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Higher traffic and yield support passenger revenue growth

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Passenger revenue drivers

JetBlue Airways Corporation’s passenger revenue growth was primarily supported by higher revenue passenger miles (or RPM). The number of fare paying passengers increased by 6.4%, driving RPM up by ~6% to 10,127 million miles. Capacity, or available seat miles (or ASM), and load factor, or capacity utilization, drive RPM growth for an airline. JetBlue’s capacity increased by 4.5% to 11,752 million and occupancy of seats increased to 86.2% in 3Q14 from 85% in 3Q13.

Passenger revenue is also dependent on the average fare paid per passenger per mile, or yield. JetBlue Airways Corporation (JBLU) reported a 0.9% increase in yield per passenger per mile as average air fare increased to $164.8 in 3Q14 from $164.02 in 3Q13.

Part3_3Q14_Passenger Revenue drivers

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Unit revenue growth

JetBlue’s passenger revenue per available seat miles (or PRASM) increased by 2.4% to 12.03 cents in 3Q14. Delta Air Lines, Inc.’s (DAL) and American Air Lines Group Inc.’s (AAL) unit revenue also increased by 2.4%. But United Continental Holdings Inc.’s (UAL) and Southwest Airlines Co.’s unit revenue grew at a higher rate of 3.9% and 4.9%, respectively. Alaska Air Group, Inc.’s (ALK) unit passenger revenue fell by 1.1%.

Better unit revenue led by higher yield and load factors results in higher profitability. The SPDR S&P Transportation ETF (XTN) and the iShares Transportation Average ETF (IYT), with portfolios made up of 35% to 40% airline stock, have been providing good returns to investors.

JetBlue’s operations are primarily concentrated within the US and in the Caribbean and Latin America. According to management, unit revenue growth was stronger in the domestic markets. Capacity expansion by JetBlue and its competitors in the Caribbean and Latin American regions has impacted yield. While JetBlue increased capacity in these regions by 17% year-over-year, its competitors have also contributed to capacity growth in the neighborhood of 7%.

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