 at 7.82% (versus projected growth of 7.79% in 2013), we believe that it is clear that 2014 earnings growth is coming from improving margins.
Conclusions
In our view, there is meaningful double-digit upside embedded within shares of JetBlue at present levels. The airline is trading at material discounts to every sector of the domestic airline industry (as well as the broader United States equity market), despite having a balance sheet that is nowhere near the bottom of the industry in terms of leverage. JetBlue has committed itself to continuing its deleveraging, and as earnings continue to grow in 2013 and 2014, the company will have further capital to fortify its balance sheet with. We believe that as JetBlue demonstrates its commitment to continuing the deleveraging that it has done over the past several years, the company's valuation gap with its peers will close. And as JetBlue returns to growth in the 2nd half of the year, and outlines its plans to further differentiate itself and further increase customer loyalty, via both new products and service offerings, as well as the clearing of its partnership with Emirates and British Airways, sentiment is likely to improve. In addition to all of this, JetBlue is likely to benefit from either outcome of the litigation over the pending merger of American Airlines and US Airways. Should the deal fall apart, the company may become a takeover target for American Airlines, and possibly US Airways if its CEO remains in an acquisitive mood (history has shown that Doug Parker seems to always be in such a mood). And if the merger is completed, JetBlue may stand to benefit from a likely divestiture of slots at Reagan National Airport, offering it the potential to meaningfully improve service to and from the nation's capital. With opportunities for meaningful upside via its relative valuation, its standalone prospects, and its possible emergence as an acquisition target, we believe that shares of JetBlue offer double-digit upside for long-term investors, and that investors should add to or initiate positions at this point in time, particularly if there is a sector-wide pullback on further worries over the outcome of the American Airlines-US Airways merger.
Disclosure: I am long JBLU, OTCQX:DLAKY, GE, SAVE, HA, UAL, DAL, LCC, ALK, VSAT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
This article was written by
Recommended For You
Comments (21)
Travesty? Or was JBLU a bubble stock at $40, when everyone was in love, and the growth rate was double digits every year. Look at bubble stocks today. I follow Tesla and a lot of people are getting in at nosebleed prices. If/When the bubble pops, is it management's fault that the price drops? Tesla founder Elon Musk has publicly stated that he thinks the price is too high. Will shareholders hold management accountable for the bubble? I think not. Is Tesla worth something.. yes for sure but even it will hit the competitive wall at some point.
As for the sale of the JBLU, CEO Barger has publicly stated that he thinks the best value can be extracted by going it alone. Obvoiusly his fiduciary responsibility changes if someone were to make a bona fide offer. As for just putting it up on the sales block, look at the damage that happened to Frontier when they had a problem finding someone to sell to. I think JBLU is worth a lot more than the stock price because of its Slots alone in New York and Washington and eventually Boston, which may be worth as much at the whole company. But it may not realize the full value in an auction environment.
Too many other regional airports are being developed!
Trenton/Princeton with Republic(Frontier), Atlantic City, Wilmington DE, etc... These locations will cut into JetBlue and US airways from Philadelphia!. Thank God!
Anyway I will never invest in this industry, fuel cost are at their peak, planes are astronomically expensive, employees and regulations are enormous and problematic, and on the top you have no pricing power.... I do not like the odds.
Excellent article, I enjoyed reading it.
