What happened

Shares of JetBlue Airways (NASDAQ:JBLU) fell 5% on Tuesday morning after the discount airline released second-quarter earnings. The company warned it is flying through some headwinds as it tries to rebuild its operations, causing investors to head for the exits.

So what

JetBlue reported a second-quarter adjusted loss of $0.65 per share on revenue of $1.49 billion, beating analyst expectations for a $0.74 per share loss on revenue of $1.4 billion.

A JetBlue plane on the tarmac.

Image source: JetBlue Airways.

But investors were more focused on the outlook, and in particular the company's expectations for costs. Third-quarter cost per available seat mile (CASM), a common industry metric, is expected to be up 11% to 13% from two years ago before the pandemic, nearly double analyst expectations. And the company warned that costs could remain stubbornly high into 2022, meaning there will be no easy fix.

Although demand has returned from pandemic lows, a lot of the travel today is by price-sensitive leisure flyers. JetBlue's cost structure leaves it poorly positioned to compete for customers in a low-fare environment relative to ultra-discounters like Spirit Airlines.

Now what

The worst is over, but the recovery will take time. JetBlue acting chief financial officer Ursula Hurley said in a post-earnings statement, "We are committed to generating better than pre-pandemic earnings in the next few years by growing revenue and controlling costs, and we are confident that we are on the right path to expand margins in a sustainable way."

JetBlue has been working to repair its balance sheet, and now has less than $1 billion in net debt. The airline is moving in the right direction, but investors apparently aren't in the mood to wait around for a long flight.

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