JetBlue looks to spread wings this year as traffic rebounds. Is the stock a buy?

JetBlue Airways Corporation (NASDAQ: JBLU) has carved a niche for itself in the aviation space with affordable fares and operational efficiency that made it the preferred airline for many budget travelers. For the company, 2023 could be a turnaround year as it looks to return to sustainable profitability, leveraging the ongoing recovery in passenger traffic.

The Stock

JetBlue’s stock made a short-lived recovery after suffering a big loss in the early days of the pandemic, but it retreated and languished in the single-digit territory for most of last year. Though investor sentiment improved since the last earnings report amid positive cues on long-term profitability, JBLU has a long way to go before creating meaningful shareholder value.

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Read management/analysts’ comments on JetBlue’s Q3 2022 earnings

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The aviation industry got a much-need boost last year as passenger traffic increased steadily after the withdrawal of COVID-related travel curbs. For JetBlue shareholders, however, it’s time to remain patient and see how things shape up this year. It is not a good idea to sell the stock at such low prices. When it comes to buying, uncertainties at the operational and macro levels make the stock a risky bet. Experts warn that JBLU might stay near the current levels through year-end.

Flying High

JetBlue is probably the most popular low-cost airline in America, but it provides passengers with good facilities and operates a relatively young aircraft fleet. The next two years would be crucial for the company considering the management’s initiatives to grow in scale, including the upcoming acquisition of Spirit Airlines. The $3.8-billion deal would make the company the fifth-largest airline while allowing it to enhance its competitive position. Also, plans are afoot to further expand the alliance with American Airlines.

Meanwhile, it would be a challenging task for the company to improve margins, given the elevated operating costs led by record-high fuel prices. Efforts are on to tackle the unfavorable cost environment through the management’s structural cost program that envisages driving $250 million of cost savings by 2024.

Financials

Analysts estimate that JetBlue turned to a profit of $0.21 per share in the quarter that ended December 2022, reflecting the improvement in operating conditions from the year-ago quarter when the company incurred a loss. Fourth-quarter earnings benefitted from an estimated 31% growth in revenues to $2.41 billion. The report is slated for release on January 26. In the third quarter, the company registered its first profit in about three years – after being hit by the COIVD-induced travel slump. Revenues jumped to $2.5 billion year-over-year, resulting in an adjusted profit of $0.21 per share.

From JetBlue’s Q3 2022 earnings call:

“We’ve made excellent strides on hiring, and we’re now at a point where we believe we are appropriately resourced from a staffing perspective, which in turn should translate to improved productivity. Looking ahead, we expect our momentum to continue through another solid quarter of mid-single-digit pretax margins in the fourth quarter. We’ll look to build margins further in 2023 as we continue to restore our pre-pandemic earnings power. We continue to see a very healthy revenue environment with no signs of slowing demand for air travel.”

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JBLU’s performance has been encouraging this year, making small but steady gains so far. At $8.70, on Monday the stock traded close to where it stood six months ago.