Success Story of JetBlue Airway - Coursework Example

Executive Summary In a very competitive environment, service based firms are increasingly finding it difficult to stay profitable. This is only one of the major problems; other problems such as a global recession have left adverse affects of service industries all around the world. Airline industry is one of the most affected industries by the global recession. Hike in fuel prices along with falling number of travelers have reduced operating margins to negligible levels. Large airlines such as British Airways are facing severe financial problems forcing governments to step in with aid. In such unsuitable conditions JetBlue Airways of David Neelman is thriving. A highly experienced person Neelman has established a very high reputation for JetBlue in the airline industry. This has been possible by a combination of service and e-commerce strategies which have differentiated JetBlue Airways from other airlines. Their customer focus and easy booking systems along with sound Human resource policies have made them a success story. JetBlue Airways has achieved this success by establishing USPs. Their USPs are driven by a highly user friendly and user oriented service. This has been achieved by integrating e-business into operations, making JetBlue a paperless airline. Along with retaining customers it has also resulted in high employee satisfaction. As it is with service a satisfied employees is key to a satisfied customer. Introduction In an age of globalization definitions of terms such as competition, market and customers are rapidly changing. Today companies do not just face competition from home towns but from everywhere around the world. A simple soap manufacturer sitting somewhere in a small town of Canada is in competition with big corporations doing business in any part of the world. This global competition is also changing definitions of the word customer. A few decades back a potential customer was someone in your area who could be a user of your product. Today however it’s the wish of every corporation to expand beyond borders and reach customers around the world. This phenomenon of globalization is driven primarily by rapid advances in communication and mainly internet. The term E-Business is described today for businesses that uses internet as a supporting business function. This ranges from the travel industry with their e-ticketing to barbers in Japan who book their customers online. Actually in today’s dynamic environment every business is an E-Business. There is not a single corporation who does not use internet as a communication tool or as a means of advertisement. Salary slips, inter office notifications, online marketing and even customer feedbacks are online. Therefore it’s safe to say that internet is an integral part of the business environment. Therefore the question for every business is not whether to use, but in fact how to maximize the use of online technologies. Businesses who have found ways to maximize their usage of internet have not only witnessed a dramatic increase in their target market but have also experienced significant improvements to customer retention. Online functions also bless businesses with invaluable information about customer trends preferences and buying patterns. Using techniques such as Customer profiling, data mining and direct selling businesses can use this information to increase customer loyalty. This is even more important for the service industry. Aspects of service firms, such as service delivery time, service place and service quality can be significantly improved with help of online tools. Aims and Objectives The aim of this report is to explain how JetBlue Airway has achieved profitability against all odds due to their superior customer oriented service. The importance of different service concepts and their application by JetBlue has also been discussed. The usage of computer systems and e commerce as a pivotal tool in this success story is also discussed. Methodology This is a secondary research aimed at establishing a relationship of high customer loyalty with e-business and service strategies. The paper will review the current travel industry to provide a bench mark for JetBlue Airways analysis. This will provide us with comparative data for analysis of strategies being adopted by JetBlue, followed by a secondary research on JetBlue. This will include a complete company profile and give a summary of their effort to success. Primary focus will be on providing examples of different e-business and service strategies used by JetBlue. A comprehensive literature review will cover key concepts which are necessary to understand strategies adopted by JetBlue airways. These key concepts will then be assessed in light on actual JetBlue practices and industry trends in a detailed analysis. Industry Analysis One of the most difficult industries to survive as a businessman is the airline industry. High capital investment, followed by low operating margins and stiff competition makes it almost impossible to generate a profit. This tough competition has driven out many large airlines out of profit and forced them to declare bankruptcy. According to Richard Branson founder of Virgin Atlantic Airlines if you want to a millionaire, start with a billion dollars and open up an airline. This statement sums up the tough conditions being faced by airline industry today. Leading airlines such as British Airways are facing mammoth loses in these tough times. Last quarter British Airways reported a pretax loss of 292 million pounds. Keeping in mind