What happened
Shares of JetBlue Airways (JBLU) fell 7% at the open on Wednesday after the airline announced a secondary offering. Selling more stock is by definition dilutive to existing holders, but in this airline's case, investors can't be too upset that JetBlue is adding to its liquidity.
So what
The carrier said Wednesday morning it would raise about $500 million by selling 36.5 million shares at $14.40 each. That's a small addition to the 270 million shares already outstanding, but secondary offerings by their nature make each slice of the overall pie a bit smaller and tend to cause downward pressure on share price.
Image source: JetBlue Airways.
In JetBlue's case, it is easy to see why the airline decided that bringing in the extra capital was worthwhile. Airlines have been hit hard by the pandemic, with travel demand well below last year's levels.
JetBlue earlier in the week said that it expects fourth-quarter flying to be down 45% to 50% year over year, with fourth-quarter revenue off by 70%. The airline, which expects to burn through between $6 million and $8 million per day in the quarter, had previously expected revenue to be down 65% during the period.
Now what
JetBlue shares recovered somewhat from the initial sell-off, trading down 3% as of 11 a.m. EST on Wednesday. For long-term holders, the offering is a good news.
Shares of JetBlue lost nearly half their value back in March, but the stock has been coming on strong in recent weeks thanks to positive news on the development of a COVID-19 vaccine. We're hopefully at the beginning of the end of the COVID-19 crisis, but it will still take time to get the vaccine widely distributed and travelers flying again.
Thanks to the offering, JetBlue has an added liquidity cushion to see out the crisis. That's well worth the little bit of dilution.
