Jet Blue Case Analysis 1b5811

Contents 1.

Introduction ....................................................................................................................................... 2

2.

Strategic Posture ............................................................................................................................... 2 2.1

Mission Statement ..................................................................................................................... 2

2.2

Customer's Bill of Rights .......................................................................................................... 2

2.3

Objectives ................................................................................................................................. 2

2.4

Strategies ................................................................................................................................... 3

2.5

Policies ...................................................................................................................................... 3

3.

Synopsis ............................................................................................................................................ 3

4.

JetBlue business practices and business strategy .............................................................................. 4 4.1

Stimulate demand with low fares .............................................................................................. 4

4.2

Commitment to low cost ........................................................................................................... 4

4.3

Offer high quality service and product...................................................................................... 4

5.

Competitive profile ........................................................................................................................... 5 5.1

Cost structure ............................................................................................................................ 5

5.2

Marketing and Brand position................................................................................................... 5

5.3

Marketing programme............................................................................................................... 6

5.4

Financial Ratios and other facts ................................................................................................ 6

5.5

Comparison with the Competitor (Southwest Airlines) ............................................................ 7

6.

Internal Factor Evaluation Matrix (IFE). .......................................................................................... 8

7.

External Environment: Opportunities and Threats ........................................................................... 9 7.1

Natural Physical Environment: Sustainability Issues .............................................................. 9

7.2

Societal Environment ................................................................................................................ 9

8.

External Factor Evaluation Matrix (EFE) ....................................................................................... 11

9.

Competitive Profile Matrix (M). ................................................................................................ 12

10.

SWOT Analysis .......................................................................................................................... 13

11.

Internal-External Matrix (IE) ..................................................................................................... 18

12.

Strategic Position and Action Evaluation Matrix (SPACE) ....................................................... 19

13.

Recommended Strategic Course for JetBlue............................................................................... 20

14.

References ................................................................................................................................... 21

Group 3 : JetBlue Airways Corporation-2009 Case Analysis

1

1.

Introduction

JetBlue was incorporated in Delaware in August 1998. David Neeleman founded the company in February 1999, under the name "NewAir." Several of JetBlue's executives, including Neeleman, are former Southwest Airlines employees. JetBlue started by following Southwest's approach of offering low-cost travel, but sought to distinguish itself by its amenities, such as in-flight entertainment, TV at every seat, and Sirius satellite radio. Since the inception, JetBlue differentiated their service by having a startup capital of $100 million, flying new planes, hiring employees through rigorous screening and focusing on customer [1].

2.

Strategic Posture

2.1

Mission Statement

The unwritten mission statement of Jet Blue Airways Corporation is reflected in its core values and principles created and set by the company. In lieu of mission statement, a strategic set of core values is being presented by Jet Blue Airways Corporation. These core values include safety-new planes, caring attitude-service oriented staff, integrity, fun and ion [2].

2.2

Customer's Bill of Rights

"Above all else, JetBlue Airways is dedicated to bringing humanity back to air travel. We strive to make every part of your experience as simple and as pleasant as possible. Unfortunately, there are times when things do not go as planned. If you‟re inconvenienced as a result, we think it is important that you know exactly what you can expect from us. That‟s why we created our Customer Bill of Rights. These Rights will always be subject to the highest level of safety and security for our customers and crew." It is the first and now only major airline which has provided such a fundamental benefit to its customers [2].

2.3 Objectives Come off as a Young, colourful and fun airline with excellent customer service.


2

2.4

Strategies

Using an "Anti-Establishment" strategy against accepted norms in the industry. By using major international airports, such as New York, as hubs JetBlue would face very little competition from domestic

flights

at

this

airports

verses

mainly

domestic

use

alternatives.

Combine low airfares with several value-added services that improve customer service w/o adding operating costs

2.5

Policies 

JetBlue does not furlough crew during economic downturns



Believes in a non-union workforce which provides more flexibility and allows the company to be more productive.



Not overbook the flights.



Communicate openly and honestly with customers about delays and service disruptions.



