Running head: CRAFTING AND EXECUTING STRATEGY
Case JetBlue Airways
JetBlue Airways and Industry Trends
A ceremony was held in 2000 for Jet Blue Airlines as its first plane took flight.
The breakthrough that they achieved has now become a billion dollar corporation. Given
their success, this paper was inspired by it and the authors would try to capture here all
the strategies that this airline company used as well as its role in keeping them a top of
the airline industry.
As most companies have experienced, not only in this industry, but, all over the
world, Jet Blue has had their fair share of struggles and challenges to become what they
are right now. One particular struggle they faced was the constantly changing oil prices, a
commodity that is used by every company in the airline industry. An increase in its price
has an effect on the business aspect of the company, which may translate to higher rates
being charged to their customers to compensate for the increase, and higher labor costs
that mean that they can’t afford additional pilots anymore. With the 9/11 attacks back in
2001, also caused additional security measures to be implemented that meant that their
operational costs had increased.
Back in 2008, the price of crude oil had reached its highest point where every
barrel cost $140. (Thompson, Strickland, & Gamble, 2010) As their response to this,
airline companies thought of various ways so that they can compensate for this rise in
fuel prices. A method some of them chose was to put in additional charges in their flight
rates, which they labeled, fuel surcharge. They also changed some of their ways to
service their customers in the form of charging them with the simple pleasures they got
free before which includes pillows, blankets, drinks, and food. Their baggage were now
also charged with additional fees as well as those that carry excess luggage which are
also charged separately.
At this time, many of their baby boomers (a lot of them were the workers in this
company) had gone on retirement or are going to retire. With many workers retiring from
their job, a significant sum of them was airline pilots, which constitute the most important
workers in this business. Our International Air Transport Association had allowed access
to records that shows the annual need of the airline industry for 3,000 pilots which is a
number that pilot training schools all over the country can’t supply. (Thompson,
Strickland, & Gamble, 2010) At this time, these schools aren’t capable of producing them
because of their resource shortage, which makes them incapable to train the pilots that
this industry requires. With that said, a lot of the companies in the industry have raised
pilot salaries to make this post more enticing to their own pilots and will make them stay
and maybe attract other capable pilots from other companies.
The US Congress in response to the tragic event of 9/11 came up with a new law,
which was named as their Aviation and Transportation Security Act (PDF). In this act, it
created a Transportation Security Administration, an institution that was tasked to
delegate a group of federal agents that were held responsible for reinforcing the airport
security measures that were practiced before with a much more extensive and rigorous
process. (Kaplan, 2006) Many of the airlines in the country haven’t been informed of this
mandate yet, which would compel them to create a new guideline for the security that
they will implement. With the intervention of the TSA, airports have now implemented a
screening process that is much stricter than what passengers underwent before they are to
enter the boarding area. The process now includes that passengers remove their footwear
for inspection, liquid substances now are subject to regulations, and every piece of
luggage is going to pass an x-ray scanner before it is cleared to enter the plane. Besides
the new screening process, they’ve also implemented that all passengers be subjected to
their new Secure Flight Program and it is executed just before they are screened. They are
also encouraging airline companies to implement their new Registered Traveler Program
and it’s a process of collecting information about their customer’s background, but, it can
only be done with the consent of the said customer. (Kaplan, 2006) With the 9/11 attack
started out to be terrorists hijacking two planes, they’ve also come up with ways that
would prevent it from happening again, which are arming their pilots, fortifying airplane
cockpits, and assigning undercover agents for every flight. The additional measures
companies need to implement have also increased the costs they incur. In fact, a reported
$6 billion have already been spent by the airline industry for them to be able to
implement all these additional security measures. (Schneier, 2008)
JetBlue Airline’s founder, Mr. David Nelleman, constructed its company to
operate with a human-centered service to be given to each and every customer. Based on
this philosophy, their rates were considerably lower than their competitors and they
boasted of being an airline that brings the comforts of home as their passengers travel.
