Jetblue Case Study

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Introduction and industry analysis
JetBlue Airway Corporation is an American low-cost airline and it was one of a few U.S. airlines that were profitable during the sharp downturn in airline industry affected by the September 11, 2011 attacks. With its strong capital base, the company was successful due to its impressive management team, in which, David Neelaman has rich experience with airline start-ups; COO David Barger and CFO John Ower are all experienced former senior managers from other airlines. The company’s sales rose from $104,618 to $320,414 from December 2000 to December 2001 and net profit is negative $21,330 in December 2000 and reach positive $38,537 only one year later. As we can see, the company is a high growth company
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In this case, Conservative pricing policy is preferred to ensure the short and long run access capital Based on the conservative pricing policy, we use three share valuation methods to determine the value of shares. First one is price/ earnings valuation. Second one is EBIT multiple valuation and last one is the DCF valuation.

P/E valuation
Firstly, we only include profitable low-cost airlines in U.S. airline market. So the data gathering from similar companies could give more relevant prediction. Then we calculate average PE Multiple and we use the average P/E ratio times Earrings per share to predict the price range of JetBlue. The trading earing per share we use is JetBlue’s 2001’s diluted earing per common share and the leading earrings per share for JetBlue is 2001’s pro forma basic earrings per common share. Because diluted earning per share is a conservative way to calculate earnings as it maximize the numbers of share outstanding. And the pro forma basic earnings per share gives higher earnings because it excludes some expense when calculate earnings. So the estimated price range based on P/E valuation is between $28.48 and $40.38 per share. | | Trading | Leading | Airlines | Price/share | Earnings/share | PE Multiple | Earnings/share | PE Multiple | AirTran | 6.60 | 0.26 | 25.30 | 0.33 | 20.00 | Frontier | 17.00 | 2.02 | 8.40 | 0.37 | 45.90 | Ryanair | 32.10 | 0.73 | 44.00 | 0.94 | 34.10 | Southwest | 18.50

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