JetBlue Airways
stock pointed 7.6% lower early Tuesday after the low-cost carrier unexpectedly said it doesn’t expect to post a profit in the third quarter.
The airline also cut its full-year earnings guidance to between 5 cents and 40 cents per share, from a previous range of 70 cents to $1 per share.
A slowdown in domestic demand, also signaled by its peers this earnings season, was just one of the reasons behind the cut. Chief Operating Officer Joanna Geraghty said near-term headwinds from the termination of its alliance with American Airlines in the Northeast U.S. were another factor.
JetBlue
(ticker: JBLU) ended its partnership with American earlier this month by choosing not to appeal against a court ruling ordered the pair to unwind their tie-up. The alliance is a key argument by the Justice Department in its attempt to block JetBlue’s proposed merger with
Spirit Airlines
(SAVE). The airline said ending the tie-up rendered the DOJ’s concerns “entirely moot.”
It may end up being a smart move if the merger is approved, but ending the alliance is bad news in the near-term.
There was nothing wrong with the carrier’s second-quarter earnings. In fact, it reported record quarterly revenue of $2.61 billion, in line with expectations. Earnings per share (EPS) of 45 cents also narrowly beat estimates. Analysts were expecting earnings of 44 cents per share on revenue of $2.61 billion—both coming in at the top end of the company’s own guidance.
But JetBlue’s third-quarter guidance, amid fears of a domestic demand slowdown in the sector, disappointed. The carrier said it expects to report a range between an adjusted loss of 20 cents and break-even. Analysts had forecast EPS of 40 cents per share.
It also expected revenue to fall between 4% and 8% year over year for the third quarter. Analysts forecast a 2% rise from the previous year with sales of $2.62 billion.
Geraghty cited a “greater-than-expected shift of pent-up Covid demand to long-haul international, which is pressuring demand for domestic travel during the peak summer travel period.” She added that a challenging environment in the Northeast and the end of alliance with American were also factors.
“JetBlue is caught in the crosshairs of slowing domestic leisure air travel demand, operating in some of the most constrained U.S. airports and dealing with idiosyncratic distractions (The Northeast Alliance, Spirit merger lawsuit),” TD Cowen analyst Helane Becker wrote. She added that the company’s guidance was “extremely disappointing.”
JetBlue shares are up 20% since the beginning of the year, as of Monday’s closing price, but have fallen 17% since reaching their 2023 high at the start of July.
Signs of a slowdown in the quarters ahead, particularly in domestic demand, have hurt airline stocks this earnings season, despite several carriers reporting record-breaking quarters
The sector tumbled after
Alaska Air Group
‘s (ALK) earnings last week, even after the company posted record quarterly revenue of $2.84 billion. That’s because the company said it expects third-quarter revenue to be anywhere between flat and 3% versus 2022—a deceleration from the 7% growth in the second quarter.
JetBlue stock fell 5.6% after
Alaska Air
‘s earnings. The low-cost carrier’s shares slipped again after
Southwest Airlines
‘ (LUV) outlook added more weight to the case for softening demand.
Write to Callum Keown at [email protected]
Read the full article here
