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Immaculate Mary Sackey Bridget Fosuhemaa Naa Ayongo Mensah Paa Kwesi Fynn Benjamin Nii Mensah Yemoh

Jeroen Van Puyvelde

Incorporated in Delaware in 1998 and founded by David Neeleman in 1999.


Started operations in 2000 at JKF (NY)

Start-up capital of more than $100m.


Listed on the stock exchange in 2002 (NASDAQ) Company goals
leading low-fare/low-cost airline company and a differentiated product

Source: www.jetblue.com

In 2002: 108 daily flights Stock in 2002 $20, in 2005 Already $26.4, now $ 5.10 Revenue in 2004 was $1.26billion, end of 2006 $2.36 billion, in 2010 $3.78 Billion. In mid 2005:
Jetblue operated 77 new planes. 316 flights daily, serving 32 destinations in 13 states.

Sources: www.jetblue.com www.investor.jetblue.com

120 100 80 60 OPERATING INCOME OPERATING EXPENSES STAFF COSTS FUEL COSTS

40
20 0

2006

2009

2002

2003

2004

2005

2007

2008

2010

2011

Fuel cost as a Percentage of Operating


Expenses 50 40 30 As a Percentage of Operating Expenses

20
10 0

2004

2007

2010

2002

2003

2005

2006

2008

2009

2011

20.00
15.00 10.00 5.00 0.00 -5.00 -10.00 ROCE ROSF

2003

2005

2008

2011

ROCE
Southwest Airlines ROSF ROCE AMR Corp. ROSF

4.76% 12.01%
(5.61)% (408.41)%

7.14% 11.67%
(0.44)% (58.25)%

3.99% 5.61%
(17.94)% 51.60%

5.12% 4.79%
6.93% 27.83%

ROCE

2003 (Highest ROCE) Increase in revenue Increase in daily flights from 43% increase in number of passengers. Installation of satellites TV systems on non Jet Blue aircrafts. Reduction in operating expenses due to a 5% decrease in Selling, General and Admin expenses. 2005 and 2008 (Lowest ROCEs) Decrease due to natural disaster (3 hurricanes), high fuel prices and global economic meltdown. 2011 Drop in ROCE by 0.36% from 2010 due to severe weather storms and cancellation of 1400 bookings over 3 day period.

ROCE CONTD COMPETITORS Compared to direct competitors on a 4 year average. AMR Corporation (4.27)% Jet Blue Airways 4.69% Southwest Airlines 5.25%

ROSF Average return for 10 years 5.79% as compared to 3.75% from bank deposits over the same period. Return over the 4 year period compared Southwest Airlines and AMR Corporation. Jet Blue 3.52% Southwest Airlines 8.50% AMR Corporation (96.81)%

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20 15 10 5 0 Operating Income Margin

Net Profit Margin

2005

2002

2003

2004

2006

2007

2008

2009

2010

-5

2011

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2003

2005 First loss recorded since becoming a public company. Due to natural disasters Inability to raise air fares due to high competition. Increase in fuel prices by 52% caused $167m increase in total fuel cost compared to year 2004.

2008 Loss in net profit margin due to: Additional cost of $400m resulting from unprecedented spike in fuel prices. $8m write-off related to temporary terminal facility at JFK. Additional expense of $13m in interest expense related to early conversion of portion 5.5% convertible debentures due 2038. $18m loss in interest income related to gain on extinguishment of debt. Other-than-temporary impairment of $53m related to write-down of value on auction rate securities.

2011 Drop in operating and net income margins compared to 2009 and 2010 due to: $6m loss related to the repurchase of $39m principal amount of their 6.75% convertible debentures due 2039. Increase in total operating expenses by 1.66% margin compared to 0.15% increase in 2010.

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1.5
1 0.5 0

Current Ratio Acid Test Ratio

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CURRENT RATIO Average of 1.14 for review period indicates ability to pay off obligations. Lowest CRs recorded in 2005, 2007 and 2008 of 0.94, 0.84 and 0.84 respectively.

ACID TEST RATIO Average of 0.88 for review period indicates inability to pay off obligations. Lowest ATRs of 0.03 and 0.02 recorded in 2011 and 2010 respectively however show companys preference for medium/long term investments as seen in huge purchases of available-for-sale-securities and held-to-maturity investments worth $1,052m and $1,935m compared with cash and cash equivalent holdings of $637m and $465m respectively.

