Clouds Ahead for JetBlue

09/23/2009 12:00 pm EST

Focus: STOCKS

Elizabeth Harrow

Financial Analyst, Schaeffer's Investment Research, Inc.

Elizabeth Harrow of Schaeffer’s Investment Research says the discount airline has plenty of competition and a stock price that hasn’t broken above resistance levels.

An optimistic article in Fortune magazine (“Nothing Blue About JetBlue,” September 3rd) observes that JetBlue Airways (Nasdaq: JBLU) “is growing, even in these rough times."

Despite a modest decline in first-half revenues, the airline is slated to add about 2,300 employees to its payroll this year. Plus, the company was profitable during the second quarter, even as many of its larger peers swallowed losses. [Chief executive officer]  Dave Barger attributes JetBlue's edge to the corporate culture, explaining, "The human side of the equation is the most important part of what we're doing."

In addition to peddling a "nice, smart, fresh, stylish, and witty" brand image, says the author, [Marc Gunther,] JetBlue has weathered the current economic storm by reining in its plans for growth. Additionally, the airline has kept its expenditures in check "by flying newer, more fuel-efficient planes and employing a younger workforce than other carriers."

As a result, it boasts a lower cost per available seat mile (CASM) than low-fare rival Southwest Airlines (NYSE: LUV), which could give JetBlue a leg up as the two airlines prepare to do battle in the key markets of Boston and Baltimore.

JetBlue is currently enjoying a short-term up trend on the charts, with the stock having marched consistently higher since late June along the support of its ten-day and 20-day moving averages. Despite this rally, the stock is still sitting on a year-to-date deficit of nearly 10%, and its rally attempts have been consistently rejected by the $6-to-$7 neighborhood since January 2008. (It closed below $6.50 Tuesday—Editor.)

Checking out the sentiment backdrop, it appears as though the airline issue's recent rally has been partly fueled by short-covering support. The number of JetBlue shares sold short fell by 19% during the most recent reporting period, providing a nice boost of buying pressure. With nearly 10% of the equity's float still dedicated to short interest, the shares could continue to benefit from this short-covering trend during the short term.

Nevertheless, it's hard to be out-and-out optimistic on JetBlue as long as the shares continue to stagnate beneath resistance in the mid-single digits. Until the stock can break out of its long-term slump, it's probably still too soon to board the bullish bandwagon.

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