Jetblue Case Study Solution

JetBlue was established in 1999 by David Neeleman, he thought his plan would make people satisfied to air travel. In 2000, the company began its operation in the market. In the same year, the company had 6 new air routes in (Rochester, New York, Burlington Vermont, Orlando, Tampa, Oakland, and Ontario). In 2002, the company expanded its operation and flew 108 flight to 17 destinations. “JetBlue strategy was built on the goal of fixing everything that sucked about airline travel.” JetBlue offered convenient services by providing leather seats, free Live TV…etc. JetBlue depend on marketing to implement its plan and producing the lower cost seat mile in US air line 6.98 cents versus 10.08 in an industry average. Southwest airline lunched the

The process of doing this cased the company to ask for help from other competitors about the exact price to offer in the market. Investors knew that the price might be among 22 to 24 per share. However, the JetBlue noticed that the IPO demand is anticipated to be more than 5.5 million. Thus, the management requested to increase its price to 25-26, this would make the management concerned to convince the shareholders that the higher price improve the company in the market. Furthermore, the company was scared if this strategy would hurt sales in future. They should decide if the higher price would improve company technique in stock

Using P/E multiple method is suitable for evaluation the company stock, however this mothed does not do the same quality as DCF model, when we differentiate between other companies. Even though, it does not give the exact outcomes when we have more companies in the same field. Dividend growth model is not relevant to this company because the company did not reveal its dividend in the stock market. Also, the company wish for its earing to fund its growth. Thus, it is hard to use this method because we don’t have any information about the dividend. Since the DCF model is more appropriate to use, it also give us the best image to the relative companies in intrinsic stock value.

In addition, we did the calculation for WACC to be 9.98 % after that we used the DCF analysis. In our analysis we assumed the share will be 20.5 per share. This tell us that the management price was overrated for the IPO and the price were 25 -26. This is will put the management to be under pressure because the price was higher than we estimated, it would cause the company sales in the future and putt the investors in embarrassing situation. Thus, they should recommended the price range 20 to