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70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 GEARING INTEREST COVER

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GEARING Gearing levels for the period under review higher than recommended benchmark of 30% 50% indicating company is highly geared. Average gearing level of 57.91% for the period, Shows long term lenders have high stake in company thus have an ability to restrict companys finances based on high exposure. Not good for actual shareholders as it shows Jet Blue to be high risk investment. Gearing level assumes downward trend from 2006 (65.83%) with current level for 2011 recorded to be 50.36%. Average gearing level of 57.45% for Jet Blue for significant 4 years compared with levels for Southwest and AMR Corp whose average of 21.11% and 50.40%, Jet Blue must strive to do better in order to increase shareholders confidence in investment in company. INTERST COVER Interest cover ratio of less than 1.5 for years 2005 to 2009 show that Jet Blues income generation ability was not sufficient enough to meet its interest expenses. Improvement in ability to meet interest expense as evident in ratios recorded for 2010 and 2011.

2003 Southwest Airlines 16.71% 45.06%

2005 13.73% 59.17%

2008 31.06% 53.31%

2011 22.96% 44.04%


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AMR Corporation

100

50
0 -50 P/E EPS

-100
-150

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EPS

Jet Blues highest EPS of 1.07 was recorded in 2003 when the company had a strong financial position for the period under review such that for every share held, shareholders received 107 cents. Lowest EPS ratios of (0.13) and (0.37) in 2005 and 2008 respectively indicating that for every share held, Jet Blues shareholders lost 13 cents and 37cents respectively due to loss of revenue and high operating expenses incurred from high fuel prices, natural disasters and the global economic crisis. Jet Blues average of 22 cents is lagging behind Southwest (who has an average EPS of 39 cents) but is ahead of AMR Corp. (who has an average of 676 cents) for the 4 significant years compared. Jet Blue was thus able to bring a higher return to its shareholders when compared to AMR Corp.

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P/E RATIO

Investors confidence in the airline industry has been waning: Evident in decreasing and further unstable trend shown in the graph due to the uncertainty of the airline business most especially the US industry. Natural disasters (Hurricanes) Rising nature of fuel prices Passenger Behaviour due to the general state of the economy at any point in time, international events, industry capacity and pricing actions taken by other airlines. Jet Blues average P/E ratio of -24.71 for the selected 4-Year period lags behind compared to Southwest (34.55) and AMR Corporations (-1.49) implying less confidence in Jet Blue.

RATIO Southwest Airlines AMR Corporation


EPS

2003 (in times)


0.48

2005 (in times)


0.61

2008 (in times)


0.24

2011 (in times)


0.21

P/E
EPS P/E

38.42
(7.76) (1.66)

27.08
(5.21) (3.26)

33.04
(8.16) (0.98)

39.67
(5.91) (0.06)

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JET BLUE AIRWAYS No. Of EMPLOYEES REVENUE


(ttm)

SOUTHWEST AIRLINES 45, 392 15.66b

AMR CORPORATION 80, 100 23.98b

INDUSTRY
9.85k 3.65b

11, 733 4.50b

OPERATING MARGIN (ttm) NET INCOME


(ttm)

7.15%
86.00m 0.28

5.28%
178.00m 0.23

-1.24%
-1.98b -5.91

9.07%
N/A 0.21

EPS

(ttm) (ttm)

P/E

18.23

38.96

N/A

17.18

(ttm) trailing twelve months (as of 31 Dec 2011), b=Billions, m=Millions, k=Thousands, N/A= Not Available, Industry = Regional Airlines

Source: finance.yahoo.com
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30 25 20 15 ASSET TURNOVER RECEIVABLES PERIOD PAYABLES PAYMENT PERIOD

10
5 0

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

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In general Offering greater value By means of lower prices. Providing greater benefits and service that justifie higher prices. For Jetblue Low prices combined with great service in order to gain competitive advantage.

Sources: www.jetblue.com case study Jetblue Airways

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Elements of organisational resources:


Strong HR-policy, hiring the best people and support them with excellent training and equipping them with the best tools. Employees are highly motivated to be service oriented.
Technology: live satellite tv at every seat.

Infrastructure: keeping the fleet up-to-date.


Efficient and on time when arriving and departing, better than the competitors. IT: Their website is a real revenue generator and a significant cost saver. Advertising and promotion through media channels, although they mostly rely on word-of-mouth advertising.

