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Analysing issues of JetBlue Airways

3165 words (13 pages) Essay in Management

5/12/16 Management Reference this

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The purpose of this paper is to explore, analyse, and critically comment on issues about JetBlue Airways. The paper discusses how JetBlue has been successful in managing strategic change, as well as the firm’s approach to corporate social responsibility. Analysis is done on JetBlue’s organisational structure and also gives critical comments on how JetBlue has been able to compete against the already established Southwest Airlines. The strategic implications of their actions are elaborated.

TABLE OF CONTENTS

Introduction 4

CHAPTER 1: Managing strategic change 5

CHAPTER 2: Corporate Social Responsibility (CSR) 8

2.1 Philanthropic responsibilities 9

2.2 Ethical responsibilities 9

2.3 Legal responsibilities 9

2.4 Economic responsibilities 10

CHAPTER 3: Organisational Structure 12

CHAPTER 4: Strategies employed to compete with Southwest Airlines 13

Conclusion 16

References 17

INTRODUCTION

The airline industry is very much one of the leading contributors to a nation’s economy. Several factors could make or mar the possible success of any organisation in the airline industry. Issues bothering on financing, staff, government regulations, competitors, environmental and climatic conditions, and infrastructure could act as factors that can decide the fate of an airline (Rhoades and Waguespack (2005).

JetBlue Airways, being the creation of David Neeleman was founded in 1998 and made its maiden flight in 2001. Since then, the airline has been able to weather the storm and remain one of the most profitable airlines in the US (Feldman 2001; Dutta and Regani, 2003). JetBlue, which had an initial start-up capital of $160 million, now generates an annual revenue of about $3.3 billion (Dutta and Regani, 2003; JetBlue.com).

CHAPTER 1

MANAGING STRATEGIC CHANGE

Since the inception of JetBlue airways in 2001, the company has grown to be one of the most profitable airlines in the US. The company has managed to succeed and post profits in an era when most of the big names in the airline industry have suffered losses (Dutta and Regani, 2003). Other than Southwest airlines, JetBlue was the only airline to declare profits after the unfortunate events of September 11, 2001 attacks (Dutta and Regani, 2003).

Being able to meet and exceed customer expectations, while declaring profits have not been without its expected challenges. After David Neeleman jointly started a charter based operation in 1984, strategies implemented has seen a travel agency metamorphose to become one of the most profitable US airline (Feldman, 2001; Dutta and Regani, 2003).

The start-up of JetBlue was modelled on the already established Southwest Airlines (Judge, 2001; Dutta and Regani, 2003; Taneja, 2003), where they adopted a strategy of keeping cost low with no-frills, so as to increase margins. Obviously, adopting a no-frills and low-cost strategy to drive an organisation is not a guaranty for success. According to Judge (2001), “Your company’s survival may depend on the way you answer one question: SUDDENLY, THE WORLD CHANGES. First, it’s prosperity: Unlimited growth abruptly ends. Stark recession sets in. The stock market stops booming. Companies go bust.”

For an industry that requires enormous investments before you even transport your first customer, it obviously requires a lot of planning so as to have an edge over your competitors. This industry that has claimed the lives of some upcoming and already established airlines (Judge, 2001), it remains a dynamic industry with its accompanying challenges (Ma, 2004). Being able to survive and succeed in the airline industry will be a continuous process of making the right decision which should be well planned and also emergent (Bamford and Forrester, 2003).

David Neeleman, armed with a high profile CV and a fast growing reputation from the handling of Morris Air (Feldman, 2001; Dutta and Regani, 2003), raising funds for the establishment of JetBlue did not prove to be difficult as he had shareholders who had firm belief in him. (Dutta and Regani, 2003)

The decision to base JetBlue at John F. Kennedy (JFK) airport can be said to be very strategic. This is because of the little competition posed on the domestic routes, as a result of JFK airport serving mainly international flights (Dutta and Regani, 2003; Feldman, 2001). He also identified routes that had the least competition (Dutta and Regani, 2003). According to Sun Tzu, “to be able to take advantage over a competitor, you must be able to go by routes where he least expects you to go by, and also to be able to take advantage of positions he has made the least preparations for (Wu et al, 2004).”

