Grim View at JetBlue

Updated from 7:45 a.m. EST

Fast-growing air carrier JetBlue (JBLU Quote) reported Wednesday that it lost $42 million in the fourth quarter and expects to lose money in 2006, largely because of high fuel costs.

CEO David Neeleman said the solution to the airline's problems is to raise ticket prices and to reduce capacity in select markets. Yet JetBlue seems to be locked into an expansion mode. The company will take delivery of 17 Airbus A320s and 18 Embraer E190s this year, and it's building a new terminal at Kennedy International Airport in New York.

Under accounting rules, it must begin making $3 million quarterly payments for the new terminal this year, even though the facility won't be occupied until 2008 at the earliest.

"I feel our customers will pay us more to fly on JetBlue because we deserve it," Neeleman said on a conference call. "We have a great product. Our customers love us. We have great market share. (But) we need to get another $10 or so per ticket."

He said the airline had projected jet fuel to cost $1.80 a gallon in 2006, but the cost has risen to $1.98, which would add $80 million in fuel costs this year. Meanwhile, ticket prices averaged $109 in the fourth quarter, up $9 from a year earlier.

The New York-based discount carrier's $42 million quarterly loss was equivalent to 25 cents a share, reversing the year-ago profit of $1.5 million, or a penny a share.

These results include $13 million in charges, consisting of $6.9 million in noncash stock-based compensation expenses and a $6.1 million charge for development costs associated with a maintenance and inventory tracking system that won't be implemented.

Excluding the items, the latest-quarter loss was 19 cents a share, 5 cents wider than the Thomson First Call analyst consensus estimate.