Employee efficiency results from flexible and productive work rules, effective use of part-time employees and the use of technology to automate tasks.

3.

Synopsis

JetBlue is a low cost domestic airline in the United States following an interesting combination of low fare, low cost enger airline and differentiated product as its strategy. From its inception in 1998 the airline grew to become the 11th largest player in the airline industry in a short span of six years. It had been the only airline apart from South West Airlines, to have been profitable during the aftermath of the September, 11 attacks on World Trade Centre and at a time the entire airline industry was experiencing losses. The core of JetBlue strategy was low cost achieved through a smaller and more productive work force, automated processes, better use of technology, use of brand new single model planes that reduced maintenance cost and training cost at the same time. The success of JetBlue invited the attention of its competitors. New discount carriers were being launched that closely imitated JetBlue‟s differentiated product offering. This posed questions to the viability of both the basis of JetBlue‟s competitive advantage. Added to this was the prospect that JetBlue would come head to head with other major airlines and discount carriers in its quest for expansion into different geographic markets.


3

4.

JetBlue business practices and business strategy

The business strategies and the goals formulated by JetBlue were to establish itself as a high quality, low fare, low cost enger airline. They intended to maintain a growth plan that takes advantage of their competitive strengths. The key elements of the strategy are:

4.1

Stimulate demand with low fares

JetBlue‟s low fare are designed to Stimulate demand particularly from fare conscious leisure and business travellers who might otherwise have used alternative forms of transportation or would not have travelled at all. By introducing new aircraft, JetBlue targeted to the mid-sized markets and to further increase the frequency of flights of their existing routes.

4.2

Commitment to low cost

JetBlue‟s low cost have allowed them to offer fares low enough to stimulate demand and to attract customers away from the high priced competitors. JetBlue expected to continue to aggressively control costs and maintain their focus on low cost carrier spending habits. 4.3

Offer high quality service and product

JetBlue believes that a key element of their success is that in addition to offering low fares, they are offering to customers a better alternative to air travel. On-board JetBlue customers enjoy a distinctive flying experience which is referred to as „JetBlue experience‟ that includes friendly, customer service oriented employees, new aircraft, roomy leather seats with multiple channels of free live TV and movie channels. The on-board offering includes generous helpings of branded snacks, beverages and specially designed products for the overnight flights.

JetBlue makes it imperative to communicate openly and honestly with customers about delays, especially when weather and mechanical problems disrupt services.


4

5.

Competitive profile

5.1

Cost structure Fuel – On average since 2005, jet fuel purchases have comprised 34% of JetBlue‟s

operating cost. Fuel expenses for JetBlue were impacted significantly by the spike in energy prices from 2003 to 2008 [3]. Excluding Fuel – Apart from fuel changes in airline operating expenses are driven primarily by changes in capacity. JetBlue‟s current cost structure is a source of competitive advantage as it allows the company to offer lower fares than many of its competitors. However, JetBlue‟s cost advantage relative to peers has deteriorated since 2005. The four drivers of historic advantage, identified by company management are:

5.2

•

High aircraft utilisation

•

Low distribution costs

•

Productive workforce

•

New and efficient aircraft

Marketing and Brand position Target market - JetBlue‟s target customers are „fare conscious travellers who might

otherwise have used alternate forms of transportation or would not have travelled at all‟. The current base consists primarily of leisure travellers, the most price sensitive class of travellers. However, JetBlue is increasingly quoting a higher class of engers who have the resources to pay more for a business or first class ticket but appreciate a lower fare without sacrificing high class customer service, especially when corporations are looking to reduce business travel due to tough economy conditions.

Brand Identity - In the airline industry, few players have managed to build a unique brand identity and achieve significant differentiation. JetBlue, however, has done so by taking up the vacant position of low cost provider that also offers a top notch experience that legacy airlines do not deliver through features such as leather seating, DirecTV for each seat, XM satellite radio.