This company opts to delay flights for a considerable amount of time rather than
cancelling it. The planes that this company provides are equipped with leather chairs,
gourmet food that is healthy, and an on-board television, which has 24 channels airing,
programs via satellite. (Thompson, Strickland, & Gamble, 2010)
Furthermore, JetBlue is an advocate of the Passenger’s Bill of Rights, which
exposes their customers to their policies. They’ve also been considered a pioneer in using
information technology in their operations, which brought them many advantages and
benefits that their competitors didn’t have, and it also lowered their expenses. In line to
this, an open skies software was installed which helped them be able to offer customers
services like issuing electronic tickets, online booking, and managing their sales and
revenue.
The constant growth and expansion of this company increased the number of
investors they had and their share of customers as well. They started out their business at
the JFK airport in New York back in the year 2000. A strategy that was really effective
for them since the JFK airport has one of the highest number of passengers travelling all
over their state and the flight schedules they’ve set were early because it would avoid
them dealing with a lot of aircraft traffic. The demographics of their market were the
trendy and young New Yorkers and the rich passengers that travel to or from the city.
After 8 years in this airport, a new JetBlue Terminal was constructed (Terminal 5) for all
of their customers which was more convenient and it allowed them to increase their
savings to fifty million dollars because of their reduced fuel, labor, and voucher costs.
This company has already provided services in other destinations, which include Fort
Lauderdale, San Diego, and Portland, and this was right before they’ve expanded to their
own terminal (Terminal 5). In fact, these destinations have grown in number from 2000
and they now cater to 53 different places all over the country. (Thompson, Strickland, &
Gamble, 2010)
Even with the strategies they’ve implemented which would be considered
promising by many, the stock of the company has continued to go down and now has
reduced to 50% over the last 5 years up to December of 2005. JetBlue’s financial
performance had improved with their current actions that brought a 185% increase, but
this didn’t compensate for a 222% rise in the expenses they incur just to operate properly.
The huge increase in their expenses was mainly caused by the rise in fuel prices (532%)
and their interest costs increasing around 658%. They’ve made the best of their situation
and developed a more financially conservative strategy that improved their liquidity ratio
when compared to other airline companies. (Thompson, Strickland, & Gamble, 2010)
This company had put these additional security costs as an investment for the long run
not as some credit they’ve acquired from the assets they have. A cash balance was also
received from this move. With all the actions they took, JetBlue has achieved credit and
capital equity and now will be able to keep on operating normally with all that they’ve
done even with these losses.
The highly competitive strategy JetBlue Airline has implemented made them
incur the least expenses over their competitors. As stated in records, the costs for the
revenue a company gains for every mile were $18.18 for American Airlines and
Continental, $20.95 for Delta, US Airways at $21.45, United at $19.13, and Southwest
incurs $13.85. For JetBlue, their cost is only at $12.17. Even with cheap operational
costs, the company still owns and operates an A320 Airbus that is highly sophisticated.
They’ve also managed to add flying time by cutting their airplanes time to turnaround.
This company had also hired reservation agents that are based at home because it reduces
their labor costs. The different methods JetBlue has developed gave them a competitive
advantage and that is why the conservative financial strategy they’ve employed works for
them and their goal to make money.
In developing their organizational structure, the company used a strategy that had
them follow five steps. The process starts out with identifying the values they have.
Following that, they’ll select some of their workers to fill the vacant managerial
positions. The selection process is mainly about the worker who embodies their values.
Moreover, it is the goal of the company to be able to exceed customer expectation at all
times. Their core values are safety, integrity, care, and passion. Every step in this
strategy, helped JetBlue achieve consistency in the culture they have as an organization
and keep all their workers loyal to the company.
