One of the leading low-cost airlines JetBlue Airways Corporation ( JBLU - Analyst Report ) reported second quarter 2012 adjusted earnings per share (EPS) of 16 cents, beating the Zacks Consensus Estimate by a penny. Earnings also doubled from the year-ago earnings.

The company delivered the best-ever earnings in the company’s history on the back of strong demand from leisure and business travelers. The company’s strategy of expanding its network footprint in two major growth regions, Boston and the Caribbean & Latin America is paying off well amid uncertain economic growth.

Revenue

Total revenue climbed 11% year over year to $1.277 billion but missed the Zacks Consensus Estimate of $1.287 billion. Airline traffic, measured in revenue passenger miles, grew 10.5% year over year. Capacity (or available seat miles) leaped 5.5% and load factor (percentage of seats filled with passengers) rose 380 basis points year over year to 85.3%.

Yield per passenger mile inched up 1.3% year over year in the second quarter. Passenger revenue per available seat miles (PRASM or unit revenue) improved 6.1% year over year while operating revenue per available seat mile grew 5.3%.

Operating Expenses

Total operating expenses increased 7.7% year over year to $82 million in the reported quarter. Steeper expenses were largely due to a 58.7% year-over-year rise in maintenance, materials and repairs expenses as a result of aging fleet.

Consolidated unit cost or cost per available seat mile (CASM), excluding fuel, grew 5.6% year over year. CASM, including fuel, rose 2.1% from the year-ago quarter.

Operating Income

Operating income shot up 51% year over year to $130 million. Operating margin improved 270 basis points to 10.2% from the year-ago quarter.

Liquidity

At the end of the second quarter, the company had $1.2 billion in unrestricted cash and short-term investments.

Guidance

The company expects CASM to increase 1–3% and 1–3% in the third quarter and fiscal 2012, respectively. Similarly, CASM excluding fuel would increase 4.6–6.5% and 2.5–4.5%, respectively, in the third quarter and fiscal 2012. Additionally, JetBlue expects most of this year’s increase to stem from higher maintenance expenses and profit sharing expense.

Capacity is expected to increase in the range of 7–9% for the third quarter and 6.5–8.5% for 2012.

The estimated fuel price, including taxes and hedges, is approximately $3.13 per gallon for the third quarter and $3.18 for 2012. JetBlue has hedged approximately 27% of its projected fuel requirements for both the third quarter and fiscal 2012 using a combination of collars, crude call options and jet fuel swaps.

Our Take

We believe JetBlue continues to benefit from its low-cost structure and improving travel demand that bode well in the present economy. JetBlue’s expansion of service into new and untapped markets in Boston and in the Caribbean remains encouraging. Further, growing partnerships, cost-control measures, ancillary revenue opportunities and robust liquidity profile are the long-term beneficiaries of the company’s growth.

This healthy outlook is expected to overshadow the increase in maintenance expenses, fuel price volatility, competitive threats from larger peers like Delta Air Lines Inc. ( DAL - Analyst Report ) , United Continental Holdings Inc. ( UAL - Analyst Report ) and Southwest Airlines Co. ( LUV - Analyst Report ) and the ongoing global economic instabilities that might limit the upside potential of the stock.

We currently have a long-term Outperform recommendation on JetBlue. For the short term, the stock retains a Zacks #2 (Buy) Rank.