Question

JETBLUE case study
JETBLUE AIRWAYS CORPORATION: GETTING OVER THE “BLUES”?
In 2017 JetBlue faced challenges that included rising fuel prices, troubling technical disruptions, and declining quality of the flying experience. Since the beginning of 2016, JetBlue had enjoyed low fuel prices that helped increase their earnings about 18 percent during the second quarter of 2016, but the company experienced technical issues that caused booking problems and resulted in delays, as well as bad publicity. In order to cope with the likelihood of a rise in future fuel prices, JetBlue undertook massive cost reductions by investing in cabin restyling, for instance, adding more seats to JetBlue’s A320 airplanes. However, the shrinking legroom that accompanied the cabin restyling was despised by passengers, which posed a problem for an airline that had once offered customers a captivating (as opposed to a captive) flying experience. To meet the challenges, new CEO Robin Hayes orchestrated various initiatives that the company planned to take through 2017. Those initiatives included wider fare options, enhanced Mint services, cabin restyling, new lines of JetBlue credit cards, and partnerships with other airlines.
The founding CEO of JetBlue, David Neeleman, had been ousted by the board of directors after a notorious event when an ice storm severely disrupted the airline’s operations. In 2007, Dave Barger, an employee since the inception of JetBlue in 1998, became the second CEO of the company. Ultimately Barger was pressured to step down amid constantly depressed stock prices. In February 2015, Robin Hayes took charge of the company as its third chief executive. Hayes was the executive vice president of British Airways for the Americas before joining JetBlue in August 2008. Having worked for about 25 years and having extensive experience in the airline industry, Hayes was considered an optimal choice to become the third chief executive of JetBlue. In promoting Robin Hayes to be the airline’s new CEO, JetBlue’s board signaled its readiness to focus on investor-friendly changes. With news of his selection, the share price immediately soared by 5 percent. But JetBlue loyalists who loved the company for its customers-first policies were getting more and more uncomfortable. Would JetBlue soar into clearer skies, or would it sink into the “blues” again?
The U.S. Airline Industry
The U.S. airline industry consists of three primary segments: major airlines, regional airlines, and low-fare airlines. Major U.S. airlines, as defined by the Department of Transportation, are those with annual revenues of over $1 billion. Most major airlines utilize the hub-and-spoke route system. In this system, the operations are concentrated in a limited number of hub cities, while other destinations are served by providing one-stop or connecting service through the hub. Scheduled flights serve most large cities within the United States and abroad and also serve numerous smaller cities. Regional airlines typically operate smaller aircraft on lower-volume routes than do major airlines. They typically enter into relationships with major airlines and carry their passengers on the “spoke”—that is, between a hub or larger city and a smaller city. Unlike the low-fare airlines, the regional airlines do not have an independent route system.
Deregulation of the U.S. airline industry in 1978 ushered in competition in the previously protected industry. Several low-cost, low-fare operators entered the competitive landscape that Southwest had pioneered in 1971. The low-fare airlines operate from point to point with their own route systems. The target segment of low-fare airlines is fare-conscious leisure and business travelers who might otherwise use alternative forms of transportation or not travel at all. Low-fare airlines have stimulated demand in this segment and been successful in weaning business travelers from the major airlines. Southwest is the outstanding example; however, South-west has become a major airline, having crossed the $1 billion mark in 1990.
The main bases of competition in the airline industry are fare pricing, customer service, routes, flight schedules, types of aircraft, safety record and reputation, code-sharing relationships, in-flight entertainment systems, and frequent-flier programs. The economic downturn in the late 1990s and the terrorist attacks on the World Trade Center and the Pentagon on September 11, 2001, severely affected the airline industry and changed the competitive relationships among carriers. The demand for air travel dropped significantly, leading to a reduction in traffic and revenue. Security concerns, security costs, and liquidity concerns increased. Lower fares and the increased capacity of the low-cost airlines created a very unprofitable environment for traditional networks. Since 2011 most of the traditional network, hub-and-spoke airlines have filed for bankruptcy or undergone financial restructuring, mergers, or consolidations. With these restructurings, many of them have been able to significantly reduce labor costs, restructure debt, and generally gain a more competitive cost structure. This has enabled the major airlines to provide innovative offerings similar to those of low-cost airlines while still maintaining their alliances, frequent-flier programs, and expansive route networks. The gap between low-cost airlines and traditional network airlines has diminished drastically.
