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Has JetBlue’s Unit Revenue Trend Changed for Good?

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Utilizations

Since JetBlue Airways’ (JBLU) traffic growth has been higher than its capacity growth, utilizations improved in November 2016. Its utilization rose 1.5 percentage points to 85.4% for November. That’s the sixth consecutive month of improvement for JBLU, a track record that beats all major airlines.

Those figures are in contrast to Spirit Airlines (SAVE) and American Airlines (AAL), which reported falls in November’s load factor. On the other hand, Delta Air Lines (DAL), Southwest Airlines (LUV), United Continental (UAL), and Alaska Air (ALK) have seen improvements in their utilizations for November.

Load factor is the most commonly used measure of an airline’s capacity utilization. It’s calculated as revenue passenger miles divided by available seat miles. A higher load factor indicates better utilization of aircraft capacity.

Year-to-date in November 2016, there was a slight growth of 0.30 percentage points in utilization to 85.2%.

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Unit revenues continue to fall

JetBlue Airways was the only player to report unit revenue improvements through the first three quarters of 2015. However, rising competition and declining airfares pressured yields in 4Q15, causing unit revenues to fall. Unit revenues have continued to fall since then, disappointing investor expectations.

For November 2016, there was no change in JBLU’s revenue per available seat mile (or RASM), commonly known as unit revenues.

Outlook

JetBlue Airways had earlier expected RASM improvement in the fourth quarter of 2016. However, as yields continue to fall, JBLU now expects 4Q16 RASM to fall 1.0%–2.0% YoY. That’s better than the earlier guidance of a 2.5%–3.0% fall and includes the one percentage point positive impact the airline expects in December from the co-branded credit card options.

Analysts believe that JBLU has a better chance than other airlines, to revive its unit revenues, given its recently introduced fare options, its cabin refresh project, and its co-branded credit card initiatives. JBLU forms ~0.40% of the iShares Core S&P Mid-Cap (IJH).

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