JetBlue Airways Strategic Management - Case Study Example

JetBlue airways strategic Name Course Tutor Date JetBlue airways strategic Table of Contents JetBlue airways strategic 2 Table of Contents 2 1.0 Introduction 3 2.0 When David Neeleman started and what inspired him 5 3.0 Strategies 6 4.0 Horizontal growth and integration 8 5.0 Conclusion 9 6.0 References 10 1.0 Introduction With the increase of airline companies in the market, competition has increased steadly prompting business managers to try to rethink strategies to take market advancement. However, in the recent years, airlines have faced tough times as a result of economic difficulties. Particularly, the industry was affected by the economic global crisis of 2008 which reduced disposable income thus reducing cost of travelling (Namukasa, 2013, p.523). In reaction to weakening demand in 2008, market players reduced cost of traveling. The situation also forced both domestic and international airlines to use airlines with reduced capacity, to abandon less performing routes so as to match supply with reduced demand. IBISWorld (2014) claims that technology also played part as some businessmen dumped air travel in favor of the technological communication such as teleconferences. Such situations have forced many airline companies to venture into low-cost segment. Pressure has put on companies that started as low-cost companies. One of such companies that have felt the pressure is JetBlue Airways. According to JetBlue Airways website (2014), JetBlue is a low-cost airline of American, based in New York, US. The company was established in 1998 and has since grown and serves destinations including the US, Caribbean, Bermuda, Bahamas, Costa Rica Barbados, Colombia, Jamaica, Dominican Republic, Peru, Puerto Rico and Mexico by 2009. The number has since increased to 84 in 2013 (JetBlue Airways, 2014). The fleet of this company is supplied by two companies including Airbus and Embraer. JetBlue Airways (2014) contend that so far the company has 110 Airbus A-320 and 43 Embraer 190 aircrafts. Due to competition in the low-cost industry, more so from Southwest Airline, the company differentiated its product by having leather seats on its all airlines, in-flight entertainment, DirectTV on all seat, and XM satellite radio (Crain, 2009, p.34). Another factor that made the company stand out during its operations is the fact that it has the youngest fleets with 5.1 years on average (JetBlue Airways, 2014). Just like many low-cost companies in the US airline industry, JetBlue Airlines is facing several challenges and its distinctive dynamics such as strict federal regulations, customers who are driven majorly by disposable income, price, and heavy capital costs and monopolistic practices (Fung & Massey, 2009). The situation led to drop of profits in mid 2000s. According to JetBlue Airways (2014) in 2005, the company announced a loss in the first quarter of the year from US$8.2 million to $2.8illion mainly because of the rising cost of fuel. It also claimed that low fares and operational issues were the key issues dropping its financial performance. Some of the operational cost mentioned is branding and differentiation. The loss was reported the entire 2005 and 2006. JetBlue Airways (2014) claimed buying of new fleets, inefficient operation and high fuel cost led to the loss. Besides that the company brand image has been tarnished by various accidents it has faced. For instance, the JetBlue had an accident emergency landing in Los Angeles International Airport. Also in early in August 4th 2014, one of JetBlue aircraft had mechanical problem during landing and on both cases there were no injuries (JetBlue Airways, 2014). Despite all these challenges, the company has grown under the stewardship of its founder David Neeleman and the CEO David Barger. As such, this paper will discuss how David Neeleman's started the company and what inspired him. The research will also identify and explain all strategies used by JetBlue, as well as horizontal growth and integration. 