Source: www.jetblue.com

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Tangible resources

Asset-acquisition of new planes Labour-stringent recruitment policies CEO

Non-tangible Reputation low fare and low cost airline Time efficient Customer service

Organisational culture All employees seen as crew members and all passengers as customers.

Sources: www.jetblue.com Case study Jetblue Airways

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Resources needed to meet customers requirement, to stay in the business.


A. Provision of comfortable accommodations. B. Bullet proof cockpit doors across the fleet. C. Provide every day the same complete service.

Sources: www.jetblue.com Case study Jetblue Airways

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Underpinning competitive advantage and difficult to imitate.


100% ticketless
24 channels of live tv Broadcast of Olympic games during flights. Installation of security cameras in passenger cabins for customer and crew security.

Sources: www.jetblue.com Case study Jetblue Airways

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Strong focus on vision of low-fare/ low-cost passenger airline and providing high customer services. Direct marketing skills and database management.
Design and deliver a customer interface that personalises online booking making it more efficient.

Reliability and efficiency

These competences are activities and processes which underpin competitive activities.

Sources: www.jetblue.com Case study Jetblue Airways

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HR: hiring and training the best people

Online booking system


New fleet

Activities and processes required to produce the product/services.

Sources: www.jetblue.com Case study Jetblue Airways

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A resource or competency to be a source of competitive advantage needs to be:


Valuable First airline to use security cameras for customers and crew safety. Bullet proof cockpit doors. Rare Broadcasting satellite tv, 100% ticketless. Non-imitable Imitable but at a very high cost. (high entry barriers)

Effectively organised Yes, because of the trained staff, use of new technologies, e-commerce,

Source: Barney 1995 Lecture 6

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Political/legal
Reformation after 9/11 Extending daylight saving time

LEGAL
Increasing security fees on airline tickets Employement law differs Lots of regulations National airline policy

Economic
Oil prices Unions and strikes Labor wages Delays & security

Environmental
CO emission

Socio-cultural
Increase of obesity

Technological
Luggage-tracking technology New planes E-commerce Sources: www.cdc.gov www.faa.gov https://ec.europa.eu www.deredactie.be
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Strengths
The product itself Customer service Strong mkt policy and brand New Fleet Training of staff & equipment

Weaknesses
Spoilage rates Break-even load factor Figures worse in recent years

Opportunities
National Airline Policy Further expansion of their partnerships Market growth Technology advancements

Threaths
Economic downturn Ever increasing costs of fuel and labor. Governmental intervention Unions and strikes
Sources: www.ehow.com Case study Jetblue ariways www.faa.gov www.nytimes.com

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Potential entrants
* Capital requirements Startup costs Fixed costs

* High risk nature of the industry.


* Legislation and governmental actions. * Access to distribution channels. Only 2 have been successful in recent years.

Sources: www.ehow.com Case study jetblue airways

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Buyer Power * Struggle in ongoing price wars * Strenghts and weaknesses Supplier power * High power for delivering materials. Threat of substitutes

* No threat beyond 500 miles. * Planes win in every factor.

Sources: www.ehow.com Case study jetblue airways

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Rivalry/competition * Entry and substitutes: no * Buyers and suppliers: high * Market growth * Costs Competitive business

Sources: www.ehow.com Case study Jetblue airways

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H i g h

Positioning price/service

L o w National

Geographical

International
Sources: nationsonline.org Home sites of het different airline companies
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Jetblue is low price strategy


* Lower prices than competitors * With good service * Positioning of competitors

Sources:www.mindtools.com (logo) Lecture 9

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For LT financial and strategic development of the organisation. Look for other suppliers to promote competition among them. Consider partnerships in order to provide Canada And Mexico to enhance their northern American coverage and build up their market share. Review the fuel hedging policy .

Expansion of domestic route network.

Source:www.airbornesurfer.wordpress.com

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Questions?

