JetBlue Stock Flies High in Wall Street Launch
JetBlue Airways’ new stock soared into the wild blue yonder Friday, with investors betting that the discount airline can keep confounding the industry’s poor economics and stay profitable.
After the carrier’s initial public offering was priced at $27 a share late Thursday, the stock jumped $18 to $45 a share, a 67% gain in opening trading on the Nasdaq Stock Market. The rally wasn’t entirely a surprise: The IPO was priced well above JetBlue’s original intended price of $22 to $24 a share, signaling that the stock was in hot demand.
But the scale of JetBlue’s surge was somewhat reminiscent of the dot-com craze of the late 1990s, when Internet IPOs routinely soared and created instant wealth. New issues like that are now uncommon.
JetBlue’s stock also represents a rare airline IPO. The last one was five years ago by Midway Airlines, which is now in bankruptcy reorganization.
Based at New York’s Kennedy International Airport, JetBlue flies to 17 other cities, including Long Beach and Ontario, and it has big expansion plans. The 2-year-old carrier offers one-way fares as low as $114 for transcontinental flights, yet provides leather seats and individual satellite-TV monitors on its fleet of Airbus jets.
Moreover, the airline makes money. While the rest of the U.S. airline industry lost more than $7billion last year because of the Sept. 11 attacks and the recession, JetBlue earned $38.5million on revenue of $320million. The profit included an $18.7-million pretax gain from JetBlue’s portion of the federal bailout, but the carrier would have been profitable nevertheless.
“They have a relatively good track record, and in this environment it’s hard to find an airline that’s doing well,” said Betsy Snyder, an analyst at Standard & Poor’s Corp.
Whether JetBlue and its stock can stay robust is another matter. Even by stock market standards, airlines are notoriously risky investments because the carriers have enormous costs that are fixed regardless of the economy’s health. Those costs, which are mostly out of the airlines’ control, include jet fuel and heavy borrowing for aircraft that is subject to swings in interest rates.
Indeed, the industry continues to lose money this year amid the weak economy and higher jet fuel prices. (Oil prices fell Friday, however, which helped lift airline stocks overall.)
JetBlue is getting stiff competition on its routes from giants such as UAL Corp.’s United Airlines and AMR Corp.’s American Airlines.
But JetBlue, led by founder and Chief Executive David Neeleman, has bucked airline trends since it started in February 2000 and has several advantages.
Backed by such investors as billionaire financier George Soros, the airline was well-capitalized with $160 million when it first took off. (Its IPO, representing 14% of the carrier, raised an additional $159 million.)
The airline also has relatively low costs. It saves on training and maintenance by flying one type of aircraft, has a nonunion work force and sticks mostly to less-populated airports to avoid delays.
Indeed, many investors are comparing JetBlue to Southwest Airlines, the leading low-fare carrier that also has a low cost structure that enables it to stay profitable despite its cheap prices. Southwest’s stock climbed 92 cents, or 5%, to $19.26 a share Friday on the New York Stock Exchange.