2.0 When David Neeleman started and what inspired him Majority of business that exist today is a result of a need gap that require to filled. In a nutshell, there is a societal need that must be satisfied to make the members of the society to feel complete. This was the case of an entrepreneur David Neeleman, who also worked for Southwest Airlines in the Executive Planning Committee. As a person who had worked in the airline industry for many years knew of the opportunity in the low-cost segment that was underutilized. Neeleman journey in the airline industry began when they co-founded Morris Air with June Morris in 1984 (Ford, 2004, p.139). He worked for this low-fare charter airway between 1984 and1988 as executive vice president and assumed presidency in 1988. Ford (2004, p.142) claimed that Morris Air was later bought by the Southwest Airlines in 1993 and Neeleman continued to work for 5 months in the Executive Planning Committee. It is while working for Morris Air the Neeleman thought of starting a unique low-cost airline company different from the existing ones. The concept behind establishing JetBlue was to have an airline company which charges low fares provided through discount and also provide the comforts to customers (Ford, 2004, p.140). His goals were for business and leisure passenger to have affordable and low-priced airlines all over the US and also internationally. In addition, the airline was also to provide comfort, with its well equipped modern entertainment options while focusing on customer service. Ford (2004, p.139) argues that one of the reasons that inspired Neeleman was his experience during his air travels, in which fabric seat he was offered was soaked with urine. This made him opt for leather seats because they are easy to clean, appealing to customers and are more comfortable compared to fabric seats. David Neeleman is also aspired by the need to succeed in life; hence he resigned from management in 2007 to more professional employees owing to the failure of JetBlue to perform based on his excellent customer service principles (Shwiff, 2008). 3.0 Strategies After two years of dismal performances, JetBlue management devised new strategies in 2008 to attract customers and increase profits. The strategies devised include reducing capacity and reduce operation costs, reevaluation company usage of assets, increase fares and improve the selected markets, create strategic partnerships, enhance ancillary revenues, provide better services for business and corporation travelers, differentiation and better positioning. In 2009, JetBlue outlined their plan to decrease the reducing costs by selling its 9 Airbus A-320 aircraft and reduce capacity (JetBlue Airways, 2014). Some of the strategies had planned for cutting cost was to delay the buying or leasing of many E-190 and A-320 aircrafts, reducing fuel consumption through a decreasing number of times the company is using its aircrafts from 13 to 12.5hours a day (JetBlue Airways, 2014). JetBlue Airways (2014) also claim that the management also suspended services in three cities as well ones that had been proposed for Los Angeles and Boston. Kiechel (2010) pines that another strategy laid down were the re-evaluation of the asset usage to increase efficiency. JetBlue created an extra new terminal at John F. Kennedy Airport with an aim of improving its departure and arrival time averages at the airport which was considered the busiest in the US. JetBlue also sold some its shares to Lufthansa airline from Germany which resulted to two things; increased of revenues and booking of JetBlue flights using on Lufthansa airlines to Germany (Fung & Massey, 2009). To increase its marketing, JetBlue Airlines signed an agreement with the Continental Airlines which allowed it broadcast JetBlue’s Live TV on the Continental Airlines aircrafts. To increase its profits, JetBlue started focusing on the selected target markets. In addition, the company resolved to increase its fares to compensate for high operational cost (Uggla, 2014, p.2). In 2008, the company stated that Orlando City would be its 7th focus market, where it would also provide service to Mexico, Santo Domingo and Cancun in the Dominican Republic (Fung & Massey, 2009). The company also states that it also obtained consent from the Department of Transportation of US to also focus on Bogota, Colombia (JetBlue Airways, 2014). JetBlue also began getting partnership with other companies during economic hardship of 2008 to increase its profits. It got into partnership with the Aer Lingus, which allowed travelers to reserve tickets on this Irish airline and travel to 40 destinations through its JFK base. JetBlue also established a strong partnership with the Cape Air to allow its passengers to travel to Hyannis, Martha’s Vineyard and Nantucket (JetBlue Airways, 2014). Jet blue management also explored ancillary revenues through the use of some unique and also creative strategies. The company came up with checked in baggage fees, where they charged passengers for the seats with additional legroom on the long haul aircraft. A cashless cabin was also introduced where customers were compelled to use debit or credit cards to purchase meals in the flights. According to Crain (2009, p.34), other effective and successful strategies used were differentiation of their product by providing leather seats, TV for entertainment on every seat and XM satellite radio. The company also has good positioning where it is highly accessible (Gursoy, Chen, Kim, 2005, p.59). Its base is the business John F. Kennedy Airport. It has an online presence where its customers can book their tickets. 