If Load Factors Matter, JetBlue Airways Is in Trouble

JBLU stock is levered to a shockingly uncompetitive company

As everyone knows, the airliner industry was one of the most devastated sectors due to the novel coronavirus. Honestly, it didn’t matter in that initial onslaught whether you were a discount specialist like JetBlue Airways (NASDAQ:JBLU) or offered more upscale fare like United Airlines (NASDAQ:UAL). During an unprecedented pandemic, all these names were the same. Thus, you were right to avoid JBLU stock when our world began turning upside down.

But ever so slowly, we are steadily righting the ship. Don’t get me wrong – we’ve got a long way to go. However, some tangible signs of improvement are available to the optimists. Most importantly of course, new daily coronavirus cases are on the decline, according to the latest information from the Centers for Disease Control and Prevention. Thus, you might be tempted to buy JBLU stock on the thesis that circumstances will continue improving.

As well, JetBlue disclosed supportive company-specific news. Last week, the airliner announced “it will add two dozen new nonstop routes this year in an effort to capture traffic and generate cash” after the pandemic completely disrupted global air travel. Notably, JBLU stock ticked higher on the development.

Best of all, shares are moving according to the underlying fundamentals. Over the last several weeks, airline stocks have conspicuously gained market value. With JetBlue and other competitors adding routes, it suggests that, as JetBlue’s management team stated, “leisure and VFR (visiting friends and relatives) travel is showing some signs of strength.”

Obviously, the leisure and personal visits components are what the industry is banking on, given that the business community is still devastated. So, is this a time to gamble on JetBlue? Not if you care about load factors.

JBLU Stock Is Flying into a Dogfight

On the surface, you would think that JBLU stock would be Covid-19’s clear winner in the airliner department. As one of the most popular discount airliners, JetBlue has the branding and the pricing strategy. But that’s not what the Bureau of Transportation Statistics, which provides passenger load factor data, is saying.

In fact, the data suggests an entirely different narrative from what many analysts are selling.

As you know, load factor is one of the most critical metrics for airliners. Essentially, a high load factor allows a company to spread fixed costs across more passengers. Therefore, any passengers beyond the break-even point for a flight translates to profits. This was crucial for thriving in a pre-pandemic era but the metric is now overwhelmingly critical for survival.

But it’s here where JBLU stock falls short. Despite its discount street cred, in June (the latest data point), JetBlue had the second-lowest load factor among all U.S.-based airlines. The only company JBLU beat was Hawaiian (NASDAQ:HA). Obviously, this isn’t something to brag about because we’re talking about Hawaiian Airlines – a very narrow market relative to other U.S.-based carriers.

At the top of the list by a wide margin was Spirit Airlines (NYSE:SAVE). That right there should be a warning sign. From what I understand, Spirit is an ultra-discount airliner, a company that practically invented the term “no frills.” About the only service you can count on is that you won’t die getting to your destination, which to be fair is the most important attribute of any airliner.

But the point is that JetBlue isn’t winning the load factor game. Unfortunately, this means it must compete with another discount specialist, Southwest Airlines (NYSE:LUV). I’m not sure that’s a dogfight you want to put money on.

The Fear Is Strong

Does this mean investors should abandon their ideas regarding JBLU stock and go with Southwest? To loosely paraphrase Gordon Gekko, Southwest is probably a dog with different fleas.

I’m not trying to badmouth any company in this segment. However, I believe investors need to be real. Last week, I wrote about my concerns for LUV because its year-to-date price action is reminiscent of the runup to, and the aftermath following the Sep. 11 attack. In other words, consumer fears still dominate the airliner discussion.

Back then, people were afraid to fly because of terrorism. As I stated in the aforementioned article, terrorism is a low-probability event. Getting sick on an airplane? There’s a reason why people take those super-vitamin boosts – yes, I’m talking about myself – before getting onboard. Covid or not, getting sick in an airplane happens quite frequently.

It may take years – as it took years for people to get over the low-probability event of terrorism – for folks to fly again. And the poor load factors suggest that this could be the case. Therefore, the smarter approach is to wait out JBLU stock.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.