Key Highlights

  • JetBlue Airways (NASDAQ:JBLU) reported a third quarter adjusted loss of USD 0.60 per share against an estimate of a USD 0.55 loss, an 8.75% miss, with GAAP loss of USD 0.68 and net loss of USD 257 million.
  • Revenue rose 21.1% to USD 2.812 billion, but aircraft fuel expense jumped 61% to USD 868 million as the average price rose 57.4% to USD 3.91 per gallon from USD 2.49.
  • Operating loss widened to USD 144 million from USD 100 million, and CASM excluding fuel rose 7.0% to 11.78 cents, while liquidity ended the quarter at USD 2.2 billion.
  • Fourth quarter guidance calls for capacity up 3.0% to 4.0% and unit revenue up 18.0% to 22.0% on a fuel price assumption of USD 4.64 per gallon.

Revenue Strength Versus Fuel Shock

CEO Joanna Geraghty said resilient demand and strong yields drove revenue well ahead of initial expectations, and the release attributes most of the outperformance to higher yields. The cost side absorbed it: fuel expense rose by USD 329 million, simple arithmetic on USD 868 million against USD 539 million, while revenue rose USD 490 million, so fuel alone took about two thirds of the added revenue. Net loss grew 80.4% to USD 257 million. Yields did the heavy lifting, so unit revenue is the key number for the next several quarters. Unit costs excluding fuel rose 7.0%, which shows that non-fuel costs also pressure the airline as capacity grows.

Guidance and Cost Discipline

For the fourth quarter, unit revenue is guided up 18.0% to 22.0% and CASM excluding fuel from down 1.0% to up 1.0%, which signals management expects fares to keep offsetting the USD 4.64 fuel assumption. Full-year adjusted operating margin is guided at negative 4.5% to negative 6.5%, with interest expense near USD 590 million and capital spending near USD 850 million. No dollar revenue or EPS guidance was given, so analysts must model fuel and yield directly for JetBlue Airways (NASDAQ:JBLU). The fourth quarter outlook includes a fuel price of USD 4.64 per gallon, up from USD 3.91 in the third quarter, so management is pricing in another leg of fuel inflation and betting that fares and demand can absorb it. Capital spending near USD 300 million in the quarter and USD 850 million for the year also tests liquidity.

Liquidity, Leverage and Risks

The airline ended with USD 2.2 billion of liquidity, including an undrawn USD 600 million credit facility, and expects about USD 250 million of aircraft-backed financing in the fourth quarter. That helps, but interest expense near USD 590 million is a heavy burden against a market value of USD 894 million in published market data. Risks for JetBlue Airways (NASDAQ:JBLU) include fuel prices above the USD 4.64 assumption, softer yields if demand fades, labor and maintenance costs, and further losses before the airline reaches profit. At USD 894 million, market value is only about 41% of year-end liquidity of USD 2.2 billion, simple arithmetic, which shows how much of the balance sheet is borrowed or committed.

Where Things Stand

The answer is that JetBlue Airways (NASDAQ:JBLU) lost USD 0.60 a share because fuel costs rose 57.4% per gallon and unit costs excluding fuel rose 7.0%, outrunning a 21.1% revenue gain. The guided 18% to 22% unit revenue gain in the fourth quarter shows management expects pricing to catch up, but a full-year operating margin of negative 4.5% to negative 6.5% shows the road back to profit is long. The next catalyst is fourth quarter reporting. Investors should watch fuel and yields together.