jetblue airways ppt presentation

JETBLUE AIRLINES

MONICA AGRIPPAMARCH 18, 2013

JETBLUE CASE STUDY ANALYSIS

JETBLUE AIRLINES

JETBLUE AIRLINES• The primary subject matter of

this business policy case concerns the competitive strategy and background of a new, very successful airline- jetBlue Airways (jetBlue). The time frame of the case is from the firm’s inception to the end of fiscal year 2002.

JETBLUE AIRLINES• . The case has a difficulty level of four-five, appropriate for senior level undergraduates or for first year MA students. The case is designed to be taught in one seventy minute class and will require two to three hours of outside preparation by the students.

SYNOPSIS• JetBlue is a new, very successful low

cost airline. In their first year of operations (2001) they achieved a $32 million net profit on revenues of approximately $320 million. This particularly notable in that the entire industry lost approximately $10 billion during the same year. JetBlue flies point-to-point routes- much like Southwest Airlines and offers distinctive service features- reserved seating, leather seats, seat back TV’s with twenty-four channels, and very customer oriented personnel.

SYNOPSISJetBlue, at least sperficially, appears to be an example of a Low Cost Leader. In their initial foray into the New York to Florida market they offered ticket prices about half of the existing competitor’s ticket prices and a serious focus on customer convenience- including such things as no mandatory Saturday night stay to get the lowest ticket price. All tickets are sold online or though a unique Salt Lake City reservation system.

SYNOPSISThey were the first airline to introduce electronic ticketing and their use of Information Technology is extensive. JetBlue’s founder, David Neeleman, is a young, forty-three year old career entrepreneur with dyslexia. He is a practicing Mormon with nine children and prior to founding JetBlue had experience with two other airline startups.

THE FIVE FORCE INDUSTRY COMPETITION

• One might infer that jetBlue is forcing American and other major carriers into a price war. One of the points that should come out in this discussion is the relative ability of other airlines to match jetBlue’s fare schedule. One of the most important metrics to assess operating performance of airlines is cost per seat mile and jetBlue has a real advantage in this area. Their cost per seat mile, in 2002, is about 2/3 of the industry average!


• JetBlue has significantly outperformed the industry in most important financial ratios. In terms of valuation ratios, PE is thirty-one. Twelve for the most recent month compared to an industry average of 38.43.

• One ratio that needs careful assessment is the Debt Equity (D/E) ratio. By comparison, jet Blue carries a fairly high D/E ratio. This can have an effect on future borrowing for new aircraft.


• Growth rates in earnings per share and sales are far above its competitors. The implication is that jetBlue is growing rapidly while many of its competitors are declining. The most significant ratio differences are in profitability and management effectiveness. In every category, JetBlue is out performing the competition significantly.

JETBLUE AIRLINES

JETBLUE AIRLINES• Strengths: Management, Costs,

Utilization, Profitability, and Focus. Customer-driven Mission Statement, Appeals to high class people who want low fares,Customer Bill of Rights, and Leather seats, Individual TV sets (Direct TV), and extra leg room.

JETBLUE AIRLINES• Weaknesses: A significant weakness

would be size as it is possible that larger competitors could overwhelm JetBlue in some markets. Low Brand Awareness, Less Experience, Low Budget, Small Airline, Less Planes, and Less People.

JETBLUE AIRLINES• Opportunities: expansion to additional markets- particularly underserved markets and regional markets. International alliances, Capitalize on domestic Hubs, and several coastal destinations.

JETBLUE AIRLINES

• Threats: Competition (particularly other low cost airlines), the price of fuel, and unions. Major aircraft carriers with large budgets, Negativity surrounding the current views of the airline industry, extremely High Crude and Oil Prices, and Similar Objectives and strategies as other low-cost airlines.

CORPORATE STRATEGY

CORPORATE STRATEGY

• JetBlue is following strategy but interestingly they are differentiating themselves from Southwest in several ways such as assigned seating, leather seats, and in particular, seat back TV. This notion that a firm can both be a differentiator and low cost leader files in the face of Michael Porter’s conventional wisdom.

