Case_Analysis_-_Jetblue_Airlines

Introduction JetBlue is the brain child of David Neeleman born in Sao Paulo, Brazil but raised in Salt Lake City, Utah. Since its inception in 1999 David Neeleman and JetBlue have based their business model on the premise of providing high-end customer service at low-end prices.(1) This business model has overall been successful for the airline in this highly competitive market. Despite the events on September 11, 2001, the day that changed air travel forever, JetBlue experienced 18 consecutive quarters of profit after that fatal day. (1) The strategy that David Neeleman and JetBlue infused in the business model of “high-end customer service at low-end prices” was a smaller but more productive workforce, automation of certain company processes, better use of available technology, and the decision to standardize their aircraft with new airplanes - the Airbus A320. The decision on a single model of plane would also help to reduce maintenance and training costs that are usually increased with multiple types of aircraft.(2) The aircraft themselves were reconfigured to provide a single class for all passengers, with all leather seats, wider leg room, TV monitors for each seat, free entertainment with 36 channels of LiveTV, 100 XM radio stations, a movie channel from FOXInflight, and free all you can have drink and snacks.5 JetBlue also serves mostly domestic travelers in smaller, less congested airports to improve turnaround of its flights. Quicker turnaround of the aircraft equals more flights which in turn increases revenues. JetBlue has a strong differentiation with its business model and strategy of high-end customer service at low-end prices but that differentiation can be easily imitated by other existing airlines or new entrants into the industry. With this opportunity in mind, I will be looking at JetBlue’s strategy to determine what recommendations we could provide to strengthen their core competencies and business level strategies to assure that their differentiation stays strong and JetBlue adapts to the ever changing external environment of the airline industry. Competitive Environment The deregulation of the airline industry in 1978 opened the industry to several new entrants to provide a low-cost, low-price service to customers. Southwest Airlines entered the market in 1971 with the same business strategy as JetBlue but with one big difference, low-price but not so high-end quality.(1)(5) Major airlines operate on the hub-and-spoke route system with most flights being between hubs, larger cities, while working with regional airlines to move passengers from spoke airports, smaller cities, to hubs and vice versa. Low-price airlines operate on a “point to point” system and have their own route system. Hub and spoke route systems can be very costly involving a larger workforce and increased technology demands. The events on September 11, 2001 and the economic downturn in the late 1990’s have also severely affected the airline industry. The demand for air travel dropped significantly and the lost in customers and revenues was felt by most. This caused major carriers to reduce prices and thus closing the gap originally seen between low-cost and traditional airlines. The advent of online reservations for the airline industry has also closed the gap between low-cost and tradition airlines with the ability of the customer to search for the lowest fare available for their destination thus this heightens price competition.(5) The main points of competition within the airline industry are pricing, customer service, routes served, flight schedules, types of aircraft, safety records, reputation, in-flight entertainment systems, and frequent-flier programs. These points tend to be the areas that effective business strategies will concentrate on to entice customers to utilize their airline. Five Forces Evaluation The threat of new entrants is low. The deregulation of the airline industry in 1978 opened the door for many new entrants into the industry, but to make it in today’s market is very difficult. Start up costs within the airline industry can be very expensive even when only taking into account the human and equipment capital needed to support the airline. Brand identity is also very important for most companies but for the airline industry it is crucial because brand identity represents the airlines safety, reliability and cost. Larger and established airlines have greater economies of scale with negotiating power with suppliers to reduce costs of supplies thus reducing the price of their fares.(1)(2) The power of the buyers is very high. There are no switching costs involved with customers switching to another carrier. The advent of online reservations gave the customer the chance to compare airlines to one another and select the carrier with the lowest fare to the destinations they desire. Incentive programs within the individual airlines have also made it easy for the customer to review which rewards programs are better suited to their needs along with the ease of participating in those programs.