JetBlue Beats on Record Revenue

| About: JetBlue Airways (JBLU)
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JetBlue Airways Corporation (JBLU), one of the discounted airlines, reported its third quarter adjusted earnings of 18 cents per share surpassing the Zacks Consensus Estimate by a penny as well as the year-ago quarter’s earnings of 5 cents. The better-than-expected earnings were driven by higher fares, revenue maximization, cost control and network optimization.

Net income quadrupled in the reported quarter to $59 million from $15 million in the year-ago quarter. Total revenue climbed 20.5% year over year to a record $1 billion, primarily due to an increase in airline traffic, measured in revenue passenger miles (RPM). In the reported quarter, RPM increased 9.6% year over year on an 8.5% increase in capacity. Load factor (percentage of seats filled with passengers) rose 90 basis points year over year to 84.6%.

Yield per passenger mile leaped 11.4% compared with the year-ago quarter. On an annualized basis, passenger revenue per available seat mile (PRASM) grew 12.5% and operating revenue per available seat mile (RASM) improved 11.1%.

Total operating expenses increased 12.9% year over year. JetBlue’s operating unit cost or cost per available seat mile (CASM) upped 4.1% year over year. Excluding fuel, CASM rose 3.4% from the year-ago quarter.

Operating income in the reported quarter was $140 million compared with $66 million in the year-ago quarter. Operating margin rose 590 bps year over year to 13.6%.

JetBlue ended the quarter with unrestricted cash and short-term investments of $1 billion.

For the fourth quarter of 2010, the company expects PRASM and RASM to increase 12%–15% and 10%–13% year over year, respectively. JetBlue expects CASM – and CASM excluding fuel – to increase 7%–9% and 2%–4%, respectively, from the year-ago quarter. Capacity is expected to increase 8%–10% year over year.

For full-year 2010, JetBlue expects PRASM and RASM to increase 9%–12% and 7%–10%, respectively, year over year. Moreover, CASM – and CASM excluding fuel – are expected to increase 7%–9% and 5%–7%, respectively, from the year-ago quarter. Capacity is expected to increase 6%–8% in 2010.

Our Analysis
We believe JetBlue has one of the strongest liquidity positions in the U.S. airline industry. The company’s growing presence inthe Caribbean and Latin America, leading position in the Boston market, and unique position as the largest domestic carrier at the John F. Kennedy International Airport allow it to grow and boost its top line in the future. However, fuel price volatility, higher dependence on New York metropolitan market, competitive pressures and automated technology keep us on the sidelines. Further, the company does not pay any dividend to its shareholders.

We are currently maintaining our Neutral rating for the long term. The company carries a Zacks #3 Rank (Hold) for the short term.