JetBlue Airways Corporation financial analysis and 10-K examination

Jet Blue Case Study

One of the prime examples of the new paradigm in the airline industry is Jet Blue, an American low-cost, no-frills airline. Its main base is JFK international airport in Queens, NY. The airline's main destinations are U.S. hubs, flights to the Caribbean and Bahamas, and some to Central and South America. It is a non-union airline with a fleet of just under 200 craft, with another 50 ordered. The primary strategy for Jet Blue is the customer value proposition. The airline is not fancy, does not try to offer a number of amenities, only has a few routes, and is primarily trying to base ridership on low-cost fares.

Business Risks and Controls- Airlines, particularly smaller airlines, are faced with a larger number of competitors and sensitivity to economic conditions. With the global economic downturn, increased fuel prices, and weak travel demand, all airlines face stresses. This is especially true when one looks at fuel prices. Additional, the market for oil results in the industry having little or no stability in median pricing scenarios. Most analysts are predicting that high oil prices, natural disasters, and political unrest, as well as the worsening economic situation in the EU will continue to degrade air travel. To mitigate these threats, Jet Blue can take a few steps to ensure that the competitive issues, prices, and consumer demand will be less critical: 1) Hire and retain the right employees- reduction of turnover can save the company as much as 30 per cent on wages and salaries; 2) Continue to ensure that only the most profitable routes are serviced; 3) Partner with other travel oriented businesses in promotional activities; 4) Continue high levels of upkeep on fleet to reduce down-time and/or replacement costs; 5) Increase automation wherever possible (reservations, etc.) to reduce labor expenditures that are about 1/3 of operating costs; 6) Integrate new aircraft already ordered into prime routes and remain competitive -- it is better to travel with a full airline that meets costs at a lower per ticket price than a 1/2 filled airline at higher ticket costs that do not meet profitability needs.

Part 3 -- Concept of Unit Level activities -- Unit level activities include managerial decisions that affect the basic individual customer. Unit level costs are sometimes variable costs since they vary between the units produced or sold. For an airline, unit level costs might be fees for premium seats (longer leg room) or fees assessed or refunded for multiple leg purchases. Jet Blue manages unit-level activities by choosing to maintain high aircraft utilization (operating a single aircraft type with a single class of service) and direct booking services save computer reservation fees (use of www.jetblue.com) which lowers operating costs.