Assessment of Strategic Elements of JetBlue - Case Study Example

? JetBlue Case Study JetBlue Case Study JetBlue Airlines inaugurated its initial ceremonial flight in 2000. Since then, the company has developed into a multibillion dollar entity. This report will examine the business strategies of JetBlue Airlines, discussing trends in the US airline industry and how such trends influence company’s strategies. The company’s key strengths such as customer value and employee orientation, as well as the capacity to establish and implement effective and targeted strategies have enabled JetBlue Airlines to expand both its domestic and international market base. Trends in the U.S. airline industry Trends within the US airline industry such as crude oil pricing and passenger fees, post 9/11 and pilot shortages have substantial effects on the performance and strategies of airline companies. Prices of crude oil have increased considerably in last few years, which has had a substantial effect on the pricing of passenger fees. For instance, in 2008, crude oil prices rose to a record $140 per barrel and this price swell caused airlines to labor to offset fuel costs. Many companies were forced to implement new passenger fees to cater for the surge in fuel prices. However, while fuel prices are currently low, airlines continue to increase revenue by passing costs to its customers. Shortages of pilots have also forced companies to adjust their strategies. As baby boomers retire, the airline industry suffers a shortage of pilots. Prior to becoming captains, pilots have to gain sufficient flight hours. The International Air Transport Association asserts that airlines need nearly 3,000 additional pilots each year, which is far more than training schools provide (Thompson et al., 2010). Post 9/11 aviation security also influences airlines’ strategies. After the 9/11 terror attack, Congress implemented the Aviation and Transportation Security Act (ATS). This led to the creation of the Transportation Security Administration (TSA) and established that federal employees should be in charge of airport security at all airlines (Kaplan, 2006). This forced airlines to institute numerous layers of security. JetBlue’s strategic intent  David Nelleman founded JetBlue with the view to bring humanity to air travel. The aim was to offer lowly discounted comfort and service to customers. The company’s philosophy was to delay flights instead of cancelling them entirely. The firm was the first airline to publish a bill of rights for its passengers. This document outlines its policies with regard to the airline’s customers. It launched electronic ticketing to enhance convenience and offered additional services such as in-seat television, as well as PayPal payments for tickets. In order to enhance its customer and shareholder value, the airline established rapid and strategic growth initiatives. In 2000, the firm made a rather chancy decision by starting services in New York’s JFK Airport, which was already quite congested. JetBlue took advantage of the lighter 8 to 9am flight window to offer appealing flights to young and wealthy New Yorkers and those travelling to the city. In 2008, JetBlue launched Terminal 5 at JFK to offer customers more efficacy and convenience, while also saving them up to $50 million in fuel, vouchers and labor. Between 2003 and 2008, the airline launched service to numerous destinations such as Portland, Fort Lauderdale, and San Diego among others. By the end of 2007, JetBlue had expanded its operations to more than 53 destinations (Thompson et al., 2010). However, this impressive growth did not immediately trickle down to add shareholder value.   JetBlue’s financial objectives While JetBlue showed immense promise, its stock values dropped by 50% in a span of five years ending December 2007. This is because between 2003 and 2007, the company’s operating expenditure increased by 222%. This is primarily because of jet fuel (532% rise) and interest expenditures (658% rise). Rather than handling the interest expenditures, JetBlue instituted a conservative financial strategy through which it sustained substantial liquid ratios comparative to other airlines. JetBlue expelled this cash balance and re-categorized its securities from current assets to long term investments. JetBlue was still successful in attaining new equity capital, as well as credit required to sustain the company in spite of its setbacks. Assessment of Strategic Elements Cost  JetBlue operates at a relatively low cost. Thompson, Strickland& Gamble (2010) assert that, in 2008, the airline’s operating expenses were $12.17 per revenue of passenger mile compared to America Airline’s $18.18 and Southwest’s $13.85. JetBlue’s planes like Airbus A320 are newer than its competitors’ airlines thus need low maintenance. JetBlue also increased flying time by lowering turnaround time. These strategies have lowered JetBlue’s operating costs. Organizational culture JetBlue’s organizational structure centers on five phases. The company established its values first before selecting managers and employees to mirror the values. JetBlue exceeds its employees’ expectations and listens to its customers. Finally, JetBlue created a plan to attain excellence. Some of JetBlue’s values are safety, fun, passion, caring and integrity. The George Farman grills offer employees a chance at fun. Human resource practices JetBlue has an intense focus on people. The company established the Aviation University Gateway and collaborates with universities to offer internship programs to exceptional candidates. The company addressed a decline in leadership confidence by offering leadership training at the Orlando International Airport. To atone for paying its employees lower base salaries than other airlines, JetBlue offers health coverage and 401k retirement benefits. JetBlue’s strategies after 2008 In 2008, JetBlue established fresh strategies to assess the utility of assets, cut costs, grow selected markets, reduce capacity and enhance ancillary revenues. JetBlue’s partnership with Lufthansa to allow the former to use Lufthansa’s terminals worked to their advantage. JetBlue lowered its capacity by selling its aircrafts (nine) and cut costs by delaying the purchase of 21 new planes. JetBlue also created new fees to raise revenue levels and offered incentives to corporate travelers. These strategies have been successful especially in 2009 as it earned net revenue of $58 million with operating margins of 8.5% (JetBlue, 2009). Because of JetBlue’s prosperity in tough times, it is highly likely that its robust strategies, as well as cash-rich position, will allow the company longevity in the long term (Dearman, 2009). References Dearman, W. (2009). Jet Blue’s Strategy behind the All You Can Jet Pass. Retrieved from http://thestrategyblog.com/index.php/archives/287/jet- blues-strategy-bhind-all-you-can- jet/. JetBlue. (2009). JetBlue's 2009 Annual Report on Form 10-K. Retrieved from http://phx.corporateir.net/External.File?item=UGFyZW50SUQ9Mzg1MDQzfENoaWxkSUQ9Mzg2NzExfFR5cGU9MQ==&t=1. Kaplan, E. (2006). Targets for Terrorists: Post-9/11 Aviation Security. Retrieved from http://www.cfr.org/publication/11397/targets_for_terrorists.html. Thompson, A. A., Strickland, A. J., & Gamble, J. E. (2010). Crafting and executing strategy: The 7 quest for competitive advantage: Concepts and cases: 2009 custom edition (17thed.). New York: McGraw-Hill. Read More