JetBlue Airways Corporation Could Soar in 2016
JetBlue Airways Corporation (NASDAQ:JBLU) lost its chance to take off as competitor Alaska Air Group, Inc. (NYSE:ALK) emerged the victorious contender in the contest to win over Virgin America Inc (NASDAQ:VA) investors. JetBlue stock stalled to its lowest price to date in 2016. However, JetBlue is a bargain at this price and investors should not dismiss it simply because it failed to win a bid. Alaska Air is one of the oldest airlines in the world. It was founded in the 1930s and VA investors may have perceived long-term stability as they chose to support its bid.
There is no question that by acquiring Virgin America, JetBlue stock would have benefited. The fact JBLU stock dropped from $21.33 on April 1 to $19.11 on April 12 suggests investors were disappointed by the missed opportunity. Indeed, much was riding on the overall market perception of the sale of Virgin America.
This is the first merger in the sector in the U.S. since U.S. Airways and American Airlines got together in 2013. It is also the sixth merger since 2005 with the America West-US Airways merger, when the industry caught consolidation fever. The remaining three mergers were Delta-Northwest in 2008, and United-Continental and Southwest-Air Tran in 2010. Yet most analysts perceived a better fit between JetBlue and Virgin from both an industry and an investment perspective. The merger would simply have created a West Coast giant.
Still, JetBlue has much going for it, with or without Virgin. For starters, a study (Airline Quality Rating – AQR) analyzing airline performance for the 13 largest airlines in the U.S. placed JetBlue in second place (Virgin America was number one). (Source: “Airline Quality Rating 2016,” Airline Quality Rating – Wichita State University, last accessed April 14, 2016.) JetBlue might be a low-cost airline, but its model does not prevent it from striving to offer the best possible service. It has scored in the top three consistently.
Good service might be something nice to have if you happen to be a passenger aboard a JetBlue Airbus, but how does that translate to JetBlue stock? The excellent service allows JetBlue to boost sales. The airline has used customer service as a honey pot, increasing word-of-mouth referrals among airline passengers. (Source: “jetBlue – Low-Cost Airline Offering High Quality Service,” IBS Center for Management Research, last accessed April 14, 2016.) JetBlue, like so many other successful companies, has built its brand reputation through customer loyalty.
While only passengers flying within the U.S. have enjoyed JetBlue’s famous service, the airline is expanding to Europe, building its traffic and sales potential. Last February, JetBlue agreed to codeshare with TAP Portugal, establishing new routes to Lisbon from Boston and New York. JetBlue is also one of the first U.S.-based airlines to resume service to Cuba.
JetBlue’s focus on growth by appealing to passengers’ needs has translated into steady revenue and earnings-per-share growth. Revenue has gone from $5.4 billion in 2013 to $6.4 billion in 2015. Earnings per share have risen from $0.52 to $1.98 in the same period.
JBLU may be trading in the low range for 2016, but as such, it could represent a great opportunity for those interested in airline stocks. Today, JBLU is trading almost 3.9% higher at $19.87, yet the stock has plenty of upside potential. Last September, long before the Virgin America purchase rumors, JBLU took off past $27.00. Analysts certainly expect it to take that route, given a target price range between $27.35 and $32.00. (Source: “Stock Grabbing Investor’s Attention: JetBlue Airways Corporation (JBLU),” CWRUObserver, March 15, 2016.)