Jetblue Airways: Managing Growth Case Analysis

Individual Case Report #1

JetBlue Airways: Managing Growth Case Analysis

Strategic Management

04-75-498-01

Instructor: Dr. Jonathan Lee

Author: Shangfeng Chen

Student ID: 103476348

Date: October 6, 2014

University of Windsor

Background

        JetBlue Airways was established by David Neeleman in 1999 after he had already built strong honorary as a leading figure in the aviation industry. In the embryonic stage, while facing the major competitors of legacy carriers such as Delta Airlines, he adopted the strategy that position JetBlue as a Low Cost Carrier (LCC) which targeting on being a "growth company" in niche market to attract passengers. Beyond that point, Neeleman also set objective that JetBlue would be steady in financial perspective by having consistent and quarterly profits for the first five years of operation.

        Based on low cost and differentiation operating strategy, Neeleman had successfully let JetBlue Airlines became the nation’s 9th largest passenger carrier in 2005. However, the Valentine’s Day Crisis that happened in February of 2007 pushed JetBlue into “the worst operational week in its seven-year history”. After the crisis, the board of directors replaced Neeleman with David Barger as JetBlue’s new CEO, who previously held the position of COO. In spite of this crisis, Neeleman's contribution to the company was indelible. However, making the company profitable was just the basic goal for financial growth of JetBlue, the more important concerns should be looking forward: what strategy should be implemented for JetBlue to compete with the best-known legacy carriers as well as to realize sustainable development in dynamic airline industry.

Key Issues

        In this case, it’s clearly to see that some key issues need to be considered by JetBlue management. Each issue is not isolated, and their solutions are equally important so that the management team should resolve these problems immediately. In overall perspective, JetBlue were facing the following dilemma:

• Barger needs to find an effective approach to decrease the growth rate of JetBlue.
• JetBlue faced softening demand and higher costs due to rising fuel prices.
• Compared to JetBlue’s main aircraft model A320, the E190 model that was introduced in 2003 increased the range of choices available to JetBlue passengers so that satisfied their diversity travelling demand. However, employees and customers might take long time to fit this new model, let JetBlue in simultaneously advantages and risk position of launching E190.
• The impossibility for pilots to obtain dual certification simultaneously and lower hourly pay for captains may bring more complains so that result in reducing the company’s operating efficiency.
• JetBlue needs to decrease aircraft deliveries, however Barger was uncertain about the optimal method to distribute these reductions across E190s and A320s. Whether reduce both or solely individual type of aircrafts to match company’s operating budget as well as keeping sustain development is critical to the entire corporation. Considering many key characteristics, this case needs external and internal analysis in details.

External Analysis

        External analysis is the standpoint of enterprise marketing activities and basic premise for JetBlue. The purpose of making enterprise development strategy is not only in order to better serve the passengers, but also to make the company obtaining more economic benefits and social reputation. To achieve this goal, the foothold and fundamental premise is to conduct strategic external analysis. When in this dynamic market circumstance, formulating long-term effective operation strategy takes a critical role for the sustain development of the company. Here I will use two classical theory models for JetBlue’s external analysis: Michael Porter’s Five Forces and the PESTEL Analysis. Let’s first take a closer look at the macro environment using Porter’s Five Forces.

Porter’s Five Forces

        Threat of New Entrants: Due to the particularity of the airline industry, it’s difficult to enter this arena for a new airline company. Since airline industry has already formed the stable economic of scale, and major airlines such as United and American Airlines are in dominate roles make it very hard for new entrants due to their huge networks, great reputation and strong customer brand identification. However, new entrants still have opportunities to compete with legacy carriers by providing superior and differentiation service. What’s more, no proprietary protection and the low switching costs could ultimately raise the threat level, and then unavoidably impact on the existing players. Consider JetBlue is a medium-sized airline company, the risk of threat of new entrants for JetBlue is high.

        Supplier Power: In the aviation industry, the major suppliers are Boeing and Airbus. JetBlue was forced to cooperate with Airbus because in the early stage it took A320 as its sole airplanes. JetBlue developed standardized training and service process, therefore pilots and employees were trained solely on A320. Compared with the large monopoly aircraft manufacturers Boeing and Airbus, Embraer only have little bargaining power introducing E190 to JetBlue. This fact become potential threatens to JetBlue, as it might be difficult to replace their supplier due to the huge sunk costs. In addition, with the increasing prices of fuel and its essential function in the airplanes, fuel distributors also have strong bargaining power. Therefore, any major policy changes by the supplier would affect JetBlue directly. Supplier power in airline industry is super high.

        Buyer Power: Due to highly developed information technology and widespread communication network nowadays, passengers can freely choose airlines according to their own needs and preferences. Meanwhile, people also have the ability to switch the airlines or even travelling ways at any time to achieve greater satisfaction. High levels of competition in aviation industry make the airlines continuing improve the quality of service as well as giving seasonal discounts sometimes to attract customers and maintain long-term relationship with them. All in all, buyer power is also high.