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Saad Abughazaleh Professor Marilyn Kaplan BA4305-001 Strategic Management 21 February 2011
JetBlue and Southwest are two airline corporations with very similar origins. In an economy dominated by ³hub-and-spoke´ airway operations, they were the first to bring in new and innovative ideas at how to run their business. Yet now they have grown into completely different entities, pushing against one another in the field of airline industry. In order to provide a credible analysis towards the possible competitive advantage of one corporation over another, it is necessary to go over their ledgers, specifically their income statements and their balance sheets. The years scrutinized will be 2008 and 2009, due to the Valentine¶s Day crisis that occurred, directly affecting JetBlue.
Background on JetBlue¶s Valentine¶s Day Crisis JetBlue began itself as a low-fare airline, aiming at maintaining bare-minimum costs while still providing the ³JetBlue experience´ to customers. They maintained a single-type fleet, which provided them with much lower maintenance and training costs, as well as created the first form of a paperless cockpit. It stylized its aircrafts to stand out from other airlines: single class system, more legroom, free entertainment in the form of television, movies, and radio, even leather seating. Their practice was to never cancel a flight and maintain the experience for their consumers. Known for their hospitality and reliability, they were at the top by the end of 2006. Yet 2007 brought about a disaster that near shattered JetBlue¶s image, even causing its Chief Executive Officer David Neeleman to step down. On Valentine¶s Day of 2007, a snow storm was
and Administrative costs took up 24. Yet JetBlue. When it didn¶t. JetBlue lost its image that year.392% of the Total Revenue. Yet this is evident more-so when laid in . and Administrative Costs rose to 28. its systems. decided to have their aircrafts on the ready on the tarmac. was using 53. In a combination of glitched systems.609% of the Total Revenue.665%. since they never cancel flights. With that said. lack of contingency plans. and barely being able to post a profit. and thousands of angered customers.726% drop in Direct Costs.By their report. a 3. By the end of 2009. This was understandable due to the innumerous repairs and updates they set in 2008. they emerged with a Gross Profit of 46. General.211%. JetBlue held a Gross Profit of 56. General. JetBlue still has yet to hold an image as it once has. In the end. It had to fix its image. That being said. While coming back to profitable. losing roughly $30 million from the crises.27% jump from their previous report. In 2008. It is evident that JetBlue is making its way back into the low-fare. it must be compared to the following year. Yet in order for this to account for its real weight. a 9. JetBlue Airways Corp. taken from the Direct Costs. the recovery year. Selling. Resource Efficiency Comparison By looking at standard common-sized income statements. prepared to take off as soon as the storm lifted. it must be looked at with their history in mind. poor communication. low-cost strategy. 2008 is a year in which JetBlue has just come from a fiscal and a PR disaster. Direct Costs consisted of 43.941% of the total revenue stream. the year 2009. The Valentine¶s Day crises set upon JetBlue countless costs and issues.726% of Total Revenue rise.335% of its Total Revenue stream as DirectCosts. all hell broke loose.Abughazaleh 2 deemed to strike and many airlines chose to ground their flights ahead of time. it is noticeable how each company manages to maintain its low-cost strategy. and its strategy to contend with this debilitating blow. a 9. their Selling.
By the end of 2008. as JetBlue leads Southwest in Direct Costs. was not so lucky with its numbers.Abughazaleh 3 comparison to Southwest. retains a competitive advantage over. on the other hand. to a total of 33. Compared to JetBlue¶s 53. setting that JetBlue is maintaining their aircrafts at a much cheaper cost than Southwest. In SGA costs. the competitive level. It is crucial to know what this information indicates: JetBlue is more cost effective than. Market Dominance Comparison By looking at the balance sheet.296%. Their Direct Costs went down by 2.507% of TR. whom. and overall costs much more efficiently than Southwest.3% of Total Revenue. JetBlue retained Total Current Assets of 15. Having allayed a disaster by grounding its flights prior to the storm. i.207%.483%.335%. labor costs. They ended the year holding a Gross Profit of 53.536% of TR whereas their Selling. which was higher than JetBlue. as opposed to the income statement which gave a more historical and costeffective level. JetBlue leads Southwest by a marginal 5. it provides a comparison on the market level. a company building itself back up.948% of their Total Assets and their Total Equity lay . Southwest did not undergo a crisis as JetBlue had. On the other hand. Despite this. In 2008. Their Total Current Liabilities were at 17. General. Now when looking at Southwest¶s 2009 report. JetBlue leads Southwest in Direct Costs by 1. and Administrative expenses were at a low of 30. they did not progress as would have hoped. nor did they lead against their smaller competitor in terms of costs.908% of TR.483%. so will it lead in Gross Revenue by 1. They are utilizing their materials. it does not look poorly.e.628% of their Total Revenue. Southwest. They left the year with a Gross Profit of 52.372% of Total Revenue. Finally. General. it is clear that they were holding their ground. their Selling. and Administrative Costs rose by 3. Southwest loses on almost every count.972% of their Total Assets. Southwest reported a Direct Cost of 47. But now compared to JetBlue.
