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Boutique budget airline JetBlue (NASDAQ: JBLU, initial buy at $8.77) last week reported record revenues of $1.69 billion for the three months ended 30 September, up 10.4% over the year ago quarter. Higher operating revenues combined with a tumble in the airlines fuel costs of around a third more than offset increases in other expenses and led to a jump in operating income, which came in at $351 million, compared to $164 million in 3Q14. Likewise, profit doubled, as net income surged from $79 million in 3Q14 to $198 million.
While most of the US airlines reported bumper profits due to lower fuel bills, JetBlue stood out as it increased revenue overall and importantly, its unit revenue, or its passenger revenue per available seat mile (PRASM) held up fairly well, declining just 0.6%. This compared well to a number of other airlines that saw this metric decline by mid-to-high single digit percentages. JetBlue was able to eke out a 0.5% increase in yield per passenger mile in the reported quarter.
JetBlue revenue came in broadly in line with Wall Street’s expectations and net income of $198 million equated to diluted earnings per share of 58 cents, a penny ahead of the average estimate of analysts polled by Thomson Reuters.
The airline bumped up the high end of its range for annual capacity expansion by half a percentage point, to a range of 8.5% to 9.5%, saying “The 0.5% increase to the high end of our full year capacity guidance range is a function of additional Mint service driven by higher utilization of our Mint fleet, and continued better than expected completion factor.”
Mint is the company’s premium seat service, launched over a year ago. The business class like offering has seats that fully recline into beds and has been a solid success for the company to date. It is available on some of the airlines’ longer and/or more popular routes.
Industry capacity needs to be monitored carefully, but in general we continue to like JetBlue for its differentiated ‘budget airline’ offering and strong reputation, attractive route network and expansion opportunities. Low fuel prices are also providing the company with plenty of options to pay down existing debt or buy out leases on aircraft.
JetBlue isn’t the only airline we have across the portfolios. Qantas (ASX, QAN, initial buy $1.31) continues to progressing its transformative program capably and in the UK we like Dart Group (LSE: DTG, initial buy 259p), a holding that caters to the budget market and we believe has appealing medium-term prospects.Ryanair was also recently (FAT UK 605, €12.95) recommended by our UK research team at the beginning of October.
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