jet blue case analysis

8/11/2019 jet blue case analysis

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Group 3 : JetBlue Airways Corporation-2009 Case Analysis 1

Contents1. 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) ............................................................ 76. 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 (CPM). ................................................................................................ 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


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1. Introduction

JetBlue was incorporated in Delaware in August 1998.David Neelemanfounded the company in

February 1999, under the name "NewAir." Several of JetBlue's executives, including Neeleman,

are former Southwest Airlinesemployees. 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 feedback [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 passion [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 youre inconvenienced as a result, we think it is

important that you know exactly what you can expect from us. Thats 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 crewmembers." It is the first and now only major airline which

has provided such a fundamental benefit to its customers [2].

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


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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 crewmembers 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 passenger airline and differentiated product as its strategy. From its

inception in 1998 the airline grew to become the 11 thlargest 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 thatclosely imitated JetBlues differentiated product offering. This posed questions to the viability of

both the basis of JetBlues 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.


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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 passenger 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

JetBlues 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

JetBlues 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, premium 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.


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5. Competitive profile

5.1 Cost structure

Fuel On average since 2005, jet fuel purchases have comprised 34% of JetBlues

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. JetBlues current cost structure is a source of competitive

advantage as it allows the company to offer lower fares than many of its competitors. However,

JetBlues cost advantage relative to peers has deteriorated since 2005.

The four drivers of historic advantage, identified by company management are:

High aircraft utilisation

Low distribution costs

Productive workforce

New and efficient aircraft

5.2 Marketing and Brand position

Target market - JetBlues 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 passengers 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.


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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 advertises through the

following:

Social media

Website

You Above All campaign

Promotions

Brand space

True blue

5.4 Financial Ratios and other facts

jetblue

Year 2006 2007 2008 2009

Current Ratio 1.1 0.9 0.9 1.3

Quick Ratio 1.1 0.9 0.9 1.3

Long Term Debt to Equity 2.8 2.5 2.3 1.9

Inventory Turnover 87.5 109.3 112.8 82.2

Total Assets Turnover 0.5 0.5 0.6 0.5

Accounts Receivable Turnover 30.7 30.9 39.3 40.6

Average Collection Period 11.9 11.8 9.3 9.0

Gross Profit Margin 0.054 0.059 0.031 0.085

Net Profit Margin0.0004 0.0063 -0.0225 0.0177

Return on Total Assets (ROA)0.0002 0.0032 -0.0126 0.0088

Return on Equity (ROE)0.0011 0.0174 -0.0603 0.0377


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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 $10,975,294

Number of Shares Outstanding x Share Price $1,334,357,012

Method Average $556,583,077

Company Worth Analysis Southwest (2008) [4]

Stockholders' Equity $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


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6. Internal Factor Evaluation Matrix (IFE).

Internal Factor Evaluation Matrix (IFE)

Strengths Weight Rating Weighted

Score1. 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 0.248. 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


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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.

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

7.2 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 account 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

passengers away from flying for many years after. The aviation industry is still

correcting from this.

Federal Regulations requires one flight attendant for every 50 passengers.

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 passengers that would allow

passengers 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 theaviation 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.


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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.

Legacys LCCs allowed connecting flights to their parents 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.


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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 Advertisement 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


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9. Competitive Profile Matrix (CPM).

The position of the JetBlue has been analysed against its main competitor i.e. Southwest

Airlines, in the table given below.

Competitive Profile Matrix (CPM)

jetBlue Southwest Airlines

Critical Success Factors 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 3.05 3.53

The above analysis reveals that company scores lowest in advertising and market share and the

same needs to be improved.


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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 bringingeconomic performance of JetBlue down.

JetBlues higher costs linked to the airlines 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.

JetBlues 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.


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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 advertisement. 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 terms of limitation capacity, pricing, consolidation scheduling and

alliance activities.

Increasing impact of the governmental regulations to the industry operations

Decreasing Yields

Delays and Cancellations


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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 pric

ranks trademark brought down economic performan

of JetBlue.

3. Higher costs linked to the airlines seve

facilities were making the company less competitive

4. Although JetBlue continued to add routes a

planes to the convoy at a fast pace, it witness

unsustainable growth rate.

5. JetBlue estimated a loss due to lofty fu

prices, fleet costs, and operating inefficiency.

6. JetBlues website and airport cabin are n

easy to get.

7. Less international destinations, covers

countries. The company does not have presence

Asia and other unsaturated areas.


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OPPORTUNITIES-O

1. Revival of industry after the economic crisis in

2009, revisited its long term increase rate of

approximately 5% per year.

2. Rapidly increasing air service within China and

other rising economies along with the increase of low cost

carrier business models all over the world.

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

advertisement. 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.

SO STRATEGY

1. Introducing new flights for the international travel

destinations with differentiated services. (S1, S5,

O4)

2. Launch new advertising campaigns with stress on

their differentiated services. ( S2, S7, S8, O1,

O4, O7)

WO STRATEGY

1. Marginal increase in fares keeping it belo

competitors and also increasing operation

effectiveness. (W2, W5, O5, O8)


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THREATS-T

1. Demand for air travel fluctuates generally for the

services to be provided (Viral outbreak).

2. Economic Slowdown.

3. Fuel prices are increasing.

4. The majority of the major airlines have undergone

cost reformation.

5. Strong competitors in terms 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

ST STRATEGY

1. Provide lower fares during viral outbreak and

economic slowdown. (S1, T1, T2)

WT STRATEGY

1. Providing discounts in the form of true b

rewards for unoccupied seats . (W1, T7, T8)


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11. Internal-External Matrix (IE)

Strong Average Weak

3-4 2.0-2.99 1.0-1.99

As per the analysis given, the IFE Score is 2.87and EFE score is 2.24which 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.

I II III

IV

V

(2.87,2.24) VI

VII VIII IX

High

3-4

Medium

2.0-2.99

Low1.0-1.99TheEFETotalWeihted

The IFE Total Weighted Scores


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12. Strategic Position and Action Evaluation Matrix (SPACE)

I nternal Analysis: External Analysis:

Financial Position FP) Stability Position (SP)

Startup Capital 5 Economic Scenario -4Wage 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 Stability Position (SP) Average -2.2

Competitive Position (CP) 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 (CP) Average -2.0 Industry Position (IP) Average 5.2

X-axis3.2

(-2.0+5.2)

Y-axis2.4

(4.6-2.2)


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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 advertisement 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 passenger seats left empty on the last moments.


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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 (13thEdition)

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jet blue case analysis