5

5.3

Marketing programme

JetBlue continuously markets itself through advertising and promotions in newspapers, magazines, television, radio and on billboards. The firm relies on word of mouth because it believes that it is the most effective advertising for the company. It also s through the following: Social media Website You Above All campaign Promotions Brand space True blue 5.4

Financial Ratios and other facts

Year Current Ratio Quick Ratio Long Term Debt to Equity Inventory Turnover Total Assets Turnover s Receivable Turnover

2006 1.1 1.1 2.8 87.5 0.5 30.7

jetblue 2007 2008 0.9 0.9 0.9 0.9 2.5 2.3 109.3 112.8 0.5 0.6 30.9 39.3

Average Collection Period

11.9

11.8

9.3

9.0

0.054 0.0004

0.059 0.0063

0.031 -0.0225

0.085 0.0177

0.0002

0.0032

-0.0126

0.0088

0.0011

0.0174

-0.0603

0.0377

Gross Profit Margin

2009 1.3 1.3 1.9 82.2 0.5 40.6

Net Profit Margin Return on Total Assets (ROA) Return on Equity (ROE)


6

5.5

Comparison with the Competitor (Southwest Airlines)

Company Worth Analysis

JetBlue (2008) [2]

Stockholders' Equity

$1,261,000,000

Net Income x 5

($380,000,000)

(Share Price/EPS) x Net Income Number of Shares Outstanding x Share Price Method Average

Company Worth Analysis Stockholders' Equity

$10,975,294 $1,334,357,012 $556,583,077

Southwest (2008) [4] $4,953,000,000

Net Income x 5

$890,000,000

(Share Price/EPS) x Net Income

$183,587,444

Number of Shares Outstanding x Share Price

$5,107,010,809

Method Average

$2,783,399,563


7

6.

Internal Factor Evaluation Matrix (IFE). Internal Factor Evaluation Matrix (IFE) Strengths

Weight Rating

Weighted Score

1.

Low-fares

0.13

4

0.52

2.

10th Rated in US

0.07

3

0.21

3.

Best customer service

0.07

4

0.28

4.

Variety

0.08

4

0.32

5.

More number of Flights

0.05

3

0.15

6.

High comparative Startup Capital

0.04

3

0.12

7.

HR Policies

0.06

4

0.24

8.

New Jets

0.07

4

0.28

9.

Legal Assurance in form of Bill of Rights

0.03

3

0.09

10. Environmental Concern & Responsibility

0.01

3

0.03

Weaknesses

Weight Rating

Weighted Score

1.

Non utilisation of Award Schemes

0.02

2

0.04

2.

Fuel expenses

0.11

2

0.22

3.

Smaller Airline-Less Heard of

0.07

2

0.14

4.

Unions & labor contracts

0.09

1

0.09

5.

Increasing break-even load factor

0.04

2

0.08

6.

Luggage Handling Problem

0.06

1

0.06

TOTALS

1.00


2.87

8

7.

External Environment: Opportunities and Threats

7.1

Natural Physical Environment: Sustainability Issues 

Weather storms can cause delays and ground aircraft for days if it is severe enough. Huge snow storms and hurricanes are an ever increasing danger.

 7.2

Do these forces have different effects in other regions of the world? Societal Environment



Economic Fuel prices have increased sharply over a short time, increasing operating costs for the aviation industry.



Technological 

Automation of ticketing and self check-in services lowers overhead costs.



Company internet websites for the majority of sales, thus decreasing operating costs.



Political-legal 

Terrorist attacks on 9/11 brought many airlines into or close to bankruptcy and scared engers away from flying for many years after. The aviation industry is still correcting from this.

 

Federal Regulations requires one flight attendant for every 50 engers.

Sociocultural 

Pension plans have become a thing of the past in aviation; these are expenses that airlines chose to cut to maintain profitability.



An increasing petition to create a “bill of rights” for engers that would allow engers to be compensated and to prevent them from having to be in aircraft for hours on the ground.

7.4

Task Environment 

Threat of New Entrants. The growing number of Low Costs Carriers (LCCs) in the aviation industry, and the attempts of the Full Service Airlines (FSAs) to take away market share from the LCCs had led to a fall in the average fares. Legacy airlines launched low-cost subsidiaries of their own, to compete with LCCs.


