JETBLUE AIRLINES

MONICA AGRIPPA
MARCH 18, 2013
JETBLUE CASE STUDY
ANALYSIS
JETBLUE
AIRLINES
 JETBLUE AIRLINES
• The primary subject matter of this
business policy case concerns the
competitive strategy and background
of a new, very successful airline-
jetBlue Airways (jetBlue). The time
frame of the case is from the firm’s
inception to the end of fiscal year
2002.
 JETBLUE AIRLINES
• . The case has a difficulty level of
four-five, appropriate for senior
level undergraduates or for first
year MA students. The case is
designed to be taught in one
seventy minute class and will
require two to three hours of
outside preparation by the
students.
 SYNOPSIS
• JetBlue is a new, very successful low cost
airline. In their first year of operations (2001)
they achieved a $32 million net profit on
revenues of approximately $320 million. This
particularly notable in that the entire
industry lost approximately $10 billion during
the same year. JetBlue flies point-to-point
routes- much like Southwest Airlines and
offers distinctive service features- reserved
seating, leather seats, seat back TV’s with
twenty-four channels, and very customer
oriented personnel.
 SYNOPSIS
JetBlue, at least sperficially, appears to be an
example of a Low Cost Leader. In their initial
foray into the New York to Florida market they
offered ticket prices about half of the existing
competitor’s ticket prices and a serious focus
on customer convenience- including such things
as no mandatory Saturday night stay to get the
lowest ticket price. All tickets are sold online or
though a unique Salt Lake City reservation
system.
 SYNOPSIS
They were the first airline to introduce
electronic ticketing and their use of
Information Technology is extensive.
JetBlue’s founder, David Neeleman, is a
young, forty-three year old career
entrepreneur with dyslexia. He is a
practicing Mormon with nine children and
prior to founding JetBlue had experience
with two other airline startups.
 THE FIVE FORCE INDUSTRY
COMPETITION
• One might infer that jetBlue is forcing American
and other major carriers into a price war. One of
the points that should come out in this
discussion is the relative ability of other airlines
to match jetBlue’s fare schedule. One of the
most important metrics to assess operating
performance of airlines is cost per seat mile and
jetBlue has a real advantage in this area. Their
cost per seat mile, in 2002, is about 2/3 of the
industry average!
THE FIVE FORCE INDUSTRY
COMPETITION
 THE FIVE FORCE INDUSTRY
COMPETITION
• JetBlue has significantly outperformed the
industry in most important financial ratios. In
terms of valuation ratios, PE is thirty-one.
Twelve for the most recent month compared to
an industry average of 38.43.
• One ratio that needs careful assessment is the
Debt Equity (D/E) ratio. By comparison, jet Blue
carries a fairly high D/E ratio. This can have an
effect on future borrowing for new aircraft.
 THE FIVE FORCE INDUSTRY
COMPETITION
• Growth rates in earnings per share and
sales are far above its competitors. The
implication is that jetBlue is growing
rapidly while many of its competitors are
declining. The most significant ratio
differences are in profitability and
management effectiveness. In every
category, JetBlue is out performing the
competition significantly.
JETBLUE AIRLINES
 JETBLUE AIRLINES
• Strengths: Management, Costs,
Utilization, Profitability, and Focus.
Customer-driven Mission Statement,
Appeals to high class people who
want low fares,Customer Bill of
Rights, and Leather seats, Individual
TV sets (Direct TV), and extra leg
room.
 JETBLUE AIRLINES
• Weaknesses: A significant weakness
would be size as it is possible that
larger competitors could overwhelm
JetBlue in some markets. Low Brand
Awareness, Less Experience, Low
Budget, Small Airline, Less Planes,
and Less People.
 JETBLUE AIRLINES
• Opportunities: expansion to
additional markets- particularly
underserved markets and regional
markets. International alliances,
Capitalize on domestic Hubs, and
several coastal destinations.
 JETBLUE
•
AIRLINES
Threats: Competition (particularly other
low cost airlines), the price of fuel, and
unions. Major aircraft carriers with large
budgets, Negativity surrounding the
current views of the airline industry,
extremely High Crude and Oil Prices, and
Similar Objectives and strategies as other
low-cost airlines.
CORPORATE STRATEGY
 CORPORATE STRATEGY
• JetBlue is following strategy but
interestingly they are differentiating
themselves from Southwest in several
ways such as assigned seating, leather
seats, and in particular, seat back TV.
This notion that a firm can both be a
differentiator and low cost leader files in
