JetBlue Stock Expects Gains Despite Trimmed Flight Schedules

American air transport service provider JetBlue Airways Corp. (JBLU) is reducing its summer schedule to prevent further flight and passenger disruptions. At the time of writing, JBLU stock was up more than 6% during pre-market trading.

The airline industry is witnessing a boom in travel demand after economies worldwide have opened their skies for cross-border travel. However, since the onset of the pandemic, airlines have been struggling to retain their employees and sustain the enormous flight demand.

Airline Blues

JetBlue Airlines cut over 300 flights over the weekend, due to bad weather conditions in Florida, which resulted in several flight delays and cancellations across multiple carriers.

Last summer, airlines grappled with staff shortages and were forced to cancel and/or delay numerous flights. This year, various research houses have already projected a heavy summer and spring travel season. Meanwhile, airlines are trying to skirt the issue by reducing their schedules well in advance.

According to CNBC, an email to staff by JetBlue COO and President Joanna Geraghty stated that JetBlue has already planned a decrease in capacity by 8%-10% for May. Further, the company has warned of similar schedule cuts for the remainder of summer.  

In late March, JetBlue urged flight attendants to accept more flights to satiate the rising travel demand, and promised to hire around 700 additional crew members through the summer.

Considering the tightly wound crew schedules, JetBlue has decided to cut back on its flights as the best solution for the time being. “I think everyone recognizes that the industry still remains very much in recovery mode, so we believe this proactive step is the right decision,” Geraghty wrote in the email.

Despite hiring 2,500 people to date this year, JBLU is facing staffing shortages. The airline is also undertaking other measures to ensure that its crew can work under pressure by incentivizing them with bonuses and extra pay.

JetBlue is giving a $1,000 bonus to crew members if they don’t take a leave from work starting April 8 through the end of May, and $500 to part-time attendants for meeting the goals. Moreover, a $100 bonus will be given to flight attendants for picking up open trips.

Similarly, Alaska Air (ALK) has also reduced its schedule by 2% through the end of June to survive the staffing shortages. On April 8, Alaska’s Twitter account read, “We’ve recently let down some of our valued guests by canceling an unusual number of flights. Rest assured we’re making immediate changes to ensure our guests can count on us to get them where they want to go.”

Analysts’ Take

Recently, Evercore ISI analyst Elizabeth Anderson reiterated a Hold rating on the JBLU stock with a price target of $15, which implies 26% upside potential to current levels.

In the Q1 preview of the airline industry, Anderson adjusted estimates of stocks “on higher assumed fuel and better revenue. We continue to see strong cross-currents: high fuel volatility, strong demand, and operational constraints.”

The analyst noted that JetBlue has a more aggressive capacity recovery plan for 2022 by focusing on Northeast growth, but the airline is facing temporary headwinds arising from staff shortages, training lead times, new aircraft delivery rates, and highly constrained regional capacity. Accordingly, the analyst has lowered the estimates for both the current year and the next year for the company.

The other analysts on the Street are also cautiously optimistic about the stock with a Moderate Buy consensus rating based on four Buys and three Holds. The average JetBlue price target of $19.60 implies 64.7% upside potential to current levels. JBLU stock has lost over 19% year-to-date.

Conclusion

Considering the above factors and its intention to buyout ultra-low-cost carrier Spirit Airlines (SAVE), JetBlue seems to be a good bet should the acquisition go through. In the short term, however, the added costs will overshadow the carrier’s performance, but in the long run, JetBlue will be hailed as one of the top five carriers in America with solid underlying fundamentals. The stock is also trading more than 50% below its all year high, making its a good entry point for investors seeking long-term value.

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