At its Investor Day meeting a week ago, JetBlue Airways (NASDAQ:JBLU) unveiled a handful of strategies designed to nearly double earnings per share by 2020 or 2021.

Aggressively reallocating capacity from underperforming routes to more promising markets was one of the key strategies announced by JetBlue. While this process had begun in a small way prior to JetBlue's Investor Day meeting, the carrier announced comprehensive changes to its route network this week.

Too many low-margin routes

Many of JetBlue's routes are extremely profitable. Nevertheless, unit revenue growth has been slow this year, suggesting that the company has experienced weak demand in parts of its route network. Indeed, on Wednesday, JetBlue reported that revenue per available seat mile probably inched up just 1.7% in the third quarter -- below the midpoint of its previous forecast range.

JetBlue began to address this issue back in April, when it announced substantial reductions to its short-haul flying in Long Beach, California. These cuts went into effect last month. The capacity was reallocated primarily to additional transcontinental service connecting New York and Boston to Southern California.

A JetBlue Airways plane preparing to land

JetBlue is starting to make aggressive cuts in underperforming markets. Image source: JetBlue Airways.

While the Long Beach focus city was an obvious target for capacity cuts, it wasn't the only part of JetBlue's route network that was struggling. At the recent Investor Day, JetBlue indicated that it would continue to reduce flying on short-haul routes and in markets without strategic relevance for the carrier. Meanwhile, JetBlue will add more flights on its most profitable routes, operate more daytime transcontinental trips, and continue expanding in its top three markets of Boston, New York, and Fort Lauderdale.

Huge changes are coming

On Tuesday, JetBlue announced a slew of route network changes that will go into effect in early 2019, as it looks to translate its network reallocation plan into reality.

JetBlue will continue its expansion in Fort Lauderdale with new routes to Phoenix, St. Maarten, and Guayaquil, Ecuador. It will also add new daily service from Boston to Rochester, New York, and from Providence to West Palm Beach. Finally, JetBlue will "increase flights on nearly two dozen of its most popular and profitable existing nonstop routes in the Northeast, Florida and the Caribbean," with a strong focus on growth in Boston and Fort Lauderdale.

While JetBlue does plan to keep increasing capacity in 2019, many of these new routes will be "funded" by cuts elsewhere in its route network. It will slash its flying from Mexico City to Fort Lauderdale and Orlando by half, and reduce service on underperforming routes to Baltimore, Detroit, Pittsburgh, and Santiago, Dominican Republic.

A JetBlue Airways E190 jet

Image source: JetBlue Airways.

Most notably, JetBlue will end all service to Daytona Beach, Florida; St. Croix; and Washington, D.C.'s Dulles Airport. Flights to Portland, Maine will become seasonal, operating only in the summer.

Most of the routes in this latter set are operated with E190 jets, which are quite expensive to fly on a per-seat basis. Furthermore, pulling out of entire airports will allow JetBlue to shed fixed costs. The cuts will also free up valuable gates and slots in Boston and New York, paving the way for some of JetBlue's planned growth. Lastly, JetBlue will be able to serve much of the demand in Daytona Beach and at Dulles Airport via more popular airports nearby.

Investors aren't giving JetBlue enough credit

JetBlue stock has fallen more than 10% just since its Investor Day last Tuesday. Subpar Q3 unit revenue updates (including from JetBlue) certainly played a role in that downward move, as did rising oil prices.

However, it's also clear that investors have little confidence in JetBlue's profit growth plan. Analysts currently expect EPS to come in at $1.46 this year. While that estimate could move down to around $1.40 following JetBlue's recent guidance update, the stock has fallen below $17 per share and thus trades for just 12 times earnings.

JetBlue estimates that its route network changes alone will boost EPS by $0.30 to $0.40 by 2020. Better customer segmentation, higher loyalty program earnings, ongoing cost-cutting programs, and share buybacks could drive $1 or more of incremental EPS on top of that.

Some of these EPS growth drivers will likely be offset by higher fuel prices or other headwinds. Nevertheless, JetBlue is poised for strong EPS gains in the years ahead. As investors start to appreciate this earnings growth potential, JetBlue stock could rocket higher.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.