jetBlue Case Study posted by Shawn Carlson 10/29/2004

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Update 8/27/2007: I have noticed a lot of people find my site by searching for these Case Studies (mostly Wal-Mart and jetBlue).  With school starting, I realize they will become more of a resource than ever.  To make it more of a resource, and to possibly receive critiques (time permitting) please send me what case studies you have.  I will add them to my site, creditting them to you, of course, and allow others to access them.  This way it can become much more of an academic resource.  Please, of course, include all references, noting that anything copied/stolen will not be posted.  Thanks for your help!  Just email them to me.

1. a.

JetBlue will achieve excellence in its core values: working environment, superior customer service, low costs, and safety.  It will foster an environment that reminds employees they are the key to success and will drive them to achieve more for their company.  We will achieve a family environment where every person is important, not a corporate environment where only profits are important.  We will deliver superior customer service by ensuring every employee knows it is a representative of the company.  We will fulfill the needs of our passengers with a smile.  We will always be the lowest cost airline in the business and remind people that air travel does not have to be expensive.  Safety will never become a concern but will always be a priority.  Everyone from flight attendants to mechanics will ensure our passengers have a safe flight.

Our purpose is to deliver on the promise of airline deregulation by providing low-cost air travel while at the same time delivering high-quality customer service.  We will transform the image of the airline industry from a high-cost necessity to a low-cost choice of preference for people’s traveling needs, and we will lead the way.  We will make flying as easy and enjoyable as it should be.  We will make it so people enjoy their journey with us as much as their destination.

We will penetrate into all the major flying markets in the U.S., for business and recreation.  Additionally, we will become #1 or 2 in those markets within 5-10 years as well as achieve a profit in every quarter that we operate.  We will consistently rank #1 in: customer service with a goal of zero complaints to the DOT, timeliness with a goal of 85-90% on-time flights, baggage handling with a goal of 2.50 mishandled baggage reports per 1000 passengers, and safety with zero safety violations.  Success depends on every level of JetBlue coming together to save costs, make a customer smile, and keep our airline safe.  We are tied together in our vision and we are all tied together in our success.

1.b.

A vision dictates where a company wants to go.  It is a set of inspiration and ideal goals.  Essentially, a vision places you in the future and where you want to be.  It should leave a lasting impression on the employees and it should inspire them.  It is in other words the dream of a company that sets the goals high and provides the motivation to reach them.

This will provide a company with direction.  A vision goes beyond the blandness of simple goals.  Because of its diffusion within the company, each employee should be able to look at it and know what they should be doing.  This maintains a quality of product.  In this case it means that every employee is determined to give a customer the best flight possible, get their bags to where they should be, and ensure that every flight is on time.  When an employee can see what he has to do and can see that he can help accomplish it, it gives them a sense of purpose and achievement.  This can only serve to inspire the employee and build loyalty to the company, hence inspiring even better productivity.

The typical jetBlue employee will be able to look at the vision and know the right thing to do.  For example if an employee knows that a passenger had to switch planes, then the employee will make sure the passengers bags will get to the right place.  In a real life example, my friend flew to New York and was supposed to get on a connecting jetBlue flight.  His inbound was running late and was worried about missing his outgoing jetBlue flight.  When he reached the terminal, a jetBlue representative met him on the plane, and escorted him to the jetBlue flight that was waiting for him.  This kind of dedication and customer service comes from motivated employees bound together by a company vision.

2.b

            An analysis of a company requires an analysis of its macroenvironment.  A lot of companies are set by their macroenvironment which affects all companies in the industry and the airline industry is no exception.  A study of the environment consists of reviewing political, economic, social, and technological factors.  There are two big factors that might inhibit jetBlue from achieving its vision that fall under the categories of economic and social.

            The economic situation faced by jetBlue is shared by many industries.  JetBlue is facing rising fuel prices.  They have no power to affect either the price of or their use of oil.  They obviously cannot convince OPEC to change output, and to try and change how much they use would require them to cut flights.  Additionally, they are unable to raise prices due to rising fuel costs.  A few airlines have tried adding a surcharge for fuel costs but could not stick to them.  JetBlue is no different especially considering how it bills itself as a low-cost airline.

