Jet Blue 2011

JET BLUE

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Crafting & Executing Strategy: Jet Blue Airways Harry E. Sloan, Jr. BUS-599 April 17, 2011 Dr. Brian Grizzell Strayer University

Crafting & Executing Strategy

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Introduction

Since its conception in 1999, Jet Blue Airways has emerged as one of the airline industry’s leaders as a “low cost” carrier with high levels of customer service. Jet Blue currently is the nation’s 6th largest airline operating 650 flights daily (www.jetblue.com). This paper will examine and discuss the key strategic factors regarding Jet Blue’s success that will reach and extend far beyond what the text book offers, (to stay updated with the latest and current events with Jet Blue and the ever-changing airline industry) that will focus on the following: The trends in the U.S. airline industry, Jet Blue’s strategic intent, Jet Blue’s financial objectives, Jet Blue’s strategic elements of cost organizational culture, and human resource practices and Jet Blue’s strategies for 2008 and beyond to sustaining their competitive advantage, while anticipating the rebound of the economy.

The Trends in the U.S. Airline Industry

For “low-cost” airlines like JetBlue to remain successful they must stay ahead of the curve, which simply means positioning themselves upon capitalizing on the current and future market trends and conditions and in the “roller-coaster” airlines industry; it’s the early bird that wins. •

Negotiating “predetermined” fuel prices into the contracts.

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Constantly revising and creating new route systems to maximize profit optimization.

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Focusing on “mid-size communities” versus the major metropolitan areas that are having substantial growth due to key industry and manufacturing investments by major foreign companies like Mercedes & Kia in Alabama, BMW in South Carolina and etc…

Crafting & Executing Strategy •

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Gorilla Marketing “Key business drivers”, such as unlimited snacks and candy, offering the most leg room, free TV & digital entertainment, exceptional customer service in JetBlue’s case

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Focusing on the “business traveler” allows low-cost carriers like JetBlue and AirTran, to generate the most revenue & profit by promoting “value-added” complimentary services.

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Partnering with hotels and rental car companies with special promotions and incentives.

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Catering to the “last second flyer” with strategic partnerships with third-party online booking sites like Expedia, Hotwire, Orbitz and Travelocity to secure last minute sales.

Strategic Intent and Market Share

Less Means More JetBlue has succeeded as both a low-cost and a high quality carrier. Traditionally, such a strategy would be considered “stuck in the middle". However, JetBlue’s low cost structure results from operating one type of aircraft, offering one class of service, and supporting a ticketless reservation system (Carter, 2002). A primary operating challenge for JetBlue moving forward will be to continue growing while maintaining both high quality service and its leadership as a low cost carrier. Single Aircraft Business Model Offering a single type of aircraft model increases the ROI & efficiency of operations. Major benefits to operating one type of aircraft include lower costs through simplified maintenance, reduced spare parts inventory, more efficient scheduling, lower training costs and reduced aircraft acquisition costs through a volume discount. JetBlue’s strategy of only supporting the Airbus A320 is instrumental to the company’s low cost (Carter, 2002).


Sloan Profit Optimization

JetBlue aircraft operated an average of 12.6 hours/day in 2001, the highest in the industry. By comparison, 2001 utilization for Southwest, the second most efficient, was 11.1 hours/day. In addition, JetBlue’s yields in 2001 were second in the industry, following Southwest. Utilization and high yields are key to generating revenues (Carter, 2002). The Most Bang For Your Buck Low costs and high efficiency enable JetBlue to charge lower fares than its competitors. As an example, JetBlue’s New Orleans to New York round trip fare is significantly cheaper than that of alternative carriers. JetBlue offers two nonstop flights per day both ways and a round trip fares are tough to beat. This is a powerful advantage to the extent that it insulates JetBlue from future aggressive pricing by competitors in a highly competitive industry & price sensitive economy is influenced by external factors such as world events, politics and the economy. Underserved Markets and Target Customers JetBlue has capitalized on the opportunity of careering to the “under-served” or markets most airlines didn’t care about rather than the traditional metropolitan areas JetBlue’s flight model has proven that it can stimulate “high-yield” demand in the markets it has entered. A key element of the company’s growth strategy is not only to establish a presence in underserved markets, but introduce service offerings of low fares, and differentiated product that are designed to stimulate demand. The company’s target market is not the business executive with the Amex Gold Card, but rather the price sensitive leisure traveler and small business owner that is price sensitive with their wallets, but does not want to compromise value, service and quality.


