Jetblue Case Analysis

Introduction

The airline industry in the United States has three primary segments, which are major airlines, regional airlines, and low-fare airlines. The U. S. Department of Transportation defined major airlines as those with annual revenues of more than $1 billion. These major airlines conduct their operations utilizing the hub-and-spoke system, meaning that they operate in a limited number of hub cities with other destinations served by one-stop or connecting services through the hub (Dess, et. al., 2019). The regional airlines operate smaller aircraft with lower volume routes in comparison to major airlines and do not have an independent route system. They work in partnership with major airlines, carrying their passengers on the “spoke”, which means between a hub or larger city and a smaller city (Dess, et. al., 2019). Finally, the low-fare airlines operate from one point to another and have their own independent route system. Their target segment is fair-conscious leisure and business travelers that might opt for alternative modes of transportation or chose not to travel at all (Dess, et. al., 2019). JetBlue Airways Corporation can be considered as one of the low-fare airlines in the airline industry. This case study will analyze JetBlue’s general and industry environment, internal resources and assets, addressing key forces in the general and industry environment that affect their strategic choices and the internal resources and assets that can give them a competitive advantage; analyze their business and corporate-level strategies using a SWOT analysis. A financial analysis will be conducted along with its implications on their strategy. Finally, this case study will provide some recommendations and implementation plan that can help increase their profitability.

History

JetBlue was the highest-funded start-up airline in U.S. aviation history and founded in 1999 by David Neeleman who raised “about $130 million of capital in two weeks” and therefore had a strong support from venture capitalists (Dess, et. al., 2019). They started operations in 2000 using John F. Kennedy International Airport (JFK) as their primary base of operations before expanding to Long Beach Municipal Airport in 2001. They became a publicly traded company in 2002 and it’s stock was among the hottest IPOs of the year. Established with the aim of being one of the leading low-fare passenger airline that offered differentiated products to customers and high quality customer service on point-to-point route, their mission was “to bring humanity back to air travel” (Dess, et. al., 2019). Neeleman modeled JetBlue after Southwest Airlines, but differentiated themselves with their innovation strategies. They Kept cost down by utilizing cheaper Airbus A320 planes that had more seating as opposed to the more popular but expensive Boeing 737 with less seating. The Airbus A320 was a single type aircraft that where less expensive to maintain, more fuel-efficient, had low training costs, and increased personnel utilization. After suffering it’s first net losses in 2005 and 2006, they experienced an ice storm in 2007 that exposed their critical weaknesses and their reputation, which ultimately led to Neeleman being forced out as CEO and replaced by Dave Barger who was the president. After leading the company towards some success, Dave Barger was eventually replaced by their current CEO Robin Hayes in 2015.

Leadership

JetBlue under Hayes’ leadership underwent changes such as new interline agreements, new code-sharing agreements, various partnerships with other commercial airlines, JetBlue credit cards launch, and creation of JetBlue Technology Ventures LLC, in order to reinvent the company. Under his leadership, they went away from their initial strategy to remain independent as he expanded their code-sharing agreements. Their innovative strategies continued under Hayes’ leadership as they where the first Federal Aviation Administration certified carrier in the U.S. to use the new satellite-based Special Required Navigation Performance Authorization Required (RNP AR) approaches at their base in JFK airport. Ultimately JetBlue has been more efficient and effective as their profit margin in 2017 was 19.65% second only to Southwest Airline’s 23.17% (Dess, et. al., 2019).

General and Industry Environment

Over the years JetBlue have enjoyed a considerable amount of success but found themselves faced with challenging times that has affect their profitability and growth. They have been faced with key forces in the general and industry environment factors that affected their choice of strategy. One of the key forces in the general and industry environment that affect JetBlue’s choice of strategy is a strong competition. With different segments in the industry, airline corporations generally competed with each other especially with low-fare airlines weaning business travelers from major airlines. An increase in competition meant that airlines have to become innovative and design strategies that will attract customers, with the bases of their competition geared towards different factors such as pricing, routes, entertainment systems, and customer service e.t.c. Dess et. al. (2019) published that the bases of competition in the airline industry are fare pricing, customer service, routes, flight schedules, types of aircraft, safety record and reputation, code-sharing relationships, in-flight entertainment systems, and frequent flier programs.

In addition to strong competition, other key forces in the general and industry environment that affect JetBlue’s choice of strategy are skyrocketing fuel prices and increasing operational costs. Many factors such as natural disasters, wars, and political unrests on a global scale can lead to economic downturn, which can be considered as contributing to the rise in fuel costs. Skyrocketing fuel costs is major as there is no substitute for fuel, which means that airline corporations do not have a choice but to purchase it at whatever set price. JetBlue are facing increasing operational costs as their aircrafts begin to age and require more maintenance and their workers becoming more senior. Security concerns also increases operational costs, as the airline industry has to invest in both human and technological resources to ensure the safety of their passengers. In addition to increasing operational costs, security concerns can also result in decrease in demand for air travel. Dess et. al. (2019) wrote that economic downturn and the terrorist attacks of September 11, 2001, severely affected the airline industry with security concerns, security costs and liquidity costs increasing while demand for air travel decreased resulting in reduction in traffic and revenue; thus decreasing profitability and resulting in airline companies filing for bankruptcy or undergoing financial restructuring, mergers, or consolidations.

Resources and Assets

In spite of the key forces in the general and industry environment that affect JetBlue’s choice of strategy, they have several internal resources and assets that can give them a competitive advantage. Some of the internal resources and assets that give them a competitive advantage over their competitors are their low cost fares that provides comfort or luxuries such as leather seats and in flight entertainment systems, customer service oriented employees, and most importantly their innovation resources and organizational capabilities. Their organizational capabilities have truly been successful as they have been able to combine both their tangible and intangible resources effectively, which is evident as they where the first airline to use electronic ticketing and introduce paperless cockpits that ensures faster takeoffs by reducing paperwork and in turn leads to quicker turnaround rates as well as higher aircraft utilization. It was also evident as they where the first U.S. carrier to provide free email and text messages access to their passengers through wireless handheld devices (Dess, et. al., 2019). Their organizational capabilities are mostly evident with their focus on customer satisfaction, as they where named the best domestic airline for five consecutive years, the world’s best domestic airline, and Passenger Service Award from Air Transport World (Dess, et. al., 2019). Their point-to-point service, combination of differentiated products they offer, and their focus on underserved markets also gives them competitive advantage over their competitors.

Business-level and Corporate-level Strategies

JetBlue’s strategy can be considered as a combination of integrated cost leadership and differentiation strategy approach. Their identity and brand is centered on providing low-cost flights and some luxury components to their customers. Part of their strategy also prioritizes customer service, which as previously stated is evident when they ranked highest in customer satisfaction for five consecutive years. Utilizing the same business model as Southwest Airline, they sought to distinguish themselves with their innovation strategies. Their innovation strategies have been particularly a source of their strengths as depicted in a SWOT analysis shown in exhibit 1 below. Their innovation strategies led to being the first airline to use electronic ticketing as well as introduce the first paperless cockpits. One major advantage these innovations provided was a reduction in their turnaround time. The paperless cockpit ensures faster takeoff by reducing paperwork, which translates to quicker turnaround rates as well as more efficient utilization of the aircrafts, as they are able to fly more and thus increase their