...Case Study 1: JetBlue Airways IPO Valuation 08 Fall AFF5300 Case Studies in Finance- March 2013 Executive summary This report examines the decision of JetBlue management to price the initial public offering (IPO) of JetBlue Stock on the April 2002, a few months after the terrorist attack in September, 2001. First, the paper provided a brief introduction to JetBlue Airways and its industry. This paper revealed JetBlue’s innovative strategy and the associated strong financial performance over its initial two year. It followed by, a discussion on the advantages and disadvantages of going public (IPO) for JetBlue. The paper later provided an insight analysis of the company comparison multiples valuations (EBIT and PE multiples valuations) and the discounted cash flows to value JetBlue’s share price. It reached a conclusion that JetBlue Airways IPO should be in a range of $25 to $26 per share. By: Tam Huynh (24675512) Contents 1.0 Introduction 2 2.0 The Airline Industry and JetBlue 2 3.0 JetBlue’s Going Public 2 3.1 The Advantages of going public 3 3.2 The Disadvantage 3 4.0 JetBlue’s Valuation 3 4.1 The comparable Companies Analysis 3 4.1.1 P/E Multiple 3 4.1.2 EBIT Multiple 4 4.2 Discounted Cash Flow Analysis 5 4.2.1 Weighted Average Cost of Capital 5 4.2.2 Discounted Cash Flow Share Price Valuation 5 5.0 Recommendations and Conclusions 5 References 7 1.0 Introduction The terrorist attacks of September 2011 had a severe...
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...Memorandum TO: FROM: DATE: September, 27 2013 RE: One-Page Memo on JetBlue Case Study The purpose of this memorandum is to discuss the JetBlue case study, and review my answers to the specified questions. I will elaborate as to which price I believe JetBlue should choose for their initial public offering (IPO), and why JetBlue should choose that price. The first step in determining JetBlue’s IPO price is analyzing specific ratios of publicly traded competitors in JetBlue’s industry. I analyzed the Price-to-Earnings multiples, Cash Flow multiples, Total Assets multiples, and the Revenue multiples of the direct competitors of JetBlue. JetBlue’s direct competitors include; AirTran, Alaska Air, American West, MidWest, and Southwest. JetBlue’s relative stock prices are as follows: |JetBlue's Stock Prices Implied By Different Multiples | |Airline |P/E Multiple |CF Multiple |TA Multiple |Revenue Multiple | |AirTran |$36.41 |$23.71 |$45.20 |$9.24 | |Alaska Air |$47.23 |$27.64 |$30.69 |$8.92 | |American West |$29.04 |$30.82 |$26.24 |$8.39 | |MidWest |-$15.60 |-$11.42 |$39...
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...JetBlue Case Study Analysis JetBlue Airways Corporation Overview JetBlue Airways Corporation is an American low-fare airline, which headquartered in the Long Island City near the New York City. Its main base is John F. Kennedy International Airport. Basically, the airline mainly serves destinations in the United States, as well as many Latin American countries. As of October 2013, JetBlue serves 84 destinations in multiple countries. Low-fare airline is an airline that generally with a lower operating cost structure. In many people’s view, low-are airline also with has low ticket prices and limited services. However, JetBlue is a low-fare airline corporation with a goal of fixing everything that “sucked” about airline travel. Its passengers could get unique flying experience by providing new aircraft, simple and low fare, leather seats, free LiveTV at every seat, preassigned seating, reliable performance, and high-quality customer service. JetBlue Airways Corporation David Neeleman, the starter of JetBlue, had raised funds of $130 million for this brilliant company at the beginning. Even JetBlue has strong support from venture-capital community, it also had the intent to go public in April 2002. At that time, the whole industry was still in recession due to 9/11 attack. A company sells stock shares to the general public for the first time via security exchange, it is Initial public offering (IPO). Before IPO, there is no general shareholders in the company. After IPO,...
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...| JetBlue Airways | | Valuation of an IPO Case Study | | JetBlue Airways | | Valuation of an IPO Case Study | 2014 Ivan McClure, Imtiaz Saboor, Vanessa Lopes, Gilberta Pjetri 2014 Ivan McClure, Imtiaz Saboor, Vanessa Lopes, Gilberta Pjetri TABLE OF CONTENTS * History * Advantages & Disadvantages of an IPO * IPO Process * Weighted Average Cost of Capital (WACC) * Similar Company Analysis * Discounted Cash Flow Analysis * Final Decision History David Neeleman, an experienced entrepreneur in airline startups, announced that JetBlue would bring “humanity back to air travel” on July 1999. He was convinced that his commitment and innovation would keep the planes full and moving despite the fact that 87 new-airline startups had failed in the last twenty years. An impressive new management team and growing group of investors shared Neeleman’s vision. JetBlue’s management team included David Barger, former vice president of Continental Airlines. Neeleman received strong support in funding from high-profile firms such as Weston Presidio Capital, Chase Capital Partners, and Quantum Industrial Partners, and quickly raised $130 million. Neeleman’s goal was to “fix everything that sucked about air travel”. His strategy was built on that goal as well providing the passengers with new aircraft, simple and low fares, leather seats, free Live TV at every seat, pre-assigned seating, and high quality customer service...
