Growth of key revenue drivers over the last four years
JetBlue Airways’ (JBLU) operating revenue has increased at a four-year compounded annual growth rate (or CAGR) of 13.4%, driven primarily by the growth in passenger revenue. CAGR is the annual rate of growth at a steady rate over a specified time period. Passenger revenue, which comprises 91% of JetBlue’s total revenue, grew at a four-year CAGR of 14% to $4,971 in 2013.
JetBlue’s revenue passenger miles
Revenue passenger miles (or RPM) and yield are the two driving forces of passenger revenue. RPM is dependent on available seat miles or capacity of an airline and on the demand for a company’s service, which is measured by the load factor—the percentage of total seats occupied.
JetBlue’s RPM has increased, as the airline was able to serve more passengers with an increase in capacity. Also, JetBlue has a high aircraft utilization of 11.9 hours per day, enabled by its point-to-point structure. In 2013, JetBlue’s load factor, 83.7%, was higher than Southwest Airlines’ (LUV), 80.1%, and American Airlines Group’s (AAL), 82.5%. Its load factor was similar to United Continental Holdings’ (UAL) load factor, 83.6%, and Delta Air Lines’ (DAL), 83.8%. Part 7 of this series explains how low-cost carriers are able to increase their aircraft utilization.
The primary component of JetBlue’s other revenue, which increased at a four-year CAGR of 7%, is the fees from reservation changes and charges for excess baggage, separate from revenue made by on-board product sales and mail and cargo transportation.
Outlook for 2014
Based on the latest earnings release, JetBlue’s operating revenue increased by 12% in the second quarter of 2014. This was offset by a 9.8% increase in operating expenses that were driven by a 13% increase in salary, wages, and benefits. Its operating margin increased to 6.4% in the first half of 2014. Its diluted earnings per share increased more than four times from $0.16 in the first half of 2013 to $0.69 in the first half of 2014.
JetBlue expects its full-year cost per available seat mile, excluding fuel and profit sharing, to increase from 2.5% to 4.5%, one point lower than the earlier estimate due to the sale of LiveTV. It has covered 32% of future fuel consumption using hedges and fixed forward price agreements. JetBlue plans to increase capacity from 3% to 5% in the third quarter of 2014 and from 4% to 6% for the full year. In 2014, it also plans to increase return on invested capital to 7%.
Higher aircraft utilization will result in lower fixed costs per unit, as the costs spread across more air trips and passengers and results in lower cost per available seat mile.
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