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The discounted U.S. airline JetBlue Airways Corporation (JBLU - Analyst Report) reported its fourth-quarter 2013 adjusted earnings of 14 cents, beating the Zacks Consensus Estimate by a penny and coming ahead of the break-even results in the year-ago quarter.

Earnings for the full year of 2013 increased to 52 cents from 40 cents in the year-ago period and also surpassed the Zacks Consensus Estimate by a penny. Maintenance of a competitive cost structure and focus on profitable opportunities facilitated the strong earnings performance.

Total Revenue

Total operating revenue climbed 14.4% year over year to $1.36 billion, ahead of the Zacks Consensus Estimate of $1.34 billion. For 2013, total operating revenue increased 9.2% year over year to $5.44 billion.

Airline traffic, measured in revenue passenger miles, increased 7.1% year over year in the reported quarter owing to 8.3% growth in capacity. Load factor (percentage of seats filled with passengers) decreased 100 basis points (bps) year over year to 80.9%.

For 2013, airline traffic increased 6.8% year over year driven by a 6.9% upside in capacity. Load factor (percentage of seats filled with passengers) declined 10 bps year over year to 83.7%.

Yield per passenger mile moved up 6.5% year over year in the fourth quarter. Passenger revenue per available seat mile moved up 5.3% while operating revenue per available seat mile increased 5.6% in the reported quarter.

For the full year of 2013, Yield per passenger mile edged up 2.4% year over year. Passenger revenue per available seat mile and operating revenue per available seat mile registered 2.3% and 2.2% year-over-year growth, respectively.

Impressive revenue performance in some of its key markets like New York, Fort Lauderdale, the Caribbean and Latin America aided the solid results.

Operating Income and Expenses

In the quarter under review, total operating expenses rose 8.7% year over year to $1.25 billion, primarily due to maintenance expenses (up 23.3%), Depreciation and amortization (up 13.7%), Sales and marketing (up 14.3%) and Salaries and wages (up 11.9%). JetBlue’s operating unit cost or cost per available seat mile (CASM) grew 0.4% year over year while excluding fuel and profit sharing, CASM increased 0.6% from the year-ago quarter.

In 2013, total operating expenses were $5.03 billion, up 8.8% year over year.  Maintenance expenses and depreciation increased 28.0% and 12.5%, respectively. JetBlue’s CASM climbed 1.9% year over year. However, excluding fuel and profit sharing, CASM inched up 3.8% year over year.

Operating income came in at $115 million, up significantly by 161.4% year over year. Operating margin increased 470 bps year over year to 8.4%.

For the full year of 2013, operating income increased 13.8% year over year to $428 million. Operating margin inched up 40 bps year over year to 7.9%.

Balance Sheet

JetBlue ended the year with unrestricted cash and short-term investments of $627.0 million. Total debt at the end of 2013 was $2,585 million compared with $2,851 million at the end of 2012.

Guidance

JetBlue expects poor weather conditions in the Northeast during early January to reduce its first quarter 2014 revenue by an estimated $45 million and operating income by an approximate amount of $30.0 million.

For the first quarter of 2014, the company expects CASM to increase 0–2% and CASM, excluding fuel and profit sharing, to range between 3.0–5.0%.

CASM for full-year 2014 is expected to increase 1.0–3.0%. Excluding fuel and profit sharing, CASM is expected to increase in the range of 3.0-5.0%.

Capacity is expected to increase in the range of 2.5–4.5% in the first quarter and for 2014 it is expected to increase in the range of 5.0–7.0%.

JetBlue expects average fuel price per gallon, including hedges and fuel taxes, to be $3.13 in the first quarter of 2014. The company has hedged approximately 24% of its projected fuel requirements for the first quarter of 2014.

Other stocks to consider in the aviation service industry are Delta Air Lines Inc. (DAL - Analyst Report), United Continental Holdings Inc. (UAL - Analyst Report) and Southwest Airlines Co. (LUV - Analyst Report). Delta’s earnings of 65 cents were ahead of the Zacks Consensus Estimate of 63 cents while United Continental posted a profit of 78 cents, comfortably beating the Zacks Consensus Estimate of 68 cents. Southwest’s net earnings of 33 cents also managed to beat the Zacks Consensus Estimate of 28 cents in the most recent quarter.

Our Analysis

We believe JetBlue will continue to benefit from increasing travel demand, network expansion, fleet re-designing, optimization of unit revenues, capital expenditure management and disciplined growth. Additionally, ancillary revenue initiatives enhanced by its Getaway Vacations Division along with growing presence in key markets and penetration into untapped arenas will support its momentum.

JetBlue currently carries a Zacks Rank #2 (Buy).

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