Relationship between Jet Blue Airlines and JFK Airport - Research Proposal Example

Name: Professor: Course: Due date: Executive summary This study has tackled the element of relationship between an airline company and its hub airport. The airline company that has been given consideration is Jet Blue while the hub airport is JKF. Both of the two companies are located in the United States. This study, first and foremost, has established that the relationship between an airline company and its hub airport is very important. This is because the two companies are depended on each other. In this case, one business strategy that has been considered and that has been identified to have certain consequences to the hub airport is the merger with other airline companies. There are two major forces for entering into business mergers and which include economical and political. The economic reasons result from the need to mobilize resources in order to enhance the economies of scale for the involved companies. On the other hand, political reasons come as a result of enactment of certain legislations in order to improve on the bargaining power of the involved companies irrespective of the size of the company. Some of the identified consequences of a merger by Jet Blue Airline to JKF Airport include the need for expansion of the facility to accommodate more airline companies, need for proper planning, change in revenue patterns and diversification of revenue sources other than aeronautic services. Because of the direct consequences the action by one party likely to have on the other, it has been recommended that before any major business initiative, the likely consequences be identified first. Transmittal letter Name: Street: Address: Date: Professor: Department: Address: Dear .................., It is my since gratitude to bring to your attention that the project assigned to me to undertake a detailed relationship between an airline company and its hub airport is complete and request your permission to submit. The two companies that have been considered in this case are Jet Blue Airline and JKF Airport. It is my pleasure to pledge that this is my original work that has been compiled as part of my course requirements. Your acceptance will be highly appreciated. Yours Sincerely, Signature: Name: 1.0 Introduction Many different airline companies are operating globally and are directly influenced by what happens in the global airline industry and that survival is always at the centre of discussion. However, what should be noted and very important and that affects the performance of the different airline companies, is the relationship that exists with their respective hub airports. This is because, either directly or indirectly, the activity of either the airline company or the hub airport does have an effect on the other (DePamphilis, 2009). For instance, if the airline company operating in a particular hub airport where it’s a major airline enters into a merger, the hub airport is likely to suffer a great deal in many ways including decline in revenues and service delivery to its staff. It’s from this view that this research, is taking an initiative to establish the relationship that exists between a major airline company in the United States and its hub airport by looking what are the effects of forming mergers by an airline company to the hub airport. The company under consideration in this case is Jet Blue Airlines and the hub airport is JFK Airport. This will be important in demonstrating how the relationship that exists between different airline companies and their hub airlines. 1.1 Objectives i. To determine the relationships that exists between different airline companies and hub airports. ii. To establish what effects airline companies’ mergers have on the hub airport and the community in general. iii. To demonstrate the importance of having stable relationships among different airline companies and their hub airports. 2.0 Literature review Many different mergers have been formed not only in the airline sector, but across different industries. The mergers are commonly done horizontally where the companies involved operate in the same industry. More recently, with the increase in competition, different airline companies have tried to raise the issue of merging as one way of ensuring easy mobilization of their resources with no much success. Some of the mergers have been formed because of contentious political reasons while others are being taken as an initiative to deal with business economic challenges. This is to imply that different forces are behind reconfiguration and on top of the list are the economical and political factors (DePamphilis, 2009). To start with, while two or many companies come together and form one new company, the primary reason for doing that is for economic reasons. The companies merge because they are informed by the need to put their competencies together, in order to achieve certain economic gains. By taking economies of scale with regard to managing different costs and rationalizing the process of delivering the services for the company customers for competitive advantage, at the top are economic factors that have continued to push many companies to form mergers. It is believed that any company irrespective of the industry it operates in, such factors as quality in service delivery, increasing competency in training the employees and also retaining the staff is a factor of economic competence and organisational effectiveness (Arzac 2004). Political forces are also key player in forming of mergers by different organisations. The political drivers for mergers are as a result of the need to facilitate service delivery for the public benefit and also to ensure that an environment that can boost the financial viability of small organisations is encouraged. This is done by enacting different legislations that support the process of having different service providers sit together to engage in negotiations on how to pool together their resources in order to respond accordingly to the challenges that face them. This is an important power and negotiation strategy for companies to apply in ensuring that the consumer is always delighted from the services he receives (DePamphilis, 2009). In the airline industry, it is believed that for higher quality services to the consumer, the impetus is pointing towards the formation of mergers. However, what should be noted with the use of mergers in the business environment, the benefits are always patchy and contradictory and in most cases are founded on the beliefs of managers while the unidentified consequences tend to receive very minimal attention and consequently turning out to haunt the business in the long-run. Disruption of services, occurrence of diseconomies of scale, problem with managing staff, integration of services, integration of systems and other working practices are some of the commonly mentioned consequences of mergers (Arzac 2004). 