JetBlue Lowers View Despite Higher May Traffic, Stock Down

Low-cost carrier JetBlue Airways Corp. (NASDAQ:JBLU) witnessed an improvement in air traffic this May. Traffic – measured in revenue passenger miles (RPMs) – was 3.84 billion, up 10.7% from 3.47 billion recorded a year ago. On a year-over-year basis, consolidated capacity or available seat miles (ASMs) jumped 12.1% to 4.54 billion. However, shares of the company declined 1.84% to $18.09 due to guidance being lowered for the second quarter.

The load factor or percentage of seats filled by passengers decreased to 84.6% from 85.7% in May 2015 as capacity expansion outweighed traffic growth. JetBlue’s preliminary revenue per available seat mile (RASM) in the month dropped roughly 7% year over year. For the first five months of 2016, JetBlue witnessed a 12.2% increase in RPMs to 18.58 billion and 13% rise in ASMs to 22.04 billion, both on a year-over-year basis. However, load factor declined 60 basis points to 84.3%.

Guidance Lowered

Despite growth in traffic, JetBlue lowered its performance guidance for this year due to expected decrease in demand. RASM is now expected to decline by 7.5% to 8.5% for the second quarter of 2016 as compared to a decline of 7% expected earlier. The company has also lowered its capacity guidance for the year. Projected ASM growth has been lowered to a range of 8–9.5% from 8.5–10.5% expected earlier. The below-par outlooks disappointed investors.

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A strong U.S. dollar and possible growth in fuel prices have resulted in airlines closely monitoring their forecasted performance. Delta Air Lines, Inc. (NYSE:DAL) projected weaker growth, while American Airlines Group Inc. (NASDAQ:AAL) maintained its earlier forecast. Also, Southwest Airlines Co. (NYSE:LUV) announced that it expects slightly better revenues in the second quarter of 2016.

Network Expansion and Flights to Cuba

JetBlue, which carries a Zacks Rank #3 (Hold), is one of the best-performing budget airlines in the U.S. The company’s focus on route expansion in order to improve operations in its service areas by driving passenger count and boosting ancillary revenues bode well. JetBlue received encouraging news recently when it was chosen as one of the six US based carriers by the U.S. Department of Transportation (DOT) to operate scheduled flights to Cuba.