JetBlue Airways Corporation (JBLU): Efficient Management In an Inefficient Era of Air Travel

I have been a lifelong American Airlines customer when flying in the US, however, recently I have started to look at JetBlue as it is a common sense low cost option. Most airlines in the western world today are characterized by large inefficiencies, high costs, and zero profits. Jet Blue is the airline that bucks the trend.

Combining quality with low prices

The founder of JetBlue Airways Corporation (NASDAQ:JBLU), David Neeleman, intended JetBlue Airways Corporation (NASDAQ:JBLU) to be a low-cost option but also an option which brought “humanity back to air travel.” His approach is very much ingrained in the tradition of JetBlue Airways Corporation (NASDAQ:JBLU) and they have one of the most extensive customer service programs. J.D. Power & Associates have ranked it ‘highest in customer satisfaction among low cost carriers in North America’ for eight years running. Many of JetBlue Airways Corporation (NASDAQ:JBLU)’s key amenities have been copied by other airlines because they were so successful at JetBlue Airways Corporation (NASDAQ:JBLU).

JetBlue Airways Corporation (NASDAQ:JBLU) mainly flies to destinations within the United States, therefore, it is competing mostly with the domestic carriers like Southwest Airlines Co. (NYSE:LUV)’s  and Delta Air Lines, Inc. (NYSE:DAL). Southwest Airlines Co. (NYSE:LUV) is the world’s largest low-cost carrier and it carriers the most domestic passengers of any airline. It offers competitive air fares and flies to 42 states. JetBlue modeled its structure based on what Southwest Airlines Co. (NYSE:LUV) offers, and it attempted to improve on it. Delta Air Lines, Inc. (NYSE:DAL) is a much older airline that either Southwest or JetBlue (it was incorporated 84 years ago), and it is the largest airline in the United States. It tries to emphasize quality and service over air fares as it has struggled to compete with the lower cost carriers in recent years.

The company’s most appealing factor is the low-cost structure of the airline. JetBlue also has a very high utilization rate for its aircraft allowing it to spread the fixed costs across a large amount of flights. These factors combined with extremely low distribution costs and a very efficient workforce provide it with a significant cost advantage over the other low-cost airlines. Furthermore, The average age of its fleet is less than five years, younger than most of its competitors. This allows a more fuel-efficient fleet and a easier fleet to manage.

As a result of these factors, JetBlue has a high gross profit TTM of 65.5% of revenue. When contrasted with Southwest Airlines’s gross profit of 58.1%, its cost advantages become clear. Its cost of revenue is 7.4% lower than Southwest’s. Southwest is the only major airline with a gross profit even close to JetBlue’s. For example, Delta Air Lines, Inc. (NYSE:DAL) has a gross margin of just 45.38%. JetBlue’s operating margin TTM is also significantly higher than that of Southwest’s (6.81% vs 3.92%).  As the airline industry is becoming more available as a commoditized product, it stands to reason that the lower cost airlines will benefit from this as they will seem the more attractive option for new customers. Therefore, JetBlue should continue to see strong growth in the US for the next few years while its higher cost competitors suffer.

Another hallmark of JetBlue is its strong management at every level. It has managers who have already shown success at other low cost airlines and has transferred that wealth of experience into JetBlue’s structure. Several of the key employees at JetBlue have had experience at Southwest Airlines, another low cost carrier.

JetBlue also has many opportunities for expansion. The online world represents a vast potential market for the airline and so do the emerging markets. Unlike many other airlines JetBlue has not diversified yet and so it will have these synergies and economies of scale which it can benefit from in the future. 60% of its business is based out of New York (figure from www.morningstar.com), and consequently it is very reliant on this one market.  Even though this might seem like JetBlue is overly reliant on the city of New York, this exposure has also created a strong brand image and an ingrained culture of JetBlue.

JetBlue’s financials are also very attractive compared to the industry as a whole. It has a price to book of 1.0 compared to an industry average of 2.6, and a debt to equity of 1.2 versus 2.0 for the industry. It also has a higher 3-year average revenue growth (14.9%) than the industry, and a higher 3-year net income growth (30.2%). However, it does have slightly worse margins than the industry average due to its low cost attitude. Nevertheless, JetBlue’s financials as a whole are very compelling. This is illustrated by its low PEG figure of 0.49.

Bottom line

JetBlue’s low cost, high customer service approach will allow it to continue to dominate growth in the airline industry over the next few years. It is definitely worth a look at when creating a diversified portfolio as it will continue to reward shareholders.

Rupert Nicholson own shares in Jet Blue. The Motley Fool has no position in any of the stocks mentioned. Rupert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Jet Blue: Efficient Management In an Inefficient Era of Air Travel originally appeared on Fool.com is written by Rupert Nicholson.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!