JetBlue Airways

JetBlue Airways

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INTRODUCTION

JetBlue Airways entered the market in 2000 from a position of financial strength, leadership capability and several rare advantage points uncommon to others in the industry: 1) David Neeleman, the founder, had several years of industry experience as a result of having successfully launched and sold an airline (Morris Air), bringing both explicit and tacit knowledge into the his new venture; 2) Neeleman was afforded the opportunity to work directly with his idol, Herb Kelleher, at Southwest Airlines (the king of the low-cost leaders) after Southwest purchased Morris Air from Neeleman; and 3) Substantial financial support from venture capitalists who had funded Neeleman's previous ventures and were more than willing to support and capitalize on his idea for a new low-cost passenger airline.
With a clear mission and vision, he implemented a low-cost, differentiation business-level strategy, that set out to position JetBlue as the leading low-cost passenger airline in the industry, differentiating on high-quality customer service, providing customers with a geographically diversified flight schedule of both short and long hauls, along with efficient and reliable service.
JetBlue's mission is "to bring humanity back to air travel". Its low-cost strategy is second-to-none, not even to Southwest. Utilizing Southwest as a model and benchmark early in Neeleman's career in the industry, he's managed to copy the Southwest model and expand upon it with his ability to find more innovative ways to cut costs along the organization's value-chain, while utilizing technology to increase productivity and further add to operational efficiencies. JetBlue's value chain demonstrates its ability to successfully compete in several key areas relative to the bases of competition within the industry and creates processes that focus on reducing costs, for the specific purpose of continuously creating value for its customers, i.e. fare pricing, customer service, routes served, flight schedules, types of aircraft, safety record and reputation, in-flight entertainment systems and frequent flyer programs.
JetBlue's Value Chain – Primary Activities

Inbound Logistics/Outbound Logistics:
Focus on underserved markets and large metropolitan areas, utilizing underutilized airports with less congestion adding to the ability to remain on the ground in less time.
Point-to-Point routing system, unlike low-cost competitors that utilize hub-and-spoke system, partnering with larger airlines to provide connecting flights.
Operations:
Use of a single-type aircraft fleet. The A320 Airbus has an increased seating capacity of 30 seats (24 after additional seating reconfigurations), is cheaper to maintain, fuel efficient and reduces training costs, relative to other aircraft models used in the industry.

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Ticketless travel (e-ticket).
At-Home Reservation Agents reduces office space and infrastructure costs.
Paperless Cockpit (reduces paperwork and results in faster take-offs, quicker turnarounds, and higher aircraft utilization.
Service:
Does not overbook flights, therefore, customers are never concerned with the possibility of being
bumped, i.e. no standbys. No passenger is ever left behind.
Layout and design of planes and reduced seating capacity to increase customers' legroom and comfort.
DIRECTV satellite television. A television at each seat (24 channels controlled at the hands of each individual customer).
Long and short hauls, unlike low-cost competitors that focus on short hauls.
True-Blue points program that allows customers to receive a free round-trip ticket based upon points earned.
Its superior operational performance, i.e. more flight hours per day, better completion factor and on-time performance, fewer mishandled bags and customer complaints, translates to exceptional customer service.

JetBlue's Value Chain – Support Services

General Administration:
Key employees of the management staff were veterans highly experienced in the airline industry, complementing the knowledge and expertise of its founder.
Management's hands on approach in assisting crewmembers with carrying out work activities supports its culture as a service company striving for an environment that encourages safety, caring, integrity, fun and passion.
Management's visibility with both employees and customers, and its ability to effectively communicate the company's culture and values, while motivating employees at all levels of the organization, supports the philosophy that "great People drive solid operating Performance which yields continued Prosperity".
Human Resources:
Emphasis on recruitment and retention. Providing competitive salaries, bonuses, profit sharing, stock purchases and other benefits unheard of in the industry. Empowering employees through training and development and offering opportunities for advancement.
Technology Development:
The development of processes and systems that streamline workflows and create efficiencies that are passed down to the customer in the form of quality service and reduced costs.


