JetBlue's Fall From Grace
By SUSAN CAREY
April 22, 2006; Page A2
JetBlue airways' rapid descent from Wall Street golden goose to goat is likely to accelerate Tuesday. That is when the once-hot discount carrier is expected to report a second consecutive quarterly loss.
JetBlue's fall from grace underscores the challenge of staying profitable in an industry roiled by $70-a-barrel oil prices. It is also a reminder that no airline is safe in this cyclical, competitive business.
Analysts expect JetBlue to announce a loss of about $33 million, or 20 cents a share, for the first quarter. That is a pittance compared with the estimated U.S. $42 billion the industry as a whole has lost since 2001. Ironically though, JetBlue's likely dip into red ink comes when many larger carriers are expected to return to the black.
Stock pickers who once were mesmerized by JetBlue's low costs and heady growth are downgrading its shares and sniping at every move. "JetBlue is expected to be the least profitable of any carrier we follow in 2006," J.P. Morgan Chase airline analyst Jamie Baker wrote in a research note this past week. Moody's Investors Service this month cut the company's corporate-debt ratings, citing high fuel prices and JetBlue's weakening credit metrics, as it faces $6.4 billion in new aircraft debt and lease financing in the next seven years.
It wasn't long ago that Wall Street was comparing the little airline that offered cushy leather seats and personal satellite televisions with discount king Southwest Airlines. Other rivals watched with envy as JetBlue kept posting profits through a severe industry downturn that saw US Airways Group, Northwest Airlines, United Airlines parent UAL and Delta Air Lines file for bankruptcy protection. Now they are reveling in schadenfreude.
Analysts say JetBlue veered off course in the past year as it diversified its fleet beyond one type of plane, stuck with an overaggressive expansion plan and failed to hedge its fuel needs more than it did. David Neeleman, the company's founder and chief executive, has stood behind the new airplanes and the growth. "We have a great game plan," he said in early February. The solution: "Either fuel has to come down, or we have to get four more bucks on the average ticket."
But growing pains have begun showing up. JetBlue's punctuality ratings have plummeted -- it was ranked second-to-last of 17 airlines in the year ended in February. A big blow came when it broke its string of 19 straight profitable quarters and delivered a larger-than-expected $42 million net loss in the fourth quarter of 2005. Its stock has plummeted from an intraday high of $16.85 in late December to $8.95, off 34 cents on the day, as of 4 p.m. in Nasdaq Stock Market composite trading Friday, setting a new 52-week low.
JetBlue, citing its imminent earnings release, declined to comment. The company has acknowledged struggling with the price of fuel, its No. 1 expense. It has admitted to punctuality problems and has beefed up its revenue-management staff. JetBlue also has hinted that it may consider slowing its aircraft deliveries or selling new shares.
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