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2010 Top 10 U.S. Airlines Market Share Rank Carrier

Market Share

1

American

2

Southwest 13.8%

3

Delta

11.8%

4

United

10.4%

5

US Airways

8.0%

6

Continenta 7.6% l

7

Northwest

4.8%

8

JetBlue

4.3%

9

AirTran

3.4%

10

Alaska

3.1%

11

Other

19%

13.8%

Financial Objectives

As cited by “ Rovenpor & Michel” JetBlue has emerged to be a “customer-oriented” airline that provides superb customer service primarily on direct destinations at competitive rates. Their “business key drivers” includes operating young, fuel efficient fleets with more room than any other airline, coach product, free in-flight entertainment, pre-registered seating, unlimited food & drinks, and the airline industry’s only “Customer Bill of Rights” are just some of the key


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elements that have led to financial success. While all airlines have the reputation of being “risky investments”; JetBlue has delivered to their stakeholders by growing revenues 185%, from $998 million in 2003 to $2,842 million in 2007. On the other hand operating expenses & jet fuel expenses grew by 532% from 2003 to 2007 and typically when fuel-costs soar it hurts “low-cost” carriers like JetBlue significantly, but utilizing “option & swap” agreements allowed JetBlue to hedge its exposure to aircraft fuel prices. So it seems for now that the airline has grip on the unforeseeable future (Thompson & Strickland, 2009).

Strategic Elements of Cost Organizational Culture, and Human Capital Practices

Jet Blue has been consistently ranked as one of the best airlines to work for, due to the fact of their collaborative efforts of attracting and retaining the industry’s best talent. Jet Blue takes a methodic & meticulous approach of selecting the best “crew members” through online applications, phone interviews and a collective selection process as a team. Each year, JetBlue received 130,000 resumes, from which 3,000 qualified candidates were hired (Rovenpor & Michel, 2008). As for as training; the company offers their 800+ employees more than 14,000 hours of leadership development training. When it comes to compensation JetBlue has lagged behind most airlines in regards to hourly pay-rates, but has compen sated in other area such as by offering health care coverage, profit-sharing and 401(k) retirement plans (Thompson & Strickland, 2009). It’s also the only airline that currently has a “no-layoff” policy, slow attrition and a reduced salary from $500,000 per year to $250,000 for the 3rd & 4th quarters of 2008.

Jet Blue’s Strategies for 2008 and Beyond

JetBlue’s focus from 2008 & beyond will be to focus on rational growth, frugal cost control and revenue optimization while managing risk in uncertain economic times & conditions. They


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are forecasting a slower growth trend that began in 2008 that will continue through 2011. JetBlue will continue to reallocate capacity in order to take advantage of present market opportunities. In addition, they are looking to expand other revenue opportunities. The nation’s 6th largest airline will continue to strive to increase passenger revenue primarily by increasing flights to popular destinations, which produces higher revenue per available seat mile, Their overall objective is to optimize our fare mix, while continuing to provide our customers with competitive fares. “When we enter a new market, our fares are designed to stimulate demand, particularly from fareconscious leisure and business travelers who might otherwise have used alternate forms of transportation or would not have traveled at all” says current the CEO Dave.

Conclusion: The Power of Blue

JetBlue’s key components have collectively come to serve as the “recipe of airline success”, which are: Value Power: In terms of service & quality “less means more” in regards to customers not sacrificing the quality of services that include: Exceptional customer service, free TV entertainment, everyday low-cost fares, unlimited snacks & drinks and the most legroom that any airline has to offer. Brand Power: JetBlue’s values works in harmony with building a brand of differentiating itself from the competition in terms of offering safe, reliable and value-added services that’s “customer centric”. People Power: Ultimately, it’s the people that make all the difference, and that’s what serves as

the catalyst of JetBlue’s business success. Similar to Southwest airlines; JetBlue has cultivated a company culture centered around five distinct values: safety, caring, integrity, fun and passion. JetBlue believes in attracting, hiring and retaining peop le that are genuinely friendly, helpful,


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team-oriented and giving customers the best overall “JetBlue experience”, which reflects from top management all the way down.

References Carter, Grant. (2002).” Is JetBlue’s strategy conducive to sustaining profitability.” www.mcafee.cc/classes/ Thompson, A., Strickland, A., & Gamble, J. 2010. Crafting & Executing Strategy The Quest For Competitive Advantage: Concepts and Cases.

www.jetblue.com


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Jet Blue 2011

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