Introduction and Background of Organization
JetBlue Airlines was founded in 1998 by the former executives of the Southwest Airlines led by David Neeleman. The company specializes in the low-cost travel, but it is very different from the other competitors, because it was able “to bring humanity back to air travel” (Dess, Eisner, McNamara, 2012, p. 148). In particular, the company offers in-flight customer service; the booking and check-in systems are user-friendly, and the multiple routes and low flight fares provide JetBlue with the strong competitive advantage.
However, the quick growth in the 2000s meant being exposed to many risks that existed in the external and internal environment of the company. The company had to face several challenges that were caused by the rising fuel costs and operating costs, poor crisis management during the snowstorm in the Northeast and Midwest in 2007, and several risky investments related to the extension of the existing aircraft fleet and acquisition of the companies that had very little relation to the air travel industry. JetBlue had to adequately respond to all of the mentioned problems in order to continue to build up a strong brand that would be able to compete against the other American companies that formed alliances in order to win the larger market share in the existing business segments of the air travel industry.
JetBlue is a company that has been trying to conduct business differently since the very first day of its founding. David Neeleman was in charge of the company and used a lot of ideas from the discount airline company Southwest Airlines in which he used to work for several years. For him it was important that JetBlue could keep the costs low, turn the planes around fast, introduce the booking system when the agents worked from their homes and the customers received the electronic tickets (Dess, Eisner, McNamara, 2012, p. 147). JetBlue turned out to be a very successful airline start-up that quickly raised the capital and selected the JFK airport as the key base of operations. In just three years after its founding the company was listed on NASDAQ and received additional funds for investment. What was unique about this discount airline company is that the company created a diversified flight schedule that covered large distances and offered relatively good customer service. In order to keep the costs low, the company operated a simple type aircraft fleet that did not require much maintenance. In addition, the crews and agents used electronic devices for communication and calculations. There was no food service, but the passengers still received a very good experience because of the possibility to watch TV during the flight, there were no delays and problems with the lost bags (Dess, Eisner, McNamara, 2012, p. 148).
10 years later the company started to diverge from the original business model, because there were already 75 destinations in the USA and 12 countries in the Caribbean and Latina America. The original business model had to be changed in order to make the maximum use of 180 operating planes and 12,070 employees that contributed to the company’s quick rise (Dess, Eisner, McNamara, 2012, p. 149). One more challenge that JetBlue had to face was the possible cooperation with the other large and small airline companies in the USA and abroad. What kind of cooperation there should be and in what form should the partnerships be organized were the difficult questions that JetBlue’s executives could not answer. The problem was that the young company did not want to lose its independence and flexibility, but there was common understanding that extending the number of routes and distribution channels represented many potential advantages to JetBlue that was still behind the majority of the airline companies in terms of the aircraft fleet, number of sold tickets, number of routes, etc. (Dess, Eisner, McNamara, 2012, p. 152).
JetBlue is facing a large number of existential problems. The main issue is to make sure that the company continues to grow no matter what the external circumstances are. The company became popular in the USA, but now it needs to look for the possibilities outside the country. Therefore, the company has already signed 22 code-share agreements with many strong companies from abroad including Qatar Airways, Air China, and Jet Airways from India. In addition, the company sold some of its shares to the German giant Lufthansa in order to have more financial resources that would cover the capital expenditures and the acquisition of the new planes in the next 10 years. Secondly, the company needs to pay more attention to the customer service and prevent the collapses similar to the one that occurred in 2007. The company was very young and perhaps there were no experienced crisis managers that would help JetBlue to cope with the delays and PR (Dess, Eisner, McNamara, 2012, p. 151).
In terms of the competitive environment, the U.S. airline industry is divided in three segments: major airlines with annual revenues of over $1 billion, regional airlines that cooperate with major airlines and low-fare airlines that started to emerge after the deregulation of the airline industry that was initiated in 1978. In 2012 there were 18 major companies, 6 regional companies and 8 low-fare companies (Dess, Eisner, McNamara, 2012, p. 147).
Some of the factors that influence competitiveness of the companies include pricing, routes, flight schedules, types of the planes, safety, customer services, etc. There were several periods when the airline companies suffered from the external events that did not depend on them. In particular, the terrorist attacks of 9/11 and the rising fuel prices together with the economic crisis at the end of the 2000s had a significant influence on the macro-environment in which the airline industry operates. In terms of the legal conditions, the airline industry is deregulated, but well-protected from the foreign companies. The companies also have the right to form partnerships and alliances in order to gain additional benefits. In recent years the technological changes have been playing a vital role in the development of the airline companies, because they can improve the customer service, ticket sales and effectiveness of the business operations.
