JetBlue Airways: Company History and Strategy Analysis

Introduction

JetBlue was formed in early 1999 with a name of ‘NewAir’ which decided to put on a struggle to be a well-known airline in the next few years. In order to create its distinctive image, it initially decided to have a name like ‘Taxi’ that could help the airline position itself in the minds of customers. However, due to constant threats from shareholders, the name ‘JetBlue’ was decided. The airline had always been a low-fare airline but with very distinct features which ensured success for the airline. JetBlue decided to start its operations in late 1999 (with an investment of $130 Million), it firstly decided to have destinations within the USA but with the passage of time many of the international destinations were also added under the name of JetBlue, these destinations were Bahamas, Bermuda, Dominican Republic and later few Caribbean countries.

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JetBlue is among the few airlines that were running profitably even after the 9/11 attacks. It shows the trust customers have in JetBlue as the airline used to offer unique services (in-flight entertainment and quality food stuff) at cheaper rates. The corporate level planning which forced the airline to expand its fleet size and an urge to go international made it hard for JetBlue to manage the operations effectively and the profit levels started to decline by the end of the year 2005. The blames were usually given to the high fuel costs, operational issues and yet low fares. The next few years tested the nerves of JetBlue as most the business and functional level planning was done to reduce the fleet size, the number of employees and of course the operational costs. Today, JetBlue considers itself out of the risk but not totally secure.

Mission Statement: To bring humanity back to air travel

Corporate Governance

In order to discuss the role of corporate governance in the management of JetBlue, it is necessary to understand the term. To define it simple, corporate governance is the policies and practices controlling an organisation. As long as JetBlue is a public company (it went public in 2002), the corporate governance really matters as it is about operating the company in the best interests of the shareholders. The company’s code of ethics ensures the shareholders that the first hand information is provided to them without any tempering and that all the financial information is disclosed with honesty. By theory, it is identified that the model followed by JetBlue is the Anglo-American Shareholder Wealth Maximization (SWM), it is identified that the board of directors are appointed by the shareholders and further the airline’s ultimate goal is to keep its shareholders happy (it is estimated that there is a constant decrease in the JetBlue’s share value).

The airline also believes in fair business practices and does not allow its employees (at every level) to do or receive any favours for and from relatives or other businesses that could potentially bring ‘conflict of interests’. There are numerous other obligations when an airline operates under the pressure of the shareholders. The immediate goal of JetBlue after facing a heavy loss in the recent years was to reduce the operational costs. To pursue, it cut off a significant number of employees as it is identified that it eliminated rows of seats from its aircrafts so that less number of customers would require less number of staff. However, it has also to do with the fuel costs as less weight would require lesser fuel.

SWOT Analysis

Strengths

The biggest strength of JetBlue is its ability to keep the fares low and yet provide almost all the frills attached services free of charge (snacks, drinks etc.). JetBlue has been innovative by refining the concept of ‘in-flight entertainment’ in the aircraft. It has purchased few TV channels (direct TV) that could be shown to the customers in the flights. There is a separate TV for every seat which sounds very unique in a low fare airline. As a distinguishing feature, JetBlue installed the internet access feature to its aircrafts (Wi-Fi) which seems a huge plus. Few other strengths may include customer loyalty programs, the extra leg room in the aircrafts and the executive lounge at the JFK Airport. The airline serves 54 destinations and its ability to have international destinations (Bahamas, Bermuda etc.) being a low cost carrier is also its strength.

Weaknesses

One of the biggest weaknesses came in view in the year 2005 when the airline tried to increase its fleet size and was unable to control the costs. As the airline was having a limited strategy, it was unable to control the proceedings with a new strategy which required more dedication. This was followed by another weakness as in order to keep the costs down the airline cut off its employees (impacting the economy) and also reducing the fleet size. According to the Fortune Magazine, out of 12 low fare airlines (in terms of their revenue generation), JetBlue stands number 10 far below Delta (3), Continental (4), and Southwest airlines (7). In year 2007, due to winter storm in many places in the country when many airlines cancelled their flights, JetBlue acted late and so passengers waited in the plane for 11 hours for which JetBlue had given a heavy compensation.

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Opportunities

The airline industry provides few opportunities due to an immense competition but there is always a room for service improvement. JetBlue can focus on the customer expectations. The customers may like to have ‘full meals’ instead of snacks and drinks, so JetBlue can contract a caterer like Gate Gourmet or LSG Skychefs to prepare limited meals and can do its menu planning. Customers may not mind to pay $5 – $10 extra to have a nice meal on relatively a longer flight. The airline can further contact hotels or car rentals in different localities to facilitate its customers, this could be profitable for both, the airline and the partners as this would be itself a unique move in the low fare airlines industry. An opportunity for the in-flight duty free shop remains there for JetBlue, it can either partner with Aeroboutique in-flight retail or it can start its own in-flight retailing to generate more profit.

Threats

As long as JetBlue is a public company, there are constant threats from everywhere and not just from competitors. The company is being funded by investors such as JP Morgan who can really influence the company if they withdraw their sums. The other massive threat is the threat of being taken over, we have seen in the past how companies became the victims of take over due to their performances, JetBlue is not doing well and so this threat is most obvious. Competitors on the other hand are constantly making efforts to reduce the fares and this is an issue as the characteristics of the market are not known. There could be two different segments, one that is willing to pay good or average price but have a comfortable journey and the other might be willing to pay extremely low price and willing to bear whatever difficulties come to its way. JetBlue has to identify at least one segment and plan accordingly.

