Jetblue Case Study

INTRODUCTION

JetBlue Airways entered the market in 2000 from a position of financial strength, leadership capability and several rare advantage points uncommon to others in the industry: 1) David Neeleman, the founder, had several years of industry experience as a result of having successfully launched and sold an airline (Morris Air), bringing both explicit and tacit knowledge into the his new venture; 2) Neeleman was afforded the opportunity to work directly with his idol, Herb Kelleher, at Southwest Airlines (the king of the low-cost leaders) after Southwest purchased Morris Air from Neeleman; and 3) Substantial financial support from venture capitalists who had funded Neeleman's previous ventures and were more than willing to support and capitalize on his idea for a new low-cost passenger airline.

With a clear mission and vision, he implemented a low-cost, differentiation business-level strategy, that set out to position JetBlue as the leading low-cost passenger airline in the industry, differentiating on high-quality customer service, providing customers with a geographically diversified flight schedule of both short and long hauls, along with efficient and reliable service.

JetBlue's mission is "to bring humanity back to air travel". Its low-cost strategy is second-to-none, not even to Southwest. Utilizing Southwest as a model and benchmark early in Neeleman's career in the industry, he's managed to copy the Southwest model and expand upon it with his ability to find more innovative ways to cut costs along the organization's value-chain, while utilizing technology to increase productivity and further add to operational efficiencies. JetBlue's value chain demonstrates its ability to successfully compete in several key areas relative to the bases of competition within the industry and creates processes that focus on reducing costs, for the specific purpose of continuously creating value for its customers, i.e. fare pricing, customer service, routes served, flight schedules, types of aircraft, safety record and reputation, in-flight entertainment systems and frequent flyer programs.

JetBlue's Value Chain - Primary Activities

Inbound Logistics/Outbound Logistics:

Focus on underserved markets and large metropolitan areas, utilizing underutilized airports with less congestion adding to the ability to remain on the ground in less time.

Point-to-Point routing system, unlike low-cost competitors that utilize hub-and-spoke system, partnering with larger airlines to provide connecting flights.

Operations:

Use of a single-type aircraft fleet. The A320 Airbus has an increased seating capacity of 30 seats (24 after additional seating reconfigurations), is cheaper to maintain, fuel efficient and reduces training costs, relative to other aircraft models used in the industry.

Ticketless travel (e-ticket).

At-Home Reservation Agents reduces office space and infrastructure costs.

Paperless Cockpit (reduces paperwork and results in faster take-offs, quicker turnarounds, and higher aircraft utilization.

Service:

Does not overbook flights, therefore, customers are never concerned with the possibility of being

bumped, i.e. no standbys. No passenger is ever left behind.

Layout and design of planes and reduced seating capacity to increase customers' legroom and comfort.

DIRECTV satellite television. A television at each seat (24 channels controlled at the hands of each individual customer).

Long and short hauls, unlike low-cost competitors that focus on short hauls.

True-Blue points program that allows customers to receive a free round-trip ticket based upon points earned.

Its superior operational performance, i.e. more flight hours per day, better completion factor and on-time performance, fewer mishandled bags and customer complaints, translates to exceptional customer service.

JetBlue's Value Chain - Support Services

General Administration:

Key employees of the management staff were veterans highly experienced in the airline industry, complementing the knowledge and expertise of its founder.

Management's hands on approach in assisting crewmembers with carrying out work activities supports its culture as a service company striving for an environment that encourages safety, caring, integrity, fun and passion.

Management's visibility with both employees and customers, and its ability to effectively communicate the company's culture and values, while motivating employees at all levels of the organization, supports the philosophy that "great People drive solid operating Performance which yields continued Prosperity".

Human Resources:

Emphasis on recruitment and retention. Providing competitive salaries, bonuses, profit sharing, stock purchases and other benefits unheard of in the industry. Empowering employees through training and development and offering opportunities for advancement.

Technology Development:

The development of processes and systems that streamline workflows and create efficiencies that are passed down to the customer in the form of quality service and reduced costs.

COMPETITIVE FORCES - PORTER'S FIVE-FORCES MODEL

1. The Threat of New Entrants is Low. In 1978 deregulation opened up the airline industry to many competitors, however, there is currently a low threat to entry due to the entry-level barriers associated with capital requirements or the high cost of entry. Further, new entrants would have difficulty competing in this mature industry dominated by the larger airlines that are fighting for their lives, but particularly with the low-cost carriers that have mastered the art of integrating reduced costs with high-quality service.

2. Bargaining Power of Buyers is Relatively High. While suppliers seek to differentiate based upon price and service, this is still a commodity business and buyers continue to seek the lowest price available