JetBlue Airways Corporation (NASDAQ:JBLU)‘s management is sounding more as if it will be restraining the build out of its route network, and enjoy the potential efficiencies that may result. In doing this, it may just give investors reasons to be delighted.
The rollout of service and redeployment of aircraft into more-profitable geographical markets is a strategy that may support profitability at air transport firms. Still, productivity of assets is also key to their bottom lines. JetBlue, a company I have discussed previously (see my previous blog), can serve as an illustration of that hypothesis. Overviews of two other lesser-known carriers may also be of assistance in finding air transport stocks.
JetBlue’s Boston and Caribbean moves
Flight additions at Boston’s Logan International have been a boon to the earnings of the carrier, based out of New York’s JFK. As of the end of 2012, JetBlue Airways Corporation (NASDAQ:JBLU) had become the most prominent airline at Logan, flying twice as many routes as any other carrier there. The positive impact on JetBlue’s income statement stems from Boston’s elevated proportion of corporate travelers and business fares.
Its average ticket price and yield per mile both climbed 10% last year versus 2011. While expansion in Boston will persist, it is also at the stage where, as management says, it will “harvest the benefits of the investment.”
Secondly, JetBlue has increased its Caribbean presence, mostly San Juan, to about 27% of total seating capacity. It notes that this market remains one or two years behind Boston. It is operating at about break-even, with contributions to income anticipated in 2014.
Fort Lauderdale waiting in the wings
JetBlue Airways Corporation (NASDAQ:JBLU)’s next major expansion is set to be that Florida hotspot, where it says it is already operating income positive and wants to double its presence to roughly 100 flights a day. It notes that investments in airport infrastructure will be required. Nevertheless, this is another good opportunity.
Certainly, of late, we have seen JetBlue grow its aircraft fleet while also reducing its long-term debt load. With a favorable environment in terms of fuel and economic growth, profits are expected to grow nicely on improvements in metrics such as load factors (occupancy) and revenue-per-available-seat-mile (basically pricing).
A foreign carrier thinking alike
Copa Holdings, S.A. (NYSE:CPA) might be taking some cues from JetBlue Airways Corporation (NASDAQ:JBLU), though going about it a bit differently. The Panamanian airline has been aggressively growing its capacity, mostly adding service between existing Latin American markets, as well as entering several new cities. Its earnings are reflecting the expansion, advancing 16% in 2012.
Going forward, the pace of capacity expansion will slow down. That said, it is adding a daily flight from Panama to Boston (where JetBlue Airways Corporation (NASDAQ:JBLU) dominates) and increasing its foothold in places like Orlando, FL. Accordingly, if demand holds, revenue should continue to ascend.
And Copa Holdings, S.A. (NYSE:CPA) is operating in the right market at the right time. Panama’s GDP is targeted to grow 8% this year, with the overall region expanding about 4%. Plus, labor comes at a substantially lower cost there, allowing for strong operating margins. Favorable currency movements against the dollar, particularly for the Colombian peso, would also help profits grow significantly, supporting Copa shares.
A niche carrier awaiting a turnaround
Hawaiian Holdings, Inc. (NASDAQ:HA) is embarking on a spring quarter where it may well experience a rebound in performance. This is after suffering under excess seating capacity and competition on certain routes, factors that forced it to discount fares and fly unprofitable routes. A strengthening of the dollar against the yen has also hampered profits. Nevertheless, looking to the second half of 2013, capacity cuts should help to lift airfares and stabilize results.
Hawaiian will continue to expand, launching service to the likes of New Zealand and Taipei this year. It is building its fleet and plans to boost seating 4% to 5% annually in the second half of this decade. This is a considerable decrease from the 22% jump last year, and efficiency may well improve accordingly.
Summary
These are probably not the three airlines that first jump to mind as investments. For some other small airline stocks to consider, read my March 4 blog. The premise behind purchasing these stocks is that a softening of capacity growth will allow for improved productivity, bolstering earnings. JetBlue Airways Corporation (NASDAQ:JBLU) and Copa Holdings, S.A. (NYSE:CPA) look positioned for good times ahead, while Hawaiian Holdings, Inc. (NASDAQ:HA) may be more of a long-term story. In all, risk-tolerant investors may want to add one or two airlines to their portfolio.
The article Airlines Ready to Capitalize on Recent Expansion originally appeared on Fool.com and is written by Damon Churchwell.
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