Highly effective coronavirus vaccines will start rolling out in the U.S. soon. That news has sparked a powerful stock market rally over the past month.

Yet in the meantime, the U.S. is suffering through the worst wave yet of the COVID-19 pandemic. The average number of new cases reported each day quadrupled between the beginning of October and Thanksgiving. More than 90,000 Americans are currently hospitalized due to COVID-19 symptoms. Before November, that number had never reached 60,000. And the daily COVID-19 death total exceeded 2,000 on two separate days last week, something that hadn't happened since early May.

Initially, this uptick in cases didn't stop a gradual recovery in air travel demand. But as the "third wave" has worsened, bookings and traffic momentum have slowed. That forced JetBlue Airways (NASDAQ:JBLU) to slash its fourth-quarter forecast on Monday.

A JetBlue plane landing on a runway

Image source: JetBlue Airways.

Recalibrating expectations

In late October, JetBlue reported that revenue had fallen a bit less than expected in the third quarter. Furthermore, the East Coast-focused airline has doubled down on its cost-cutting efforts this year. As a result, daily cash burn averaged just $6.1 million in the third quarter, down from $9.5 million a quarter earlier and significantly better than management's initial projections.

At the time, JetBlue expected daily cash burn to improve again in the fourth quarter, averaging between $4 million and $6 million. While the latest wave of the pandemic had already begun, management said that early booking trends for Thanksgiving and Christmas looked good compared to the summer.

Alas, the surge in cases last month undermined JetBlue's momentum. In a Securities and Exchange Commission filing on Monday, the company stated, "Booking trends remain volatile. ... For the fourth quarter, the Company now expects revenue to decrease approximately 70% year-over-year, as compared to the previous planning assumption of a decrease of approximately 65% year-over-year."

JetBlue also noted that the receipt of $70 million in expected tax refunds has been delayed beyond the fourth quarter. That alone will increase fourth-quarter average daily cash burn by about $760,000 compared to management's October forecast. Incorporating the recent change in booking trends, JetBlue now expects average daily cash burn between $6 million and $8 million this quarter, $2 million worse than previously expected.

JetBlue can withstand the volatility

It's not too surprising that JetBlue is on pace to miss its initial quarterly revenue and cash burn guidance. The airline's route network is heavily concentrated in the Northeast. State and local officials in that region have generally implemented tougher travel restrictions to slow the spread of COVID-19 than what's common in other parts of the country. And on average, residents of those states, which were hit hard in the early part of the pandemic, seem to be taking an especially cautious approach to pandemic life.

Fortunately, JetBlue entered 2020 with one of the strongest balance sheets in the airline industry. That has enabled it to raise additional capital this year at a reasonable cost. As of Nov. 27, the company had $2.8 billion of cash and short-term investments. It can also draw an additional $1 billion in subsidized federal loans through March 2021. That means JetBlue has enough liquidity to withstand $8 million of daily cash burn -- the worst-case scenario under its updated fourth-quarter outlook -- for more than a year.

That won't be necessary. Demand will likely remain low next quarter, as vaccines won't put much of a dent in the pandemic by then and the first quarter is seasonally weak in the best of times. But demand may improve rapidly thereafter, as a mass vaccination campaign finally starts to overcome the pandemic. By the summer, JetBlue could be benefiting from substantial pent-up leisure travel demand, considering how many people in its home territory of the Northeast have been sheltering in place since March.

Within a few years, JetBlue could be earning record profits as it capitalizes on cost cuts, fleet upgrades, and enhanced revenue-generating capabilities. (All three of these profit-improvement initiatives were already in motion before the pandemic.) Patient investors who buy and hold the stock are likely to be rewarded, notwithstanding the potential for volatility in the months ahead.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.