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AMR Corporation Annual Report (2003) [Online] available from http://southwest.investorroom.com/sec-filings [ March 29 2012] AMR Corporation Annual Report (2005) [Online] available from http://southwest.investorroom.com/sec-filings [ March 29 2012] AMR Corporation Annual Report (2008) [Online] available from http://southwest.investorroom.com/sec-filings [ March 29 2012] AMR Corporation Annual Report (2011) [Online] available from http://southwest.investorroom.com/sec-filings [ March 29 2012] AMR Corporation Historical Share Prices [Online] available from <http://phx.corporate-ir.net/phoenix.zhtml?c=117098&p=irolstocklookup> [March 29 2012] Atrill, P. and Atrill, P. (2012) Financial Management for Decision Makers. Harlow, UK; Harlow, England ; New York: Harlow, UK : FT Prentice Hall/Financial Times Grundy, T. and Grundy, T. (1998) Exploring Strategic Financial Management. London: London : Prentice Hall Europe Jet Blue Airways Annual Report (2003) [Online] available from http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol-reportsAnnual [ March 13 2012]
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Jet Blue Airways Annual Report (2004) [Online] available from http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol-reportsAnnual [ March 13 2012] Jet Blue Airways Annual Report (2005) [Online] available from http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol-reportsAnnual [ March 13 2012] Jet Blue Airways Annual Report (2006) [Online] available from http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol-reportsAnnual [ March 13 2012] Jet Blue Airways Annual Report (2007) [Online] available from http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol-reportsAnnual [ March 13 2012] Jet Blue Airways Annual Report (2008) [Online] available from http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol-reportsAnnual [ March 13 2012] Jet Blue Airways Annual Report (2009) [Online] available from http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol-reportsAnnual [ March 13 2012] Jet Blue Airways Annual Report (2010) [Online] available from http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol-reportsAnnual [ March 13 2012] Jet Blue Airways Annual Report (2011) [Online] available from <http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol-reportsAnnual > [March 13 2012]

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Jet Blue Airways Annual Report (2011) [Online] available from <http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irolreportsAnnual> [March 13 2012] Jet Blue Historical Share Prices [Online] available from http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol-stockLookup> [March 13 2012] Johnson, G. and Johnson, G. (2005) Exploring Corporate Strategy. Harlow, Essex, England ; New York: Harlow, Essex, England ; New York : FT/Prentice Hall Reuters.com (2012) Market Data Home [online] available from <http://uk.reuters.com/business/quotes/overview?symbol=JBLU.OQ> [March 13 2012] Southwest Airlines Co. (2003) [Online] available from http://southwest.investorroom.com/sec-filings> [March 29 2012] Southwest Airlines Co. (2003) [Online] available from http://southwest.investorroom.com/sec-filings> [March 29 2012] Southwest Airlines Co. (2003) [Online] available from http://southwest.investorroom.com/sec-filings> [March 29 2012] Southwest Airlines Co. (2003) [Online] available from <http://southwest.investorroom.com/sec-filings> [March 29 2012]

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Southwest Historical Share Prices [Online] available from <http://southwest.investorroom.com/historical-stock-price > [March 29 2012] US Department of the Treasury , Data and Charts Centre - Interest Rate Statistics - Historic Long Term Rates. [Online] available from <http://www.treasury.gov/resource-center/data-chart-center/interestrates/Pages/Historic-LongTerm-Rate-Data-Visualization.aspx> [March 28 2012] Wendy, M. 1. and McKenzie, W., 1950- (2010) FT Guide to using and Interpreting Company Accounts. Harlow: Harlow : Financial Times Prentice Hall Yahoo Finance [Online] available from <http://uk.finance.yahoo.com/> [March 03 2012]

www.jetblue.com www.investor.jetblue.com www.cdc.gov http://www.ehow.com/way_5982659_strategic-analysis-airline-industry.html

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http://www.ehow.com/about_5347649_airline-industry-swot-analysis.html#ixzz1oMO1mdpg http://www.ehow.com/list_7576197_barriers-entry-airline-industry.html www.faa.gov http://www.infrastructurereportcard.org/fact-sheet/aviation

http://www.nytimes.com/2008/10/07/business/07outlook.html?_r=2
http://www.nationsonline.org/oneworld/Airlines/airlines_north_america.htm http://www.deredactie.be/cm/vrtnieuws/economie/1.1243203

http://airbornesurfer.wordpress.com/2011/06/17/
http://www.mindtools.com/pages/article/newSTR_93.htm https://ec.europa.eu/employment_social/anticipedia/document/showFile.do?id=3043&idDigest= 75ebd98cbdaba186785be8499cce6b8bff0df7d6

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