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...What is an IPO and why is it such a big deal? Is this a good idea for JetBlue? Explain. When a privately held company makes its stock available to the general public for the first time on a securities exchange, this is known as the company’s Initial Public Offering (IPO). The IPO can consist of an initial issue of either debt or equity. The IPO process is also referred to as a private company “going public”. There are numerous benefits associated with going public. IPO benefits include enlarging and diversifying a company’s equity base, allowing cheaper access to capital, improving public image, attracting better management and employees through stock options, enabling transfer of company ownership through mergers/acquisitions, and providing increased financing opportunities (through equity, convertible debt, bank loans, etc.). IPO Process Executing an IPO is an extensive, time-consuming, and complicated process for the senior management team of a company. The main steps of the process are outlined below: • Hire an investment bank as an underwriter—the underwriters’ purpose is to negotiate ways to raise capital (by either debt or equity) and interface with the public. (In JetBlue’s case, the underwriter was Morgan Stanley.) • Begin to negotiate with the underwriters about all the required information that will be contained in the underwriting agreement. This information includes the amount of capital the company wants to raise, types of securities that will be issued...
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...in the case, the types of information systems are - TPS ( Transaction Processing)system that is used for making the reservation, papereless processes in this case - CRM (Customer Relationship Management) that enables the customers the communication with the airline company and acquire updated flight info such as delays and cancellations - ESS (Executive Support System)- rovides senior management a way to address strategic issues and planning based on results provided by the systems 2. Jet Blue business model was to provide a luxurious flying experience by using info systems to automate key processes such as the process of ticket sales, and baggage handling, they were also used to manage planes, crews and scheduling. This enabled the airline to turn a profit by running its business at 70% of the cost of larger competitors. The Jet Blue scored customer retention rate of 50%. 3. The problem appeared when the ice storm struck the NYC area. JetBlue made a fateful decision to maintain its schedule in the belief that the horrible weather would break. The weather conditions and the delays or cancellations of other flights caused customers to flood JetBlue’s reservation systems, which couldnt handle the onslaught. Also, JetBlue didnt have a system in place for the rested crews to call in and have their assignments rerouted. The communication system was inadequate. The department responsible for allocating pilots and crews to flights was too small. JetBlue had grown...
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...Introduction and industry analysis JetBlue Airway Corporation is an American low-cost airline and it was one of a few U.S. airlines that were profitable during the sharp downturn in airline industry affected by the September 11, 2011 attacks. With its strong capital base, the company was successful due to its impressive management team, in which, David Neelaman has rich experience with airline start-ups; COO David Barger and CFO John Ower are all experienced former senior managers from other airlines. The company’s sales rose from $104,618 to $320,414 from December 2000 to December 2001 and net profit is negative $21,330 in December 2000 and reach positive $38,537 only one year later. As we can see, the company is a high growth company with huge potential. To meet its further growth needs, it going to public to finance more money. The advantage of IPO is by raising more capital, the firm could use the capital to fund capital expenditure (buy more airplanes), pay off existing debt and also it increase public awareness and let potential customers know their products. Subsequently, this may increase its market share. And the venture capitalists may want to use IPO to cash in on JetBlue as they helped start-up. The disadvantages is that JetBlue has to disclosure more information for investors, prepare periodic financial reporting and they must also meet other rules and regulations that supervised by SEC. it is always costly of complying with regulatory requirements, such as preparing...
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...Case Study 13: JetBlue Airways External Environment Analysis: * PESTEL(Macro-level environment) * Political: September 11 terrorist attack, tons of new flying rules and regulatory factors, political stability, competitive industry, * Economic: Improved purchasing power, rise in oil prices & inflation * Sociocultural: Increased entertainment level, greater customer awareness, security level of customers, bad service & lost baggage * Technological: Automated cockpit systems, introduction of animated advertisements, e-ticketing * Ecological: N/A * Legal: N/A * Five Forces * Threat of Entry: Low. Deregulation allowed easy entrance, low profit margin, hard to differentiate, high cost of capital to enter, brand image and customer loyalty important, safety and reliability important for new companies entering * Power of Suppliers: High. Only 2 suppliers, not much bargaining ability, fuel suppliers can control the price of fuel, fuel supply extremely important for JetBlue * Power of Buyers: High. Several flying options for customers, no switching cost, easy for customers to research competitors, customer incentives * Threat of Substitutes: High. A number of other airlines available, high existing barriers, bankruptcy laws allow continued operation for companies operating at a loss * Rivalry among competitors: High. Large competitors such as Delta, United Airways & American Airlines...
