JetBlue Bullish Outlook Pt 1

Preliminary Analysis | Please review with caution

By Darryl Weng

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The airline industry has not ceased making headlines - from Alaska Airlines to usual Boeing production issues. But, of all the airlines, the budget and low-cost airlines took the greatest hit. While the pandemic had strained the operations of all airlines relatively equally, post-pandemic did not serve the domestic flight-reliant airlines well. Even with supply-chain issues, full-service airlines such as United and Delta were glad to add the post-pandemic boom of international traveling to their balance sheets whilst low-cost giant Southwest’s 700+ fleet was left rotting in the ground. 

Short interest in budget airlines has not ceased since the pandemic and has only risen. However, despite all the downturns and stressors pulling the industry down, JetBlue Airways - not United, Delta, or even Frontier - is an exception. JetBlue offers a unique investing opportunity for those interested in a 2-year-long position.

The bearish investors of the budget airline industry are wrong for the most part, but a proper understanding of their opinions is needed. The bearish mindset is mainly based on two factors: 1. The post-pandemic boom. 2. The Boeing dilemma. 

The first factor involves the sudden desire of people to escape their isolated pandemic lives to travel internationally. The post-pandemic boom - as it is worded - refers to the 2022-2023 growth of this desire. As mentioned before, the post-pandemic boom only benefitted full-service airlines due to the influx of non-domestic flights. As a result, JetBlue and its low-cost peers accumulated even more debt and cost issues as they helplessly watched United complain of overwhelming demand. Even as the post-pandemic boom heads towards its end and the demand for domestic & international flights normalizes, budget airlines face the issue of debt accumulating since 2020. Simply Wall St, in December of last year, published a great article outlining the dilemma with JetBlue. In their data on the equity, debt, and cash trends of JetBlue, the debt skyrocketed at the start of the pandemic and has since been on a steady but slow decline. To counter the debt, JetBlue tried to use their available cash; but, in consequence, their cash fell harshly. The ultimate question is whether or not JetBlue can recover in time. The answer? 100%. JetBlue’s revenue has grown back to pre-pandemic figures and has been rising at a steady pace since the COVID-19 shock. The downturn in JetBlue’s stock since the pandemic has resulted in an unfair and undervalued current price. Although, admittedly, JetBlue will need substantial time to recover to a better positioning of equity: debt: cash ratio, there is a reason why the recommendation is holding the position for at least 2 years. It is not expected for the airline to recover to pre-covid stock price of around ~$21 in less than 2 years. 

Now addressing the second bearish factor, the entire saga with Boeing affects the airline industry as a whole. But it should also be noted that, logistically, the only airlines being affected by Boeing’s failures are those that have Boeing in their fleet. Regardless of whether or not the airlines have little to no Boeing 737 MAXs in their fleet, any exposure to Boeing aircraft is seen as a risk to many investors. Thus, airlines such as JetBlue and Frontier are exempt from the Boeing saga, as they operate zero Boeing aircraft and largely use European-built models. Boeing is an extremely dangerous unknown variable for investors in major airlines such as United and Southwest. The fact that Boeing is unable to permanently fix its issue after all these years is of great concern. It presents such a large risk that it may be wise to avoid a long position on airlines such as United, Delta, and Southwest. Luckily, JetBlue is exempt.

This is part 1 and an introduction to JetBlue's bullish outlook. This is largely a surface & preliminary analysis and should not be taken as a serious citation and reason for an investment. Part 2 will involve a deeper analysis.