JetBlue Analysis

THE RATINGS GAME
 
Morgan Stanley cuts JetBlue rating
 
By August Cole, MarketWatch
Last Update: 2:18 PM ET Feb. 7, 2006    
(This is an update to correct a previous version. Morgan Stanley downgraded the stock to underweight from equal weight.)

SAN FRANCISCO (MarketWatch) -- For JetBlue Airways, image is everything.
 

At the same time, if Continental shifted gears during its push into Florida, the investment firm said it would reconsider JetBlue stock's underweight rating.

JetBlue got its start with a fleet of Airbus jets, and only now is adding a second type of plane made by Brazilian jetmaker Embraer (ERJ) .

The smaller jet has a shorter range but carries fewer passengers, which makes it better suited to shorter trips. But it also makes operations more complex at a time when the Airbus planes in the company's fleet are starting to need more costly maintenance work.

That was not unexpected but the added financial burden of high jet fuel prices in addition to rising operating costs has Morgan Stanley watching closely.

After all, the airline had the best margins in the industry but now Morgan Stanley expects a negative margin of 0.5% this year.

"On the cost side, we are concerned about, although not surprised by, the cost increases that JetBlue is experiencing as a maturing (although still young) carrier," the analysts wrote.

On Tuesday, JetBlue stock fell 4.8% to $10.53 to a multiyear low on volume of more than 5 million shares -- the most active stock in the Amex Airline Index (XX:$XAL: news, chart, profile) .

So far this year, JetBlue stock is down 28%.

JetBlue Announces Fourth Quarter and Full Year 2005 Results
Wednesday February 1, 7:30 am ET

NEW YORK, Feb. 1, 2006 (PRIMEZONE) -- JetBlue Airways Corporation (NasdaqNM:JBLU - News) today reported its results for the fourth quarter and full year 2005: 

`We are very disappointed in our performance this quarter as we continued to feel the effects of record-high fuel prices and a tough revenue environment, compounded by the impact of Hurricane Wilma and the residual effects of Hurricanes Katrina and Rita,'' said David Neeleman, JetBlue's Chairman and CEO. ``Although we saw a 7.4% increase in revenue per available seat mile (RASM) in the face of 25% capacity growth, it was not nearly enough to offset the impact of high fuel costs.''

During the fourth quarter of 2005, JetBlue achieved a completion factor of 98.9% of scheduled flights, compared to 99.9% in 2004. On-time performance, defined by the US Department of Transportation as arrivals within 14 minutes of schedule, was 70.9% in the fourth quarter of 2005 compared to 80.1% for the same period in 2004. For the full year 2005, JetBlue achieved a completion factor of 99.4%, identical to the full year 2004. On-time performance for the full year 2005 was 71.6%, compared to 81.6% for the full year 2004. The Company attained a load factor in the fourth quarter of 2005 of 81.1%, a decrease of 1.8 points on a capacity increase of 24.7% over the fourth quarter of 2004. Load factor for the full year 2005 was 85.2%, an increase of 2.0 points on a capacity increase of 25.3%.

Dave Barger, President and COO, commented, ``Our crewmembers performed admirably throughout the difficult environment of 2005. Together, we successfully met the challenges of opening four new cities, connecting many others destinations across our system, adding sixteen new A320s, integrating the E190 aircraft into our fleet as well as commencing construction of our new terminal at JFK and completing construction of two new hangars in addition to our new training facility in Orlando. Looking ahead, we remain focused on improving the company's financial and operating performance.''

Looking ahead, for the first quarter of 2006, JetBlue expects to report a negative operating margin between 3% and 5% assuming an all in aircraft fuel cost per gallon of $1.92. For the first quarter, CASM is expected to increase between 17% and 19% over the year-ago period, at the assumed $1.92 aircraft fuel cost per gallon. Excluding fuel, CASM in the first quarter is expected to increase between 6% and 8% year over year. Capacity is expected to increase between 27% and 29% over the same period last year. For the full year 2006, JetBlue expects to report an operating margin between 2% and 4% based on an assumed aircraft fuel cost per gallon of $1.98, net of hedges. CASM for the full year is expected to increase between 10% and 12% over full year 2005, at the assumed $1.98 aircraft fuel cost per gallon. Excluding fuel, CASM in 2006 is expected to increase between 4% and 6% year over year. Capacity for the full year 2006 is expected to increase between 28% and 30% over 2005. Based on these assumptions, the company expects to report a net loss for both the first quarter and the full year 2006.

JetBlue will conduct a conference call to discuss its quarterly earnings today, February 1, at 10:00 a.m. Eastern Time. A live broadcast of the conference call will be available via the World Wide Web at http://investor.jetblue.com.