JetBlue reported a big drop in unit revenue in January, so it had little choice but to cut capacity for the rest of the year. Selling fewer seats is the most obvious way for an airline to improve its pricing power. It's basic supply and demand.
JetBlue Airways Corp. cut back on 2017 expansion plans, joining other U.S. carriers in the effort to keep the number of seats and flights in check to gain more control over pricing.
The New York-based carrier is trying to catch up with larger U.S. airlines, which have been slowing growth to stanch bleeding in the closely watched measure of revenue from each seat flown a mile. The industry benchmark, also known as unit revenue, typically declines when capacity grows faster than demand and carriers are forced to cut fares to fill seats.
JetBlue’s relative delay in cooling capacity growth prompted some investors to dump the shares, pushing them to the biggest decline this year on a Bloomberg index of 11 airline stocks. The carrier estimated last month that unit revenue would fall as much as 9 percent in January and said it would review expansion plans.
On Monday the airline cut its target for capacity growth by 1 percentage point to a range of 5.5 percent to 7.5 percent above last year. Plans for this quarter remained unchanged, the carrier said in a statement.
“The net impact, along with incremental revenue initiatives not discussed on the call, should positively impact earnings, particularly in second half 2017,” Savanthi Syth, a Raymond James Financial Inc. analyst, said in a report.
“We believe investors will view favorably the quick response by JetBlue,” she said. The cuts are focused on April and May, which aren’t months of peak demand, and overnight transcontinental flights, Syth said.
As a result of the capacity change, costs for each seat flown a mile excluding fuel will rise 1.5 percent to 3.5 percent this year from 2016, one-half percentage point more than originally expected, JetBlue said.
The shares were little changed at $19.47 at 1:38 p.m. in New York. The shares dropped 6.4 percent for the 12 months through Friday, while the S&P 500 Index climbed 20 percent.
©2017 Bloomberg L.P.
This article was written by Mary Schlangenstein from Bloomberg and was legally licensed through the NewsCred publisher network.
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Tags: jetblue airways
Photo Credit: JetBlue Airways, an Airbus A321 operator, will grow capacity by slightly less than expected for the rest of this year. JetBlue Airways
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