What happened
JetBlue Airways (JBLU -3.21%) is struggling to hire pilots at a fast enough pace, and as a result, it's slashing its growth forecast for the year. Investors reacted by hitting the eject button, sending JetBlue shares down 12% for the week as of Thursday afternoon.
So what
Airlines came into 2022 hoping that a post-pandemic surge in demand would help the industry to rebound after a miserable couple of years, and few had more ambitious growth plans than JetBlue. Alas, the airline industry has struggled to find the pilots needed to meet those growth objectives. As a result, when releasing first-quarter results, JetBlue slashed its growth forecast for 2022 to between flat and up 5% compared with 2019, down from previous guidance for "low-double-digit" growth.
Image source: JetBlue Airways.
It's a problem that is industrywide, but it seems to be hitting JetBlue harder than others. For the most part, airline investors were treated to a lot of optimistic guidance this earnings season, which made JetBlue's retrenchment particularly notable. The results also caused J.P. Morgan to issue a double downgrade of the stock, taking JetBlue shares from an overweight to underweight rating.
Now what
JetBlue shares are now down more than 20% since the company's early April bid to pry Spirit Airlines (SAVE -3.80%) away from a deal with Frontier Group Holdings (ULCC -1.73%). The unsolicited bid for Spirit appeared at the time to be an act of desperation, and the latest earnings results appear to confirm that all is not well at JetBlue.
The airline is at risk of being squeezed between larger, more global carriers who have the size and scale to attract pilots with better pay and benefits and smaller ultra-discounters like Spirit and Frontier that are nimbler and have lower costs. JetBlue has a product that is beloved by consumers and a loyal customer base, but with labor issues and a lack of obvious acquisition targets beyond Spirit, there is no clear way for JetBlue to grow out of its problems.
Spirit has opened negotiations with JetBlue but has not yet determined whether to abandon its deal with Frontier in favor of its latest suitor. If JetBlue does win a merger agreement, it faces a likely difficult battle to win regulatory clearance for the deal.
With so much uncertainty, there isn't a lot of reason for investors to rally around JetBlue shares right now. With its fall, the stock is beginning to look compelling from a valuation standpoint, but it's hard to see a catalyst on the horizon.
