Jet Blue Hits Turbulence: Business Problem-Solving Case

Introduction

JetBlue Airlines Company was founded by David Neeleman in February 1999, when it had the name New Air and obtained most of its employees from Southwest Airlines. JetBlue developed most of its operational strategies from Southwest and was able to initially offer low-cost travel services and later developed other distinct provisions like in-flight entertainment. In September the same year, the company was given seventy-five initial take-off and landing spaces at the John F. Kennedy International Airport, and later the following year, it was given a formal air travel authorization by the US government. The company started its activities on February 11, 2000, and has been in operation since then, advancing in its technologies and receiving several awards for its work (O’Reilly 2001).

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According to O’Reilly (2007), once the company had received authorization, it started flying on a daily basis to Fort Lauderdale, Buffalo, Florida, and New York and is aimed at giving its customers the best services at low prices. The airline company had unique Airbus planes that had leather seats, each of which was equipped with A TV screen and satellite radio. The tickets were budget effective with as low as $ 99 per person one-way. It was able to develop advanced information systems and increase its fleets with time.

Types of JetBlue’s information systems and business functions

According to Loudon (2007), JetBlue enhanced luxurious flying services by automating its flight procedures through the use of information systems. Such automated procedures included the online sale of tickets and the use of electronic tags to help handle and track customers’ baggage. The airline company was able to successfully make use of electronics in all its systems hence reducing all the paperwork. As a result of investing in information systems, the company was able to make high profits while still retaining its prices low. Its business was running at 70% of the cost of its key competitors and with time, it was also able to obtain a higher percentage of its customers and hence fill its seats.

The company also, as a result of the advanced information system, was able to employ non-union workers to work as IT staff, and to create sufficient goodwill that enabled it to retain its customers by a rate of 50%. The company has established a website where approximately 80% of the flight bookings are made and this has greatly reduced the cost of hiring staff. This means that the airline company saves a sufficient amount of money and improves operational efficiency when booking is made online and confirmation is made at self-service counters (Loudon 2007).

At the beginning of the year 2002, JetBlue advanced its TV technology by acquiring Live TV, LLC for $80 million. Live TV provides JetBlue with thirty-six channels of programming on live TV at every seat. Later, the airline added more channels of XM satellite radio and TV programs and movies to its entertainment system. This worked efficiently towards attracting more customers to its airlines and it was also able to outdo its competitors in its services, all this as a result of enhanced technology (Peterson 2004).

According to Loudon (2007), the business leaders of JetBlue collaborates fully with information technology. The governance structure in the company helps the air travel business to make appropriate decisions regarding the areas to invest resources and money in. The information technology in JetBlue implements the business value metric to determine loss or gain in value in terms of money whenever an activity is carried out. The company’s management takes note that technology is important to customers and it is one way of ensuring that meaningful services are innovated for the sake of the customers.

JetBlue’s business model and how the information system supports it

JetBlue started by flying only one type of plane and from one vendor, that is, the Airbus A320. This helped the management to standardize its operational and maintenance expenses and therefore increase savings. The company, therefore, implemented the simple-is-better strategy in its business model and this was used by the then information systems’ manager, Jeff Cohen, to implement the system in the company’s operations. The CIO designed the airline’s information system using the Microsoft soft wares programs and this was efficiently used to run the in-built business operations. Other business operations like the management of planes and crews and the reservation and scheduling systems were operated by an external contractor Loudon 2007).

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According to Litwin (1998), by using one single vendor the Airbus A320 provided a technology network that enabled the CIO to keep a small number of staff and sustain in-house development of the information systems rather than having to rely on outsourcing and external consultants. This greatly benefitted JetBlue and the business worked well and cost-effectively. JetBlue was able to spend only 1.5% of its revenue on the implementation of the information system as compared to its competitors who were spending up to 5% of their revenue.

JetBlue’s technology greatly improved the flying conditions in its planes and customers were pleased. Dave Barger, the company’s director actually commented that the JetBlue airline was powered by its information technology infrastructure rather than by fuel. The company had learned the strategies of operating smart in the business even though there was the challenge of being able to sustain this progress in the future. The airline worked hard to ensure its success and by the end of the year 2006, it was able to increase its annual revenue to $2.4 billion. It had already increased the number of daily flights to 500, in fifty cities (Wynbrandt 2004).

