What happened
Shares of JetBlue Airways (JBLU -3.21%) joined the stampede of airline stocks moving downward on Thursday, dropping nearly 10% after the airline decided to cut capacity in response to falling travel demand due to concerns about the COVID-19 coronavirus.
So what
In a memo to employees obtained by Reuters, the airline said it would cut capacity by 5% in the near term to address the fall in demand. The airline is also taking other steps to preserve cash, including reducing hiring, and is considering voluntary time-off programs.
Image source: JetBlue Airways.
Airline stocks have been rapidly descending in recent weeks as it has become clear that the coronavirus was likely to depress near-term demand for travel. Leisure-focused airlines including JetBlue are expected to get hit particularly hard if vacationers decide to stay home during peak travel times including spring break, Easter, and summer vacation.
A number of large airlines have cut service to Asia and other international destinations hard-hit by the virus, but JetBlue is just the second U.S. airline to trim domestic capacity. United Airlines Holdings said Wednesday it would cut domestic flights by 10% in April, part of a broader plan to reduce costs.
Now what
JetBlue shares are down 25% year to date, which is actually a lot better than how the stocks of some of its rivals have fared. But the capacity cutback is the clearest sign yet that the travel slowdown will last well beyond the current quarter, and could make it a lost year for JetBlue and other carriers.
The good news is JetBlue has the wherewithal to survive a prolonged downturn, but the company's plan to revamp its operations and generate better results could take longer to implement if there is an extended downturn due to the outbreak.
