International air passenger carriers positioning through multidimensional scaling and correspondence analysis

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 put forth by David Neeleman, this paper dedicates a section to the marketing analysis of JetBlue. 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. As stimulus activities create a more accommodative environment in regards to interest rates, more money is flowing into the economy. This money will eventually cause inflation those increasing the cost of commodities such as fuel. This rising energy costs if left unchecked will result in higher fuel costs for airlines. As margins are already thin, a large portion of these costs will be transferred to the consumer. Now, both Southwest and JetBlue are very aggressive with their respective hedging strategies. They both engage in the practice of hedging fuel prices in an effort to lock in a predetermined rate. If fuel prices continue to rise, as they are anticipated to do over the long-term, both Southwest and JetBlue will be safe guarded from adverse consequences. This prudent hedging strategy has allowed both companies as niche players to become very profitable while larger competitors are becoming insolvent. This hedging strategy combined with competitive pricing creates a competitive advantage for both companies (Breath, 1986). Currency rates are also a key external factor for both companies. Inflation also pertains to currency risk relative to foreign competitors. Higher inflation in one country will increase the value of a foreign competitor's currency on a relative basis. China for instance intentionally keeps their currency low in order to increase its value relative to the dollar. This makes American imports more expensive and Chinese exports very inexpensive. With impending inflation, American goods are becoming cheaper on a currency basis. This makes exports more competitive while imports are more expensive. However, in regards to consumers, the purchasing power of their dollars are decreasing as rapid inflation erodes the amount of goods they can consumer (Tobin, 1969). In regards to airline companies, as the dollar continue to weaken against the yen, Japanese parts and material will become more expensive on a relative basis.

Rise of Emerging Markets