Last month, JetBlue Airways (JBLU -1.75%) increased its first-quarter unit revenue guidance slightly, calling for revenue per available seat mile (RASM) to rise by 3.5% to 5.5%. This signaled that the revenue benefits from strong demand and the expansion of JetBlue's popular Mint premium service are more than offsetting the impact of rivals' capacity growth.

On Wednesday, JetBlue announced that it surpassed even this updated revenue guidance. The carrier now estimates that RASM rose approximately 6.1% last quarter.

This is great news for shareholders. Indeed, JetBlue looks like a compelling investment right now, thanks to its growing revenue momentum, along with its cost control efforts and rock-bottom valuation.

Digging into the numbers

RASM growth of 6.1% should put JetBlue comfortably at the top of the U.S. airline industry in terms of first-quarter unit revenue performance. Several other airlines have updated their Q1 forecasts this month, and none of them expect unit revenue to rise by more than 5%.

A JetBlue E190 taxiing at an airport

JetBlue achieved industry-leading unit revenue growth last quarter. Image source: JetBlue Airways.

To be fair, this result was influenced by two unusual factors. First, a shift in the timing of holidays (primarily Easter) created a 2-percentage-point RASM tailwind for JetBlue last quarter. Second, a higher number of flight cancellations due to severe winter weather positively impacted RASM by about 1 percentage point. However, these factors were not unique to JetBlue, although they probably gave a bigger boost to JetBlue than to its rivals.

Adjusting for these two factors, JetBlue's underlying RASM growth rate was around 3%. That's impressive, because JetBlue is growing faster than most of the industry and is increasing the average length of its flights, both of which would tend to reduce unit revenue.

For the second quarter, unit revenue could be flat or down year over year. JetBlue will face a 2.5-percentage-point headwind related to the timing of Easter. Additionally, during the year-ago period, the carrier reported a 1.25-percentage-point RASM benefit from an uptick in flight cancellations and incentive payments related to its co-branded credit card.

Thus, in contrast to the first quarter, JetBlue's actual RASM performance will be worse than its underlying revenue trend this quarter. Looking ahead to the second half of 2018, year-over-year comparisons should be cleaner.

What about costs?

JetBlue needs to achieve solid unit revenue growth to offset recent increases in the price of jet fuel. It also needs to reduce its controllable costs. Toward that end, in late 2016, JetBlue's management announced an initiative to reduce structural costs by $250 million-$300 million annually by 2020.

A JetBlue Airways plane preparing to land

JetBlue Airways is working on a multiyear cost-cutting initiative. Image source: JetBlue Airways.

This program is already starting to pay off. As a result, JetBlue expects nonfuel unit costs to be between down 1% and up 1% during 2018, with most or all of its unit cost growth coming in the first quarter. The carrier just took another step forward by signing a new long-term maintenance deal for the engines on its Airbus (EADSY -1.44%) fleet, in conjunction with a large engine order.

Furthermore, JetBlue recently began a retrofit program for its 130 Airbus A320s. Over the next three years, these modifications will boost each A320's capacity from 150 seats to 162 seats. This will have a particularly beneficial impact on fuel efficiency, as the 8% increase in seating capacity will have a very small impact on fuel consumption.

Meanwhile, JetBlue is set to begin receiving Airbus A320neo family aircraft next year. The new engines on these planes should deliver a 16% improvement in fuel efficiency. Thus, JetBlue will achieve significant fuel efficiency gains over the next several years, partially offsetting the impact of higher fuel prices.

JetBlue stock is a terrific bargain

Investors haven't shown much enthusiasm for JetBlue's improving revenue outlook. In fact, shares of JetBlue have barely budged from where they were three years ago and currently sit near a 52-week low.

JBLU Chart

JetBlue Airways stock performance. Data by YCharts.

As a result, JetBlue stock now trades for just 10 times the average 2018 analyst EPS estimate of $1.92. If it can keep up its recent revenue momentum, JetBlue has a good shot at surpassing that EPS target.

Even if the company can't deliver a full-year earnings beat in 2018, analysts expect EPS to rise 17% in 2019. Double-digit earnings growth will probably continue in 2020, as JetBlue captures additional savings from its structural cost program and its A320 retrofits.

In the longer term, replacement of JetBlue's high-cost E190 fleet and expansion into Europe could drive plenty of incremental earnings growth. Thus, JetBlue stock has huge upside for patient investors.