JetBlue Airways gains: bleeding slows down
Although 2020 has not been an easy year for any airline, JetBlue Airways (NASDAQ: JBLU) was hit harder than most. JetBlue’s operations are heavily concentrated in the northeast: in particular its main target cities of New York and Boston. These markets experienced particularly severe COVID-19 outbreaks earlier this year and have taken aggressive countermeasures, including quarantine restrictions for travelers.
Fortunately, JetBlue started the year with a strong balance sheet. And despite the unique challenges it faces due to its focus on the northeast, the low cost airline on Tuesday announced better-than-expected third quarter results, with further improvement expected in the fourth quarter.
The results at a glance
During the third quarter, JetBlue reduced capacity by 57.6% year-over-year, in response to weaker demand. This was a larger reduction in capacity than his original planning assumption of 45%.
Although they offer less capacity than initially expected, revenues have exceeded JetBlue’s expectations. Management had told investors to prepare for an 80% drop in revenues in the last quarter. Instead, revenue fell 76.4% to $ 492 million. It also exceeded analysts’ average estimate of $ 457 million. Notably, while JetBlue’s load factor has halved – in part because of the carrier’s decision to block two seats per row for safety reasons – its average fare has actually increased from year to year. other.
The combination of a larger capacity reduction and better than expected revenue also helped JetBlue beat analysts’ earnings estimates. The carrier posted an adjusted loss per share of $ 1.75, ahead of analyst consensus of $ 2.00.
Money consumption slows down
At the height of the crisis in late March – when booking activity fell to near zero and there was a spike in cancellations – JetBlue burned an average of $ 18 million in cash per day. Three months ago, the company reported that cash consumption had moderated to an average of $ 9.5 million per day in the second quarter, including an average daily consumption of $ 8 million in June.
However, at the time of the second quarter earnings report, an increase in COVID-19 cases had hampered the recovery in demand. As a result, JetBlue did not expect much sequential improvement in third quarter cash consumption, calling for an average daily cash consumption of between $ 7 million and $ 9 million.
At the end of last month, JetBlue updated its outlook, noting that it had seen a slight increase in demand starting in early August from vacationers and customers visiting friends and relatives. . He added that average daily cash consumption would likely end up near the better end of its previous forecast range.
Indeed, on Tuesday, JetBlue reported that cash consumption averaged just $ 6.1 million per day in the last quarter. This slowdown in cash consumption (along with JetBlue’s financing activities) allowed it to end the quarter with $ 3.1 billion in cash and investments. Including the federal loans to which it is eligible under the CARES Act, the company has $ 4.9 billion in cash: enough to cover more than two years of cash consumption at its recent rate of cash usage.
Prepare for a longer recovery
JetBlue says the new routes that it has launched in recent months show performance that meets or exceeds expectations. Early booking activity for peak holiday periods in November and December also looks encouraging. JetBlue therefore expects daily cash consumption to moderate to $ 4 million to $ 6 million this quarter.
Yet even at the favorable end of that forecast range, JetBlue would burn cash at a rate equivalent to around $ 1.5 billion per year. In comparison, Alaska Air – which is slightly larger but concentrated on the west coast – already reduces daily cash consumption to $ 4 million last quarter. In short, JetBlue faces a longer path to balance than its peers, simply because of its geographic focus.
Recognizing the long road to recovery, JetBlue changed its backlog with Airbus even earlier this month. Now, the carrier plans to take delivery of just three A321LR jets in 2021 and three more in 2022. Under a previous postponement agreement, JetBlue was expected to receive five A321LRs next year and seven in 2022. This indicates a later start date for JetBlue. long-awaited flights to London, as well as a slower build-up of transatlantic capacity: a sensible move, given that demand for international travel could remain depressed for years to come.
The COVID-19 pandemic has created particularly significant challenges for JetBlue. But the airline is rising to meet these challenges, and its strong pre-pandemic track record and focus on leisure should allow it to recover strongly once the pandemic is under control.
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