JetBlue seeks higher earnings by expanding
JetBlue Airways, stuck in its third straight year lagging the airline industry’s share returns, is looking to boost earnings by expanding in three key cities and selling more travel services such as car rentals and hotels.
The carrier will shift more flights to Boston and Fort Lauderdale and add more seats at New York’s John F. Kennedy International Airport.
It will step up efforts to improve on-time performance, which also trails the industry, while adding more seats on some planes. JetBlue is also banking on a renegotiated maintenance contract to help lower costs and improve margins.
The plan represents a new push by the carrier to broaden revenue sources while trying to contain rising costs from pricier fuel and new and pending labor contracts. The initiatives should result in earnings per share of as much as $3 in 2020, the company said. That would top the $2.21 average of analysts’ estimates compiled by Bloomberg.
“JetBlue is doing a better job addressing cost concerns while also providing a promising revenue/earnings outlook,” said Adam Hackel, an analyst with Imperial Capital. The aircraft maintenance contract “could be instrumental in getting their costs in line with the industry.”
JetBlue fell 15 percent this year through Monday, the biggest decline among major U.S. carriers except for American Airlines Group Inc. JetBlue trailed a Standard & Poor’s index of U.S. airlines last year and in 2016.
“As much as we are focused on costs, I want to make sure everyone recognizes that we know we are never done on the revenue side,” said Marty St. George, JetBlue’s executive vice president for commercial and planning.
The airline is targeting a net operating profit margin of 10 percent in 2020, up from 7.3 this year, and a return on invested capital of as much as 13 percent compared with 8.2 percent.
JetBlue said it has achieved $171 million of savings under a previously announced program to reduce structural costs by $250 million to $300 million by 2020.
JetBlue follows larger carriers like American and United Continental Holdings Inc. in focusing growth on select cities in its network.
“In 2019 you will see us pretty aggressively redeploy aircraft across our network,” St. George said.
The growth plan for focus cities was expected, said Susan Donofrio, a Macquarie Group analyst.
As for the new earnings target, investors are “digesting whether or not they think it’s achievable,” she said.