SunValley
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Turbulent Times For JetBlue?

Tue Jan 13, 2004 12:17 pm

Apparantly Wall Street is talking.........

JetBlue Airways "fell on its own knife" in the fourth quarter as its internal capacity growth hurt its profitability, JP Morgan analyst Jamie Baker proclaimed last week. In early Dec., JetBlue revised its previously issued operating margin guidance downward to 13%-14%, citing "capacity additions resulting in lower average fares, particularly in our Western markets" (ATWOnline, Dec. 5). It did not identify the airline(s) responsible for the additions, but in a report released last week Baker noted that JetBlue boosted its own capacity 49% in the Oct.-Dec. period while the rest of the industry showed zero growth in competitive markets. "JetBlue was the sole growth culprit in the fourth quarter," he concluded. Now, with network rivals set to flood its markets with 12% additional capacity this quarter followed by a 16% increase in the March-June period, the carrier may be in for some turbulence in 2004. In Boston, which it began serving this month, American Airlines and others are planning 25% capacity growth, "great news for Boston passengers but not JetBlue shareholders," Baker wrote. JetBlue's own system capacity is set to grow 48% in Jan. and 38% in Feb., he noted.
Separately, JetBlue reported that load factor for Dec. fell 2.7 points to 82.2% as capacity outpaced traffic. RPMs rose 43.6% to 1.08 billion while ASMs climbed 48.2% to 1.31 billion. For the 12 months ended Dec. 31, RPMs were up 68.6% to 11.53 billion, ASMs grew 65.5% to 13.64 billion and load factor gained 1.5 points to 84.5%..--Perry Flint


 
mjszanto
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RE: Turbulent Times For JetBlue?

Tue Jan 13, 2004 5:25 pm

First of all, I think JetBlue's 20% profit margin in the fourth quarter was very impressive.

Second, is anyone else confused about why a possible 13-14% profit margin in the fourth quarter is so bad? Why is it the end of the world that load factor fell to 82% from 84%?

Cash flow for JetBlue looks good. Given the fact that startup airlines get hit by being small compared to the majors, why is rapid growth bad? Furthermore, even if earnings growth stalled this year, isn't successful growth more important?

Is the JP Morgan analyst right and everyone else wrong? I think sometimes analysts want so badly to uncover the next business disaster they start making enormous jumps of logic. I think the JP Morgan guy has it all wrong. Although if you invest some money into JetBlue, which I think would be wise at these prices, dig in for the next year, and prepare from potential shareprice turbulence if this JP Morgan guy doesn't stop spinning everything negatively.

I would say that JetBlue most likely will double from this share price in one year. Even if it does not do so well this year, I still think it has a good chance of being one of the best performing stocks over the next ten years.
 
LHR001
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RE: Turbulent Times For JetBlue?

Tue Jan 13, 2004 5:28 pm

Why not move LGB-LAS to ONT-LAS... JetBlue is completely cutting off their traffic from the Las Vegas to Los Angeles region!
 
artsyman
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RE: Turbulent Times For JetBlue?

Tue Jan 13, 2004 5:43 pm

Second, is anyone else confused about why a possible 13-14% profit margin in the fourth quarter is so bad?
***

I am not confused at all. The guidance that Jetblue set for themselves and for the investors was that they would grow at a specific rate. The price of the shares soared on this data, and today the price of the Jetblue share is based on the fact that Jetblue will grow at a huge % every quarter until the company is 25 x bigger and more profitable than it is today. The first sign of trouble was when they ordered the smaller Embraer jets. This was an admission that the free uninterupted growth plan was not going to plan, and that they could no longer fill the A320 at will in whatever market they felt like approaching. The next huge problem, and it is a huge problem was when they started reducing the guidance that they set for investors. Never mind the heavy competition and being chased out of Atlanta.

For those who do not know, the price that stocks trade at is based on what people think it will be worth down the road, not what it is worth today. The price of Jetblue's stock today is roughly $25, but the actual value of the stock is about $1. As long as the company sails along with huge growth of 20% per quarter, nobody cares, as it is all in the path towards the share being worth $25..., but the second that growth slows, hell breaks loose. This is what is happening now. They are being found out, and investors are realising that Jetblue is not going to reach the plateau's that they set for themselves, and that the stock is NOT worth the $25 price that is on it.

This is not to suggest that they are bad company as clearly they are not. Their growth is good, they have a good product and they make profits when others are not, but they are not the wonder child that everyone thought they were going to be.

It is not smooth times ahead for Jetblue, but talks of their demise or collapse are not realistic

J
 
planemaker
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RE: Turbulent Times For JetBlue?

Tue Jan 13, 2004 5:43 pm

The JP Morgan analyst, Jamie Baker, is actually one of the more rational analysts in the financial sectors. He is not trash talking JetBlue, just simply pointing out some obvious truths about JetBlue going forward. JetBlue's profit margin in the fourth quarter is history.

