New York (TheStreet) -- As the airline industry heads into a golden age of profitability, one of the big six airlines is still sitting on the runway at Kennedy International Airport, waiting for its shares to take off.
That carrier is JetBlue (JBLU). Perhaps the best indication of its predicament is that its shares are up about 4% this year. That's fine in comparison to the S&P 500, which is up about 2%. But shares in the remaining five of the top six airlines are up at least 20%.
American (AAL), the best performer in the group, is up 42% while United (UAL), the worst performer, is up 20%. Delta (DAL), with its shares up 27% year to date, will kick off airline earnings season on Wednesday. On Thursday, JetBlue is expected to report earnings of 7 cents a share, up from 5 cents in the same quarter a year earlier, according to analysts surveyed by Thomson Reuters.
Two reports released on Tuesday add perspective to JetBlue's situation. One, by the American Customer Satisfaction Index, found that JetBlue led all airlines in passenger satisfaction for the third consecutive year. The other, by travel Web site Hopper, showed that when JetBlue enters a domestic market, prices drop by an average of 50%, significantly more than when any other airline enters a new market.
So there you have it, summarized in two reports: JetBlue is a low-priced luxury airline. As aviation consultant Mike Boyd once famously said, "JetBlue doesn't have passengers; it has groupies." Passengers love JetBlue. But investors have to wonder.
The National Mediation Board said Tuesday that pilots at JetBlue had voted overwhelming to join the Air Line Pilots Association, but that is not expected to impact the share price. Pilots at every major airline have union representation.
Over the past five years, JetBlue shares up about 50%, while shares in industry star Delta are up about 325%, shares in United are up about 550% and shares in Southwest (LUV) are up about 200%.
Looking at JetBlue's future, the question arises: Where is the possibility for profitable growth?
The carrier should benefit from winning 24 of the slots that American had to divest at Washington Reagan National Airport. But that is just 12 new flights, an indication that East Coast growth is incremental. Trans-con growth is great, but LAX already has 38 daily departures on six airlines to JFK, so what's the point? And the Caribbean is a place where airlines battle for leisure traffic.
Aviation consultant Bob Mann said JetBlue shares benefited during 2012 from speculation that a restructured, post-bankruptcy American would rely more heavily on JetBlue for JFK connections. But the merger with US Airways quashed that.
"JetBlue still has some growth prospects, but not with the same degree of significance," Mann said. At National, "they have new gates, but we need to understand what they will do with them."
Last week, Moody's upgraded JetBlue debt to B2 from B3. "We believe that credit metrics will further strengthen in 2014," said Jonathan Root, Moody's senior credit officer, in a prepared statement. "Industry fundamentals will remain favorable, allowing JetBlue to avoid sacrificing unit revenues to maintain load factors as it continues to grow capacity in excess of 5% annually,"
Moody's noted that the $400 million of gross proceeds from the sale of LiveTV, expected to close by mid-2014, will bolster the company's liquidity. "These proceeds can be used to fund the purchase of some of the nine A321s scheduled for delivery in 2014, repay debt or both, helping to limit any increase in adjusted debt," the agency said.
JetBlue's "demonstrated operating and financial performance accruing from its network expansion anchored from its existing focus cities of Boston and New York, competitive profit margins and recent focus on de-levering the balance sheet represent a stronger credit profile that warrants the B2 corporate family rating," the agency said.
Nevertheless, Skyline Research analyst Kevin Crissey expressed concerns in a recent note after JetBlue's March revenue per available seat mile declined 8%, due primarily to the timing of Easter and Passover.
"This was another tough Q1 for JetBlue," Crissey wrote. "We are hoping management starts getting more aggressive in addressing the firm's financial underperformance versus competitors. It is time to put investors above the brand."
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