JetBlue shares rally after airline flags "disconnect" between earnings and bond rout

​JetBlue Airways extended its early gains to surge ​20% on Tuesday, after the airline ‌said there ​was "a significant disconnect" between its third-quarter earnings and a recent bond sell-off.

The carrier raised its full-year seat revenue growth forecast to 13.5%-14.5% from 10%-12.5%, ‌banking on strong fares and growth in Fort Lauderdale, but flagged fuel costs as a drag. It also ended the quarter with $2.2 billion in liquidity, including a $600 million undrawn credit facility, and about $7 billion in unencumbered ‌assets — $2.8 billion of which are aircraft and engines, following updated appraisals.

"I think there's a significant disconnect ‌between the narrative and the bond market and what our financial results are demonstrating," JetBlue CEO Joanna Geraghty told analysts, pointing to the financial flexibility to bridge to the 2028 EPS goal. JetBlue's TrueBlue senior secured note, a bond backed by the airline's loyalty ⁠program, came ​under heavy selling pressure this ⁠month, with the price halving to about $47 and yields surging to distressed levels above 30% as of October 26.

The industry's ⁠quarter was weighed down by surging fuel prices tied to the ongoing war in Iran, which has forced airlines ​to take measures such as raising fares, cutting capacity or taking on more debt. The fuel headwinds, ⁠along with weather and air traffic control disruptions earlier this year, have wiped away roughly 48% of JetBlue's share value, dropping ⁠its ​valuation to $894.23 million and making it the worst-performing US carrier.

"Liquidity and $2.8 billion of aircraft assets could provide runway, but the path to profitability hinges on fuel," analysts at TD Cowen said. Fuel costs surged ⁠for JetBlue in the third quarter, with the airline paying $3.91 per gallon, up 57% from a year ⁠earlier.

By comparison, unit revenue ⁠increased 18.4%, highlighting the pressure rising fuel expenses continue to place on margins despite stronger pricing. Short interest in the stock is currently at 25%.