Strategic Management

January 9, 2012

Discus the trends in the U.S. airline industry and how these trends might impact a company’s strategy.
Change is the only thing that is constant. The airline industry has been through many changes in the past ten years. The September 11 event of 2001 sparked many changes. Security has been strictly enforced and fuel prices are at an all-time high. Many air-line companies have implemented baggage fees to help recover from the rising fuel prices and etc. There are some recent trends that have helped the air-line industry and also affected the air-line industry. With booming cellular data usage on the rise, many companies have turned to mobile apps. Smart phone applications are convenient for customers and the companies are taking advantage of the availability of these mobile devices. It is instant access and information in the palms of their hands. Airlines are increasing their reliance on technology to streamline passenger experience at check in and at the gate. Despite unfounded security concerns, paperless boarding passes have been adopted by some airlines and are being tested by others. A bar code is sent to the phone and then scanned by a barcode reader at security and during boarding. The TSA actually prefers the electronic bar codes, because they are much harder to counterfeit than printable boarding passes. One of the most recent trends that will impact the air-line industry is the European emissions regulations. Everyone in the world is preparing for European green-house gas trading scheme. The trading scheme will likely increase cost and could past through to passengers or mitigated through other ways, and impact carriers credit quality over time. European airlines will most likely endure most of the impact by the new regulations. The International Air Transport Association (IATA), which represents major airlines worldwide, expects airline emissions to increase at a rate faster than the industry can improve fuel efficiency (estimated at about 2% per year in 2004), which means that airlines operating within European airspace will have to bear more financial liabilities associated with their carbon emissions. That means international U.S. flights going to and through Europe will feel this impact. These trends are already having an impact on a company’s strategy.
Discuss Jet Blues strategic intent prior to 2008
Jet Blue’s founder David Nelleman wanted to bring humility back to air travel. Jet blue had won several awards including Best domestic Airlines, Best Domestic Airline for Value, and Best Overall Airline. Jet Blue’s philosophy was to delay flights rather than cancel them. The airline was committed to getting its passengers to their destinations despite bad weather. Due to that Jet blue was the first to permit a passenger bill of rights, a document that disclosed information to policies for passengers. Jet Blue was the first to permit electronic ticketing, which is now a trend that is now on mobile phones. Jet blue also offered other optional payments like using pay pal and they also offered in-seat television. To increase shareholder and customer value, Jet Blue devised a strategic growth plan and expansions. Jet Blue decided to start up service in New York’s congested JFK Airport. In New York they were very appealing to the young adults and to others traveling into New York City. In 2008 Jet Blue opened up terminal 5 at JFK to give customers a better convenience while saving 50 million dollars in labor, fuel, and vouchers. Between 2003 and 2008 Jet Blue began service to many destinations including San Diego, Fort Lauderdale, Portland, and more. By the end of December in 2007 Jet blue had expanded to serve over 53 destinations.
JetBlue’s financial objectives & success in achieving
Jet Blue seemed to displayed financial promise, but the stock dropped 50 percent in the five year period ending in 2007. A closer look at the company’s’ financial performance revealed that their revenue grew up to 185 percent from 2003 to 2007. Jet Blue’s operating expenses grew up to 222 percent during that same period. The cause of the high operating expense was the increasing price of Jet fuel. The price of jet fuel was up 532 percent. The interest expense was up 658 percent. Jet Blue maintained a high liquidity ratios compared to the other major airlines. They had securities were reclassified from current assets to long-term investments. Jet blue obtained success through and credit needed to stay in business despite the setback they had. The company increased efficiency by increasing flying time by minimizing turnaround time. Reservation agents worked at home resulting in cost savings as compared to a traditional call center. These measures paid off creating a major competitive advantage in the form of low operating costs that other airlines did not achieve. According to Thompson, Strickland& Gamble (2010), JetBlue’s total operating expenses were 12.17 per revenue passenger mile in 2008versus $18.18 for American Airline, $18.18 for Continental, $20.95 for Delta, $13.85 for Southwest,$19.13 for United, and $21.45 for US Airways. Its planes, such as, the Airbus A320, tended to be newer than those of its competitors resulting in lower maintenance costs and no maintenance-related fines.
Organizational culture
JetBlue’s organizational structure was created based on five steps. First, the company’s values were determined. Then, hiring managers selected employees who mirrored the company’s values. Next, the company ensured that the company exceeded employee expectations and to listen to customers. And, finally, the company created a plan to drive excellence. The values established by JetBlue were safety, caring, integrity, fun, and passion. As an example, George Forman grills were set up at the JFK terminal to allow employees to have fun. By only hiring employees that mirrored the company’s value. It encouraged hiring managers to be more creative during the hiring and selection process to weed out those that would not fit in with Jet Blue. This helped develop the company in to a strong organizational culture.
Human resource practices.
JetBlue is a company that puts a strong focus on people. Jet Blue anticipated the lack airplane pilot shortages, so they implemented Aviation University Gateway. They partnered with universities to identify exceptional candidates, and implemented internship programs. They also brought to attention a lack of confidence in Jet Blue’s leadership by providing leadership development training. They initiated an airline training center in Orlando International Airport. To compensate for paying employees at a lower base salary than its competitors, they offered health coverage, profit sharing, and 401k retirement plans. Jet Blue prevented layoffs through voluntary packages and attrition.
JetBlue’s strategies for 2008 & weather or not it will be successful In 2008 Jet blue developed a new strategy to re-evaluate the way their assets were used. Jet blue also review its reduce capacity, cutting its cost, how to grow in select markets, offer services for business travel, from strategic partnerships and grow its revenue. Jet blue reduced its capacity by selling some of their air crafts and delaying delivery of other new air crafts. When Jet Blue chose Orlando as a target market, they then raised its prices but enough to still be below its competitor’s prices. Jet blue also earned a partnership with Continental to provide live TV. They also came up with adding incentives for their corporate travelers. They added another partnership with Expedia for leisure. Travelocity also was added as a partner as well as Linus for international expansions. To generate revenue, JetBlue created new fees, including a fee for a second bag and for select seats. Even with these strategies, the airline’s financial performance shows that they are falling short of expectations during the first six months of 2008 (Thompson et al., 2010). Jet Blue was one of few to report four good consecutive quarters in 2010. A net income of $58million was generated with an operating margin of 8.5% – which displays an improvement of more than $140 million compared to 2008. Jet Blue is still the most liquid in U.S. airline industries. Those previous references alone show that they have survived one of the most troubled economic times ever in U.S. history and still remained the most liquid company. Any company that is liquid will most likely have a good future as long as it remains as liquid as Jet Blue.

Reference page
Thompson, A. A., Strickland, A. J., & Gamble, J. E. (2010).
Crafting and executing strategy :The quest for competitive advantage: Concepts and cases: 2009 custom edition (17thed.). New York: McGraw-Hill-Irwin
Analysis of JetBlue Airways 8ReferencesDearman, W. (2009). Jet Blue’s Strategy Behind the All You Can Jet Pass. As retrieved from the Internet on July 11, 2010 fromhttp://thestrategyblog.com/index.php/archives/287/jet- blues-strategy-bhind-all-you-can-jet/.
JetBlue. (2009). JetBlue's 2009 Annual Report on Form 10-K. As retrieved from the Internet onJuly 11, 2010 fromhttp://phx.corporateir.net/External.File?item=UGFyZW50SUQ9Mzg1MDQzfENoaWxkSUQ9Mzg2NzExfFR5cGU9MQ==&t=1.Ka