            The prices will cut into jetBlue’s profits and might even cause it to have some losses if the price increases continue.  The company is limited in what it can do.  It would be difficult to switch to a new type of fuel-efficient plane because of the obvious costs associated with such a move.  It can attempt to reduce fuel consumption but since most fuel is used by the airplanes themselves this would be very difficult (perhaps its fleet of service vehicles such as baggage cars, etc can be converted to electric only).  The main strategy it has used and should continue to use to hedge fuel costs is to work the futures market and lock in future prices.  JetBlue has currently done this with 25-50% of its fuel for 2005 for prices lower than $30/barrel.  Therefore, this macroeconomic factor is a threat to jetBlue as it is to all the airlines but not one that threatens the life of the company.

            The second factor falls under the social category.  Essentially this part of the environment concerns how people view air travel in general.  There are widely held beliefs that surround the airline industry that hurt its business, some of which are correctable.  The first is that air travel is dangerous.  This was compounded on 9-11 which severely curtailed expansion of the airline industry.  While auto accidents take more lives, the accidents that occur with airplanes garner a lot more attention and hence scare a lot more people.  This belief is not helped by the fact that “airport security” is synonymous with “no security.”  The second belief is that air travel has to be expensive and a hassle.  This is an old image that has stuck with the airlines since the early days.  Bad service and lost baggage have come to mark the airline industry.  These two things cause people to choose other forms of transportation such as car and train.

            Both ideas of the industry can change over time.  The first is something that affects the industry as a whole although jetBlue was the first one to install secure cockpit doors on its entire fleet.  The effects of 9-11 are wearing off and there hasn’t been an airline accident since shortly after 9-11.  This, combined with attempts by the Transportation Security Administration to increase security, have begun to alter people’s perceptions about air travel.  The second one is that jetBlue can affect for itself.  Its lower prices have already begun to change how people think of traveling by air.  Also, if it increases its customer service and baggage handling even more, then people will view jetBlue as a good way to travel.

2.c. Competitive Environment

 

            In JetBlue’s Competitive Environment, we identified Supplier Power and Buyer Power as the two most important aspects of Porter’s Five Forces that will have the greatest impact on JetBlue’s ability to achieve its vision.

Elements of Supplier power are centered around the production of raw materials used to create products.  Suppliers in a strong position can exert an influence high prices for their raw materials to capture some of the industry’s profits.[1]  In JetBlue’s case, fuel suppliers have a considerable amount of power because they control how much money is spent on the fuel used to fly the planes.  The volume of fuel supplied to the airlines is extremely important because JetBlue has prescheduled flights that require a certain amount of fuel.  From November of 1999 to November of 2000, the airline industry saw a 53% hike in fuel prices. [2] If the fuel prices continue to escalate at this pace, it could force JetBlue into a position where they have to raise prices.  With a rise in prices, customers might choose to go elsewhere for the plane flights because the once cheap JetBlue prices are no longer the lowest prices on the market. 

The second of Porter’s Five Forces that could have an effect on JetBlue achieving their vision is the Buyer Power.  The power of the buyers is the impact that customers have on a producing industry.[3]  In the case of the airline industry buyer power is important because there are several options available to customers with what airline they choose to fly.  In the last few years, there has been an emergence with competing airlines and low costs flights.  Companies such as Independence Air and  Southwest Airlines have had success with using low cost flights to attract customers.  If companies such as these continue to gain prominence in the airline industry, then JetBlue will face a much harder challenge in climbing to number one or two in all their markets.

2.d. jetBlue’s Strengths

            JetBlue has been immensely successful through the actions of its CEO David Neeleman.  In the last four years, Neeleman has transformed JetBlue from a start-up airline with two planes and one route to a low-fare powerhouse with more than 57 planes servicing 24 cities. In 2003, while several established carriers staggered under huge losses, JetBlue earned more than $100 million.[4]  The significance of these figures is to show numerically the level of jetBlue’s progress; however it is jetBlue’s many strengths as an airline that are responsible for their level of success.  Specifically, their low-cost air fairs attribute to their extremely high load capacities, and by maintaining their low prices, they retain customers.  In addition, jetBlue’s employees have not found the need to unionize their workforce.  This fact shows that jetBlue fosters a positive work environment in which employees are properly taken care of.  JetBlue has also found ways to improve the enjoyment of their flights by adding Direct TV technology that totals $70,000 per plane.  Neeleman was quoted as saying  it was an addition that will make the customers say, “These guys just get it.”[5]  In an industry with many circulating question marks,  jetBlue has used its strengths to produce a promising results and a successful company.

