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JetBlue Airways (JBLU) Gains on Bullish Q2 RASM Outlook

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Shares of Long Island City, NY-based JetBlue Airways Corporation (JBLU - Free Report) rallied on May 23, following a guidance revision for a key unit revenue metric. The stock closed the last trading session at $22.08, up 2.36% from the previous day’s closing value.

What Prompted the Stock Price Surge?

While presenting at the10th Annual Wolfe Research Global Transportation Conference this low-cost carrier said that it expects revenue per available seat mile (RASM: a key measure of unit revenue) for the second quarter of 2017 to grow in the band of 4–6% (the previous guidance hinted at year-over-year growth in the band of 3–6% for the same period).

We note that the bullish update pertaining to this closely watched unit revenue metric for the current quarter came on the back of strong performances anticipated in the months of May and June. In fact, RASM is projected to be in the positive territory in those months. Moreover, the timing of Fourth of July is expected to aid this metric in the quarter.

The good news does not end here because this Zacks Rank #3 (Hold) carrier added that the outlook on RASM for the third quarter has substantially improved since the first-quarter conference call in April. Naturally, the bullish expectations found favour with investors.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

JetBlue, which expects capacity to grow in the band of 4% to 6% in the second quarter, is focussed on strengthening its presence in key cities like Boston as well as expanding its premium service (Mint). Cost per available seat miles (CASM: excluding fuel) is anticipated to grow in the band of 4.5% to 6.5% in the quarter.

Price Performance

Shares of JetBlue have performed well over the last three months, outperforming the Zacks categorized Transportation- Airline industry in the period. The stock appreciated 10.6%, while the industry gained only 0.1%.

The bullish RASM view might boost the stock further.

Unit Revenues Views Improving

It is no secret that woes related to unit revenues had hurt airline stocks in the last couple of years. However, scenario regarding the metric – a measure of sales relative to capacity for a carrier – has been improving recently.

In fact, JetBlue is not the only carrier to unveil a bullish view on unit revenues. American Airlines Group (AAL - Free Report) , which has been displaying unit revenue growth since the fourth quarter of 2016, recently raised its guidance for total revenue per available seat miles (TRASM) for the current quarter.

The Fort Worth, TX- based carrier now expects TRASM for the quarter to grow in the band of 3.5–5.5% (old guidance had hinted at a growth in 3–5% range). Delta Air Lines (DAL - Free Report) is also bullish on the metric and expects to return to positive passenger unit revenues, shortly. United Continental Holdings (UAL - Free Report) projects the metric to increase in the band of 1–3% in the second quarter.

The improving unit revenue scenario is well reflected by the bullish Zacks Industry Rank of 48 carried by the 25-member Zacks categorized Transportation-Airline industry. It should be noted that the favorable rank places the industry in the top 19% of the 250+ groups enlisted.

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