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What’s Driving JetBlue Airways?

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What drove revenue growth?

JetBlue Airways’ (JBLU) operating revenue grew 3% and 5% in 2016 and 9M17, respectively. Passenger revenue drove growth along with other revenue. PRASM (passenger revenue per available seat mile) and RASM (revenue per available seat mile) fell in 2016. In 9M17, only PRASM fell slightly.

The average fare decreased during those periods and was more pronounced in 2016. Departures and the average number of operating aircraft increased during the same periods. Average fuel cost per gallon decreased sharply in 2016 before regaining most of it in 9M17.

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What drove EPS growth?

JBLU’s cost of revenue fell 9% in 2016 before rising 17% in 9M17. The increase in 9M17 was due to higher aircraft fuel and related taxes. Gross profit rose 10% in 2016 and remained flat in 9M17. Operating expenses increased 11% and 9% in 2016 and 9M17, respectively. As a result, operating income grew 8% in 2016 and fell 20% in 9M17. Interest expenses decreased during those periods. That translated to 12% and 20% growth in diluted EPS (earnings per share) for 2016 and 9M17, respectively. Share buybacks enhanced the EPS numbers.

Price performance

JetBlue has managed to generate positive free cash flow. It hasn’t paid any dividends yet. The stock fell 1% in 2016 and remained flat in 2017.

Its dividend yield of 0% and PE (price-to-earnings) ratio of 10.2x compare to a sector average dividend yield of 1.4% and a PE ratio of 10.7x. JBLU fell 1% in 2016, remained flat in 2017, and gained 1% YTD (year-to-date).

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Going forward

Last year, JetBlue introduced free Wi-Fi in every seat, additional flights with special facilities for football fans for game day weekends, new paint schemes, service in Atlanta, the expansion of its Mint transcontinental expansion plan, special aircraft for quick and affordable travel up to 1,000 miles, the addition of cities offering non-stop flights, additional flights in popular Boston routes, additional Mexico routes, Havana routes, the creation of online custom-made vacation itineraries, an affordable installment payment system, and special benefits for veterans and military. It also became the official airline of the England Revolution.

ETFs

The First Trust Nasdaq Transportation ETF (FTXR) has a PE ratio of 13.1x and a dividend yield of 1.1%. The First Trust Industrials/Producer Durables AlphaDEX ETF (FXR) has a PE ratio of 20.0x and a dividend yield of 0.5%.

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