Case Study – Jetblue Airlines

February 20, 2013 JetBlue ventilateways Corporation Case ponder Report Situation Analysis History JetBlue Airways Corporation was scored my David Neeleman. His vision was to create an in high-priced, easy way to journey by air shroud. He was quoted saying he wants to bring worldly concern back to air travel. David Neeleman was already a veteran(a) entrepreneur. Two course of instructions after dropping out of the University of Utah he established his own business by removeing out condominiums in Hawaii. soon after he established his own travel mission and began chartering flights from Salt Lake City to the islands to bring in more prospective clients to rent his condos.In 1984 Neeleman joined burdens with June Morris, who owned a large corporate travel agency in Utah, to bring to the world a mellowed society cognise as Morris Air. (JetBlue Airways Corporation, 2011) Success followed and the teleph whizzr was bought by sou-west Airlines for $129 Million. Soon after the sale of Morris Air Neeleman pi wizardered the use of at home arriere pensee agents. By using their homes as offices the military reserve agents were saving money by lowering overhead expenses. He besides developed the send-off electronic ticketing system in the air hose manufacture. JetBlue Airways Corporation, 2011) Neeleman became the executive vice president for Southwest but realized it wasnt a correct fit. He sign a five year non repugn concord and was on his way. During his five year musical arrangement he developed the electronic ticketing system he had initiated at Morris Air into one of the worlds easiest airline reservation systems. He called it Open Skies. He whence sold this innovation to Hewlett-Packard in 1999. Finally in 1999 the noncompete stipulation had reached its expiration and Neeleman launched his own airline.He raised the needed capital with ease and JetBlue became the highest-funded bring out up airline in aviation history. JetBlue commenced oper ations in tremendous 2000. For a start up base JetBlue chose John F. Kennedy global aerodrome (JFK). (JetBlue Airways Corporation, 2011)The ships company relied on electronic reservation and ticketing to keep make up down. JetBlue was of the early airline companies to issue laptop computers instead of manuals to their pilots. One of their highest selling points deviation from price was the in-flight entertainment. The airbus A320s ere complete with 24 live satellite broadcasts (including A&E, Animal Planet, CNBC, ESPN, the Food Ne 2rk, Home & Garden, and the Weather Channel) at every freighter. This conformation of entertainment was of the starting signal among airlines. Airlines typically aired taped shows or movies. To serve up oneself keep be down the airline provided no meals but did tolerate gourmet blue potato chips and soda. The put were equipped with more thole room and were all leather with larger overhead storage com break inments. blood line grew rapidly i n JetBlues first year of operations.Reservation agents were receiving calls of up to 12,000 a day and still the company was booking 40% online. In 2001 JetBlue open a second base in California at eagle-eyed Beach Airport. JetBlue grew over the years to serve more than 52 destinations in 21 states, Puerto Rico, Columbia, Mexico and the Caribbean. In 2008 they added serves to Puerto Plata and St. Marteen. In 2009 they started serving Bogota, Columbia, San Jose, Costa Rica, Montego request and Jamaica. In 2007 JetBlue announced that they were entering into an agreement with Aer Lingus, and Irish flag carrier, to hike easy transfers for both airlines nodes.Unlike traditional code-shargon alliances, customers could non make one reservation for both airlines if need be. They would get down to make two reservations instead. Then unaccompanied 8 days later, JetBlue announced a code-share agreement with Cape Air. customers would be able to purchase seats on both airlines to a l ower place one reservation. A much better fit for convenience. JetBlues ontogeny was comme il faut harder to fund due to competitive pricing and high can prices amongst former(a) kindleing costs. On February 14, 2007 an event took place that would shake the solid, well funded company to its knees.Not only costing Neeleman his position in a company that he created, it destroyed the companies reputation for good customer relations. thither was a terrific storm headed towards the East coast and while all other airlines took the prim precautions and canceled their flights JetBlue in all their stubbornness did not. When the storm hit it was worse than judge and JetBlues customers were left stranded planes for 7 hours or more. David Neeleman when interviewed about this noble turn of events express Things spiraled out of control. We did a horrible job we got ourselves into a ituation where we were doing rolling cancellations instead of a massive cancellation. Communications broke down, we werent able to reach out to passengers and they continued to arrive at the airports it had a cascading effect. It took the organization more than a week to get the situation under control. This is where The Customer Bill of Rights came in. It basically outlined self-imposed penalties for JetBlue and major rewards for its passengers if the airline experienced operational problems and could not adjust to weather-related conditions inwardly a sensible amount of succession.In 2007 the company reported a $76 Million prejudice with a primary cerebrate being rising provide costs. JetBlue corpse profitable, posting a net in find of $128 Million for 2012. JetBlues CEO and President, Dave Barger said 2012 was a very good year. (Corporation, 2013) Mission JetBlue Airways does not turn under a traditional mission statement. Instead they use a set of core values. Those core values are as follows * safeguard * CARING * INTEGRITY * FUN * PASSION These five things are silk hat de scribed as the JetBlue experience. (John W.Kelly for KR Consulting, 2008) (JetBlue Airways Corporation, 2012) Corporate Strategy There are two new strategies that nourish been developed for JetBlue Airways a ariseth strategy and an efficiency strategy. Both strategies have been created out of k straightledgeable and