JetBlue posts narrow loss, reduces expansion
By Chris Reiter
NEW YORK (Reuters) - JetBlue Airways Corp. (JBLU.O) on Tuesday posted a narrow third-quarter loss, the latest sign that short-haul carriers face softening demand, but shares rose after the discount airline said it will pare expansion plans.
JetBlue, which is in the midst of a restructuring plan to trim $120 million from annual expenses by 2007, said it will slow its growth rate over the next three years by reducing its 190-strong fleet of Airbus A320 and Embraer (ERJ.N) planes. Shares rose nearly 7 percent in early trading.
"We feel very strongly that the slower growth will be a benefit to our investors," said Chief Executive David Neeleman on a conference call.
Neeleman said JetBlue has no plans to raise capital in stock offerings for the next three years, soothing investor concerns that the fast-growing airline could dilute earnings by issuing new shares to finance expansion.
The company said it may take delivery of the 30 planes it has on order for next year and sell or lease older ones. But it didn't specify how many planes or what types would be cut.
With the revised growth plans, JetBlue said it expects capacity to increase 14 percent to 17 percent in 2007. It previously planned to expand capacity 18 percent to 20 percent.
Six-year-old JetBlue, which is in the midst of a restructuring program, posted a net loss of $500,000, or nil per share, compared with a net profit of $2.7 million, or 2 cents per share, in the year-earlier quarter. Analysts expected the company to break even, according to Reuters Estimates.
Earnings were boosted by a $7 million pretax gain from the sale of five A320 aircraft earlier this year, as part of an earlier plan dampen growth that also included the deferral of 12 A320s that were to be delivered in 2007.
DISCOUNTERS FACE HEADWINDS
While the overall airline industry experiences a rebound from a six-year slump, discount carriers such as JetBlue are facing headwinds.
Traditional airlines like United Airlines (UAUA.O) have made deep cost cuts to compete more effectively with low-cost carriers. Meanwhile, demand for short-haul routes operated by budget airlines took a hit from tighter security measures implemented August 10 after British police said they uncovered a plot to blow up airliners.
"It appears low-cost carriers are in a vice with high fuel and the increased hassle factor (associated with tighter security measures)," said Ray Neidl, an analyst with Calyon Securities.
JetBlue said operating revenue rose 39 percent to $628 million as the company added flights and raised ticket prices at the expense of filling seats.
JetBlue's load factor, the percentage of airline seats filled with paying customers, fell 6.2 points to 80.4 percent. The company is trying to improve earnings by charging higher average fares even if it means empty seats.
CEO Neeleman also said that the New York-based carrier is in talks with international airlines about codeshare partnerships and could announce a deal in the course of the next quarter.
For the fourth quarter, JetBlue said it expects to report an operating margin between 6 percent and 8 percent, assuming fuel cost of $1.94 per gallon.
Jet fuel is currently trading at about $1.69 per gallon. The company has hedges in place above this level, which may lead to it paying above-market prices for fuel.
JetBlue shares were up 44 cents at $11.58 in midday trading on Nasdaq. JetBlue has underperformed the sector so far this year, falling 28 percent, while the Amex airline index (.XAL) rose 22 percent.
(Additional reporting by Paritosh Bansal)
10/24/06 12:33 ET
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