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Crafting and Executing Strategy

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Crafting and Executing Strategy: Jet Blue Airways
Sandra M. Norton
Strayer University
Strategic Management - BUS 599
Marilyn Carroll, PhD
15 April 2012

Crafting and Executing Strategy: Jet Blue Airways
Introduction
Current and emerging trends have a reflective effect on the U. S. airline industry. These trends present a noteworthy challenge to an airline’s performance and business strategy. These subsequent trends will be introduced and discussed: 1) crude oil prices; 2) rise of video teleconferencing; 3) global economic decline; 4) social media and brand perception; and 5) post 9/11 security requirements. In analyzing these trends, crude oil prices and their effect on the industry will be explored first.
Trends in the U.S. Airline Industry
According to Oil-Price.Net, crude oil prices were reported at $103 per barrel as of April 15, 2012. Government figures suggest that jet fuel prices have risen 12 percent since January, which is a 4 percent from last year. In response to the increase, Delta, Frontier, American JetBlue, Southwest and others have increased fares in an attempt to offset costs (USA Today, 2012). While increased fees, fares and related charges have been levied upon the travelers to assist in offsetting the cost of fuel, it is important to mention that these fees and increases are also a source of revenue generation for the airlines. When fuel costs decline, the fees and charges do not and could possibly increase an airline’s profit margin. Fuel cost is not the only significant challenge to the airline industry. As technology has evolved, business travel has declined as a result of teleconferencing capabilities.
Corporations are often trying to cut or keep costs low while still delivering a quality product and reporting a respectable profit. Information technology has evolved to a point where several participants are able to join a conference using communication network technology to save transportation costs and travel time and is viewed as a cost-effective option to physical travel (U.S. DOT, 2012).
The implementation of these cost-cutting measures which reduce and eliminate travel has had a profound effect on the airline industry. Large corporations and many small businesses have employed these measures as a way to significantly reduce costs. U.S. airlines are able to recover a small portion of this lost revenue through the fees and fare increases discussed earlier.
With less disposable currency, people must set priorities to decide when and where to spend their limited funds. These priorities are different for most, but non-essential spending is severely scrutinized and sometimes punished. Recently, a top government official with the General Services Administration was forced to resign after planning and organizing a conference near Las Vegas that cost U.S. taxpayers in excess of $800,000 (Johnson, 2012). Many were concerned not only about the enormous amount of money wasted, but the public’s perception. Perception is an important tenet within government and business. How one is perceived by the public often translates to the bottom line and is a tenet that should be cultivated and managed.
Many airlines have stood up social media divisions within their organizations to monitor and inject dialog. In an effort to realize and manage how their brand is perceived by consumers, these divisions search the numerous social media sites for pertinent information, including damaging and corrupt information using ‘sentiment analysis’ to assess emotions, viewpoints as well as attitudes found in online conversations of social media networks. This data is used to construct a positive and rewarding experience for the consumer. Information gleaned from such analyses serves to provide the airline industry with insight to consumer behavior and allows them to tailor their offerings to gain a larger market share of the airline industry (Resnik, 2012). Delta Airlines has opted to use social media in an effort to educate its travelers about the post 9/11 security requirements and was to expedite processing.
The security requirements enacted since 9/11 have become a challenge for the U.S. airline industry often due to failure to educate travelers and employees and the high costs of implementation. These requirements call for the airline industry to spend more to meet federal mandates and make it difficult to recoup the costs due to continually changing requirements and the introduction of new and different equipment and training (Taylor & Steedman, 2003).
Without a good strategic business plan, it is doubtful that any U.S. airline would be capable of maintaining enough of the market share to remain in business. JetBlue airlines will be analyzed to determine if its post 2008 business strategies might be capable of success.
JetBlue strategic intent JetBlue began as an airline whose purpose was to return ‘humanity to air travel’ while providing a low-cost airline that offered a luxury experience to its customers. JetBlue led the industry in electronic ticketing, publishing a customer ‘bill of rights’ and opted to delay flights rather than cancel them. It made huge strides in increasing its market share by launching strategic growth and rapid expansions like the implementation of early morning service at JFK airport and opening up various destinations for travel (Thompson et al., 2009).
Financial objectives and success Although full of promise with a bright future, JetBlue experienced decline in stock values of 50 percent for the 2002-2007 time period. JetBlue’s operating expenses surpassed its revenue by 37 percent during the same timeframe. The executives opted for a conservative financial approach where they ‘maintained strong liquidity’ for a brief point, when auction-rate securities failed in 2008, they were converted from current assets to long-term investments. In early 2008, Deutsche Lufthansa acquired 42.6 million shares of JetBlue, breathing new life into the airline (Thompson et al., 2009).
Analyzing competitive advantage Cost. According to Thompson, Strickland and Gamble (2009), JetBlue’s operating costs are lower than competitors Delta and Southwest by 8.18 and 1.08 cents per revenue mile respectively. Maintenance cost and fines related to maintenance were much lower than competitors because JetBlue procured newer aircraft. The airline enjoyed low operating costs due to decreased turnaround time and teleworking reservation agents. Organizational culture. JetBlue’s organizational culture can easily be defined in several steps: develop company values; employ those who mirror those values; continually surpass employee anticipations; listen to customers; and lastly distinguish itself by creating a ‘disciplined culture of excellence’ (Thompson et al., 2009). JetBlue has created a well-built organizational culture by implementing these steps. Human resource practices. JetBlue has emerged as a people-focused airline and has developed a partnership with universities to identify potential pilots to avert a personnel shortage; started a airline training center to address lack of confidence in leadership; off-set low pay with 401k investment options, health care, and profit sharing opportunities. JetBlue’s people-focused approach to human resource management differentiates it from other airlines and makes its model difficult for others to emulate (Thompson et al., 2009).
JetBlue’s strategies for 2008 and beyond JetBlue’s strategies for 2008 and beyond included reducing capacity, reassessing company expenditures, increase fares and developing select markets, offer enhances business services increase supplementary revenues, and developing deliberate alliances. An alliance formed with Lufthansa Airlines allowed JetBlue to use JFK terminals while an agreement with Continental allowed them to prove LiveTV to customers.
JetBlue sold nine used aircraft netting the airline $100M in 2008, and had plans to sell more in subsequent years. Ancillary revenue opportunities JetBlue enjoys include fees for booking flights via phone or in-person; headphone sales; charging for second bag; and fees for seats with more leg room. The implementation did not provide a profit during the first half of 2008, but things turned around for the airline beginning in 2009. Experts agree that JetBlue is financially sound with a market value of $1.4 billion which roughly equates to about 5 percent of the market categorized by revenue (Crawley & Kranz, 2012).
Conclusion
There are many trends affecting the U.S. airline industry such as crude oil prices, teleconferences, global economic decline, social media and post 9/11 security requirements. Airlines must address such trends when crafting their business strategies.
Within the past couple of years, JetBlue employees have shown signs of stress including one flight attendant who verbally accosted a customer and exited the plane via the emergency chute and a pilot suffering a meltdown that ranted doom predictions and was subsequently locked out of the cockpit by the co-pilot and subdued by passengers. Instances of this type could tend to erode customer confidence and brand perception, but JetBlue is still profitable. JetBlue has benefitted from a strong organizational culture and sound business strategies. The financial reports for JetBlue are very encouraging and absent any unforeseen pitfalls, the near future shines brightly for JetBlue.

