Jetblue Airways: Managing Growth

Jet Blue's Business-Level Strategy: Value and Cost Drivers

Jet Blue uses to create and maintain ist competitive position. Founded by the discount airline veteran David Neeleman in 2000, JetBlue Airways has quickly become one of the largest discount airlines in the United States. Starting primarily by serving the East Coast, the airline has since expanded throughout the country and entered the international market.

The reasons for its early success are numerous:

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• JetBlue entered the market with one of the largest levels of liquidity of any start-up airline;
• it met the needs of customers’ whose primary concerns are price and route;
• it successfully defined its brand and differentiated itself from competitors by offering an above average customer experience and amenities for a discounted price;
• They are offering fares with the “point to point” system.

JetBlue's business-level strategy is therefore a mix of cost-leadership and differentiation.

David Neeleman’s idea behind JetBlue was to start a company that combined the low fares of a discount airline carrier with the comforts of a small cozy den in people’s homes. His vision involved both business and leisure customers to have cheap and affordable flights throughout the United States and abroad on newer aircraft that are not only comfortable, but are equipped with modern entertainment options, and a customer centric business model which makes customer service a number one priority.

In contrast to its competitors, for example, JetBlue offers fares up to 65% lower but added comfort features such as assigned seating, leather upholstery and satellite TV on individual screens in every seat. Moreover, they are practicing a “get-to-the-destinations-at-all-costs” culture, which makes it their declared aim never to cancel a flight. JetBlue Airways does not operate to a traditional mission statement; rather, it operates to a set of core values:

• Safety
• Caring
• Integrity
• Fun
• Passion.

 Positioning to Create a Strategic Competitive Advantage Company

The biggest and simultaneously oldest airline companies are United, American, Delta and Continental Airline. This is why they are referred to as legacy carriers. Their strategic competitive advantage is the hub and spoke system. In this system, airlines created hubs at specific airports where thousands of passengers were shuttled to their connecting flights, the so called spokes.

In doing so, these airlines can ensure to keep costs low and protect market share. Another argument strengthen this strategy is that passengers can travel between numerous destinations without changing airlines. Delta uses this strategy to dominate geographical segments of the market, for example Atlanta. Southwest Airlines on the other hand established a completely different strategy. They take passengers direct between cities, which is referred to as point to point. Additionally, Southwest is using secondary airports serving major metropolitan areas.

With their different strategic advantage, they are able to attract another target market. Because they offer fares between cities that are often less than 500 miles apart, they targeted customers that would have otherwise traveled by car. In this way Southwest maintains high levels of plane utilization while keeping its operating costs low enough to support its discounted fares. Another part of their strategy is their reliance on a single type of plane, the Boing 737. This allowed them to standardize ground and flight personnel training which decreased the airline? average turnaround time between landing and starting again. Moreover, Southwest focuses on customers whose priority is low-cost, on-time performance. There are no complications for customers, like seat assignments. Therefore, Southwest as well as Jet Blue are considered as low cost carriers (LCC). Jet Blue offers fares up to 65 per cent lower than legacy competitors. Jet Blue Airways positions itself by connecting large, typically northeastern, US cities with warmer cities in the southeast. Jet Blue? s emphasis is like Southwest? s on low fares and point to point transportation.

Jet Blue entered the market like Southwest with only one machine, the A320. In this way they could ensure serving a variety of medium- and long-haul routes and numerous overnight flights. Jet Blue could also standardize its training and servicing processes around the aircraft. This allowed them to gain flexibility in scheduling and capacity management. Another feature for customers to make travelling with this airline more attractive are added comfort features such as assigned seating, leather upholstery and satellite TV on individual screens in every seat.

Their key principle was that flight cancellation should be avoided at all costs. In 2005, Jet Blue broadened their portfolio in entering the market of medium-sized cities, which was served only by regional airlines. They entered this market using a new midsized aircraft called E190. In launching this new machine, they were able to use synergy of combining the A320 and the E190 profitably while serving now smaller and bigger airports. This portfolio mix gives Jet Blue a yet matchless, strategic competitive advantage compared to the other airlines.

Their goal now should be to improve the synergy between the two machines and the profitably run their fleet with the optimum amount of aircrafts.

Strategy/Structure Needed to Support the A320 Versus the E190

The new developed strategy of Jet Blue was to acquire enough E190 aircrafts to serve medium- sized cities to provide a steady flow of passengers to fill the seats on the longer-haul routes of their A320 aircrafts. A big advantage of this system was that it also worked the other way around.

Jet Blue turned out to have an enormous advantage in comparison to the regional airlines, because the E190 had more seats than the traditional RJ. They could use the best option for efficiently serving medium-sized markets while offering passengers more comfort, because they did not had to face limitations on the size of the planes as RJ did. Therefore, Jet Blue has to overcome some essential problems caused by significant differences between these two aircrafts. On the one hand, the E 190 is operated at 12 per cent greater costs than the A320, therefore 34 per cent less costs than for a typical RJ.

