JetBlue’s Airline Story Revision

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Introduction

At the time of JetBlue’s airline launch, there were already 87 cases of failures that the US airline industry had witnessed in duration of 20 years. However, this was not to stop David Neelam, who was 40 years old in the year 2000 to launch JetBlue airline. Neelam was committed to bring great improvement in airline technology, improve policies and bring on board new people of good skills in the industry. He proceeded on to establish JetBlue amidst several fears in the US airline industry on the War in Iraq, the suicide attack of 9/11, and increased fear of SARS. Neelam was experienced in airline start-ups, management of low-fare tickets and his aggressive restless personality- always seeking to innovate, made him to be fired from Southwest, hence the avenue of Starting JetBlue. After completing a five-year agreement of not competing with Southwest airline, Neelam started JetBlue with determination of fixing everything that was wrong with airline industry.

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At the start, Nelaam hired two former top managers of Southwest airline; John Owen who had been the treasurer of Southwest for 14 years as JetBlue’s Chief Financial Officer alongside Ann Rhoades, who was the head of Southwest’s “People department” for six years as the executive vice president of human resources and Dave Barger (an airline veteran who worked at Continental Newark hub) as president and COO. JetBlue was the best funded airline in US aviation history with a capitalization of $ 130 million. JetBlue airline started its operations on 11th February, 2000 with small fleet of new Airbus A320s. Its operations were based at JFK, serving New York City’s JFK airport to Fort Lauderdale and Buffalo. In 2001, it added Long Beach Municipal Airport, located 20 miles from Los Angeles to serve as the West Coast base of operations. In 2003, it added services to San Diego (“News Release” 12).

Problem statements

Competition is a problem that faces JetBlue even at the beginning of its operations. There are currently airlines in the industry like Southwest that brings threat to JetBlue airline. Some airlines that exist in the industry like the Southwest are real competitors. For it to remain competitive in the industry, it has to analyze several issues, the airports are designed in places that they cannot be expanded, the future plan of expansion will bring problems as these airports will reach their maximum capacity. There are high costs of oil prices. In the world, the cost of oil has a trend of going up; these costs would obviously be passed to customers.

The customers constantly demand luxury on the planes i.e. entertainment. JetBlue does not serve meals in its daily operations. By being a Luxury airline, there is a problem of extra spending in order to provide a lot to the customers, at the beginning we see the talented, experienced airline industry players being brought on board from Southwest airline, this means experience which must me settled with high salaries. Luxury is again seen when there is an advanced technology, and designing of a good entertainment in the flight by putting free Live TV at every seat with 100 channels. While all the Luxury is much in JetBlue airline, they still continue to charge low travel fee. In its policy, JetBlue keep employees for only a period of one to five years, this means they are to employee employees after every five years, meaning there is an extra cost of training in the company; this is a problem of extra training cash. At its beginning, we don’t seem to find any kind of advertisement, this is a great problem. As a company that wishes to be highly competitive in the airline industry, JetBlue ought to have an intensive advertisement from the

Strategic Analysis

SWOT

According to Porter, SWOT analysis is a tool that management uses in pursuit of scanning the internal and external environment of a business enterprise. It helps the players in the industry to focuses on key issues so as to remain competitive in the ever turbulent market place (245).

Strengths

These are factors that are internal to the firm; they give the firm a high competitive advantage to the competitors. At JetBlue, there are several strengths that make it an airline to reckon with. At the start of JetBlue, Neelam was determined of fixing everything that was wrong with airline travel, and thus brought the “JetBlue Experience”, a service that brought unique experience to customers and the charge of low fares.

At the beginning, we see the talented, experienced airline industry players being brought on board from Southwest airline. They are the top managers at JetBlue, and were former top managers at Southwest airline too, this makes JetBlue to have a competitive advantage to its competitors. It had a good capitalization at the beginning of its operations. It brought simplicity, advanced technology, friendly people and designed a good entertainment in the flight by putting free Live TV at every seat with 100 channels, and high quality customer service.

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There is a low cost of operation at JetBlue airline this is seen when it chose the Airbus A320 which is large, more reliable, more fuel efficient than other planes, and because of affording greater economies of scale. Also seen as a strength is the continuous hiring and training of experienced people at JetBlue brings with it strength in its daily operations. Being named as the number one US domestic airline has also made it to be a strong brand in the industry. The planes arrive and depart as scheduled and this made in to be ranked second in the industry.

Weaknesses

Weakness is an internal factor in a company. At JetBlue, meals are not served unlike at the Southwest airline. This is a weakness for it has not realized some avenues of generating more revenues. They only provide snacks, drinks and all-you-can-eat terra blue chips. At the time of its establishment of 1999, relatively more airline industries were in place thus JetBlue has not managed to be in all the states of the US.

