JetBlue Is Still Exciting

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Investors drove shares of JetBlue (Nasdaq: JBLU) 16% higher this morning on news that first-quarter year-over-year revenues were up 33%, but earnings declined 5.4%. Why the big move on mixed news?

The company is trumpeting its 11.3% operating margins, which frankly are excellent compared to the competition. For perspective, Southwest (NYSE: LUV) manages 7.3% operating margins, while American Airlines parent AMR (NYSE: AMR) ekes out 1%. Delta Air Lines (NYSE: DAL) can't even manage that.

Although JetBlue did beat analyst earnings estimates by $0.02 a share, the real news was that the upstart expanded capacity by 44.6% and still managed to fill 79.9% of its seats. Although that load factor is down 1.5% from last year, it is still ahead of low-cost rivals like AirTran (NYSE: AAI).

Clearly, it is JetBlue's ability to grow like mad and still fill seats at industry-leading levels that keeps heads turning. Nor has quality suffered. As Alyce Lomax recently reported, JetBlue was named No. 1 in the annual Airline Quality Rating survey published by the University of Nebraska and Wichita State University.

Those intent on finding signs of wind shear might note that revenue per seat mile (an important sales pricing metric in the industry) declined 7.9% to 6.85 cents, while Southwest's increased 3.9% to 8.07 cents. That would have been even more significant had expenses per seat mile not decreased 2.9% to 6.08 cents. By comparison, Southwest's expenses increased 4.3% to 7.82 cents. That seemingly modest expense difference provides JetBlue a significant operating advantage.

So, add it up. You have high margins, rapid growth, low operating costs, and quality. That's quite a combination, especially in the airline industry. It also comes at a price.

The stock trades at 36 times estimated 2004 (jargon alert: forward) earnings. But when sales are up 33% in a year for a low-cost leader, that premium looks justified -- and likely explains why investors bid the stock higher this morning.

JetBlue is a top pick in Motley Fool Stock Advisor (a trial is free). Or join investors discussing JetBlue and Southwest Airlines on The Motley Fool discussion boards.

Motley Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.