JetBlue’s: Can Investors Expect Improved Revenue in 4Q16?

For 3Q16, JetBlue Airways’ (JBLU) revenues stood at $1.73 billion—a 2.6% year-over-year increase compared to revenue of $1.69 billion in 3Q15. Passenger revenues rose 1.3% in 3Q16 while ancillary revenues rose 17.9%.

For the nine months ending September 2016, revenues rose 3.5%, led by 1.8% growth in passenger revenue and 24% growth in ancillary revenue.

Unit revenue measures passenger revenue earned per available seat mile.

JetBlue Airways revenue per available seat mile or RASM, commonly known as “unit revenue,” fell 3.5% to 12.55 cents. This fall is a marked improvement compared to the 8.2% decline to 12.09 cents in 2Q16. However, this improvement was already expected. Given improved leisure travel and gains from the improved Mint service in Colombia, Boston, and other transcontinental routes, JetBlue had estimated that unit revenues would fall 3%–4%.

The decline in unit revenue was due to a 6% decline in average airfare for 3Q16 to $157.9. This decline led to yields falling 5.9% to 13.2 cents. Unit revenues for the other carriers—like Delta Air Lines (DAL), United Continental (UAL), American Airlines (AAL), and Alaska Air (ALK)—also continued to fall in 3Q16. JBLU forms ~0.8% of the iShares S&P Mid-Cap 400 Growth ETF (IJK).

What disappointed investors was JetBlue’s new commentary on unit revenue performance in the fourth quarter of 2016. JetBlue expects unit revenues to fall 3% in 4Q16 due to Christmas being on a Sunday, impacting holiday travel, as well as the impact from Hurricane Matthew. Unit revenues for October are expected to fall 3.5%–4%, including the hurricane impact. Investors, on the other hand, were expecting unit revenues to improve or remain flat based on JetBlue’s upbeat 3Q16 performance.