It only makes sense to to give a heads up to the market conditions that WILL negatively affect JetBlue when its own "system capacity is set to grow 48% in Jan. and 38% in Feb":

- "network rivals set to flood its markets with 12% additional capacity this quarter followed by a 16% increase in the March-June period."

That is a lot of seats chasing relatively stagnant passengers numbers.
Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein
 
artsyman
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RE: Turbulent Times For JetBlue?

Tue Jan 13, 2004 5:58 pm

The other thing is that things can only get worse for Jetblue from here on out. Wages can only go up as the staff are no longer all new hires earning the lowest wages. The planes are not as new and therefore will need more MX than they did in the honeymoon period, and the grace periods on their leases are over also, so things will get more expensive across the board. Jetblue set it's pricing based on how it saw the market developing, but with everyone else meeting their fares, and chasing them out of markets that they thought they could annihilate, they may be forced into raising prices in the future when their CASM gets higher.

J
 
mjszanto
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Artsyman

Tue Jan 13, 2004 6:09 pm

That is not accurate. A value of a stock should be based on expected on future earnings and what is viewed as a reasonable discount factor. However, that does not assume linear growth. There is a formula for P/E over expected growth based on the assumption of linear growth by which JetBlue's P/E seems very low.

However, it is ridiculous to assume linear earnings growth. Nothing works out in a straight forward way in business. However, the Embraers should be able give them more room for growth. If their growing number of planes and employees allow them to have huge earnings in 10 years, it doesn't matter much if their earnings grow linearly. For example if they become the Walmart of the skies in 10 years, and a market cap 100 billion dollars, then their current shares (forgetting future splits) would be worth something like $1300 then.

By the way, I think I'm pretty good at the stock market, since my biggest holding since last January was xmsr, which I started buying at 2 dollars last year, and hit 30 dollars last week. While it is down to 27, which it often does after a climb, I still expect more growth.
 
artsyman
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RE: Turbulent Times For JetBlue?

Tue Jan 13, 2004 6:17 pm

I was giving a very simplified answer. While I agree that you are not going to get linear growth as you suggest, they are still not hitting the numbers. The original poster did not understand why the growth figures were being viewed as negative, and I basically explained that. If you think life in jetblue land is rosey, then good for you, but personally I think it is about to get real tough on them.

J
 
LHR001
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RE: Turbulent Times For JetBlue?

Tue Jan 13, 2004 6:51 pm

Sad to say but the Honeymoon is definitely over for everyone at JetBlue.

The following routes have recently been modified-

Long Beach to Atlanta (Cancelled)
Oakland to Atlanta (Cancelled)
Long Beach to Las Vegas (Cancelled - eff. April)
Long Beach to Oakland (reduced)

The airline has just announced new service to Sacramento. One of the problems with the service to Sacramento is that the airline is basing the flight times solely on the needs of JetBlue and not the passengers. The route will serve no purpose ..(in regards to the flight time).. for connecting flights.

JetBlue is operating the route with its typical late night service... Which works both ways... It is good for a business person who has a day trip to New York. It is bad for a business person that needs to be awake on arrival in New York. It is good for inbound international connections. It is bad for the outbound international connections at JFK- most international flight depart from 5:30pm to 8pm... not 7am!

The idea of JetBlue is nice.... The reality isnt so rosey!


LHR001
 
planemaker
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RE: Turbulent Times For JetBlue?

Tue Jan 13, 2004 6:58 pm

There is a lot of "irrational exhuberance" in the stock market that can use "ratios" and "technical analysis" to justify just about any position.

I agree with Artsyman that the slogging is only going to get worse for JetBlue. Their honeymoon phase is virtually over. As they seek to continue their rapid growth they will be slowed down by increasingly more competetive majors and will increasingly bump into other LCC's in a relatively stagnant travel environment. Although still profitable, the net result for JetBlue going forward will tend to be lower pax loads and yields and hence, lower profits.

[Edited 2004-01-13 11:01:04]
Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein
 
LHR001
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RE: Turbulent Times For JetBlue?

Tue Jan 13, 2004 7:02 pm

If Sacramento proves to be a success... Look for American or Delta to follow suit... Both airlines are keen on marking their New York turf... In addition American has matched or beat Jet Blue in all of the JFK-California markets!


LHR001
 
mjszanto
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Jetblue

Tue Jan 13, 2004 7:16 pm

Just keep in mind that JetBlue's P/E over expected earnings growth over the next few years is unusually low in the market. This is no technical analysis. This is a fundamental issue.

Furthermore, with the exception of Southwest JetBlue has the lowest costs. Typically the lowest cost competitor is the one to thrive in the long run. Second, the Embraer 190 will allow JetBlue versatility that no other airline has.
 
LHR001
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RE: Turbulent Times For JetBlue?

Tue Jan 13, 2004 7:19 pm

The ERJ-190 will mean more routes and frequencies.... However, the problem is that it si smaller than the 737 and A320....

Low Fares and Available Seats make happy customers... ala Southwest...

