From its April 2021 high of nearly $22 per share, JetBlue Airways (JBLU -3.77%) stock dove over 63% to the $7 to $8 range in 2022. But demand for flights remains exceptionally strong, and the new year is off to a strong start. JetBlue shares are up 41% so far in 2023.
As the airline industry recovers, is it time to buy the dip on JetBlue? Let's take a bird's eye view.
A return to profitability
Operating revenue last quarter landed at $2.4 billion -- the highest fourth-quarter operating revenue in JetBlue's history. And 2022 emerged as the best revenue year ever for the New York City-based carrier.
Most importantly, JetBlue became profitable again last year. As Chief Financial Officer Ursula Hurley put it, JetBlue's "return to profitability" in the second half of 2022 marked a critical turning point, setting up the airline for continued success.
Net income in Q4 touched down at $24 million, or $0.07 per share under generally accepted accounting principles (GAAP). Completion factor, or the percentage of completed flights, led the industry at 98.2% in December despite the negative impacts of Winter Storm Elliott and Hurricane Nicole.
Additional flights in New York, Boston, and between the American Northeast and London helped fuel the record revenue growth. And JetBlue also announced new service to Paris as it steps up its game against the "Big Four" airlines: Delta Air Lines, American Airlines, United Airlines, and Southwest Airlines.
Image source: JetBlue Airways.
Compared to pre-pandemic 2019 levels, capacity increased last quarter by 2.4%, and revenue per available seat mile (RASM) grew by 16.1%.
Skyrocketing operating expenses
While revenue soared, so did operating expenses. Compared with Q4 2019, cost per available seat mile (CASM) increased 28.4%.
Higher rents and landing fees at airports, expansion into high-cost terminals, and maintenance on JetBlue's aging fleet all contributed to the additional expenses in Q4. CEO Robin Hayes expects "significantly higher" labor and fuel costs to remain elevated for the foreseeable future.
Undeterred by headwinds, Hayes forecasts reaching pre-pandemic margin levels by the end of 2023. Initiatives including productivity improvements, maintenance optimization, and fleet updates are all anticipated to reduce costs and improve margins for JetBlue, and are estimated to save the company $250 million through 2024.
Q1 is seasonally slow
Looking ahead, demand has remained solid, according to Joanna Geraghty, JetBlue's president and chief operating officer. While Q1 is the "seasonally trough period of the year," she expressed confidence in the persistent demand for JetBlue flights.
According to Hayes, JetBlue Airways expects to generate its "first full year of profit since the pandemic," with earnings per share (EPS) ranging from $0.70 to $1. He explained how the above-mentioned initiatives will ramp up as the year progresses, building margins "very close" to 2019 levels.
Once the benchmark pre-pandemic baseline is achieved, JetBlue's next priority will be to grow margins beyond historical levels over time. Despite long-term confidence, JetBlue projects an adjusted loss of $0.35 to $0.45 per share for the current quarter.
Is it time to buy JetBlue stock?
JetBlue's acquisition of Spirit Airlines is expected to close by the first half of 2024 and will enable the company to legitimately contend with larger airlines. As Hayes described, the merger will allow JetBlue to "create a truly national customer-centric, low-fare challenger to the Big Four airlines."
While JetBlue's long-term outlook appears promising, the stock could struggle in the near term, especially with current-quarter expectations of a net loss. My personal opinion is to remain on the sidelines until the first quarter of profit in 2023 is officially reported.
But keep in mind that the current dip in JetBlue's stock price could be long gone by the time profits are posted.