3.0 Methodology The methodology that will be applied in this study is the use of the secondary sources of information. To be exact, the company information with respect to merger formation will be used to analyze the consequences that are formed by Jet Blue Airlines will have to the JKF Airport. This analysis will be supported by literature on mergers by different sources. 4.0 Research findings For many years, the Jet Blue Airways which has been known as a discount corp. has been considering diferent options to enhance its services both within and outside the U.S. The initiative for instance has been considered on in respect to the impact on performance. Merging is one strategy that the company has been considering for many years. However, because of the numerous challenges that are associated with the move both to the company and the hub airport, the company has been very keen on this. This is because of the feared repercussions that the company will face as well as the hub airport and as an alternative approach the company that has had a dominant position at JKF Airport has been applying partnerships with other global companies in order to have its business remain lucrative rather than using mergers (DePamphilis, 2009). The company Chief Executive Officer, Dave Barger, has been quoted to be saying that, “the company will be concentrating on its organic growth in order to continue creating value for its shareholders and the crew members as well as the customers.” This is to imply that the company has been giving very minimal consideration to mergers. Perhaps this is because of the associated consequences. First and most important consequence to learn about the planned mergers of the American airline companies and in particular the Jet Blue Airline on the hub airport is the expansion of the facility to accommodate more airline companies. This is founded on the fact that many companies will come in to use the JKF Airport and this will definitely call for the expansion of its terminals. This is clearly demonstrated by the current situation at the JKF Airport, which is the hub airport for Jet Blue Airline Company. The reason for expanding the airport terminal is to offer the best experience for the passengers. For instance in 2012, JKF Airport Company was forced to introduce terminal 5 in order to increase it capacity to handle the number of passengers that were using the facility as a result of numerous partnerships and mergers among American airline companies and other global airline companies (Miller 2012). The expansion that was massive and was running into billions of dollars as the cost of the project was known as T5i and was expected to introduce three new more gates significantly to facilitate immigration and other custom services for the passengers. At the moment, JKF Airport, is operating 4 out of his 5 terminals mainly for inbound international flights that all park at terminal 4 and at the same use as its immigration facility. However, with the anticipated mergers with other airline companies, there is likelihood to have some congestion at the facility and therefore the need to have more terminals. The new facility to be introduced has been prompted by the need increase access to the facility from six different gates and increase the ability to manage over 1,200 per hour. This is a very important strategy that could be used to ensure that different passengers at any given any time are at the right departure terminal so as to save transfer time and also plan for the next departure time (Currie 2012). At the moment, Jet Blue Airline serves eight destinations from JKF Airport and two more will be added this year and this is as a result of increased business partnerships and anticipated mergers. For instance, the merger or partnership of Jet Blue with the Aer Lingus, show it use T5 terminal since January 2013. In essence, it can be said here is that, as Jet Blue Airline may choose to move into business mergers with other airline companies, the hub airport is expected to benefit from the move as it will help the airport enhance its services both for the international and domestic flights and consequently generating more revenues (Miller 2012). Further, the mergers of different airline companies including the one of Jet Blue Airline, means a lot to the hub airports and more particularly the JKF which serves many domestic destinations and a few global destinations. To the JKF Airport, merger of its major airline which is Jet Blue Airline has greatly impacted on the issues of flexibility and scalability. It is important to note however, that in the current global economy, the airline industry is never expected to be stable and that various trends that are likely to affect the key players both directly and indirectly. It is therefore important to recognize that planning for the airport should always be flexible and accommodative to cater for any changes that may be happening in any industry. In the case of JKF airport, the planning has been given priority, especially on the aspect airport capacity and the procurement processes that are likely to be lumpy if not well managed. Capital investment is also another area that the airport has been experiencing some pressure. This is done purposely to ensure that the airport capacity is enhanced and flexibility to cater for more massive activities is improved (Bansi and Tuff 2012). This for instance can be learnt from the commissioning of extra