Corporate Strategy

It is hard to implement the planning in the airline industry due to various reasons. The growth, although seems to be an easy target but unfortunately it is not very well supported by other aspects (such as globalisation, mergers or even weather condition). An important socio-cultural influence is globalisation, airline industry is confined by many regulations due to which it is unable to make use of it. It is therefore harder to achieve economies of scales in airline industry. The only plus is the ability of the airlines to charge the money in advance from the customers and then offering them services. JetBlue’s strategy was no different as it was supported by the internet booking and the company had saved cost in printing tickets (with the ticket material) and also by not having ticket sales offices all over US. Weather is also a variable that affects the airline business. The cancellation costs are well over $ 200 Million and also the wind speed and temperature directly influence the fuel consumption. This suggests that expansion and change of corporate strategy is a risky option which JetBlue experienced. The share price at the time of its birth and years of success was around $40 and today it is almost $5.

According to the analysis, the company’s EPS ratio is estimated to be $0.166 and P/E ratio is 31.14 Times. The good sign is that the business is still trusted by the investors and that they are trying to support the JetBlue to their level best. It is further estimated that 25% of JetBlue’s revenue come from the cargo business and the constant change in governmental policies related to trading has influenced the airline. The corporate budget is also an issue for the JetBlue, it is estimated that 15% of the operational costs are allocated to the fuel. Rising fuel prices and fluctuation do not let the JetBlue’s strategy to settle and these variances cause the airline to undergo constant change in their budgeting which brings a bullwhip effect in the form of poor revenue management. The other issue which has created difficulty for JetBlue to keep its costs low is the security. After the 9/11 attacks, the airline installed cameras in the aircrafts and made few of the parts in the aircraft bullet proof, the security is causing the costs to increase. The worst scenario is the long-term debt taken by the JetBlue which is almost $2.8 Billion, while the JetBlue is having loss every year. Under such circumstances, the idea to cut off employees and many other service related activities from the flights was the only possible solution to keep the loss at a minimum.

JetBlue has its own culture which is known as far more different than that of its competitors. It is perhaps its focus on keeping that culture that has influenced it financially. The airline is believed to be the first one to use the internet as a means of success. The CEO David Neeleman set five core principles that are safety, caring, integrity, fun and passion. The employees are taught these principles right from the time of their selection and further the airline believes in employees’ work-life balance. It allows the reservationists to work from home and it also allows flight attendants to change their shifts with friend or family member. To facilitate the employees (at every level), there are no layers between the junior and senior people, the communication is therefore horizontal.

JetBlue has gained competitive advantage over its competitors using a distinguishing IT system. The airline is the first to replace the paperwork system in the cockpits by an electronics system helping pilots to maintain all the records electronically. Furthermore, the airline installed a queue program which helps the customers identify which agent is available hence reducing the check-in time to less than a minute.

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Goals

The biggest goal for JetBlue is not to compromise on customer services and yet to reduce its overheads. The task seems to be very difficult as the airline kept itself a low fare airline while maintaining exceptionally good service standards. JetBlue is coming up with various loyalty programs to attract the further markets, it has partnered with renowned caterers like Dunkin Donuts and is trying to slightly change it strategy by selling unique food items onboard (Just to change its image of totally frills attached airliner). The loyalty programs are there to capture a bigger market while the operational goals include reducing the fuel costs to the minimum. As it is believed that air is becoming more crowded by aircrafts and the runways are jammed, JetBlue is trying to minimise its fleet size to keep the operations simple and smooth (or reducing costs). This would also help JetBlue to focus strictly on customer service while keeping the costs low.

Recommended Strategies

There could be no specific recommendations to the JetBlue as long as it has very limited resources and it looks under trouble. The idea to reduce costs could not be extremely effective so long as it is not at large scale, the airline it self is having limited number of destinations and fleet size whereas competitors like Delta and Northwest have more than 100 destinations and fleet size of almost 300. Jet Blue may find it hard to compete with other low fare airline carrier as long as it is having limited resources. However, there is an option open to the JetBlue which is widely being practiced by many of the modern day airlines. Mergers and acquisitions are a typical way to save oneself from the bankruptcy. The best part of a merger is the use of synergy to support each other and reaching economies of scale. If JetBlue forms a merger then it could have greater number of destinations and so bigger market share, also this would help the airline to respond to its competitors. Otherwise, it could be extremely hard for the JetBlue to survive although it is not impossible but to keep the investors in the favour of JetBlue, the airline has to make a major move.

Mergers and acquisitions bring issues to the managers and employees at every level as they have to be responsible to new boss and a different culture surrounds the organisation. There are many communication problems and often it is hard to find unity between the two newly merged companies. The merger should be done with another airline that is having similar issues, also it is suitable for the JetBlue to practice its own trends under its brand name and let the other airline practice its own. The outcome, otherwise, could be a lot of confusion in the minds of customers and they would not be able to identify who the service provider is. However, the two airlines together could swap their destinations and routes as this could bring synergy in the operations.

Conclusion

JetBlue is an established airline that is in its growth stage, it is facing many problems leading to financial loss. The airline is not left with so many options, in an effort to reduce its costs, it may compromise on its customer service while the continuing trends could make it a victim of a takeover. Before any such incident takes place, it is recommended that the airline should merge with another airline with similar iamge.

References

Fortune Magazine, Web.

JetBlue apologizes after passengers stranded:Travelers kept on planes in N.Y. for as long as 11 hours; industry digs out. Web.

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Barbara S. P. (2004). Blue Streak. Portfolio.

Company Information. Web.

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