FIVE FORCE ANALYSIS OF THE AIR LINE INDUSTRY

The degree of competitiveness, power, and strength is indicative of the five-force analysis. Michael Porter’s Five Force Analysis Model indicate the factors that directly influence the firm and it’s competitive actions and responses are:•The threat of new entrants•The power of new suppliers•The power of buyers•The threat of new substitutes•The intensity of the rivalry• between competitors

THE THREAT OF NEW ENTRANTS: LOW


• Potential and existing competitors influence average industry profitability. In JetBlue’s case, the threat is from existing competitors already in the market. This is mainly due to the current economic state we are in which greatly affects the market entry barriers. The cost of entry consists of extremely high costs and massive capital requirements.


• . In this economy, it would be nearly impossible to find funding with

the excessive risk, lower buyer confidence, and debt to asset ratio of the airline industry. Major competitors of JetBlue are already decreasing flights and merging with one another in order to consolidate debt and stay in business since fixed costs are extremely high.

THE THREAT OF NEW SUBSTITUTES: LOW

• The bargaining power of suppliers, particularly aircraft manufactures and employee groups, is fairly high. JetBlue is able to offset the bargaining power of fuel suppliers, which is a very important cost area, with a successful fuel- hedging program.

•

THE THREAT OF NEW SUBSTITUTES: LOW

The cabins have only one class of seats which combined an overall first class experience. There has little or no threat to closing as the airline industry

offers entry with little no no appeal.

JETBLUE AIRLINES

POWERS OF SUPPLIERS: HIGHThe key inputs in the airline industry are the jet fuel and the aircraft suppliers. The airplane manufacturing industry is dominated by Boeing and an JetBlue’s Airbus supplying the majority of airplanes for the me large airline companies. For this reason, the suppliers have most of the bargaining powering leverage and increasing prices when costs rise.

On the bright side, since JetBlue's fleet consists of only two types of aircrafts it keeps

the cost of the airplanes lower than if they had a fleet of vastly different types

of airplanes.

• Nevertheless, most airline companies have very LITTLEBARGIN power given that there is a market price for jet fuel and most airline companies pay exactly or close to that price.

• In addition, the volume of fuel supplied to the airlines is extremely important because jetBlue has prescheduled flights that require a certain amount of fuel. As a result, the bargaining powers of suppliers is high.

• In addition, the volume of fuel supplied to the airlines is extremely important because jetBlue has prescheduled flights that require a certain amount of fuel. As a result, the bargaining powers of suppliers is high.

• Never the less, most airline companies have very littlebargaining power given that there is a market price for jet fuel and most airline companies pay exactly or close to that price. Nevertheless, most airline companies have very LITTLEBARGIN power given that there is a market price for jet fuel and most airline companies pay exactly or close to that price. In addition, the volume of fuel supplied to the airlines is extremely important because jetBlue has prescheduled flights that require a certain amount of fuel. As a result, the bargaining powers of suppliers is high.

• Never the less, most airline companies have very littlebargaining power given that there is a market price for jet fuel and most airline companies pay exactly or close to that price.

JETBLUE AIRLINES

• Never the less, most airline companies have very littlebargaining power given that there is a market price for jet fuel and most airline companies pay exactly or close to that price. Nevertheless, most airline companies have very LITTLEBARGIN power given that there is a market price for jet fuel and most airline companies pay exactly or close to that price. In addition, the volume of fuel supplied to the airlines is extremely important because jetBlue has prescheduled flights that require a certain amount of fuel. As a result, the bargaining powers of suppliers is high.

• Never the less, most airline companies have very littlebargaining power given that there is a market price for jet fuel and most airline companies pay exactly or close to that price.