2.e. jetBlue’s weaknesses

            Every company has strengths and weaknesses, and despite jetBlue’s success, they also have weaknesses.  For instance, jetBlue has not been able to expand into some of the major routes across the U.S. because they have not gained enough influence in the airline industry.  Major routes that jetBlue does not have access to include flights to Atlanta, Chicago, and Dallas/Ft. Worth. This is important because these routes are in more centralized locations in the U.S., which would open a whole new demographic of customers to jetBlue.  Recently, jetBlue made a purchase with Airbus to buy 30 new IAE V2500-powered A320’s.[6]  If jetBlue cannot effectively expand their markets with the additions of these new planes, then they face a significant loss of revenue and more aircraft then they need to support their current flight load.  When questioned David Neeleman was recorded as saying, “That’s what keeps me up at night. How can we continue what we’ve started?”[7]  He understands that continuing jetBlue’s success is not an easy task without the proper level of expansion because without it, he risks falling stagnant in an unforgiving industry. 

3.

            Based on our analysis of jetBlue, the problem it faces is finding the right pace of expansion while maintaining profitability and company identity.  If it expands too slow or not at all they face stagnation and being over taken by rivals.  If jetBlue expands too fast they could spread themselves too thin and lose their company identity.  Their identity consists of low-prices and friendly customer service.  A potential identity loss could include a degradation of their well-trained staff, shortage of pilots, as well as a lack of funds.  JetBlue has the opportunity to expand at a good pace and still maintain profitability.

4. a.

JetBlue should follow a strategy of concentration.  It has absolutely no reason to pursue anything other than the airline business.  All of jetBlue’s abilities from plane-turnaround to dealing with airline passengers are specific to the airline industry.  There would be no cost benefit to entering into a concentric or conglomerate diversification strategy.  While a concentric strategy would make the most sense of the additional options, jetBlue just does not have to skills necessary to enter another business nor is it established enough in the airline business yet to distract itself.  A vertical integration strategy would require jetBlue to enter too many established and complicated markets to be of any use.  They would have to do everything from drilling and refining oil to mining metals and building airplanes.  Additionally, a conglomerate strategy would simply distract the company from doing what it does best which is be in the airline industry.

        JetBlue should stay in the airline industry and expand into the major markets at a healthy pace.  Three markets that were identified are Dallas, Chicago, and Atlanta.  If jetBlue can penetrate into these markets with routine flights along these routes, then they can capture not only more of the public travel but more business travel as well.

4.b.

In order to continue their success, jetBlue needs to pursue a Cost Leadership Strategy.  A large part of their identity, as a company, is centered around their low-cost flights paired with other luxuries they have provided for their customers.  Without the low-cost alternative to the major airlines, jetBlue would not have had the same level of success.  In addition, with other new low-cost airlines like Independence Air following suit with jetBlue, they must maintain this aspect of their identity.  Provided that they continue to expand at a safe pace and can expand to other markets, jetBlue will continue their trend of cheap airline fairs.  The greatest American example of low cost identity is Wal-Mart.  Its customer base started and continued because people knew that they could count on low prices in their stores. For the sake of analogy, if jetBlue can parallel Wal-Marts attitude with a similar Cost Leadership Strategy, then their continued success is evident. 

4.c.

        Our broad strategy has jetBlue penetrating into major markets, maintaining cost and customer service leadership, winning business travelers, and maintaining profitability.  Based on these strategic goals we have formulated several tactical strategies.

        For breaking into new markets, we have chosen 3 main targets: Atlanta, Chicago, and Dallas.  JetBlue will enter into these markets since they have a significant amount of normal travel between them, but also because they are important to business travelers.  They will service at least 2 flights a day to each of these cities.  In order to maintain their low cost structure, a main point of attack should be to keep labor costs low.  The main cost of any business is labor and that is what is destroying the major airlines now.  JetBlue have held low costs due to high employee loyalty and their ability to keep unions out.  In order to maintain customer service leadership they should improve their training of employees and give them face time with customers.  Additionally, we will improve our feedback system so that they can continue to improve the service.  In order to win business travelers jetBlue should concentrate on making the airline more business friendly through all of the perks that come with flying jetBlue, such as Direct TV and Satellite radio and others we’ll discuss later.  Lastly, to maintain profitability jetBlue should always work to keep costs down in every area they operate in and will encourage every employee to look for cost-cutting techniques.