terminals in the airport. This is to increase the operations of the airport for all operations including domestic, international and even transnational. On the same line, the many gates that are prompted by the increased activities are expected to accommodate different aircrafts of all types that operate in different regions and that have different body sizes. Even though prices do not shoot up immediately, it is expected that in the long-run they will. The airfare prices in this case are controlled by two major factors namely the number of airline companies using the airport and the market size that is available for exploitation. The increase in airfare prices is likely to bring both positive and negative consequences. To start with, in a more relatively stable market where the demand is not likely to change, the increase in revenues for the airline company will be reflected in the positive financial figures of the hub airport. This is because more revenues for the hub airport will be generated from the services offered to the airline company. On the other hand however, with high competition, there is also a likelihood loyalty by different travelers are likely to shift their focus to the companies that have presence in the country. This will definitely deny the airline more revenues in the long-run and consequently decline in the activities in the hub airport and hence decline in revenues (Currie 2012). In the American airline companies that are likely to give stiff competition incase of high prices include United Airlines, Southwest Airlines, American Airlines, US Airways and AirTran Airways. In addition, the establishment of mergers by the Jet Blue Airline will mean that more and more airline companies both from locally and internationally will have the opportunity to be linked with the airport. This in return, will mean that more passengers will be accessing the terminal. Economically this is important as it will always allow for viable business with the airport facility and the surrounding environment (DePamphilis, 2009). This is because the demand for other services not necessarily the ones related to aeronautic will open up and this will create revenue streams for the airport. This is as result of the expanded market and diversified customer demands from the passengers who use the JKF Airport facilities. It is also very important to note that this intended merger that affects the operations of Jet Blue Airline Company will also affect its hub airport which is JKF. In the United States, the recent mergers between the US Airways and the American Airlines, is obviously an important thing for the shareholders and all other stakeholders (Bansi and Tuff 2012). This is because it will improve the pricing powers of the two companies. Following this merger, the two companies that are likely to benefit most are Southwest Airlines and the Jet Blue Airways. While the other major airline networks like the American Delta and United are focusing on achieving high-value global business passengers, the two companies have the opportunity to grow their domestic markets. This is because the two companies are well positioned in taking the advantage of capacity rationalization that follows the merger because of their large size and their national footprint. However, the major upside for Jet Blue Airline comes from the strategic value of its hub airport of JKF that is located in New York. Important to note, is that, Jet Blue Airline has an existing interline agreement with the American Airlines commencing 2010 that allows the passengers to connect between the companies namely American and Jet Blue both JKF and Boston. In other words, this will imply that if the American Airline chooses to enhance its European gateway at JKF, different slot constraints, will force it to depend heavily on Jet Blue to generate the required connecting traffic. This is to say that in the process of American shifting JKF capacity towards global flights there will be a corresponding increase in traffic at JFK. What this will mean, is stiffer competition for the runways and other important gateways which will consequently result into the need to invest more in expansion of facilities at JKF to cater for increased demand (Miller 2012). 5.0 Conclusion and recommendation This analysis has covered important aspects of the relationship that exists between airline companies and their respective hub airports with particular reference to Jet Blue Airline and JKF Airport. This study has the relationship that existing between the two companies is very critical as the activity of each firm will directly influence the activities and operations of the other. However, some of the identified activities by either an airline company or a hub airport that are likely to affect the other include, change in financial stability, change in manager and other business strategies like partnerships, alliances and mergers. In this case, merging has been given consideration for this purpose. Some of the anticipated or known consequences of a merger of Jet Blue Airline include investment in airport expansion and change in revenue structure depending on the market dynamics. Important point that has been also learnt from this case is that the relationship is a reality and therefore the need to consider the consequences each action will have on the other party. Works Cited Arzac, E. R. Valuation for Mergers, Buyouts, and Restructuring (Wiley Finance). Wiley, 2004. Bansi, N and Tuff G. Managing your innovation portfolio. Harvard Business Review, 2012, (May): 66-74. Currie, Kenneth D. The impact of Airline Mergers, Consolidation, and Bankruptcies on Airports and their Surrounding Communities, National Aviation System, 21st May 2012. http://www.intervistas.com/downloads/The_Impact_of_Airline_Mergers_Consolidation_and_Bankruptcies_on_Airports_and_their_Surrounding_Communities.pdf DePamphilis, D. M. Mergers, Acquisitions, and Other Restructuring Activities: An Integrated Approach to Process, Tools, Cases, and Solutions. 5th edition. Academic Press, 2009. Miller Seth, JetBlue Breaks Ground on JFK Terminal Expansion, October 2nd 2012, http://www.fodors.com/news/jetblue-breaks-ground-on-jfk-terminal-expansion- 6041.html Read More