(1)(2) The power of the supplier is also very high. The current political issues that we are seeing in Egypt will definitely have an effect on oil and gas prices. This in turn will affect the airlines; increase in fuel costs will affect fare pricing. The increase in fuel costs may limit the supply of fuel and could limit the number of flights scheduled per day thus impacting revenues to the company. The supplier of aircraft is limited to two main suppliers, Airbus and Boeing. Selection and pricing could be limited and not up for negotiation of reduced pricing for aircraft. (1)(2) The threat of rivalry is high in the airline industry. You have a number of competing major and regional airlines in business today and the switching costs are very low between airlines. New bankruptcy laws are also allowing failing companies to continue to operate and provide services to potential customers. (1)(2) The threat of substitution is high in the fact that there are alternate methods of transportation including highway, rail, and water. Switching costs between these substitutes can be high but relatively low for short distance trips. (1)(2) Organization Core Competencies JetBlue’s core competencies consist of hiring and training the right people along with lean and progressive use of technology.(4) In any industry the workforce can make or break your company, so JetBlue invested in its training programs to provide all the needed education to the workforce to empower them to succeed. JetBlue also provides perks for their employees to promote a positive work environment such as a no-layoff policy, profit sharing, and a non-union environment. Effective communication is another core competency of JetBlue; communication lines are always open throughout JetBlue’s organization from the top down. CEO David Neeleman promotes effective communication by talking to customers on flights, working side by side with crew members and interviewing pilots.(1)(4) Customer Service is a top priority for JetBlue, all employees are empowered to answer any question a customer may have, if they cannot answer the question they will find someone who can. (1) JetBlue also offers in-flight television, satellite radio, and leather seats for every passenger. (1)(4) Technology is also a core competency with online flight booking, electronic ticket kiosks, paperless cockpits that allow quicker turnover of flights. JetBlue tries to be as paperless as possible to reduce costs and be environmentally friendly. (1) The sustained competitive advantage that JetBlue holds is its core competencies of the ultimate customer experience - hiring and training of a customer focused workforce, level of customer service that all passengers are treated the same not placed in classes and receive attention based on class; in-flight perks that are a specific niche to JetBlue and cannot be easily duplicated within competitive airlines; the use of technology to emphasize the ultimate customer experience while protecting the environment as well. SWOT Analysis Strengths that are identified in JetBlue are a low-cost strategy that JetBlue utilizes to gain a customer base focused on a low cost with high quality product. JetBlue also has a strong brand associated with the company. While that brand could be emphasized more, the reputation of a low cost - high quality product is definitely in the public eye. JetBlue embracing advanced technology in online reservations, online ticketing, flight crew operations, and baggage handling just to mention a few. Technology also made it into the aircraft with redesigned seating to all leather seats providing additional legroom for comfort. In-flight amenities include LiveTV, Satellite Radio and unlimited snacks and non-alcoholic beverages. JetBlue was the first airline to develop a customer’s bill of rights. After an unfortunate chain of errors following a snow storm where customers had to sit in an aircraft waiting for departure for several hours while the airline was not able to reprocess the delayed and cancelled flights the company developed a customer bill of rights to provide a mechanism to right wrongs done to customers in similar situations. JetBlue employs effective hiring and training processes to ensure that right people are employed to maintain their ultimate customer experience philosophy. The company has also won several prestigious customer service awards for their ultimate customer experience of offering a low cost product while providing a high quality service. JetBlue helped with lowering operational costs of maintenance and training by choosing to standardize their aircraft fleet with new Airbus A320’s and later with the addition of the Embraer for low volume flights. Weaknesses seen in JetBlue are that they are a relatively new company so they are lacking a committed customer base. JetBlue also chose to avoid the hub and spoke model of competing airlines, choosing to stick with the spoke airports to reduce the crowds and high potential of delays seen with hub airports. That decision has limited the number of states serviced by JetBlue, concentrating on the East and West coasts with very little Midwest coverage. JetBlue has added international flights to their schedule but they mostly serve the Central and South American countries as well as the Caribbean. Opportunities seen with JetBlue include increasing the domestic and international routes offered by the airline. The U.S. is a very strong market and the company should look at adding additional routes to the Midwest as well as the realm of the Pacific Northwest. Internationally the Asian market is booming, particularly in China, and opportunities exist in that market for international growth. A good possibility for Jet Blue is to form a joint venture with an established international airline to gain entrance into the global market. Threats that JetBlue faces include, of course, the ever present economic downturn that threatens all