Running head: JET BLUE AIRWAYS Jet Blue Airways' Analysis Several years after working as an executive in the

airline industry, and followed by his departure from Morris Air, David Neeleman sought the financial assistance from investors and venture capitalists to create a new airline company. His efforts paid off and in February 2000, JetBlue Airways launched its first flight between Buffalo and New York City. The company's


first operations where based out of the John F. Kennedy International Airport in New York City. Airline Industry's Trends Jet Blue's strategies, as that of any other airline, were dependent on the different trends that greatly affect all the companies in the industry. Of all the these trends, there are mainly three that can cause havoc in a airline's operational strategies: labor costs, fuel prices, and travel restrictions imposed by the Transportation Security Administration after the terrorist events of September 11, 2001. Labor Costs Among airlines, labor compensation represents a about a third of the total expenses. Most of the airline industry workers' compensation is determine by collective bargaining driven by union demands. According to, the percentage of unionized airline workers hovered around 49% in 2005. "Labor cost is only one of many determinants of an airline¶s financial health, but it is an important one. In each of the three years from 2001-2003, the four airlines with the highest compensation per employee were US Airways, United, Northwest, and Delta. Dispersion in compensation across airlines was relatively high. Not coincidentally, these four airlines ended up in bankruptcy protection. Only after concessions from its unions American Airlines backed off from filing." (Hirsch, 2006).

cockpit doors had to be reinforced in order to prevent hijackings. Additionally. gourmet snacks. more detailed screening is now part of the normal gate procedures at airports. government. These practices represent additional costs for airlines. more rigid travel regulations were put into effect by the U. The industry decided to find ways to generate additional revenue to offset these costs. Strategic Intent It was David Neeleman's concept to create an airline company that could offer low-cost fares. 24-channel live television and other amenities on its flights. The implementation of baggage check fees.500 hours of flying. fuel surcharges. The company offered convenient electronic ticketing. pilots with more experience draw the higher wages. This new requirement will introduce additional labor costs. Passengers have to remove their 2 shoes. Airlines saw an increase in operating costs and struggled to keep up with the higher costs. a law passed by the U. not canceled. flights and ticket prices below the industry standard. Fuel Prices During 2008 and 2009.S. fees for pillows and blankets were part of revenue generating strategies. to $138 a barrel in 2008. provide a comfortable and pleasant travel experience to its customers. A barrel of oil shot up from $72 a barrel from the previous year. the in-cabin transportation of liquids is strictly limited to a specific amount.Running head: JET BLUE AIRWAYS In addition. while at the same time. congress mandates that pilots have under their belt at least 1. Kennedy International Airport in New York . Several layers of security were implemented.S. 2001. Transportation Security Administration Regulations After September 11. "Jet Blue introduced its first commercial flight from the already crowed John F. JetBlue Airways offered leather seats. oil prices skyrocketed. delayed.

California. which experience an increase of 532 percent from 2003 to 2007. Financial Objectives Jet Blue failed to deliver strong returns to its shareholders for the first five years of its existence. Its stock price fell to less than 50%. By 2002 the airline boarded its 5 millionth customer and had added several other destinations. Ontario. & Gamble. Strickland." (Thompson. At the end of the year 2000 the company boarded its millionth passenger.70 in 2003 to $0. the rapid growth of interest expense did not help make the financial situation better. which was 70 percent lower than the fares of other carriers. it opened flights to Salt Lake City. Oakland. It could be said that because the company's capital structure was based on debt and that compounded with the plethora of amenities that it offered in its flights without charging any fees. the company had added 53 cities to its services and had grown from 10. Although its revenue grew 185 percent. It targeted not only business individuals. The one-way fare was $159. These high expenses were due much in part because of the high cost of fuel. Jet Blue sought a rapid expansion of its operations and flights among different cities. its operating expenses outpaced the revenue by growing 222 percent.Running head: JET BLUE AIRWAYS 3 City to Fort Lauderdale.10 in 2007. By 2007. Florida with 152 passengers aboard.265 departures in 2000 to 196. 2009).594 in 2007. caused expenses to surpassed revenue. but also the young. . while at the same time offering well below than the competition ticket prices. Its basic and diluted earnings per share went from $0. affluent professionals living in New York City. interest rate was at 658 percent. Since Jet Blue capital structure was mainly based on debt. Burlington and Vermont among other cities.

