Jetblue Airways: Business Strategy
Running head: JetBlue Airways: Business Strategy JetBlue Airways and its Business Strategy: Abstract Business Strategy is termed the determination of a basic long-term goals and objectives of an enterprise and the adoption of actions to gather all resources in order to carry out these goals (Jayasinghe, 2009). In order for businesses to succeed they come up with a direction in which it will lead them down a long-term achievement of objectives enabling them to grow and expand. In order to become successful a new business owner must determine what market it should enter and if it will be able to compete with other similar markets. Once the market is decided such as the airline industry, then the business has to decide how it will perform better than the competition and what item(s) it will bring to the market in order to be assorted from the competition. JetBlue Airways founding father, David Neeleman wanted to start an airline “that would combine the low fares of a discount airline carrier with the comforts of a small cozy den in people’s homes” (Rovenpor & Michel, 2009). His thinking brought on the evolution that JetBlue Airways would be identified as a customer service first company which would focus on providing customers a unique experience on every flight for each interaction they had with the airline (JetBlue Experience, 2005). When a new business is entering this market it has to decide how to compete with the other similar discount airlines, such as Southwest or AirTran and make their business stand out differently. Now that the business has chosen the advantage then it will have to come up with the resources to help build the business such as operating procedures, communication systems, and information technology solutions. By understanding the social, economic, legal factors then the business will be able understand the degree of competition among the similar businesses. Finally businesses will need to understand to a degree how this business will profit for the ones invested and the expectations surrounding the environment in and around the business. Trends of the Airline Industry
Trends of the airline industry include being highly responsive to the economic cycles of the market. When gas prices soared, the airline industry had to come up with ways to cut operative expenses in order to keep ticket prices low. Airlines started charging customers to check baggage, food, pillows, blankets and entertainment in order to meet the demands of high cost expenditures of their company. Flight schedules are rearranged in order to meet the demands of travelers to various popular destinations during peak times. Airlines are also putting in place new operating procedures to minimize delays and cancellations by offering full refunds or re-accommodation on next available flights at no additional charge or fare. If a flight is cancelled due to a controllable irregularity, airlines offer vouchers that would be good to be used for future travel on their airline. Another trend airlines are beginning to offer is on-flight entertainment such as DirectTV or free satellite radio to listen too while waiting. Some airlines will have travelers pay for the ongoing entertainment once the flight is session for a minimum rate. A reward system has been another trend that airlines are offering that offers points for every time they fly on their airlines. Once the valuable customer accrues enough points they can get free tickets, entertainment, or seat upgrades to use for their next travel. American Airlines and United offer a service where you can buy a sit that has more leg room for additional cost. While cutting down operative expenses, airlines have taken advantage by installing new check-in procedures which include a Kiosk system where a customer can print out their ticket and check in bags without speaking with a customer representative or wait in long lines. By adding new destinations and daily flights, airlines are able to give travelers greater convenience and efficiency plus pay for low-fares to these destinations. Airlines are able to satisfy their customers wants and demands by coming up with better ways to serve the public. These trends that airlines develop and offer to their travelers help give them advantages over their competition. When other airlines see what their competition is offering then they have to redevelop their business strategy in order they are not taken over by the changing conditions. A company’s strategic vision is a plan that will cope with the industry and competitive conditions, outcompeting rivals, and addressing the challenges and issues that will stand at the obstacles to the success of the company (Thompson Jr., Strickland III, & Gamble, 2009). Trends that are set by one airline will impact others meaning each airline has to separate
themselves by developing powerful strategies that will forge series of moves both in the marketplace and within the company. These moves will set each airline apart from their rivals making the industry bigger and more sustainable competitive advantage which then will bring long-term profits relative to their rivals. JetBlue’s Strategic Intent JetBlue’s strategic intent is to be identified as a customer service company first, by providing customers with unique experiences on every flight and interaction they encounter with JetBlue. Their mission is stated as a goal to, “Bring humanity back to air travel” (JetBlue Experience, 2005). They deliver the “JetBlue Experience” to all their customers by bringing innovative products, purposeful services and friendly crewmembers. JetBlue offers passengers low fares to popular destinations where they will have the comfort and friendly onboard experience. By providing roomy, all leather seats with free 36 channel DirectTV, generous snacks and as well as sensible polices that include pre-assigned seats, ticketless travel, transferable credits for travel not taken (JetBlue Experience, 2005). JetBlue offered the “Passenger’s Bill of Rights,” which was the first of its kind among U.S. airline carriers, in which the company would disclose its policies regarding vouchers and refunds in events of delays, cancellations, and other inconveniences (Rovenpor & Michel, 2009). The airline also offers aircrafts that are roomier to move around with over 100 channels of XM satellite radio. JetBlue is determined to be the airline that offers the most live entertainment options than any other airline. They further announced more onboard services by offering new wine programs where wines were specially chosen to pair with name-brand snacks. A new vacation getaway online site was created to meet the demands of customers who wanted self-directed, packaged travel planning that included JetBlue tickets, accommodations, and car rentals. To help out with airport experience speedier, JetBlue came up with the online baggage check, where customers can check in up to 24 hours in advance with up to two checked bags from the comfort of their home or office (JetBlue Experience, 2005). Expanded services to more destinations and added more daily flights to accommodate travelers during peak travel times. Travelers were offered to become part of JetBlue’s rewards program called TrueBlue where they earn points towards future travel anywhere JetBlue flies. Being honored for the fourth year in a row by J.D. Power and Associates as the number one customer service ranking among low
cost carriers, they continue to grow their commitment towards friendly, helpful service with combination of amenities offered to customers’ wants and being #1 in the eyes of their customers (JetBlue Our Company, 2009). Financial Objectives JetBlue’s financial objectives include offering passengers low fares; operating point-to-point systems; using two types of aircraft; serving only snacks; and maintaining quick turnaround times at airports (Rovenpor & Michel, 2009). By offering these objectives they are reality able to keep its operating costs low compared to those of other major U.S. airlines. In 2008, JetBlue’s total operating expenses came to 12.77 cents per revenue passenger mile, which was then compared to 20.95 cents per revenue passenger mile for Delta and 13.85 cents per revenue passenger mile for Southwest (Rovenpor & Michel, 2009). JetBlue also choose aircrafts that offered additional seats and were more fuel efficient and cost less to operate. These aircrafts were brand new so repairs and maintenance costs were low for the first couple of years of operations. They further offered two types of airplanes so when the bigger plane didn’t fill to capacity during off-peak times then the company could deploy the smaller plane. The smaller planes also served the smaller, regional markets in order to get passengers to major hubs for connecting flights. This gave the mix-and-match strategy which provided a pattern of service for business travelers wanting to travel in and out of New York the same day. Since JetBlue only offered in flight snacks their turnaround time ranged from 20 to 30 minutes. JetBlue was the first company to use information technology in order to keep costs low. The system handled electronic ticketing, internet booking and revenue management. This process cost $1 to process e-ticket in comparison to $10 for a paper ticket (Rovenpor & Michel, 2009). Since 2007, JetBlue has been booking more than 75 percent of its sales on their website, leading the industry and reducing travel agent commissions which have helped save $3 billion annually for the airline industry (Rovenpor & Michel, 2009). The airline also hired full-time reservation agents to sell tickets by telephone where the agents worked from home. The company supplied company computers and second telephone lines to the agents. Each agent was paid $8.50 per hour with a fixed 5 percent annual increase, medical coverage, profit sharing, and flight benefits. The traditional call centers cost $10 more per employee hour to operate compared to the in-home reservation agents that JetBlue hired. Though
their objectives were to keep cost low, JetBlue was not able to deliver value to its stockholders over the five-year period ending in December 31, 2007. They were able to have revenues that grew 185 percent from 2003 to 2007 but their operating expenses grew 222 percent during the same period (Rovenpor & Michel, 2009). Their operating expenses included jet fuel and interest expense which interest grew 658 percent over the period to finance the company’s expanded operations (Rovenpor & Michel, 2009). In order to stimulate this loss, JetBlue came up with two types of derivative instruments to hedge exposure to aircraft fuel prices. The first instrument called option contracts would hedge increasing fuel prices when prices fell, the option would expire worthless and JetBlue would only lose the option premium paid (Rovenpor & Michel, 2009). The second instrument called swap agreement would hedge increasing fuel prices and prices fell, it would pay the counterparty to the swap the full extent of its losses. Due to the financial strategy, JetBlue was able to maintain a strong liquidity through the first quarter of 2008 (Rovenpor & Michel, 2009). Organizational Culture JetBlue put in place a strong organizational culture that would help the airline achieve extraordinary results from its employees. The first step was to determine the company’s values which were safety, caring, integrity, fun and passion. Safety being the number priority, JetBlue signed an agreement with Medaire Inc., which gave crew members the ability to consult with land-based emergency physicians anytime a passenger fell ill during flight. JetBlue also offered a section on their web-site called, “Inflight Health,” which gave tips on how to relieve ear pain, and prevent deep-vein thrombosis that caused blood clots. JetBlue was also the first airline to install Kevlar cockpit doors and cabin surveillance cameras in all their airplanes after the September 11 attacks. Caring was put in the form of respect and understanding after the September 11 attacks where the company did not lay off anyone, continued paying salaries and benefits (Rovenpor & Michel, 2009). Integrity meant doing the right thing, when a major security breach occurred in the company, Neelman took personal responsibility then hired financial advising firm, Deloitte & Touche to analyze and further develop the carrier’s privacy policies. Fun was the key to having a friendly work environment where employees enjoyed coming to work every day. JetBlue gave access to George Foreman grills in order to have barbecues and yellow punching bags were offered to relieve