JetBlue: The Humble Beginnings and the Great Rise
Born in São Paulo, Brazil, and brought up in Salt Lake City, David Neeleman, along with June Morris, launched Utah-based Morris Air, a charter operation, in 1984. Morris Air was closely modeled after Southwest Airlines, the legendary discount airline. Neeleman considered Herb Kelleher, Southwest’s founder, his idol. While following the Southwest model, Neeleman brought his own innovations into the business. He pioneered the use of at-home reservation agents, routing calls to agents’ homes to save money on office rent and infrastructure expense. He also developed the first electronic ticketing system in the airline industry. Impressed by Morris’s low costs and high revenue, Southwest bought the company for $129 million in 1992. Neeleman became an executive vice president of Southwest. However, he could not adjust to Southwest’s pace of doing things. By 1994, he was at odds with top executives, and he left after signing a five-year non-compete agreement. After the non-compete agreement with Southwest Airlines ended in 1999, Neeleman launched his own airline. He raised about $130 million of capital in two weeks. With such strong support from venture capitalists, JetBlue began as the highest-funded start-up airline in U.S. aviation history. JetBlue commenced operations in August 2000, with John F. Kennedy International Airport (JFK) as its primary base of operations. In 2001, JetBlue extended its operations to the West Coast with its base at Long Beach Municipal Airport, which served the Los Angeles area. In 2002, the company went public and was listed on NASDAQ as JBLU. JetBlue’s stock offering was one of the hottest IPOs of the year.
JetBlue had been established with the goal of being a leading low-fare passenger airline that offered customers a differentiated product and high-quality customer service on point-to-point routes. JetBlue had a geographically diversified flight schedule that included both short-haul and long-haul routes. The mission of the company, according to Neeleman, was “to bring humanity back to air travel.” To stimulate demand, the airline focused on underserved markets and large metropolitan areas that had high average fares. JetBlue was committed to keeping its costs low. To achieve this objective, the company originally operated a single-type aircraft fleet comprising Airbus A320 planes as opposed to the more popular but costly Boeing 737. The A320s had 162 seats, compared to 132 seats in the Boeing 737. According to JetBlue, the A320 was less expensive to maintain and more fuel-efficient. Since all of JetBlue’s planes were new, the maintenance costs were also lower. In addition, the single type of aircraft kept training costs low and increased personnel utilization. JetBlue was the first to introduce the “paperless cockpit,” in which pilots, equipped with laptops, had ready access to flight manuals that were constantly updated at headquarters. As a result, pilots could quickly calculate the weight, balance, and takeoff performance of the aircraft instead of having to download and print the manuals to make the calculations.
The paperless cockpit ensured faster takeoffs by reducing paperwork and thus helped the airline achieve quicker turnarounds and higher aircraft utilization. No meals were served on the planes, and pilots even had to be ready, if need be, to do cleanup work on the plane to minimize the time the aircraft was on the ground. Turnaround time was also reduced by the airline’s choice of less congested airports. Innovation was everywhere. For example, there were no paper tickets to lose and no mileage statements to mail to frequent fliers. With friendly, customer service–oriented employees; new aircraft; roomy leather seats with 36 channels of free Live TV, 100 channels of free XM satellite radio, and movie channel offerings from FOX Inflight; and more legroom (one row of seats was removed to create additional space), JetBlue promised its customers a distinctive flying experience, the “JetBlue experience.” With virtually no incidents of passengers being denied boarding; high completion factors (99.6 percent as compared to 98.3 percent at other major airlines); the lowest incidence of delayed, mishandled, or lost bags; and the third-lowest number of customer complaints, the company was indeed setting standards for low-cost operations in the industry. JetBlue was voted the best domestic airline in the Conde Nast Traveler’s Readers’ Choice Awards for five consecutive years. Readers of Travel + Leisure magazine also rated it the World’s Best Domestic Airline in 2006. In addition, it earned the Passenger Service Award from Air Transport World.
