In late July, JetBlue Airways (NASDAQ:JBLU) reported strong results for the second quarter of 2019, punctuated by a 62% surge in adjusted earnings per share. JetBlue also projected similarly strong earnings growth for the third quarter. This seemed to confirm that the company's ambitious plan to grow EPS to between $2.50 and $3 by 2020 was on track.

Unfortunately, JetBlue's unit revenue is set to fall far short of what management had initially expected for the third quarter. In an investor update released on Wednesday morning, the carrier slashed the midpoint of its revenue per available seat mile (RASM) guidance by a full 3 percentage points. But while this is a disappointing development, JetBlue still has a good chance of achieving its goals for next year.

Another setback for JetBlue

JetBlue's RASM performance has been very uneven in recent years, with every return to unit revenue growth seeming to falter within a quarter or two. For example, JetBlue posted a solid 2.4% RASM gain in the fourth quarter of 2018, but RASM then declined 3.1% in the first quarter of 2019, missing the low end of the carrier's initial guidance range by more than 1 percentage point.

As noted above, JetBlue's performance rebounded in the second quarter, with RASM rising 3.1%. (Part -- but not all -- of this sequential improvement was driven by the timing of Easter.) However, JetBlue has been tripped up yet again in the third quarter. The airline's initial guidance called for RASM to rise 0.5% to 3.5% this quarter, despite soft demand for travel to Caribbean destinations Havana and Punta Cana. JetBlue now expects unit revenue to be flat to down 2% in Q3.

A JetBlue Airways plane preparing to land

JetBlue cut its RASM guidance by about 3 percentage points this week. Image source: JetBlue Airways.

JetBlue is attributing its weaker-than-expected revenue performance to three factors. First, it experienced weaker bookings for its Puerto Rico routes, reducing RASM by about 1.25 percentage points. Second, the huge volume of flight cancellations related to Hurricane Dorian will probably reduce RASM by about 0.75 percentage points. Third, JetBlue expects an incremental 1-point unit revenue headwind from weak demand in other markets.

JetBlue's route restructuring clearly isn't done

Over the past year, JetBlue has started to restructure its route network aggressively. It's eliminating underperforming routes and reallocating capacity into proven high-performing markets and promising new routes. The evolution of its route network isn't over yet, with more routes set to be cut this fall and winter.

Based on this week's guidance cut, it would appear that JetBlue has more work to do on refining its route network. The Caribbean region in particular has been a persistent source of weakness over the past few years. It hasn't been every route and it hasn't been all the time, but headwinds ranging from disease outbreaks to natural disasters to changing regulations have led to extreme volatility in JetBlue's results there. This suggests that the carrier may need to reduce its exposure to the region -- or at least rethink its route strategy.

On the bright side, JetBlue's move to be more proactive about cutting its weakest routes suggests that the latest dip in its unit revenue is likely to be temporary. Investors can be fairly confident that management will make the necessary changes to get unit revenue back on a better trajectory.

Investors are still underestimating JetBlue

Despite this week's setback, JetBlue remains one of my top long-term stock picks. The airline will roll out its version of basic economy pricing near the end of 2019. By late 2020, this new pricing structure should boost JetBlue's revenue by $125 million to $175 million annually. The carrier also expects its nonfuel unit costs to decline next year, while fuel efficiency will improve as it receives more Airbus A321neos and finishes its project to add 12 seats to each of its existing A320s.

Between these substantial earnings growth drivers and JetBlue's commitment to dropping money-losing routes, JetBlue is likely to at least reach the low end of its 2020 EPS guidance range ($2.50). Yet JetBlue stock now trades for less than seven times that estimate.

This valuation doesn't make sense. JetBlue has meaningful room for margin expansion beyond 2020, primarily due to its plans to upgrade its fleet and drive growth in high-margin ancillary revenue. As the company proves its long-term growth potential in the years ahead, JetBlue stock should deliver enormous gains for long-term investors.