Over the past two years, JetBlue Airways (JBLU 2.08%) has underperformed many of its U.S. airline industry peers, as the COVID-19 pandemic had a greater impact on air travel demand in its core Northeast markets than in many other parts of the country.
That trend continued last quarter. Whereas several rivals like industry giant Southwest Airlines earned profits in the final quarter of 2021, JetBlue reported yet another loss. Nevertheless, management is optimistic that results will improve rapidly over the next several quarters. Let's take a look.
Omicron interferes with the recovery
Back in October, JetBlue projected that its revenue momentum would slow in the fourth quarter compared to the third quarter, because of less favorable seasonality and a delayed business travel recovery. As of early December, though, the carrier was on pace to beat its guidance.
Unfortunately, the omicron wave disrupted JetBlue's recovery. Bookings for holiday travel slowed, some customers canceled their travel plans, and the airline had to cancel other flights because of illness-related crew shortages.
Image source: JetBlue Airways.
Even with that headwind, revenue declined by a fairly modest 9.7% compared to the fourth quarter of 2019. That was right in line with JetBlue's guidance. This was impressive, because the omicron wave hit New York (JetBlue's home market) especially hard. JetBlue's cost performance also roughly matched its October forecast despite some omicron-related headwinds.
As a result, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) totaled $31 million last quarter, near the high end of JetBlue's forecast. However, that translated to an adjusted net loss of $0.36 per share.
Getting back on track in 2022
JetBlue is set to post an even bigger loss this quarter. The omicron wave's impact on air travel peaked in January, and the first quarter tends to be seasonally weak for U.S. airlines. JetBlue expects revenue to decline 11% to 16% compared to the first quarter of 2019 despite restoring capacity to around pre-pandemic levels. Meanwhile, the airline anticipates double-digit unit cost inflation relative to 2019.
However, COVID-19 case counts are now falling rapidly in the Northeast. That's causing demand to bounce back, particularly for peak periods like the President's Day holiday and spring break. And as JetBlue restores aircraft utilization and employee productivity to historical levels over the course of 2022, unit cost trends will improve dramatically.
Image source: JetBlue Airways.
In fact, by the second half of the year, nonfuel unit costs will likely fall below the level of 2019. For the full year, JetBlue projects that adjusted nonfuel unit costs will rise just 1% to 5% over 2019 on an 11% to 15% capacity increase. If demand recovers as expected in the months ahead, the combination of stronger unit revenue and improved unit costs would position JetBlue to swing back to profitability.
Management sees a bright future
At this time two years ago, JetBlue expected to hit a long-held target of generating adjusted earnings per share (EPS) between $2.50 and $3.00 in 2020. Obviously, the pandemic dealt a big setback to JetBlue's profit improvement plan. But once conditions reach a new normal, management expects a swift return to the company's pre-pandemic earnings trajectory.
Indeed, fleet upgrades and savings from a variety of cost-cutting efforts should help JetBlue improve its fuel efficiency and hold nonfuel unit costs roughly flat over the next few years. The carrier is also poised to reap unit revenue benefits over the same period from its partnership with American Airlines, a new fare structure, an enhanced focus on premium seating options, and rising ancillary revenue.
Understandably, management hasn't set a firm target for when EPS would reach the $2.50 to $3.00 range. The timing depends heavily on the future course of the pandemic. It's certainly plausible that JetBlue could get there in 2023 or 2024, though.
JetBlue stock ended last week at $13.90. If the company succeeds in returning to its pre-pandemic earnings trajectory within a year or two, that price will end up looking like an incredible bargain.
