Theresa Jn.

Baptiste Strategic Management

Jet Blue Case

Jet Blue Airways Corporation was created by Utah entrepreneur David Neeleman to bring humanity back to air travel. It was also a good way to add another chapter to a successful career in budget air travel. Jet Blue was launched with a huge amount of capital, brand new planes, and expert personnel in key positions. It grew rapidly as customers flocked to it to escape the steep fares and frequent delays of the major airlines.

David Neeleman grew up in Salt Lake City with seven siblings. According to Time, a red airplane on his second birthday cake first attracted him to aviation. As a young man, he served in Brazil as a Latter-Day Saints missionary, then studied accounting at the University of Utah. But he dropped out of school before graduating in favor of entrepreneurial pursuits.

Before long, Neeleman was running Morris Air, an innovative, successful low-fare carrier that was the first to offer ticketless reservations. He reportedly earned $20 million when he sold it to Southwest Airlines in 1993. He was just 33 years old at the time. Bound by a five-year noncompetition agreement, in 1995 he left the U.S. to help launch Canadian startup WestJet Airlines.

Neeleman told Sales and Marketing Management that it took 30 months of planning to get his next project, dubbed "New Air," in the skies. It also took quite a bit of money. Neeleman raised $130.2 million in start-up capital, an unprecedented amount for a start-up airline, from backers that included Chase Capital Partners ($20 million); two George Soros funds and Quantum and Soros Fund Management ($40 million combined); and San Francisco venture capital firm Western Presidio ($30 million). Banc Boston Ventures, Massachusetts Mutual Life, and Nationsbank Montgomery Securities also invested $10 million each. A group lead by Neeleman invested $10.2 million.

In mid-July 1999, a new name for "New Air" was unveiled at a press conference: JetBlue Airways. "We're going to bring humanity back to air travel," was Neeleman's bold rallying cry. As if that were not enough, JetBlue aimed to undercut other airlines' fares by an average of 65 percent. JetBlue claimed to be primarily aiming to stimulate air traffic like Southwest, rather than stealing existing passengers from the established airlines.

For its base, JetBlue chose John F. Kennedy International Airport (JFK), which was further from Manhattan than LaGuardia but still busier than the out-of-the way airports favored by Southwest. In September 1999, the Department of Transportation awarded JetBlue 75 takeoff and landing slots at JFK. The carrier received an exemption allowing it operate there between the peak hours of 3 p.m. and 8 p.m. (Neeleman observed that the non-peak hours were quite suitable for quick turnarounds.)

The company was touted as the first airline launched from scratch in the computer age. Pilots received laptop computers, not manuals, noted Air Transport World. A "telemedicine" service from MedAire allowed in-flight consultation with physicians. (Neeleman also maintained a high level of technology at home, where instead of watching television he kept himself and a family of nine children entertained with four networked PCs.)

The in-flight entertainment system boasted 24 channels of live satellite television broadcasts (including A&E, Animal Planet, CNBC, ESPN, the Food Network, Home & Garden, and the Weather Channel, but none of the four major broadcast networks) at every seat, a first among airlines, which usually aired taped shows. LiveTV, a joint venture between the Harris Corporation and Sextant In-Flight Systems, provided the service.

The airline would serve no meals but did offer gourmet blue potato chips and soda. All-leather seats, more legroom, and larger overhead bins were some of JetBlue's other attractive amenities. These and the company's marketing savvy brought it into comparison with Virgin Atlantic Airways, from which the company had in fact obtained some key personnel. One perk JetBlue did lack was a frequent flyer program, so tempting to high-mileage business travelers.

JetBlue began flying in early 2000 with just two newly leased Airbus A320s. It launched its first route, New York to Fort Lauderdale, Florida, on February 11. Advance-sale, one-way fare was $79. Six days later, the company began service to Buffalo for $49 each way.

Business grew rapidly in JetBlue's first year in the sky. The company's 300 call center employees in Salt Lake City, who had the option of working at home and saving the company overhead, were receiving 12,000 calls a day. Still, the company was booking 40 percent of its business over the Web, according to Informationweek. (Ref.forbusiness.com)

1) With reference to the case David Neelmans original strategic vision for Jet Blue was to introduce low and affordable fares for all travelers as well to compete by uniqueness and differentiation. Jet Blue delivers this service by offering additional

preflight and on board convenience that other low cost carriers did not provide as a whole package. For example customers benefit from Jet Blue simple to use reservations system, ticketless travel and pre-assign sitting. Also the cabin features, leather seats and an additional two inches of leg room space than most carriers.

JetBlue started from scratch in 1999 and has since become one of the most successful airlines to date. JetBlue has many strengths that is its uniqueness that set it apart from its competitors. That is exactly what JetBlue and founder David Neeleman wanted from the very start, to be unique and provide its customers with a flying experience for them to remember and more importantly, keep them coming back. Staying alive in the airline world is easier said than done though. JetBlue was able to start with a good sized budget and find a great management team with experience in the industry. The company made all the right decisions from which planes to buy, technological decisions, funds, as well as location decisions. All the company needed was a few planes and gate openings to get things going. From there, JetBlue's customer and employee friendly environment as well as its critical decision making have made the company prosper. New planes, profits, and new employees are coming in fast, maybe even too fast.

Now that JetBlue has established itself in the airline industry, the company needs to ensure that it stays there while it continues to achieve rapid growth. The airline business has proven to be one of the hardest industries to stay alive in, no matter the airline.

