The COVID-19 pandemic hit JetBlue Airways (JBLU) particularly hard in 2020. JetBlue's route network is heavily concentrated in the Northeast: especially New York and Boston. The region bore the brunt of the pandemic in the U.S. last spring. State and local governments responded by implementing travel restrictions such as quarantine requirements. The region's residents have also acted more cautiously (on average) following the initial outbreak than people elsewhere in the U.S.

Depressed travel demand in JetBlue's core markets continued to weigh on the company's results last quarter. Demand trends have remained weak in the early weeks of 2021. Nevertheless, JetBlue executives are optimistic that the airline will make a strong recovery over the next two years.

Weak business trends continue

Last quarter, JetBlue's revenue plunged 67% year over year to $661 million. That marked a big improvement from the 90% revenue drop JetBlue recorded in the second quarter of 2020, but demand clearly remained quite low last quarter. The company posted an adjusted net loss of $1.53 per share. While that beat the analyst consensus by $0.16, it was a bad result by any objective standard.

JetBlue also disclosed that daily cash burn averaged $6.7 million during the fourth quarter. That result fell within the company's most recent guidance range but was worse than JetBlue's initial outlook for Q4 average daily cash burn of $4 million to $6 million. Like most of its peers, JetBlue entered the fourth quarter with solid booking trends but saw that momentum falter as COVID-19 case numbers exploded nationwide in November and December.

A JetBlue Airways plane landing on a runway

Image source: JetBlue Airways.

Management doesn't expect things to get any better in the first quarter. Last quarter, the airline at least benefited from holiday demand around Thanksgiving and Christmas. None of the Q1 holidays can drum up the same level of demand. Meanwhile, fuel prices have increased sequentially and JetBlue is bracing for higher rents and landing fees.

Thus, JetBlue projects that it will lose more money this quarter than it did in Q4 (excluding special items). Fortunately, the airline will benefit from one big special item: It will receive over $500 million of federal payroll support funds this quarter, including at least $382 million of outright grants.

Betting on a demand rebound

While JetBlue executives are maintaining a cautious outlook for the first quarter, they are bullish about the prospects for recovery thereafter. About 7% of Americans have received at least the first dose of a COVID-19 vaccine already. The pace of vaccinations has been accelerating, and the Biden Administration is optimistic that the U.S. could reach herd immunity by the summer.

Every time that the U.S. case count declined last year, air travel demand quickly improved. Each time, a subsequent spike eroded that momentum. However, as vaccines roll out more broadly and the U.S. moves toward herd immunity, the country should experience a durable decline in the COVID-19 case rate, enabling a firmer recovery in air travel demand.

Whereas JetBlue fared worse than other U.S. airlines last year, management believes that it will recover faster than the rest of the industry. Company president Joanna Geraghty reasoned that because stricter quarantines disproportionately reduced demand in the Northeast (relative to the rest of the U.S.), there will be greater pent-up demand in JetBlue's core markets. JetBlue also expects to benefit from new routes it has launched during the pandemic and a new partnership with American Airlines.

Cost cuts will boost future profits

During JetBlue's recent earnings call, CFO Steve Priest noted that the company continued to make progress on improving its cost structure in 2020. Entering the year, the company was just wrapping up a multiyear program to eliminate over $300 million of annual structural costs. It identified opportunities to reduce annual fixed costs by another $150 million to $200 million by year-end.

As a result, JetBlue expects to have lower nonfuel unit costs in 2022 than it did in 2019, assuming no change in capacity. Unit costs could move even lower in subsequent years, as the carrier ramps up aircraft utilization again and finishes upgrading its fleet of smaller jets to the ultra-efficient Airbus A220-300.

JetBlue's 2021 results will depend heavily on the pace of vaccinations and when travel restrictions ease. However, the combination of pent-up leisure travel demand and an improved cost structure should enable JetBlue to become solidly profitable again by 2022, with strong earnings growth prospects thereafter.