JetBlue Airways Lowers 3Q17 Guidance
For 3Q17, JetBlue is expecting unit costs (also known as cost per available seat mile or CASM-ex) to rise in the range of 1.5% to 3.5%. However, now full-year unit cost is expected to increase in the range of 2.0% to 3.5%, which is higher than the earlier estimated range of 1.5% to 3.5%.
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Hurricane Irma, which hit the Caribbean and Southeast regions, led to flight cancellations, which could affect JBLU’s performance for the quarter. However, the airline hasn’t yet stated the exact impact.
However, for investors, the biggest worry of all is falling airfare. Airlines, as usual, seem to have added more seats, which led to price wars in 3Q17. As a result, most airlines have reduced their RASM guidance.
The fact that JetBlue’s load factor has fallen for the third straight quarter means that it has either set airfares too high or that it had more seats than demand. In either case, airlines have historically resorted to fare discounting, which has the potential to further dent unit revenues and thus airlines’ profitability.
As a result, JBLU expects unit revenues to fall in the third quarter. According to its recent guidance, unit revenue growth is expected to be in the -1% to 1% range. Earlier, the company expected unit revenue to be in the -0.5% to 2.5% range. The guidance doesn’t include the impact of Hurricane Irma.
Investors can gain exposure to JetBlue by investing in the PowerShares Dynamic Leisure and Entertainment Portfolio (PEJ), which invests ~2.7% of its holding in the stock. It also holds 5% each in Delta Air Lines (DAL) and United Continental (UAL), but doesn’t have any holdings in American Airlines (AAL).