In recent weeks, a slew of airlines reported their second-quarter earnings results. While sky-high fuel prices and operational challenges are denting their margins relative to 2019 levels, most U.S. airlines have posted solid profits, thanks to robust demand.

By contrast, JetBlue Airways (JBLU 3.86%) lost money again last quarter. In fact, its adjusted loss of $0.47 per share was even worse than analyst expectations. As a result, JetBlue stock fell more than 6% on Tuesday, the day of its Q2 earnings release.

Let's take a look at why JetBlue's financial performance is lagging peers -- and whether investors can expect to see meaningful improvement in the near future.

A costly meltdown in April

The biggest contributor to JetBlue's weak Q2 results was an operational meltdown that occurred in April. Nearly half of the airline's flights suffered cancellations or delays in April. The carrier's operational performance was particularly bad in the first half of the month, due to a combination of overly aggressive scheduling, bad weather, and FAA staffing constraints.

In late April, JetBlue estimated that the disruptions earlier in the month would negatively impact the company's quarterly pre-tax margin by about 6 percentage points. JetBlue ultimately posted a Q2 adjusted pre-tax margin of negative 4.2%, so the carrier would have earned a profit last quarter but for the big losses incurred in April. Indeed, JetBlue was profitable in the month of June.

Capacity cuts crush productivity

To prevent a repeat of its April operational problems, JetBlue implemented massive schedule cuts for the rest of the year. The carrier currently expects to increase full-year capacity by 0% to 3%, compared to 2019, whereas it initially planned 11% to 15% growth on that basis.

These schedule cuts equate to a reduction of nearly 15 percentage points in JetBlue's planned growth rate for the last three quarters of 2022. The abrupt change in the airline's capacity plan is driving up unit costs.

A JetBlue Airways plane preparing to land.

Image source: JetBlue Airways.

Most significantly, while the carrier didn't have enough staff to reliably operate the schedules it initially planned for 2022, it's overstaffed, compared to its updated capacity plan. For example, JetBlue operated 8% fewer block hours in June than it did three years earlier, despite having 16% more active pilots. As a result, while JetBlue operated just 2.3% more capacity last quarter than it did in Q2 2019, its labor costs rose more than 20% over that period.

Additionally, whereas JetBlue had initially expected to ramp up aircraft utilization toward historical levels this year, aircraft utilization averaged just 10.4 hours per day last quarter, down from 12.1 hours in Q2 2019. In effect, JetBlue is paying for aircraft that it doesn't need right now.

An inefficient fleet

A third factor weighing on JetBlue's finances last quarter was its continued reliance on the Embraer E190 jet in short-haul markets. The E190 burns a lot of fuel per seat, compared to modern mainline jets. JetBlue's E190s also have high labor and maintenance costs on a per-seat basis.

JetBlue operated 60 E190s last quarter, making up more than 20% of its fleet. The E190s have generated inferior margins for years, but the margin penalty of flying them has worsened dramatically due to the spike in fuel prices this year. In the second quarter, JetBlue's average fuel price nearly doubled, compared to Q2 2019, reaching $4.24 per gallon.

US Gulf Coast Kerosene-Type Jet Fuel Spot Price Chart

U.S. Gulf Coast Kerosene-Type Jet Fuel Spot Price, data by YCharts.

Some signs of hope

JetBlue expects to return to profitability in the third quarter, despite ongoing productivity headwinds related to its more conservative capacity plans. Unit revenue growth is poised to accelerate, thanks to strong demand and better reliability, while fuel costs have receded from last-quarter's highs.

Looking further ahead, JetBlue expects to keep non-fuel unit costs roughly flat over the next few years. Improved productivity will help as the airline returns to growth next year. The carrier has also accelerated the retirement of its E190 fleet from late 2026 to mid-2025 and is implementing a new structural cost-reduction program.

That said, JetBlue doesn't appear to have a clear plan to get within striking distance of its pre-pandemic cost structure. Perhaps management is just being overly conservative now because of the volatile external environment. But JetBlue's goal of exceeding its 2019 margin performance will be hard to achieve unless non-fuel unit costs improve.

Finally, JetBlue's agreement to buy Spirit Airlines adds to the near-term risk for shareholders. If the deal wins regulatory approval, the company will face a big increase in its debt burden by 2024.

Moreover, antitrust litigation and merger integration work threaten to distract management over the next few years. While JetBlue shares could have tremendous upside if the airline's ambitious plans come to fruition, the stock is only appropriate for highly risk-tolerant investors.