that this quarter included peak summer traveling hours, gives a glimpse of the deplorable conditions. There are a number of reasons which have caused this crisis in the traveling industry. One of the biggest reasons is hikes in fuel prices. Oil is one of major input cost in the airline industry. With increases in fuel costs operating profits are reduced. The result is lack of operating margins to finance high administrative and depreciation charges. Crude oil for example jumped from $25 a barrel at the start of 2000 to $150 a barrel in 2006-07. In other industries there were also problems caused by this hike in fuel prices, but not as severe as airline industry. This is because due to high competition airlines were not able to transfer increases in fuel prices to customers. This increased their cost while keeping revenues constant, moreover after the recent global crisis there was significant decrease in air travel. This factor also forced revenues to plunge even further. In such a tough competition and against all odds JetBlue airways is still a successful airline due to their success in using e-business strategies to increase service quality and customer loyalty. JetBlue JetBlue airways were started by David Neelman in 1999. David had been in the airline industry till 1984, initially he worked for Morris Air along with June and Mitch Morris. From the beginning Neelman had displayed an incredible ability to make airlines successful with his unique and innovative ideas. While working in Morris Air he increased its value from $39 to $150 million in just a few years. This success induces a merger between Morris Air and Southwest Airlines, Neelman joined as a Vice President. This was however not a good decision. Neelman was way ahead with ideas and innovations as compared to Southwest Airlines. According to Ann Rhoades executive vice president at Southwest ‘Neelman was ahead of Southwest in technology. He introduced E-Ticketing at Southwest Airlines. He didn’t fit the culture’. This mismatch led to eventual resignation of Neelman from Southwest. He was forced to sign a five year non-compete agreement, which meant that for five years he could not start a new airline. After that Neelman used his incredible technology oriented innovation to create software known as Open Skies, which was sold to Hewlett Packard. When his non- compete agreement with Southwest Airways ended Neelman decided to start a new airline, which would be a perfect technology intensive airline. Neelman wanted to follow the basic of model of Southwest Airways i.e. stimulating demand in under-served markets with low fares. He however also wanted to increase customer loyalty, employee and customer productivity by using technology. Inspired by his previous experiences Neelman wanted to capitalize on technology and make the customer experience better than existing competitors. One of the fundamental beliefs behind JetBlue Airways was an understanding of customer desires and perceptions. For example from the start all the routes was established only for destination with high customer flight hours this was accomplished by using data mining on traveling hours of different customers. Secondly it was an effort to create a new and unique airline which could use technological innovations to ensure safety and efficiency and with a dedication to customer satisfaction. According to Neelman ‘We are a new kind of low fare airline, with deep pockets, new planes, leather seats with more leg room, great people and innovative thinking. With our friendly service and hassle-free technology, we are going to bring humanity back to air travel.’ JetBlue started its operations from New York. This was because New York was gigantic population center with a population 19 million at the time. There was a lot of additional flying capacity at New York airports. Customers were continuously complaining of low quality and high fairs being offered by airlines. There were a lot of underserved markets on routes to and from New York. This had already been proved by People Express Airways. Although a failure in 1980’s it had increased customers (8 times as previously) on many routes. However after the demise of People Express airlines, price based competition had decreased. This had pushed prices to a sky high and forced customers to an all time low. This therefore was a perfect market for a low price and high quality air service interested in generating profits. Another key decision was whether to use Airbus or Boeing as the primary aircraft for flights. Initially Neelman wanted to use Boeing for JetBlue but when it came to down to simple negotiations Airbus gave JetBlue a better deal. Air Bus proved to a better choice both from operational and financial perspectives. Air Bus is known to be more fuel efficient and gives more cabin space, making the flying experience comfortable. Paperless Airline From the very start JetBlue had an amazing team of dedicated and innovative professionals who shared the dream put forward by Neelman. One them was Al Spain vice president Operations. A line pilot himself Al Spain has always dreamed of making an airline where pilots had computers which would get rid of hefty paper work usual for a commercial pilot. JetBlue was a perfect place for him to realize this dream. Together with Neelman, Spain planned to start finding ways to cut the paper work involved in commercial airlines. This didn’t only include paperless operations for staff and employees but more importantly a paperless service for customers. To realize this dreams several steps had to be taken, which everyone else