Opportunities

This is an internal scanning of a business enterprise. JetBlue has the opportunity of expanding its operations in the US by increasing the number of flights. This can be achieved because the industry is still growing and JetBlue has just the right profit to pursue this opportunity. Through increasing the flights in the US, JetBlue would penetrate the US market, it is well to note that majority of the International markets are untapped giving JetBlue airline the opportunity to explore such markets.

Threats

This is an external analysis of a company. Several airline industries were crippled in the US by the issue of September 11, the war of Iraq and Public fear of SARS caused a great threat to the entrance of JetBlue operations. The recession of the US is a threat to the airline for this might lead to a reduction of revenues in the Airline. There are threats of new entrance in the industry which faces the JetBlue airline operations in the US.

Five Forces or value chain

This is a tool used to analyze the attractiveness of an industry structure. There are five different fundamental competitive forces in this value chain. Its other name is the Five Forces Model of Porter. These forces are; entry of competitors, threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers and rivalry among the existing players (Porter 265).

Entry of competitors

Entrance of such players automatically bring stiff competition in the market, and might reduce attractiveness of an Airline. Such threats highly depend on the barriers to entry. There are two extremes where some industries are easy to enter and some are hard to enter. Some barriers to entry in some industry could be; capital required for investment, the switching costs of customers, and economies of scale. At JetBlue, we find that there is a high capital needed for start up, thus giving its competitor hard time (strong barrier to entry). The brand is known in many parts of the country. Finding good routes and airports is hard for new entrants in the airline industry, all these factors gives JetBlue strong barriers to entry by any would be a competitor, we see exemplary job of employees, customer’s satisfaction and working round the clock of the Airline to ensure that it has a continuous improvement in its daily operations. All these attributes make JetBlue to be the brand likened by many, thus giving it a strong barrier to entry of would be competitors.

Threat of substitutes

Business of JetBlue is to move people, goods and take services to different people at different places. Substitute of this business could be; driving from one place to the other (use of buses), boat, train and even cycling. In short distances, we find train being fast and efficient as well as the driving, because this will substantially save people more money unlike taking flights. However, to get to different far places like UK, Asia, people must fly. Threats of substitute do not have any significant threat of substitutes for JetBlue.

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The bargaining power of buyers

In airline industry, buyers are those who purchase the tickets. They are so many people indeed in the US. JetBlue airline has many customers for it charge a low travel price as compared to other flights, and this gives it a competitive advantage over its competitors.

The bargaining power of suppliers

We have two suppliers in the airline industry; they are the Airbus and Boeing. At its beginning, we see JetBlue purchase Airbus A320s, meaning that it chose to be supplied by Airbus. In setting or increasing prices when cost rise the suppliers have a high bargaining power, and as a result JetBlue has to increase its bargaining power. There are also the suppliers of Jet fuels; the trend of jet fuel prices is always on a rise putting many companies not to make profits. However, JetBlue’s fleet consists of two aircrafts making putting the threat of suppliers to be minimal.

Rivalry among the existing players

The rivalry is high in the airline industry, several airline companies wish to remain competitive in the market place and would wish to have the great market share in the airline industry, rivalry of the competitors is made easier by readily available information in the internet, for instance information about fare, schedules and many others. Despite all these factors, by February 11, 2000, the airline had managed to put together 12 consecutive profitable quarters and in 2003, JetBlue reported $103.9 million in net income on total operating revenue of $ 998.3 million. Threat of rivals is truly in place, but JetBlue outdo the competitors as well as the rivals through prompt service to customers and offering of low cost travel fee and luxury.

Generic Strategies

For an organization to remain competitive in the market, there are three generic strategies that an Airline need to follow as stated by Michael Porter. The three strategies are; cost leadership, differentiation, and Niche strategies (278).

Cost Leadership

A low cost leader gains competitive advantage in the industry. Cost leadership is a strategy that shows many organizations willing to operate at the low cost possible. JetBlue always strives to be following this strategy in its daily operations. The assigned seating, leather seats and the TVs in every seat makes it to differentiate itself from the competitors, its operation cost is low and this is seen when it chose the Airbus A320 which is large, more reliable, more fuel efficient than other planes, and because of affording greater economies of scale.

Differentiation

This strategy makes the companies to make goods and provide services that has unique attributes and are highly valued by customers. When companies follow this strategy, they highly add value to their daily operations. At JetBlue, we find highly skilled staff that are frequently trained, the technology is advanced, the TV at every seat, responsible crew members. And the five values of safety, caring, integrity, fun, and passion that they always strive to pursue (Dicarlo 3).

Niche strategies

This is a strategy where the organization focuses on one particular segment and properly works on it. When this happens, several players like the customers, employees, and the competitors will already know where the strength of the Airline is based. At JetBlue, they have a competitive advantage because of focusing on low cost air travel, quality employees, good products in the air industry, leather seats, and live satellite TV with DIRECTV programming makes JetBlue to remain competitive in the market.

