Article Reviews

Jetblue vision Essay

Posted on

Vision and Mission
On page 53 JetBlue’s vision is explained. Their vision is to be the best in the low-cost airline industry while providing the comfort of home (pg. 53). Moreover, JetBlue’s mission is: to offer business passengers and price conscience consumers of the airline industry the comforts of home at low costs, while maintaining their core values of fun, passion, integrity, safety, and care, Corporate Level Strategy:

Low Level of Diversification – Dominant business
On page 73 a balance sheet of the company is shown. Here it illustrates that 1,527 million dollars of revenue are generated from their passengers, while only 148 million dollars are generated from other revenues. However, recently JetBlue has begun contracting out, LiveTV, a complimentary service that they purchased to other competitors. This may explain the increase in other revenues from 91 million the year prior. This small step towards diversification has helped offset the decline the company faced from the revenues they were making off their passengers. Reasoning for Current Diversification

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

The company is relatively new in the airline industry. Since 2003, JetBlue has grown with an average of more than 70 % each year. Throughout its few years of rapid growth, the company has diversified its services in providing its own Live TV, satellite radio, leather seats, its own software for electronic ticketing, etc. JetBlue has also built and sustained a strong financial core, however its capacity is still to be determined. The positive financial growth provides the company with an opportunity to acquire other companies that have complementary services. However major events such as current economic and fuel price fluctuations hinder the airline’s industry’s growth. JetBlue may have to increase its costs and implement more fees in order to sustain its growth and compete on bigger scale. Business Level Strategy:

Integrated Cost Leadership/ Differentiation Strategy
JetBlue’s initial goal upon inception was to become the ultimate discount airline carrier by offering customers low fares in comparison to industry standards. The company intended to target 8 million people in a five mile radius around JFK. The company also offered their passengers snacks instead of full meals allowing them to save on operating costs, passing on the savings to their passengers with the lowest prices. As the company grew, they began to realize a new target market; young affluent professionals. Throughout the years the company maintained low ticket prices relative to their competitors in the industry however third parties are now offering discount seat prices for flights that haven’t reached full capacity. The company began to diversify after successful years of growth by offering its customers a wide range of free and paid extras. This includes the following: Dunkin’ Donuts aboard flights

In-seat satellite television, satellite radio, instant email and messaging services while in air and leather seats for all customers Payment of flights using Paypal
Yoga cards for customers to practice while in their seats
Tracking options via Google for passengers to track their flights Private massages, manicures, hair styling services at JFK Terminal 6 The impact of the rise in fuel and oil costs resulted in an increase in ticket prices, although they remained much lower in comparison to their fiercest competitors. To maintain their integrated cost leadership and differentiation strategy the company knew that in their future they must: 1. Re-evaluate the ways the company uses its assets

2. Reduce capacity and cut costs
3. Raise fares and grow in select markets
4. Offer improved services for corporations and business travelers Problems/ Issues:
Rising fuel costs are lowering JetBlue’s bottom line
JetBlue is faced with the task of developing new ways to save fuel and reduce carbon emissions US economy has declined in the recent year
Shortage of pilots, “The International Air Transport Association estimated that the global airline industry needed 3,000 more pilots each year then
training schools were providing.” Virgin America entered the market and has in turn increased competition. Downward spiral stock prices dropping from 12.99 per share in 2007 to 3.97 per share in 2008. The General Environment

Demographic Segment
JetBlue appealed to young individuals with Manhattan zip codes who desired to get out of New York, as well as the large population base of people who wanted to get in. Individuals with a higher disposable income were the usual target of airlines; however JetBlue is a discount airline, thus attracting individuals with a lower disposable income as well. Economic Segment

Price of one of the priority resources for the industry (Jet Fuel) has been steadily increasing, and thus has been challenging the entire sector to change the way they manage their funds. The economy itself has seen a sharp incline in prices across the board, thus making it harder and harder for a discount airline to remain just that, a discount. The price that extra congestion brings to the market was roughly $50 million in 2007 at JFK alone, and these kinds of costs are the ones that affect airports and airlines the most. Political

The airline industry has been becoming more and more competitive through the years as more investment opportunities have become available. This has led to the need for specifically trained individuals, which lead towards many companies, such as JetBlue, starting and running their own universities to capture these candidates before other airlines can. Sociocultural

