JetBlue Slashes Q3 Capacity Guidance Amid The Current Crisis

In an update provided on Sept. 22, JetBlue Airways stated that it now expects 3Q scheduled capacity to decrease about 55% Y/Y compared to the previous capacity reduction estimate of at least 45%. Rising COVID-19 cases continue to crush the airline industry though modest improvement has been observed in leisure travel.

JetBlue (JBLU) disclosed that it is experiencing modest improvement in revenue and booking trends, driven by visiting friends and relatives (or what it calls VFR) and leisure demand.

JetBlue now anticipates average daily cash burn at the lower end of the $7 million to $9 million range announced during the 2Q earnings call. The company cited “modestly improving demand trends, capacity actions, and execution on costs” as the reasons for the improved cash burn outlook. (See JBLU stock analysis on TipRanks)

Recently, Southwest Airlines also announced that it expects an average daily core cash burn of about $17 million in 3Q compared to its previous estimate of $20 million.

Major airlines have been appealing for an extension of the payroll grants under the Cares Act, which expires on Sept. 30. In the absence of an extension of the aid, several airlines have warned of significant layoffs in October.

On Sept. 8, Morgan Stanley analyst Ravi Shanker initiated coverage of JetBlue with a Buy rating and a price target of $16. Shanker is bullish on the timeline for recovery in airline traffic, telling investors that he sees air travel demand returning to pre-COVID levels, on a “run-rate basis” by late 2021 to early 2022.

In that context, his stock preference reflects a “barbell approach” with a bias toward low-cost carriers and ultra-low-cost carriers compared to the legacies.

Year-to-date, JetBlue stock has fallen about 37% and the average analyst price target of $12.17 indicates a small upside of 3.1% ahead. A cautiously optimistic Moderate Buy consensus for the stock is based on 3 Buys, 5 Holds and no Sell ratings.