also knew were necessary for a successful airline but thought of as impossible due to bureaucratic and regulatory inertia. First of all each pilot of JetBlue Airways was given a laptop. This laptop contained details of flight schedules, operational manuals, load scheduling software, flight planning software and communication software. This proved to be a revolution; other competitor airlines such as Continental Airways had armies of clerks to complete these tasks whereas JetBlue pilots could complete them in less than four minutes on their laptops. Air bus A320 has played a major role in this transformation. It’s a very highly computerized plane where everything right down to flights logs are computer based. A paperless airline can have many advantages over its competitors. One of the major advantages is lack of errors usually caused by offsite clerks and low line managers. Motivation in pilots is increased when they do not have to fill in bulky amounts of paper work and a feeling of managerial controls is also experienced. This is because the paperless system makes the entire functioning of a plane responsibility of a pilot which increases feelings of control and responsibility leading to higher satisfaction. This also ensured operational success of other JetBlue plans such as ‘30 minute turnaround’. With everything being computerized it was possible to give a perfect 30 minute turnaround. This increased aircraft utilization of JetBlue as compared to other airlines and enabled them to keep fares at low levels. Productivity driven service quality It is envisioned by JetBlue that high service quality in a tough competitive environment can only be achieved by improving productivity. This is because high quality is sometimes mistaken for improving customer service by spending more on customer comfort etc. This is however not possible when there are price wars going all around you. For this very reason JetBlue tries to improve its customer service by improving productivity of its already existing assets. When productivity in general is improved all around, it is automatically transferred to the customer. A very simple example is of ’30 minute turnaround strategy’. Although this strategy is aimed at improving productivity of airplanes but it also improves customer satisfaction and service quality. This is because when an airline strives to reduce turnaround time it ensures there are no delays and mishaps. This leads to an improved baggage handling service, no ticket lines and small complaint handling times. JetBlue also emphasizes on increasing labor productivity by keeping employees motivated and satisfied. They fly same A320’s on all routes this reduces training and operational costs meanwhile increasing productivity and flexibility. Moreover only new planes are used which reduces maintenance and repair cost. This as mentioned before is another way to fuel service quality through striving for higher productivity. New planes take away the image of a low cost airline, giving customers high satisfaction and increase customer loyalty by new interiors and smoother flights. Service Quality and Satisfaction JetBlue is driven by the understanding that customer satisfaction is a key to profitability. JetBlue has adopted a model which ‘links employee output and quality to customer satisfaction to customer loyalty’. This phenomenon known as the service profit chain leverages JetBlue’s highly productive operations, motivated employees and high efficiency to produce customer satisfaction and thus loyalty. JetBlue’s core service value is deeply embedded in output quality which is primarily driven by a very caring attitude towards employees. In short they provide new planes, pleasant staff, in flight TV, no delays and low cost, this is everything that customers could want in an airline. Moreover JetBlue’s bill of rights ensures customer a security unimaginable with any other airline. Other E-Business Strategies BetaBlue: It is a new service being given by JetBlue which provides passengers with complimentary in-flight email and instant messaging service. Online Reservation: All flights are booked by the customers online. E-Ticket: Customers have to just take out a printout of their booking receipt; this saves commissions to agents etc. Online Feedback: Customers can file in complaint online which are responded to in a matter of hours. ERP: Enterprise resource planning software is used to manage effective allocation of resources. Literature Review We are living in a world where technology defines the very existence of each and every aspect of our lives. From making a simple phone call to the ground breaking scientific discoveries, technology encompasses the routines and lifestyles of man today. This has not only nurtured growth in the many fields of study for mankind, but has also nurtured great competition between the different players of diverse disciplines in the world. The business industry is not different of course and is perhaps, subject to the greatest competition of all. In such a situation, only the players with a unique selling proposition (USP), also known as a core competency of a firm, will survive. This USP can come in many forms ranging from related to management, product related or more often, operations related. The operations of a firm can define what kind of experience it would give to the customer. It literally spells out the quality and quantity of the product/service that you would offer to your customers (Rodriguez Jr., 2009).Therefore, improving this part of the business is vital to the quality of the product/service. In the 21st