- JetBlue Airways stock fell nearly 10% on Thursday to close at $2.65, its lowest level since going public in 2002. The selloff came ahead of next week’s third-quarter earnings report.
- The airline’s $2 billion of bonds due 2031, backed by collateral tied to its loyalty programs, plunged to about 40 cents on the dollar, according to Trace data. Those bonds were trading at around 80 cents at the beginning of the month, so by our calculation they have lost roughly half their value in October.
- United CEO Scott Kirby warned on Wednesday that some peers face deeper stress after Spirit’s bankruptcy, saying “there’s other airlines that are next up on the firing line.” He did not name specific companies, and United cut its own full-year outlook.
- JetBlue paid an average of $4.23 per gallon for fuel in the second quarter, a 76% increase from a year earlier. It had negative free cash flow of about $389 million in that quarter.
What Happened?
JetBlue’s already difficult year took a dramatic turn for the worse on Thursday, as a sharp selloff in its stock and bonds signaled mounting investor doubts about its financial outlook, Bloomberg reported. The airline has been closely watched by distressed-debt investors for months after budget carrier Spirit Aviation Holdings wound down and liquidated earlier this year. Moody’s downgraded JetBlue one notch to Caa2 in May and forecast operating losses for this year and next. The company said in a statement that it remains confident in its JetForward turnaround strategy and its target of at least $1.00 in earnings per share in 2028.
Why It Matters?
Bonds trading near 40 cents on the dollar are a sign of deep distress, even though these notes are secured by collateral tied to JetBlue’s loyalty programs. JetBlue is especially exposed to higher fuel costs from the Middle East war because of its heavy debt burden, years of losses and reliance on price-sensitive leisure travelers. That leaves it with less financial flexibility than larger rivals such as United Airlines and Delta Air Lines to absorb rising expenses. Its second-quarter free cash outflow of about $389 million reflected $155 million used in operations and $234 million of capital spending.
What’s Next?
Next week’s third-quarter report is the immediate test, and investors will focus on liquidity, fuel costs and cash burn. CEO Joanna Geraghty ruled out a bankruptcy filing this year in an internal memo in April and held a meeting in August with fixed-income investors focused on liquidity and the balance sheet. JetBlue has pointed to more than $6 billion of unencumbered assets supporting its liquidity and has said it expects positive free cash flow in 2027. Any further move in fuel prices tied to the Middle East conflict will weigh on how credible those targets look.
Affected Tickers and Coins: JBLU, UAL, DAL
Source: Bloomberg