We’ve previously mentioned that JetBlue follows a philosophy where all their
services are centered on their customers. When they were faced with a loss of pilots,
Aviation University Gateway and JetBlue agreed to a partnership wherein they were to
have the university’s best students in the company and internship programs would also be
their hosts. Some issues on their leadership had been brought up and they answered it
with leadership development training sessions in the Orlando International Airport. The
company has also identified the weakness in their salaries given to workers that they
compensated for providing them with health insurance, profit shares, and a 401k
retirement plan. The termination rate of the company has become popular because of the
voluntary packages they offer. This company is prioritizing a workplace that would
promote growth and happiness to their workers.
Back in 2008, the development of their strategies to use in their operations were
because they wanted provide a good examination of how they use their assets, lower their
capacity significantly, minimize expenses, increase their rates, experience high growth in
all their markets, offer new perks and privileges to customers who are on a business trip,
establish strategic partnerships with other companies, and boost their ancillary revenue
generation. Lufthana and JetBlue merged because of their goals and now the company is
allowed to access Lufthana’s terminal at JFK and Continental agreed to provide them
with their LiveTV service. (Thompson, Strickland, & Gamble, 2010) Generally, their aim
with this strategy was to minimize the rate they are using their airplanes, freeze specific
services in selected destinations, and offset the plan services they have to minimize the
costs they incur. But, as they experienced success in building their Orlando market, prices
went up, however, even with this increase, in comparison to their competition, their
prices are considerably lower. They’ve also given businessmen more incentives when
they travel with them. A partnership was also established with Travelocity and Expedia
so that they can cater to their leisure and businessmen customers in order. Their entry to
the international market scene was because of Aer Lingus. Additionally, the seat
reservation option and charges for additional baggage were a prime component for their
increase in revenues generated. But, even with all their strategies they still weren’t able to
rise to the top financially because it still generated below their projected numbers looking
at the figures after two quarters in 2008. (Thompson, Strickland, & Gamble, 2010).
The year 2009 was there year financially since records showed that JetBlue had
remained profitable in this year and performed better that their competitors. (JetBlue,
2010) The figures show a total income of fifty-eight million dollars with an operating
margin of 8.5%. When compared to their 2008 figures, it showed a rise of $140 million
on revenue alone. It also was a year where they experienced a free cash flow. This was all
because of the growth strategy they developed and their decision to focus more on
managing their capital expenditures. Also, because of the company willing to reduce
costs to generate sales. JetBlue’s success during the crisis can merely be the starting point
for achieving sustainability and longevity in their industry.
In this report, we can see the focus put on JetBlue’s strategies, which helped them
survive the different challenges they were bombarded with. Moreover, it also showed the
parallel actions taken by the company to comply with every change that affected their
industry. Even during those hard times, JetBlue provided workers value for their money
and incentives that made them loyal to the company. Workers of JetBlue are highly
important for them, which led to developing an organizational structure that was
consistent with their culture and a workplace, which promotes employee growth. The
actions they took also help them reduce cost while still being able to have a financial
performance that bettered their competition. Doing all of this shall ensure the long-term
success of JetBlue.
References
JetBlue. (2009). JetBlue's 2009 Annual Report on Form 10-K. Retrieved from
http://phx.corporateir.net/External.File?item=UGFyZW50SUQ9Mzg1MDQzfEN
oaWxkSUQ9Mzg2NzExfFR5cGU9MQ==&t=1.
Kaplan, E. (2006). Targets for Terrorists: Post-9/11 Aviation Security.
Retrieved from http://www.cfr.org/publication/11397/targets_for_terrorists.html.
Schneier, B. (2008). Is Aviation Security Cost-Effective? The New York Times.
Retrieved from
http://freakonomics.blogs.nytimes.com/2008/07/22/is-aviation-security-costeffective/.
Thompson, A. A., Strickland, A. J., & Gamble, J. E. (2010). Crafting and executing
strategy: The quest for competitive advantage: Concepts and cases: 2009 custom
edition (17th ed.). New York: McGraw-Hill-Irwin.