Jetblue raises guidance: Can the airlines take flight in 2024?

Key Points

• Jetblue raised its guidance on demand trends, suggesting strength across the industry. 
• Data from AAA and the IATA suggest a record holiday season followed by a record year in 2024. 
• If Jetblue is a reason to buy airlines, then Delta is the one to buy. 

Jetblue NASDAQ: JBLU raised guidance for Q4 and the year, suggesting it will carry momentum into 2024. The news helped lift the stock and the airline complex with it, raising the question, can the sector take flight in 2024? The airline sector is down 20% from the summer high and 40% at the low of the move, providing value if this is true. If not, this sector could continue to move lower indefinitely.

Healthy demand drives business for airline stocks

Jetblue cited healthy demand trends when it raised guidance, echoing news from the sector all year. Jetblue execs say demand has exceeded expectations for the last 2 months, matched by robust operational performance. The company’s completion factor is nearly 100%, aiding top and bottom-line performance. Because the outlook for holiday travel is also robust, these types of results should be expected from other airlines. 

The American Automobile Association forecasts a record travel season this holiday quarter. They predict 7.5 million air travelers over the holidays, with peak travel centered on the Christmas week. This data is echoed by booking trends within the airline industry reported by Bank of America. Their research shows airline bookings accelerating for 4 consecutive weeks, ending with the most recent data. They say airline bookings are up 10.7% in the week ending December 3rd and above the 4-week average. 

So, the holiday season looks good and will help launch the sector, but what about next year? According to the International Air Travel Association, next year will be a blowout for the industry, leading to higher share prices for airline stocks. An IATA survey forecasts 4.7 billion air passengers next year. That’s up 4.4% compared to 2019 and will be accompanied by earnings leverage. Profits are expected to grow roughly 25% annually, aided by operational efficiency, completion rates and oil prices. 

Oil prices are down 25% from the summer highs, taking a lot of pressure off the airlines. With this in play, the group will likely outperform on the bottom line in Q4, even if the revenue comes in as expected. American Airlines NASDAQ: AAL stands out as a winner in this regard after lowering its profit guidance on higher fuel costs. The bad news for Jetblue is that more is needed to reverse its downtrend. The company’s deal to acquire Spirit Airlines NYSE: SAVE remains in jeopardy, and profitability is a recurring issue for this business. 

Delta Airlines is the better buy

If Jetblue’s guidance increase is a reason to buy airlines, Delta Airlines NYSE: DAL is the one to buy. It is the leading airline and rated a solid Buy compared to JBLU’s Reduce. Delta’s consensus price target was trimmed following the last report but remains favorable to shareholders, with the stock trading near the low end of the range and a potential 35% gain for investors. This company does not have profitability issues and also pays a dividend, small as it may be. 

Delta’s dividend is another potential catalyst for the stock. The company suspended the distribution during the pandemic and brought it back this year after paying back some of the debt it incurred during the crisis. Assuming the next year is as robust as the indications suggest, Delta will not only raise its distribution early in fiscal 2024, but it may be a substantial increase.

The price action in Delta has been volatile and capped at resistance. However, it is also trapped in a range and may soon break out. The price is rebounding from the low of the range and is supported by a solid outlook for the quarter and the year. The price may not move above the 2019 lows on Q4 strength alone; it may take help from analysts and a decent dividend increase, but a new multi-year high is possible by mid-2024