COMPETITIVE FORCES - PORTER'S FIVE-FORCES MODEL

1. The Threat of New Entrants is Low. In 1978 deregulation opened up the airline industry to many competitors, however, there is currently a low threat to entry due to the entry-level barriers associated with capital requirements or the high cost of entry. Further, new entrants would have difficulty competing in this mature industry dominated by the larger airlines that are fighting for their lives, but particularly with the low-cost carriers that have mastered the art of integrating reduced costs with high-quality service.
2. Bargaining Power of Buyers is Relatively High. While suppliers seek to differentiate based upon price and service, this is still a commodity business and buyers continue to seek the lowest price available when looking to purchase airline tickets. Many online services have been created to assist buyers with comparing prices and purchasing tickets online. Buyers are price sensitive, particularly during price wars and are willing to substitute or forego a certain amount of service to take advantage of the lowest price available.
3. Bargaining Power of Suppliers is Low. Airline travel is a mature industry with fierce competition. Carriers are seeking innovative ways to retain existing customers and maintain market share, while trying to capture the market share of competitive rivals.
4. Threat of Substitute Products and Services is Moderate to High. The airline industry experienced proof of this subsequent to the 9/11 terrorist attack after the decline in travel caused some major, as well as minor, airlines to close their doors. Travel decreased substantially, as buyers either chose not to travel or to use other means, i.e. automobile, train, etc. Leisure travel practically ceased, while business travelers resorted to the use of technology to attend meetings and conduct business, utilizing teleconferencing and online communications more frequently.
5. The Intensity of Rivalry Amongst Competitors in the Industry is high. This is a mature industry with fierce competition. Vigorous competitive rivalry exists as carriers are seeking innovative ways to retain existing customers and maintain market share, while trying to capture the market share of competitors. Over saturation in the domestic market results in carriers increasing flights in existing routes as the one option for continued growth revenue aside from entering competitors' territories. One competitor lowering its prices can result in a price war, driving out competition and placing more buying power in the hands of customers.

The strength of JetBlue's competitive advantage was demonstrated subsequent to the aftermath of the 9/11/01 terrorist attack that occurred only one year subsequent to JetBlue entering the market. The organization was able to sustain operations, while other small low-cost competitors, and the low-cost, low-fare divisions of the larger competitors, were forced to reduce operations and, in some cases, file bankruptcy and shut down operations all together. As a result of the significant decrease in air travel during this time, JetBlue was able to increase its capacity and maintain a strong balance sheet. During that same year JetBlue went public closing shares at $18.00 over the estimated per share price, selling a total of $5.87 million shares as opposed to $5.5 million shares, and experiencing a higher revenue growth, gross margin and earnings per share than all other competitors. The high-cost structure of the larger airlines with their hub-and-spoke system, enormous labor costs, service and maintenance of multi-type aircraft fleets, makes it difficult for them to compete with the low-cost structure (efficiency) of JetBlue.
In the preceding years, however, three years after 9/11, JetBlue's larger competitors began competing directly with the low-cost carriers by implementing low-cost strategies, launching separate divisions and programs to reach the discount market. Further retaliation occurs when low-cost carriers that generally remain within their specific geographic niches begin to enter the territories of its larger counterparts, seeking additional growth opportunities. This was demonstrated by Delta and United Airlines forcing JetBlue to withdraw its services from Atlanta by drastically reducing fairs, increasing capacity and offering free trips on routes that are in direct competition with JetBlue.
This along with several other internal factors is threatening JetBlue's ability to sustain its competitive advantage. JetBlue's decision to switch to a multi-type aircraft to penetrate mid-size markets will significantly affect its low-cost strategy. It would result in increased maintenance and training costs, strains on labor relations and higher expenses per seat mile, causing JetBlue to increase rates to accommodate the additional costs. This would also decrease productivity and eliminate the current advantages of its experience curve.

STRENGTHS:

Operational efficiencies.

Human Resource recruitment & retention.

Experience and Leadership of Senior Management.

Innovative Processes and Technologies. WEAKNESSES:

Aging aircraft resulting in increased maintenance costs.
Rapid growth diminishing corporate culture.
Multi-type aircraft system.
OPPORTUNITIES:

New Markets, i.e. International & Mid-Size.
Increasing frequencies on existing routes.
Connecting new city pairs among the destinations it already serves.
Strategic Alliance with larger competitor.
THREATS:

Unionization of workforce.
Increase in Fuel Prices.

National Security / Threats of Terrorism.

Competitive Rivalries.

ALTERNATIVES:

1. Stick to a single-line aircraft and independent routing system operating from point to point, through smaller underutilized airports, serving customers that want low-cost and direct flights with no connections.
2. Implement a Corporate-Level Strategy by forming a Strategic Alliance with a larger competitor, leveraging its core competencies in reservation systems and rapid turn around times. The collaboration would grant JetBlue access to markets they would otherwise have difficulty competing in, while serving as an asset to the larger carrier with whom they align, cutting costs and assisting them in developing operational efficiencies.
3. Implement a Corporate-Level Strategy of Internal Development to focus on developing more innovative technologies that increase efficiency, reduce costs, and are hard for competitors to imitate.

RECOMMENDATION:

I recommend JetBlue remains steadfast to its low-cost, differentiation strategy, utilizing a single-type aircraft and seeking growth in international markets. I would also recommend they implement an Internal Development corporate-level strategy that emphasizes the need for continuous innovative process that are difficult for competitors to imitate and sustains competitive advantage.
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