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JetBlue’s third-quarter results disappoint analysts

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Company overview

JetBlue Airways Corporation (JBLU), incorporated in Delaware in 1998, is the fifth-largest passenger carrier in the US based on revenue passenger miles. With an average of 800 daily flights, it serves more than 30 million passengers and provides flights to 82 destinations in the US, Caribbean, and Latin America. JetBlue’s operations are concentrated in the domestic market. Only 28% of its revenue is generated from international routes.

The company’s unique selling proposition is to provide high-class services to its customers at an affordable price. JetBlue ranks first among low-cost carriers for the ninth consecutive year in global market research firm J.D. Power’s customer satisfaction survey.

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According to the Bureau of Transportation Statistics, JetBlue has a 5.1% share of domestic revenue per passenger mile. Since the merger of American Airlines Group Inc. (AAL) and US Airways in 2013, JetBlue stands in the fifth position following Delta Air Lines, Inc. (DAL) with a 16.3% share, Southwest Airlines Co. (LUV) with 15.8%, American Airlines Group with 12.6%, US Airways with an 8.4% share, and United Continental Holdings Inc. (UAL) with 5.6%.

Highlights of 3Q14 earnings

  • JetBlue’s operating revenue increased by 6% to $1,529 million, and unit revenue increased by 1.5% year-over-year. Passenger revenue increased by 7%.
  • Unit cost increased by 1.2% to 11.61 cents from 11.47 cents in 3Q13. Fuel cost per gallon in 3Q14 was $3.05, ~3% lower than in 3Q13.
  • Operating profit margin increased only by 0.2% year-over-year to 10.7%, and net margin increased to 5.2% from 4.9% in 3Q13.
  • Debt obligations were reduced by ~9%. Debt as a percentage of capital fell to 49.7% in 3Q14 from 54.8% in fiscal year 2013.
  • Free cash flow was negative due to higher capital expenditures.
  • JetBlue had a fleet of 199 aircraft consisting of 130 Airbus A320s, nine Airbus A321 aircraft, and 60 Embraer 190 aircraft.
  • JetBlue’s share price increased by ~73% from $8.60 at the beginning of the year to $14.9 as of December 2, 2014.

JetBlue stock is held by around 50 exchange-traded funds, or ETFs. Some of the ETFs with more than 1% JetBlue holdings include the SPDR S&P Transportation ETF (XTN), the Guggenheim S&P MidCap 400 Pure Value ETF (RFV), the First Trust Value Line 100 (FVL), the First Trust Mid Cap Value AlphaDEX Fund (FNK), and the iShares Transportation Average ETF (IYT).

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