There are a large percentage of women in the workforce for the airline industry due to the large number of flight attendants needed, and the other positions that can be filled by trained individuals. JetBlue wages are lower than the rest of the competitors in the industry, but they provide higher benefits for their employees. Environmental concerns are always a factor for businesses, especially when the use of fossil fuels is involved. This is why it is not only socially acceptable, but also economically wise to figure out ways to use less jet fuel. This includes the airlines decisions to only use
one of the engines when they are grounded to move them around. Technological

There are constant technological changes happening in the airline industry, especially when it comes to the manufacturing and usage of jet fuel, as well as changes to the airplanes themselves. The way flight reservations are done is constantly adapting as well, in the case of JetBlue going from large call centers to in house reservation agents to save costs on paper tickets, postage, and rent for office space. Global

The Bush office attempted to take control of the JFK airport to ensure that the air space was used more efficiently and so that costs could be lowered. The actions by the U.S. forced the airlines to work together more so that they could improve the airspace for all customers and businesses. The actions also forced the airlines to not have more than 83 takeoffs per hour. Porters Five Forces

Threat to New Entrants: Low
Market is matured and not a fast growing market. New entrants would have to steal market share from existing firms. Rivalry amongst existing firms is very intense making the industry unattractive to potential new competitors Extremely high initial investment needed to enter the airline industry Bargaining Power of Suppliers: Low for Planes, High for Fuel There are four commercial aircraft suppliers in the industry: Boeing, Airbus, Embraer, and Bombardier. Combined they produce less than 1000 complete planes a year. Therefore, the suppliers compete with each other on contracts and try to offer the lowest price possible. Fuel costs have a significant impact on the profits of an airline yet they have no influence over the pricing JetBlue has no say on the price of fuel, they need it. However, JetBlue can engage in some long term fuel agreements to mitigate the change in fuel prices. Bargaining Power of Buyers: High

Customers look for the lowest costs or the best service, they determine what they are willing to pay and play a huge role in which company will get their money. Switching costs are low with the exception of rewards programs which offer certain rewards for being loyal Internet has made it easy for
customers to find cheap last minute seats. Internet has also made it easier for customers to compare prices of JetBlue and its competitors. Threat of Substitute Products: Medium to Low

If costs are high other modes of transportation for shorter distances (Automobile, Train & Buses) Planes are much faster than boats across oceans. Additionally, if the passenger is in New York and they wanted to go to Australia they would have a lot of land in their way. Low switching costs between available substitutes

Intensity of Rivalry amongst Competitors: High
Mature industry means slow growth, therefore all the competitors are fighting for each other’s market share Many Airlines in the industry intensely compete for market share with relatively the same services offered The Airlines also are quick to respond to others attempts to take their market share New technologies increase the customers’ ability to compare prices, i.e. the Internet. This makes having low prices very important and hard to maintain External Conclusions

The competitive environment is extremely competitive.
There are many mergers and acquisitions
High jet fuel prices are continually a hindrance to the profit margins of the competing firms. Very little opportunity for above average returns.
Very high capital requirements.
SWOT Analysis
Strengths
Low operating costs
Brand recognition
Employee benefits which leads to employees exhibiting passion for the work they do at JetBlue which in turn also leads to higher efficiency and employee morale Double plane system
Weaknesses
JetBlue doesn’t services as many locations as some competitors Shortage of pilots, thus increasing in labour costs
Weak upstream and downstream communication system
Opportunities
JetBlue financial position is strong, so there is sufficient amount of resources to expand domestically and internationally. Increase number of services
Joint Ventures
Threats
Terrorism
Fluctuation in fuel prices
Formation of labour unions
Severe weather conditions causing delays
Other competitors domestically and internationally and new entrants

Activities
Inbound Logistics
Focus on smaller markets and large metropolitan areas, using airports with less congestion of planes, reducing plane waiting time. Partnering with larger planes to provide connecting flights Operations

In order to keep costs down flight attendants stow passenger’s carry-on bags and coats instead of the passengers. Everyone on JetBlue flights, including pilots and passengers, helped clean the plane of trash at the end of each flight. Through the use of technological development JetBlue is able to find out where their costs can be cut without effecting level of service by using one engine. Instead of two to taxi on runways, installing wing fins to minimize drag, fly at slower speeds to reduce the fuel burn rate, and carry less fuel on long flights to decrease weight, along with flying at higher altitudes where the air is thinner meaning the planes have less resistance. Outbound Logistics