References
Austin S 201204 Crude Oil and Commodity PricesAustin, S. (2012, April). Crude Oil and Commodity Prices. Retrieved April 15, 2012, from http://www.oil-price.net/
Johnson C 20120403 Head of GSA resigns over conference flapJohnson, C. (2012, April 3). Head of GSA resigns over conference flap. Retrieved April 12, 2012, from http://www.npr.org/2012/04/03/149937081/head-of-gsa-resigns-over-conference-flap
Research And Markets 201005 Airlines in the United States 2010Research and Markets (2010, May). Airlines in the United States 2010. Retrieved April 10, 2012, from http://www.researchandmarkets.com/reports/1241571/airlines_in_the_united_states_2010
Research And Markets 201203 Analyzing the U.S. Airlines IndustryResearch and Markets (2012, March). Analyzing the U.S. Airlines Industry. Retrieved April 10, 2012, from http://www.researchandmarkets.com/reports/c65542
Resnik B 20120328 true value of social media dataResnik, B. (2012, March 28). The true value of social media data. Retrieved April 13, 2012, from http://www.business2community.com/social-media/the-true-value-of-social-media-data-0154562
Crawley J Kranz P 20120405 JetBlue still upbeat, but not darling it once wasCrawley, J., & Kranz, P. (2012, April 5). JetBlue still upbeat, but not darling it once was. Retrieved April 13, 2012, from http://news.yahoo.com/jetblue-still-upbeat-not-darling-once-194527044.html
Thompson, A., Strickland, A., & Gamble, J. Rovenpor J Michel M 2009 Crafting & executing strategy (2009). JetBlue Airways: a cadre of new managers takes control. In Crafting & executing strategy (17th ed., pp. C-51-C-76). New York: McGraw-Hill Learning Solutions.
Taylor A Steedman S 200312 evolution of airline security since 9/11Taylor, A., & Steedman, S. (2003, December). The evolution of airline security since 9/11. Retrieved April 13, 2012, from http://www.ifpo.org/articlebank/evolution_of_airline.html
US DOT: Federal Highway Administration Public Involvement Techniques for Transportation Decision-makingU.S. DOT: Federal Highway Administration (n.d.). Public Involvement Techniques for Transportation Decision-making. Retrieved April 11, 2012, from http://www.fhwa.dot.gov/reports/pittd/teleconf.htm
USA Today 20120327 Airlines Raises Fares, Blame Fuel CostsUSA Today (2012, March 27). Airlines Raises Fares, Blame Fuel Costs. Retrieved April 11, 2012, from http://www.cnbc.com/id/46867420/Airlines_Raise_Fares_Blame_Fuel_Costs

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