Recent struggles by companies such as United have proven that. To JetBlue though, being successful not only means being profitable and staying in business, but maintaining a values based, high commitment organizational culture as well. The company feels that their success comes from within, so without that value based culture, JetBlue would suffer. They need to expand while keeping everything within the same.

Should Jet Blue strategic vision be revised now that the company has new executive leadership? I do not believe that Jet Blue strategic vision should be abandoned

completely, but they need to capitalize on the past mistakes of the airline and fix it. For example one of the airlines philosophy was to delay flights than to cancel them and they got caught in that when flights were affected by an ice stormed which lasted longer than forecasted and flight delays at JFK caused cancellations at other airports. The airlines reputation was tarnished because of this incident. So in effect Jet Blue new leadership need to improve on its operating procedures, communications system and the use of information technology solutions to prevent another weather related debacle.

2)

What were the key elements of JetBlues strategy in 2008?

In 2008 Jet Blue began following several new strategies in response to the difficulties facing the industry such as the rise in fuel prices as well as increase competition.

JetBlue re-evaluate the ways the company was using its assets in that they found new ways of deploying two of its airlines that is its JFK terminal and its Live TV library subsidiary. Lufthansa, which held a 19% equity stake in Jet Blue and a 30% equity stake in BMI British midland with the option to buy more shares, would be able to use JFK as a quasi-hub.

Reduce capacity and cut cost that is Jet Blue agreed to sell nine used Airbus A320 which would result in a net cash gain of $100 million.

Delay delivery of 21 new airbus A320s scheduled for 2009 through 2011 to 2014and 2015. This would enable Jet Blue to postpone payment for the airplanes and save on operating expenses it would incur.

Reducing its aircraft utilization rate from 13 hours per day to 12.5 hours in the fourth quarter of 2008.

Suspending service in and out of Ohio, Nashville Tennessee and Arizona. Raise fares and grow in select markets. They started to grow in certain markets, raising their fares

Offer improved services for corporations and business travelers such as meeting-specific discounts

Increase ancillary revenues such as charging for headphone, second baggage, call center charge, extra legroom.

How was the company chosen to attract customers in sufficient volume to earn profits?

Jet Blue used many strategies to attract customers in sufficient volumes to earn profit by implementing the following;

Free television shows Low carb snacks Leather seats and more legroom; Offered private massages, manicure and hair styling for travelers at Terminal 6 at JFK Gave its customers in flight yoga cards They put childrens play area and TVs near its gates; Introduced refundable fares, meeting specific discounts, complimentary travel certificates Agreement with Expedia and Travelocity to offer flights for business customers.

How does Jet Blue Offer its customers value? Jet Blue offer its customers value by setting forth Bill of Rights for its customers. In Bill of Rights JetBlue reaffirms its commitment that JetBlue airways exists to provide its customers with superior service in every aspect of their customers travel experience. JetBlue has also True Blue customer loyalty program with no blackout dates and which allows customers to redeem awards whenever they want to travel.

3.

What are the factors driving change in the airline industry?

The current airline industry has been plagued with adverse market conditions , increase in competition, depressed economies as a result of the financial crisis and increased in fuel prices. Such an unfavourable environment has created a situation for the industry that is ripe for airlines to implement strategic move and changes.

Also with the recent 9/11 terrorist attack on airlines, the industry has implemented a lot of measures to protect the security aspect of the industry. Airlines have gone as far as changing their doors to their cockpits, implementing stringent operating procedures etc.

How are they likely to impact the future attractiveness of the industry?

Airlines' profitability is closely tied to economic growth and trade. During the first half of the 1990s, the industry suffered not only from world recession but travel was further depressed by the Gulf War. In 1991 the number of international passengers dropped for the first time. The financial difficulties were exacerbated by airlines over-ordering aircraft in the boom years of the late 1980s, leading to significant excess capacity in the market.

Since then, airlines have had to recognize the need for radical changes to ensure their survival and prosperity. Many have tried to cut costs aggressively, to reduce capacity growth and to increase load factors. At a time of renewed economic growth, such actions have returned the industry as a whole to profitability: IATA airlines' profits were $5bn in 1996, less than 2% of total revenues. This is below the level IATA believes is necessary for airlines to reduce their debt, build reserves and sustain investment levels. In addition, many airlines remain unprofitable.

To meet the requirements of their increasingly discerning customers, some airlines are having to invest heavily in the quality of service that they offer, both on the ground and in the air. Ticketless travel, new interactive entertainment systems, and more comfortable seating are just some of the product enhancements being introduced to attract and retain customers.

A number of factors are forcing airlines to become more efficient. In Europe, the European Union (EU) has ruled that governments should not be allowed to subsidize their loss-making airlines. Elsewhere too, governments' concerns over their own finances and a recognition of the benefits of privatization have led to a gradual transfer of ownership of airlines from the state to the private sector. In order to appeal to prospective shareholders, the airlines are having to become more efficient and competitive.

Despite this, the airline industry has proceeded along the path towards globalization and consolidation, characteristics associated with the normal development of many other industries. It has done this through the establishment of alliances and partnerships between airlines, linking their networks to expand access to their customers. Hundreds of airlines have entered into alliances, ranging from marketing agreements and code-shares to franchises and equity transfers.

The outlook for the air travel industry is one of strong growth. Forecasts suggest that the number of passengers will double by 2010. For airlines, the future will hold many challenges. Successful airlines will be those that continue to tackle their costs and improve their products, thereby securing a strong presence in the key world aviation markets.

References

Arthur A. Thompson, Jr: A.J. Strickland III: John E. Gamble : Crafting and Executing Strategy 17th Edition

www.jetBlue.com

www.stanford.edu