JetBlue Stock Soars on Share Buyback Boost

The airline is doubling its repurchase program as checked bag fees and higher fares have generated an unexpected windfall.
Matthew HellerDecember 13, 2016
JetBlue Stock Soars on Share Buyback Boost

JetBlue Airways shares rose more than 4% on Tuesday after the airline announced it was doubling its share buyback program due to an unexpected windfall from checked bag fees and higher-priced fares.

JetBlue had lagged behind other airlines in returning cash to shareholders as it focused on paying down debt. But profitability and cash flow soared last year and on Tuesday the carrier reported at an investor presentation that the new fares and fees would generate an expected $260 million in 2016, compared with a prior forecast of $200 million.

As a result, it is expanding its share repurchase program to $500 million from $250 million through 2019. So far this year, it has bought about 5.4 million shares for $120 million, implying a price of $22.22 per share.

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In trading Tuesday, the stock closed at $22.53, up 4.2%.

JetBlue has been seeking to drive continued strong earnings growth by charging for checked bags, adding seats to its A320 planes, expanding the popular Mint premium service, and implementing a new co-branded credit card agreement.

For the fourth quarter, it now expects unit revenue to decrease 1% to 2% year on year, with December revenue to be positively impacted by incentive payments related to the credit card agreement. Evercore ISI analyst Duanne Pfennigwerth had estimated a 2.8% drop in unit revenue.

JetBlue also said it planned to increase flight capacity between 6.5% and 8.5% in 2017, down slightly from 2016’s growth, and reduce annual costs by as much as $300 million by 2020.

“We are able to grow at a rate higher than the industry average and also deliver [pre-tax profit] margins that are above industry average,” CEO Robin Hayes told Reuters.

As the Chicago Tribune reports, some of the savings will offset higher labor expenses from an 8% raise for employees below the manager level. “We realize we really need to start to gain some of the efficiencies and economies of scale of our growing size,” interim CFO Jim Leddy explained.