JetBlue started as an entrepreneurship startup airline concentrating primarily on point-to-point routes. The case study points out the impending challenge that the company was facing when it was about to make a transition from an entrepreneurial business to a large airline operator in late 2000. The main question that is raised through the case study is how JetBlue can alter its status from a small airline to a big company and retain the core value and culture of doing business. Further, the case mentions certain important issues, which affect the environment in which the business operates. First, the airline industry with a lot of low-cost rivals who have been struggling to sustain the business. Second, is the second-mover strategy employed by JetBlue a sustainable strategy? Third, if differentiation of the services provided is the key to the airline’s success? Fourth, if the company will face a capital crunch like other companies? Fifth, how the company can retain the small company culture and feel while sustaining growth? The case will be analyzed to identify the factors that lead to the success or failure of entrepreneurial firms.
The airline industry has been traditionally been dominated in the US by large international players. It was the advent of Southwest Airlines, which brought in the concept of low-cost, low-fare airlines. The unique operating strategy employed by Southwest gave it a competitive advantage to maintain a low cost of operations. Following the business model many businesses were started who aped the strategies of Southwest Airlines. According to the Datamonitor report, the market value of the airlines industry in the US shrank by 12.6 percent in 2002 (3). The airline industry had then been adversely hit due to Gulf War and increasing prices of crude oil. Thus, cost cutting became the essential for all companies and focusing more on their operations. Therefore, the industry slowdown was an area of concern for JetBlue as it was a nascent player and sustaining its growth in the uncertain industry conditions was a concern for the top management. The strategy that many other airlines took was to reduce fleet and cut workforce (Datamonitor 12). The question that arises is that if this was the right strategy for JetBlue when it was planning to expand. The external environment posed a serious threat to the expansion plans of the company. Therefore, the main idea was to identify its core competency and aim at sustaining the growth rate it was riding on.
JetBlue originated in 2000 with the strategy of having low-cost operations and high quality services. To be more successful, the company adopted the strategy of low-cost and low fare. As David Neeleman, CEO of the company mentions in an interview that the company aimed to provide “high quality service with low cost” (Ford 139). The company though followed Southwest Airlines in their operational strategy o f a low cost airline; they differentiated their service offering by providing high quality on-board service to the customers. They provided added fringes like luxurious leather seats, live TV, extra legroom, etc. the main strategy that the company followed was to run its operations at lowest cost, provide best service and hire the best people in business to run the company. As mentioned by Neeleman,
“I don’t care what business you’re in or what you’re selling: if you have the best product at the lowest cost and the best people run your business, then you are going to be successful.” (Ford 139-40)
Thus, the second mover’s strategy employed by JetBlue was intended only to a certain extent. Southwest was the best airline in terms of reducing cost by increasing operational efficiency, and JetBlue aped the strategy. However, they differentiated themselves from the former in terms of service offering. Southwest was a low-cost low-fare no-fringe airline, whereas, the latter provided high quality on on-board passenger service.
The differentiation provided by JetBlue is the key to the airline’s success. As has been mentioned by Neeleman, people in the company are its competitive advantage (Ford 140). The business model of the company cannot be easily duplicated as it is made different by the people who are working of the company. It is not the added facilities of a leather seat or live TV that differentiates the company from others, rather it is the service that the people within the organization provide to the customers. Neeleman thus mentions,
“I think our in-flight entertainment offering gets way too much credit for our success, and our people don’t get enough credit. We rely on our people as a kind of fundamental way we do our business. So, you know, there will be some things that competitors can do that will resemble JetBlue, but on the other hand, I think it’s going to be very difficult for anyone to duplicate us completely.” (Ford 140)
Thus, the differentiation that JetBlue provides is through the service it provides through its employees and the people in the company. Therefore, it is easy to duplicate the tangible aspects of a service, but the intangible aspects of the business make the offerings gain competitive advantage.
All entrepreneurial ventures face a crunch for cash after a while as they fail to ascertain what need to be done when the company expands faster than the capital of the company can sustain, it is the time when the company must plan to leverage liquidity from other sources, and possibly come up with its IPO. JetBlue was expanding at a very fast rate and faster than its competitors were. Therefore, the top management of the company needed to strategize a process of initiating IPOs to leverage liquidity that can sustain the fast growth of the company.
