Why increasing costs are affecting JetBlue’s margin
Overview of JetBlue’s operations
JetBlue Airways’ (JBLU) operating revenue has increased at a four-year compound annual growth rate of 13.4%. But, its operating margin decreased to 7.9% in 2013 from 8.7% in 2009 since operating expenses have been growing at a higher rate. The operating margin in 2011 decreased from 8.8% in 2010 to 7.1% primarily due to a rise in fuel prices. JetBlue’s fuel costs per available seat mile increased by 39% to 4.47 cents. JetBlue’s (JBLU) operating margin in 2013 was higher than Southwest’s (LUV) 7.2%, United’s (UAL) 3.3%, and American’s (AAL) 5.2% but lower than Delta’s (DAL) 9% in 2013.
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But, due to a decrease in interest and other non-operating expenses, net income has increased. This increase in net income has improved the net margin to 3.1% in 2013 from 1.9% in 2009. Earnings per share also increased since 2012, from $0.40 to $0.52. As seen in the table above, compared to 2012, JetBlue has improved in all areas except operating expenses, which has increased by 8.8% and also increased the operating expense per available seat mile to 11.71 cents in 2013 from 11.49 cents in 2012.
In order to cut down on costs, JetBlue plans to use Sharklets in all Airbus aircrafts starting in 2015 to improve fuel efficiency. Sharklets are blended wingtip devices used to improve an aircraft’s aerodynamics and reduce fuel use. JetBlue also altered its fleet purchase plan to include more fuel-efficient A321s. But, in 2014, the company expects its cost per available seat miles to increase by 1% to 3%, assuming a net fuel price of $3.06 per gallon primarily due to increases in salary, wages, and benefits.