        Operational planning involves getting into specifics with our strategy:
        For breaking into new markets it is important that they start slow especially considering that jetBlue's targets are the hubs of major airlines (Atlanta and Delta for example).  They should be able to leverage their financial power and free cash flow to acquire gates in the markets we wish to enter.  This might mean acquiring gates from faltering airlines, helping build new ones such as jetBlue is currently doing in JFK, or acquiring them from the major airlines.  If the situation arises where jetBlue must gain gate space from the major airlines, then they will target the airlines that are in need of financial assistance.  Since those airlines are searching for financial solvency, they should cooperate.  In addition, it is important to start slow and keep costs down.  Competition will be extremely tough and they will need to keep costs down in order to compete.  This operation will most likely take at least 5 years to become established in these markets.  JetBlue should be willing to accept small losses in the first years of operation until the major airlines either relent or go bankrupt.

        JetBlue's low prices define the company and therefore it is imperative they maintain cost leadership.  They will do this by focusing on labor costs and keeping their workers from forming unions.  Accomplishing this is contingent on making the employees feel that unions are superfluous to their needs.  Therefore, we will offer employees better benefits such as stock options and health care before they even desire it.  Additionally, we will involve employees at all levels with the future of the company.  If they help decide the future, they will have a stake in it.  Strong loyalty to the company will help block any outside unions.  Middle and low-level managers will help involve all the employees in discussing and improving the company vision.

        JetBlue's customers form the essence of their business and so they need to maintain the focus on ensuring they have a good flight.  While jetBlue has a good training program for its employees, there is always room for improvement. An additional goal should be to get every employee to work with customers.   JetBlue can form their own version of Disney’s cross-utilization program where cast-members work in a different department for a day.  For example on certain days they can have a mechanic or pilot be one of the flight crew helping to serve the passengers and customers.  Obviously this program could not work 1-1 but flight attendants could shadow a mechanic to understand his job.  This would also carry even more importance for managers, who would not otherwise interact with our passengers.  When we combine this with our “all employees can improve the company” strategy it will be a winning combination.  As our employees get these new experiences they can bring new ideas and improvements to the table.  In order to help customer feedback we can provide comment cards in the seat-backs and have attendants ready to collect and discuss them with passengers.  If jetBlue remains friendly and sincere about improving their service, then customers will help them with feedback and become more loyal.

        We have developed several strategies to improve jetBlue's share of business travel.  The main goal is to make their planes more business-friendly.  Most business travelers come onto planes with their work with them which usually involves a laptop and the internet.  In order to provide this kind of technical support, jetBlue should consider installing outlets on their seatbacks.  Making this addition, will spill over to pleasure of the travelers and parallel other possible additions, such as plug in game devices, noise canceling headphones, etc.  The validity of making an addition like the noise canceling headphones is that it increases the business friendly environment. Even if someone is good at concentration it is hard to hear over the jet engines, so it would potentially maximize a good working space.  Additionally, jetBlue can make the internet more accessible.  They already have the capability to access satellites from their planes, so internet outlets are going to only add to jetBlue's appeal to the business traveler. Lastly, jetBlue has relied on word-of-mouth advertising more than any other method to gain customers.  In order to gain business travelers, they should market themselves in much of the same fashion. If they can provide more at lower prices, they will inevitably gain repeat business travelers from companies across the U.S.

        Finally, jetBlue must encourage all employees to realize that they are involved in the success of the company.  Concentrating on the individual will cause every employee to strive for the best interest of jetBlue. Continuing to offer incentives for good ideas and excellent service will continue to foster a positive work environment and save the company money in the long run, as well as utilize the collective creativity of jetBlue's entire company.


 

     [1] “Porter’s Five Forces: A Model For Industry Analysis,” accessed 12 February 2004, available from http://www.quickmba.com/strategy/porter.shtml.

 

     [2] Lisa DiCarlo, “JetBlue Skies,” accessed on 13 September 2004, available from  http://www.forbes.com/2001/01/31/0131jetblue.html.

 

     [3] “Porter’s Five Forces”

     [4] “JetBlue founder takes low-cost airline to new heights,” accessed 12 September 2004, available from  http://edition.cnn.com/2004/WORLD/americas/04/16/neeleman/.

 

     [5] “JetBlue skies ahead,” accessed 13 September 2004, available from  http://www.cio.com/archive/070102/jetblue.html.

     [6] “JetBlue to add 30 more A320s to fleet,” accessed 12 September 2004, available from http://www.atwonline.com/archives/news/archive_news_june0704.cfm.

     [7] “JetBlue: Flying Higher?, accessed 13 September 2004, available from http://www.cbsnews.com/stories/2002/10/16/60II/main525810.shtml