Hitting Bumpy Air
Nevertheless, high fuel prices, the competitive pricing environment, and other cost increases made it increasingly difficult to keep JetBlue growing and profitable. The airline suffered it’s first-ever losses after its IPO in 2005. It posted net losses of $20 million and $1 million for 2005 and 2006, respectively. The ice storm on Valentine’s Day 2007 that cost Neeleman his job was a nightmare in JetBlue’s hitherto high-flying history for more than one reason. Not only did the event destroy JetBlue’s reputation for customer friendliness, but it also exposed critical weaknesses in the systems that had kept the airline’s operations going. The airline’s reputation hit rock bottom. To limit the damage, JetBlue announced huge compensations to customers—refunds and future flights—which were to cost the airline about $30 million. Neeleman quickly followed up with a new Customer Bill of Rights. The Customer Bill of Rights outlined self-imposed penalties for JetBlue and major rewards for its passengers if the airline experienced operational problems and could not adjust to weather-related cancelations within a “reasonable” amount of time. All these announcements and even a public apology could not restore things to normalcy. Neeleman was pushed out as CEO on May 10, 2007. Dave Barger, the president, assumed the position of chief executive officer.
Restoring JetBlue’s Luster?
Under the second CEO, Dave Barger, JetBlue added several new services and embarked on capacity expansion to give the airline a new boost. In July 2007, it became the first U.S. carrier to let passengers send free email and text messages from wireless handheld devices, a technology developed through its Live TV LLC subsidiary. Later, in September 2007, it expanded to smaller cities that did not have sufficient demand for the larger planes flown by Southwest, Virgin America, and Sky bus Airlines. It also introduced Embraer jets to its fleet. In 2007, JetBlue had its first full-year profit in three years as an increase in traffic and operational improvements helped compensate for skyrocketing fuel costs. However, as a result of global financial turmoil and skyrocketing fuel prices, JetBlue’s profits tanked again in 2008, and the company reported a net loss of $85 million. Nevertheless, the company returned to profitability in 2009. In April 2010, JetBlue successfully completed the International Air Transport Association’s (IATA’s) Operational Safety Audit (IOSA) and achieved IOSA registration, meeting the same highest industry benchmarks as other world-class airlines.
Dave Barger was known for “being overly concerned” with customer service and comfort. During Barger’s tenure, JetBlue earned tributes for its customer service. However, its low-fare business model was being threatened as its costs kept going up. In April 2014, its pilots, long nonunion, voted to join the Air Line Pilots Association. In the wintertime the airline was again racked by weather-driven flight cancelations. JetBlue’s stock under Barger’s leadership lagged behind big legacy carriers Delta Air Lines and fellow discounter Southwest Airlines. The shares were up just 9 percent since Barger became CEO. In the same period, Southwest’s shares gained more than 140 percent and the overall Bloomberg U.S. Airline index gained 49 percent. Barger had said he was not interested in doing any acquisitions, and he did not see JetBlue as a target for a buy-out offer, even though the Luftanza deal had caused some speculation about this. Yet the airline had expanded into Alaska and on the West Coast of the United States, and there were multiple code share agreements in place as of 2015. Starting in 2014 JetBlue “will begin vying for big-spending business travelers” by offering “lie-flat seats and private suites on transcontinental flights on the highly competitive routes between Los Angeles and New York and San Francisco and New York… the new seats added to Airbus A321 planes will have adjustable firmness, a massage function, a 15-inch wide-screen television and a “wake-me-for-service” indicator if the flier decides to sleep. The private suites will include a closeable door for privacy. The airline plans to dedicate 11 planes to serve the two transcontinental routes, with expansions along the same routes and the addition of lie-flat seats on other routes, depending on demand.” In 2015, JetBlue was set to fly these “Mint business-class seats” between New York and the Caribbean. And as another example of how JetBlue was trying to add special “perks” to its service, here’s a story from August 2013: “. . . as the airline industry continues to put the squeeze on luggage fees, US-based carrier JetBlue has launched a baggage delivery service that will allow flyers to bypass the carrousel and proceed directly home or to their resort holiday. JetBlue unveiled details this week of its new Bags VIP concierge service, which will hand deliver checked bags to customers’ final destination within a 40-mile radius of the airport. Promotional pricing starts at $25 for delivery of one bag and $40 for up to 10 bags.”