If to apply the Five Force Analysis one will see that rivalry and threat of substitutes have a moderate impact on the industry and the other three forces – bargaining power of suppliers, bargaining power of customers and threat of new entrants – have a very low impact. It was written above that the rivalry is very intense and for JetBlue it is important to take a lot of strategic decisions in order to continue to grow further. The number of the competitors declined in the past decade due to the consolidation, but it does not mean that the competition is not as fierce as before. The companies apply innovative business strategies and it is not easy for a company to keep up with all the changes in the industry. Concerning the threat of substitutes, the customers may choose to use the other types of transport if the travel distance is not very long. At the same time, the air travel is the quickest, the most convenient and sometimes the cheapest form of transportation. Therefore in general substitutes do not represent any threat to the airline industry. The same thing concerns the new entrants. It is very difficult to establish a new airline company, because a lot of resources are needed for that. Moreover, much time is needed to create a company that would correspond to the legal regulations and have a strong brand that the people would trust. For example, JetBlue had to spend almost 10 years to increase the number of destinations up to 50. The next force – bargaining power of suppliers – is also very low because suppliers depend on the orders of a limited number of airline companies. The airline companies may negotiate the long-term agreements that would satisfy both parties. Finally, the bargaining power of the buyers has a very low impact on the industry, because the mobility in the USA has been increasing for many years and there are millions of people who would like to travel by means of the airline companies. At the same time the number of the airline companies has not increased. The buyers are sensitive to the ticket prices, but because of the market differentiation they can always find the tickets that they can afford to buy. The companies also provide incentives that help to compete for the loyal customers.
SWOT for JetBlue
JetBlue has developed distinctive competencies of offering the low-cost flights with a lot of customer benefits. In many ways JetBlue imitates the market leader Southwest Airlines, but the level of innovation makes JetBlue attractive for the customers. At the same time it is hard to judge whether JetBlue’s competitive advantages are sustainable, because they may be imitated by the competitors including Southwest Airlines and Virgin. In addition, the operating costs are rising, so JetBlue will have to think how to make their business strategy more sustainable. In terms of the value creation, the company strives “to bring back the humanity to the air travel” (Dess, Eisner, McNamara, 2012, p. 148). In order to achieve this ambitious goal, the company took many decisions that addressed the cost reduction and increase of the expenses that were needed for the improvement of the customer service including a ticket booking system, improving in-flight conditions, creating efficient logistics.
Evaluation of competitive business strategies
JetBlue applies two key strategies – differentiation and cost leadership. The company decided to compete in the low-cost business segment and in order to have more customers, a lot of attention is given to developing a new format of the low-cost air travel. However, the differentiation strategy overlaps with the cost leadership strategy. As the result in the 2000s the ticket prices had to be increased. What is more, JetBlue is no longer a niche player. Now it has more than 180 operating planes and has to cooperate with the other airlines in order to maximize the aircraft utilization. It has become one of the strongest companies in the low-cost segment and the scope of activity will lead to the adjustment of the business strategy.
Strategic alternatives and implementation plan
The company should consider setting up the following goals: 1) build up a strong brand with excellent reputation; 2) keep the costs as low as possible in order to be able to compete against Southwest Airlines; 3) gradually increase the number of destinations because there is still a gap with the other American airline companies; 4) diversify the customer base in order to increase the passenger-miles. These five priorities may help JetBlue to continue to follow their combination strategy that is targeted at differentiation and cost leadership. They may also contribute to the further growth of the company and catching up with the key competitors in the USA and overseas.
In order to reach the goal 1, JetBlue should improve the customer service by means of new technologies – customers should be able to book the tickets easily from all kinds of devices, and in the airport or onboard they should spend time in the cozy and interactive environment. The social networks and online resources may improve the reputation of the company and build up better relationship with the customers.
Goal 2 is the most difficult to achieve because of the high competition and the need to invest large resources into the acquisition of the new plans. The company should consider buying efficient planes from the smaller companies such as Embraer. New partnerships may help the company increase utilization of the planes and maintenance facilities. Issuing bonds may be an alternative to the bank loans that are needed to extend the fleet.
In order to achieve goal 3 the company should consider entering the new markets. Most of the flights are carried out in the East Coast. So even in the USA there are plenty of states in which JetBlue could offer their services.
Finally, goal 4 is vital, because when the companies compete in the limited business segments their profits start to decline. Entering the new business segments could help JetBlue reach the new customers that are much more financially reliable. In particular, JetBlue should consider competing against the regional airline companies in the underserved states or the states where JetBlue has strong presence.
Summary
JetBlue became a well-known company in the USA. However when one looks at the map with the destinations, he or she will see that this airline company is mainly focused on the flights in the East Coast. Therefore, the company should develop its strategy in two directions: how to expand geographically and how to adjust its original business model so that the company could continue to offer cheap flights. The company used to be a risky start-up, but after 15 years of operations it may be regarded as one of the key players in the low-cost business segment. JetBlue became a large company and the risks related to the wrong strategic decision-making have grown too. The company has to diversify the operations by continuing to offer the low-cost air travel services and adding the new services that would be targeted at the market segmentation.
References
Dess, L. Eisner, G., Lumpkin, G., McNamara, G. (2012). Strategic Management. Text and
Cases. 7th Edition. McGraw-Hill Education.