During the year 2007, JetBlue developed another strategy towards enhancing its business operations; it committed itself to purchase at least one new plane every five weeks at an average cost of $52 million. This further enhanced its success and the amount of revenue earned continued to go up, while the customer retention rate also went up. JetBlue was actually one of the very few airlines whose revenues increased during the severe drop in airline travel after the September 11, 2001, US attack. The company is also registered in the US stock exchange market and it holds one of the most famous airline stocks in the world, with about $2 billion in market capitalization (O’Reilly 2001).

JetBlue has been able to outdo its rivals in business even as the airline industry decided to establish new companies that will be competing with JetBlue after it shows great success. Some of the companies that were established to break the dominance of JetBlue were Song, which was started by Delta Air Lines, and Ted, set up by the United Air Lines. The success of JetBlue could not compete with the two airlines and Song was disbanded almost immediately and Ted has been coming up but still ranks way behind JetBlue (Loudon 2007).

According to Wynbrandt (2004), JetBlue uses its advertisement strategy to encourage more people to use its services and in turn improve its business operations. It has a qualified crew that serves its customers and unlike other airlines, JetBlue has not tried to raise money by selling in- snacks when customers are traveling. The airline obtains revenue from its flight operations which do not include selling snacks. The snacks are given free to customers and this enhances the good relations that the company greatly requires. The airline also advertises its devotion to its customers by using media advertisements to encourage people to make the best of their flight attendants while traveling. The company is also well known for its “letter advertisements” like using salutation remarks while advertising or informing people about its services.

As the company continues to make huge profits, it is diversifying its flights to new routes. For instance, the company has established its first international service to cater to different parts of the world. It has also created routes from New York to the Dominican Republic, Bahamas, and Bermuda, and to Aruba. The airline has also added several services in other major airports in New York and plans are underway to broaden its areas to airports outside New York.

Problems experienced by JetBlue

The year 2007, February 14 halted all the progress that JetBlue had made. A major ice storm was experienced in New York and its effects greatly affected the company’s reputation and its customer relations. The company had decided to avoid canceling the flights since passengers disliked the idea of having to stay at the terminal waiting for their time to travel and would rather arrive at their destinations late. Other airlines had already started canceling their flights and considered it a good decision even if the customers would be inconvenienced and the airline would not make money for that (Wynbrandt 2004).

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Once the JetBlue planes had left the John F. Kennedy International Airport they remained stranded on the tarmac for over six hours. The planes became frozen and the equipment that was used to de-ice the aircraft failed to operate. The planes were trapped in the by ice on the tarmac and could not take off. Food and water in the planes were used up as the toilets began to back up and the airline crew found itself in a major crisis and could hardly manage to keep its public relations intact. The airline had high hopes that the situation would improve and the planes would soon take off and hence they took too long before they could seek help or come up with alternative solutions.

According to Wynbrandt (2004), the situation at the reservation system was not any better. The bad weather which had caused the delays or cancellation of other flights made the reservation attendants have a difficult time trying to keep the customers calm. The airline pilots and the flight attendants also had problems trying to pick the crew that was stranded on the tarmac and had worked for so long without rest and despite the efforts that were made to get to them the situation did not allow them to get to the crew. On the other hand, JetBlue did not have a system set where the rested crews could call in and re-assign their duties.

The situation became so worse that the airline was forced to cancel more flights the following day and for almost a week, no flights were taking place. By the end of the week, the airline had canceled 139 flights out of the total of 600, including those in airports other than John F. Kennedy International Airport. The airline was eventually able to overcome the situation and resume its operations but this could not make up for the problems that the passengers had experienced. At the end of it, the company had canceled more than 1100 flights and this resulted in a loss of close to $30 million.

According to Wynbrandt (2004), even though the airline had an efficient system for storing information, it lacked a proper and computerized system that could be used to record or track any luggage that would have been lost. Its recording system could not trace the number of bags that had been misplaced or those that had not been picked up by their owners. The agents could not use their computer systems to know whether lost bags were among the unclaimed bags lying at the airport where the planes were stranded. As the company was growing and advancing its technology, it had felt that there was no need to install a system that would carry out that function since the agents were always able to check their records to identify the owners of the leftover luggage. However, during the crisis, when so many flights were canceled, this process became unmanageable and the airline’s management could not win back its passengers’ confidence.

Since February 2007, the airline industry has experienced low profits with very high fixed costs and this has greatly affected its financial stability. The company’s chief executive officer admitted to the press that the company had not been well equipped to handle such major crises and that its communication system, despite the improved information technology had not been adequate enough to handle the situation. On the other hand, the department that was responsible for assigning the crew and the pilots to the various flights was not sufficient. During the 2007 Valentine’s Day crisis, most flight attendants were not able to get in touch with the appropriate sources to get advice on what to do to improve the situation. Most pilots and flight attendants were dislocated and the staff at the reservation could not reach them or advise them where to go.

