In recent weeks, a slew of U.S. airlines have reported third-quarter results that fell short of their initial forecasts, blaming a surge in U.S. COVID-19 cases that undermined demand beginning in early August.

However, JetBlue Airways (JBLU 1.80%) managed to buck the trend. On Tuesday, the airline reported a smaller-than-expected loss for the third quarter and matched the guidance it had provided in July.

A solid quarter

Three months ago, JetBlue projected that its third-quarter revenue would fall 4% to 9% compared to Q3 2019 on a 0% to 3% capacity decrease. The airline estimated that non-fuel unit costs would jump 11% to 13% over the same period, weighing on profitability. Nevertheless, its quarterly forecast called for generating $75 million to $175 million of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

Like most of its peers, JetBlue reduced its outlook in early September, estimating that revenue would decline 6% to 9%, causing adjusted EBITDA to fall in the lower half of its original guidance range.

A JetBlue Airways plane preparing to land.

Image source: JetBlue Airways.

However, the guidance cut wasn't necessary. JetBlue generated $1.97 billion of revenue last quarter: down 5.5% from the third quarter of 2019 on a 0.8% capacity reduction. This represents the best revenue performance relative to Q3 2019 among the six largest U.S. airlines. Adjusted EBITDA reached the upper half of JetBlue's initial forecast range at $140 million.

This translated to an adjusted net loss of $0.12 per share. On average, analysts had expected JetBlue to lose $0.18 per share. Including the benefit from the final batch of government payroll support grants and gains on JetBlue's investments, net income totaled $130 million ($0.40 per share) under generally accepted accounting principles.

Weaker fourth-quarter guidance

Looking ahead, JetBlue expects weaker results in the fourth quarter, due to normal seasonal factors, lower bookings during the peak of the Delta wave of the pandemic, and a slow recovery in business travel. Management noted that the carrier's revenue mix typically shifts meaningfully from leisure travel toward business travel in the fall, particularly during off-peak periods.

JetBlue expects revenue to fall 8% to 13% compared to the fourth quarter of 2019 on 4% to 7% less capacity. Meanwhile, adjusted nonfuel unit costs are set to rise 14% to 16% relative to Q4 2019 due to continued short-term headwinds in maintenance, staffing, and airport costs. Adding to the cost headwinds, JetBlue anticipates paying $2.49 per gallon for jet fuel this quarter: up from $2.08 per gallon last quarter and $2.07 per gallon in Q4 2019.

As a result, JetBlue expects to report roughly breakeven adjusted EBITDA in the fourth quarter (plus or minus $50 million). That implies a net loss roughly double the $0.21 per share that analysts had been expecting. This dour outlook caused JetBlue stock to retreat 1% on Tuesday, remaining near the low end of its recent trading range.

JBLU Chart

JetBlue Airways stock performance, data by YCharts.

Still on a solid recovery trajectory

Investors appear to be overly pessimistic about JetBlue's long-term prospects. JetBlue's unit revenue has already recovered most of the way to pre-pandemic levels, helped by a robust leisure travel recovery, a new credit card deal with Barclays, and the rollout of JetBlue's version of basic economy pricing. Rebounding business travel demand and the company's new partnership with American Airlines should drive unit revenue to new highs within a year or two.

At the same time, JetBlue expects nonfuel unit costs to fall below pre-pandemic levels by the second half of 2022. That target may seem far-fetched compared to the double-digit increases JetBlue has been reporting in 2021. However, it merely reflects the airline capturing all of the structural cost savings it had anticipated before the pandemic (without offsetting short-term cost headwinds).

The combination of capacity growth, higher unit revenue, and lower unit costs could drive explosive earnings growth for JetBlue over the next few years. That makes JetBlue stock look like a steal at its current price.