stress. Finally passion was demonstrated by each employee for their work and company’s products. Employees wanted to establish that they cared for their customers by going out of their way to help when it was needed. Other culture implementations included that managers hire employees that distributed company values within themselves. During the hiring process, managers are encourage to be creative by offering jobs to college graduates for one year so they could travel and meet new people. They also developed a program where two people shared the same job so when one person was working the other could be watching the other person’s child. The final steps in organizational culture were to make sure the company continually exceeded employee expectations and listen to customers wants and demands. JetBlue continues to improve their services and differentiate themselves from other airlines which give them competitive advantage. Human resource practices included the focus on people. By calling their employees “crew members,” passengers as “customers,” and vendors as “business partners,” in order that each member of the company felt special. The hiring process includes sifting through online applications, prescreen candidates via phone interviews then invite the qualify applicants to an eight-hour one-day event. They would rank and interview the candidates then select the ones who performed especially well during group activities (Rovenpor & Michel, 2009). Then JetBlue came up with the Aviation University Gateway to anticipate the shortage of airplane pilots which identified candidates from Embry-Riddle Aeronautical University and the University of North Dakota that had exceptional potential as professional pilots. Therefore, providing the candidates with rigorous academic training and regional airline experience, the candidates would then intern at Cape Air for two years which they would be eligible for final interview at JetBlue. For training purposes, JetBlue created JetBlue University which separated into five colleges for pilots, flight attendants, maintenance crew, gate staff and reservations agents. This university gave employees the ability to continue to learn and further their training by working on mock-ups such as simulations. Jetblue is known to pay their employees lower base salaries compared to their competitors, but they make up for this by offering health coverage, profit-sharing, and 401(k) retirement plans. JetBlue also has a no lay-off policy and downsizes by voluntary packages and attrition during economic times. In order to meet the associated costs of jet fuel prices, JetBlue implemented a hiring freeze
for all management and support staff. With this policy of no lay-offs, JetBlue is able to keep their company running smoother because they are able to keep a full in house crew which keeps their daily flights running on time without delay or cancellations. Strategies for 2008 JetBlue began to follow new strategies such as reevaluate the ways the company uses assets, reduce capacity and cuts costs, raise fares and grow in select markets, improve services for corporations and business travelers, form strategic partnerships and increase ancillary revenues (Rovenpor & Michel, 2009). JetBlue has also been able to deploy their key assets such as allowing Lufthansa to use JFK as a “quasi -hub” to compete with British Airways. They signed a contract with Continental to provide them with LiveTV. They further their strategies by cutting and reducing costs by selling nine used Airbus A320s bringing a net cash of $100 million. JetBlue delayed the delivery of 21 new airbus A320s until 2014 enabling them to postpone payment of the airplanes which would save on operating expenses. Cancel service or suspend service in certain cities to cut the cost of fueling the airplanes. In certain areas where JetBlue is growing, they are slowly raising their fares which new fares were being accepted by travelers during peak periods of travel. JetBlue’s new strategies are help develop and deal with, “the new normal environment,” of rising fuel prices and increased competition (Rovenpor & Michel, 2009). If these strategies are not able to be put into place, JetBlue developed a severance plan to protect executives and employees in case of a hostile takeover by competitors. Conclusion The key to develop long-term relationships with customers is having the ability to satisfy the target market and maintaining the right market mix. Businesses need to have the ability to develop and manage all environment forces by marketing their products in specific ways in order to overcome the obstacles of changing forces. These marketing mixes give businesses the advantage over their competitors while also meeting customers’ expectations. Understanding buyers’ behaviors will satisfy the customers’ wants and needs making it easier for businesses to market correctly to the target audiences even in foreign markets. When a company has a strategy that matches the industry and competitive advantages it will give the company the best market opportunities.
References Jayasinghe, M. (2009, February 5). Business Strategy Formulation and Implementation. Retrieved March 1, 2009, from BizWeekly: http://www.bizweekly.info/business-how-to-guides/business-strategyformulation-and-implementation/?k=general+business+strategy JetBlue Experience. (2005). Retrieved October 25, 2009, from jetBlue Airways: http://www.jetblue.com/about/ourcompany/annualreport/2005/jbexp2.htm l JetBlue Our Company. (2009). Retrieved October 25, 2009, from Jetblue Airways: http://www.jetblue.com/about/ Rovenpor, J., & Michel, M. (2009). JetBlue Airways: A Cadre of New Managers Takes Control. In A. A. Thompson Jr., A. Strickland III, & J. E. Gamble, Crafting & Executing Strategy: The Quest for Competitive Advantage Concepts and Cases (pp. C-51-76). United States : McGrawHill Companies, Inc. Thompson Jr., A. A., Strickland III, A., & Gamble, J. E. (2009). Crafting & Executing Strategy. United States: McGraw Hill Companies, Inc.