JetBlue Airways - Should You Consider Investing in JBLU?

By Duncan Ferris

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JetBlue (NASDAQ: JBLU) investors should consider COVID-19 recovery, inflation, share price volatility and M&A. Is JBLU stock a good investment?

JetBlue Airways (NASDAQ: JBLU) could be sweeping towards the acquisition which could see it join the top carriers in North America, commanding a fleet of more than 400 aircraft. However, the deal faces hurdles and JBLU’s share price is teetering near its five-year low as the company works to recover from a challenging pandemic period.

With all these factors and more considered, is JBLU stock a good investment?

What is JetBlue Airways?

JetBlue Airways Corporation is a Long Island City-based provider of air passenger transportation services.

As of December 31, 2021, the company operated a fleet of 63 Airbus A321 aircraft, 8 Airbus A220 aircraft, 21 Airbus A321neo aircraft, 130 Airbus A320 aircraft and 60 Embraer E190 aircraft.

It also served 107 destinations in 31 states in the United States, the District of Columbia, the Commonwealth of Puerto Rico, the US Virgin Islands and 24 countries in the Caribbean and Latin America.

JetBlue Airways Corporation has a strategic partnership with American Airlines Group to create connectivity for travelers in the Northeast.

How Does JetBlue Make Money?

The most recent quarterly update, which covers the three-month period ended 31 March, showed passenger revenues of $1.6bn and other operating revenues of $133m. As such, total revenue came in at $1.7bn for the period.

This is 137% higher than revenues seen in the same period 12 months prior, though this was adversely affected by COVID-19-related factors and restrictions. Compared to the same period in 2019, the last comparable period unaffected by the pandemic, revenue is down by 7.2%.

NASDAQ: JBLU Stock Financials

JetBlue’s price-to-book ratio is 0.73, with a price-to-book ratio of less than 1 usually thought to indicate a solid investment. However, the price to book ratio alone can be distorted so it is important to consider a wide range of valuation measures.

The company’s trailing price-to-earnings ratio is 13.78, while its forward equivalent is 56.18. As this ratio is determined by dividing market value by earnings, or expected earnings in the case of forward PE, it is clear that analysts expect a significant decline in JetBlue earnings.

The year to date has seen JetBlue’s share price decline by more than 40%. The $8.28 that the share price sits on at the time of writing is the stock’s lowest price since the emergence of the COVID-19 pandemic wrought havoc among airlines and travel companies in Spring 2020.

NASDAQ: JBLU Investment Risks

The first and most obvious risk associated with an airline like JetBlue is the potential for another wave of COVID-19 and subsequent limitations on travel. These difficulties pushed some airlines over the edge and with JetBlue not possessing the most solid financial foundations the business could struggle under such conditions.

General inflation and continued rises in fuel prices could also be problematic for JetBlue. Rampant inflation might turn more consumers away from air travel, while higher fuel prices would likely lead to spiralling costs and consequent price increases for the company.

Finally, the company, along with United Airlines, is subject to an antitrust lawsuit from the US Department of Justice. The suit claims that the duo's so-called "Northeast Alliance" is harmful to competition. The trial is scheduled for November.

NASDAQ: JBLU Growth Potential

The company announced in its most recent quarterly update that its aim is to restore earnings and expand margins beyond 2019 levels longer-term.

To achieve this, the company intends to attract further customers to its value proposition using its TrueBlue loyalty system, which offers customers points for purchases. The company has also been investing in modernization of its fleet in order to score margin improvements.

NASDAQ: JBLU’s Spirit Airlines Acquisition

A sign of the company’s efforts to expand include its proposed acquisition of Florida-based low-cost carrier Spirit Airlines Incorporated (NYSE: SAVE). JetBlue is offering $3.7bn in an all-cash deal but could face competition from Frontier Airlines (NASDAQ: ULCC). 

Additionally, Spirit has expressed concerns that a deal would be unlikely to receive approval from the Justice Department due to an ongoing lawsuit concerning JetBlue’s partnership in the Northeast with United Airlines.

If JetBlue does manage to push ahead and acquire Spirit, the result would be the United States’ fifth largest carrier after American Airlines, Delta Air Lines, United Airlines and Southwest Airlines.

Is JBLU a Good Investment?

This is a strange time for airline stocks. The industry is in recovery mode after a challenging couple of years where demand has sunk to extremely low levels. Some investors might have expected that to mean a new dawn for stocks that had been beaten down throughout the pandemic.

However, new problems have appeared. Fuel prices have soared following Russia’s invasion of Ukraine and high inflation means customers might be more likely to skip flying in favor of cheaper local vacation options.

The International Air Transport Association had predicted that the airline industry might not fully recover until 2024 and that was before these new issues had even raised their heads. There is also the risk of further difficulties caused by another surge in COVID-19 cases.

As such, airlines in general are having a tough time of it at the moment.

But what about JBLU specifically? Well, the company has suffered from staffing and other problems which have impacted its ability to capitalize on the upswing in demand. As such, the company is struggling in its battle to return to the profitability it achieved prior to the pandemic.

The company has a plan to return revenues and margins to pre-pandemic levels and its potential acquisition of Spirit Airlines could see it become one of the largest carriers in North America (if the company can overcome the various hurdles that lie in the way of this deal). With its share price sitting just above $8, some might think JBLU looks like a bit of a bargain. 

The future success of the company is far from guaranteed however, and the decision about whether to invest in JBLU will depend on your own personal risk appetite.

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Topics:
Airlines
Travel
Industries:
Industrials
Companies:
JetBlue Airways

Author: Duncan Ferris

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Duncan Ferris does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Duncan Ferris has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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