Jet Blue Competitive Analysis

JetBlue is an airline based in New York City, operating both domestic and international routes. JetBlue was founded in 1999 by David Neeleman, a former Southwest Airlines executive, using much the same business model. The company received 75 landing slots at JFK later that year, and by December had taken delivery of its first aircraft from Airbus. The first flight was on February 11th between JFK and FLL (JetBlue.com, 2015). The company has since expanded significantly. It has been profitable since at least 2009 (MSN Moneycentral, 2015). According to the Bureau of Transportation Statistics, JetBlue is the #5 airline in the United States, with a 5.2% share (BTS, 2015). It is concentrated along the Eastern seaboard, so it is the largest among the major regional airlines.

The model that JetBlue uses, theoretically at least, is a discounter model, which is focused on competing on popular routes with a low cost. The inaugural route, for example, JFK-FLL, is the 10th-most traveled route in the U.S. (BTS, 2015). The company has emulated the Southwest model in many respects, though it has also added a number of services that might not normally be found on a discounter. It considers itself, first and foremost, a direct competitor to Southwest, the market leader (Weinberg, 2015). Thus, JetBlue's secondary point of competition is with customer service. There has been a merging of different airline models in the U.S. over the years, as the major legacy carriers have basically cut back their service levels to discounter levels, but not necessarily with corresponding cuts in fares -- the challenge for JetBlue is to provide better service than other airlines while simultaneously offering lower fares. If it can do this, it will continue to grow.

Rivals

JetBlue is the #5 airline in the United States. The #6 is Alaskan, and there is not much route overlap between the two airlines. There highest degree of route overlap is with the legacy carriers, and JetBlue is also a rival with Southwest, the company on which it based its business model and the industry #2. There are also several smaller discount carriers that have some route overlap with JetBlue, such as Spirit and Express Jet, but they are not considered rivals to the same degree, since JetBlue is mostly looking at winning market share from the larger, more established rivals.

Southwest is the major rival, not as much because of route overlap but because JetBlue was founded by Southwest execs, and uses the Southwest business model. There is thus a high degree of interpersonal rivalry between these two companies, and as Weinberg (2015) notes, JetBlue is starting to target Southwest directly, taking on some of the routes that Southwest has already established in the east, such as Philadelphia to Fort Lauderdale and Dulles to Orlando. Southwest has a 71% share at BWI, for example, and JetBlue has now launched flights on three of the top five routes out of that airport, marking a significant uptick in direct competition against Southwest. JetBlue has also made direct attacks on Southwest in some of its recent advertising (Weinberg, 2015).

JetBlue has also made a point of taking on the legacy carriers. When JetBlue was launched, it was the legacy carriers that dominated the market on the eastern seaboard, so they were natural rivals. American and Delta have JFK hubs, which puts them into direct rivalry with JetBlue. Other JetBlue hubs which they share are FLL (Spirit, Southwest), Logan (Delta, to some extent) and Orlando (Southwest). This makes Delta and to a lesser extent American the major legacy carriers with which JetBlue has a rivalry, based on route overlap. Delta is the #3 airline in the U.S. At 16.9% share, and American/U.S. Airways is #1 with 20.5%. So three of the biggest rivals are the top three airlines in the U.S., with United being the only major American airline with which JetBlue does not have a significant direct rivalry. Delta and American are both legacy airlines, and these airlines have struggled significantly in recent years. A series of mergers among the major legacy airlines has resulted in reduced industry capacity, which has allowed for higher prices, reduced competition on many routes, and improved profitability across the industry, but in particular for these airlines (Trefis, 2014).

Spirit is another rival, being a discounter on the East Coast, and a rival at the Fort Lauderdale hub. This company is the #9 airline with a 2.2% share (BTS, 2014), and it has a model where it seeks to undercut all other airlines, but offers a very bare bones experience, famously charging for carry-on bags (SeatGuru, 2015). It is not hard to beat Spirit at service. Nevertheless, Spirit is growing and that company has remained consistently profitable over the past five years. Spirit's stinginess with bags pushes them more into the business travel market, but JetBlue also competes actively in that market, so there is some direct competition that JetBlue should not ignore.

