JetBlue Airways Case Essay

Problem IdentificationPresently, David Barger, progress toer coo elected CEO of JetBlue painsways (JetBlue), faces a key issue of slowing raze their gain. The issue at hand is What is the trounce grade for JetBlue slow squander their ontogeny in the succeeding(a) respiratory tract application?External abridgmentMacro Economics AnalysisFor an analysis of the Macro Economics of the JetBlue, a PESTEL analysis is shown downstairs for the United States. PESTEL AnalysisPolitical N/AEconomic The United Sates was hit hard economically from the terrorist attacks on kinsfolk 11, 2001. This ca employ f ar wars amongst competitors in the airline industry and domestic airline yields to send packing twenty percent. These yields wouldnt recover from pre attack rates until 2006. In fact, as of October 2006, five major(ip) United States airlines were run nether Chapter 11 unsuccessful person protection. Fuel costs in the United States pro ache seen a spectacular increase since the terror attacks in 2001.SocialThe airline industry, comparable each other industry, has been affected by the introduction of the internet and its substance abusers. People throw polish off made it the norm to purchase their airline tickets over the internet or else of by ph whizz or locomote agent. These sites move over become user friendly and even offer incentives to the buyer. Another social trend is reoccurring vexation riders that take flight all over the country for work or meetings transport in a only other merchandise. Technological Mostly all(prenominal)(prenominal) industry is driven by technology and the airline industry is no exception. The development of refreshful planes and bare-asser ways of manufacturing them hold a great motorcargon of esteem for a company. The current planes that JetBlue operate with are the A320 and the E190. The A320 was a moment away plane that JetBlue had begun using since their introduction in 2000.The E190 was turning into a bright plane that had great growth potential showing a ofttimes lower cost margin compared to the A320. The downside of the E190 is that it is not analogousd by JetBlues employees and customers as much as the A320. Environmental Weather is the biggest scourge to any move industry, airliners in particular. Severe weather may cause leak delays or possibly cancellations making airlines an unreli open way to travel. Legal The surface of an aircraft and the amount of riders that hotshot can fly is regulated by the Air Line Pilots Association (ALPA). These regulations help ensure the relationship between regional airlines and legacy airlines. Pilots unions develop even asked for scope clauses in their ignores to ensure that their routes are not encroached on by regional airlines. Airlines also operate under the Federal Aviation Administration (FAA) which dictates to them when a flight can fly or not in certain weather conditions.To conclude, the airline industry the likes of most industries has been dealing with economic downturn along with new social trends and the ever ripening of todays technology. Weather exit always be an unpredictable travel flaw where such industries consider no control of the results.Industry AnalysisIndustry Commercial airline providers are separated by two divisions, long force and improvident s evanesce outings. The industry that JetBlue operates in is located in the U.S. and it is divided into trine segments, legacy carriers, low cost carriers, and regional airlines. These segments serve each of thedivisions depending on the remoteness of the flight and the amount of passengers that can fit on the plane. This industry is a very emulous one and has been proven hard to turn a make for most companies. Life Cycle JetBlue, embeded in 1999, achieved major airline status in 2004 by exceeding one meg dollars in revenue. JetBlue was also able to achieve the status of the ninth largest passenger carrier in the United States in 2005. JetBlue is currently in the farm stage their life cycle just now they have several opportunities for future growth. Mark Powers, the senior vice death chair, was quoted saying that if JetBlue keeps on the same path of acquiring airplanes in bulk they will grow themselves to death.Competitors As same the commercial airline industry is segmented into three symbols of carriers. Legacy carriers are the best known airlines in the U.S. and they got their name giftable to their long histories, round dating back to the 1920s. These carriers also had a specialized characterization called the hub and radius system where these companies would have large hubs at specific airports where lots of their customers would haulage connecting flight (spokes). Some examples of legacy airlines are United Airlines, the Statesn Airlines, and Delta Airlines. lowly cost carriers, such as souwest Airlines, operated by directly manner of speaking the passengers to city to city, with in the limits of 500 miles.This was attractive to passengers receivable to no layovers or connecting flights and utilized a market that would otherwise travel by car or bus. In fact, southwesterly Airlines was the only airline in America who constantly that made profits each year from 1973 to 2005. Regional airlines work passengers on a plane of less(prenominal) than 76 seats, and were often used by legacy airlines to charter customers to large hubs to connect with their long haul flight. JetBlue competes directly with all these airlines and is often compared to Southwest Airlines, in cost of universe a low cost carrier.Porters 5 Forces ModelDegree of competition The degree of rivalry in the airline industry is very soaring, in that location are multiple companies offering the same service on a daily basis for customers to deal from. There have been price wars in the chivalric usually low cost is the consumers ultimate decision criteria. discoloration reference makes ri valry even greater and incentives that each airline gives to their customers alter them to pick and have which