JetBlue Airways Corporation (JBLU), United Continental Holdings Inc (UAL): This Airline Is Too Risky for a Long-Term Investment

JetBlue Airways Corporation (NASDAQ:JBLU) investors, remember these names: Albuquerque, Philadelphia, Medellin, Worcester, Port-au-Prince, and Lima. By the end of 2013, JetBlue will have added all these cities to its routes; the first three are already active, alongside new routes to JetBlue’s existing cities. All these moves carry great growth potential for the company — but the other obstacles JetBlue’s facing should curb investors’ potential enthusiasm.

JetBlue Airways Corporation (NASDAQ:JBLU)

Increased costs

In addition to a sluggish macroeconomic environment, JetBlue Airways Corporation (NASDAQ:JBLU) has to contend with increased costs from maintaining and repairing its aging fleet. Assuming fuel prices average $3.13 per gallon, JetBlue expects cost-per-available seat mile to jump 2.5%-4.5% in 2013.

Salaries, wages, and benefits are also expected to increase by approximately 6%. JetBlue Airways Corporation (NASDAQ:JBLU)’s longer-tenured workers demand higher salaries, and the company’s trying to keep its pay competitive to retain its best talent.

Between these two factors, JetBlue’s total operating expenses jumped 7.5% ($86 million) in the second quarter year over year.

The good news

Before this news gives you the blues, remember to look on the bright side. JetBlue Airways Corporation (NASDAQ:JBLU) has now delivered 13 consecutive profitable quarters. It also generated $402 million in cash in the second quarter, $152 million of which it used to pay down its debt. By reducing the interest on its debt payments, JetBlue will be able to seize more growth opportunities.

Currently, JetBlue Airways Corporation (NASDAQ:JBLU) sports a debt-to-equity ratio of 1.46, which is below the industry average of 2.0. This is more impressive than the debt-to-equity ratio of 9.83 for United Continental Holdings Inc (NYSE:UAL), though not quite as impressive as Southwest Airlines Co. (NYSE:LUV)‘  0.44.

United Continental Holdings Inc (NYSE:UAL) and Southwest Airlines Co. (NYSE:LUV) seem to be heading in opposite directions. United Airlines might be the largest airline in the United States, but considering how challenging this industry gets, that size and scale only means more problems.

Consider some key metric comparisons for these three airlines:

METRIC Forward P/E Net Margin ROE Dividend Yield Short Position
JetBlue 10 1.87% 5.09% None 23%
Southwest Airlines 11 2.19% 2.19% 1.20% 2%
United Airlines 6 (1.51%) (-39.41%) None 9.83%

Source: Company financial statements.

Looking at these numbers, it’s clear that United Airlines isn’t likely to offer a better investment opportunity than JetBlue or Southwest Airlines at this point in time. If you’re still not sold on this point, then consider annual revenue and EPS comparisons.

UAL Revenue TTM Chart

UAL Revenue TTM data by YCharts

JBLU EPS Diluted TTM Chart

JBLU EPS Diluted TTM data by YCharts