updated 7/21/2005 2:36:31 PM ET 2005-07-21T18:36:31

JetBlue Airways Corp.'s second-quarter profit dropped 43 percent from soaring fuel costs that offset an upswing in passenger traffic and operating revenue.

With oil prices lingering near $60 a barrel, JetBlue forecast that its operating margin will continue shrinking in the third quarter but make a slight improvement by the end of the year.

The Forest Hills, N.Y.-based airline's quarterly income fell to $12.2 million, or 11 cents per share, from $21.5 million, or 19 cents, the year before. JetBlue's earnings matched the average view of analysts polled by Thomson Financial.

Operating revenue totaled $430.1 million, a gain of 35 percent from $319.7 million a year earlier and beating analysts' consensus estimate of $421 million.

"Our improvement was obviously what really drove this quarter and helped offset some of the higher fuel prices," David Neeleman, chairman and chief executive, told analysts on a conference call. "... We put through several fare increases in the quarter to help offset some of the rising fuel prices."

JetBlue said quarterly traffic grew 30.2 percent to 5.12 billion revenue passenger miles _ one customer flown a mile _ while expanding overall capacity by 25.5 percent. Plane occupancy, also known as load factor, advanced to 87.7 percent from 84.5 percent last year.

Meanwhile, spending on jet fuel nearly doubled to $111.3 million from $57.4 million a year ago, raising JetBlue's per-mile operating cost by 13.4 percent to 6.69 cents.

High fuel costs, which have grounded airlines throughout the industry, squeezed the carrier's operating margin to 9.1 percent from 14.1 percent in last year's second quarter.

Neeleman told analysts that he sees JetBlue's operating margin falling further to between 3 percent and 5 percent in the third quarter, but held a range of 5 percent to 7 percent for the fiscal year.

"We had previously guided for the year 5 percent to 7 percent, and that was on a cost per gallon of $1.45 instead of the $1.59," Neeleman said. "If we run that fuel cost back through the forecast, we would have upped our guidance to 6 percent to 8 percent for the full year, so absent fuel, our outlook for the year has improved."

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