Current Leadership
The new CEO, Robin Hayes, unveiled a new pricing model that included four different pricing categories. Under the new fare structure, passengers were able to choose which features they did or didn’t want included in the ticket price. At the low end of the pricing spectrum, tickets did not include a checked bag. Passengers who paid higher fares were entitled to checked bags (one bag at Blue-Plus level, two at the Blue-Flex and Mint levels) and got bonus loyalty points. At the high end of the pricing, the “Even More” seating option offered extra legroom (38 inches of pitch), expedited security clearance, and priority access to overhead bin space. With this fare structure, seats were subject to variable pricing not only by flight but also by their specific position in the aircraft. Hayes said that the airline was committed to delivering “the best travel experience for our customers. . . . JetBlue’s core mission to Inspire Humanity and its differentiated model of serving underserved customers remain unchanged.” The substantial challenge regarding a trade-off between travel experience and profit margins remained. The question was, would JetBlue be able to hold onto its core mission and still be able to make its stakeholders happy? Investors wondered if JetBlue really had a strong and clear strategic position and coherent business model to support it. Were too many complexities being introduced into its simple model of success?
The “Interline” Model
Unlike many other carriers around the world, JetBlue chose to stay independent. The carrier relied on signing a series of “interline” agreements instead of joining an airline alliance. While the interline agreements do not fit into a strict hub-and-spoke model, they nearly amount to the same thing, allowing JetBlue passengers in New York, Boston, and San Juan to connect to destinations around the world. In February 2007, under the leadership of Barger, JetBlue had announced its first code-share agreement, with Cape Air. Under this agreement, JetBlue passengers from Boston’s Logan Airport were carried to Cape Air’s destinations throughout Cape Cod and the surrounding islands, and customers were able to purchase seats on both airlines under one reservation. While Lufthansa’s January 2008 acquisition of a minority equity stake (42.6 million shares of common stock) in JetBlue did not automatically lead to any code-share agreements, Lufthansa expected to have “operational cooperation” with JetBlue. JetBlue continued on the path of signing more interline agreements. In March 2011, it announced an interline agreement with Virgin Atlantic. Virgin Atlantic and Virgin America have some shared ownership, with Virgin Group owning 25 percent of Virgin America. Virgin America is a major competitor of JetBlue. In March 2013, JetBlue entered its 22nd code-share agreement, with Qatar Airways, which followed its partnerships with the UAE-based Emirates airline, Korean Air, Air China, and the Indian carrier Jet Airways, allowing JetBlue to expand its reach far beyond the Americas, into India, China, the Middle East, and other parts of Asia. Etihad Airways and El Al Israel joined this list in January 2014 and November 2014, respectively. After replacing the second CEO, Hayes continued expanding the partnership and codeshare agreements throughout 2016. JetBlue signed codeshare agreements with Seaborne Airlines and Azul Brazilian Airlines, and expanded the existing codeshare agreements with many airlines including Hawaiian Airlines, Cape Air, and Iceland-air Airlines, among others. In response to growing competition, JetBlue’s expansion of codeshare agreements marked a departure from the company’s initial strategy to stay independent.
More Goodies for Customers
Over the years, JetBlue has constantly tried to maintain its customer-first attitude. It introduced its “Go Places” application on Facebook, which rewarded customers with True Blue points and special discounts so they could earn free trips faster. The “Even More” suite of products and services—including early boarding, early access, expedited security experience, and extra legroom—has been an interesting innovation. JetBlue has added more benefits for its frequent fliers through its “True Blue Mosaic” loyalty program. The services include a free second checked bag, a dedicated 24-hour customer service line, and bonus points, among many other offers. JetBlue became the first Federal Aviation Administration–certified carrier in the U.S. to utilize the new satellite-based Special Required Navigation Performance Authorization Required (RNP AR) approaches at its home base at New York’s JFK airport. These unique procedures have resulted in stabilized approach paths, shorter flight times, and reduced noise levels and greenhouse gas emissions, and they have increased fuel savings by as much as 18 gallons per flight In 2017, with an operating margin of 19.65 percent, JetBlue was doing better than in previous years as compared to its close competitors (see Exhibit 1).

