Thanks to multiple positive developments, shares of JetBlue Airways (NASDAQ:JBLU) rose from less than $7 per share in October to close at $9.05 on Jan. 3. But the week of Jan. 6 began with a sell-off that wiped out JetBlue's gains from the industry wide rally on Friday. I'll look at what caused this 4.3% drop and why it could be a temporary buying opportunity for long-term airline investors.
As frigid Arctic air moves into the Midwest and Northeast U.S., yet another round of flight cancellations has happened. Airlines are financially hurt by these cancellations, since idle planes don't make money. For the largest carriers, a nationwide and international network ensures that even when one region has cancellations, the carrier can still operate most of its flights.
However, for a smaller, Northeast-concentrated carrier like JetBlue, these temperatures have a much more damaging effect than they would for a carrier such as Delta Air Lines (NYSE:DAL). Even with numerous flight cancellations in the most affected regions, and having a Delta Connection plane slide off a runway, temporarily bringing New York JFK International to a halt (no injuries were reported), Delta's vast network allows it to continue operating flights making inclement regional weather less damaging to the bottom line.
The market took notice of this, and while JetBlue shares slid 4.3% on Monday, Delta shares actually rose a modest 0.2%. In contrast to Delta's situation, JetBlue's network is heavily concentrated in the Northeast, with major operations out of Boston Logan International Airport. With so many flights originating, ending, or connecting through the Northeast, JetBlue's decision to halt operations at Boston Logan, Newark, New York LaGuardia, and New York JFK International by 5 p.m. ET Monday will grind a large part of JetBlue's network to a halt.
It is expected that JetBlue will face negative financial effects from this weather that will affect earnings this quarter. But we should ask ourselves two major questions: How much will JetBlue be hurt, and how will these developments affect the airline in the long term?
On how much JetBlue will be hurt, it's impossible to get an exact dollar figure. However, we do know that this is happening after most holiday travelers have returned home, reducing the number of passengers who will have their flight cancelled. The impact of the storm is also hitting at the beginning of JetBlue's quarter, giving the airline nearly an entire quarter to take action to make up the damage.
Even if JetBlue faces a less than impressive quarter because of these events, this should have a minimal effect on the long-term value of JetBlue. This weather is better classified as a one-time event with a chance of happening again, rather than a recurring expense. Anyone who knows Northeast weather would already know this type of thing could happen, and the chances it will happen in the future should have always been priced into JetBlue shares.
The brighter side
While JetBlue suffers through this weather, its future is actually looking a lot better. After having difficulty expanding at many highly popular airports, JetBlue has been able to acquire additional slots at New York LaGuardia and the centrally located Washington National Airport.
This is thanks to the merger of US Airways and AMR that created American Airlines Group (NASDAQ:AAL) late last year. In the terms of US Airways and AMR's settlement with the Department of Justice, the merging airlines would have to divest some slots at certain popular airports. These slots will help JetBlue to continue its growth ambitions hopefully boosting future earnings and revenues.
Few companies hate severe winter weather more than airlines, and JetBlue really got the short straw this time. But considering this is a one-time event, I view Monday's 4.3% drop in JetBlue shares as unreasonable. From a long-term investing standpoint, I believe this is a good buying opportunity for investors looking to invest in a growing airline.