Will the tide turn for JetBlue Airways shares?

The actions of JetBlue Airways (NASDAQ: JBLU) are trading 30% below pre-Covid levels despite relatively high passenger numbers at TSA checkpoints due to anticipation of a prolonged decline in air travel demand. However, investors were bullish on Atlas Air stock (NASDAQ: AAWW), a global provider of leased aircraft and aviation operations services. Atlas Air’s stock jumped 60% last year on the back of a buoyant air cargo market where demand exceeded pre-pandemic levels. Atlas Air provides air cargo services while JetBlue caters to passenger demand. Although the two companies cater to different customer groups, domestic freight and passenger demand are key macroeconomic factors that drive their revenue. Does the optimism of Atlas Air shares indicate an upcoming increase in the airline market? We compare the historical revenue, margin and valuation multiple trends of the two companies in an interactive dashboard analysis, JetBlue Airways versus Atlas Air – parts of which are highlighted below.

1. Revenue growth

Atlas Air’s growth was higher than JetBlue’s before the pandemic, with Atlas Air’s revenue growing 14% annually, from $1.8 billion in 2016 to $3.2 billion in 2019. JetBlue’s revenues grew at an average rate of 7% per year, from $6.6 billion in 2016 to $8.1 billion. billion in 2019. JetBlue Airways saw a 60% contraction in revenue in 2020 while Atlas Air saw 17% growth.

  • Atlas Air separates its operations into three segments, ACMI & CMI, Charter and Dry Leasing. The ACMI segment provides freight and passenger aircraft operations solutions, including aircraft, crew and maintenance, while customers support fuel, landing, navigation and other costs. The CMI segment is similar to ACMI except the aircraft is not provided by Atlas. The Charter segment offers a complete package in which the customer pays fixed costs including fuel, insurance, landing, navigation, etc.
  • The Company’s ACMI, Charter, Dry Leasing and Other segments contribute 37%, 57%, 5% and 1% of total operating revenue, respectively. In recent years, Atlas Air’s growth has been mainly driven by the Charter segment, which has more than doubled since 2016.
  • JetBlue Airways mainly derives its revenue from the sale of airline tickets and other ancillary services such as freight and mail. Over the past few years, continued capacity growth as well as rising ticket prices have been key contributors to topline expansion.
  • JetBlue’s domestic business contributes the bulk of revenue and has been the main contributor to boosting investor confidence in recent months. (Related: Is optimism in Estee Lauder stocks a trigger for Delta Air Lines?)

2. Returns (profits)

In terms of profitability, both companies have reported comparable net margin and operating cash margin over the past several years.

  • In 2018, Atlas Air reported net profit margin and operating cash margin of 10% and 16%, respectively. The company generated $425 million in operating cash on operating revenue of $2.6 billion. Subsequently, invested $713 million in property, plant and equipment and raised $216 million in long-term debt.
  • While JetBlue Airways reported net profit margin and operating cash margin of 2% and 16%, respectively. The company generated $1.2 billion in cash from operations on revenue of $7.6 billion. Subsequently, invested $908 million in property, plant and equipment and returned $382 million to investors in share buybacks.
  • Both companies followed a nearly similar capital investment plan by reinvesting a significant portion of operating cash back into the business.
  • Despite a different target customer profile, B2C for JetBlue Airways and B2B for Atlas Air, the ratio of fixed assets (property, plant and equipment and operating leases) to total assets is comparable at 66%.

3. Risk

Atlas Air and JetBlue are similar from a financial leverage point of view.

  • Financial leverage combined with strong revenue growth is a boon for investors. However, high interest costs weigh on the bottom line if growth stagnates.
  • In 2020, Atlas Air and JetBlue reported $2.3 billion and $4.4 billion in long-term debt, respectively. With $3 billion in cash and short-term investments, JetBlue has net debt of $1.4 billion.
  • Similarly, the $845 million of cash and short-term investments on Atlas Air’s balance sheet translates to net debt of $1 billion. (Related: Will demand for air travel drive Boeing shares higher?)

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