On Thursday, JetBlue Airways (JBLU -3.31%) reported yet another quarter of big earnings growth. Like all airlines, it profited from massive fuel cost savings in 2015. As a primarily domestic airline, like Southwest Airlines and Alaska Air (ALK 1.39%), JetBlue also benefited from relatively strong travel demand in the U.S. last year.

Despite expanding its operating margin by 10 percentage points in 2015, JetBlue still lags Alaska Air in profitability. This indicates that there could be plenty of additional upside for JetBlue's profit margin -- and its stock price.

Profit margin rising
In the fourth quarter, JetBlue earned $190 million, or $0.56 per share, more than twice what it earned a year earlier. For the full year, JetBlue's pretax margin reached 17.1% and its operating margin reached 19%, up from an operating margin of just 8.9% in 2014. As a result, adjusted earnings per share nearly tripled from $0.70 to $1.98.

JetBlue's EPS nearly tripled last year. Image source: JetBlue Airways.

The vast majority of this profit improvement came from lower fuel costs. JetBlue spent 21% of its revenue on fuel in 2015, compared to nearly 33% in 2014. Its average fuel price dropped from $2.99 a gallon in 2014 to $1.93 a gallon in 2015.

However, unlike nearly all of its peers, JetBlue also posted modest unit revenue growth last year. Revenue per available seat mile rose 0.8% year over year. Finally, non-fuel unit costs remained under control, rising just 0.5% in 2015 before the impact of higher profit-sharing payments.

Expecting further improvement
JetBlue's Q1 outlook is also promising. Once again, cheap fuel will be the main earnings growth driver. As of Jan. 15, JetBlue expected to pay $1.12 a gallon for jet fuel in Q1, compared to $2.06 a gallon a year earlier.

Oil prices have bounced back a bit since then, but JetBlue will still save a lot of money on fuel. Meanwhile, JetBlue forecast that non-fuel unit costs will decline 0%-2% this quarter, excluding any impacts from severe winter weather.

JetBlue is likely to face a moderate downturn in unit revenue for Q1. CFO Mark Powers noted that the company is facing tough comparisons in January and February, because a massive number of flight cancellations boosted Q1 unit revenue last year. (Operating fewer flights than expected usually leads to more revenue per flight.)

For January, JetBlue currently expects a 3% unit revenue decline. JetBlue didn't provide revenue guidance for February and March, but it seems likely that unit revenue could decline 2%-3% for the full quarter, assuming there are no major weather disruptions in the next two months.

Still more upside
JetBlue's 17.1% pretax margin last year was very impressive by airline industry standards. However, it didn't come close to Alaska Air's adjusted pretax margin of 24%, which was the best of any airline.

Alaska Air posted an industry-leading 24% pretax margin in 2015.

JetBlue and Alaska Air are similar in many ways. Both airlines have a good balance of business and leisure routes, reducing seasonality in their results compared to many peers. Both airlines also routinely top their respective categories in the J.D. Power North America Airline Satisfaction Study.

However, Alaska has been a little bit ahead of JetBlue in terms of revenue-boosting initiatives like charging for checked bags and adding more seats to each airplane. JetBlue is now going after this low-hanging fruit, which should help it bring in incremental revenue and expand its profit margin over the next few years.

JetBlue rolled out a new baggage fee policy in mid-2015, which generated more than $80 million in incremental operating income last year and should make $200 million in operating income in 2016. A project to add seats to 145 Airbus aircraft will begin in the third quarter of this year.

JetBlue will bring its Mint premium service to Boston this year. Image source: JetBlue Airways.

On top of these initiatives, JetBlue is introducing its upscale Mint premium service in Boston this year, which should bolster its unit revenue. JetBlue is also launching a new co-branded rewards credit card later this quarter that is expected to bring in an extra $60 million in annual income.

Alaska Air may always maintain a margin advantage over JetBlue, thanks to its near-monopoly position in the state of Alaska. However, JetBlue's ongoing profit-improvement initiatives should enable it to narrow the margin gap over the next several years.

The upside for investors is significant. Alaska Air's market cap is nearly $9 billion, compared to $7 billion for JetBlue, even though JetBlue's revenue is about 15% higher. If JetBlue can get its profit margin closer to that of Alaska Air, its market cap could soar past that of its West Coast rival in the next few years.