EXHIBIT 1 Operating Margins of Major U.S. Airlines
Airline              Operating Margin, 2016
Southwest Airlines         23.17%
JetBlue                            19.65
Delta Air Lines.              18.39
American Airlines.        14.95
United Continental        14.10

Source: Wall Street Journal.
Nevertheless, in October 2013, amid cost cutting, JetBlue had announced a fleet modernization program that included deferral of 24 Embraer aircraft from 2014–2018 to 2020–2022 so that capital expenditures could be reduced over the near term. It also converted 18 orders with Airbus from A320 to A321 aircraft. It said its future focus would be on adding aircraft with more fuel-efficient engines. JetBlue also shrank legroom, adding 15 more seats to its Airbus A320 planes
Reinventing JetBlue
Under Hayes’s leadership, JetBlue has gone through many changes to “reinvent” the company, including new interline agreements, new code sharing agreements, various strategic partnerships with other commercial airlines, launch of JetBlue credit cards, and creation of JetBlue Technology Ventures LLC to invest in emerging technologies related to the travel and hospitality industry. However, the company has also faced challenges, including technical problems when customers were unable to book or modify their existing reservations amid an outage in computer systems. In May 2016, eight passengers were injured amid heavy turbulence on a JetBlue flight from San Juan to Orlando. In August 2016, heavy turbulence on another JetBlue flight from Boston to Sacramento put 24 people in the hospital, including two crew members and 22 passengers. Numerous factors will determine the future of JetBlue under Hayes’s leadership.

Q1. Critically discuss the key important factors and forces in the general and industry environments that affect JetBlue choice of strategy. (35 marks-800 words)

Q2. What internal resources and assets does JetBlue have, that may give it a competitive advantage? Critically discuss whether Jet Blue position is supported by its value chain and other internal resources. (35 marks- 800 words)

Q3. Critically discuss the components of JetBlue’s competitive advantage, and what are the merits and demerits of these components? (30 marks- 400 words)

Answer 1

3
1.JetBlue Airlines: Getting Over the Blues
Introduction
While talking about the US airline industry, there are three types of industries there. We can
differentiate them with major, regional and low-fare airlines.
How can we differentiate major airlines with other types? Well, the Department of Transportation
explains it by saying that those airlines are major that achieve one billion American dollars in a
year. There are around 18 major airlines in the United States that earn more than $1 billion.
On the other hand, regional airlines that normally operates between a large city and a smaller city.
These airlines use smaller aircrafts as the passengers, moving towards smaller cities are not in huge
numbers. These airlines develop a connection with major airlines in such a way that there is a
connection between them that connects major airlines to the smaller cities as well. Currently, there
are six airlines in the United States that we consider regional airlines, and Jet Blue is one of them.
As we are discussing all types of airlines of the US here, so we need to explain low-fare airlines
as well. These airlines help business travelers who are the users of other transportation systems
or prefer not to travel. These airlines actually encourage the passengers to use airlines for
transportation.
Company Background – Jet Blue Airlines
David Neeleman introduced Jet Blue to the passengers in August 1998. Initially, the basic idea
behind its launch was to provide low-cost travel to the passengers with maximum facilities such
as TV, radio, and other in-flight entertainment options. David Neeleman wanted to make air travel, the most preferred one, and therefore, he initially gave the name of "Taxi" to the airline.
However, he changed the decision after consideration.
The headquarters of Jet Blue are in the Long Island New York. Jet Blue uses John F. Kennedy
International Airport as a main base. Currently, Jet Blue serves numerous destinations not only in
the United States but also for the Caribbean, Latin America, and Barbados, Costa Rica, Mexico,
Bermuda, Colombia, and many other countries.
Overall, the performance of Jet Blue Airlines remained excellent. However, the best period was
from 2000 to 2004. This era was such a wonderful time period for Jet Blue that even after 9/11,
when airlines were suffering huge losses, it performed better. The annual profit during this era
was of total $204 million. (Trefis Team, 2015)
After that, the competition increased in the market that affected a lot to Jet Blue but it remained
one of the leaders in the United States. During 2005 and 2006, the organization suffered losses.
