THE RATINGS GAME: Morgan Stanley Cuts JetBlue Rating
Tuesday February 7, 1:52 PM EST
SAN FRANCISCO (Dow Jones) -- For JetBlue Airways, image is everything. Its hallmarks include free in-flight satellite television and biscotti along with personable service and cheap fares. And now, red ink. JetBlue's recently reported first losses as a public company weren't wholly unexpected but a forecast of more losses is taking a toll. High fuel costs have been a tremendous burden. The fuel bill for all of 2005 at JetBlue totaled $487.9 million, a 91% increase over 2004. On Tuesday, Morgan Stanley downgraded the stock to equal weight from underweight and now forecasts a loss of 56 cents a share this year, instead of a 2 cent profit. The airline should be profitable in 2007, according to Morgan Stanley. "JetBlue faces more challenging market conditions than many of its competitors, we believe, with revenue challenges in its Florida markets (equal to 35-40% of capacity), as well as expense pressures from the introduction of a new aircraft type, rising airport costs
and increasing maintenance expenses," wrote Morgan Stanley analysts. if ((typeof tag336_1) == "function") { tag336_1(); } else { if (typeof(site) == "undefined" & typeof(moAdData) != "undefined") site = moAdData.site; window.name="parentwin"; randomNum = Math.round(Math.random() * 10000000000) + 0; target = "/site=" + moAdData.site + "/area=" + moAdData.area + "/aamsz=336x280"; if (navigator.appName.indexOf("Netscape") > -1 || (navigator.appName.indexOf("Internet Explorer") > -1 & parseInt(navigator.appVersion) >= 4)) { document.write(""); } else { document.write(""); document.write("
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','336','280','4','3',136989,86950,'0','225',250);" onclick="pr_trk('ac',136989,3);" onmouseout="if(typeof(prRoll)=='function')prBExit(event);" shape=RECT target=_new coords=199,250,280,280 href="http://c4.excite.com/adclick/CID=0001715fc3ee6fed00000000/AREA=MONEY/SITE=Excite/AAMSZ=336x280/CM=32477/CR=18251/AD=288/CC=94559/ACB_RANDOM=4866250273?/relocate=http://www.scottrade.com/index.asp?supbid=62992";>
','336','280','4','4',136989,87106,'0','225',246);" onclick="pr_trk('ac',136989,4);" onmouseout="if(typeof(prRoll)=='function')prBExit(event);" shape=RECT target=_new coords=285,246,333,280 href="http://c4.excite.com/adclick/CID=0001715fc3ee6fed00000000/AREA=MONEY/SITE=Excite/AAMSZ=336x280/CM=32477/CR=18251/AD=288/CC=94559/ACB_RANDOM=4866250273?/relocate=http://www.scottrade.com/index.asp?supbid=62992";> The brokerage firm follows recent downgrades at Prudential Equity Group, Calyon Securities and Merrill Lynch. On Feb. 1, JetBlue's fourth-quarter results were worse than many analysts had expected. The company reported a net loss of $ 42.4 million, or 25 cents a share, reversing a profit in the year-prior quarter. Rivals like Continental Airlines (CAL) (CAL) are moving in on the Florida market, Morgan Stanley pointed out. That kind of competitive pressure keeps airfares low - good for consumers, bad for airlines. At the same time, if Continental shifted gears during its push
into Florida, the investment firm said it would reconsider JetBlue stock's underweight rating. JetBlue got its start with a fleet of Airbus jets, and only now is adding a second type of plane made by Brazilian jetmaker Embraer (ERJ) . The smaller jet has a shorter range but carries fewer passengers, which makes it better suited to shorter trips. But it also makes operations more complex at a time when the Airbus planes in the company's fleet are starting to need more costly maintenance work. That was not unexpected but the added financial burden of high jet fuel prices in addition to rising operating costs has Morgan Stanley watching closely. After all, the airline had the best margins in the industry but now Morgan Stanley expects a negative margin of 0.5% this year. "On the cost side, we are concerned about, although not surprised by, the cost increases that JetBlue is experiencing as a maturing (although still young) carrier," the analysts wrote. On Tuesday, JetBlue
(JBLU) stock fell 4.8% to $10.53 to a multiyear low on volume of more than 5 million shares -- the most active stock in the Amex Airline Index. So far this year, JetBlue stock is down 28%.
Roger & Amanda La France