Jetblue Case Study Analysis PDF

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JET BLUE CASE ANALYSIS By GROUP F Andre Campos, Fisnik Guri, Sukhraj Sandhu, and Leondrit Mahmuti

AUGUST 6th, 2020 Business Policy 5100 Professor Leslie Bobb

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INTRODUCTION JetBlue is a pioneer in the aviation industry whose humble beginnings can be traced back to as early as the turn of the century. From its inception, JetBlue established itself as leader in low-fare airline pricing, high-quality customer service and a differentiated product. In order to create greater demand, the airline has focused on underserved markets and large population centers that have higher average fares. JetBlue faces competition from airlines that have decades of more experience and brand exposure, yet they still remain an admirable contender through increased competitive advantages. STRENGTHS Innovation is at the center of JetBlue’s continued success in an industry with such high barriers of entry. JetBlue was the first airline to introduce paperless cockpits by equipping pilots with laptops, which allowed them to optimize efficiency and increase aircraft utilization, which helped achieve quicker turnaround times. JetBlue also revolutionized the service-oriented guest experience with unparalleled flying experiences such as roomy leather seats, over 100 channels of XM radio and in-flight movie offerings through FOXinflight. A series of interline agreements have also resurrected JetBlue and managed to set the stage for a dominant future. Strategic Alliances with Aer Lingus( Irish Airline) Qatar Airways and Air China have been instrumental in expanding their influence beyond the Americas. The mission of the company is “to bring humanity back to air travel “ and they stay true to that mission by utilizing the five core values that the company established - safety, integrity, passion, fun, and caring for their customers/crewmembers in the industry.

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WEAKNESSES While JetBlue has been able to carve its own path in an extremely competitive industry with low barriers to entry, there are still many issues that the company continues to face. A major issue has been its high debt from rising fuel prices, notable failures in the public sphere reducing consumer trust, and the competitiveness of the airline industry. JetBlue’s luck began to run out around early 2005 after their IPO, as they posted their first ever-net loss of $21 million by 2006. JetBlue’s issues climaxed on Valentine’s Day 2007. A massive storm system had approached the east coast forcing airlines to ground flights early. However, JetBlue waited till the very last minute to make the call, resulting in hundreds of stranded passengers inside the airport terminal with no communication between the airline and its customers. This event singlehandedly caused consumer trust to erode along with the claim of attentiveness to customer experience that JetBlue worked so meticulously to cultivate. This was a direct result of technical difficulties that could have easily been avoided had top-level managers been aware of their firm’s constraints and developed contingency plans. According to Charles Mees, the CIO who joined shortly before the event, the issues were compounded due to shortfalls with the reservation system where it could not handle customer call volume and a lack of computerization in baggage handling mechanisms causing back ups. STRATEGY Porter’s Five Forces model reveals several factors in regards to competition in the Airline Industry. The airline industry faces a rather low threat of new entrants because 3

there are low barriers to entry. The amount of time and money to even begin the process would deter even the wealthiest of opportunists. The founder and former CEO, David Neeleman, raised $130 million in 2 weeks making JetBlue the highest funded start-up airline in U.S aviation history. The Bargaining Power of Suppliers and buyers are medium to low, so they hold some influence over JetBlue. Suppliers are limited and do not have substitutes, so JetBlue directly suffers from any increases in price that the suppliers impose. However, airplane suppliers don’t have many customers, so it is extremely important to negotiate and tread lightly. As for the buyers, who are the passengers, switching costs are low, allowing them to easily switch over to another airline. JetBlue must guarantee exceptional customer service and inflight experience in order to differentiate themselves from competitors. Lastly, competition in the airline industry is ravenous and extremely high. Airlines are notoriously cutthroat in regard to pricing, which often lead to undercutting or overpricing. Combined with low operating profit margins and high start-up costs, an extremely competitive environment is inevitable within the airline industry. ALTERNATIVES Our first alternative, to address the issue of a lack of international destinations, is for JetBlue to continue to grow through acquisitions and strategic alliances with airlines. This will help JetBlue reach more destinations and expand its outreach to customers. Often passengers are obligated to switch airlines due to a company’s lack of access in a desired region. JetBlue would expand their influence and market share by offering more international destinations. As for our second alternative, it is suggested that JetBlue increase investments in fuel efficient aircrafts. The Airbus A320, which was far cheaper to maintain and more fuel 4