Low Fare and Unavailable Seats make unhappy customers... ala Jet Blue...



LHR001
 
mjszanto
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RE: Turbulent Times For JetBlue?

Tue Jan 13, 2004 7:25 pm



Eric Gillin
Analysts Defend JetBlue
By Eric Gillin
TheStreet.com Staff Reporter
01/12/2004 02:01 PM EST
URL: http://www.thestreet.com/markets/ericgillin/10136321.html




Concerns that JetBlue's (JBLU:Nasdaq) growth plans could hurt its earnings have divided Wall Street in the wake of a bearish report from J.P. Morgan last week, and shares slumped Monday despite a pair of positive research reports.

Fulcrum Global Partners analyst Jeffrey Kauffman and Raymond James analyst James Parker defended JetBlue on Monday, saying fears that the high-growth, low-cost carrier is stumbling are overblown. Last week, shares of JetBlue tumbled on the J.P. Morgan note, which said JetBlue's growth was too aggressive and would result in zero earnings growth for 2004.

Fulcrum's Kauffman disagreed with J.P. Morgan's conclusion, calling the brokerage's calculations a case of "fuzzy math" and terming JetBlue's issues "growing pains." After doing some pricing checks, Kauffman reiterated his buy rating and said JetBlue continues to have a pricing premium over rivals in its key Florida markets and notes the low-cost carrier filled nearly 83% of its seats in December, despite competition.

Likewise, Raymond James' Parker believes that J.P. Morgan's concerns are overblown, because in the first two quarters of last year, airlines were cutting back capacity because of reduced travel demand due to the war in Iraq, making the comparisons less useful. While J.P. Morgan said rivals will boost capacity on JetBlue's routes by 12% in the first quarter and 16% in the second quarter over year-ago levels, Parker said the capacity picture is much brighter on a quarter-to-quarter basis and expects JetBlue to have earnings growth of 16.3% in fiscal 2004.

"The sequential increases in capacity in JetBlue's markets should be 6% in the first quarter of 2004, which suggests that JetBlue has quite a capacity hill to climb, but not nearly the 17% capacity mountain as indicated by the year-over-year capacity increase," said Parker.

Parker said the capacity increases would continue to impact JetBlue's operating margins and lowered his fiscal 2004 earnings-per-share estimate to $1 from $1.08, which is lower than current Wall Street consensus of $1.03. But he reiterated his overperform rating on shares, noting that competition from legacy carriers is nothing new and that on a long-term basis JetBlue still has the advantage.

"Legacy carriers, from time to time, are going to make a run at JetBlue and other low-cost carriers because the low-cost carriers are rapidly capturing the domestic market," said Parker. "However, there is not much the legacy carriers can do on a sustained basis, given their high unit costs ... except throw money at the low-cost carriers, which is exactly what American is doing."

Indeed, American Airlines, a unit of AMR (AMR:NYSE) , recently launched a promotion to retain market share in Boston, where JetBlue debuted service last week. Under the sale, American's frequent flyers will get a free round-trip ticket anywhere American flies if they purchase a pair of round-trip tickets on select routes that JetBlue flies to. The sale lasts only until April 15, but is aggressive and has already been matched by Delta Air Lines (DAL:NYSE) , which is also looking to keep pressure on JetBlue.

The J.P Morgan report sideswiped JetBlue's stock, which had come off recent lows and rallied more than $2 in the first week of 2004. Over the final two sessions of last week, JetBlue fell $4.24, or 14.7%, to $24.68 on a total of 18.6 million shares, three times normal volume. In comparison, over the same two-day span, Southwest (LUV:NYSE) dropped 7.7% and AirTran (AAI:NYSE) fell 5.7%, while America West (AWA:NYSE) dropped 4.3%.

And despite the positive comments from Raymond James and Fulcrum Global Partners, JetBlue's shares continued to slump at midday Monday, off 14 cents, or 0.6%, at $24.44.

But even as airline analysts snip their estimates on JetBlue, its valuation could finally be a bright spot. Because its stock has fallen faster than earnings estimates, JetBlue's valuation relative to peers has slipped considerably. For investors who believe the concerns over competition are a near-term blemish on a long-term story driven by low costs, JetBlue could be attractive again. Based on Friday's close of $24.68, the carrier trades at 24 times fiscal 2004 earnings, which is lower than Southwest's multiple of 26.3 times 2004 earnings.

"We are adjusting our fourth-quarter earnings-per-share estimate and 2004 EPS estimate to account for higher fuel prices," noted Kauffman, whose 2004 EPS call was dropped to $1.20 from $1.26 and is one of the highest on Wall Street, "but otherwise, we remain bullish on the story, and encourage accounts to take advantage of recent weakness."

