What happened

Shares of JetBlue Airways (JBLU 3.15%) climbed 15.2% in October, according to data provided by S&P Global Market Intelligence, fueled by the company's better-than-expected third-quarter results and aggressive 2020 guidance. The airline has been fighting pricing weakness throughout the year, but management expressed confidence it is making progress in its efforts to overhaul the company and make it more profitable.

So what

JetBlue has had an up-and-down year, with the company facing headwinds including high costs, inconsistent leisure demand, and weather issues in key markets. The company has a plan to address these challenges, including cutting annual costs by $300 million using software to better manage spare-part inventory and optimize labor hours, but the transformation is a slow process and investors have remained skeptical.

A line of JetBlue tails at airport gates

Image source: JetBlue Airways.

The airline's third-quarter results helped put investor worries to rest. JetBlue reported adjusted earnings of $0.59 per share, beating consensus estimates of $0.52 per share, with better cost controls.

On a call with investors, CEO Robin Hayes said the results "were driven by the compounding benefits of the structural cost program." JetBlue also backed full-year 2020 earnings of $2.50 to $3 per share, ahead of the $2.36 analyst consensus.

"We are gaining traction on the building blocks we laid out at our last Investor Day and expect to make further progress in 2020," Hayes said on the call.

The airline got an added bump late in the month when JP Morgan analyst Jamie Baker upgraded JetBlue to overweight from neutral, noting JetBlue's valuation trails that of most airline stocks and estimating as much as 25% upside potential should the company's overhaul go as planned.

Now what

JetBlue has a lot of work to do to hit its 2020 earnings goal. Most notably, the company before year's end will begin implementing a new pricing structure that management believes will help it better compete for price-sensitive travelers and drive upwards of $150 million in increased revenue. The airline also continues to tweak its schedule, replacing flights to underperforming markets with stronger ones, and continues its cost-cutting campaign.

As JP Morgan's Baker noted, JetBlue today trades at barely 10 times earnings, giving the stock plenty of room to run should the transformation efforts bear fruit. JetBlue has been a "show me" story for investors for some time now. The airline over the next few quarters has an opportunity to show it is on the right path.