It doesn’t take an advanced degree in finance or economics to realize that once the novel coronavirus started spreading across the world, the airliner industry would take some of the biggest hits. And that’s been the case even for companies that specialize in discount airfare, like JetBlue Airways (NASDAQ:JBLU). On the path toward a recovery in 2019, JBLU stock cratered during this crisis.
Fundamentally, the company’s second-quarter earnings report revealed the extent of the damage. According to a CNBC report:
“The New York-based airline carried just 616,000 passengers in the three months ended June 30, down more than 94% from the 11 million who flew JetBlue in the same period last year. Revenue plunged about 90% to $215 million from more than $2.1 billion in the second quarter of 2019.”
Raising more eyebrows was the cash burn, which amounted to $9.5 million a day in Q2. From management’s estimates, it will range between $7 million to $9 million daily in the current quarter. With such a dire outlook, it’s no wonder that several analysts expect a long recovery for this sector. Certainly, it doesn’t point to a convincing narrative for JBLU stock.
I’m not here to present facts that don’t exist. Instead, investors should think longer term. While it may not seem like it right now due to immediacy bias, this pandemic will go away. When it does, you will probably wish you had taken a shot today on JBLU stock. Here are three reasons why you should go contrarian on JetBlue Airways.
Air Travel Stats Are Surprisingly Positive for JBLU Stock
Looking at the headline numbers, all you see is negativity. But if you broaden your horizon, you’ll see positive dynamics in play for JBLU stock.
First, air travel is up big from the worst of this crisis. On April 16, just over 95,000 people went through the Transportation Security Administration’s airport screening checks. In sharp contrast, over 2.6 million people were screened that day in 2019, indicating that travel demand slipped a staggering 96.4%.
Recently, on July 27, slightly over 700,000 people traveled from U.S. airports. That’s nearly 27% of capacity from last year, a major improvement.
Second, more improvement is likely on the way. Between June 19 and July 27, air travel demand averaged 25% of last year’s volume. For context, between mid-March and mid-June, demand was only 11.2% of that in the year-ago period.
It’s possible that the recent spike in daily infections and hospitalizations have negatively affected air travel. Still, the overall threshold has been consistent. This implies that when pandemic fever fades — either naturally or through a vaccine — travel demand can jolt back to life.
Reports of Business Travel’s Demise Have Been Exaggerated
One of the common reasons why investors are giving up on JBLU stock is the fundamental shift in the workplace. Because of the health risks associated with the coronavirus, companies everywhere immediately implemented remote work platforms. Thus, it’s natural to assume that working from home will become a permanent fixture once everything else normalizes.
This may be true to some extent. But I caution those who believe that the pandemic will result in wholesale changes in corporate America. For one thing, it’s not the coronavirus that caused the teleconferencing revolution but rather technology. It’s just that this pandemic made this choice a binary one. Essentially, survive or die.
Moving forward, though, the intangibles associated with face-to-face communication will result in a return to business travel. That’s because these intangibles lead to quantifiable profits and performance. According to leadership expert, international speaker and author Ulrich Kellerer:
“Connection is critical to building business relationships. Anyone working in sales knows that personal interactions yield better results. According to Harvard research, face-to-face requests were 34 times more likely to garner positive responses than emails. Communication in sales is complicated. It requires courtesies and listening skills that are simply not possible on digital platforms.
Interpersonal communication is also vital for a business to function internally. While sending emails is efficient and fast, face-to-face communication drives productivity. In a recent survey, 67% of senior executives and managers said their organization’s productivity would increase if superiors communicated face-to-face more often.”
Don’t be too quick to write off face-to-face interactions. Therefore, don’t mistake JBLU stock as being irrelevant.
Move to Suburbs and Rural Areas Helps JetBlue
Despite the positives of in-person business communications, it’s inevitable that many companies will be slow to recall their workers. For example, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) announced that its employees can continue working from home until July 2021. Other tech firms, such as Facebook (NASDAQ:FB), Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) may follow Alphabet’s example.
Still, that may not be a bad deal for JBLU stock. True, the Covid-19 pandemic has caused many to rethink big city life. But for these concerned households to scope out their next abodes, they’ll need to do some due diligence. And that means more demand for air travel, especially for discount airliners.
Also, New Yorkers are expressing significant interest in moving away from the Big Apple. If so, that means JetBlue’s flight route concentration in the northeast — once considered a liability — may become an asset.
Finally, these folks that are making the move to the suburbs or to perhaps rural areas in other states will want to stay connected with family and friends. Thus, once we get settled into a relatively normal paradigm, JBLU stock could easily turn out to be a surprise winner.