Fulcrum Global Partners doesn't have any investment banking interests with JetBlue. Raymond James was a co-manager of JetBlue's initial public offering and said it plans to seek investment banking from the carrier in the next three months. Both analysts certified that no part of their compensation had either directly or indirectly influenced their views.
--------------------------------------------------------------------------------
 
goingboeing
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 12:29 am

I said it a year ago - JetBlue's stock was "priced for perfection". That meant 25% profit margins and 85% load factors. Yes, a 20% profit margin is still good - but it didn't do what analysts "expected". Yes, an 82% load factor is great - but again, it "disappointed" the "investors". IMHO, the 190 order is going to increase costs more than anybody is saying. They pooh-pooh a 14% increase in operating costs for that aircraft - it's only a penny after all. But what would happen if AA or UAL announced that they just LOWERED their operating costs by a penny? It's major news.

The new jets will allow them to open up new cities in "lesser" markets....like Chicago or Dallas. But with what kind of frequency? And this is the gotcha in my opinion - If you introduce service with one or two flights a day, most likely load factors will stay in that 85% range. If on the other hand, you offer 10-15 daily flights, your load factors most likely will drop... and the "investment community" (in today's market, I use the term "investment" very loosely) won't be happy with that. Look at the high frequency leader - Southwest...a "good" system wide average load factor for them is 70%...JetBlue can't make a profit with that kind of load factor. If you introduce service with one or two flights a day, they'll most likely be contracting out the operations in that city. And eventually, that contract work can bite them with less than adequate customer service.
 
DCA-ROCguy
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 1:21 am

Thanks Mjszanto, I was going to post a link to the same article.

LHR001--JetBlue will most likely run redeyes as long as it's profitable for them. Redeyes probably aren't a good way to grow market share, they'll need to get into daytime flying to do that. As they have at LGB and OAK. But for now, they seem to be satisified with the returns they're getting on DEN and SEA redeyes, for instance.

I figure JetBlue will eventually have to add daytime flights on all of its redeye routes. UA will probably being daytime Ted flights to JFK-DEN and SEA-DEN. Even though Ted's CASM, as best we can tell, is higher, they'll force JetBlue to defend its turf. Also: it's not hard to imagine HP looking at JetBlue's SMF schedule and saying, "Hey, we're already running non-LAS, non-PHX transcons at LAX, why not run daytime ones at SMF, if there's money to be made?"

AA and DL are not dominant carriers at SMF, they might have a tough time driving JetBlue out if they try.

Jim
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
Jeff G
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 2:05 am

My, my. LHR, Artsy, Planemaker, GB, Sunvalley, all on one thread. I just can't resist.

What the naysayers appear to be missing regarding the E190 is that he E190 program was launched *in addition to* the A320 program. The A320 has not slowed down in the least and is running as strong as ever. Delivery rates for the A320 going forward through at least 2010 are actually slightly accelerated compared to past years. The E190 delivery rate is constant through at least 2011 starting in the middle of next year. This is hardly a sign of a failing business model or a miscalculation in using the A320. If that were the case, JetBlue would be either replacing existing A320's with E190's or at least cutting back A320 deliveries in favor of E190's but this is not happening. It means basically that starting in 18 months, JetBlue will take on and deploy twice as many airplanes at a time through the end of the decade and beyond. For a period of more than five years, starting in 3Q 2005, JetBlue will take delivery of a new airplane every ten days, vs. every 21 days or so now.

How is this perceived as a negative? Is it only that it hasn't been done by an LCC before? The LCC model is not set in stone and every deviation doesn't mean instant failure or a mistake. Heck, five years ago the LCC plane of choice was a 15 yr old B737-300 and assigned seating was a luxury. Look how expectations have grown since then. JetBlue intends to supplement their existing service with point to point LCC service to smaller markets. That has not been done on a large scale before, but again that doesn't mean it can't be done. It's only now that comfortable, economical 100 seaters are available. This wouldn't have been possible as little as five years ago.

Regarding ATL and GB / KLGB), USA - California">LGB - LAS, people please, you know better that that. ATL was a miscalculation, but it was only two round trips per day. AirTran jumped into the market, and it is JetBlue's position that it won't try to duplicate LCC service wherever possible. Since AirTran was the natural LCC for the ATL market, JetBlue acted decisively to redeploy rather than watch yield on the route wither away over time. Two flights to ATL weren't worth fighting another LCC for.

GB / KLGB), USA - California">LGB - LAS was never meant to be other than a placeholder, a short route to consume GB / KLGB), USA - California">LGB slots with the least number of aircraft until the slots could be used on more profitable routes. Same with GB / KLGB), USA - California">LGB - OAK. JetBlue could well have just flown 12 flights per day on GB / KLGB), USA - California">LGB - ONT to accomplish the same thing, but at least these generated some revenue. I guarantee that JetBlue's competitors are not rejoicing that JetBlue is cutting GB / KLGB), USA - California">LGB - LAS or cutting back GB / KLGB), USA - California">LGB - OAK because this means that equipment is now available to take full advantage of the freed up GB / KLGB), USA - California">LGB slots to places that generate much more revenue than such local service. I don't know what JetBlue intends with the freed slots, but I do know that AA, DL, UA or others won't like it.