JetBlue’s adoption of a customer-centric approach to service has been viewed by air travel pundits as very successful (Dutta and Regani, 2003; Gage and McCormick, 2003; Leberecht, 2004). Neeleman identified areas where JetBlue will benefit from and adopted an aggressive and cost cutting measure, eventually doing away with areas that only tend to increase cost but did not add value (Dutta and Regani, 2003; Leberecht, 2005). Offering standard treatment to all flyers, not serving food on board, providing individual TVs, use of leather seats with more leg room proved to be a success with JetBlue. This innovative approach endeared more customers to them as it reduced the total operating cost (Dutta and Regani, 2003; Leberecht, 2005, JetBlue.com). This has helped JetBlue to be able to control the pricing of the airfares downwards. JetBlue has been able to drop fares up to 40% of its local rivals while still offering business class services (Feldman 2001; Rhoades and Waguepack, 2005).

The September 11, 2001 attacks had a negative effect on air travel and obviously no airline was prepared for the unfortunate attack. The income generated by airlines during that period plummeted and hit an all-time low. During that period, David Neeleman vowed not to lay off any of the staff. The next big decision was how to talk to existing customers and also prospective customers (Judge, 2001). Less than seven months after the September 11 attacks, JetBlue inaugurated seven new flights to Florida, thereby increasing service by over 40% (Judge, 2001).

JetBlue started flight operations in February 2000, and by the end of the year it had carried over one million passenger’s thereby generating revenue of about $100 million (Feldman, 2001; JetBlue.com). By the second quarter of 2001, JetBlue had made a profit of $8 million making it the company’s tenth consecutive profitable month. JetBlue could boast a higher load factor than any other U.S. airline (Judge, 2001, Jetblue.com).

CHAPTER 2

CORPORATE SOCIAL RESPONSIBILITY (CSR)

According to Gainer (2010), corporate social responsibility (CSR) is a set of ideas about business practices that proponents of CSR hope to see implemented in the corporate sector. Corporate social responsibility (CSR) can be viewed as an unofficial contract between an organisation and the society in which it operates (Werther and Chandler, 2006). According to Werther and Chandler (2006), CSR should be part of a firm’s strategic perspective and operations because of the long-term benefit this brings to the firm. With regards to CSR, Carroll (1991) postulated the pyramid of responsibility which acts as a framework for corporate social responsibility. These constitute four kinds of responsibilities, namely;

Philanthropic Responsibilities

Ethical Responsibilities

Legal Responsibilities

Economic Responsibilities

FIG 1: Corporate Social Responsibility Framework. (Carroll, 1991)

Explaining how the responsibilities listed above are related with regards JetBlue Airlines and how these responsibilities have been approached;

2.1. PHILANTHROPIC RESPONSIBILITIES

It is important that organisations and its stakeholders participate in voluntary and charitable activities within their immediate communities. This should be done in a manner consistent with the philanthropic and charitable anticipations of the communities. At the moment, JetBlue supports more than 75 charities per month in the communities they operate (Jetblue.com). The emphasis of the support is on non-profit organizations with focus on children, education, communities and the environment (JetBlue.com). Most times the impact of organisations with regards to philanthropy is minimal as limited funds are being shared by many organisations.

2.2. ETHICAL RESPONSIBILITIES

According to Carroll (1991), it is important to prevent ethical norms from being compromised in order to achieve corporate goals. Good corporate governance should be defined as doing what is morally accepted. From JetBlue’s code of ethics, it clearly states the firm’s commitment to conduct business in an honest, lawful and ethical manner (JetBlue.com). Fortunately for JetBlue, they have not had issues to handle with regards to poor ethics on the part of their managers since its inception.

2.3. LEGAL RESPONSIBILITIES

Strandberg (2005) believes that corporate governance reforms has emerged as a critical business issue, thrust on the global stage by a number of high profile corporate failures. Legal systems in an organisation, imposes responsibilities on managers and directors so that they do not act carelessly and divert corporate resources for their own benefit (Reinhardt and Stavins, 2010). Also it is always right for organisations to put a system in place to check the legal implications of their staff actions and also the legal responsibilities to their customers.

JetBlue has had some legal issues in the past which was properly handled; a group of passengers on September 22, 2003, sued JetBlue for giving out their data to a contractor working for the US military. JetBlue’s actions violated its own privacy policy (Hunter and Goodwin, 2003). JetBlue had to apologize for its wrong doing.

