Crafting and Executing Strategy (JetBlue airlines Case study)
Dollie Wood
Dr. Beazley
Crafting and Executing Strategy (JetBlue airlines Case study)
Introduction
JetBlue Airways is an American low cost airline based in New York City, and home base at the local John F. Kennedy International Airport. JetBlue Airways became part of 1999/2000, for the former employees of Southwest Airlines was founded. JetBlue Airways today is already the fourth largest budget airline in the world. The JetBlue Corporation, which belongs to the NASDAQ, is listed. On 22 January 2008, Lufthansa announced the acquisition of newly issued 42 million shares of JetBlue (George, 2008). This corresponds to a share of 19 percent for a total price of around 300 million U.S. dollars. JetBlue (David Neelman, CEO) has under the company name Azul Linhas Aereas Brasileiras, a new airline based in Sao Paulo, Brazil established. This has commenced service in December 2008 and has since served a growing network of domestic flights within Brazil.
JetBlue is an American lost-cost airline that was founded in 1999 by David Neeleman but was initially named “NewAir”. The headquarters of the company is located in the Forest Hills and the main base of the company is John F. Kennedy International Airport. However, the corporate office of the airline is located in Cottonwood Heights. JetBlue is one of the most successful airlines in the United States and is a four-star airline that serves the passengers with passion. JetBlue faced problems in 2005 due to loss in profits. The company also faced fuel issues as the prices increased and increases in operational costs (DuBrin, 2008). JetBlue was formed by David Neelman with the intent of combining low fares of a discount airline carrier with all types of comfort. Currently, the company is ranked as a four-star airline and a low-cost carrier by Skytrax. Moreover, it is also the only airline in the United States that is ranked higher than three stars. JetBlue uses advertising media and print, online as well as television and social media ads are used too. The company has expanded mainly due to its human resource. There are seven product and services that JetBlue offers to the customers. JetBlue's performance was poor in 2005 mainly due to a loss, raising fuel prices and some internal factors such as cost of maintenance or airplanes and other operational problems.
Jet Blue's strategic intent
The airline was committed to getting its passengers to their destinations despite bad weather. This however, proved false after an ice storm delayed JetBlue's flight boarding passengers for as long as eleven hours. Company's officials explained that JetBlue's philosophy was to delay flights rather than cancel them. After the Feb 2007 ice storm on Airbus A320, a new management took charge of JetBlue's deploring performance (Weiss, 2008). The new management team needs to put in place new operating procedures, communication systems and information technology solutions to prevent another weather related ordeal. In addition, the company paid attention to little details that customers found special such as in leather seats, latest TV screens, in flight yoga cards in seat pockets, play area around its gates etc.
JetBlue made sure it got the most out of its aircrafts and extended its flights to new destinations as per the demand of the travelers. In April 2001, JetBlue boarded its 2 millionth passenger. It added service from JFK to Syracuse, New York; Seattle, Washington; Denver, Colorado; Long Beach, California; and New Orleans, Louisiana. More important, it started direct service between Washington, D.C. (Dulles International Airport), and Fort Lauderdale. Florida. This marked the beginning of the company's plans to operate as a point-to-point carrier. Jet Blue has had a great strategic focus by being a discount airline carrier for many.
Jet Blue's financial objectives
Jet Blue has been consistently expanding throughout its history. For its expansion it needs funds and for this objective it relied both in its owner's equity and debt. It gradually issued new capital and in 2008 42.6 million shares were issued. On the credit side, it issued Series A and Series B debentures. Despite its early promise and strong organizational culture, JetBlue did not deliver value to its stockholders over the five-year period ending December 31. 2007. None of the major airlines did. Shareholders of another low-fare airline, Southwest, lost less than JetBlue's shareholders over the same period. One reason for this might be the soaring and unpredictable oil prices that put a lot of pressure on the costs. The case stats show that a $100 investment in JetBlue common stock on December 31, 2002, was worth only $49 five years later. A $100 investment in Southwest common stock on December 31, 2002, was worth S89 five years later (Morrell, 2007).
Airline stockholders would have achieved similar returns by investing in the AMEX Airline Index. JetBlue obtained new equity capital in 2008 according to its March 31, 2008, 10.Q report. A Lufthansa nominee was appointed to JetBlue's board of directors. JetBlue was also able to obtain credit. During its first-quarter earnings conference call, Barnes stated that financing was secured for all of its 2008 aircraft deliveries. Minimal cash was due because of favorable financing and pricing terms negotiated by JetBlue.