9



Rivalry Among Existing Firms. Many airlines that were operating under Chapter 11 began to recapture the market share. These airlines were able to undercut competition by offering very low fares, taking advantage of the protection of the bankruptcy laws.



Threat of Substitute Products or Services.



Legacy‟s LCCs allowed connecting flights to their parent‟s airlines, shared their frequent flier programs and had access to parents gates and landing/takeoff slots.



Bargaining Power of Suppliers. Aircraft manufacturers would sell aircraft at higher interest rate because of a limited number of substitute goods. Aircraft would also arrive to airlines later than agreed, causing delays and loss of revenue and image.



Power of Other Stakeholders. Increasing Quality, safety, and environmental regulations. Bargaining Power of Buyers. Price is going to dictate with whom buyers spend their money. The more buyers a company has, the more source of potential revenue there is.


10

8.

External Factor Evaluation Matrix (EFE) External Factor Evaluation Matrix (EFE) Opportunities

Weight Rating

Weighted Score

1.

Targeting Undeserved Markets

0.09

4

0.36

2.

Growing Airline Industry

0.07

2

0.14

3.

US is the largest Travel Market

0.07

3

0.21

4.

Refurbishing Old Planes

0.05

4

0.20

5.

Use of Technology for ment

0.06

2

0.12

6.

Increasing Scope for Tourism Industry

0.06

1

0.06

7.

Use of Luggage Tracking Technology

0.05

2

0.10

8.

Overcome Effect of 9/11

0.04

1

0.04

Threats

Weight Rating

Weighted Score

1.

Viral Outbreak

0.08

2

0.16

2.

Economic Crises

0.07

2

0.14

3.

Competitors (Southwest)

0.09

3

0.27

4.

Viral Outbreak

0.07

2

0.14

5.

Increasing Breakeven Load Factor

0.05

2

0.10

6.

Additional Fuel consumption

0.05

2

0.10

7.

International Operations

0.05

1

0.05

8.

Flight Delay/Cancellation

0.05

1

0.05

TOTALS

1.00


2.24

11

9.

Competitive Profile Matrix (M).

The position of the JetBlue has been analysed against its main competitor i.e. Southwest Airlines, in the table given below. Competitive Profile Matrix (M) jetBlue

Southwest Airlines

Weight

Rating

Score

Rating

Score

Advertising

0.13

2

0.26

4

0.52

Market Share

0.16

1

0.16

4

0.64

Customer Service

0.11

4

0.44

2

0.22

Diversification

0.12

4

0.48

3

0.36

Price

0.13

4

0.52

3

0.39

Financial Position

0.12

3

0.36

4

0.48

Expansion

0.09

3

0.27

4

0.36

Company Image

0.14

4

0.56

4

0.56

Totals

1.00

Critical Success Factors

3.05

3.53

The above analysis reveals that company scores lowest in advertising and market share and the same needs to be improved.


12

10.

SWOT Analysis

Strengths •

It is top ranked in Customer Satisfaction among Low cost carriers in North America.

•

JetBlue Airways has differentiated itself by providing various facilities to the customers such as in-flight entertainment, satellite radio and TV on every seat, etc.

•

JetBlue provides 60 destinations in 21 states and 11 countries in the Latin America and Caribbean.

•

JetBlue was one of only few U.S. airlines that showed a profit during the decline in airline travel after the 9/11 attacks.

•

JetBlue has around two billion dollars in market capitalization.

•

The robust marketing campaign giving emphasis to service, complimentary on-board services and aggressive fares.

•

JetBlue was listed the number one US home airline by „Readers‟ Choice Awards‟ for the sixth year in a row.

•

New and efficient aircrafts (youngest fleet amongst any major U.S. airline)

Weaknesses •

True-Blue rewards offered to the customers not fully utilized.

•

Operational issues, low fares, high fuel prices, ranks trademark, contributed in bringing economic performance of JetBlue down.

•

JetBlue‟s higher costs linked to the airline‟s several facilities were making the company less competitive.

•

Although JetBlue continued to add routes and planes to the convoy at a fast pace, it witnessed unsustainable growth rate.

