Jetblue just put out a 56 page document explaining why it can't pay pilots industry standard anything.
Stock price is the justification. Because pilots, not management, have everything to do with this.
Hunter Keay, Wolfe Research
Fourth consecutive EPS miss to consensus with EPS ex-items of $0.21, below the consensus estimate of $0.22 and our estimate of $0.23. We believe JBLU is facing material cost headwinds next year from new labor deals, and another year of likely high-single digit capacity growth should produce the same thing it’s produced since 2010: capital destruction.
Fleet restructuring not exciting to us. JBLU bought 35 more A320 family aircraft and deferred 24 E-190s as part of a fleet restructuring. No orders were cancelled, and near-term capex is likely to fall by just ~$70M/year (~10%). Today’s announcement of adding ~$1.8B to an already bloated order book despite carrying an after-tax ROIC that’s ~300bp below capital costs is indicative of a growth-first, returns-second strategy.
ROIC goal doesn’t appear to be driving the strategy. Talking about ROIC and taking clear actions to drive ROIC is quite different, and based on commentary from the call it appears that JBLU will fall short of its stated 100bp ROIC improvement goal for 2013. JBLU has the highest adjusted net debt to EBITDAR in our airline coverage at 4.0x, and ~135 committed aircraft deliveries over the next decade on a fleet of 189 means material looming debt with still-high capex. JBLU called its commitment to expanding ROIC by 100bp “non-negotiable” earlier this year, yet falling short of that goal oddly translates to buying more aircraft?
Rich valuation. JBLU’s multiple contracted steadily over the last ten years as growth has decelerated and debt levels accelerated, but it is still well above peers.
We fail to understand why a company with poor returns, an aversion to commercially proven revenue initiatives (first bag fees), and a commitment to metrics we find not valuable (Net Promoter Score) garners the multiple it does. We downgrade to Underperform and use a P/E multiple of 9x our 2015 EPS estimate to derive a target price of $6.
You are having NPS shoved down your throat as some amazing metric for determining customer loyalty while Wall Street is laughing.
In reality, NPS is tied directly to management bonus structure.