The summer surge in COVID-19 cases and hospitalizations driven by the Delta variant disrupted a nascent recovery in U.S. air travel demand. The situation has forced a slew of U.S. airlines to walk back their bullish third-quarter forecasts in recent weeks.

Last Thursday, JetBlue Airways (JBLU -1.27%) was one of several airlines to cut its Q3 forecast in conjunction with a presentation at an investor conference. However, investors didn't seem to mind. JetBlue stock actually rose 4% on Thursday, before giving back that gain on Friday. The stock is basically unchanged from where it sat after JetBlue gave its initial outlook for the quarter in late July.

JBLU Chart

JetBlue stock performance, data by YCharts.

Let's take a look at why JetBlue's guidance cut didn't seem to faze investors.

A modest revision

As of late July, JetBlue projected that its Q3 revenue would decline 4% to 9% relative to the third quarter of 2019 on a 0% to 3% decrease in capacity. Meanwhile, it expected adjusted nonfuel unit costs to increase 11% to 13% compared with 2019, mainly because of short-term headwinds such as maintenance spending deferred from earlier in the pandemic and costs related to ramping up capacity again.

Based on all of these factors, management estimated that JetBlue would generate between $75 million and $175 million of adjusted EBITDA in the third quarter.

Last week, JetBlue reported a modest downturn in bookings and an increase in cancellations associated with the latest wave of the pandemic. However, demand was very strong in July, partially offsetting the recent downturn. As a result, JetBlue now expects to report a 6% to 9% revenue decline compared with Q3 2019 on 1% less capacity. The carrier also reaffirmed its cost outlook.

A JetBlue Airways plane preparing to land.

Image source: JetBlue Airways.

Thus, JetBlue still expects revenue to fall within the range it provided in late July -- it will just be toward the lower end of that range. Similarly, JetBlue now projects that adjusted EBITDA will fall within the lower half of its initial guidance range this quarter -- i.e., between $75 million and $125 million.

A key rival made a bigger guidance cut

Investors shrugged off JetBlue's guidance revision probably because they were expecting worse. Last month, low-fare airline giant Southwest Airlines (LUV -0.11%) cut its August revenue guidance by 3 percentage points to a range of down 15% to 20% relative to 2019. It also issued a downbeat forecast for September, calling for revenue to be down 15% to 25% from September 2019. All this added up to a projection that Southwest's quarterly revenue would decline 15% to 20% compared with Q3 2019 on a similar level of capacity.

On Thursday, Southwest Airlines reduced its guidance again. Revenue ultimately declined about 19% in August and is on track to plunge 25% to 30% from 2019 levels in September. For the full quarter, the company now expects revenue to fall 18% to 20% from Q3 2019 on 2% less capacity. That implies a roughly 17% plunge in unit revenue.

In this context, JetBlue's updated guidance looks quite solid, as it implies a unit revenue decline of 8% at worst. While Southwest has kept its unit costs more under control, JetBlue is still on track to report a much smaller earnings decline than Southwest this quarter, compared with 2019.

Several Southwest Airlines planes in an airport gate area.

Image source: Southwest Airlines.

A good sign for the future

JetBlue noted in its investor update that it is seeing weak bookings for off-peak periods during the fourth quarter. The recent surge in COVID-19 cases has dramatically undermined fall business travel demand, while also affecting leisure travel. The airline will respond by trimming capacity and looking for additional near-term cost savings opportunities.

Looking further ahead, though, investors should be encouraged by JetBlue's third-quarter outlook. For much of 2020 and the first half of 2021, the airline's financial performance lagged most of its peers. JetBlue's heavy exposure to the hard-hit New York and Boston markets clearly weighed on its results.

By contrast, JetBlue's focus on the Northeast is now turning into a competitive advantage. Higher vaccination rates have kept the pandemic tamer in the New York and Boston areas than in most of the country this summer. JetBlue could also benefit from strong pent-up demand next year, given that many residents of the Northeast were relatively slow to return to the skies.

With JetBlue shares currently trading for less than 6 times the company's pre-pandemic 2020 earnings forecast, the stock has massive upside for investors willing to ride out some short-term volatility.