Jetblue Case Study

Jetblue Airways IPO Valuation

Introduction & Recommendation

JetBlue Airways is a startup low fare airline founded in 1999 by David Neeleman, a former employee at Southwest, another low cost carrier. The company grew quickly and offered the customer an experience that excluded everything that “sucked” about flying, giving them live TV at each of their leather seats, lower fares and superior customer service.

The company had a strong management team and was making a name for itself as a reliable carrier, and despite the problems other young airlines had faced after September 2001, JetBlue was making over 100 flights a day to 17 different destinations. Other companies began to follow the low far business model of JetBlue and Southwest, and those that most recently had gone public included AirTran, America West, ATA, and Frontier.

JetBlue looked to others for help as the airline started the IPO process, trying to decide the price the initial shares would be offered at on the market. Becoming a publicly owned company is an intensive process that typically spans several months and JetBlue was nearing the end of it.

Initially, the price investors were told for JBLU stock was between $22 and $24 a share. The company expected demand in excess of the 5.5 million shares to be offered at the IPO and filed to increase the offering price to $25 to $26. Even at this range, the management team struggled about whether this would leave too much money on the table and if a higher price might not send the message the JetBlue was confident in its stance in the market. Others worried that a high price would stall sales.

The purpose of this paper is to 1) determine the appropriate share price for the IPO, 2) outline the pros and cons of an IPO, and 3) evaluate the best approach to valuating a company.

Based on the analysis of the information presented in this case, the following recommendations are proposed to JetBlue:

• The company should offer the IPO at a share price of $30.21

• Despite the cons to issuing an IPO, it is in the best interest of JetBlue to become a publicly traded company

• Using multiples is not the best valuation method in comparing like businesses

Key Issues

The key issues JetBlue is facing are:

• The share price JBLU will be sold at during the IPO

• If JetBlue should become a publicly traded company

• The parameters best suited to value JetBlue in comparison to other low fare carriers

Evidence Quality

JetBlue only has two years of financials at