About JetBlue

The airline industry has had better eras.

From COVID-19 virtually halting travel around the globe, supply chain-related threats, pilot shortages, strikes and of course, bearing the brunt of heightened fuel costs, it hasn’t been a walk in the park for airlines.

Frankly, even when the economy is prospering and the horizon is blue ahead, the aviation industry as a whole is messy, riddled with complexity and is quite a competitive industry which tends to ultimately cut into a company’s profits.

As many of you may already know, some of the larger airlines based in the United States and of course, JetBlue’s primary competition is comprised of industry leaders such as United Airlines, Delta Airlines, American Airlines, Southwest Airlines, Frontier Airlines (among others) along with other smaller-scale, regional carriers such as SkyWest Airlines, Envoy Air, Republic Airways and others.

Why in the world did we neglect to mention Spirit Airlines? Is it because we have a gripe with their baggage policies or that we prefer paying for airfare and not Bare Fare?

Nope, not at all.

It has to do with the fact that JetBlue is currently in the process of fully acquiring Spirit.

While we don’t want to bore you with a full analysis of our formal opinion(s) regarding this potential merger, we don’t mind saying that we think, if the deal were to close, it would be a much needed tailwind for JetBlue in terms of providing the company more scale and customers outside of the east coast of the United States but also in other regions and areas of the country.

We’d also like to add that given that Spirit is classified as a low-cost carrier and as the economy overall continues to stumble and interest rates continue to rise, low-cost carriers are more likely to reap more benefit(s) of economic and consumer tightening due to their competitive pricing compared to others.

That is, if they survive and don’t fall victim to Chapter 7 (liquidation) bankruptcy.

This is one of the valid reasons we think JetBlue is pursuing Spirit Airlines.

Lastly, before we take off into JetBlue’s numbers and other relevant financial figures, let us provide a little more information on the airline itself.

JetBlue was founded in 1998 and was originally called “NewAir.” Since the late ’90s the airline has grown and become North America’s seventh largest airline, managing a fleet of 130 narrow-body airplanes, predominantly operating flights closer to the Atlantic than the Pacific however the airline does perform flights from New York to Long Beach, Los Angeles, Fort Lauderdale and many other destinations in between.

That’s JetBlue in a nutshell.

Let’s walk through some of the company’s numbers and see whether or not JetBlue’s stock is worth buying and keeping for the long run.

JetBlue’s stock financials 

The company currently has a share price of just under $8, a market capitalization of $2.6 billion, does not have a readily displayed price-to-earnings (P/E) ratio and does not pay out an annual dividend to its shareholders.

We’re usually never fans of large, established companies with no P/E ratio displayed, however we see this simply as a byproduct of being in the airline industry as it has been nothing but a challenge to carve out positive (if any) earnings, especially in recent years.

While we don’t want it to seem as though we’re giving JetBlue a pass on this one, it’s just an industry reality that has to be grappled with for those who want to consider investing in an airline’s stock.

This is also probably one of the main reasons the company doesn’t presently shell out a dividend to its investors.

According to the company’s balance sheet, JetBlue’s executive team manages approximately $13.6 billion in total assets as well as around $9.8 billion in total liabilities, which is pretty much what we expected given that the airline industry and airlines themselves are flushed with debt and other liabilities such as planes, individual parts and other moving parts (literally and figuratively) that cost airlines a lot of money. 

Digging a bit deeper into the company’s balance sheet, we take a small amount of comfort in knowing that roughly one third of JetBlue’s total liabilities are represented as total long-term debt, meaning that the company’s executive team has a relatively longer-term time horizon and thus a small added cushion of time protection until it has to pay down its outstanding debt(s).

Onto the company’s income statement, JetBlue’s total revenue has generally been stable except, of course, as reported in 2020. 

This company’s total revenue took a massive hit.

Specifically, the company’s total revenue in 2019 stood at just north of $8 billion and subsequently plummeted to around $2.9 billion in 2020, then thankfully rising back up to approximately $6 billion in 2021.

Ups and downs to the extreme.

However, this obviously wasn’t JetBlue having a horrific year because of a series of mistakes its executives made or it being a poorly operated airline; it was a direct result of COVID-19.

However, in recent years it can be noted that it wasn’t abnormal for the company’s total revenue to stay nested in the $7 billion range and aside from continuous threats of current and other possible future pandemics, we can’t readily identify many other reasons that hint at this changing as the industry and travel and lodging in general begins to normalize.

We also think the company’s potential purchase of Spirit will bode quite nicely for future revenue growth.

Onwards to the cash flow statement, 2020 was terrible as well.

Nonetheless, as previously harped on this wasn’t much of a “JetBlue” problem but more so a “COVID-19-induced” problem.

In order to provide some relevant scale, the company’s net income in 2020 stood at around -$1.3 billion and has since been trimmed down to -$182 million, as reported in 2021. In 2017, 2018 and 2019 the company’s net income was positive.

If these drops were caused by blatant mismanagement or poor capital allocation on JetBlue’s part, we wouldn’t even begin considering touching the stock with a twenty-foot pole.

JetBlue’s stock fundamentals

Retailers struggle with turning a substantial profit and airlines are no different.

There’s some comfort knowing that the airline industry’s average trailing twelve month (TTM) net profit margin is fairly low to begin with, presently standing at 0.15% (according to TD Ameritrade’s platform).

The margins are slim and the costs and other related expenses are high.

On the other hand, JetBlue’s TTM net profit margin is -6% (according to TD Ameritrade’s platform) which obviously isn’t particularly desirable for investors but indicates that it is somewhat close to the industry’s average and is ultimately staying competitive among its well-equipped, formidable peers.

On the basis of returns, JetBlue’s TTM returns on equity, assets and investment are all currently unavailable which isn’t a good sign but again isn’t all that surprising in the first place.

Nevertheless, as investors looking to make investments in quality, dependable companies, no returns to show even during times of turmoil is hardly acceptable but is still, to a certain extent, understandable.

JetBlue can quite literally only control what it can control.

Should you buy JetBlue stock?

Full disclosure, we’re not too keen on the airline industry as a long-term investment.

There are a slew of variables and external factors that could inflate or devastate JetBlue’s (and other airlines) stock price in an instant.

Even though we are bullish on the prospects of a JetBlue-Spirit Airlines merger, solely based on the aforementioned financials and current economic headwinds along with increases in business travelers working from home, we give JetBlue’s stock a “sell” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.