JetBlue.com sales went from 28.7% in 2000 to 75.7% 2007 due to the increases automation in e-tickets becoming an industry leader in reducing travel agent commissions. JetBlue hired full-time reservation agents to sell tickets over the telephone. In 2007 JetBlue opened a new terminal at JFK airport which would allow greater convenience and efficiency for scheduling boarding’s and takeoffs and thus reducing costs. JetBlue developed a mix-and-match strategy
that could provide a better service for travelers because the new plane had 100 seats compared to 150 seats so it could be deployed more frequently with fewer passengers. Marketing and sales

Low cost animated TV ads and American Express loyalty cards, word of mouth. JetBlue utilizes customer feedback.
JetBlue uses internet and other third parties to facilitate its tickets sales Service
Simple reservation system, ticketless travel, leather seats, pre-assigned seating, extra leg room, complimentary lunch or snacks, satellite radio and TV. Issuing vouchers in case of things going bad to keep customers pleased. Less seats so there is more space for passengers legroom and comfort Based upon points program, customers get free tickets

More working hours, better on-time performance, fewer mishandled bags and customer complains, thus an exceptional customer service Resources
Tangible
Physical
134 aircraft owned and leased
9,909 full-time equivalent employees
Financial
Total Assets to total debt ratio is 1.83. Strong borrowing capacity. Positive cash flow of $ 358 million dollars. The company is generating sufficient funds from its cash flows. Organizational
Discount airline carrier
Serves only snacks and maintains quick turnaround times
To save time, flight attendants carry-on bags and coats in the overhead bins Everyone is responsible for the garbage collection after each flight Reservation agents can work from home
Crew members can consult with land-based emergency physicians Technological
Security check point that can accommodate 20 lanes
Baggage system can process up to 40 bags per hour
Satellite Entertainment system
Open Skies software for electronic ticketing
Intangible
Human Resources
Friendly work environment
Respect and understanding, passion and carrying in times of crisis (9/11) and economic downturns for both customers and employees Employees demonstrate passion for work and the company’s products Managers hire employees who mirror company’s values

Creativity was implemented in the hiring process
Lower base salaries than competitors
Innovation
Implement e-mail and messaging on places
Ability to immediately contact doctors in medical emergencies Lower costs on plane fuel
Partner up with variety of companies providing variety of services. Those services are used in conjunction with JetBlue’s Ability to serve customers faster
Reputation
Discount airplane brand
Airline on-time arrival service is 80 % – higher than the average of the industry JetBlue is perceived as a brand that listens and pleases its customers Strong relationships with companies providing services to JetBlue Core Competencies

A core competency must possess four characteristics: Rare, valuable, costly to imitate, and organized to be exploited. Under these criteria JetBlue has three main core competencies. Possible CCs
Valuable
Rare
Costly to Imitate
Organized to be Exploited
Competitive Consequences
Performance Implications
Double Plane System
?
?
?
?
Competitive Advantage
Above-Average Return
Employee Benefits
?
?
?
?
Sustainable Competitive Advantage
Above-Average Return
Low Priced Tickets
?
?
?
?
Competitive Advantage
Above-Average Return
Flight Planning
?
O
?
?
Competitive Advantage
Average Returns
Customer Service
?
?
?
?
Competitive Advantage
Above-Average Return
Marketing
O
O
O
?
Competitive Parity
Average Returns

Since the Double Plane System, the Employee Benefits, Low Priced Tickets, and Customer Service meet the four criteria they are considered core competencies. These therefore create Above-Average Returns for the firm. The remaining categories only create average returns. 1. Double Plane System

Under this system JetBlue is able to send either Embraer 190 planes or Airbus A320s. The Embraer planes hold 100 passengers, 50 less than the Airbus. This allows the company to be more adaptable to the demand and better fill their capacity. Other competitors are stuck with only 1 plane this. This helps them be standardized but increases the risk that the planes don’t fill enough capacity to be profitable. Smaller firms cannot have multiple types of planes and thus lose out on this benefit 2. Employee Benefits

JetBlue pays their employees less but offer better benefits. These benefits build long lasting relationships with their employees and would cost their competitors more if they tried imitating this. Building these relationships increases the chance that the employees of JetBlue are knowledgeable, since they have less turnover rate. 3. Low Prices

JetBlue offers their services at lower prices than the average. Their main competition charges much more for their seats and thus would be very costly to imitate JetBlue. JetBlue uses this as their basis for business therefore customers know that the prices at JetBlue will always be cheap in regards to the competition. Building this reputation is very valuable to the overall business because it helps drive sales. Internal Conclusions

