JetBlue Airways (JBLU) recently announced its fourth-quarter 2024 financial results, revealing a mixed bag for investors. While the airline managed to meet revenue expectations and surpass earnings estimates, its forward-looking guidance disappointed market analysts, leading to a significant drop in its stock price. This performance reflects ongoing challenges within the airline industry, including increased competition on certain routes and the repercussions of Pratt & Whitney engine recalls. These factors underscore the inherent volatility of individual airline stocks and highlight the potential benefits of diversified investment strategies, such as those focused on high-quality portfolios, which often offer more stable returns.
Delving into the specifics of JetBlue’s Q4 performance, the company generated $2.28 billion in operating revenue, aligning with analyst projections. The adjusted loss per share stood at $0.21, outperforming the anticipated loss of $0.31. However, this positive news was overshadowed by the company’s outlook for the coming quarters. Revenue in Q4 declined by 2.1% year-over-year due to a combination of factors, including a 5.1% drop in available seat miles (ASM) and a slight decrease in average yield. These declines were partially mitigated by a 2.1% increase in load factor, indicating a higher percentage of filled seats. The reduction in ASM can be attributed, in part, to the ongoing inspections of Pratt & Whitney engines, a situation that has impacted several airlines. While JetBlue managed to slightly reduce its operating expense per available seat mile, its adjusted pre-tax margin remained negative, albeit slightly improved from the previous year.
The company’s guidance for Q1 2025 and the full year 2025 further dampened investor sentiment. JetBlue anticipates a decline in capacity, as measured by ASM, ranging from 2% to 5% in the first quarter. Furthermore, the company projects revenue per available seat mile (RASM) growth between -0.5% and 3.5%, significantly below analysts’ expectations of a 7% increase. Cost pressures also loom large, with an expected rise in cost per available seat mile excluding fuel (CASM ex-fuel) of 8% to 10% in Q1, primarily driven by increased labor and maintenance expenses. For the full year 2025, JetBlue projects flat ASM, a 4.5% increase in RASM, and a 6% growth in CASM ex-fuel. These projections reflect the ongoing impact of the engine grounding situation and broader industry challenges.
The grounding of aircraft for Pratt & Whitney engine inspections has emerged as a significant headwind for JetBlue. During the earnings conference call, management revealed that these groundings negatively impacted the 2024 operating margin by 2.5 percentage points. This impact is projected to worsen in 2025, reaching 3 percentage points, as the number of grounded aircraft is expected to increase. The ongoing engine issues are expected to persist for the next few years, with a potential improvement anticipated only from 2027 onwards. This protracted challenge underscores the significant operational and financial burden facing the airline.
The combination of a weak outlook and ongoing operational challenges has significantly impacted JBLU’s stock price. The stock experienced a sharp decline following the Q4 earnings announcement, reflecting investor concerns about the company’s near-term prospects. Looking back over the past four years, JBLU’s stock performance has been highly volatile, with significant fluctuations in annual returns. This volatility stands in stark contrast to the more stable performance of diversified investment portfolios, such as the Trefis High Quality Portfolio, which has consistently outperformed the S&P 500 over the same period. The portfolio’s focus on high-quality stocks has provided investors with better returns and lower risk compared to the broader market.
Looking ahead, the outlook for JBLU stock remains uncertain. Despite the recent price drop, the stock’s valuation relative to its trailing revenues remains close to its historical average. This suggests that the market may already be pricing in the anticipated challenges, leaving limited room for significant upside potential. Given the ongoing engine issues, cost pressures, and competitive landscape, investors seeking exposure to the airline industry might find more compelling opportunities in other carriers with stronger growth prospects and less operational uncertainty. While a detailed analysis and updated model are necessary to fully assess JBLU’s future trajectory, the current environment suggests that other airline stocks may offer more attractive long-term investment prospects. Furthermore, comparing JetBlue’s performance metrics to its peers provides valuable context for evaluating its relative strengths and weaknesses within the industry. This comparative analysis can help investors make more informed decisions about their investment strategies.
