JetBlue IPO case

 Review the institutional aspects of the equity issuance transaction.

The center of JetBlue's system was low-cost effort accomplished through a littler and more
productive ,gainful workforce and better utilization of innovation utilization of fresh out of the
box new single model planes that diminished support expenses and preparing costs in the
meantime.However, moving into the development stage, JetBlue was contemplating the
presentation of another model of planes , that are littler than the A320s that they were utilizing.
These planes were to be used for infiltrating average size urban areas and furthermore also off-
peak circumstances on existing routes.

The aircraft business is defenseless to upturns and downturns with the patterns in the economy.
A developing economy and blasting business mean more prominent interest for air travel, and a
back off in the economy implies decreased request, resulting unutilized limit and heightened
rivalry. The accessibility of funding, and other capital sources affect the quantity of new
contestants into the business. Loan fee variances affect the cost of tasks for organizations that
have elevated amounts of obligation.

 What are the advantages and disadvantages of going public?

The two bases of JetBlue’s competitive advantage are ‘cost leadership’ and ‘differentiation’.
JetBlue achieves cost leadership by attaining efficient operations. New planes minimize
maintenance and fuel costs, larger planes ensure more revenue per flight, longer hauls on an
average as compared to other point-to-point services keep planes longer in air. No-meals served
helps quicker turnarounds and reduce costs. Reservation agents working from home reduce need
for physical infrastructure, and thereby reduce overhead costs.
Firms pursuing low-cost strategy generally get trapped in focusing on too few of value chain
activities, or lack parity on differentiation with competitors. The low-cost advantage also gets
eroded when the competitive pricing information becomes available more easily. The strategy
can be imitated too easily.
The other component of JetBlue’s strategy is differentiation. Differentiation is achieved through
a strong brand image, the various features such as DirectTV at each seat, more legroom . JetBlue
employed a combination of strategies that gives it a distinctive competitive advantage. It
combined low-cost services with a differentiated offering. The company invested in technology
for efficient operations right from its inception and, therefore, is able to provide high quality
services at low-cost.

 What different approaches can be used to value JetBlue’s shares?

JetBlue’s culture is built around the five key values of safety, caring, integrity, fun and passion.
The chief executive reinforces those values by being closely involved in the operations. He
travels regularly on his flights and distributes snacks to his customers. This action sets an
example to his employees on the importance of customer service. The company invests in
training its employees on safety procedures. There is also an extensive orientation program in
which new employees are told about the value of customer service as well as the need to be
productive and committed to keep costs as low as possible. Employees are called
‘crewmembers’ and that reinforces the non-hierarchical and informal culture at the company.
They are offered flexible work hours, and attractive compensation plans to keep them motivated.
The friendly and motivating work environment offsets some of the monetary component of pay
and thus helps in reducing costs.

 At what price would you recommend that JetBlue offer its shares?

final offering price Cost of Debt Cost of Equity: CAPM Weights of Debt and Equity =
5.00%+1.1(5.00%)=10.50% $1,842/$17,913.99= 10.28% 1-.1028 = 89.72% WACC =
10.28%(.0425)(1-.385)+89.72%(.1050) = 9.8575%