Will JetBlue Recover From Its Media Tail Spin?

JetBlue Airways Corp. (NASDAQ:JBLU) shares are flying lower than usual.  On Thursday, the airliner’s stock fell more than 8 percent to break below $5 per share.  Once again, the company is receiving heavy media attention due to an unfortunate incident.

Captain Clayton Osbon was charged on Wednesday with knowingly interfering with the flight crew of Flight 191, a New York to Las Vegas flight.  According to a Federal Bureau of Investigation affidavit, Osbon started showing strange behavior soon after takeoff from John F. Kennedy International Airport, which included yelling at air-traffic controllers and telling his co-pilot that “we need to take a leap of faith.”  The co-pilot made a heroic decision to lock Osbon out of the cockpit, where passengers then wrestled him down to the ground.  JetBlue was actually the first airline to install bullet-proof hardened cockpit doors with key codes, which are practically impenetrable.  None of the passengers were seriously injured and the plane was diverted to a safe landing in Texas.  The carrier refunded the 135 customers for the flight and gave them vouchers for double the value of their original plane ticket.

The melt-down of Osbon is the latest in a line of JetBlue media-known incidents.  On August 9, 2010, flight attendant Steven Slater crossed a breaking point as he pulled the lever that activates the emergency-evacuation chute and grabbed a beer before sliding down.  He was arrested at home and charged with felony counts of criminal mischief and reckless endangerment.  Shares of JetBlue closed at $6.50 on the day of the incident, but fell to $5.71 by the end of the month, representing a 12 percent decline.

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Last October, JetBlue suffered another extended tarmac delay as more than 100 passengers flying from Florida to New Jersey were stranded for over seven hours without food, water or functioning bathrooms.  The trading day before the incident, shares of JetBlue closed at $4.55, but declined to $3.40 by late November, representing a 25 percent decline.  In 2007, more than 1,000 passengers on nine different JetBlue flights were also stranded on the tarmac during a snow storm.

While JetBlue’s publicity nightmares have caused noticeable pullbacks in shares, the chart above shows that shares have been unable to sustain a move above $6-$7 in the past five years.  Shares rallied from $3.40 in late November to just above $6 in January, but are now trading near $4.80.  Further adding to JetBlue’s decline is share dilution concerns. The Fly on the Wall reported early Thursday that “German airline Lufthansa announced in an SEC filing that it would offer notes that can be exchanged for up to 46.7M shares of JetBlue.”

Shares of JetBlue are down about 7.6 percent year-to-date.  Southwest Airlines Co. (NYSE:LUV) shares have also dropped 4.4 percent this year.  Meanwhile, Delta Air Lines (NYSE:DAL) and United Continental Holdings Inc. (NYSE:UAL) have gained 21 percent and 15 percent, respectively.  US Airways Group Inc. (NYSE:LCC) has been one of best performers of the year with a 50 percent gain.

Although shares of JetBlue are currently showing weakness, past incidents indicate that they will recover to a certain extent.  The brand is likely to take a short-term hit with some customers, but it is hard to imagine that the majority customers will blame the company for the occasional melt-down of an employee.  Dave Barger, the chief executive of JetBlue, recently told the Today Show that Osbon’s “individual action” was not an example of how the company’s crew members behave.  He knew the pilot personally and Osbon showed no signs of prior mental conditions.

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To contact the reporter on this story: Eric McWhinnie at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com