century, technology is playing a vital role in improving the various departments of the businesses and operations department is no exception. The different uses from automation to paperless organizations to customer care, technology is everywhere, and when managed correctly, can improve the business overall (Loader and Biggs, 2002.). The emphasis on the right use of technology in the overall operations of any company can lead to better customer care and better company output. This can lead to a favorable position in the market for any company. For a service industry, the quality of the service is defined as the difference between the product or service performance and customer expectations overall (Cronin and Taylor, 1992). The emergence of many different kinds of innovative applications of technology has substantiated its role in the business process improvement. Concepts such as Business Process Outsourcing (BPO) have improved businesses on the cost and quality levels. Research has shown that the BPO principles of standardization, integration, automation and innovation have driven and maintained the reliability, flexibility and quality improvement factors in an organization. Technology offers the groundwork to provide different advantages such as providing new upgrades for industry practices, flexibility in work methods, adoption of best practices and giving a sustainable quality level during maintenance (Li and Meissner, 2008). Technology application in the practices of a service organization can be crucial in affecting different key variables of an operation in a positive way especially variables such as economies of scale and the general improvement in the customer experience. This is because of the reduction in the service delivery time and the ease of accessibility of the service itself in today’s world. This translates into how quickly a customer is able to avail a service in such a time-robbed generation (Guile, 1987). The investment in the technology for your business is a vital competitive edge that a company can have over its competitors. This competitive advantage of a company can be constantly modified, renewed and monitored easily with the help of the right experts. The investment that would go into maintaining and applying the technology like different computer systems nowadays (MRP & ERP) not only prove a long term asset but also one that can be constantly renewed easily (McAfee and Brynjolfsson, 2008). One of the popular applications that businesses are applying nowadays is the e-business framework in which the company moves part (or all) of its operations online. This not only translates into faster response time to the customer’s needs and demands, but also helps the organizations to monitor those demands and provide easy accessibility to the customers overall. However, with the growing e-business applications and different aspects of this technology, the customer has a lot to choose from and the loyalty can be easily affected. Loyalty is one aspect of a business that can make it eternal. That’s because it literally means that the organization would always have the support and business from a specific set of customers who would always stand up for that organization. The loyalty of a customer depends on how satisfying the business is for him/her. This is defined in a research as listening to your partner, creating mutual satisfaction (Reichheld, 2003). However, as said before, in an e-business, the loyalty maybe a hard thing to achieve. A concept of hierarchy of "experience design"  is introduced which basically can be a platform for the e-business to thrive on as it lets the customer experience the correct mix of reliability, creativity and good visual of the business once it has started availing that e-business (Long, 2004). This means that the customer can literally be involved in the designing of different aspects of the business which can not only improve the loyalty of the business but also make it better overall. The customers can then become the assets of the company. For this to happen, the company has to be reliable, creative and fulfill the needs of the customer to begin with. The many ways to retain your customer online range from providing a personalization and customization aspects in your service through the web as well as the maintaining and promoting the privacy of the customers online so that they feel secure while availing your service on the web (Shaw, 2003). E-Loyalty, as it has come to be known now, loyalty of your customers on the web can not only ensure repeat purchase of the items you offer and generate profits, but also enhance your own image in the midst of a “survival of the fittest” market rules. The loyalty of customers especially on the web is considered vital to the growth of any company today (Reichheld and Schefter, 2000). The internet technology is now widely used in hotels, restaurants, travel industry etc. The emphasis is on how to improve the experience of the customer so that the most value can be provided and the retention of the customer is achieved. In the airline industry, specifically, the use of internet and e-business application is helping different companies provide ground-breaking different exchange mechanisms and transaction structures for the customers so that maximum value is given to them with speed and ease of delivery (McIvor , O'Reilly, Ponsonby, 2003) . This industry is the one frequently a victim of high labor costs, high maintenance costs varying seasonal demand, terrorists and vulnerability to weather conditions. These problems make this industry turn to