JetBlue Shares Up 10% Despite Coronavirus Panic

There was some good news for JetBlue stockholders today. The stock price rose nearly 10% by the close of business. It offers some reprieve after a punishing fortnight for shareholders.

JetBlue stocks recovered 10% on the NASDAQ today. Photo: JetBlue.

JetBlue stocks have fallen nearly 30% this year. The airline scoots around North America, the Caribbean, Central and South America – all a fair distance from the COVID-19 hotspots of China, South Korea, Iran and Italy. But that hasn’t stopped JetBlue being caught up in a wider downturn in travel demand and a general downturn in airline stocks.

Some external reasons why JetBlue stocks recovered today

It’s enough to make the average stockholder close their eyes and pray. But there are some plausible reasons why the JetBlue stock price bounced today. It’s not to say the pain is over but there might be a glimmer of hope on the horizon.

There are reports today that COVID-19 is being contained in China. According to the World Health Organisation, only 20 new cases a day are now presenting in the nation. What’s the relevance to JetBlue, an airline that doesn’t even fly to China? China is a large and vital cog in the world’s production and supply chains. When China sneezes, the world catches a cold. When China recovers, the world recovers. The worst may be over in China and that will be good news for stock markets everywhere.

When China sneezes, even airlines like JetBlue (that don’t fly to China) can catch colds. Photo: JetBlue.

After an initially lackluster response to COVID-19, the White House is swinging into action. Donald Trump has given Congress several potential options to help minimize economic impacts. These include payroll tax cuts, infrastructure plans, and paid sick leave for hourly employees. It isn’t a comprehensive suite of measures, but it is a start and may help reassure stock markets.

Another factor that is working in JetBlue’s favor is the drop in crude oil prices. Crude oil crashed on Monday after Saudi Arabia launched an oil price war against Russia. Price wars always have winners and losers.

JetBlue consumed nearly 900 million gallons of fuel in the 2019 financial year. The collapse in oil prices will make JetBlue a big winner in this price war. A report in Nasdaq suggests larger airlines like JetBlue could save up to USD$2 billion dollars following a collapse in the oil price.

JetBlue cuts capacity

There isn’t much JetBlue (or any airline) can do to control what happens in China or the oil price. But it can control what happens within the airline. Here, something is working in JetBlue’s favor as well.

Earlier this week,  JetBlue cut capacity and implemented cost controls across its network in response to a downturn in travel demand. In a memo to employees, JetBlue President, Joanna Geraghty, said the cuts were due a fall in demand and further service cuts could occur.

“We must also be flexible in this rapidly changing environment. We will make some tough decisions in the days ahead as we monitor the impact of coronavirus.”

JetBlue is reducing capacity by 5% and may cut even more. Photo: JetBlue.

The cost controls include delaying or canceling upcoming events and meetings, voluntary time-off programs, limiting non-essential spending, and reducing hiring for frontline and support center positions.

JetBlue, along with United Airlines, was on the front foot when it came to announcing capacity reductions and cost controls in the North American aviation market. That could have seen JetBlue stocks back in favor today.

Both Delta Air Lines and American Airlines have announced similar initiatives today. Alas for them, JetBlue may have got the early leader stockmarket bounce.

Stock markets respond well to businesses taking concrete action

Stock markets around the world tend to respond positively to businesses taking concrete action to cut costs in the face of revenue downturns. Today, when JetBlue stocks got their bounce, Qantas stocks in Australia were up over 7% after the airline announced drastic capacity cuts. Even IAG, the owner of British Airways, finished the day up after announcing it was canceling all flights to Italy.

Given the fluidity of the COVID-19 outbreak, predicting what will happen next is a fool’s errand. But a recovery in China and a collapsed oil price will give airlines some breathing space. By managing factors it can control, like capacity and routes, airlines like JetBlue can also reduce expenditure. These factors may help explain why JetBlue stocks recovered today.

Whether this recovery can be sustained is another question altogether.