JetBlue Airways said on Tuesday that a key revenue measure would continue to decline in the coming months, sending its shares down 3% even though the carrier topped analysts’ profit estimates for the first quarter.
The U.S. Budget airline said net income grew nearly 46% from a year ago to $199 million, or 59 cents per share. Analysts on average were expecting 53 cents per share, according to Thomson Reuters I/B/E/S.
JetBlue (JBLU) said results benefited from newly introduced bag fees and first-class seats, as well as cheaper fuel. It paid, on average, $1.17 per gallon in the first quarter, down 43% from a year ago, in part because it was not locked into losing fuel hedges.
Sterne Agee CRT analyst Adam Hackel said the cost performance exceeded expectations.
Still, investors focused on guidance that average fares per mile were continuing to fall, renewing concerns that U.S. Airlines may have added more flights, exceeding traveler demand.
A closely watched measure called unit revenue – sales measured against JetBlue’s plane seats and mileage—fell 7% in the first quarter from a year ago, and will fall a similar amount in the second quarter, Chief Financial Officer Mark Powers said on an analyst call.
Low-cost rival Spirit Airlines said earlier on Tuesday that its unit revenue would drop in the second quarter about as much as the 14% that it fell in the first quarter.
JetBlue’s forecast is also “consistent with the ‘no sequential improvement’ guides from American Airlines (AAL) and United Continental (UAL). “Why the market opted to treat this as new and/or shocking is unclear to us,” JPMorgan analyst Jamie Baker said in a research note.
Robin Hayes, JetBlue’s CEO, said on the analyst call that the airline would slow its flight capacity growth in the second half of 2016 to boost unit revenue.
However, he cautioned that the airline would not take actions to turn around the measure at the cost of worse profit margins.
Corporate travel demand for all U.S. Airlines has fallen slightly, but JetBlue has increased its share of the market, Executive Vice President for Commercial and Planning Marty St. George said on the call.
JetBlue also said its unit costs will increase only up to 1.5% this year, shaving earlier guidance of a possibly 2% rise.