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The discounted U.S. airline JetBlue Airways Corporation (JBLU - Analyst Report) delivered fourth quarter adjusted earnings per share of 8 cents, beating the Zacks Consensus Estimate as well as the year-ago earnings of 3 cents per share.

Despite an uncertain economic environment, the company registered strong growth, driven by an increase in passenger count and favorable weather conditions that enabled the carrier to run more timely flights.

Earnings for the full year 2011 decreased to 28 cents from 31 cents in the year-ago quarter.

Total operating revenue climbed 22.1% year over year to $1.1 billion, in line with the Zacks Consensus Estimate. For fiscal 2011, total operating revenue increased 19.2% year over year to $4.5 billion.  

Airline traffic, measured in revenue passenger miles, increased 11% year over year in the reported quarter on a 10.5% growth in capacity. Load factor (percentage of seats filled with passengers) also grew 30 basis points year over year to 82.2%.

For fiscal 2011, airline traffic increased 8.6% year over year on a 7.2% upside in capacity. Load factor (percentage of seats filled with passengers) enhanced 100 basis points year over year to 82.4%.

Yield per passenger mile grew 11.3% year over year in the fourth quarter. On a year-over-year basis, passenger revenue per available seat mile improved 11.8% while operating revenue per available seat mile grew 10.5% in the reported quarter.

For the full year, Yield per passenger mile upped 10.2% year over year. Passenger revenue per available seat mile and operating revenue per available seat mile registered 11.6% and 11.2% year-over-year growth, respectively.

In the fourth quarter, total operating expenses climbed 20.4% year over year to $1.1 billion, primarily due to higher fuel (up 44%) and maintenance (up 30%) expenses. JetBlue’s operating unit cost or cost per available seat mile (CASM) grew 9% year over year. Excluding fuel, CASM slid 1.5% from the year-ago quarter.

In fiscal 2011, total operating expenses were $4.1 billion, up 21.4% year over year.  Fuel and maintenance increased 49% and 32 %, respectively. JetBlue’s CASM climbed 13.3% year over year. Excluding fuel, CASM inched up 1% year over year.

Operating income leaped 47.8% from the year-ago quarter to $83 million in the fourth quarter. Operating margin improved 130 bps year over year to 7.3%.

For the full year, operating income declined 3.7% year over year to $322 million.  Operating margin plunged 170 bps year over year to 7.1%. 


JetBlue ended the year with unrestricted cash and short-term investments of $1.2 billion.


For the first quarter of 2012, the company expects CASM to increase 2–4% and CASM, excluding fuel, to range between negative 0.5% to positive 1.5%.

CASM for fiscal 2012 is expected to increase 1.5%–3.5%. Excluding fuel, CASM is expected to increase in the range of 2%–5%, mostly due to  an increase in maintenance cost.

Capacity is expected to increase in the range of 9.5%–11.5% in the first quarter 2012 and 5.5%–7.5% for fiscal 2012. 

JetBlue expects average fuel price per gallon, including hedges and fuel taxes, to be $3.18 in the first quarter and $3.17 for the full year 2012. The company has hedged approximately 42% and 27% of its projected fuel requirements for the first quarter and fiscal 2012, respectively.

Our Analysis

We believe JetBlue will continue to benefit from network expansion, significant cost control measures, deployment of fuel efficient fleet and managed capital expenditures. Additionally, ancillary revenue initiatives enhanced by its Getaway Vacations Division and Even More Space offering along with airline partnerships will likely boost its top-line growth.

However, large exposure to New York metropolitan area, competitive threats from larger carriers like Delta Air Lines (DAL - Analyst Report) and United Continental Holdings Inc. (UAL - Analyst Report), and expected increase in maintenance expense may limit the upside potential of the stock.

We are currently maintaining our long-term Neutral recommendation on JetBlue. For the short term, the stock retains a Zacks #3 (Hold) Rank.

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