Regarding redeye service, these flights are very profitable, not least in the fact that the planes used on them would have been otherwise idle. There's no attempt at this time to create a lot of frequency on these routes, partly because they don't have the planes, and partly because there may not be a market for 6X frequency JFK - SMF. JFK - OAK is an example of redeye service that was developed into much higher frequencies, but others will take time. Not all routes are successful this way. For instance, the daytime JFK - ONT didn't work out well enough so there's again only redeye service there. Perhaps with 4X service it would work out better than just 2X, but that's for the planning people to determine. For those passengers who need more convenient flights to New York from SMF, they are more than welcome to drive elsewhere, since there is no other service to New York. This is not a slam on those customers, but if they don't want the service they aren't forced to use it. If they avoid it in droves then the route fails and JetBlue will reconsider.

I find it difficult to understand that many consider it a negative trait that JetBlue is decisive in cutting service that isn't profitable or isn't meeting projections. JetBlue is in business to make money, not fly pretty airplanes around. Since there is a limited number of pretty airplanes, they have to be careful to use them only where they create enough revenue to justify their use. It's a dynamic process, and it's possible to make mistakes. I would be far more worried if they did NOT cut service that is no longer working. The airline management team that never makes mistakes has never existed, but you have to admit that these people are right far, far more often than they are wrong. You could do worse than to bet that they will continue to mostly be right.
 
luv2fly
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 2:42 am

Jeff G, what a well thought out and written post, you did address all the JetBlue nay sayers all in one place. Thanks tho I am sure they will be back to post more doom and gloom soon.
You can cut the irony with a knife
 
goingboeing
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 3:39 am

While I was one of the "targeted" posters - I don't think I posted "doom and gloom" as far as the survival of the airline....just that the stock has been priced for perfection...and any deviation from that perfection is going to have a negative impact on the stock.

I do have to roll my eyes at some things though. If any airline other than JetBlue had pulled out of a route, they would have been cited as "tucking their tail and running". In the case of JetBlue, it's just "smart business" and the only reason the route was flown was to "protect slots". Bottom line - Delta ate their lunch on the ATL run.
 
Jeff G
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 4:20 am

Sorry to "target" you GB. You are actually very reasonable and well thought out in your objections.

the only reason the route was flown was to "protect slots"

Of course. This is not reinterpreting history. It was obvious from the outset that the OAK and LAS flights were to protect slots. They had to be used or they would have been taken away in court. Better to keep the slots open with weak routes than lose the opportunity to use them later on strong ones.

Bottom line - Delta ate their lunch on the ATL run.

You can't possibly think that JetBlue was unaware that DAL would respond as they did in ATL. I don't think it was DAL at all who forced JetBlue to reconsider ATL. DAL's response was clearly unsustainable in the long run. AirTran also entering the market, that was a problem. Going head to head with two incumbents, one of which - AirTran - could profitably slug it out as long as JetBlue could, was more than JetBlue bargained for, so it was time to leave. I think if AirTran hadn't entered the market then JetBlue would still be in ATL, still skimming the cream off the route, and DAL would have cut back their service to a more reasonable level again. Witness that they have already done this vs. AirTran. Of course, it's no longer a moneymaker for DAL (or at least not nearly to the extent that it was) and AirTran is doing quite well, which is the position JetBlue would have been in. Again, it was AirTran's actions, not Delta's, that changed the equation. A miscalculation, yes, but it was in underestimating AirTran, not succumbing to DAL's bombing run. Even at the height of DAL's response, JetBlue was making money on the route while DAL was hemorrhaging.
 
mjszanto
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 4:22 am

2 things, first the 20% profit margin beat everyone's expectations significantly, did not disappoint anyone.

Second, the PEG ratio (PE/growth) as calculated by Standards & Poors is well below average on the stock market, which makes jblu seem like a cheap growth stock.
 
luv2fly
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 4:23 am

Goingboeing

I never meant to include you in the doom and gloom posters, your post are always right on the facts and not full of emotion or fluff. THANKS
You can cut the irony with a knife
 
goingboeing
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 4:33 am

2 things, first the 20% profit margin beat everyone's expectations significantly, did not disappoint anyone

It disappointed those who were expecting a 25% profit margin. Again - it's not a bad number at all, but look at a chart to see what happened when JetBlue announced that they expected 13-14%...the "investors" sold. When it came back in at 20%, "investors" were happy that it wasn't 13-14, but disappointed that it wasn't 25. That is why I use the term "investor" very loosely these days.

Neeleman needs to take another page out of Southwest's book...some of the announcements made by their CFO sometimes come across as downright pessimistic, or at the very best "cautiously optimistic". The daytraders will "punish" the stock when those announcements come out, but it's "corrected" when the numbers are released. Airlines are not alone in this. I remember reading once where Home Depot announced a profit, but it wasn't the profit that "analysts" were expecting. The stock was punished on GOOD news.
 
