The following value chain, which focuses on Spirit Airlines, is representative of most of the firms in the Ultra Low-Cost Airline industry. Spirit is the industry leader in many areas such as operational efficiencies/cost structure, aircraft fleet management, brand/network and growth. The firm, however, trails industry foes in areas such as customer service and operational reliability and recoverability. While most in this segment pursue the cost-leader competitive strategy, Spirit has demonstrated the most effective model to date – whether the model is the most sustainable remains to be seen.
According to our chapter, the Service Value Model has six components that focus on customer value. The quality of JetBlue flights is a perception based on the expectation that the customers have before they actually try out the service. The comfortable leather seats along with the discount price, for example, are a perception that the customer has towards this airline, but value is created when the customer expectation is exceeded. Another component adding value to JetBlue is Intrinsic Attributes. This airline chooses its supplementary service very carefully; as mentioned earlier the full service meals are eliminated, how...
The Airline Industry is a fascinating market. It has been one of the few industries to reach astounding milestones. For example, over 200 airlines have gone out of business since deregulation occurred in 1978. Currently, more than 50% of the airlines in the industry are operating under Chapter 11 regulations. Since 9/11, four of the six large carriers have filed for and are currently under bankruptcy court protection. Since 9/11 the industry has lost over $30 billion dollars, and this loss continues to increase. Despite the fact that the airline industry is in a state of despair, JetBlue has become the golden example, a glimpse of what the industry could be.
JetBlue airways face many external factors that influence their business in the industry. Despite the economic downturn, JetBlue’s position will continue to remain unassailable in this competitive world. JetBlue adopted a proactive, customer-oriented approach to service and it also chose its employees very carefully in order to meet the complete customer satisfaction. Although the fuel prices have increased dramatically in recent times, many airlines faced weak economy leading to poor ticket sales in turn losing their customers but JetBlue effectively escaped this hurdle. Usually all potential passengers look at the price of the ticket even before considering any other factors. Typically being the lowest-cost airline JetBlue is suitable type of aircraft in the current economic environment and is easy to reac...
The hub-and-spoke system or network is a system that feeds air traffic from small communities through larger communities to the traveler’s destination via connections at the larger community (Wensveen, 2007). The airline will do most of its operations in the larger communities which the airline will call it its hub. The small communities are the spokes of the network and are connected to the hub by non-stop flights between the different spokes (Aguirregabiria & Ho, 2010). For example, a person wants to travel from Louis Armstrong New Orleans International Airport which is considered a “spoke” city to San Antonio International Airport on United Airlines will have to travel to Houston George Bush Intercontinental Airport and change planes as due to Houston being a hub for United Airlines. Many travelers would wonder why it would not be a direct flight to their destination...
JetBlue Airways Corporation was incorporated in Delaware in August 1998. David Neeleman founded the company in February 1999. Several of JetBlue's executives, including Neeleman, are former Southwest Airlines employees. JetBlue started by following Southwest's approach of offering low-cost travel, the airline was awarded 75 initial take off/landing slots at John F. Kennedy International Airport, received formal U.S. authorization and started operations with service to Buffalo and Ft. Lauderdale in February
JetBlue has a great product but losses customers due to these two issues. JetBlue has a total of six Focus cities, better known as Hubs. These hubs are located in Boston, Long Beach, New York City, Orlando, Ft. Lauderdale, and San Juan. Each of the above-named cities are all subject to be hit by inclement weather during all seasons creating a negative impact on the company as a whole. Due to this, customers, employees and ultimately the company are the ones directly affected. In order to make JetBlue a more attractive company for consumers they need to diversify their focus cities, acquire underserviced areas, and partner with another
Low Prices - Domestic passengers are quite sensitive to price changes, and rarely select an airline based on loyalty. At any given day, most passengers are prone to book the lowest costing flight within their budget, so it is imperative to keep the airfares, and the costs low. The biggest cost for any airline is aircraft, which can be reduced by leasing instead of owning aircrafts. Operating as many daily flights as possible per aircraft also ensures that fixed and variable costs of aircrafts are recovered. The additional revenue generated ensures profitability, which can be passed on to customers through low prices, further increasing competitive advantage.
In addition, the airline has a strong network that is growing with time. This is mainly because of its presence in key markets, particularly in Boston and New York, that positions it favorably in the industry and, in turn, allows it to draw agreements with other airlines. As a matter of fact, it is the largest domestic carrier at New York’s JFK Airport and a top carrier in Boston. Therefore, partnering with Jetblue is an advantageous proposition for many internationa...
Spirit addresses “price” by attempting to get the lowest possible fair for their potential customers. They have instituted their “unbundling” strategy that essentially removes all the conveniences that other airlines afford. Fees for checked bags, fees for flight changes, and no complementary in-flight beverages are just a few of the cost-trimming techniques employed. This strategy allows Spirit to come up with impossibly low fares. It also conforms to customers who just want to get from point A to point B without paying extra for services they don’t use. This strategy, coupled with an in-your-face “promotion” ploy, has made Spirit Airlines “the most profitable airline in the U.S.” (Nicas, 2012).
During the eighties many air express companies were formed and many were destroyed. However, three companies came out of this highly competitive period on top. They were FedEx, U.P.S. and Airborne Express. Airborne survived this highly competitive period by adapting to the external forces affecting the industry. One of the external forces affecting Airborne was the size of the competition. U.P.S. and FedEx were just swallowing up competitors. So Airborne decided the best way to compete was to be the low-cost provider of air express service. Robert Cline, CEO of Airborne explains their strategy “When you are up against UPS and Federal Express, those guys are so big and so well capitalized that you have to have a tool to fight with them. It wasn’t going to be size; it wasn’t going to be how well-known we were. So, we decided to be the low-cost operator.”(Washington CEO P 33). However, to become the low cost operator Airborne had to make many structural changes.
Jetblue was originally founded in 1998 on the principle of offering a low-cost travel experience to its customers. To differentiate JetBlue from its main competitors, such as Southwest Airlines, Delta Airlines, and United Airlines, JetBlue began offering amenities such as in-flight entertainment, TV screens on the back of every seat and in-flight satellite radio, wireless aircraft data link service, and cabin surveillance systems, and voice communication. As quoted by JetBlue’s founder, David Neeleman, JetBlue seeks to “bring humanity back to air travel.”
The Southwest Airlines strategy is best explained by its co-founder Herb Kelleher during a talk at Wharton: “It’s an obsession with keeping costs low and treating employees well and a commitment to managing the company during booms with an eye to the busts that will inevitable follow. Do that and most of the rest takes care of itself.”
Jet Airways indicates a negative growth in the BCG Matrix. Amongst its competition, Jet Airways owns a lesser market share. It is therefore recommended that Jet follows the strategy proposed for each category.
The success of the low cost carriers had major competitive effects on the mainstream full cost airlines of whom many reacted to the new competitor by founding their own “low cost carrier”, namely Shuttle by United, Continental Lite, Delta Express, Germanwings and so on.