JetBlue has several competitive advantages however many of these may be fleeting. JetBlue needs to work on continually improving these sections to ensure that they remain relevant and continue to generate value. The double plane system provides JetBlue flexibility that allows them to control their
costs. Additionally, the company has an asset to debt ratio of 1.83. This means that the firm has a good chance for financing. With this knowledge, the below alternatives have been proposed. Alternative 1

JetBlue has expanded extremely quickly but needs time to consolidate the growth that they have seen. Therefore, the company should scale back its rapid growth plan. The case explains how the costs have surpassed their control tests and can be reduced. Moreover, they should sell the used planes that are no longer necessary. The company offers unprofitable routes that could be removed. However, JetBlue first needs to determine if cutting these routes would be more beneficial to them than it would their competitors. Additionally, the company needs to focus on training their employees, with the use of cross training. Doing this will help to build the communication between employees. This has proven to be a clear problem with the company and needs to be addressed. Pros

Builds corporate culture
Increases profitability, but will decrease revenue.
Reduces excess fuel costs
Cons
The loss in clientele might make the flight profitable for a competitor and this would mean JetBlue is literally handing their revenues to a competitor. Alternative 2
The second alternative is find ways to lower costs. The main cost that JetBlue faces is fuel costs. The costs of fuel are also known to fluctuate. Therefore, JetBlue should enter long term fuel purchasing agreements. This would set the price of the fuel for an extended period of time and make the costs more estimable. Pros

Allow the company better control over their cash flows and build on their core competencies Improve communication channels between their employees would also reduce some secondary costs while also making the firm more competent in the market. Cons

The costs may be overestimated when setting the price for fuel and the firm
may end up paying more than they would have had to if they didn’t set the limit in the first place. Alternative 3
The third alternative is to focus on new technologies to increase ticket sales. People are purchasing products in new ways, primarily the internet. As the case describes the company sells over 70% of their seats on their website. However, most customers nowadays purchase their seats from third party websites looking for deals and low costs. JetBlue should sell their tickets on these websites. They should also look into planes that are most fuel efficient, and more economical. Pros

Allows the company to increase their reach points with their customers Allows the company to be visible by new clientele
Cons
Old system would lose attention
Recommendation
The company has expanded extremely quickly, hasn’t updated its point of sale strategies, and allows the costs to fluctuate on them making doing business extremely harsh. Therefore, we recommend that they focus on consolidating growth that was mentioned in the first alternative, while also capping the fuel costs and using third parties to sell tickets. This will increase the number of ways customers can purchase their seats and always increase the company’s overall reach. Capping the fuel prices will allow for the company to estimate their costs ahead of time and not have to be victims of the market. JetBlue has a core competency in the offerings they give to their employees, but for JetBlue to be able to turn this into a competitive advantage their employees need to be knowledgeable and therefore more useful to the organization. Therefore, JetBlue should also implement cross functional teams to build this knowledge and culture. Plan of Action

Based on the recommendation above JetBlue should look at the current prices for fuel and forecast the future prices. From that they can come up with a reasonable set price that they are going to pay for the year or years to come. Once they know this cost they can better determine their overall costs. The company should also begin talks immediately with third party websites. JetBlue should then test out selling different kinds of flights on
these services and see which are more successful. Once the test has ended they should analyze the results, if the results are positive JetBlue should continue the partnership with the third party websites. Finally, JetBlue should focus on training their employees. This can be done in house or with a third party team that trains employees to become more knowledgeable. First, a plan should be set in place determining what kind of knowledge each position should require. Should a flight attendant also know about the local culture of the place the flight is going to? Should the baggage check employees know where the washrooms are in the Airport? These are questions that need to be addressed. Once each positions requirement has been determined they can then communicate the goals to the employees. Communication is key. It is what will drive the business forward. Building relationships with the employees will trickle down to the customer and to other third parties. It will better our reputation and as the case explains with “The Valentine’s Day Ice Storm at JFK” scenario, reputation is everything in this business.

Bibliography:
– Hitt, Ireland, Hoskisson, Rowe, Sheppard. Strategic Management: Competitiveness and Globalization Concepts. Nelson Education, 2009. – Rovenpor, Michel. JetBlue Airways: A Cadre of New Managers Takes Control. Manhattan College, 2008.