•

JetBlue estimated a loss due to lofty fuel prices, fleet costs, and operating inefficiency.

•

JetBlue‟s website and airport cabin are not easy to get.

•

The Company has less international destinations because it only covers 11 countries. The company does not have presence in Asia and other unsaturated areas.


13

Opportunities •

After the economic crisis in 2009, revival has pursued rapidly as the industry consistently revisited its long term increase rate of approximately 5% per year.

•

Rapidly increasing air service within China and other rising economies along with the increase of low cost carrier business models all over the world drive this market segment.

•

Introduction of new planes has created the opportunity for additional route. \

•

Increase international tourism and investment is consequently vital to the globalisation taking place in numerous other industries.

•

USA is the largest single market in the world.

•

Traveller traffic is predicted to rise.

•

Technology has increased the ways of ment. Similarly, it has facilitated the ways of ticketing such as internet etc. Therefore, improvement in technology is a good opportunity.

•

Tourism is increasing all over the world and it has also increased longer duration of flights.

Threats •

Demand for air travel fluctuates generally for the services to be provided (as in case of viral outbreak).

•

Economic Scenario

•

Fuel prices are increasing.

•

Customers have complaints about refunds.

•

The majority of the major airlines have undergone cost reformation.

•

Strong competitors in of limitation capacity, pricing, consolidation scheduling and alliance activities.

•

Increasing impact of the governmental regulations to the industry operations

•

Decreasing Yields

•

Delays and Cancellations


14

STRENGTHS-WEAKNESSES-OPPORTUNITIES AND THREATS MATRIX (SWOT) SWOT MATRIX FOR JETBLUE AIRWAYS

STRENGTHS-S 1. Top ranked in Customer Satisfaction among Low cost carriers in North America. 2. Differentiated itself by providing various facilities viz .in-flight satellite radio and TV on every seat, etc. 3. 60 destinations in 21 states and 11 countries in the Latin America and Caribbean. 4. Among few U.S. airlines that showed a profit during the decline in airline travel after the 9/11 attacks. 5. Around two billion dollars in market capitalization, around 650 aircrafts. 6. Robust marketing campaign giving emphasis to service, complimentary on-board services and aggressive fares. 7. Listed the number one US home airline by „Readers‟ Choice Awards‟ for the sixth year in a row. 8. New and efficient aircrafts


WEAKNESSES-W 1. True-blue rewards are not utilised 2. Operational issues, low fares, high fuel prices, ranks trademark brought down economic performance of JetBlue. 3. Higher costs linked to the airline‟s several facilities were making the company less competitive. 4. Although JetBlue continued to add routes and planes to the convoy at a fast pace, it witnessed unsustainable growth rate. 5. JetBlue estimated a loss due to lofty fuel prices, fleet costs, and operating inefficiency. 6. JetBlue‟s website and airport cabin are not easy to get. 7. Less international destinations, covers 11 countries. The company does not have presence in Asia and other unsaturated areas.

15

OPPORTUNITIES-O SO STRATEGY WO STRATEGY 1. Revival of industry after the economic crisis in 1. Introducing new flights for the international travel 1. Marginal increase in fares keeping it below 2009, revisited its long term increase rate of destinations with differentiated services. (S1, S5, competitors and also increasing operational approximately 5% per year. O4) effectiveness. (W2, W5, O5, O8) 2. Rapidly increasing air service within China and 2. Launch new advertising campaigns with stress on other rising economies along with the increase of low cost their differentiated services. ( S2, S7, S8, O1, carrier business models all over the world. O4, O7) 3. Introduction of new planes created the opportunity for additional route. 4. Increase international tourism and investment is consequently vital to the globalisation taking place in numerous other industries. 5. USA is the largest single market in the world. 6. Traveller traffic is predicted to rise. 7. Technology has increased the ways of ment. Similarly, it has facilitated the ways of ticketing such as internet etc. Therefore, improvement in technology is a good opportunity. 8. Tourism is increasing all over the world and it has also increased longer duration of flights.