out-of-door analysis. The growth strategys primary goal is to adopt improvement of recent mergers and ill fortunes within the airline industry. When companies merge it takes away some of the contest. Failures in other companies create opportunities for JetBlue to step in and create new business. (John W.Kelly for KR Consulting, 2008) (Corporation, 2013) The efficiency strategy is developed based on the organizations position within the low-cost segment of the airline industry. To reach this goal an extensive internal analysis is performed with a careful look at the take force as well as an analysis of the jet fuel prices/purchasing. (John W. Kelly for KR Consult ing, 2008) Strengths and Weaknesses of JetBlue Airways Strengths Strong brand recognition and their services are competitive. If you consider revenue enhancement passenger miles JetBlue is the sixth largest passenger carrier in the United States and is a widely recognized global brand.The company has realised several awards such(prenominal) as Top Low Cost Airline for Consumer Satisf attain cardinal years in a row and also exceed discipline Class Experience, some Customer Friendly Airline and Best Value Airline Domestic for 2011. JetBlue is also known for their spacious seat and live satellite TV. The Customer Bill of Rights is also a identify player in the companies strengths. It was created with meaning and specific compensation for customer inconvenienced by service disruptions within JetBlues control.Another service offered only by JetBlue is an expedited protective cover experience in over 30 cities and they call it Even more(prenominal) Speed. JetBlue utilizes their aircraft most efficiently to have the ability to spread its furbish up costs over a greater number of flights and available seat miles and they do this by using Airbus A320 planes for the majority of their business. (JetBlue Airways Corporation, 2012) Weaknesses JetBlue has an extreme amount of high fixed obligations. In 2011 JetBlue had a debt of $3. 14 billion and it accounted for 64% of its numerate capitalization.As the years go on and the company grows its debt will only grow as well. Eventually their high level of debt could make it difficult to grow the business further because of lack of funding. That in turn would put the company below their competitors who could find it easier to succeed necessary funding. (JetBlue Airways Corporation, 2012) Opportunities An obvious opportunity for JetBlue is expanding upon in the travel industry. This specific industry has continuously fluctuated in the historical but, it is expected to grow aggressively in the years to come.Accord ing to The Federal aura Administration (FAA), airline travel is said to double over the abutting 20 years. In 2011 about 815 billion people or seats sold is expected to increase of the next two decades to numbers about to 1. 57 trillion. That is an average growth rate of approximately 3. 2% per year. existence the sixth largest passenger carrier in the US, JetBlue is in a good position to expect a growth like that as well. JetBlue has also put effort in to making business relationships with Asia. The pace of the providence as a whole is slowing but Asian economies have remained strong domestically.Cathay Pacific is the home carrier of Hong Kong. In 2012 JetBlue announced an interline agreement with this company. This agreement will link each others vane between Asia Pacific and the Americas. JetBlue also announced a codeshare agreement with Japan Airlines to offer nonstop service to Tokyos Narita International Airport. For this reason JetBlues expanded partnerships with major Asain airlines will help further strengthen its network and expand their services. (JetBlue Airways Corporation, 2012) (Corporation, 2013) Threats The absolute biggest threat to JetBlue is the rising costs of aircraft fuel.Throughout history fuel costs have fluctuated out of the control of companies such as JetBlue. The costs vary widely and are unpredictable at best. In 2011 fuel costs represented nearly 40% of JetBlues total in operation(p) costs. Another threat is stringent governmental regulation. In the airline industry companies are subject to extensive regulatory and judicial compliance requirements that result in significant costs. It is also very expensive for the company to keep their current certificates. Lastly there will always be intense competition in this industry.As a tradition the industry is typically dominated by the giants such as United Air Lines, Delta Air Lines, American Airlines, Southwest Airlines and US Airways. Because of their size and power, some of t hese companies may be better suited for necessary funding. They may also receive more favorable fuel prices due to volume of sales. Intense competition could lead to price wars which could negatively affect the company. (JetBlue Airways Corporation, 2012) Identification of Problem(s) and Their Core Elements The first problem with JetBlue is that the company grew too big too dissipated.The organization was incompetent of sustaining this growth both financially and physically with staff, equipment and services. The second problem was/is naughtiness publicity. The airline was well known for exceptional customer service and relations but lately they are ranked among the lowest in customer satisfaction. JetBlue grew too quickly. In the 1990s there were many small start-up airlines. Most failed when faced with competition from the major airlines because they were not able to withstand the net profit wars. The smaller companies were also at a disadvantage when it came to start up capit al and management talent.Because of David Neelemans talent and charisma he was able to acquire an abundance of start up capital which carried the airline through the toughest part of a business, the beginning. Once JetBlue took off the company had a difficult time keeping up with its popularity and growth. Technology for one was lacking and it all caught up with the company on Valentines Day in 2007. The company made a some bad decisions and it escalated quickly and their reservation system could not enshroud the capacity of the situation. Their engine room also failed them when trying to remedy the problem.They were not