company theyprefer to travel with. threat of refreshed Entrants Entry into the airline industry is very hard making the threat of new entrants very low. There are high barriers along with high capital costs to start operations. An airline is required to have apprised pilots that involve compensation and they moldiness have substantial training in each aircraft in format to operate one. In order to get from economies of scale an airline essential have a fleet of airplanes of at least forty to fifty, according to Tom Anderson the senior vice president of Fleet Programs.A new entrant would have a dress it hard to compete in an industry with high brand recognition from the legacy airlines that have a loyal interest of passengers with past experiences. vendee Power customer power is extremely mixed between high and low in the airline industry. Customers ultimately ge t to pick and choose which airline best suits their specific strikes making their power high, scarce the airlines have the power of setting industry prices and times for when flights depart. Customers are left with choosing between the criteria of a low priced ticket or a specific travel time making their power a little less high or even low. Supplier Power The put out strand for JetBlue has a relatively high amount of power. Suppliers can pick and choose what airline they want to build for due(p) to the highly specialized trade.JetBlue has found themselves buying airplanes as fast as their supplier, Embraer, can make them. Embraer entered into contract with JetBlue and has enabled them to customize their E190 aircraft in order to try and develop a hawkish advantage over others. Fuel is a major source of supply in the airliner industry, with the ability to greater margins with lower costs. Fuel prices have seen a dramatic increase over the years from 2001s price of 70 cents a gallon to two dollars and ten cents per gallon in 2007.Southwest takes some of this risk out of their operations with the use of fuel hedges. Threat of Substitutions There are no substitutes for long distance air travel besides competing companies different airplanes, making the threat of substitution low. Planes can be substituted for other plans like the E190 to a regional jet (RJ), but the RJ has a 34% increase in cost per available seat mile. In a way JetBlue is operating as a substitute due to the fact that they offer 65% lower fares than legacy carriers. In terms of a travel substitutes, cars, buses, and trains are all viable substitutes for air travel if a customer decides to choose so.The above industry analysis shows that this is a highly competitive industry with varying power from consumers to suppliers. The overall ratiocination is gaining loyal customers while keeping costs low in order to stay competitive in this industry. Most of the drivers of profitability are at a industry/market level rather than a usual/firm level.Market AnalysisPrimary By utilizing their different planes, JetBlue has been able to attract two types of primary customers. The A320, the larger plane for longer hauls, attracts the family that is issue on vacation say to Florida. The E190, the smaller plane for shorter hauls, has attracted the business traveler that might be going to another state for a meeting. from each one plane can serve either purpose depending on the distance need travelled but these are the norms that JetBlue has found for their passengers.Secondary A secondary customer is served primarily on shorter hauls between cities. These revelers, as they have been called, travel from city to city for a sports event or a celebration of sorts and need to be on time without delay due to scheduling. JetBlue has found it hard in the past to guarantee no delays but continue to be one of the best in flight completion. This makes these customers non support flyers due to their reputation. Key Success FactorsIn the airline industry the following are the key success factor for a company to have a way of attracting customers, managing of their staff, managing of their fleet, customer satisfaction, the ability to meet competitive prices, have a low cost per seat mile, a high passenger load factor, and a high amount of connecting flights for long hauls.The above outdoor(a) analysis shows us that this is a highly competitive industry good of a variety of players. In order to stay successful companies must keep costs low and have good customer service. The international factors in this industry are mostly out of the companies control and should be taken for what they are due to the impact they have industry wide.The planes that JetBlue operates with are exploitable in a way that gives them a competitive advantage by being able to adhere to two markets instantaneously. The A320 allows them to accommodate long haul travelers while the E190 allows t hem to accommodate the rest of the market. The Customer Bill of Rights was established afterwards the Valentines Day crisis in 2007 and it describes JetBlues responsibilities to its customers in information sharing, cancellations, pass delays, over volumeings, and on-board ground delays for arrivals and departures. These rights are the first of its kind among the U.S. airlines.JetBlues investment of $800 jillion for their new terminal in JFK airport with 26 new render and a wide variety of passenger amenities gives them a broad competitive advantage. This shall attract brand recognition from the state of the art traffic pattern along with the exclusive access in a very industrious international airport. JetBlue with help from their supplier have been able to customize the E190 to include leather upholstery and satellite T.V. screens for each seat giving the passenger a comfortable and luxurious experience when flying. JetBlue for years has prided themselves as being the best in flight completion. BusinessWeek even had them as forth on the top performing companies in customer service.Value ChainThe activities that create value for JetBlue are as follows To lower fares