JetBlue’s response to the crisis

The airline company had grown drastically and unlike before when the low-cost information system worked successfully towards its growth, the system found it difficult to manage the business. The company had initially implemented the strategies of saving money through its network of information systems and its lean staff and this was efficient to handle all its operations and increase its revenue. However, the February 2007 ice storm exposed the fragility of the information system’s infrastructure, and operations like rebooking, handling luggage, and tracking crews became difficult (Wynbrandt 2004).

According to Wynbrandt (2004), the company’s reservation system could not sufficiently expand to meet the high number of customers that were calling in to make bookings. For instance, under the normal working conditions, the company’s reservation system in Minneapolis, the Navitaire, was able to accommodate all the JetBlue reservation procedures as well as for other airlines. It could host up to 650 customers at one time. During the crisis, however, the system accommodated 950 customers but it was still not enough and did not solve the problem. The company could not get enough qualified staff to attend to its phones and this only made the situation worse.

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The company had enhanced its information system such that it employed reservation agents who worked from home and linked the Navitaire reservation system using the internet to create a vocal communication system. During the crisis, many several passengers were not able to know the nature of their flights since the connection was down and the phone calls could not go through. Those that did go through received a recording that advised them to refer to the company’s website. The website soon stopped operating because it could not handle the many customers that were accessing it. Hence, despite the fact that the airline had a good communication system and tried to make use of it, it was still not enough to solve the problems that were being experienced by the passengers and the crew members (Wynbrandt 2004).

According to O’Reilly (2001), JetBlue has implemented application systems which are provided by the Sabre Airline Solutions of Southlake to manage, create schedules and track planes and members of the crew who are stranded in the tarmac or anywhere else. The system is also directed towards creating effective flight strategies. One of the application systems is the FliteTrac application which is used together with the Navitaire reservation system in order to inform the crew and other relevant flight attendants about the condition of the flight, the level of fuel, the number of passengers and the time at which the plane is expected to reach its destination. Another of Sabre’s application system is the CrewTrac which has been implemented to track all the duties of the crew and to provide pilots and other flight attendants with efficient access to their assignments through a Web portal.

JetBlue also uses a Navitaire application system, the Sky Solver, to establish means of re-deploying planes back to the airport whenever disruptions occur. During the February 14 crisis, the Sky Solver could not pass the information in time to the Sabre’s application system. Despite the advanced technology in the system, the airline still had difficulties trying to all of its flight crew for deployment. This shows that even if the company had technologically advanced systems, they were not efficient to handle a crisis like the one that took place. The system could for instance not keep track of those crew members who were off-duty (Loudon 2007).

During the crisis, the airline’s CIO created a database that could be used to track the locations of the crew and which also provided pilots and other attendants to key in their locations through internet mobile devices and these were used when the Navitaire system failed to track all of the crew members (Wynbrandt 2004).

Other solutions that could have been implemented

There were other solutions that the company could have implemented but did not. During the crisis, the airline had received a number of people who were willing to assist but they did not have the proper skills to do so. The emergency control panel that had been set up by the company had a significant number of people who were ready to help but they were not skilled. Some of their flight attendants were available but the company had only trained a few in its low-cost high value strategy and this means that if more people had been trained to handle all flight operations, the company would probably have saved the situation from getting out of hand. The airline would therefore be required to modify its human resource management as it also works towards enhancing its information system.

Another effective strategy that would be implemented together with the ones that the management had come up with would be to maintain a flexible approach towards staffing in the reservation while at the same time imposing terms that would require all to be responsible in case an event occurs. This would help the management to lighten its burden while handling another crisis in the future.

JetBlue’s plans for the future

How well is JetBlue prepared for the future?

The airline company would not want to experience another crisis that it did on the Valentine’s Day 2007. According to Peterson (2004), the company is working towards enhancing transparency in its information systems for their business partners. The company’s CIO has developed information technology strategies that will prevent the airline from experiencing another major loss in the future. A governance type of structure that will ensure business is integrated into the information systems has been established and it is aimed at ensuring that even as the company intends to maintain its low-cost strategies, it should also focus on providing those bringing out application systems that will assure the company of handling future contingencies.