that of Southwest. From 2008 till 2009. the value.467% of their Total Assets.534%.482%.Abughazaleh 4 at 20. Southwest has been leading and will be leading since their change in Total Equity surpasses that of JetBlue by 1. from 34. from 19. despite having the larger equity and market share in . Their liabilities. This shows that in. on the other hand. On the other hand. or Total Equity of JetBlue rose by 2.611% to 18. to which now Southwest overshadows them. Conclusion In order for a corporation to have a competitive advantage.144%.219% to 23. The largest factor contributing is the Total Equity. JetBlue¶s Total Current Assets increased from 15.546% of Total Equity.307%. has a much better standing in the market than JetBlue. In order to overcome competition. JetBlue has mastered the ability to deplete costs and maximize the efficiency in which it works the market. in terms of the company¶s value.936%. giving them an obvious competitive advantage over Southwest. placing it at 23.972% to 23. or even surpass. on the other hand. Total Current Assets rose by 3. and the company¶s Total Equity rose by 3. which is not as substantial.754%. it needs to produce/provide goods or a service most efficient in terms of resources.617% to 38. indicating that JetBlue has either acquired an additional 7.8569%. Yet due to the disaster on February 14. Yet competitive advantage is not all a market relies on. decreased by only 0. from 20.69%. Southwest. 2007.315%. but it is notable that the Total Current Liabilities is an acceptable percentage. Finally. they had plummeted in the market. a corporation needs to raise its market equity.112% of Total Assets. Total Current Liabilities dropped by 0. indicating that Southwest¶s Total Equity rises faster than JetBlue¶s. From 2008 to 2009. whereas an increase in the percentage would indicate an increase in the value of the company. This denotes that while JetBlue has a competitive advantage over Southwest.495% worth of assets. their equity does not rise at a speed that would allow them to one day match.
. it is clear that JetBlue retains a competitive advantage over Southwest. So through the scrutiny of both corporations¶ income statements and balance sheets for the years of 2008 and 2009. Southwest does not match JetBlue¶s effectiveness and efficiency at implementing and utilizing labor and resources. JetBlue would be one of the top airline competitors. It would seem as though if that untimely crisis had not occurred.Abughazaleh 5 comparison to JetBlue.
while maintaining work ethic Technology Simplified fare system (single class) with paperless tickets Procurement Single fleet of Boeing 737s. which granted high utilization Primary Activities Inbound Logistics Operations Airtime more than any other airline (except JetBlue) Outbound Logistics Single class seating system Marketing and Sales Projected an easy-going atmosphere so that customers would feel at home Service Provide a friendly and customer-intensive service .Abughazaleh 6 Exhibits Value-Chain of JetBlue Support Activities General Administration Clear goal of never cancelling a flight and leading low-fare airlines Human Resources Only friendly employees who displayed the ³JetBlue Experience´ Technology Paperless cockpits in which all pilot calculations were done on computers Procurement Purchased only Airbus A320s which seated more and was cheaper Primary Activities Inbound Logistics Maintained the fastest turnaround of all airlines Operations Removed seats in aircrafts to create more legroom Outbound Logistics Single class seating system Marketing and Sales Projected image of ³JetBlue Experience´ Service Provided friendly and customer-intensive service Value-Chain of Southwest Support Activities General Administration Goal was to maintain a cheap and friendly airline as well as a loyal and family-like workplace Human Resources Hired those who fit the Southwest culture of humor and relaxation.
941 46.726 2008 and 2009 Income Statement of Southwest (% of Total Revenue) 2008 Direct Costs SGA Costs Gross Profit 47.335 24.628 30.27 9.908 Change (2009-2008) -2.726 3.3 52.609 28.707 -5.211 56.665 2009 43.665 47.941 46.507 54.Abughazaleh 7 2008 and 2009 Income Statement of JetBlue (% of Total Revenue) 2008 Direct Costs SGA Costs Gross Profit 53.207 2.536 2008 Income Statement Comparison of JetBlue and Southwest (% of Total Revenue) JetBlue Southwest Difference (JetBlue ± Southwest) Direct Costs SGA Costs Gross Profit 53.372 5.372 2009 45.707 2009 Income Statement Comparison of JetBlue and Southwest (% of Total Revenue) .092 33.359 -5.335 24.391 Change (2009-2008) -9.628 30.3 52.536 3.
