JetBlue Knocked Off Course

The low-cost carrier misses earnings expectations as hurricanes and fuel costs bite.
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Updated from 9:42 a.m. EDT

JetBlue Airways

(JBLU) - Get Report

announced weaker earnings as a result of hurricanes, high fuel prices and tough price competition, missing Wall Street's third-quarter expectations.

The low-cost carrier Thursday reported third-quarter net income of $8.4 million, or 8 cents a share, missing the analyst consensus of 10 cents a share, and down 71% from $29 million, or 26 cents a share, a year earlier.

"The combination of a continued weak pricing environment, record high fuel prices and the impact of four major hurricanes in many of our southern markets made for a very challenging quarter," said David Neeleman, JetBlue's chairman and chief executive, in a news release. "Nonetheless, we are encouraged that the fundamentals of our business continue to be solid: good demand from our loyal customers, exceptional operating performance, and unit cost performance that, on a fuel-neutral basis, improved year over year." JetBlue had previously warned of the impact of the storms in early September.

Investors appeared to shrug off the miss; JetBlue stock was up 33 cents, or 1.5%, at $22.77.

The airline said the hurricanes forced the cancellation of 464 flights during the quarter.

Because JetBlue is expanding briskly, third-quarter revenue continued to grow, coming in at $323.2 million, up 18.1% from $273.6 million in the year-ago quarter. On average, analysts had estimated revenue at $333.5 million, according to Thomson First Call. The airline said capacity, measured by available seat miles, increased 33.3% to 4.9 billion.

But even though JetBlue is flying more often, it's filling fewer seats and bringing in less money from each one. On average, the company filled 84.9% of its seats in the third quarter, a decrease of 2.8 percentage points from a year ago. Revenue per available seat mile, a key industry metric known as RASM, declined 11.4% year over year in the third quarter to 6.5 cents.

Just as the revenue picture is worsening, fuel prices are driving up costs. JetBlue's operating expenses were $300.2 million, up 36.6% from the third quarter of 2003. Operating expense per available seat mile, or CASM, increased 2.5% year over year to 6.08 cents. JetBlue said it paid $1.08 a gallon for fuel, up 32.7% from 81 cents a gallon a year earlier.

The airline ended the quarter with $516.7 million in cash and short-term investments.

Looking ahead, JetBlue expects to see unit revenue continue to decline while costs rise. In the fourth quarter, RASM will likely decrease in the mid-to-high single digits on a percentage basis from a year ago, executives said in a conference call. In one effort to boost revenue, the airline will likely allow its $3 discount on tickets booked online to expire at the end of the month, they added.

In the fourth quarter, unit costs, as measured by CASM, will likely rise by 6% and operating margins will come in between -1% and 1%, assuming an average fuel cost of $1.30, the executives said. The fuel estimate accounts for JetBlue's hedges, which cap roughly 35% of fourth-quarter needs at a price of $25.35 a barrel and an estimated 25% of 2005 needs at just under $30 a barrel, the executives added.

The carrier did not provide any EPS guidance.