watchful or ready for something of this magnitude. (Damaraju, 2009) With the growth divergence from the companys schoolmaster plan was starting to take place. They started off operation only one type of aircraft, an Airbus A320. The strategy behind this was to lower training cost and provides a very knowledgeable staff with flexibility in manpower. The airline then included a second type of plane, the Embraer 190 which the staff was not prepared for. Furthermore the company was embarking on even more paths where it did not have the needed experience. (Damaraju, 2009) JetBlue started as an airline for the new-fangled York leisure traveler.The equal with their expansion is that they dont have the route structure to compete with the majors for the business class travelers. (Farzad & Bachman, 2012) The second problem is bad publicity. The first unfortunate event was the Valentines Day ice storm that left passengers stranded and the company without the proper tools to fix the problem in a apropos manner. Customers were outraged as they should have been. The second very public mischance came in August 2010 when a frustrated flight attendant exited the plane using the emergency slide after becoming irate with passengers.And tolerate but certainly not least, when one of their pilots had to be subdued by passengers and forcibly removed from t he plane in March of 2012. (Farzad & Bachman, 2012) Because of these unfortunate events JetBlue now ranks last among 15 airlines in on-time performance and ninth in customer complaints to the Department of Transportation. (Farzad & Bachman, 2012) Those numbers are three times Southwests complaint ratio. Having started out as an airline that wanted to bring humanity back to air travel they seem to be coming up short in the customer service area.That was their biggest client attraction. Evaluation of alternating(a) Courses of Action The problem of growing too big too fast can easily be evaluated as a hind sight. The company had great aspirations and fell short only by default. Had the company foreseen the events that were to come with the harm in their choice of technology or the mental partition of their staff, Im sure they would have done things differently. The costs of their technical errors were somewhere close to $30 million. The costs they endured over their lack of customer satisfaction are immeasurable.For these problems, the alternatives courses of action could only be to revamp their technology and better train staff and let them know the real pressures of their positions. JetBlue already has a comprehensive training program for their employees known as JetBlue University. (JetBlue Airways Corporation, 2012) Recommended Solutions Recommended solutions for JetBlues growth from this point moving forward would be first, to monitor and state a functional operation-revenue to operating-expense ratio. As with any successful business the operating revenue must be greater than the operating expenses.This ratio will determine the future of JetBlue. (John W. Kelly for KR Consulting, 2008) Internally JetBlue should consider how to reduce expenses. The two key players in this particular situation are labor and fuel expenses. Although JetBlue has remained un-unionized, which is imperative in keeping labor costs down there may be more room for improvement in th e work out regarding this matter. I suggest a closer look at counseling and Airport Operations. These two positions are the furthest from the consumer and have the most employees.The reason behind choosing these particular positions is that change in these areas will not at one time affect customer service. These positions need to be examined and see where, if any, the process inefficiencies lie. By doing this the company may be able to cut a few unnecessary positions. Recommendations for best efforts for capping fuel costs are an evaluation of the fuel purchasing agents performance. (John W. Kelly for KR Consulting, 2008) The second recommendation is to take a more aggressive approach like Southwest has and radiation diagram more hedging.Recommended solutions for JetBlues failure to provide exceptional customer service would be first to continue to practice and put to use The Customer Bill of Rights and to take a few leads from their competitors. Other airlines do not charge the ir customers for a pillow and blanket set. At all costs they should continue with the perks they provide their customers. They may not serve meals but the snacks and sodas are always free. A big selling point for consumers is baggage fees. JetBlue allows their passengers to have two free bags per flight.That is one more than Southwest. The fact that JetBlue is low cost airline the consumers expect less, i. e. meals and things of the such, so their state of the art entertainment is a welcome surprise for passengers. Implementation Plan To take action on the operation revenue to expense ratio is to start directly reviewing the labor functions and initiate an additional review every two years. Starting immediately with employee performance reviews, having properly trained employees is a must. Success or failure in this area will be measured in dollars saved.Immediate action considering fuel costs are to hire a congressional lobbyist to help neutralize the market by opening up national strategical reserves as well as encouraging increased domestic petroleum exploration and jet fuel production. Success or failure in this area will also be measured in dollars saved. Works Cited Corporation, J. A. (2013). JetBlue Reports Record Fourth Quarter and Full Year Revenues. New York PR Newswire. Damaraju, N. L. (2009). JetBlue Airlines Will it Remain Blue? In McGraw-Timmons, Capstone passenger vehicle 250s (pp. 13-220). Dallas University of Texas. Farzad, R. , & Bachman, J. (2012). Once High-Flying, JetBlue Returns to Earth. Bloomberg Businessweek , 27-29. JetBlue Airways Corporation. (2012). Company Profile JetBlue Airways Corporation. marketline. com. JetBlue Airways Corporation. (2011). Reference for Business. New York referenceforbusiness. com. John W. Kelly for KR Consulting, L. (2008). Shaping Tomorrows Solutions for JetBlue Airways- A Strategic Analysis. San Fernando Valley University of La Verne.