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We are maintaining our long-term Neutral recommendation on the low-cost airline JetBlue Airways Corporation (JBLU - Analyst Report) following the second quarter results and the company’s outlook.

The company delivered the best-ever earnings in the second quarter, outpacing the Zacks Consensus Estimate and the year-ago earnings 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.
 
JetBlue is the only non-unionized airline in the industry with the flexibility to manage its cost structure. We believe JetBlue remains one of the youngest carriers to possess the most fuel-efficient fleet among its peers. Growing partnerships, cost control measures, ancillary revenue opportunities, fleet restructuring and robust liquidity profile are the long-term beneficiaries of the company’s growth.

Further, JetBlue is taking profitable actions to endure surging fuel prices and ongoing market turmoil. Fare hikes and fuel hedging are the two effective tools to combat the rising fuel expenses. In addition, the company has started to manage fuel volatility through Fixed Forward Price agreements also.

However, rising fuel price, 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 might limit the upside potential of the stock. Additionally, maintenance expenses will likely climb due to gradual aging of the fleet. The company foresees heavy maintenance check-ups associated with A320 aircraft acquired in the mid-2000s.

Further, the company’s maintenance partner, Aveos, was liquidated in March this year, which has resulted in increased expenses for the company in the first quarter and the second quarter of 2012. As the company seeks to find another partner, the liquidation will lead to further rise in maintenance costs for the remainder of the year.

As a result, the Zacks Consensus Estimate for JetBlue remains unchanged at 17 cents over the last 7 days, but it fell two cents in the last 30 days for the third quarter. The estimate represents a significant growth of 37.50% from the year-ago quarter.

For fiscal 2012, the estimate is pegged at 51 cents, flat over the last 7 days but 4 cents below the last 30 days. This represents a substantial increase of 81.59% annually.

Consequently, the stock also holds a short-term Hold rating with the Zacks # 3 Rank.

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