the face of Michael Porter’s conventional
wisdom.
FIVE FORCE ANALYSIS OF THE
AIR LINE INDUSTRY
The degree of competitiveness, power, and strength is
indicative of the five-force analysis. Michael Porter’s Five
Force Analysis Model indicate the factors that directly
influence the firm and it’s competitive actions and responses
are:
•The threat of new entrants
•The power of new suppliers
•The power of buyers
•The threat of new substitutes
•The intensity of the rivalry
• between competitors
THE THREAT OF NEW
ENTRANTS: LOW
 THE THREAT OF NEW
ENTRANTS: LOW
• Potential and existing competitors
influence average industry profitability. In
JetBlue’s case, the threat is from existing
competitors already in the market. This is
mainly due to the current economic state
we are in which greatly affects the
market entry barriers. The cost of entry
consists of extremely high costs and
massive capital requirements.
 THE THREAT OF NEW
ENTRANTS: LOW
• . In this economy, it would be nearly
impossible to find funding with the
excessive risk, lower buyer confidence,
and debt to asset ratio of the airline
industry. Major competitors of JetBlue are
already decreasing flights and merging
with one another in order to consolidate
debt and stay in business since fixed costs
are extremely high.
 THE THREAT OF NEW
SUBSTITUTES: LOW
• The bargaining power of suppliers,
particularly aircraft manufactures and
employee groups, is fairly high. JetBlue
is able to offset the bargaining power of
fuel suppliers, which is a very important
cost area, with a successful fuel- hedging
program.
•
THE THREAT OF NEW
SUBSTITUTES: LOW
 The cabins have only one class of seats which
combined an overall first class experience. There has little or no
threat to closing as the airline industry offers entry with little no no
appeal.
 The cabins have only one class of seats which
combined an overall first class experience. There has little or no
threat to closing as the airline industry offers entry with little no no
appeal.
JETBLUE AIRLINES
POWERS OF SUPPLIERS: HIGH
The key inputs in the airline industry are the jet fuel and the aircraft suppliers. The
airplane manufacturing industry is dominated by Boeing and an JetBlue’s Airbus
supplying the majority of airplanes for the me large airline companies. For this reason,
the suppliers have most of the bargaining powering leverage and increasing prices when
costs rise.
 On the bright side, since JetBlue's fleet consists of only two
types of aircrafts it keeps the cost of the airplanes lower
than if they had a fleet of vastly different types of airplanes.
• Nevertheless, most airline companies have
very LITTLEBARGIN
power given that there is a market price for
jet fuel and most airline companies pay exactly
or close to that price.
• In addition, the volume of fuel supplied to the
airlines is extremely important because jetBlue has
prescheduled flights that require a certain amount
of fuel. As a result, the bargaining powers of
suppliers is high.
• In addition, the volume of fuel supplied to the airlines
is extremely important because jetBlue has prescheduled flights that require
a certain amount of fuel. As a result, the bargaining powers of suppliers is
high.
• Never the less, most airline companies have very littlebargaining
power given that there is a market price for jet fuel and most airline
companies pay exactly or close to that price. Nevertheless, most airline
companies have very LITTLEBARGIN
power given that there is a market price for jet fuel and most airline
companies pay exactly or close to that price. In addition, the volume of fuel
supplied to the airlines is extremely important because jetBlue has
prescheduled flights that require a certain amount of fuel. As a result, the
bargaining powers of suppliers is high.
• Never the less, most airline companies have very littlebargaining
power given that there is a market price for jet fuel and most airline
companies pay exactly or close to that price.
 JETBLUE
AIRLINES
• Never the less, most airline companies have very littlebargaining
power given that there is a market price for jet fuel and most airline
companies pay exactly or close to that price. Nevertheless, most
airline companies have very LITTLEBARGIN
power given that there is a market price for jet fuel and most airline
companies pay exactly or close to that price. In addition, the volume
of fuel supplied to the airlines
is extremely important because jetBlue has prescheduled flights that
require a certain amount of fuel. As a result, the bargaining powers
of suppliers is high.
• Never the less, most airline companies have very littlebargaining
power given that there is a market price for jet fuel and most airline