16

THREATS-T ST STRATEGY WT STRATEGY 1. Demand for air travel fluctuates generally for the 1. Provide lower fares during viral outbreak and 1. Providing discounts in the form of true blue services to be provided (Viral outbreak). economic slowdown. (S1, T1, T2) rewards for unoccupied seats . (W1, T7, T8) 2. Economic Slowdown. 3. Fuel prices are increasing. 4. The majority of the major airlines have undergone cost reformation. 5. Strong competitors in of limitation capacity, pricing, consolidation scheduling and alliance activities. 6. Increasing impact of the governmental regulations to the industry operations. 7. Decreasing yields. 8. Delays and cancellations


17

11.

Internal-External Matrix (IE)

The IFE Total Weighted Scores

The EFE Total Weighted Scores

Strong 3-4 High 3-4 Medium 2.0-2.99

Low 1.0-1.99

Average 2.0-2.99

Weak 1.0-1.99

I

II

III

IV

V (2.87,2.24)

VI

VII

VIII

IX

As per the analysis given, the IFE Score is 2.87 and EFE score is 2.24 which falls in cell V and can be managed best with hold and maintain strategies. Market penetration and product development are two commonly employed strategies for these types of divisions. JetBlue Airways in the future should hold and maintain their position using Market Penetration and Product Development strategies. These estimations are based on approximation as per indications given in the case.


18

12.

Strategic Position and Action Evaluation Matrix (SPACE)

Internal Analysis:

External Analysis:

Financial Position FP)

Stability Position (SP)

Startup Capital

5

Economic Scenario

-4

Wage Rates

7

Competition Pressure

-2

Market Capitalisation

4

Price Elasticity of Demand

-1

Revenue Growth

5

Viral Outbreak

-2

EPS

2

Price Range of Competitors

-2

Financial Position (FP) Average

4.6

Competitive Position ()

Stability Position (SP) Average

-2.2

Industry Position (IP)

Market Share

-2

Growth Potential

6

Efficient Fleet

-1

Increasing Demand for Air Travel

7

Customer Loyalty

-1

Barrier for others' Entry into Market

6

Technology (Website Interface)

-4

Untapped Market

5

Capacity Utilisation

-2

Efficient Planes to increase utilisation

2

Competitive Position () Average

X-axis Y-axis

-2.0

Industry Position (IP) Average

5.2

3.2 (-2.0+5.2)

2.4 (4.6-2.2)


19

The resultant strategy is Aggressive which implies that JetBlue should:     

Continue to invest in innovation to sustain and build the competitive advantage which exists. Cover any moves made by competitors to develop alternative competitive advantages. Close off the opportunities to build a differentiated value proposition that may prove attractive to segments of the market. Raise the stakes for other competitors to play the game. Move into related markets which complement the existing position.

13.

Recommended Strategic Course for JetBlue

13.1

International Operations

JetBlue should introduce new flights for the international travel destinations with differentiated services and maximise management flexibility to adapt its growth strategy. 13.2

Increase ment and expand to other media

JetBlue can focus on market penetration by advertising on TV, Radio, and Online to boost revenues and popularity of the airline. Relying on social media also greatly reduces the cost associated with

marketing. Stress the idea that the flying experience is significantly better with JetBlue than with other airlines. Continuing this focus is the best way to ensure that the customer knows what JetBlue stands for. 13.3

Effective use of Reward Policy

The reward policy of the JetBlue can be made more effective by offering trueblue rewards giving massive discounts on enger seats left empty on the last moments.


20

14.

References

1.

en.wikipedia.org/wiki/JetBlue

2.

http://www.jetblue.com/about/pressroom/

3.

http://business.library.wisc.edu/resources/kavajecz/10_Fall/JetBlue_Report.pdf

4.

http://southwest.investorroom.com/company-reports

5.

http://computerwranglers.com/Web%20test/mgt695/david/Internal-External%20Matrix.doc

6.

http://casestudygp4.wikispaces.com/JetBlue+Airways

7.

David.Fred.R, “Strategic Management Concepts and Cases”, Prentice Hall (13th Edition)


21

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