efficient, largely contributed to the company’s initial success. A major issue impacting the company is its high debt, which is directly correlated with high fuel prices. Fuel-efficient aircrafts would in the long run, lower operating costs for JetBlue and allow them to enhance other aspects of the customer experience. Our third alternative is for JetBlue to expand investments in technology for inflight entertainment options. One of JetBlue’s biggest strengths are their in-flight entertainment options, which includes 100+ channels, in demand movies, video games, and enhanced Wi-Fi capability. Their inflight experience is the cornerstone of their success by differentiating themselves from their competitors through added value. Lastly, our fourth alternative is for JetBlue to further develop the TWA Flight Center hotel at JFK and expand it. Along with this expansion, we believe JetBlue should invest and promote more of their JetBlue travel/vacation deals through strategic alliances. The balance lies in implementing the alternative that would provide the highest utility towards JetBlue passengers and stakeholders. REASONING We primarily focused on growth through acquisition and/or strategic alliances. Since 2007 JetBlue, has taken steps to change their independent approach by entering into code-sharing agreements with other airlines. However, for this effort to not be fruitless, they will need to strike agreements on a larger scale as the company seeks to gain a larger market share and compete with large carriers. JetBlue’s prior success and financial competency gives them a strategic advantage in relation to agreement negotiations, allowing them to position themselves as independent. Due to the fluctuating cost of jet fuel, which represents anywhere from 22%-33% of annual expenses, JetBlue 5

should make hedging these costs a focal point. Every single decision made in relation to expansion must take into consideration the cost of fuel. JetBlue’s cost structure is intertwined with several facets of its business so leasing and code-sharing decisions have major implications regarding fuel and maintenance costs. The installation of inflight amenities (more legroom, high speed wi-fi, lay-flat seats with a privacy door option, extra bags etc.) is necessary since JetBlue prides itself on its customer service experience. The return should come in the form higher retention of less price sensitive business class travelers as well as leisure travelers who are not. JetBlue’s expansion of not just flight but also a vacation package with its JetBlue travel and JetBlue vacation may be a game changer. However, as with its flights, these are primarily being marketed to leisure travelers who may or may not need a hotel as many are traveling to visit family and friends and often stay with them. Focusing on business travelers who are more likely than leisure travelers to demand such a service would be more profitable. This plan truly begins to take shape with their investment in TWA Flight Center at JFK, by combining hotel and flight bookings in order to expand the JetBlue experience whilst maximizing investor returns. This does not necessarily mean a direct investment into the hotel as is the case with TWA, but by simply offering customers the choice is a good initial step in expanding their influence. IMPLEMENTATION Based on our research we have determined the best alternative for JetBlue would be to focus on code-sharing agreements and strategic partnerships with other airlines. More specifically, partnering with airlines such as SkyWest 6

and Ryan Air. Both Ryan Air and SkyWest share a related consumer base that would benefit from related products provided. Partnering with SkyWest will allow for JetBlue to exponentially expand its destinations in America, Canada and Mexico while Ryan Air would expand their reach across Europe. We propose that JetBlue form these strategic partnerships so that they can expand into new and existing markets. We first plan to implement this large expansion domestically in markets that JetBlue does not fly to in North America, and afterwards, we plan to further differentiate our destination offerings by expanding internationally into Canada, Mexico and eventually Europe. SkyWest has several hubs in Canada and Mexico while Ryan Air has agreements with over 10 different airports in Europe from London to Israel. With all these destinations, it is also our plan to offer premium services at a low cost to further differentiate our service and target professionals around the world. This new strategic partnership would be beneficial to all parties involved by increasing market share domestically and internationally, increasing sales and revenues while maintaining a healthy operating profit margin, and most importantly increasing the overall customer experience: the JetBlue motto! CONCLUSION In conclusion, JetBlue is an innovative company that has faced numerous obstacles on its way to the top. From its humble beginnings to its current resurrection, JetBlue has managed to carve out its own path through managing risks and industry alliances. Our recommendation to JetBlue is to hedge the fluctuating cost of oil, focus on adding-value to the customer experience and prioritizing interline and codesharing partnership/agreements. If top-level managers can continue to provide quality assurance, they will reap the benefits in the form of Investor satisfaction, higher returns 7

and exponential growth.

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