092 33.754 38.211 56.112 2.546 2008 and 2009 Balance Sheet of Southwest(% of Total Assets) 2008 Total Current Assets Total Current Liabilities Total Equity 20.315 -0.69 .307 Change (2009 ± 2008) 3.467 17.391 45.936 2009 23.908 -1.948 20.611 34.836 23.495 -0.482 Change (2009 ± 2008) 7.617 2009 23.483 -5.534 18.507 54.609 28.483 2008 and 2009 Balance Sheet of JetBlue(% of Total Assets) 2008 Total Current Assets Total Current Liabilities Total Equity 15.29 -1.856999 3.Abughazaleh 8 JetBlue Southwest Difference (JetBlue ± Southwest) Direct Costs SGA Costs Gross Profit 43.219 19.972 17.
825 .219 19.067 -0.247 -1.663 -13.972 17.936 20.617 -4.534 18.836 23.307 -0.611 34.482 23.918 -14.Abughazaleh 9 2008 Balance Sheet Comparison of JetBlue and Southwest (% of Total Assets) JetBlue Southwest Difference (JetBlue ± Southwest) Total Current Assets Total Current Liabilities Total Equity 15.948 20.754 38.467 17.681 2009 Balance Sheet Comparison of JetBlue and Southwest (% of Total Assets) JetBlue Southwest Difference (JetBlue ± Southwest) Total Current Assets Total Current Liabilities Total Equity 23.
013 1.478) 3.391 28.051 12.217 (5.765 12/31/2008 USD Not Qualified Yes Thousands 100 100 53.939 12.765 0 1.447 3.248 0 0 1.491 (5.941 6.751 47.9 8.665 24.609 56.460) (2.211 6.243) 0 (2.243) .Abughazaleh 10 JetBlue Airways Corp (NMS: JBLU) Exchange rate used is that of the Year End reported date Standardized Annual CS Income Statement Report Date Currency Audit Status Consolidated Scale Sales Revenue %TR Total Revenue (100% TR) Direct Costs %TR Gross Profit %TR Selling General & Admin %TR Depreciation & Amortization %TR Other Operating Expense %TR Total Indirect Operating Costs %TR Operating Income %TR Interest Income %TR Other Non-Operating Income %TR Total Non-Operating Income %TR Earnings Before Tax %TR Taxation %TR Extraordinary Items %TR Accounting Changes %TR Net Income %TR Preference Dividends & Similar %TR Net Income to Common %TR 12/31/2009 USD Not Qualified Yes Thousands 100 100 43.478) 0 (5.243) 0 0 0 (2.335 46.460) 0 (5.456 43.
76 2.046 21.662 17.092 5.766 0.972 83.948 47.395) 0 20.651 1.243 0.419 3.936 100 .05 20.133 5.942 17.853 1.314 0.616 5.553 3.216 4.676 100 5.428 0.428 (1.166 9.236 0.8 0.215 70.035 1.19 2.177 76.333 1.498 1.051 0.064 0.836 44.98 11.48 1.518 0.867 3.854 23.628 100 6.653 4.388 17.391 3.516 7.Abughazaleh 11 JetBlue Airways Corp (NMS: JBLU) Exchange rate used is that of the Year End reported date Standardized Annual CS Balance Sheet Report Date Currency Audit Status Consolidated Scale Cash & Equivalents %TA Short Term Investments %TA Cash &Equivs& ST Investments %TA Receivables (ST) %TA Inventories %TA Current Tax Assets %TA Prepayments ST %TA Other Current Assets %TA Total Current Assets %TA Gross Property Plant & Equip %TA Accumulated Depreciation %TA Net Property Plant & Equip %TA LT Investments %TA Intangible Assets %TA Other Assets %TA Total Assets as 100% Accounts Payable & Accrued Exps %TA Accounts Payable %TA Accrued Expenses %TA Current Debt %TA Other Current Liabilities %TA Total Current Liabilities %TA LT Debt & Lease %TA Deferred LT Liabilities %TA Other Liabilities %TA Total Liabilities %TA Common Share Capital %TA Additional Paid-In Capital %TA Retained Earnings %TA Accum Other Comprehens Income %TA Other Equity %TA Total Equity %TA Total Liabilities & Equity %TA 12/31/2009 USD Not Qualified Yes Thousands 13.806 15.952 10.482 100 12/31/2008 USD Not Qualified Yes Thousands 9.264 9.015 0 23.028 79.044 2.049 74.671 3.61 1.221 10.467 81.859 6.