User avatar
EA CO AS
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 4:37 am

AirTran also entering the market, that was a problem.

To be fair, I think this was part of the problem..but mainly the fact that DL responded not only as aggressively as they did, but as successfully as they did.

The market never warmed to B6 on this run, plain and simple. It looks like almighty jetBlue doesn't have the stomach to face stiff competition on markets it doesn't already have a strong footing in.
"In this present crisis, government is not the solution to our problem - government IS the problem." - Ronald Reagan

Comments made here are my own and are not intended to represent the official position of Alaska Air Group
 
jetbluefan1
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 5:42 am

Sad to say but the Honeymoon is definitely over for everyone at JetBlue.

It's not over. Why is everyone being so negative towards JetBlue (except for you, Jeff G). JetBlue has the highest load factor in the industry. Therefore, it only makes sense to add more flights to fit the damand of those loads. An 82% load factor is something that other airlines dream of, but only JetBlue has it and repeatedly sets new records. Sure, their load factor won't be growing 5% every month, but it will stay steady in the high 70s and low 80s. JetBlue's break even load factor is around 70%, so they are making a lot of money.

While I do not completely agree with JP Morgan, I do understand the point of view. Increased capacity may make a few marks on JetBlue -- it'll hurt any airline. However, JetBlue's stock price has been continously falling, and it's been said that it's due to this new competition. So why did JP Morgan drop JetBlue over $3 on Friday even though they reported an 82% load factor? It supposedly was due to increased competition, but hasn't the continous fall already been due to this competition? IMO, JetBlue shouldn't be losing dollars at a time as they are very financially healthy.

Low Fare and Unavailable Seats make unhappy customers... ala Jet Blue...

Sorry LHR001, but JetBlue has been adding seats to most of its routes. When the 190's come, it will mean more flexible scheduling, more flights, and the same amount of seats -- if not more. So it's not "ala Jet Blue"...it's not "ala" any airline as just about every airline in the industry just keeps adding.

As far as I'm concerned, JetBlue has a very bright future, but nobody said it'll be calm and all hunky dory. Just like every single airline out there, JetBlue will have to face competition. There's not a single airline that can avoid this. Period. And JetBlue is taking the appropriate measures to make sure that they are fully prepared for battle when it comes knocking at their doorstep.

Welcome back to Aviation Basics 101.

JetBluefan1

 
ScottB
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 5:46 am

As others have said, the real uproar here seems to be over the tumble JBLU stock has taken in the past month, and I can't say that the fall in the share price is entirely unsurprising. GoingBoeing puts it well when he said that JBLU was "priced for perfection;" investors were expecting 20% operating margins and 85% load factors to continue indefinitely. I think it's telling that earnings growth for next year is projected to be only in the 10-20% range as compared to revenue growth of 30-40%. To my eyes, the implication is that future growth, while profitable, will not match the success of the company's growth so far.

The majority of the large markets (based on NYC O&D) still unserved by B6 from JFK are large hubs for other airlines: ORD/MDW, ATL, DFW, DTW, IAH, PHX, STL, PIT, CLE, CLT. It's interesting that B6 chose not to start ATL-JFK as part of its foray into the ATL market. Logically, JBLU management added service to many of the largest markets from NYC -- especially those lacking a fortress hub at the other end. South Florida (MIA/FLL/PBI) was already NYC's largest market, the L.A. Basin was second, and MCO was in the top 5. The only catch is that they're likely to face even bigger fights when they attempt to expand into other airlines' fortress hubs.
 
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EA CO AS
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 5:51 am

Welcome back to Aviation Basics 101.

Stow the 'tude. While B6 is a good company, the bloom is definitely off the rose for now.

And lest you forget, your company has only been around a few years. Don't lecture people who have forgotten more things about this industry than you'll ever know.
"In this present crisis, government is not the solution to our problem - government IS the problem." - Ronald Reagan

Comments made here are my own and are not intended to represent the official position of Alaska Air Group
 
artsyman
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 6:04 am

Second, the PEG ratio (PE/growth) as calculated by Standards & Poors is well below average on the stock market, which makes jblu seem like a cheap growth stock.
******

Would be better to compare them to their peers, not to the market in general. A P/E of 25 (which is a lot lower than it was a few months ago) is still very high for this industry. Look across the board and the rest of the carriers do not have a P/E anything like that. Obviously the others are not making money so it makes sense, but you cannot get past it when Jetblue misses expectations, and then lowers the bar on future guidance. Of course there will be analysts debates over JetBlue, half of them will own it, and half will not. The ones that own it know that comments such as JP Morgan made that flattened the stock did not help their portfolio, and as more and more negative commentary comes out, it becomes a damage limitation excercise.

Jetblue are a great company, no one is debating that, but they are not what they said that they would be, they are not what the analysts and stockbuyers thought they would be, and they are not worth their P/E of 25.

Ask yourself this, would you go out and buy JBLU stock today ? would you recommend it as a good buy to close friends and family ?