The competitive advantage of the company lies in its people and culture of work. As in case of all entrepreneurial ventures, a problem arises when the entrepreneur falls in a dilemma in choosing between money, growth, and power as the founders of companies feel that only they can lead the company to success (Wasserman 104). However, the view is not completely refutable, but the contribution of other people who have been a part of the company must be given credit too.
What is important however, for companies is to retain the culture of the company, as it is one of the differentiating factors of the business. This is derived from the personality, style and preference of he founder. In case of JetBlue, the influence of founder Neeleman in framing the culture and the work environment has made the company a success. The people who work for the company have accepted the culture of the organization, and have become a part of it. Therefore, retention of the culture and people of the organization was important, as JetBlue was different because of the people of the company. Thus, retaining the original work culture of the company was important as it held the key to the company’s success.
From the above study of the case and of external sources it is clear about the strategy that JetBlue should take to remain successful. First was to maintain its culture. The culture of the organization provided it competitive advantage. As transitioning of business is a vital step for any entrepreneurial ventures, and fifty percent of the transitions fail (Hull and White 10). Therefore, in initiating the transition of the company there must be full participation of the CEO and the people of the organization. This is important as only these people can help retain the core value and culture of the business. Further, these people can maintain the closeness of the small company as they have the culture of the company within them. The culture of the company is reinforced in the service that the company provides to its customers.
The other core value of the company is the influence of the leader. Neeleman like a classic entrepreneur feels that the company needs a strong leadership who can maintain the core values and culture of the organization. The company’s core values are “safety, caring, fun, integrity, and passion” (Ford 141). These values must be transitioned with the company as it moves over to become a bigger organization.
A growing company is always moving with all new things rolling in at every moment. Especially with a transition, the company will face a lot of new areas and things. The company must be able to cope with these. To move towards a transition, first all the employees of the organization must be made aware of the management plans. This would enable the people of the company to expect what is coming along with having faith on their leadership.
The main aim of the company should be to train people, especially who will be new to the company to adapt with the culture and values of the company. Further, it is important to keep all the people on the same page and make them understand what is expected out of them. The company even after being transitioned must try to provide the best service to the customers which would make the their product complete.
The other strategies that the company must retain as they move ahead with the transition are its low operational cost. With the industry in doldrums due to increasing oil prices and increasing cost, the company needs to maintain its low cost of operation. Low unit cost of operations will allow the company to offer fares to attract new customers from the competitors who charge higher price for services. The main strategy that must be employed to maintain a low cost of operations was to utilize their fleet efficiently. High aircraft utilization and spreading of the fixed cost helped in lowering the cost of operations for the company. This would allow the company to leverage the low cost of operations of the company.
The other strategy that the company must maintain is to have a low distribution cost. The reason for the company’s low distribution cost were the use of ticketless travel and paper tickets allowed the company to save paper cist, portage cost, cost of employee time and processing expenses. Thus, direct booking system also reduced cost of distribution. These strategies must be continued. Hiring and retaining the right people is important to maintain high level of service. As people are the competitive advantage of the company, it is important to hire people who fit into the company’s culture and who are capable of providing high level of service quality to the customers. Training of new employees is important to make them understand the culture of the organization. Leadership is vital of the organization, as entrepreneurial ventures need to have the founder as a leader to maintain the culture and core values of the company (Wasserman 105). Given these strategies, JetBlue can successfully make a transition and maintain being successful.
Datamonitor. Airlines in the United States. Industry Profile. New York: Datamonitor, 2003.
Ford, Robert C. “David Neeleman, CEO of JetBlue Airways, on people + strategy = growth.” Academy ol Managemenl Executive Vol. 18, No. 2 (2004): 139-144.
Hull, Sam and Andrea White. “5 Myths That Can Ruin Your Business Transition.” Practice Management Solutions August 2009: 10-12.
Wasserman, Noam. “The Founder’s Dilema.” Harvard Business Review (2008): 103-111.