Part II. Airline Market

The U.S. airline market has performed better in the past few years after consolidation among legacy carriers has reduced competition in the industry. Lower fuel prices have also helped in 2014 and since. The number of passengers increased from 646 million in 2014 to an estimated 666 million in 2015, a 3.1% increase, according to the Bureau of Transportation Statistics (2015). Yet, there was a reduced number of departures, which indicates that load factors have increased. Indeed, the average load factor in the industry is now 84.4%, up 1.9% from 83.7% the year before. While fuel costs are higher today than they were in the first half of the noughts, they are lower than they have been since 2009, and this has also contributed to the profitability of more airlines, a trend that has occurred over the past several years (BTS, 2015). The industry is still competitive on major routes, however.

Airlines are focusing their competition on major routes to attract customers to their airlines and increase the profile of the airline. The biggest profits are on routes where this is not much competition. That said, many airports have nearby competing airports. There are five airports in the New York area, and in particular La Guardia competes heavily against JFK. Miami and West Palm Beach have major airports that compete against Fort Lauderdale, and the same can be said for most of the major airports in which JetBlue operates -- it's Long Beach hub is one of several airports in the LA area. So there is even still competition among carriers when they fly into other nearby airports, as many travelers are willing to opt for a different airport to save money or get a more convenient flight time.

Capabilities

Initially focused on the business traveler, JetBlue has made several moves in recent years to increase its visibility among vacation travelers. It has initiated several programs to attract a diversity of clients, including Mint, Fly-Fi, Getaways, Even More, and other partnerships. A high rate of growth in recent years has made the Caribbean the number one geography for JetBlue, at 31.4% of capacity, with Florida as 29.3% at number two. This highlights that JetBlue is starting to become a vacation airline as much as anything else. The only major business traveler growth market is through its Logan hub; other growth is the vacation markets in the Caribbean and Latin America, often via FLL, according to the company's 2014 Annual Report.

As with most other airlines, JetBlue has corporate partnerships that offer a variety of benefits to JetBlue loyalty program members. Marriott and Morgans Hotel Group are among the major hotel partners; Hertz, Avis and Budget are car partners and there are also partner airlines like Hawaiian and Emirates. Such partnerships can enhance business opportunities, and bring in new passengers to JetBlue. The more attractive the partnership deals, the more enticing that they are for consumers. Arguably, JetBlue has weaker-than-average partnerships, mostly because they are not a part of a major global airline group, and thus have lower bargaining power with respect to forging such partnerships.

Part III: Competitive Strategy

JetBlue competes as a discount airline, but in many respects it still competes otherwise like a major legacy airline, with partners in the industry, loyalty programs and other elements of the traditional airline business. The company seeks to compete as a low cost provider, but with better service than others in its peer group. This is a difficult strategy to execute, but Southwest was able to do it, and that is why JetBlue models itself after that airline. The other airlines are either no frills discounters like Spirit or legacy carriers that compete on the basis of their vast route networks more than anything else. Those airlines utilize a hub-and-spoke system and many flights will require change. At JetBlue, more passengers flying point-to-point, some estimates being as high as 90%. This creates a necessity for JetBlue to focus its route development strategy on finding the routes with highest traffic. JetBlue can do this, and often does, by choosing one airport in a major city to serve the entire area, a strategy it employs in New York, Miami and Los Angeles.

The JetBlue competitive strategy has been executed successfully thus far. The company has kept its prices down by having new aircraft, which require less maintenance. This is a key element of discount airline strategies around the world. Furthermore, it uses A320s extensively, at 130 of these in a fleet of just over 200. The Embraer 190 regional jet is the only other major component of its fleet. By using only two types of aircraft, the company can keep its maintenance costs low. In addition, JetBlue enjoys a cost advantage over the legacy airlines in that it does not have a large pensioned workforce, as with those airlines the pensions created a drag on earnings, a significant obligation that forced several major carriers into bankruptcy. The lack of such an earnings drag has allowed JetBlue to have lower fixed costs, and therefore enabled it to charge lower fares.

There is considerable room for expansion for JetBlue. The company's capacity right now is dedicated roughly in thirds to the Caribbean, Florida and transcontinental flights, mostly to Long Beach. There is considerable room to expand operations between its many East Coast cities in the Pacific Northwest, however, since JetBlue only flies into Seattle and Portland. The company also flies to Anchorage and has a partnership with Hawaiian. But in general, while it flies to a wide range of airports in the east, it only flies into a handful of Western cities, and has almost no flight between western cities. This is the next area of potential expansion for JetBlue. Such expansion would put it into direct competition with Alaskan, as well as increasing its level over competition with other major carriers. As yet, the company's strategy is to continue expanding into the Caribbean, but realistically the northwest is a major opportunity for expansion if JetBlue is serious about continuing to grow, as the Caribbean is nearing saturation.