The US airline industry trends have caused airline companies, including Jet Blue to struggle for survival. Retirement has caused a shortage of pilots and instructors. Flying schools experience less instructors and hours needed to train new pilots. In 2008, crude oil prices increased to a record $140 per barrel (Thompson, Strickland, & Gamble, 2010). Increased prices of fuel allowed the airlines to charge passenger fees for fuel surcharges, baggage fees, and beverage and snack fees. Airlines continue to charge fees with increasing fuel prices to generate an airline strategy. After 9/11, Congress passed the Aviation and Transportation Security Act (PDF), by issuing this Act; federal employees were tasked to handle all airport security. Increased screening for baggage and passengers, size limits on fluids and x-ray inspections. With the additional security measures, came financial burdens to the airline industry.
Jet Blue’s strategic intent
When Jet Blue’s was founded, David Nelleman wanted air travel to compassionate and fun. The strategic intent was to offer customers a low discount airline carrier with the comforts of home. As the first airline to offer electronic ticketing, Jet Blue wanted to delay its flights instead of canceling them. Agents were allowed to work from home and customers enjoyed gourmet snacks, coffees, in-seat televisions with satellite radio and movie channels.
Jet Blue began to look into increasing the shareholder and customer values with the expansion of New York’s JFK Airport with 8 am and 9 am flights. This was hopeful to Jet Blue executives; they wanted to appeal to younger customers, affluent New Yorkers, and those traveling to New York City. Opening up this new terminal has saved $50 million in labor, fuel, and vouchers. Now, the company serves more than 53 destinations (Thompson et al., 2010).
JetBlue’s financial objectives & success in achieving
Although Jet Blue’s stock dropped by 50% in the five years, revenues grew 185% between 2003 and 2007, their operating expenses grew 222% during the same period. The loss in revenue was blamed on the cost of fuel (532% increase) and interest expense (658% increase). Jet Blue decided to take a conservative financial strategy in which they maintained high liquid ratios relative to the other major airlines (Thompson et al., 2010). Jet Blue was millions behind the competitor but developed new equity capital and credit, which was needed to keep the company, and allow them to maintain strong liquidity.
Assessment of competitive advantage
Cost. JetBlue operates at a lower cost than its competitors. According to Thompson, Strickland & Gamble (2010), JetBlue’s total operating expenses were 12.17 per revenue passenger mile in 2008 versus $18.18 for American Airline, $18.18 for Continental, $20.95 for Delta, $13.85 for Southwest, $19.13 for United, and $21.45 for US Airways. Its planes, such as, the Airbus A320, tended to be newer than those of its competitors resulting in lower maintenance costs and no maintenance-related fines. The company increased flying time by minimizing turnaround time. Reservation agents worked at home resulting in cost savings as compared to a traditional call center. These measures paid off creating a major competitive advantages in the form of low operating costs that other airlines did not achieve.
Organizational culture. JetBlue’s organizational structure was created based on five steps. First, the company’s values were determined. Then, hiring managers selected employees who mirrored the company’s values. Next, the company ensured that the company exceeded employee expectations and to listen to customers. And, finally, the company created a plan to drive excellence. The values established by JetBlue were safety, caring, integrity, fun, and passion. As an example, George Forman grills were set up at the JFK terminal to allow employees to have fun. By only hiring employees that mirrored those values, the company could encourage hiring managers to be creative during the hiring process and to weed out those that would not be a fit. By making these steps an active part of getting work done, JetBlue developed a strong organizational culture.
Human resource practices. JetBlue is a company with a strong focus on people. In anticipation of airplane pilot shortages they implemented Aviation University Gateway, partnered with universities to identify exceptional candidates, and implemented internship programs. They addressed a lack of confidence in JetBlue’s leadership by providing leadership development training. They developed an airline training center at the Orlando International Airport. To make up for paying employees a lower base salary than its competitors, they offered health coverage, profit sharing, and 401k retirement plans. They also avoided layoffs through voluntary packages and attrition. This focus on meeting the needs of its employees, growing talent, and creating a talent pool was essential competitive benefits that were very difficult to imitate.
JetBlue’s strategies for 2008 & beyond and likelihood of success.
In 2008, JetBlue adapted new strategies to re-evaluate the way its assets were used, reduce capacity, cut costs, raise fares, grow in select markets, offer services for business travel, form strategic partnerships, and increase ancillary revenues. JetBlue formed an alliance with Lufthansa to enable the company to use their terminals at JFK and signed a contract with Continental to provide LiveTV (Thompson et al., 2010). JetBlue reduced their capacity by selling nine aircrafts and reduced costs by delaying the delivery of 21 new aircrafts (Thompson et al., 2010). They reduced aircraft utilization rates, suspended service in some cities, and cancelled plan service in order to cut costs. After choosing Orlando to become a target market, they then raised prices – but to lower fares than competitors. Furthermore, they provided incentives to corporate travelers, entered into agreements with Expedia for leisure travelers and Travelocity for business customers, and with Aer Lingus to expand their reach internationally. To generate revenue, JetBlue created new fees, including a fee for a second bag and for select seats. Even with these strategies, the airline’s financial performance shows that they are falling short of expectations during the first six months of 2008 (Thompson et al., 2010).
However, 2009 was a successful year for JetBlue. The company was one of only a few to report four consecutive quarters of profitability in this year (JetBlue, 2010). A net income of $58 million was generated with an operating margin of 8.5% – which was an improvement of more than $140 million compared to 2008. They continued to have one of the strongest liquidity positions in the U.S. airline industry relative to our revenues. In addition, JetBlue generated positive free cash flow for the first time in its history. According to JetBlue’s 2009 annual report, these results demonstrated the benefits of JetBlue’s disciplined growth strategy, its focus on managing capital expenditures, rationalizing capacity, maximizing revenue, and controlling costs. Given that the company is prosperous in challenging times, it is likely that the company’s sound strategies and cash-rich positions will give the company longevity over the long term.
The purpose of this report was to examine JetBlue’s business strategy. Trends in the U.S. airline industry impacting crude oil prices, pilot shortages, and 9/11 aviation security measures. Overall, these trends, combined with a weak economy, caused airlines to struggle to survive. JetBlue has survived by a focus on bringing humanity back to air travel at low fares. They focused on providing value, customer service, and unique extras for customers. Employees benefit from training and a strong organizational culture. The business benefited from measures to cut costs and form lucrative partnerships. Presently, the financial reports of JetBlue showed that the company was outperforming its competitors in a recession making the company highly likely to be successful over the long term.
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