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Financial Analysis – revenue and profitability between 1999- 2003

Year 1999 2000 2001 2002 2003
Ratio Formula Value
Net Profit Margin Net Profit after Taxes
───────────────
Total Revenues
2.4 2.6 2.4 2.8 3.2
Return on assets Net Profit
────────────────
Average Total Assets
0.2 0.4 0.2 0.4 0.4
Debt-Equity Management Ratio = Average Total Assets
──────────────────────────
Average Total Stockholders’ Equity
0.8 0.6 0.4 0.2 0.1
ROE Net Profit
───────────────────────
Average Stockholders’ Equity
4.8 4.6 3.8 4.8 5.2
Current ratio Current assets/current liabilities 2.1 2.4 1.8 1.8 1.4
Quick ratio/acid test ratio Current assets-inventories/current liabilities 0.6 0.8 0.6 0.8 1.0
Revenue to Assets Revenue/assets 0.2 0.4 0.6 0.6 0.8

The Airline has remained in outstanding position in its liquidity ratio. The Airline operates above the expected average ratio of 2:1. The ratio is below the average at 0.6:1 the average ratio is expected to be 1:1. Compared to the industry players it is viewed to be above the average as in the case of Southwest Airline. The Southwest Airline operated at 0.2:1 for its liquidity on average for the 5years.

The Airline’s profits have increased constantly from in 1999. The Airline had a ratio of 2.4 to a ratio of 3.2 in 2003. The other players in the field like Southwest increased but not equivalent. The southwest had 1.4 in 1999 but in 2003 it had a net profit margin of 2.4. The increase reflects a positive trend in profit growth (Wild and Bernstein 245).

While other players in the field have had an increased debt to equity ratio over the periods, JetBlue has reduced its debt to equity ratio from 0.8 in 1999 to 0.1 in 2003. This has made the investors to invest in its shares boosting the capital base of the Airline (Melvin 24).

Options to improve the problem

There should be a situation of JetBlue serving meals in order to boost its revenue, provision of snacks, drinks, and all-you-can-eat terra blue chips alone would not bring good revenue to the Airline. There should be lifelong maintenance of good services to the customers, and low travelling cost so that it remains competitive the market. Expansion of many terminals in some areas would be of great importance to JetBlue; this would make it to be a world class flight. The infrastructure should be increased to match the ever increasing expansion of customers who travels.

In its pursuit to remain competitive in the market, JetBlue airline need to expand services to several places of the world and have an international recognition, this would make the brand exceptionally par excellence. Expansion especially to the West Coast would be of great Importance to the company. Having employees for only a period of five years and bringing in new employees in the industry leads to lots of extra cash being spend on training of the new employees, to improve on this phenomenon, JetBlue needs to continue with the employees that it employs up to such a time that is necessary but stop laying off workers in a span of five years, this would help it reduce on training cash spend hence lead to a relatively high revenue recovery. It is only through advertisement that a product come to be a brand in the mind of people. JetBlue should improve on the advertisement of its brand; this would make it to be known to several people in the airline industry.

Recommendation

When JetBlue serves meals, there would be an increase in the revenue of the Airline. Indeed the provision of snacks alone would not make good revenue to the airline. The expansion of many terminals would make the airline to remain competitive as it sees a possibility of increased customers in the future. Continuous maintenance of the airline, customers satisfaction, low travelling cost should be exemplary this would make the industry to remain competitive in the ever changing turbulent business environment.

Many terminals open up in some areas would be of great importance to JetBlue; this would make it to be a world class flight. There is need of infrastructure improvement of JetBlue this would enable JetBlue to expand services to several places of the world especially to the West Coast. To reduce much expense, JetBlue should continue with employees for a long time, not just for a period of five years as the current status suggests. There need to be an extensive advertisement of the company; this would make it known by several people in the country and the world at large. If all these are followed by the company to the letter, then the company is set to improve and would have a continuous improvement.

Conclusion

For a competitive advantage, JetBlue is out to sustain its core competencies. This is seen by the way they do their business. In order to be extremely competitive in the industry, there should be a good analysis of all the above discussed strategies. The customers truly like JetBlue this is seen when a customer talk good about JetBlue. The customer says, “JetBlue talks the talk and walks the walk”

Works Cited

DiCarlo, Leonard. JetBlue skies. Forbes.com. 2001, Web.

JetBlue Airways. News Release. 2002. Web.

Melvin, Kera.Taxation, finance Act 2008. Washington DC: FT Prentice Hall, 2009.

Porter, Michael. Competitive strategy: Techniques for analyzing industries and competitors. New York: The Free Press, 1980.

Wild, John and Bernstein, Leopold. Analysis of financial statements. London: Graw-Hill, 2000.

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