JETBLUE AIRLINESLITTLEBARGIN

power given that there is a market price for jet fuel and most airline companies pay exactly or close to that price. In addition, the volume of fuel supplied to the airlines is extremely important because jetBlue has prescheduled flights that require a certain amount of fuel. As a result, the bargaining powers of suppliers is high. Never the less, most airline companies have very littlebargaining power given that there is a market price for jet fuel and most airline companies pay exactly or close to that price

INTENSITY OF RIVALRY AMONG COMPETITORS:

High

INTENSITY OF RIVALRY AMONG COMPETITORS:

High• The intensity of rivalry among • competitors in the industry is very high. • This is due to the numerous companies that • strive for the dominant market share in the

industry. Airlines typically try their hardest to differentiate themselves to gain a competitive advantage yet some of these failed attempts typically derive unhealthy, negative reactions from the others. Additional factors that may

• contribute to rivalry include high interest rates and debt, feeling a generalized sense of deprivation as the industry growth slowly decreases along with the diminishing in disposable income necessary to have in order to make a living.

Power of Buyers: High

Power of Buyers: High• There are several options available • to customers with what airline they

choose to fly. Since products and services are essentially standard,customers of this industry are price conscious under their belief that all airline companies will get them to their destination but would

• prefer to fly with the one that can get them there cheaper.

• with websites such as www.cheaptickets.com universal booking and ticketing on-line, it’s easily accessible for customers to research the best price. The recession and overall increase in fixed costs has hit the industry limited airlines with not flying at full capacity and many seats were left empty. High bargaining power for the buyers is a product of this condition because it keeps the average flight cost lower than what it should be. Providing the given current industry conditions were much more prosperous, it would be far more feasible for promoted competition for the title and position of price leader of the air lines.

THREAT OF SUBSTITUTE PRODUCTS: HIGH

AIRLINE INDUSTRY ON THE DECLINE FOR MOST

AIRLINE INDUSTRY ON THE DECLINE FOR MOST

• Of course, the internet is a “double edged sword”, readily available information and prices at the click of a touch pad. With all things considered, it is clear that the airline industry and it’s

• employees are under extreme duress. • Despite the deflating economic circumstances of

the airline industry, several major carriers have announced that currently new subsidiaries are to compete against the low cost providers. Thus the threat of new entrants in the low cost sector of the airline industry is substantial.

• However, initially, on June10, 2003, jetBlue announced an order for one hundred new EMBAER 190 AIRCRAFTS. THE EMBAER 190, of course, is the regional jet that seats one hundred passengers.

• However, initially, on June10, 2003, jetBlue announced an order for one hundred new EMBAER 190 AIRCRAFTS. THE EMBAER 190, of course, is the regional jet that seats one hundred passengers.

However, initially, on June10, 2003, jetBlue announced an order for one hundred new EMBAER 190 AIRCRAFTS.

THE EMBAER 190, ofcourse, is the regional jet that seats one hundred passengers.

Thus it seems that JetBlue was already prepared and was announcing intentions to enter the regional airline business.

Leading the industry with a brand new business model, in that they had previously standardized Airbus A 320’s to have already served major airports. Achieved by the rationale for

standardizing A 320’s in efforts to minimize parts inventories and personal training.

JETBLUE AIRLINESJetBlue has managed to accomplish this during these last decades of our darkest hours following the September 11 attacks. In reporting an astonishing net income of $28.3 million of total revenues on $224.9 million

To report a profit in the third quarter while most of our industry is reporting unprecedented losses is a great tribute to the dedication and hard work of the entire jetBlue team," said David Neeleman, CEO of jetBlue.

JetBlue has managed to accomplish this during these last decades of our darkest hours following the September 11 attacks. In reporting an astonishing net income of $28.3 million of total revenues on $224.9 million

• "To report a profit in the third quarter while most of our industry is reporting unprecedented losses is a great tribute to the dedication and hard work of the entire jetBlue team," said David Neeleman, CEO of jetBlue.

JETBLUE AIRLINES

jetblue airways ppt presentation

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