2.4. ECONOMIC RESPONSIBILITIES

According to Russell (2009), corporate social responsibility (CSR) efforts are generally established to create goodwill for the company and generate more profits. In JetBlue, the economic responsibilities of the organisation are the responsibility of all the stakeholders which includes; the shareholders, credit providers, employees, airplane manufacturers and suppliers, communities in which they operate and the government.

JetBlue established a Washington, D.C., lobbying team even before the take-off of its first flight with the aim of seeking favour from the corridors of power (Feldman, 2001). With an initial start-up investment of about $130 million from shareholders (Judge 2001), JetBlue has grown to be a multibillion dollar organisation with a revenue $3.3 billion and assets worth $ 6.6 billion (Jetblue.com). JetBlue founder, David Neeleman admits, “I err on the side of low fares. I just want passengers on the planes (Feldman, 2001).” He’s confident that customers will always return once they have an experience of flying with JetBlue. 

CHAPTER 3

ORGANISATIONAL STRUCTURE

Organisational structure in itself has assumed several views and definitions from various sources. Foss and Klein (2007), believes that organisational structure is a design of organisation a firm uses in administration of the enterprise. Organisational structure is seen as a tool or model which is used to transmit knowledge, culture, and organisational processes within the hierarchy of an organisation. (Stock et al, 1999; Walczak, 2005; Foster and Washington, 2009)

This chapter is concerned with how organisational structure relates with JetBlue airways. A good organisational structure is seen as the base for knowledge management and enterprise success, and it also acts as the driving force for the success of an organisation (Jensen and Meckling, 2000; Walczak, 2005; Foster and Washington, 2009). There are various types of organisational structure, and these includes; Bureaucratic structures, Post- bureaucratic structures, Functional structures, Divisional structures, Matrix structures, team structures and network structures (Bartol, et al, 2001).

Since the launch of JetBlue in 2000, the company has grown in leaps and bounds with the application of internal branding as the foundation of its operational model (Leberecht, 2005). JetBlue has been able to use information technology to its advantage, as it has made it easier to work with a lean work force (Dutta and Regani, 2003). Information technology has made JetBlue closer to its customers and also having few staff has allowed the company to take better care of them (Dutta and Regani, 2003). To support this customer focussed approach, JetBlue is very meticulous with its employment process (Dutta and Regani, 2003) and it employs people who are very service oriented and liked interacting with others (Tahmincioglu, 2005).

JetBlue’s organisational structure is structured in such a way that the head of the hierarchy is the President/ CEO (JetBlue.com). This position was held by the founder, David Neeleman until May 10, 2007 when he handed over to Dave Barger. He heads two vice presidents – Rob Maruster (Chief operations officer, COO) and Robin Hayes (Chief commercial officer, CCO) (JetBlue.com).

The major functions covered by JetBlue are divided into various categories, namely;

The logistics arm which is divided into two – Inbound and Outbound logistics.

The marketing and sales arm – includes independent customer service operatives (Dutta and Regani, 2003)

The operations arm and The service arm.

Each of these listed functions is structured to support other departments that includes; the human resource department, the procurement department, the technology department as well as the infrastructure department (Bill, D., 2007; JetBlue.com). JetBlue’s organisational structure is positioned in such a way that it has offices spread in the districts covered in the US (JetBlue.com). All the various functions listed above eventually report their activities to the central office which makes decisions on organisational issues (Bill, D., 2007; Jetblue.com)

This style of organisational structure could be said to be a matrix structure that combines both functional, divisional and network style of structures (Bartol et al, 2001).

FIG 2: Organisational Chart of JetBlue

CHAPTER 4

STRATEGIES EMPLOYED TO COMPETE WITH SOUTHWEST AIRLINES

Southwest Airlines transformed from the name Air Southwest, which was already an existing company (Southwest.com). Air Southwest was established in 1967, but had a long standing legal battle from other rival airlines who sought to stop the airline from taking-off fully. Eventually, Air Southwest won the legal battle and by 1971, the name was changed to Southwest Airlines (Southwest.com).

Southwest Airlines was designed to be a no-frills, low-cost carrier and it had its maiden flight on June 18, 1971 (southwest.com). Some prominent low-cost carrier airlines in the US include; Airtran, American West, American Trans Air, Delta Express Song, I-Jet, Frontier Airlines, Midwest Express, Spirit Airlines, Sun country, and USA-3000 (Dutta and Regani, 2003). Thirty years after the inception of Southwest Airlines, JetBlue Airways was launched (jetblue.com).

