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Southwest vs. JetBlue
The airline industry is one that has rapidly evolved both with regards to technology and product offerings. This paper argues that technological advancements, deregulation and competitive pricing and marketing strategies are what have driven change in regards to both Southwest airlines and JetBlue. Segmentation, targeting and positioning have also played a profound role within the evolution of the industry. Many companies, particular those that are broad-based have experienced difficulties from more niche players. Low cost producers such as JetBlue and Southwest have developed targeted strategies that cater to a specific market. The paper goes on to explain how each of these factors affects and drives change in the other three. Deregulation occurred to increase competition; competition in turn affects innovation in marketing and pricing as well as technology, yet this process has no specific order with regards to where the change starts as innovation and competition, can then affect the way the market is regulated (Morrison, 1995). The document first begins with a comprehensive industry analysis which discusses pricing changes and segmentation within the market. Yet with the advent of the Internet, brick and mortar travel agencies became basically obsolete as more and more passengers began choosing the cheaper online alternative. This new technology cut out the middleman, and also allowed airline industries to diminish their own costs by diminishing personnel, as they developed company websites from which the passengers could purchase flight tickets. The Internet also allowed airline companies to develop dynamic pricing models, where they could monitor their competitors' price and respond with a lower price. The price of airfare has significantly dropped due to this as travel agencies no longer require a percentage of the final sale, but rather purchase the tickets at lower prices and only sell when demand is at its highest. Innovation has played a massive role in pricing strategy. The presence of innovative individuals such as David Neeleman, founder and CEO of JetBlue, has revolutionized the industry. JetBlue has been extremely influential and has been able to reduce and change fixed and variable costs, while focusing on a good marketing strategy that has ensured brand loyalty. To discuss some of the many innovations that were...
Finally the document establishes the competitive dynamic between Southwest and Jet Blue as it relates to positioning, pricing, segmentation and overall competition.
Key External Factors
Fiscal and Monetary Policy
To begin, key external factors affecting the airline industry pertain mainly to economic circumstances. One economic issue prevailing in the United States is that of rapid fiscal and monetary stimulus and its inflation implications. Currently, due in part to prevailing market conditions, governments have embarked on a path to massive fiscal ease. Governments, including the United States, Japan, Europe, and China have all engaged in massive stimulus operations. These operations are designed to help build consumer confidence while also enhancing the overall appeal of risky asset classes. For instance, the United States has kept interest rates near 0% for the past two years with an expectation of low interest rates until 2015. This low interest rate environment makes alternative assets such as stock, bonds, and real estate more attractive on a relative basis. High dividend paying stocks for instance, offer a yield of roughly 3% which is nearly double that of the 10-year treasury. These massive stimulus efforts however, have yet to enhance economic activity as previously anticipated. As such, the massive asset purchases created by the government may result in rapid inflation as more currency is circulating in their respective economies (Robert, 1988). As governments continue to print money, the relative value of this money will continue to decline, ultimately harming the consumers it was intended to help. Furthermore, this low interest rate environment is harming those who depend on their savings to generate income. With interest rates at record lows, and savings accounts generating very little income, inflation will erode the purchasing power of these savings. As such, it is my contention that the government should reframe from massive amounts of stimulus as the threat to consumers is very large in regards to inflation. This threat to consumers comes in the form of rising commodity prices which are ultimately passed on to customers. One of the largest expenses for the airline industry is that of fuel costs.…
Finally, the consumer is now becoming more leisure oriented. Currently, the middle class in emerging markets is growing exponentially. Countries such as China, India, Brazil and Russia are experiencing robust economic growth. As such, consumers from these countries are willing to travel leisurely to tourist destinations. Due in parts to the worldwide appeal of travel, many airlines are well positioned to take advantage of this impending trend. China in particular, is experiencing a robust increase in consumer discretionary income. More consumers are now willing to purchase products tied more closely to leisure activity as oppose to necessities in life. Globalization in regards to economic activity has created this wealth effect within emerging markets. Emerging markets are now demanding many American products, goods, and services. This demand has increased foreign direct investment in many emerging markets. Many industries from auto makers, to financial institutions are now conducting business in emerging markets. This increase in business activity has created more job opportunities with emerging markets which directly translates into discretionary income. This is a direct result of the growth many of these countries are experiencing. As niche players however, both Southwest and JetBlue have concentrated flight plans and routes. A deviation from this strategy would ultimately require more flights with overseas tourist destinations. Larger players such as United or the now bankrupt American Airlines have a competitive advantage in regards to economies of scale that Southwest and JetBlue do not have.
Rising costs and price competition
Events such as 9/11 have had devastating events on the industry causing losses well into the billions of dollars. The effect of such a cataclysmic event cannot even be quantified, as many still today avoid air travel due to the fear that has been instilled in them. Security, and the cost of security, has increased as a response to the 2001 attacks. The increased expense has been incurred by the airlines themselves, which in turn have no choice but to put the burden on the passengers. The global recession has also caused unquantifiable losses in the industry, especially when coupled with the rise of jet fuel prices and the 2010 climatic events that prevented thousands of airplanes from departing, or landing in their proper destination. Whether an airplane departs or is cancelled does not change the fixed costs of the airline, yet it does directly affect the airline's profits. Also landing in a different airport does require compensation to passengers. Environmental policies that limit CO2 emissions also increase the
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By the turn of the century, though, these low-costs carriers had become profitable or at least had significantly reduced their losses due in large part to concomitant increases by major carriers that were increasing their prices in response to decreasing yields and higher energy prices (Doganis 2001). By and large, passenger traffic across the board increased significantly prior to September 11, 2001 and all signs indicated it was continue to