[Edited 2004-01-13 22:06:15]
 
goingboeing
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 6:06 am

AS a SWA fan, I wouldn't put much stock in JBLU's PE...look at Southwests.....
 
mjszanto
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 6:36 am

The answer to your question is I bought xmsr at 3-5 dollars and recommended it to everyone 1 year ago. Last week it hit 30 dollars.

Today I recommend to every jblu to everyone particularly family. I have lots of jblu stock. I also shorted microsoft and many .coms in 2000. I owned the Matthews Korea fund in 2001 and 2002, so I didn't really lose money in investments those year.

When I interned at the options exchange in college in 2005, people laughed when I questioned the multi billion ipo of netscape.
 
luv2fly
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 6:40 am

I guess in this case I will use one of my Mom's favorite expressions, "Time will tell!" And that is true for almost everything.
You can cut the irony with a knife
 
artsyman
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 6:50 am

The answer to your question is I bought xmsr at 3-5 dollars and recommended it to everyone 1 year ago. Last week it hit 30 dollars.
***

I do not recall asking you anything about this. We all have stories of good buys. I bought a boatload of CAL stock at $3, and sold them at $22, but I also in the past bought MSFT at $100 and sold them at $64. You did state that you recommend JLBU at $25 dollars per share, and that while surprising me, is your choice.

Does is not bother you that the company has missed its expectations, does it not bother you that the analysts are saying the stock is not worth its valuation, does it not bother you that most people in the industry feel that the honeymoon is over for JBLU, and lastly, and most importantly, JBLU are saying the same thing. The have lowered the bar on what they expected to achieve.

Where do you see JBLU getting the massive growth that the price warrants ?. They originally had the entire country to grow into, but now they are slowly but surely getting bumped back into the fringe routes as the majors have had enough of them. Delta chased them out of Atlanta, United will chase them out of Denver, American will do the same in their markets, leaving Jetblue to fly to FLL 14,000 x per day. Obviously I am partially joking, but it is hard to see where they are going to grow into. Lately most of news is of them pulling out of areas that did not work, and then just adding more frequencies to FLL.
 
luv2fly
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 6:55 am

Who used the expression that went like this, "Reports of my death are greatly exaggerated"!
You can cut the irony with a knife
 
PVD757
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 7:05 am

jetbluefan1: although I have no real opinion on the topic of this post, I have to say that I found it unbelievably arrogant that you would tell anyone to get "back to aviation basics 101," when you linger on about load factors like they are the singular factor in airline success. In your aviation basics 101 text book, look up the term "YIELD," and then talk to us about load facors. In chapter 2, you will learn about CASM and RASM. I commend you for defending your airline, as I am not arguing it's product or profitability, it is truely noble, but just be careful, as there are many people on this forum that are extremely educated about the industry.
 
jetbluefan1
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 7:41 am

Welcome back to Aviation Basics 101

I didn't mean for that to come across as rude or arrogant, and for that I apologize.

The point that I'm trying to get across is that JetBlue is going to face challenges just like any other airline. Many people have the attitude, "Oh JetBlue couldn't face the competition so they're in trouble." The truth is that every airline has had to face competition. No airline has won every battle. JetBlue will have to face those battles too, and past performances show that they do have the ability to compete, but they will stop competiting if it becomes ridiculous. And as far as I can see, JetBlue is in tip top condition to take on the competition. So why would everyone make a big fuss?

I have to admit, the media did over analyze JetBlue quite a bit as they were expecting them to the be the "dream airline"...but IMO, there cannot be a dream airline. The airline industry is fiercely competitive, and with so much competition and complications, a dream cannot be met.
 
B747-437B
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 9:36 am

FWIW, I would put more weight with Jamie Baker's opinion than either Kaufman or Parker. He's one of the more respected analysts in the business, up there with the Sam Buttricks and Mike Linenbergs.

As for my own views about jetBlue, I'll take you back to an excerpt from my article from October that addressed this very issue almost three months ago.

jetBlue is perceived as being succesful today because they enjoy a CASM advantage over the major carriers that is largely due to (a) their younger and hence more efficient fleet and (b) a workforce with less seniority. Both of those are advantages that come about because of their relatively miniscule size in comparison to the major players. There is absolutely no way that jetBlue could be the size of a major carrier and offer a similar product at their cost structure. It simply is not possible. To illustrate just how vast the difference between them is take a look at their 2002 numbers. jetBlue offered 8.24 billion ASMs while Delta offered 141.72 billion ASMs making them approximately 17 times larger. A similar comparison applies for the other major carriers.

I decided to go through jetBlue's results and see what the future might hold. My data consists of filings between Q1'02 (the first quarter that JBLU filed a 10-Q) and Q2'03 (the latest 10-Q available).

Over that period, we have seen jetBlue decrease their CASM by 11% which is very impressive. However, in that same period, we have seen RASM drop by 9% and yields by a distrubing 15%. Still, those numbers aren't particularly bad.

