While 2020 hasn't been an easy year for any airline, JetBlue Airways (NASDAQ:JBLU) was hit harder than most. JetBlue's operations are heavily concentrated in the Northeast: particularly its main focus cities of New York and Boston. Those markets had especially severe COVID-19 outbreaks earlier this year and have taken aggressive countermeasures, including quarantine restrictions for travelers.

Fortunately, JetBlue entered the year with a strong balance sheet. And despite the unique challenges it faces due to its focus on the Northeast, the low-fare airline reported better-than-expected results for the third quarter on Tuesday, with further improvement expected in the fourth quarter.

The results in brief

During the third quarter, JetBlue slashed capacity 57.6% year over year, in response to lower demand. This was a deeper capacity cut than its initial planning assumption of down 45%.

Despite offering less capacity than initially expected, revenue beat JetBlue's guidance. Management had told investors to brace for an 80% revenue decline last quarter. Instead, revenue fell 76.4% to $492 million. This also surpassed the average analyst estimate of $457 million. Notably, while JetBlue's load factor fell by half -- partly due to the carrier's decision to block two seats per row for safety reasons -- its average fare actually increased year over year.

The combination of a bigger capacity reduction and better-than-expected revenue enabled JetBlue to beat analysts' earnings estimates, too. The carrier recorded an adjusted loss per share of $1.75, ahead of the analyst consensus of $2.00.

A JetBlue Airways plane preparing to land

Image source: JetBlue Airways.

Cash burn slows

At the peak of the crisis in late March -- when booking activity fell to near zero and there was a spike in cancellations -- JetBlue burned an average of $18 million of cash a day. Three months ago, the company reported that cash burn moderated to an average of $9.5 million a day in the second quarter, including average daily cash burn of $8 million in June.

However, at the time of the Q2 earnings report, a rise in COVID-19 cases had hurt the demand recovery. As a result, JetBlue didn't expect much sequential improvement in cash burn in the third quarter, calling for average daily cash burn between $7 million and $9 million.

Late last month, JetBlue updated its outlook, noting that it had experienced a modest uptick in demand beginning in early August from leisure travelers and customers visiting friends and relatives. It added that average daily cash burn would likely wind up near the better end of its previous guidance range.

Indeed, on Tuesday, JetBlue reported that cash burn averaged just $6.1 million per day last quarter. This slowdown in cash burn (along with JetBlue's financing activities) enabled it to end the quarter with $3.1 billion of cash and investments. Including federal loans it is eligible for under the CARES Act, the company has $4.9 billion of liquidity: enough to cover more than two years of cash burn at its recent pace of cash usage.

Preparing for a longer recovery

JetBlue says that the new routes it has launched in recent months are performing in line with or better than expectations. Early booking activity for peak holiday travel periods in November and December also looks encouraging. JetBlue therefore expects daily cash burn to moderate to between $4 million and $6 million this quarter.

Still, even at the favorable end of that guidance range, JetBlue would be burning cash at a rate equivalent to about $1.5 billion a year. For comparison, Alaska Air -- which is slightly larger but focused on the West Coast -- already reduced daily cash burn to $4 million last quarter. In short, JetBlue faces a longer road to breakeven than peers, simply because of its geographic focus.

In an acknowledgement of the long road to recovery, JetBlue amended its order book with Airbus again earlier this month. Now, the carrier plans to take delivery of just three A321LR jets in 2021 and three more in 2022. Under a previous deferral agreement, JetBlue was supposed to receive five A321LRs next year and seven in 2022. This points to a later start date for JetBlue's long-awaited flights to London, as well as a slower ramp-up of transatlantic capacity: a sensible move, given that international travel demand could remain depressed for years.

The COVID-19 pandemic has created particularly big challenges for JetBlue. But the airline is rising to meet those challenges, and its strong pre-pandemic balance sheet and leisure focus should enable it to make a strong recovery once the pandemic is brought under control.

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