The reasons behind these losses were political instability, heavy interest expenses, political
situation in the world, and repayment of debt. The organization faced huge criticism due to the
delays in February 2007 as well. However, company initiated the process of streamlining the
costs, waiving change fee, improving reservation systems, and creating customer bill of rights.
Competitive Advantage that Jet Blue enjoyed
Jet Blue started its operations with a competitive advantage that they offered low prices to the
passengers. They also provide some luxurious facilities like leather seats and satellite television
for every seat.

2.These were such the luxuries that the companies like Southwest were not able to
offer. As the company was enjoying this competitive advantage, and people preferred Jet Blue to
its competitors, it decided to introduce itself in a new market of short-haul flights. This decision sent the competitors totally on the back foot that were already struggling in giving tough time to
Jet Blue.
The Innovative Strategies implemented by Jet Blue
As the flights of the regional airlines are not very long, so Jet Blue decided not to provide meals
to the passengers. They replaced all the cloth seats with leather seats, installed a satellite
television set back at each seat. They bought new aircrafts that had excellent fuel-economy and
less maintenance and repairing cost. The organization introduced only a few routes initially, and
increased them gradually. Another excellent technique used by Jet Blue is that they used
secondary airports instead of using main airports. It helped them reduce cost and introduce low-
prices to the passengers. As all these strategies are of consumer-centric, so the passengers also
responded them exceptionally well.
Major Competitors
Currently, Jet Blue Airways have a very strong and established competitors' list. They have been
serving the industry for several years and a strong reputation in the market. Some of the big
names are America West, United Airlines, Frontier Airlines, Delta, Virgin America, Sun Country
Airlines, Southwest Airlines, and Spirit Airlines.
Major Issues faced by Jet Blue Airline
2007 Valentine's Day disaster
The first major disaster was 2007 Valentine's Day disaster that destroyed the reputation of Jet
Blue drastically. The organization found great lapses in the operations and people found that
there were weaknesses in the organization but never came out before it. The experts were
expecting it and the airlines were facing it even before the storm that hit the Midwest on the

3.Valentine's Day in 2007. This storm did not allow Jet Blue Airline to fly that damaged its
reputation and customers started not relying on the airline. It had such a huge impact on Jet Blue
that the organization started thinking in a new way to restructure the airline. (Julia Hanna, 2008)
Restructuring Phase
After this incident, the organization started revamping the structure in a new way. They started
sending emails and messages to their customers prior to the incidents. It helped them a lot, as
they introduced a new way of engaging customers. They had already a reputation that they were
customer-friendly. This approach improved their reputation and people started thinking again
that the 2007 disaster was just an event that everyone could face once in their life span.
It was the time when the organization started come back to its original position. Their “Interline
Model” played a great role in this achievement.
What was “The Interline Model”? Well, the organization decided to live independently. They did
not push the organization to sign a contract for them for developing an alliance; rather they
preferred interline agreements that pushed them in a great way. The experts observed the results
after 2010 when the organization showed great results consecutively throughout the second
decade of the 21st century. The reports show that the net income of the organization in 2001 was
only $ 61 million. It gradually increased and the net income for 2014 was at $ 401 million that
was a huge number under the circumstances. (Essays, UK. November 2018)
Here we need a SWOT analysis to understand how Jet Blue Airlines can improve its
performance and what are the competitive advantages and disadvantages of the organization in Competitive Business-level Strategies
They have introduced some additional strategies as well. For example, they want to keep their
customers healthy and fit and for that, they give non-fat and complementary snacks. The crew is
now more energetic as they help the passengers wake up in case of sleeping. They also provide a
kit that makes your sleep time more comfortable. Another major strategy that they have
introduced is the single class travel. It means that there is no difference in classes. Jet Blue
Airways also offer double points to those members that are true blue.
What has Jet Blue Airways gained until today?
These strategies have made Jet Blue Airways one of the most reliable airlines in the United
States. The figures also confirm that the operation completion rate is almost 100% now. It is the
best airline that handles the baggage more carefully. The maximum liability that Jet Blue has
faced until today is only $ 2800. It is the best in the market. The organization also provides
reservations through VOIP technology that makes sure that the passengers are enjoying
maximum protection during reservations.
All these efforts have produced wonderful results in the form of increased efficiency of ground
staff, reduced operation and maintenance costs, and increased incentives for the employees.