For most of 2018, profit was in free fall at JetBlue Airways (NASDAQ:JBLU). Through the first three quarters of the year, surging oil prices and labor cost inflation drove huge unit cost increases. To make matters worse, a combination of higher capacity from competitors and some missteps by JetBlue held back the carrier's unit revenue growth.

However, JetBlue got back on track in the fourth quarter, driving double-digit revenue growth and pre-tax margin expansion. Thanks to the added benefit of tax reform, earnings per share surged more than 50% year over year. The company also offered an optimistic outlook for 2019.

JetBlue Airways results: The raw numbers

Metric

Q4 2018

Q4 2017

Year-Over-Year Change

Revenue

$1.97 billion

$1.76 billion

12%

Total unit revenue

12.98 cents

12.67 cents

2.4%

Adjusted cost per available seat mile excluding fuel

8.27 cents

8.58 cents

(3.6%)

Adjusted net income

$155 million

$103 million

50%

Pre-tax margin

10.4%

9.7%

N/A

Adjusted EPS

$0.50

$0.32

56%

Data source: JetBlue Airways Q4 earnings release.

What happened with JetBlue Airways this quarter?

After producing disappointing results for much of 2018, JetBlue began the fourth quarter with an investor day event in early October. At the investor day, it set out an ambitious goal of growing adjusted EPS to between $2.50 and $3.00 by 2020 (compared to $1.55 in 2018). Most of the gains are expected to come from boosting ancillary revenue and reallocating capacity to stronger markets.

JetBlue also began to deliver tangible results from its multiyear cost-cutting program during the fourth quarter. Adjusted nonfuel unit costs fell 3.6% year over year, which was even better than the company's forecast of a 1.5%-to-3.5% nonfuel unit cost decline. (To be fair, JetBlue faced an easy year-over-year comparison, as nonfuel unit costs soared 8.1% in the prior-year period.)

Even more significantly -- at least in the short term -- oil prices collapsed in the fourth quarter. As a result, JetBlue's average fuel price came in at $2.24 per gallon, $0.24 per gallon less than its October forecast.

JetBlue's unit revenue growth also accelerated modestly to 2.4% last quarter. Thanks to these improved revenue and cost trends, the company abruptly swung from declining profitability in the first nine months of 2018 to stellar profit growth in Q4.

What management had to say

While 2018 was a disappointing year overall, JetBlue executives tried to focus on the progress the carrier is now making. President Joanna Geraghty affirmed in the recent earnings release that the company is on track to achieve its 2020 EPS target.

We expect 2019 will be a stepping stone year to deliver on our 2020 goals, and to further improvements beyond 2020. We expect to see margin expansion resulting from our network reallocation, ancillary revenue initiatives, improvements to our fleet and our progress in better controlling our costs. We remain confident in our ability to execute on our building blocks and achieve our $2.50 to $3.00 EPS target in 2020.

On the cost side of the ledger, JetBlue is already delivering strong results, as CEO Steve Priest noted: "Excluding the 2018 impact from our pilot deal of 1.3 [percentage] points, we achieved a small decline in underlying [nonfuel unit costs] for the year."

Looking forward

JetBlue is poised to continue benefiting from the recent drop in fuel prices during 2019. While the carrier's fuel costs came in lower than expected last quarter, it still paid nearly 20% more per gallon than in the fourth quarter of 2017. By contrast, JetBlue expects to pay $2.01 per gallon in the first quarter, which would be down from $2.09 per gallon a year earlier.

A JetBlue Airways plane taking off

Lower fuel prices will likely lift JetBlue's earnings in 2019. Image source: JetBlue Airways.

On the flip side, JetBlue's forecast calls for nonfuel unit costs to increase 1.5% to 3.5% this quarter. Meanwhile, unit revenue is set to stagnate, coming in between down 2% and up 1% year over year for the quarter.

Yet timing effects are affecting both of those metrics. For the full year, JetBlue expects nonfuel unit costs to rise just 0% to 2%. And JetBlue estimates that its unit revenue would be up 0.75% to 3.75% in the first quarter -- roughly in line with last quarter -- but for a shift in the timing of Easter and an unusually high number of weather-related flight cancellations in the year-ago period.

JetBlue should benefit from minimal nonfuel unit cost growth and (potentially) stronger unit revenue increases in the final three quarters of 2019. Assuming oil prices stay relatively low, this puts the company in an excellent position to deliver strong earnings growth this year. That said, JetBlue still has a lot of work to do in order to reach its aggressive 2020 earnings target.

Check out the latest JetBlue Airways earnings call transcript.