JetBlue’s Airline is Struggling to Generate Free Cash Flow: Can They Turn it Around?

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Written By Faith Boluwatife

JetBlue (NASDAQ: JBLU) has shown resilience in its stock performance relative to the broader market, despite facing operational challenges and economic headwinds.

This article examines recent financial performance, cost dynamics, second quarter expectations, and provides a stock price analysis to assess the current investment case for JetBlue.

Financial Performance

Q1 Results Analysis

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In the first quarter, JetBlue reported a 5.1% decline in revenues to $2.2 billion, slightly better than its guided range of 4.5% to 7.5%. This decline was influenced by a 2.7% reduction in capacity, reflecting operational adjustments following the dissolution of its alliance with American Airlines and the terminated Spirit Airlines merger.

Despite revenue challenges, JetBlue highlighted $300 million in revenue initiatives for 2024, with $40 million realized in Q1, particularly benefiting from strength in the Latin American market.

Operating costs surged 14%, primarily due to $532 million in Spirit-related expenses related to the merger termination. Excluding special items, costs would have declined 3.8%, but increased 4% when excluding fuel costs.

Notably, labor costs grew 14%, contributing significantly to the operating loss expansion from $242 million to $719 million. Although average fare remained stable at $214.39, revenue per available seat-mile decreased by 2.5%, while unit costs excluding fuel and special items rose by 7.1%.

Q2 Expectations

Analysts project an 8.2% decline in Q2 revenues to $2.40 billion, with an expected loss per share of $0.18. Recent guidance adjustments by JetBlue have moderated expectations slightly, with revenue and capacity outlooks revised upwards by 100 basis points (bps), and unit cost growth expected to be 50 bps lower than previously guided.

The company anticipates a favorable impact from reduced fuel costs of 13 to 18 cents per gallon.

Cost Dynamics

Labor Cost Inflation

JetBlue has experienced notable inflation in labor costs, which now constitute 35.2% of total costs, up from 32.1% in Q1 2019. This represents a 44% absolute increase in labor expenditures over the past five years, underscoring the challenge of cost containment amidst declining unit revenues.

The persistently softening unit revenues amid rising costs pose significant profitability risks for JetBlue.

Stock Price Analysis

Investment Perspective

Despite adjustments and forward projections, the current valuation of JetBlue fails to present a compelling investment case. Analysts have downwardly revised their expectations for the company’s financial performance, highlighting concerns over profitability and cash generation.

The termination costs related to the Spirit merger have inflated key financial metrics like EV/EBITDA, further complicating the financial outlook.

Inflation Pressure Affects Cashflow

Credits: DepositPhotos

JetBlue faces substantial pressures from ongoing cost inflation and weakening market fundamentals, compounded by the aftermath of failed strategic initiatives.

The company’s ability to generate sufficient cash flow from core operations remains in question, with management relying on alternative strategies like sale-and-lease back agreements for aircraft to bolster liquidity.

Given these challenges, the consensus among analysts leans towards a watch and see approach, with some recommending divestment in favor of more promising investment opportunities within the airline industry or alternative sectors.

Key Takeaways:

  • JetBlue’s stock has shown relative strength but faces significant operational challenges.
  • Q1 results reflect revenue declines and cost escalations, impacting profitability.
  • Analysts expect continued revenue declines and operational losses in Q2.
  • Rising labor costs and softening unit revenues pose critical financial risks.
  • Current valuation does not support a compelling investment thesis, warranting caution for potential investors.



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