JetBlue Airlines Case Analysis JetBlue Case Analysis

JetBlue Airlines Case Analysis JetBlue Case Analysis Discuss the trends in the U.S. airline industry and how these trends might impact a company's strategy. The time period the case study covers and the ensuing years have proven to be among the most turbulent ever for the airline industry on a global scale.

Beginning with the reduced availability of capital and the lack of liquidity for expansion and the slowing rate of economic growth for business and leisure travel the latest global recession has been particularly difficult for the airline industry and its participants to navigate. The following are the key financial factors that the case study indicates as being the most responsible for the turbulence in this industry over the long-term.

Continually escalating fuel and operating costs which fluctuate significantly over time force fuel hedging or the practice of purchasing large quantities of fuel on speculation of price increases or decreases (Forbes, Lederman, 2009). Second, the pervasive use of the hub-and-spoke model, a key factor in JetBlue choosing to expand into JFK International Airport in New York, is a risky move for the company as they are relatively unknown in this area of the country (Aydin, Morefield, 2010).

A third strategic factor is that for any airline to survive they must have excellent cost controls, management and variance analysis in place to accurately predict and react to pricing variation. This is an area where JetBlue continued to struggle as well during the case study period. Fourth, the need for continually innovating and improving process performance at the business unit, operations unit ad field level of any airline is crucial to its success (Kumar, Johnson, Lai, 2009).

In the context of the case study, JetBlue did aggressively pursue this area with a very high level of investment in IT, CRM, pricing and analytics applications to gain greater insight and intelligence into how they could increase customer satisfaction and performance (Hofer, Eroglu, 2010). JetBlue was actually ahead of their time in using lean-based workflow methods including rules- and constraint-based modeling to better attain in-plane optimization over time (Liou, Yen, Tzeng, 2010). This has significantly increased operating efficiency and dropped per-flight costs as well.

The case study provides a glimpse into the many approaches and strategies the company had for using lean manufacturing and process improvement frameworks and techniques for gaining a greater level of insight into how best to reduce costs and keep customer satisfaction at parity or above competitors.

The JetBlue business model was predicated on the idea of continual process improvement and the attainment of higher levels of efficiency in the areas of flight and crew scheduling, optimizing passenger loads per flight and the ability to better manage fixed and variable costs through more effective use of analytics compared to competitors.

Lastly this industry is known for having exceptionally entrenched and well-capitalized competitors who are willing to invest heavily to hold onto market share despite the industry overall being in a decline stage of its product life cycle, facing eventual consolidation (Parast, Fini, 2010). It is a well-known fact in the industry that the continual infusion of capital investment is necessary to keep airlines operable and meeting federal and state-based governance requirements (Forbes, Lederman, 2009).

Technology investments have proven over time to be a successful strategy for mitigating the high cost of capital and keeping operating costs under control (Liou, Yen, Tzeng, 2010). Unfortunately many airlines are unilateral in their cost reductions, choosing to cut customer services sharply to save on costs, leading to a revolt on the part of customers who demand their right to decent treatment be met. This lack of focus on customer needs in the midst of severe cost reductions has led to a passenger bill of rights (Waite, 2007).

The precipitous and rapid slide of customer service quality in airlines are more the result of a systemic understaffing and under-investing in key system and process initiatives than it is purely on the attitudes and work ethic of the employees themselves. Airline employees across the board are told to do exceptionally more than they have ever been required to before, often on much less sleep and for much less pay.

Table 1: Domestic Airline Revenue Growth & Table 2: Domestic Airlines Forecasted Revenue Growth show the exponential rise in airline revenue, which is correlated to traffic levels continually increasing as well. Discuss Jet Blue's strategic intent prior to 2008. JetBlue's strategic vision and mission was to be the leading low-end, high-quality (in terms of passenger experience) airline in the U.S. Of those competing using the hub-and-spoke model for efficiency and continual cost reduction (Aydin, Morefield, 2010).

JetBlue wanted to accentuate and augment what Southwest Airlines had done for over a decade already, concentrating on fuel hedging as a means to better manage unpredictable yet very significant fuel costs as well (Flouris, Walker, 2005). Like Southwest, JetBlue also was engaging in fuel hedging yet only at a very conservative level of 30% of total fuel costs. Southwest on the other hand was aggressively using fuel hedging, rising at one point to an 80 -- 90% rate on their fuel speculation levels during the time period of the case study.

Southwest anticipated the market well and was able to earn a profit during a particularly difficult quarter and fiscal year for the airline industry as a result. Fuel hedging is also being used by JetBlue to support its primary strategic intent or vision of being a highly differentiated, high-end.