The company has also devised ways of looking into the needs of its customers. JetBlue followed the idea of providing low-cost services while enhancing quality and the management intends to continue implementing this in their operations. However, with the decline in its revenue following the February 14, 2007 crisis, the company has felt the need to redefine their customer relations strategies in order to gain sufficient value in its customer relations. Training more of its staff will mean that it obtains a larger number of people to handle the customer relations. The information technology will also be focused on providing excellent services to its customers. During the crisis, the company did not have an effective means of communicating with its customers and this made it to lose much of the good will that it had acquired in the past. The systems are now working towards making the networks that link the company with its customers to become reliable even in the event of another crisis (Peterson 2004).

According to Wynbrandt (2004), David Neeleman addresses the situation and says that when the disaster struck that Valentine’s Day, the airline did not have a system that could be used to re-route flights and hence many crews were stranded or found themselves in places where they were not meant to be. The president admits that the airline did not have a plan to cater for such a crisis. However, the company is working towards implementing a suitable system that will enable pilots to re-route whenever an unforeseen disaster strikes. This will prevent planes from being stuck at the tarmac or having a situation where crews are located in places that they are not meant to be and thus causing difficulties when trying to locate them.

Neeleman has also stated that it is working towards formulating a reserve program of employees which will train employees who can help the airline in the event of a crisis. During the February crisis, many of the airline’s employees were calling in to help but they were not qualified to handle such situations and were therefore of little assistance. When the program is implemented, then it means the airline will not experience a shortage of trained and qualified personnel (.Wynbrandt 2004)

The reservation operations center based in Utah could hardly handle the situation and it was overcome by the large number of passengers that were calling in to make enquiries about their flights. The center had to close its operations because it could not fulfill all its customers’ needs. The company is working towards improving the information systems used by the centre to make it more effective. By using the Navitaire reservation system’s Sky Solver, the activities are likely to improve (Loudon 2007).

Are the problems experienced likely to re-occur?

If the strategies that the management has come up with are well implemented, the airline may not experience such problems in the future. However, the company needs to work very hard to retain its customer relations as it resumes its profitability so that investors may be convinced to invest and help the company revive. The problems experienced by the airline are unlikely to be repeated neither will there be any long term negative impact on the reputation of the company (Petersopn 2004).

The airline is making great efforts to revive its public relations and it will soon be able to provide its services at discounted prices. There is hope that people will soon overcome the bad moment and will go back to the company’s services to get fair prices and quality services.

According to Peterson (2004), the most vulnerable area that is affected by the airline’s breakdowns is the customer and public relations. When a disaster strikes and the company is not able to handle it in due time, the public gets a wrong image of the company and the company may end up losing them to other airlines. This would in turn greatly affect the profitability of the company in the long term. Thus, as the company improves its information systems, it also should make efforts of ensuring that the retention rate in its customers is enhanced and it does not get to be adversely affected by the occurrence of a disaster.

How much will a customer bill of rights help?

According to Wynbrandt (2004), JetBlue introduced a customer bill of rights after the disaster struck, which assures passengers of vouchers whenever they experience delays. This is focused to winning back the passengers confidence and trust in the company especially after the inability to handle the crisis destroyed the company’s reputation and its price in the stock market. According to the airline’s president, the first step towards getting people to resume to the airline services was the introduction of the customer bill of rights.

The bill states that if JetBlue cancels a flight within twelve hours prior to its departure as a result of problems that the airline would have otherwise been able to solve, passengers have the right to request for a full refund of their ticket money or get a credit or a voucher. Where there are delays as a result of problems that are within the control of the airline, the passengers will get vouchers worth between $25 to the entire amount of their ticket depending on how long the delay took. Where a flight is delayed on the tarmac for more than three hours, the passengers will receive vouchers worth between $100 to the full value of their tickets (.Wynbrandt 2004)

The customer bill of rights has worked successfully and it has become an effective tool of getting back the large number of customers that JetBlue had before the fateful Valentine’s Day. Other airline companies have not come up with their own and the government needs to come in to ensure that customer rights prior and during flights are well looked into.

Conclusion

As a conclusion, it is clear to note that JetBlue has been one of the most successful airlines in most parts of the world and since its development in 1999 the company has focused its greatest attention to enhancing customer relations through its business strategies. It bought the idea of providing top-notch services to its customers at low prices from the Southwest airlines and since then it has been able to win a significant number of customers and at the same time make high profits. The company has been able to identify that proper information systems play a major role in promoting the airline business and this is what has given its success.

The airline’s good reputation was however almost ruined by the weather events that negatively affected its operations on February 14, 2007. The company almost lost its customers and the good public relations that it had gained. It had not been easy to convince investors or the customers that the company would revive but with time, most of its operations have gone back to the right track and there is hope that if appropriate strategies are implemented to overcome a similar problem in the future the company will resume its position in the stock market and in the airline industry.

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