The E 190 was a great innovation because it could target a wider range of profitable destinations with a greater seating capacity to feed into A320 flights. This results in higher loads and improved economics for Jet Blue. The breakeven load for the E190 of 75-80 per cent was much lower than for the A320, which made is easier to introduce service into new markets. One of the problems is that it takes up to 40 to 50 airplanes before a company benefits from economies of scale. And while taking delivery of the new E190, Jet Blue continued its purchases of A320 aircrafts.

Reasons therefore are that this machine had proven to be an extremely reliable machine, and Jet Blue had standardized its operations around this plane. Another concern is the dual certification for pilots . It was simply not feasible for a pilot to simultaneously obtain enough flights as an E190 captain and as an A320 captain. This means pilots could only fly one of the two machines. This brought up another issue: An A320 captain received higher hourly wage rate than an E190 captain.

This is why they had to keep pace with the A320 deliveries. The short-haul routes served by the E190 increased revenues but they also increased costs. The reason therefore is as more frequent flights required E190 aircrafts to spend more time on the ground than the A320 for taxiing, loading, and unloading between flights because the processes were not standardized yet. This resulted in a disadvantage in accumulating flying hours for pilots, because they get only credit for time spend in the air.

Any time spend on the ground was not included. This affected their whole seniority and income availability, which is tied to the number of airplanes they take. Additionally, the E190 has non-skid flooring on the cargo bins as a safety feature to prevent baggage handlers from slipping on the floor while loading and unloading. Although it was intended to be a good thing, it increased loading time and also increased the potential for strains and back sprains as handlers had to lift bags they previously have slid.

Also flight attendants had to make significant adjustments. The E 190 had smaller galleys from which to serve customers. The shorter duration of E190 flights provided less time for the attendants to provide the high level of service to which jet Blue passengers had become accustomed. The work of the employees in charge of servicing and maintaining Jet Blue? s fleet also increased considerably. They had now two completely different machines to take care of manufactured by different companies. This created additional operating complexity.

This is why they decided to invest in maintenance capabilities. The last and most important group affected by the differences between the two machines is customers. Changes in their behavior and expectations are required. Especially concerning to the carry- on baggage, because the storage bins are from different sizes. This means passengers can take the same baggage in one machine as hand luggage, on the other machine they need to check it at the gate. There are enough opportunities for synergy effects.

The system of the two machines working together is still in its introductory phase. Once these difficulties and maintenance and special level of service for the customers are overcome, the synergy should run pretty well as it was intended to be.

Efforts of JetBlue to Repair Damage oo Its Reputation: Successful Efforts?

The Valentine's Day crisis that would later be referred to as „the worst operational week in JetBlue's seven-year history,“ began on February 14, 2007 when flights from JFK were heavily booked.

Although the snow lingered longer than expected, JetBlue boarded its flights. As the snow turned to freezing rain the FAA prohibited domestic flights from taking off. This winter storm that enveloped the New York metropolitan region and JetBlue’s hub at John F. Kennedy International Airport left hundreds of the company’s passengers stranded aboard planes on the tarmac, some for as many as ten hours. Hundreds more waited in vain in the terminal for flights that the airline would eventually cancel.

The flight disruptions at JFK plunged JetBlue’s entire operation into chaos, forcing the carrier to cancel more than one thousand flights over a six day period. In the morning of this Wednesday, JetBlue? s executives and employees had no idea that an operational catastrophe was about to happen, one that would threaten the company’s financial stability and tarnish its otherwise sterling public image. David Neeleman stepped down after the Valentine’s Day incident in 2007 only because his organization failed to deliver on its principles of excellent customer service.

To restore its reputation, JetBlue embarked on a bold and unconventional image restoration campaign that included issuing disarmingly candid public apologies and a radical new covenant between the company and its customers called the “JetBlue Airways Customer Bill of Rights. ” The change of management was instituted to help rebuild JetBlue’s tarnished reputation and to develop innovative strategies which would prevent situations like that from ever happening again. The CEO described the bill of rights as a written covenant between the company and its customers.

The bill of rights specified in no uncertain terms the monetary compensation customers would receive if JetBlue failed to meet certain performance benchmarks, such as ground delays after landing. The Bill of Rights, allowed JetBlue to strengthen its brand among loyal customers and even those who were affected in the airline’s operational difficulties at JFK and other airports across the country. Additionally, the announcement of the Bill of Rights served as a powerful introduction to countless other air travelers who had yet to fly with the airline.

In addition, the Valentine’s Day crisis taught the Corporate Communications group valuable lessons about using the Web and social media. For example, the corporate communication team arranged for Neeleman to appear on more than a dozen television news and talk show programs on February 20, including The Today Show and The Late Show with David Letterman. Neeleman had already starred in videos posted to JetBlue’s Web site and YouTube in which he said he was “humiliated and mortified” by the company’s failures.

Through numerous written and spoken mea culpas, Neeleman begged JetBlue’s customers for forgiveness. I feel that JetBlue? s powerful brand, corporate structure, and agility as a smaller airline should enable it to rebound from the Valentine? s Day crisis in 2007 and beyond. Of course, the events that began at JFK will not soon be forgotten by the public or the organization, but the issuance of the JetBlue Airways Customer Bill of Rights and the apologies demonstrated the airline’s commitment to its patrons over the long term, not just in the days and weeks following the onset of the crisis.

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