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Market Size: Approximately $95 billion
Market growth rate: Domestic 2.9%, International 5.0% (forecasted to 2017)
Stage in life cycle: mature for domestic, growth for international
Number of companies in industry: 43 mainline carriers and 79 regional airlines
Scope of competitive rivalry: primarily major carriers (revenue more than $1 billion). Legacy carriers developing low-cost offshoots
Customers: 661 million domestic passengers. Expected growth in business customers
Degree of vertical integration: mixed; some have low cost reservation systems, alliances with regional and international airlines as well as hotels. Hedged fuel costs. Sabre Holdings and Galileo International connect airlines with travel agents. No mention of airlines employing in-house catering.
Learning curve effects: not a factor in this industry
Ease of exit/entry: aircraft, terminals, infrastructure and staffing are expensive
Technology/Innovation: R & D essential in creating efficiencies and reducing expenses with turn-around times, fuel costs, reservations etc
Product Characteristics: diverse; customers can receive top end service through to low cost travel and ongoing international hook-ups.
Scale Economies: the industry contains several very large players and multiple medium to small players
Capacity utilisation: high rates required to achieve suitable profitability
Industry profitability: subpar to above average; fuel and maintenance costs, a growing senior staff division, unionisation of employees and competitive price wars are margins concerns.
Porter’s 5 forces
Threat of New Entrants - Moderate – Deregulated industry. Threat of new entrants higher during downturns in industry (e.g. JetBlue’s entry point). Existing airlines may encroach on an opponent’s major or regional market-share. High cost of entry into industry
Bargaining Power of Buyers – High – No or very low cost in switching airlines
Bargaining Power of Suppliers – High – two key supplies needed are planes and fuel. Fuel prices are negotiable on quantity. There are only two airplane suppliers, Airbus and Boeing.
Threat of Substitutes - Low – Buses, boats, trains and cars are substitutes but usually not cost or time effective substitutes for most consumers
Degree of Rivalry - Very High to Intense – Multiple competitors, high strategic stakes, innovation often easily imitated, and low switching costs for consumers
Infrastructure – Flat organisational hierarchy – Terminal at JFK airport
HRM – Staff have access to executives and CEO – a culture/ philosophy of treating employees well and a reputation as a great place to work. Company profit sharing, high productivity of people and rapid advancements
Technology – Paperless cockpits, VoIP customer service, innovative culture
Procurement – 9 new Embraer E190 planes. Fuel. Personnel.
Inbound logistics – Low cost, simple to use cost effective reservations system, ticketless travel, pre-assigned seating, paperless cockpits, search engine optimisation and BlueTurn; for minimising ground time. Fuel and maintenance items.
Operations – Movement of goods and passengers, Aircraft maintenance, crew training, piloting, customer service, administration
Outbound Logistics – Completion rate. In terms of customers, the service is consumed as it is produced. Baggage handling - Hotel packages
Marketing and sales – Low cost animated TV ads plus American Express loyalty card and word of mouth. Innovative marketing campaigns utilising customer feedback, comical postcards, leather benches and snack bins in airports, JetBlue exhibits and direct marketing campaigns with students.
Service – simple to use reservation system, ticketless travel, pre-flight conveniences, pre-assigned seating, leather seats and extra leg room, free DIRECTV service and complimentary snacks and ‘comfort kits’. JetBlue customer Bill of Rights
Valuable Rare Inimitable Organised to take advantage Collective knowledge base Extendable to multiple markets Competitive Implications
Unique Organisational Culture • • • • • • SCA
Customer service • • • • • • SCA
Marketing Strategy • • TCA
Flight and Hotel packages • • TCA
Reservation system • • TCA
Cost management • • TCA
Low Price • CP
Scale of Economy CD
SCA –Sustained competitive advantage
TCA – Temporary competitive advantage
CP – Competitive parity
CD – Competitive disadvantage
1. Declining Profits
==> Though having began as a very profitable organisation, JetBlue has produced a financial loss for the last two years of the case study.
==> Growth of current liabilities.
==> Lacklustre profitability for shareholders
2. Response of legacy airlines
==> The introduction of competitive, low-cost carriers by the large legacy airlines
3. Reconstruction of its organisational culture
==> As the company grows its flat organisational structure will have to develop to handle the chain of command as well as continue a
4. Two kinds of airplane
==> While Southwest (who continue to make a profit) insist on having only one type of plane, JetBlue have two types which erode profits due to maintenance, training and staffing issues
5. International growth
==> Creating an alliance with international airlines in a low cost fashion
6. Fuel costs
==> Hedging and reducing current fuel costs as well as research into alternative fuels
7. Emergence of business travellers
==> Capturing a sizable market-share of business travellers
8. Staffing costs
==> As employees are becoming more senior the payroll expenses are increasing
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"Jetblue Strategic Management." 123HelpMe.com. 23 Jul 2014