908 33.377 2.957 0 0.615 .3 5.015 2.Abughazaleh 12 Southwest Airlines Co (NYS: LUV) Standardized Annual CS Income Statement Report Date Currency Audit Status Consolidated Scale Sales Revenue %TR Other Revenue %TR Total Revenue (100% TR) Direct Costs %TR Gross Profit %TR Selling General & Admin %TR Depreciation & Amortization %TR Other Operating Expense %TR Total Indirect Operating Costs %TR Operating Income %TR Interest Income %TR Other Non-Operating Income %TR Total Non-Operating Income %TR Earnings Before Tax %TR Taxation %TR Extraordinary Items %TR Accounting Changes %TR Net Income %TR Preference Dividends & Similar %TR Net Income to Common %TR 12/31/2009 USD Not Qualified Yes Thousands 96.434 12.531 (1.522 0.628 52.715 3.285 100 45.522 (0.615 0 1.585 0.565 48.952 12.469) 0.985 100 47.507 5.551) 2.092 54.947) 1.918 52.957 12/31/2008 USD Not Qualified Yes Thousands 97.372 30.835) (1.907 0 0 1.073 (0.299 4.717) (0.628 0 0 0.
663 8.549 2.332 7.941 100 10.877) 0 34.534 111.228 4.525 1.346 36.742 4.754 23.302 15.17 61.924 33.807 10.172 1.878 1.492 34.051) 0 38.621 100 11.522 34.Abughazaleh 13 Southwest Airlines Co (NYS: LUV) Exchange rate used is that of the Year End reported date Standardized Annual CS Balance Sheet Report Date Currency Audit Status Consolidated Scale Cash & Equivalents %TA Short Term Investments %TA Cash &Equivs& ST Investments %TA Receivables (ST) %TA Inventories %TA Current Tax Assets %TA Other Current Assets %TA Total Current Assets %TA Gross Property Plant & Equip %TA Accumulated Depreciation %TA Net Property Plant & Equip %TA Other Assets %TA Total Assets as 100% Accounts Payable & Accrued Exps %TA Accounts Payable %TA Accrued Expenses %TA Current Debt %TA Other Current Liabilities %TA Total Current Liabilities %TA LT Debt & Lease %TA Deferred LT Liabilities %TA Other Liabilities %TA Total Liabilities %TA Common Share Capital %TA Additional Paid-In Capital %TA Retained Earnings %TA Accum Other Comprehens Income %TA Other Equity %TA Total Equity %TA Total Liabilities & Equity %TA 12/31/2009 USD Not Qualified Yes Thousands 7.039 0.617 100 .073 1.383 5.188 20.219 110.611 24.551 2.467 4.693 5.419 2.04 12.647 8.461 1.821 74.669 7.365 18.307 8.731 19.561 3.764 77.589 23.922 (4.16 2.184 1.601 1.448 13.106 5.016 65.379 (6.139 6.317 18.307 100 12/31/2008 USD Not Qualified Yes Thousands 9.
2 0 F e b 2 0 1 1 M e r g e n t O n l i n e . R e e d E l s e v i e r I nc . 2010. Koenig. D o wJ o n e s F a c t i v a . D a t a ba s e . ³Southwest Airlines negotiates penalty fee ± FAA charged air carrier $10. " P i t t s b u r g h P o s t .´ Commercial Appeal 30 12 2008. Database. Gregory. l i b p r o x y. Gregory. ³Case 27:Southwest Airlines: Does ³LUV´ Last?. e d u / a a / ?r e f = M M P H 0 0 0 0 200812 30e 4cu 0001 f&p p= 1 &fcp il= e n& napc =S &sa_ fro m=> Ko e n i g .2 million for alleged safety violations. D o wJ o n e s F a c t i v a . New York: McGraw-Hill/Irwin. David.Abughazaleh 14 References A n d r e j c z a k . Print. c o m. Print.´ Strategic Management: Text and Cases. D a t a b a s e . 2 0 F e b 2 0 1 1 . M a t t . A l a s k a A i r e n d 2 0 0 8 i n p o s it i v e t e r r it o r y. 2 0 Fe b 2011. 2010. ³Case 26: JetBlue Airlines: Will It Remain ³Blue´?.20 Feb 2011 < h t t p : / / g lo b a l . 2010. 2 0 0 8 . u t d a l l a s . 2 0 0 8 . New York: McGraw-Hill/Irwin. 2010. 2 0 F e b 2 0 1 1 . W e d . f a c t i v a . M e r g e nt O n l i n e . " J e t B l u e . Dess.´ Strategic Management: Text and Cases. " M a r k e t W a t c h 3 1 1 2 2 0 0 8 . L e x i s N e x i s . W e b. " J e t B l u e A i r w a ys f a c e s f i r s t u n io n e l e c t io n.G a z e t t e 2 0 1 2 2 0 0 8 . Dess.DowJonesFavtiva. D a v i d .
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