JetBlue provided customers with incentives to purchase their tickets over the internet on the company website instead of by phone. If a customer still wished to book via phone hence JetBlue has part time reservation agents who worked from home which in turn lowered their reservation function costs. Having their pilots exclusively fly one type of airplane and not both. To fly both they needed two-fold certification and needed to have training flying which was a form of non-revenue flight time for JetBlue. This cuts down on fuel costs as well as training time giving JetBlues pilots expertness with their aircrafts. Red-Eye Flights. Red-Eye flights are a useful capabilitydue to the fact that not many airlines provide them. These flights are done in the early hours of the morning and connect C alifornia to the eastern cities.Leverage As seen above all the leverage ratios are above one kernel debt is higher than the equity produced by the firm. This can be seen as a lordly and a prejudicial. The positive is that the company has the potential to generate to a greater extent money with this debt then without it. As seen in the financial statements, liabilities increase every year and so does operating revenues, maybe from a direct correlation. The nix aspect is that this gives the company another expense in interest deductive from revenues.Liquidity The single liquidity ratio shows a lot concerning where a business is at in terms of being able to acquit off your debt when need be. JetBlues current ratio shows a positive and a negative aspect. The positive aspect shows that in most of the past years JetBlue has had a ratio over one meaning they could pay all their current debt if called upon. The negative aspect is that in 2005 they fell below one and below industry stan dards. Profitability In the case of profit ratios, JetBlue has a minor gap in between their net income and their operating income. The major difference is that in 2005 and2006 the operating incomes were positive and the net income negative giving an indication that there is a factor that is causing a negative impact out of operations. The industry overall has not been advantageous as seen in the analysis but JetBlue who has been compared to Southwest, who was profitable in these years, must make some changes to keep up to par.To conclude the above inwrought analysis JetBlue has many resources that they can use to gain a competitive advantage over their competitors. They also have several strong activities that chalk up great value to their operations. Their financial stability might be uncertain at times but the industry as a whole is structured this way in the United States.AlternativesAlternative 1 apprehend buying airplanes. Put a halt to all plane acquisitions for at least 3 years to stop the growth temporarily.ProsCons Stops from growing to death Will make supplier upset Allows to pay off existing debt No further benefit of economies of scale Allows for employees to place slight livelihood costsAlternative 2 Scrap the A320. Live out the rest of the days of all A320 planes then scrap them from business operations and exclusively use the E190.ProsCons E190 provides fail cost margins Employees do not like the E190 as much Using proven Southwest perplex of one type of plane- Would need to have a central hub in Kansas non wasting the remaining life of the A320s Make suppliers upset alone(predicate) market of medium range planes, opportunity for growth Alternative 3 Scrap the E190. Live out the rest of the days of all E190 planes then scrap them from business operations and exclusively use the A320.ProCons Employees like the A320 better Make suppliers upset Using proven Southwest model of one type of plane Miss out on better cost margins of the E190 Proven to be profitable in the past enjoyment of the new hub at JFK being builtDecision CriteriaThe aforementioned alternatives need to be weighted with the below criteria prior to choosing a recommendation.Employee SatisfactionCustomer SatisfactionHow upset the Supplier will bePotential growth in the near futureRecommendationWe as a police squad recommend that JetBlue use alternative two. The reason that we have picked alternative two is due to the fact that it best fit our decision criteria. Even though employees are not as fond of the E190 compared to the old A320 we feel that they would adjust to the new setting quicker if that plane was their only option, this also includes the pilots and maintenance crew. Customers seem to like the E190 and the satisfaction should come more from JetBlues new policies and procedure from the Bill of Rights. We believe that the supplier will not be as upset due to the fact that JetBlue will still be buying these planes from them as they are ne eded.The E190 gave the best cost margins for potential growth in the near future compared to the legacy carriers and regional jets making it a the clear choice. In order to completely satisfy the entire market of the United Sates JetBlue would need a new central hub located in Kansas City, as mentioned by Rob Maruster. By only having one type of aircraft in the fleet it allows JetBlues structure to act like Southwest Airlines, with their Boeing 737, and allow their ground and flight personnel decreasing the average black eye time between landing and getting back in the air. instruction executionImplementation should begin with the stopping of purchasing or fixing the A320 planes. at once enough debt has been paid off from the saved money begin to ramp up a new central terminal in Kansas City. In the long term additional E190s will need to be purchased enabling JetBlue to service more cities throughout the U.S. and keep the turnarounds quick.Contingency PlanIf helplessness to be competitive and popular with the exclusive aircraft model we suggest seek to become an international airline and flying across to boarder countries like Canada and Mexico. This would not require additional capital in planes but simply agreements with countries regulations.