lowering the cost of their ticket or in-flight customer experience. Both of these methods can be easily imitated as well as prove expensive for the companies. The airlines can now differentiate themselves on providing ease of accessibility to the customers before the plane even takes off. This can start right from the choosing of a specific kind of carrier or ticket price range. What is needed in this very initial stage (and which continues throughout the service), is an online business interface which is customized to specific type of travel details. This interface can offer the customers the many different services offered by the airline to its many different kinds of customers from frequent fliers to the users of club lounges etc. Moreover, automated check-in to paperless ticketing service can also improve the productivity as well as the customer experience (Taneja, 2003). This can translate into higher profits and most important of all, it can translate into higher customer loyalty as the customer would have ease of accessibility and the company would have a faster processing time per customer improving the operations of that organization. Automation in the different processes that are involved to check in/out a passenger can play a key role in reducing the hassle that the airports are famous for and companies can start at their own individual levels. Graphical windows-style presentations simplify passenger check-in. In one study, it is suggested that user prompts, color-coded screens, drop-down menus and dialogue boxes allow agents with minimal training to quickly complete passenger check-in. Edit checks at the PC level prevent wasted typing and considerably reduce transaction costs. Within seconds, data is displayed on the screen, and agents can verify passenger requests for special services (Kelemen, 2003). This reduces the passenger check in time and also increases the productivity of the operations for that company. It is important to remember to get the most out of your existing technology. This can not only save costs, but also keep the company on its toes when it comes to keeping up with the demands of the customers and enhancing their experience. The emphasis should be on training the staff such that they can improve the effect of the technology that is employed in the company in the first place. This will not only give the company a strategic advantage that cannot be easily imitated but also a segment of loyal customers who themselves would be determined to help make the company stand out from the competitors. Analysis As mentioned in the literature review the focus is not only on differentiating but developing sustainable competitive advantages. This sustainable competitive advantage can ensure a company’s success in the long run. High service quality leads to a better experience and with loads of choices all around them customers are very aware of their power. JetBlue Airways has turned the airline industry around by providing an alternative customer experience. They focus on service delivery time and are aware that this is a key factor in Airline industry. This is one of their key focuses. Keeping a tight 30 minute turnaround strategy ensures that there are no delayed flights, whenever there is a problems the system automatically corrects itself. This is because in the airline industry being on time is a very important factor, business travelers have meetings and tourists have reservations. Even a single bad experience can make a service lose its customer forever. Customer retention is a key to a successful service. This is very important especially for a firm operating in a competitive environment because each customer is an investment. Whenever a customer is lost money is spent on marketing efforts to regain that customer, therefore the loss results in an investment loss. JetBlue has successfully used e-business strategies to improve their customer retention. This reliance is one of their USPs. Every service industry has to find a unique selling proposition which differentiates it from other competitors. For example Apple Inc has an excellent after sales service which is one of their USPs. For strictly service based industries we can take the example of Microsoft with their USP being user friendliness. Therefore it can be said that to develop a successful business in a competitive environment a USP is very important. Service based businesses can use E commerce to develop their own USPs just like JetBlue Airways. Recommendations Expand JetBlue to international Flights, this is high time to capitalize on its USP and established brand name. Keep introducing more computer based technologies such as BetaBlue so JetBlue does not lose its competitive edge. To safe JetBlue from fluctuations in oil prices JetBlue must hedge in oil futures to ensure stability of prices and earnings. Must maintain a close watch on changing customer preferences to ensure high customer retention. Many airlines are trying to copy JetBlue Airway’s model, therefore JetBlue must establish new USPs to maintain a competitive advantage. Conclusion The above discussion has proved that a very strong relationship exists between high customer loyalty and e business. Service firms will have to introduce new and unique e-business strategies if they want to survive in a highly competitive environment. Service quality in firms is not possible without computerized solutions. Therefore intelligent use of computer technology is a must for establishing customer loyalty in service firms. References Dodds, B. (2007). 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