What happened
A disappointing outlook provided by JetBlue Airways (JBLU 0.52%) caused the airline's shares to fall nearly 10% on Tuesday. It also turned a Wall Street bull on the stock into a bear, sparking a fresh sell-off in the shares on Wednesday.
So what
JetBlue's first-quarter results actually came in slightly better than expectations, but the airline did not provide much reason for optimism about the quarters to come. JetBlue, like most airlines, was hit hard by the pandemic, but JetBlue's optimism about 2022 growth made it a standout early in the year.
Image source: JetBlue Airways.
On Tuesday, JetBlue walked a lot of those growth plans back. The airline now expects full-year 2022 capacity to be flat to up 5% compared to 2019, the last year before the pandemic, down from a previous forecast for low-double-digit growth.
The issue is a lack of available flight crews. A lot of pilots took early retirement at the height of the pandemic, and this is not a profession where you can simply hire off the street and put someone in the cockpit. JetBlue CEO Robin Hayes on a post-earnings call with investors said, "access to pilots really becomes the governing factor for growth in the industry over the next few years." And based on the airline's comments, JetBlue is feeling the pinch more than most.
The report and guidance prompted J.P. Morgan analyst Jamie Baker to issue a rare double downgrade of JetBlue, from overweight to underweight. Baker also cut his price target to $12 from $24, saying he is questioning management's ability to get costs under control, and he reduced his 2023 earnings projections.
Now what
In early April, when JetBlue launched an unsolicited bid to snatch Spirit Airlines from the arms of Frontier Group Holdings, it appeared JetBlue was acting from a position of desperation, and not from strength. The shares are now down nearly 25% so far this month as many investors join Baker in reassessing JetBlue's position in the industry.
Hayes is correct that a shortage of pilots will likely weigh on the industry for years, and smaller, niche carriers like JetBlue tend to have a harder time attracting and retaining pilots than larger airlines that can afford better pay and benefits. An acquisition is an easy way to help resolve the pilot pinch and show growth, but Spirit is arguably a poor strategic fit for JetBlue and a deal between the two could face difficulties getting past regulators. Yet, if Spirit goes with Frontier, there are few other merger and acquisition options out there for JetBlue.
JetBlue has faced turbulence in the past, and has flown through it in part thanks to its industry-leading service and the strong customer loyalty that service evokes. And given enough time, JetBlue will likely figure out a way to navigate out of its current predicament. But there appears to be no easy fix, and so it's no surprise investors aren't staying on board to see how the situation plays out.
