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JetBlue’s future capacity expansion plans

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Capacity growth in fiscal 2014

JetBlue Airways Corporation’s (JBLU) capacity measured by available seat miles (or ASMs) was 11,752 million, representing year-over-year growth of 4.5%. JetBlue estimates its ASMs will increase by between 5% and 7% year-over-year in 4Q14, and by between 4% and 6% in fiscal year 2014. The company’s projections are based on its additional new aircraft and its expansion into new markets. Capacity expansion is planned primarily in the Latin American and Caribbean regions. In fiscal 2014, 80% of ASMs will be from A320 aircraft, 5% from A321s, and 15% from E190 aircraft.

Part1_3Q14_2015 capacity outlook - Copy

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Guidance for 2015

The company has significant growth targets and has outlined a systematic plan to achieve operational improvements. The plan includes initiatives to enhance revenue growth and cost efficiency, as we’ll see in Part 12.

Management estimates fiscal year 2015 capacity will grow by 6% to 8%, driven by the expansion of Mint services and the expansion at the Fort Lauderdale-Hollywood International Airport. The highest growth of 15% to 17% should occur in the transcontinental region, which will make up 31% of total capacity in fiscal 2015. More details are provided in the table above.

Aircraft capital expenditure is estimated to be $675 million and non-aircraft capital expenditure, $150 million to $200 million. The increase in ASMs is made possible by the purchase of aircraft. Yet airlines expand capacity only when growth in demand is anticipated, as the fixed costs associated with such purchases are very high. If the added capacity is not used effectively, profit margins may take a hit. So efficient capacity use as measured by load factor is important.

Load factors 

In 3Q14, JetBlue’s load factor was 86.2%. This was higher than the load factors of almost all its peers:

  • Delta Air Lines, Inc. (DAL) – 86.4%
  • Southwest Airlines Co. (LUV) – 84.4%
  • American Airlines Group Inc. (AAL) – 83.4%
  • Alaska Air Group, Inc. (ALK) – 86%
  • United Continental Holdings Inc.(UAL) – 85.8%

The SPDR S&P Transportation ETF (XTN) and the iShares Transportation Average ETF (IYT) hold shares in these airline companies.

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