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Why Is JetBlue Airways’s Stock Seeing Negative Momentum?

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Negative returns in 2016

JetBlue Airways (JBLU) was the only airline stock to have gained more than 50% during 2015, when the stock soared as high as ~65%.

However, the trend has changed drastically in 2016. Year-to-date (or YTD) through July 19, 2016, JetBlue Airways’s stock is one of the biggest losers, dropping by almost 20.5%. This is higher than only Alaska Air Group, which has lost almost 21.5% YTD.

The other airline stocks have also been on a losing streak. YTD, Delta Air Lines (DAL) has lost 17%, followed by Allegiant Travel (ALGT), which lost 16%. American Airlines (AAL) and United Continental (UAL) have lost 13% each, and Southwest Airlines (LUV) has lost 1.4%. Spirit Airlines (SAVE) is the only airline to have gained in 2016, rising by 9% YTD.

The airline industry, tracked by the Dow Jones US Airline Index (DJUSAR), has lost ~15% year-to-date. The broader market index, which is tracked by the SPDR S&P 500 ETF (SPY), has gained 5% in the same timeframe.

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Expectations of unit revenues dampened

In 2016, when the unit revenues across the industry were falling due to pricing pressures and forex headwinds, JetBlue posted year-over-year growth of 0.7% in its PRASM (passenger revenue per available seat mile) for fiscal 2016.

The company derives 100% of its revenues from the US market. It was hoped that this route structure would help JetBlue avoid foreign currency headwinds experienced by its competitors, allowing it to improve its unit revenues.

However, as yields declined with decreasing airfares and utilization, JetBlue’s unit revenues have taken a U-turn since 3Q15. For 1Q16, its PRASM fell by 8% year-over-year. The company’s stock price has also reflected this change.

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