JetBlue (NASDAQ:JBLU), the low-cost, high-comfort airline, is a modern business success story. Founded back in 2000, the company has put together 18 consecutive quarters of profits. This is quite an accomplishment in the struggling airline industry, where the legacy airlines Delta (NYSE:DAL) and Northwest (NASDAQ:NWAC) just yesterday joined the bankruptcy parade. What is JetBlue's recipe for success?

From the beginning, it decided to do something crazy. According to founder David Neeleman, who had previously worked for Southwest Airlines (NYSE:LUV), he wanted "to bring humanity back to air travel." In other words, he wanted to provide low fares and such amenities as in-flight entertainment, comfortable seats with plenty of legroom, and a reservation system. Who would have guessed that most people would rather not jump into a mosh pit as they board their flight to Cleveland? Or thought that customers might prefer watching quality television instead of reading a history of the avocado in the in-flight magazine?

JetBlue is the fastest-growing airline in America. Its load factor (the percentage of the aircraft occupied on the average flight) presently leads the industry at 87.7%. And starting in October, the company will be going head-to-head with Continental (NYSE:CAL) out of Newark Liberty International Airport. With Standard & Poor's estimating that the low-cost airlines will double their market share to 50% overall over the next 10 years, I feel JetBlue is an excellent long-term investment.

There are some short-term risks to consider, however. The company's long-term debt has increased from $1.3 billion to $1.8 billion during the last six months. This has led to a doubling of interest expense, which significantly decreased net income in the most recent quarter. While investors need to keep an eye on this growing debt, they should also recognize that this is a growing company, and its debt/capital ratio is not overly high for this industry.

The more worrying risk is related to the rapid rise in jet fuel costs. JetBlue's expense for aircraft fuel increased by 94% in the most recent quarter, and this was before the impact of Hurricane Katrina. Obviously, increasing fuel costs will have a negative effect on the company's margins.

Rapidly increasing fuel costs, however, might accelerate the ongoing airline-industry shakeout. With Delta and Northwest declaring bankruptcy and other legacy airlines in dire straits, I think JetBlue will be well-positioned to benefit from market consolidation, as the following table seems to illustrate.



Company
EPS
(LTM)
Gross
Margins
Debt/
Capital		 Five-Year
Growth
Estimate
Southwest $0.50 31.9 24.1 20.4
Continental ($4.80) 18.6 98.8 5
Northwest ($13.60) 19.1 166.2 5
Delta ($31.60) 8.6 191 5
JetBlue $0.30 35 71.6 22.8
LTM: Last 12 Months
Financial Data provided by Capital IQ. Estimates provided by Reuters Estimates.

Above, I've listed some of the leading airlines in the industry. As you can see, JetBlue is one of only two profitable airlines on the list. Its superior cost structure gives it the best gross margins of the group, and its five-year growth rate is also the highest of the five. As mentioned earlier, its debt/capital ratio is higher than I'd like, but still well below the woeful figures of Northwest and Delta. Overall, the only company listed with equally strong numbers is another low-cost carrier, Southwest Airlines.

So why not invest in Southwest, with its lower long-term debt and equally strong margins? Because I believe that JetBlue is a better airline than Southwest, and I feel that ultimately investors will feel the same way. At some point in the near future, these two low-cost cowboys will face off. I suspect JetBlue will win that showdown.

Yes, JetBlue does carry a high P/E when compared with other stocks in the industry, but this appears to be a result of its high growth rates. With revenues growing at 35% during the last quarter, and plans to expand its fleet of Airbus A320 aircraft to 233 and create a fleet of 200 Embraer (NYSE:ERJ) 190 aircraft, JetBlue shows no signs of slowing down.

This reminds me of another low-cost airline success story. Soon after the Sept. 11 attacks, with everyone predicting a slow demise for the airline industry, the Irish carrier Ryanair Holdings (NASDAQ:RYAAY) methodically went about growing its own innovative business. Its stock's meteoric rise during this period shows the possibility of a great idea succeeding even in difficult market conditions.

While JetBlue's stock does carry considerable risk, it also has great potential. For long-term buy-and-hold investors with a somewhat healthy risk tolerance, this company presents an excellent opportunity.

You're not done. This is just a quarter of the Duel! Don't miss W.D. Crotty's bearish opening salvo, W.D.'s rebuttal, or John's final word. When you're done, you're still not done. You can vote and let us know who you think won this Duel.

JetBlue and Embraer are recommended stocks in Motley Fool Stock Advisor .

John Reeves does not own any shares in any of the companies mentioned in this article.