companies pay exactly or close to that price.
 JETBLUE
LITTLEBARGIN AIRLINES
power given that there is a market price for
jet fuel and most airline companies pay exactly or close to
that price. In addition, the volume of fuel supplied to the
airlines is extremely important because jetBlue has
prescheduled flights that require a certain amount of fuel.
As a result, the bargaining powers of suppliers is high.
Never the less, most airline companies have very
littlebargaining
power given that there is a market price for jet fuel and mo
st airline companies pay exactly or close to that price
 INTENSITY OF RIVALRY
AMONG COMPETITORS: High
 INTENSITY OF RIVALRY
AMONG COMPETITORS: High
• The intensity of rivalry among
• competitors in the industry is very high. 
• This is due to the numerous companies that 
• strive for the dominant market share in the industry.
Airlines typically try their hardest to differentiate
themselves to gain a competitive advantage yet some of
these failed attempts typically derive unhealthy, negative
reactions from the others. Additional factors that may
• contribute to rivalry include high interest rates and
debt, feeling a generalized sense of deprivation as the
industry growth slowly decreases along with the
diminishing in disposable income necessary to have in
order to make a living.
Power of Buyers: High
 Power of Buyers: High
• There are several options available
• to customers with what airline they
choose to fly. Since products and services are essentially standard,custo
mers of this industry are price conscious under their belief that all
airline companies will get them to their destination but would
• prefer to fly with the one that can get them there cheaper. 
• with websites such as www.cheaptickets.com
 universal booking and ticketing on-line, it’s easily accessible for
customers to research the best price. The recession and overall increase
in fixed costs has hit the industry limited airlines with not flying at full
capacity and many seats were left empty. High bargaining power for the
buyers is a product of this condition because it keeps the average flight
cost lower than what it should be. Providing the given current industry
conditions were much more prosperous, it would be far more feasible
for promoted competition for the title and position of price leader of
the air lines.
THREAT OF SUBSTITUTE PRODUCTS:
HIGH
AIRLINE INDUSTRY ON THE
DECLINE FOR MOST
AIRLINE INDUSTRY ON THE
DECLINE FOR MOST
 AIRLINE INDUSTRY ON THE
DECLINE FOR MOST
• Of course, the internet is a “double edged sword”, readily available
information and prices at the click of a touch pad. With all things
considered, it is clear that the airline industry and it’s
• employees are under extreme duress.
• Despite the deflating economic circumstances of the airline
industry, several major carriers have announced that currently new
subsidiaries are to compete against the low cost providers. Thus the
threat of new entrants in the low cost sector of the airline industry is
substantial.
• However, initially, on June10, 2003, jetBlue announced an order for
one hundred new EMBAER 190 AIRCRAFTS. THE EMBAER 190,
of course, is the regional jet that seats one hundred passengers.
• However, initially, on June10, 2003, jetBlue announced an order for
one hundred new EMBAER 190 AIRCRAFTS. THE EMBAER 190,
of course, is the regional jet that seats one hundred passengers.
However, initially, on June10, 2003, jetBlue announced an order for one
hundred new EMBAER 190 AIRCRAFTS. THE EMBAER 190,
ofcourse, is the regional jet that seats one hundred passengers.
Thus it seems that JetBlue was already prepared and was announcing intentions
to enter the regional airline business. Leading the industry with a brand new
business model, in that they had previously standardized Airbus A 320’s to have
already served major airports. Achieved by the rationale for standardizing A
320’s in efforts to minimize parts inventories and personal training.
 JETBLUE AIRLINES
JetBlue has managed to accomplish this during these last
decades of our darkest hours following the September 11
attacks. In reporting an astonishing net income of $28.3 million
of total revenues on $224.9 million

To report a profit in the third quarter while most of our

industry is reporting unprecedented losses is a great tribute
to the dedication and hard work of the entire jetBlue team,"
said David Neeleman, CEO of jetBlue.

JetBlue has managed to accomplish this during these last

decades of our darkest hours following the September 11
attacks. In reporting an astonishing net income of $28.3 million
of total revenues on $224.9 million
JETBLUE AIRLINES
JETBLUE AIRLINES