Strickland. It issued 42. this gave them the ability to minimize shorter ground times. Elements of Cost. It listed cash and cash equivalents of $713 million on March 31.95 cents. JetBlue operated its Airbus 320 aircraft on average for 13." (MIT. In 2008 JetBlue was able to obtain equity capital.2 cents per available seat mile (ASM).6 million of new common shares to Deutsche Lufthansa AG for $301 million. JetBlue maintained strong liquidity through the first quarter of 20-08. and highest of all US Major airlines.77 cents per revenue passenger mile. and Human Resource Practices Elements of Cost JetBlue was running operations at a lower cost than its competitors. JetBlue operated ³point-to-point´ networks. "Because of a conservative financial strategy. 2009).6 block hours per day. These shorter times transformed into higher aircraft usage." (Thompson. an aircraft utilization rate 46% higher than Northwest for the same aircraft type. 2008. Organizational Culture. Other airlines where struggling to prevent customers from choosing the low-cost providers. Their fleet consisted of Airbus A320. At the same time. JetBlue was running total operating expenses to 12. JetBlue's unit aircraft operating cost for this aircraft fleet was 3. while other airlines were running $20. which had 30 more seats and were more fuel efficient than the competition airplanes. JetBlue had one of the highest liquidity coverage ratios 4 in the industry. 2010) . This created a partnership. with Lufthansa owing 19 percent of JetBlue's common stock. This assure that the company had enough financial stability to stay afloat. & Gamble. less than two-thirds of that reported by Northwest. "In 2004.Running head: JET BLUE AIRWAYS Despite of all the financial woes.

The company enter an agreement with Medaire. Electronics tickets represented a $9. The roadmap to get there. the offering of additional benefits like broader health insurance. to provide on-the-spot consults in case of any medical emergencies during flight. profit-sharing balanced the lower salaries. Organizational Culture JetBlue's first executive vice president of human resources. Inc. First step was safety. Ann Rhoades intended to create a culture of authority and responsibility. included five steps based on the company values.00 savings from paper ones. The values of fun and passion were cultivated by providing employees with incentives that took care of their welfare and well-being. Additionally. JetBlue's website was a great resource for customers to booked their flights. thus 5 reducing labor costs. JetBlue was quick to correct violations and setup corrective measures in order to prevent future infractions. Human Resource Practices JetBlue's human resources focus was on people. The company provided most needed training as anticipation to pilots shortage. JetBlue was the first company to install reinforce cockpit doors and cabin surveillance in their aircrafts. the company did not lay off any employees after the tragic events of September 11. which was the company's main priority. stock participation. showing loyalty to its workforce. To represent the value of caring. JetBlue was known for paying lower wages than its industry's counterparts. With the creation of JetBlue University. On integrity. .Running head: JET BLUE AIRWAYS Reservation agents worked less hours than other the ones for other companies. operational and customer service functions within the company. As a contrasting measure. it created synergies with several educational institutions to identify candidates with potential as pilots. As a hiring process. the company created internal training for financial.

LiveTV will be licensed to other airlines in order to raise cash. and in some cases move away from some of the strategies that made the company unique.Running head: JET BLUE AIRWAYS Jet Blue¶s Strategies For 2008 and Beyond As a result of lessons learned during JetBlue's first seven years of operations. Among several strategies. JetBlue will provide Lufthansa access to its JFK terminal. the company seeks to 6 benefit from business partnerships with other players in the industry by providing access to some of its assets. Segments with higher expenses than revenue will be cut. Services like headphones. this will create additional revenue stream for the company. the company has decided to change the direction. Some of the services that were standard and free or charge will now carry a fee. second bag checking. . while at the same time will delay the delivery of new aircrafts in order to avoid payments and save on operating expenses. JetBlue will sell 9 used A320 to raise a net cash gain of $100 million. seats with extra leg rooms will carry and additional costs to passengers. It is expected that this strategies will position the company financials in a more stable footing.

mit. J.Running head: JET BLUE AIRWAYS References Hirsch. October 2). (2010.. & Bonn. The Quest For Competitive Advantage Concepts And Cases. B. MA: McGraw-Hill. http://web. (2006). A. T. Wage Determination in the U. Strickland. from http://web. (2009). Crafting & Executing Stragety. 2011. Retrieved April 14. 7 . Germany: Trinity University and IZA Bonn.. Airline Industry: Union Power Under Product Market Constraints.S. MIT. A.html Thompson. Global Airline Industry Program.

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