4.0 Horizontal growth and integration As competition increases in various markets, businesses are using different and unique strategies to realize economies of scale and increase market power. Some of the strategies are used to acquire or merge the competitor to reduce competition. Rpvenpor & Michel (2013) postulate that in some cases, a company partners with other companies in the same level to enter into new markets to reduce business risks. In a nutshell, all these strategies are referred to as horizontal integration or growth. JetBlue is one of the companies to use such strategies to sustain competition. Armstrong & Greene (2007, p.117), argue that horizontal growth is realized by the internal or external expansion by means of acquisition or merger of companies with the same products. For instance, JetBlue started its internal expansion in 2006 by acquiring 36 new aircrafts to increase its operations both domestically and internationally (JetBlue Airways, 2014). Other strategies were in competition. JetBlue partnered with Lufthansa, Cape Air, Aer Lingus and South Africa Airways to enter into new markets including Germany, New England, Ireland and Sound Africa (Crain, 2009, p.36). The integration allowed JetBlue to increase its market share and market power by permitting its clients to travel using code-share partners’ flights. This made JetBlue to remain with the money generated through partnerships instead of the money getting to its competitors accounts. Additionally, nearly all the airlines across the world have an arranged code-share partners and this make the company a strong competitor in the international airline industry. 5.0 Conclusion From the research, it is evident that JetBlue and other companies are facing many challenges each and every single day of their operations. Fuel prices are increasing, competition is growing and operational cost is getting high. Such factors send a strong message to managers using the old management ways that are not going to help them solve new challenges; hence they must be creative enough to come up with new strategies which can help them get extra revenues and also gain market advantage. 6.0 References Armstrong, J.S., & Greene, K.C. (2007). "Competitor-oriented Objectives: The Myth of Market Share". International Journal of Business 12 (1), 116–134 Crain, D.W. (2009). Only the right people are strategic assets of the firm. Strategy & Leadership, 37 (6) 33 - 38 Ford, R.C. (2004).David Neeleman, CEO of JetBlue Airways, on people + strategy = growth. Academy of Management Executive, 18 (2), 139-43 Gursoy, D., Chen, M., Kim, H.J. (2005). The US airlines relative positioning based on attributes of service quality. Tourism Management, 26 (1), 57-67. Fung, A., & Massey, D. (2009). JetBlue's HQ contest down to NYC, Orlando. Retrieved on 12th August 2014 from http://www.crainsnewyork.com/article/20091002/FREE/910029985 IBISWorld 2014, IBISWorld Industry Report I4902: Domestic Airlines in Australia, Viewed on 29th July 2014 from http://clients1.ibisworld.com.au.ezproxy.lib.uts.edu.au/reports/au/industry/default.aspx?entid=472 JetBlue Airways. (2014). JetBlue Airways Official website. Retrieved on 12th August 2014 from www.jetblue.com. Kiechel, W. (2010). The Lords of Strategy. Harvard Business Press Namukasa, J (2013). The influence of airline service quality on passenger satisfaction and loyalty: The case of Uganda airline industry. The TQM Journal, 25 (5), 520 – 532 Rpvenpor, J., & Michel, M. (2013). “Crafting and Executing Strategy (17th edition): in Arthur A. Thompson, JR, A.J. Strickland III & John E. (2013). Crafting & Executing Strategy: The Quest for Competitive Advantage: Concepts and Case Gamble. McGraw-Hill/Irwin Shwiff, K. (2008). JetBlue Solidifies Succession Plan. The Wall Street Journal Uggla, H. (2014). Make or buy the brand: strategic direction of brand management. Strategic Direction, 30 (3), 1 – 3 Read More