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...JetBlue Hits Turbulence Case Study Question I. What types of information systems and business functions are described in this case? The information system described in this case is the Transaction Processing System (TPS) which is used to perform and record the day-to-day business transactions including reservations, paperless ticketing and baggage handling. JetBlue attempted to standardize its IT processes by utilizing a single vendor for its technological framework for all facets of its operations from logistics to passenger online booking tools. JetBlue’s mission was customer satisfaction and retention. From the beginning, efforts were made to attract passengers. E-commerce in the form of online ticket sales was a means of attaining customer satisfaction. Question II. What is JetBlue’s business model? JetBlue’s goal was to deliver airline a luxurious customer experience while operating at low cost. JetBlue’s technological expenses were approximately one-third of its competitor’s IT costs in spite of the fact that operations were extremely reliant on automated systems. This automation helped keep headcount low and union affiliation nil. Planes operated at or near capacity as customers were attracted to JetBlue’s leather seating, personal entertainment systems and paperless ticketing – all at lower fares than their competitors, albeit with arrivals and departures to second-tier airports. How do its information systems support this business model? JetBlue’s...
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...74 Management Information Systems JetBlue Hits Turbulence CASE STUDY n February 2000 JetBlue started flying daily to Fort Lauderdale, Florida, and Buffalo, New York, promising top-notch customer service at budget prices. The airline featured new Airbus A320 planes with leather seats, each equipped with a personal TV screen, and average one-way fares of only S99 per passenger. JetBlue was able to provide this relatively luxurious flying experience by using information systems to automate key processes such as ticket sales (online sales dominate) and baggage handling (electronic tags help track luggage). Jet Blue prided itself on its "paperless processes." JetBlue's investment in information technology enabled the airline to turn a profit by running its business at 70 percent of the cost of larger competitors. At the same time, JetBlue filled a higher percentage of its seats, employed non-union workers, and established enough good will to score an impressive customer retention rate of fifty percent. Initially, JetBlue flew only one type of plane from one vendor: the Airbus A320. This approach enabled the airline to standardize flight operations and maintenance procedures to a degree that resulted in considerable savings. Chief information officer (CIO) Jeff Cohen used the same simple-is-better strategy for JetBlue's information systems. Cohen depended almost exclusively on Microsoft software products to design JetBlue's extensive network of information systems. (JetBlue's...
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...NEW! Hands-on cases and projects: There's no better way to learn about MIS than by delving in. The hands-on practice this text offers through its cases and projects gives students the practice they need to better understand the concepts and applications of MIS. NEW! The Association to Advance Collegiate Schools of Business (AACSB) connection: This text supports the efforts of AACSB to encourage assessment-based education. By using this test, professors can prove that by AACSB standards they have successfully taught students the material that they set out to teach. NEW! Customization and flexibility-New Learning Track Modules: This all-new feature gives instructors flexibility on determining which in-depth coverage they want to include for their course while still providing students with vital insight on key topics. NEW! Coverage ofglobalization - showing how to use IS in a global business environment NEW! Engaging Middle Eastern, Australian and Asian company cases: These new case studies are featured in each chapter, creating a more global learning experience Case Study - Soundbuzz's music strategy for Asia-Pacific p145 Case Study - Modernization of NTUC Income, one of Singapore's largest insurers p102 Opening Case - Al-Mansour Automotive: IT-enabled success p507 Interactive Session - Albassami's job is not feasible without IT p463 Opening Case - Ethical issues facing the use of technologies for the aged community...
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...21715 - Strategic Management (Summer Session 2012) Individual Written Case Analysis Case 32 – JetBlue Airlines: Getting “Blue” Again? Sam Lui (00039469) 21715 – Individual Case Analysis Table of Contents Executive Summary................................................................................................................................. 3 1. General and Industry Environment................................................................................................. 4 1.1 The General Environment ....................................................................................................... 4 1.2 The Industry Environment ...................................................................................................... 5 2. Internal Resources and Assets (JetBlue) ......................................................................................... 7 3. Competitive Advantage (JetBlue) ................................................................................................... 9 4. Recommendation for JetBlue ....................................................................................................... 11 5. Lessons and Insights for Tiger Airways ......................................................................................... 12 6. References ..................................................................................................................................
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...beginning of the 21st century, its CEO/ Chairman, Yang-Ho Cho undertook various transformation initiatives - for instance, improving service quality and safety standards, technology integration, upgrading pilot training, better business focus; putting in place a professional management team, improving corporate image through sponsorship marketing, etc. He gave a new corporate direction in the form of '10,10,10' goal. However, Korean Air is held up by a slew of challenges. Among which are inefficiencies of - