The airline industry is weathering some difficulties: higher jet fuel prices are beginning to eat away at margins, and concerns over demand are keeping investors’ money away. Easter traveling occurred earlier this year, and JBLU expects relatively weak comps versus last year. Additionally, the carrier is experiencing softness in May and June bookings. Higher fuel prices are also a bit worrisome. With summer season ahead, increasing fuel prices will have an impact (and if not, it should) on the airline sector. I believe this bearishness will drive the price of JBLU shares to the low US$9s.
JetBlue will continue to expand its network in 2007 by launching new routes from its core airports (New York JFK, Boston, Fort Lauderdale, Long Beach, and Washington DC). This week they announced the addition of low-fare service between Boston, Bermuda and Charlotte. Management will also continue their efforts to increase aircraft utilization and reduce corporate overhead. The company is in the process of removing six seats on its A320s in order to legally reduce the number of flight attendants per flight.
But in an economic environment of low growth and high inflation, airlines have historically not fared too well.
I still believe in JBLU’s superior service. They truly offer a different flying experience, and it is because of their focus on service and customers (and the incredible ability by management to apologize for a winter storm that cost the company US$41 million) that I remain bullish. For now though I am short on its shares. Not because I don’t believe in the strength of their brand, but because I know the impact that fuel prices can have on the share price. If the shares trade anywhere around the low US$9s I will once again be a buyer, until then, I remain grounded, waiting for signs of a turnaround.
LTM Indexed Performance: JBLU vs. S&P 500
Source: FactSet
1 comments:
Also, I think the higher fuel prices will have an effect in vacation traveling not only in part by the airlines but with fuel prices for auto industry which is putting a big dent in people's pockets.
I read a stat about 20% or more said if fuel prices keep increasing, summer traveling is out of the question. The way it looks now...its out of the question.
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