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JETBLUE case study JETBLUE AIRWAYS CORPORATION: GETTING OVER THE…
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.
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Case Study Template
Name of Preparer: ___________________________
Case Study: _________________________________
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What is the Key issue you see in the case: __________________________
What facts pertain to the case: Identify at least three important facts that pertain to the case
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What assumptions do you plan to make in your analysis: None is an acceptable answer
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You are writing the case from the perspective of which person or organization:______________
What tools of Analysis would you use in this case: You only need to identify them and explain what information each will give you that you feel is important.
Based upon the above information – provide three alternatives
Alternative 1 is the Status Quo or to do nothing different that the current situation.
Identify at least three arguments in favor and three against this approach
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Alternative 2 ____________________________________________________
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Alternative 3 ______________________________________________
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Recommended Alternative
Given the information above select your recommended alternative and explain why you feel it is the best alternative: This should take five to seven paragraphs and be based upon the information presented in your case. The recommendation is made to the decision maker you identified. You need to justify why this is the best alternative. (I have no preselected alternative and what I am looking for is your ability to support a given recommendation.)