The most interesting part here is the proportion of unit costs that are composed of (a) wage expenses and (b) maintenance expenses. Wages as a proportion of unit costs increased 12% over this period. While this in itself does not appear troubling, it should be noted that fuel prices over the same period increased 27% and the fuel component of unit costs increased 38%. Hence, adjusting for fuel costs, we find that the wage component has actually increased 18% which is on the high side.

More troubling is the maintenance component of costs which, as the fleet ages, has increased an absolutely STAGGERING 58% over that period when adjusted for fuel costs and a still staggering 49% unadjusted.

An even more troubling sign is the projected aircraft rent costs as a proportion of unit costs for the next 3 years. When jetBlue first set up, they negotiated sweetheart backloaded deals from the leasing companies that allowed them to pay a pittance on the leases to begin with but ballooning to higher rates from 2004 onwards. In fact, as per jetBlue's own filings, their per-Airbus aircraft operating costs are expected to increase by an unbelievable 56% between Q2'03 and Q1'05. This does not even begin to factor in the acquisition and integration costs for their new Embraer fleet.

What is my opinion? Well, their preliminary CASM for Q3'03 was unbelievably below 6c. That is the most impressive CASM performance I have seen in a very long time from any carrier. However, whether this low CASM is sustainable in view of the above trends I have detailed remains to be seen. Historic data from other carriers, including no-frills carriers, leads me to believe that they cant. I project their CASM increasing to around the 7c mark by Q1'05 as a result.

However, the current RASM is in the low 7c range on an 87% load factor. The RASM has fallen 9% over the period under consideration, while the yield has fallen 15% over the same period (partly offset by the increased load factor). This leads me to believe that when load factors stabilize in the low 80% range, the RASM will also plateau in the sub-7c range, creating an unsustainable revenue model.


Some comments have been edited for context in the above excerpt, but numbers have remained unchanged.
"The A340-300 may boast a long range, but the A340 is underpowered" -- Robert Milton, CEO - Air Canada
 
mjszanto
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Luv2fly

Wed Jan 14, 2004 9:41 am

Luv2fly,

Very true.
 
mjszanto
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 9:48 am

Does is not bother you that the company has missed its expectations, does it not bother you that the analysts are saying the stock is not worth its valuation, does it not bother you that most people in the industry feel that the honeymoon is over for JBLU, and lastly, and most importantly, JBLU are saying the same thing. The have lowered the bar on what they expected to achieve.

This is all totally false. A large majority of analysts are recommending the purchase of jblu including Merrill Lynch --one big exception being JP Morgan. The analyst from JP Morgan is in the minority. S & P has a hold on it, which is far from saying the stock is not worth its valuation. It is S & P that sticks with its original assertion that JetBlue's PEG is very low. S & P only downgraded in reaction to the volatility of this stock in the short term. This volatility and fluctuation in performance is only turbulence on the early stages of a flight to a successful growth story.

The fact of the matter is fluctuations in performance does not mean a company won't expand rapidly. The most efficient operation usually grows very handsome like Walmart did. Low cost department stores like Walmart never did well either and always traded at very low PE's. The fact of the matter is JetBlue's PE ratio is comparable to where Southwest almost always traded at. In fact I think it was Merrill Lynch who pointed out if you bought Southwest on its dips over the last 25 years and held onto the stock you would have become really rich. Most analysts upgraded JetBlue's stock as it fell.
 
mjszanto
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 9:52 am

I also forgot to say something. People in the industry are not totally credible. While most admit JetBlue and Southwest are big threats, they go on to say that they will prevail in the end. Well off course they would say that, but how do you beat the guy with much lower costs, and a much better structured fleet.

As far as rising costs, part of that is because JetBlue is hiring lots of people and building up its infrastructure so that it can grow rapidly.
 
goingboeing
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 10:24 am

A large majority of analysts are recommending the purchase of jblu including Merrill Lynch

Correct me if I'm wrong, but Merrill Lynch had a pretty big financial stake in JetBlue...
 
PVD757
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RE: Turbulent Times For JetBlue?

Wed Jan 14, 2004 10:53 am

Unfortunately, when you talk stock price with the airline stocks, most of the time WN gets lumped in with everyone else's downward movement even though they haven't done anything to deserve it. Long-term outlook is the only thing that really matters. I don't care whether jetBlue goes down after one quarter. I would worry if they get run out of market after market.
 
mjszanto
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PVD757

Sat Jan 17, 2004 2:45 pm

I agree. One of the reasons so many people do badly in the stock market is they don't look long term. They dump a good longterm stock right away, when it is down. Unfortunately, some will hold on to a total loser too, when it is down. Clearly, JetBlue is not a sure thing investment.

However, a PEG of .86 is not "priced for perfection". People throw cliches around a lot. The PEG of Microsoft is much higher, and I think people badly underappreciate how technological changes badly threaten Microsoft more than any other blue chip tech firm. I believe Microsoft will be the Kodak of the next decade.