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Revenue Growth, Lower Costs to Drive JetBlue’s Q4 Earnings Higher

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Fourth-quarter expectations

JetBlue Airways (JBLU) is scheduled to report its fourth-quarter earnings results on January 24. Analysts expect the company’s fourth-quarter adjusted EPS to rise more than 31% YoY (year-over-year) to $0.42 on higher revenue, improved pricing, and lower costs. However, analysts expect increased fuel costs to partially offset the above-mentioned benefits.

JetBlue’s revenue in the coming quarter is expected to rise 11.8% YoY to $1.96 billion mainly driven by a robust travel demand environment, better pricing, and higher baggage and other fees. On January 11, the company also raised its fourth-quarter outlook for its key revenue metric, RASM (revenue per available seat mile). JetBlue now expects its RASM to rise 2.4% YoY instead of in its previous guidance range of 1.5%–3.5%.

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The company’s cost-cutting and route realignment initiatives are likely to reduce its ex-fuel expenses in the quarter. It expects a decline in the range of 1.5%–3.5% in its fourth-quarter ex-fuel CASM (cost per available seat mile) expenses, which should have a favorable impact on its bottom line results.

Furthermore, a lower tax rate due to the enactment of the Tax Cuts and Jobs Act is expected to further aid JetBlue’s fourth-quarter bottom line results. Analysts expect the company’s effective tax rate to come down to 25.7% in the fourth quarter from 40% in the previous year’s quarter.

Although fuel prices cooled in the fourth quarter, they remained much higher than in the same quarter of the previous year. For the fourth quarter, JetBlue expects its fuel cost per gallon to be $2.48, 31.2% higher than its level of $1.89 in the same quarter last year. Heightened fuel expenses should partially offset the benefit of higher revenues and lower costs.

Projections for 2018

Analysts expect JetBlue’s adjusted EPS for 2018 to fall 11.7% YoY to $1.51 mainly due to heightened fuel costs. However, analysts expect the company’s 2018 revenue to rise 9.1% YoY to $7.65 billion.

Furthermore, JetBlue’s full-year earnings projections are disappointing compared to those of its top competitors, which have recently reported their results. Delta Air Lines (DAL) and United Continental (UAL) reported their 2018 earnings results on January 15, wherein their respective adjusted EPS rose 19% and 35%, respectively, YoY. Other major US air carriers (IYT) Spirit Airlines (SAVE) and Southwest Airlines (LUV) are likely to witness YoY increases of 32% and 19%, respectively, in their 2018 adjusted EPS.

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