JetBlue Stock Tumbles After Earnings. Things Are Going From Bad to Worse.

“While we have been able to offset some of the costs associated with the challenging operational backdrop, the sheer magnitude of air-traffic control and weather-related delays has been staggering,” JetBlue Chief Financial Officer Ursula Hurley said in a statement.

For the full-year JetBlue now sees a net loss per share of 45 cents to 65 cents, while analysts had been expecting a loss of 25 cents. JetBlue’s previous outlook was for a profit per share of 5 cents to 40 cents, and that had been cut from previous profit-per-share range from 70 cents to $1.

It also forecast a wider-than-expected loss for the fourth quarter, issuing guidance for a loss per share of 35 cents to 55 cents, compared with a consensus estimate for a loss of 15 cents.

Low-cost airlines have been facing turbulence for months and the headwinds, and cost pressures, are continuing to mount. JetBlue, like all other airlines, sees higher fuel prices in the current quarter.

Discount airlines would typically counter higher costs by flying more planes, and filling them up. But that’s proving difficult—Chief Operating Officer Joanna Geraghty said industry capacity is currently outpacing domestic demand during off-peak travel periods. There’s also the air-traffic control and weather issues, she referred to as “staggering.”

Growth in the current quarter will be predominantly driven by international travel, Geraghty said. But the airline’s international footprint, while expanding, is smaller than
United Airlines Holdings
(UAL),
Delta Air Lines
(DAL), and
American Airlines Group
(AAL).

It’s a big day for JetBlue and not just because of the low-cost carrier’s third-quarter earnings. The company is also due in court.

The Justice Department is suing to block the company’s proposed $3.8 billion merger with
Spirit Airlines
(SAVE). The antitrust trial begins in U.S. District Court in Boston after a two-week delay. 

JetBlue stock, which is off 54% since its July peak and 35% for the year, as of Monday’s close, needs a boost. Its earnings look likely to keep the stock under the pressure, but the trial could eventually provide a lift for the shares.

In its lawsuit, the government opposes the merger on the grounds that it would hurt competition. Prices would increase and travelers would have fewer choices for routes nationwide, according to the Justice Department.

JetBlue disagrees and has tried to ease the government’s concerns, including voluntary agreements to divest Spirit holdings in Boston, Newark and at New York’s LaGuardia Airport if the deal is allowed to go through.

In a separate case, JetBlue was ordered to end its alliance with American Airlines in the Northeast. The company opted not to appeal the decision, essentially in a bid to save the Spirit merger. The alliance formed a key part of the government’s complaint about the proposed Spirit deal.

Still, the Justice Department is pressing ahead with its Spirit case despite termination of the alliance and JetBlue’s voluntary divestiture agreements.

JetBlue told Barron’s it is ready to present its side. Spirit didn’t respond to a request for comment.

“We look forward to presenting our case in court as we strongly believe our combination with Spirit is the best opportunity to disrupt the industry by increasing competition and choice, creating a long overdue national low-fare challengers to the dominant Big Four airlines,” JetBlue said in an email.

The outcome looks to be a close-run thing. Raymond James analysts put the deal’s chances of succeeding at greater than half, and Deutsche Bank analysts are forecasting a 60% chance, they said in a note after Spirit’s earnings last week.

However, Spirit’s disappointing earnings and guidance makes TD Cowen analyst Helane Becker think that it’s “possible thatJetBlue tries to renegotiate the price, especially if they win their case against the Justice Department.”

J.P. Morgan analyst Jamie Baker has an Underweight rating on JetBlue stock, but said sooner-than-expected clarity on the acquisition was an upside risk.

But with the trial expected to last 20 days, and a decision unlikely for another few months, JetBlue’s third-quarter earnings might be the catalyst for the stock.

Figuring in the antitrust lawsuit, the termination of the Northeast alliance, and the slowdown in domestic demand, it’s easy to see why JetBlue stock continues to struggle in 2023.

Write to Callum Keown at [email protected]