airlines. Oil pricing is another threat that has the potential to drive operational costs through the roof and ultimately affect revenues, as well as the possibility of adding new domestic and international routes. JetBlue takes great pride in their customer focused workforce. The workforce is currently not unionized so the threat of unionization can be a challenge to top management in JetBlue in an industry where most of the workforce is unionized. A threat does exist with competition from other airlines. JetBlue did copy Southwest’s low cost fares and while Southwest has had a hard time copying the amenities that JetBlue provides to its customers that does not mean they cannot find alternate ways to achieve that same level of quality. So the threat of other low cost airlines providing the same level of service does exist. Business-Level Strategies The cost leadership and product differentiation that helped JetBlue to focus on a specific niche is what the company has done from the beginning; provide a low-fare option with high quality amenities to provide the customer with the ultimate flying experience. Thriving as low cost carrier alone would be hard to maintain in an industry with Southwest Airlines as a competitor so JetBlue differentiated itself with additional perks for the customer that the other low cost airlines would have difficulty providing, such as all leather seats, one class, increased leg room, televisions for every seat, LiveTV, satellite radio, and unlimited snacks and non-alcoholic beverages. But to be able to provide those perks the company had to reduce costs. JetBlue embraced technology to reduce costs to be able to provide perks for their customers. Paperless systems for ticketing and flight crew operations; online booking to eliminate booking centers and the overhead associated with that infrastructure; standardization of aircraft and effective hiring and training processes to reduce labor costs associated with labor turnover. JetBlue also chose to not use the traditional hub and spoke airport model and utilize a spoke only approach to avoid high space rentals along with delays and congestion seen in hub airports. This provided the customer with speedy and efficient arrival and departure processes adding to the ultimate flying experience. The challenge for JetBlue will be keeping operational costs down to provide a low-fare service while expanding routes and services domestically and internationally.(1)(2)(3)(5) Recommendations with Implementation Plans The analysis of JetBlue as provided some opportunities for the company to improve business strategy. First recommendation would be to increase domestic and international routes to increase market share. Implementation of this recommendation would be to evaluate the feasibility of a joint venture with a larger carrier to increase domestic and international routes while providing the same level of customer service and perks the JetBlue customer is expecting. Secure more spoke site airports to provide service to Midwest and Pacific Northwest domestic routes. Enter the Chinese market with spoke airport service for most of the mid to large cities in the multiple Chinese provinces. Second recommendation would be to invest some time and money on advertising to firm up the company’s branding. Implementation would be to explore other markets instead of the middle class customer. The business class customer will be a huge market to tap into with lower costs of airfare that companies would like but providing the same level of customer service the typical business person is use to with the larger carriers. Provide funding to the Marketing department for mass adverting of the “Ultimate Customer Experience” to target business class, as well as the low to upper class customer of the low-cost with high-quality product provided by JetBlue. Third recommendation would be to seek alternatives for escalating oil costs. Work with fuel corporations and company financial forecasts on hedging fuel pricing to reduce those associated costs. While hedging is a game of chances if the company foresees escalating fuel costs hedging fuel pricing for a period of time can save the company over time. Conclusion JetBlue is a strong emerging company utilizing some basic but unique cost leadership and differentiation strategies to provide a unique product for their customers. The challenge for JetBlue is to maintain their effective core competencies of success but expand their market share while remaining competitive and unique in the airline industry. With strong leadership and a customer focused workforce JetBlue can become the premier low-cost with high-quality airline carrier. References: 1. Hugo, D. (2008, October). Case study: Jet blue plane company. Retrieved from http://www.associatedcontent.com/article/1075407/case_study_jet_blue_plane_company.html'cat=3 2. Jet Blue Airways Competitive Analysis. (n.d.) Retrieved from http://hubpages.com/hub/analysis_of_business_organizations 3. Burrus, D. (2003, November). Creating and sustaining competitive advantage. Retrieved from http://www.smallbusinessadvocate.com/small-business-articles/creating-and-sustaining-competitive-advantage-520 4. Lombardi, V. (2005). Where the rubber hits the road: Leveraging strategic delivery points. Retrieved from http://www.managementinnovationgroup.com/docs/MIG_DeliveryPoints.pdf 5. Dess, G. G., Lumpkin, G.T., Eisner, A.B. (2010). JetBlue airlines: Will it remain “blue”'. Strategic management (pp. C185-C193). New York, NY: McGraw-Hill/Irwin.