Business of JetBlue Airways

JetBlue Airways was well on its way to become the premier low fare airline in early 2002. “Despite the fact that the US airline industry had witnessed 87 new airline failures over the previous 20 years” JetBlue had an innovative business model that focused on reducing cost while eliminating “everything that sucked about airline travel.” JetBlue airlines were put together by David Neeleman who “launched a new airline that would bring humanity back to air travel. Neeleman had a lot of prior experience in the airline industry having spent time at Morris air, later acquired by Southwest. Neeleman also used his experience to help launch a startup low fare airline company in Canada known as West Jet. One of JetBlue’s major assets was its commitment to technology. By maintaining a fleet of newer more technologically Airbus A320s “JetBlue’s fleet was not only more reliable and fuel efficient than other airline fleets but also afforded greater economies of scale because the airline had only one model of aircraft.”

The low fare airline business was experiencing significant growth in the early parts of the 21st century. Southwest airlines, with whom Neeleman was briefly employed was the “pioneer in low-fare air travel” and “was the fourth largest carrier in the world.” Several low fare airlines popped up following Southwest airlines success after 9/11. As the market grew many of these companies went public requiring an IPO or initial public offering as a way to increase capital and grow the company. When it came time for JetBlue to go public one of the main issues was how much to issue the stock for.

An initial public offering is the first time the equity of a company is publicly traded and is an excellent way to grow your...

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... Brigham and Daves gives three reasons why a company would want its IPO price undervalued. The first reason is that “the company wants to create excitement, and a price run up on the first day does that.”(Brigham and Daves pg 637). Two other reasons for a low IPO price are that “only a small percentage of a company’s stock is generally offered to the public so current stockholders give away less due to under pricing than appears at first glance and IPO companies generally plan to have further offerings in the future and the best way to ensure future success is to have a successful IPO, which under pricing guarantees.”(Brigham and Daves pg 637) Brigham and Daves makes an excellent point about low long term performance of IPO stocks. In general, “the offering price appears to be too low, but the first-day run up in generally too high.”(Brigham and Daves pg 637)