Jet Blue's strategic management
JetBlue's growth plan over the next ten years includes the addition of a new airplane to our fleet about every ten days. This clearly puts pressure on both its hiring and their training teams to meet the demands of JetBlue's growing operation. While these numbers seem a bit staggering, at least they are fairly defined. This clearly requires some solid strategic planning, to execute, and JetBlue has no choice but to do its best to optimize the efficiency of its programs. The proper balance of effectiveness and cost is very essential in this regard, and it will quickly find itself either dangerously ill-prepared or significantly over budget. The corporate culture of JetBlue is captured in your five corporate values of safety, caring, integrity, fun, and passion.
Additionally, JetBlue paid attention to little details that customers found special such as in leather seats, latest TV screens, in flight yoga cards in seat pockets, play area around its gates etc. JetBlue made sure it got the most out of its aircrafts and extended its flights to new destinations as per the demand of the travelers. It added service from JFK to Syracuse, New York; Seattle, Washington; Denver, Colorado; Long Beach, California; and New Orleans, Louisiana (Geisler, 2009). More importantly, it started direct service between Washington, D.C. (Dulles International Airport), and Fort Lauderdale. Florida. This marked the beginning of the company's plans to operate as a point-to-point carrier. Jet Blue has had a great strategic focus by being a discount airline carrier for many.
Present Situation of JetBlue
JetBlue is the low cost airline of America, and it flies to more than 63 destinations in 11 countries. Some of these countries include Bermuda, Aruba, Bahamas, Costa Rica, Jamaica, Barbados, Mexico and United States. Other than this, international service also started between Saint Lucia and New York in 2009. Since, JetBlue has greatly improved and is offering good services; it was also awarded different types of appreciations. In 2007, “Readers' Choice Awards” by Conde Nast Traveler magazine named JetBlue as the number one domestic airline of United States for six times in a row. Besides this, in June 2011, J.D. ranked JetBlue as “Highest in Customer Satisfaction among Low Cost Carriers in North America.”
Analysis of Situation
The fuel prices rose suddenly in 2004and the aviation industry was worst affected by this change. Since fuel is one of the major expenses for an airline company, the operational costs rose. In the United States, the fuel expense ranged from 10% to 14% of the entire operating expenses. However, during this tenure, the cost reached 20% of the entire operational cost. This was because the fuel prices increase by 50% in 2005. Although all the airlines in the aviation industry were affected by this, JetBlue had a greater impact since it was a low-cost carrier. Launch of low-cost subsidiaries by “Legacy Carriers” also served as a problem as this was done by them to compete with the low-cost carriers. Moreover, JetBlue also had to face competition from the other low-cost carriers such as South West Airlines, AirTran, America West and Spirit Airlines.
In the quarters of 2005, the performance of JetBlue was poor than the quarters of 2004. This was mainly due to a loss that the company had to face. JetBlue had to incur this loss for the first time since its IPO was first held. The first annual loss of the company was $20 million on the revenues of $1.7 billion (Booz, 2007). The operating margins of the company also reduced to 2.8% from 8.8% in 2004. Therefore, the company showed a downward trend due to which the performance record of the company fell to 71.4%. This was lower than the other airline companies that were operating in the industry.
Marketing
Initially, phrases such as “Unbelievable” and “We like you, too” were used for marketing and advertisements were given in newspapers. When JetBlue experienced growth, they changed their marketing strategy and adapted it with the needs of the customers. A loyalty program named “True Blue” was created and customers were awarded points. Therefore, a unique positioning was developed. The current marketing strategy that has been adopted by JetBlue is partnerships with professionals. The exterior of the airplane has been painted in the team's colors. Along with Master Card, they have a pledge which enables customers to refund for certain flights. Moreover, a new brand campaign was created by Mullen Advertising Agency in October 2010 in which emphasis was made on commitment of the company towards the customers. Advertising media is also used by JetBlue and print, online as well as television and social media ads are used too.
Conclusion
JetBlue has suffered a lot, and it is not considered to be one of the best airlines in America. Despite the difficulties facing the airline industry as a whole, JetBlue well positioned itself with a strong route network, a flexible fleet order book, solid liquidity, and the best crew members in the industry. Moreover, their management team had the ability to respond to challenges. For the future, JetBlue should formulate some strategies.
References
Booz, A., (2007), “Striving for growth: Best practices in retail banking sales and service channels”, Prentice Hall, pp. 91-113.
DuBrin, J. A., (2008), “Essentials of Management”, Cengage Learning, pp. 33-49.
Geisler, E., Wickramasinghe, N., (2009), “Principles of knowledge management: theory, practices, and cases”, M.E. Sharpe, pp. 260-271.
