Three key factors that will work in JetBlue’s (JBLU) favor going forward

Shares of JetBlue Airways Corp. (NASDAQ: JBLU) have gained 37% since the beginning of this year and 97% over the past 12 months. The company reported earnings results for the first quarter of 2021 a day ago that were better than what analysts had predicted.

Although revenues of $733 million dropped 54% compared to 2020 and 61% compared to 2019, it surpassed market estimates while adjusted loss of $1.48 per share was narrower than expected. Here are three factors that could work in the airline’s favor going ahead:

Demand trends

In Q1, revenue passenger miles, or traffic, fell 44% compared to last year and 54% compared to 2019. Capacity, or available seat miles, was down 39% versus 2020 and 41% versus 2019. However, since mid-February, the company has witnessed a healthy pickup in leisure travel.

Bookings are seeing an improvement and JetBlue expects demand will continue to gain traction going into the summer on the back of the ongoing COVID-19 vaccination drive. As demand continues to improve, JetBlue plans to add back capacity as the company aims to capture revenue in the leisure and visiting friends and relatives (VFR) travel markets.

In terms of network, JetBlue is focusing on its stronger regions in order to drive recovery and it has adjusted its routes to serve areas that are seeing more demand than others. The company has also partnered with American Airlines (NASDAQ: AAL) to provide lower fares to its customers.

For the second quarter of 2021, JetBlue expects revenue to decline 30-35% compared to 2019, which would reflect its largest sequential improvement in revenue since the onset of the pandemic. Unit revenue is expected to see a meaningful improvement, helped by rising load factors and higher yields. Capacity is expected to decline around 15% versus 2019 given the strong sequential improvement in demand.

Cash burn and expenses

In March, JetBlue generated positive cash from operations. The company is working on revamping its cost base to deliver better cost per available seat mile (CASM), ex fuel, in 2022 compared to 2019. In Q1, operating expenses declined 43% compared to 2019.

For the second quarter, operating expenses are expected to drop 8% compared to 2019 as the company ramps up capacity to meet demand during the summer. JetBlue plans to reduce its fixed costs by $150-200 million in 2021 compared to 2019. The company’s efforts in reducing costs will help in achieving positive EBITDA and returning to profitability.

Fleet

In Q1, JetBlue took delivery of three A321neos. The company currently has 270 aircraft in its fleet and plans to add six more in Q2, including two A320s, two A321neos and two A321LRs. The company’s first A220 entered into service this week and JetBlue estimates it will provide 30% better cost efficiency per seat than the A190. The company’s next-generation aircraft is expected to reshape its cost structure and improve margins.

Click here to read the full transcript of JetBlue Q1 2021 earnings conference call