For JetBlue Airways, coming into a terrain that was already saturated with already established competitors, it had to adopt a people oriented strategy to be able to penetrate the market. JetBlue Airways was modelled on Southwest Airlines (Dutta and Regani, 2003; Wharton, 2006) who became a cost leader by cutting down on unnecessary and wasteful expenses. In the words of the current president, David Barger “We have taken some aspects of Southwest. Why? Because they work! There’s no pride of authorship there (Tahmincioglu, 2005; Wharton, 2006).”

JetBlue started off with the Southwest model which involves;

Operating one-class of carrier that offer equal treatment to all passengers

Meals not being served on-board the aircraft

Tickets normally booked ahead of schedule

Going for point to point trips instead of making long haul flights.

All this was to reduce operating cost so as to be able to slash the airfares (Dutta and Regani, 2003)

The question now is – What did JetBlue do differently to be able to compete with the already established Southwest?

According to Sun Tzu, “War is such that the supreme consideration is speed. This is to take advantage of what is beyond the reach of the enemy, to go by way of routes where he least expects you, and to attack where he has made no preparations (Wu et al, 2004).” For David Neeleman, he knew that for JetBlue to succeed, he had to find a market with fewer competitors. That approach motivated JetBlue to acquire smaller airplanes that will serve markets with less competition (Feldman, 2001; Wharton, 2006). David Barger, believes that despite the inefficiencies of smaller airplanes, it allows JetBlue to exploit markets that Southwest and other low-cost carriers were not in (Tahmincioglu, 2005; Wharton, 2006).

A major point of JetBlue’s success can be attributed to its customer-centric approach as it has always strived to please its customers (Dutta and Regani, 2003). In a bid to reduce cost, Southwest won’t allocate seats to customers but JetBlue does so and this particular move has endeared JetBlue to the customers (Wharton, 2006). Also while Southwest has refused to diversify its fleet and flies only one aircraft model to avoid complications, JetBlue flies two different models. (JetBlue.com, Wharton, 2006)

In the aftermath of the September 11 terrorist attacks, JetBlue was the first airline to introduce safety measures in planes which other airlines sought to follow afterwards (Dutta and Regani, 2003). JetBlue was also the first to introduce the concept of paperless cockpit by providing laptops for its pilots for ease of accessing flight manuals. (Dutta and Regani, 2003).

In an industry infamous for making losses and failure to deliver despites putting all the necessary indices in place, JetBlue has succeeded by mainly differentiating itself from other airlines by the quality of service delivery even at a low cost (Dutta and Regani, 2003; Lawton et al, 2007). The quality of service includes provision of satellite TVs for all customers, providing leather seats with more leg room which proved to be a good point for differentiation (JetBlue.com). According to Dutta and Regani (2003), JetBlue succeeded because of its cost advantages and no-nonsense approach to business.

Applying a VRIO analysis to JetBlue

Value

JetBlue as a brand has proven to be a profitable organisation, and one worth investing in.

Rareness

The brand does not prove to be rare.

Imitability

The brand and service delivered can easily be imitated by competitors.

Organisation

The JetBlue organisation has proven to be able to be able to take advantage of the brand and explore the available opportunities.

The competencies above go to show that JetBlue is well positioned and the strategies adopted are good and can be a source of temporary competitive advantage (Barney and Hesterly, 2010)

.

The story of JetBlue when compared with that of Southwest airlines can be attributed to the motivating strategies employed. Both airlines have a thorough and proactive vision that is channelled towards customer satisfaction and serves to act as a business model to all stakeholders involved (Lawton et al, 2007).

CONCLUSION

JetBlue’s success can be attributed to its cost advantages and no-nonsense approach to business which attracted and kept passengers, as well as keeping the airline in business in times when other major airlines were folding up. The airline was able lower its operating cost without compromising on the quality of service delivery. One of the most distinguishing factors in the success of JetBlue was the ability to identify the opportunities in the market and take advantage of it. (Feldman, 2001; Dutta and Regani, 2003)

JetBlue’s success will obviously prove to be a model for other airline carriers to emulate as it has been one of the few start-ups to have succeeded in the US airline industry. (Dutta and Regani, 2003)

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