Categories Analysis, Industrials, Trending Stocks

JetBlue poised to overcome short-term challenges

Aviation firm JetBlue Airways (NASDAQ: JBLU) disappointed investors a few weeks ago when it trimmed unit revenue guidance for the third quarter, to reflect the impact of bad weather and the general weakness in demand. As usual, the market reacted quickly and the stock dropped a few points, reversing most of the gains it made when the company provided the initial outlook.

It is one of the moderately priced stocks in the segment and has a history of effectively overcoming market headwinds. The main reason why JetBlue has managed to remain stable while some of its peers struggled is that the airline is not exposed to the ongoing crisis involving Boeing’s 737 Max aircraft.

Fleet Grounding

It is likely that the uncertainty over the grounded Boeing fleet will keep upsetting the schedules of rival airlines in the coming months, which puts JetBlue at a comparatively advantageous position. Moreover, the company has strong fundamentals and its balance sheet is sound.

JetBlu's (JBLU) estimated revenue growth vs. others

The pessimism that followed the recent guidance-cut cannot last long, since the causes cited by the management are temporary in nature. As per the revised outlook, the company expects revenue per available seat mile to be down 2%-flat in the current quarter, compared to the previous view of an increase of up to 3.5%. Latest reports show that traffic to Puerto Rico, where JetBlue sees a drop in demand, is picking up.

Positive Rating

Another factor that makes JetBlue a potential investment option is the recent rating upgrades. A section of analysts believes that the stock is in a comfortable position in relation to its long-term average. Currently, the majority of the analysts recommend hold on the stock. But, the question arises whether the company would be able to cash in on the tailwinds in a year that has not been very good for the aviation industry.

Related: JetBlue Q2 2019 Earnings Conference Call Transcript

International carriers like United Airlines (UAL) and Delta Air Lines (DAL) have been cautious in their guidance as they expect global air traffic to be hit by economic uncertainties and geopolitical issues. On the other hand, most of the domestic players including JetBlue face a demand slowdown due to Hurricane Dorian.

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Fleet Ramp-up

Earlier this week, JetBlue said its new Airbus A321neo fight has started operation. The aircraft offers better passenger facilities and superior fuel efficiency that would complement the management’s cost-cutting efforts.

Also read: Boeing lays down new safety policy

For long, it has been a roller-coaster ride for JetBlue shares, especially the last twelve months when it witnessed significant fluctuation. On Friday, the stock traded around 6% above last year’s levels. In contrast, American Airlines (AAL) lost about 16% during that period.

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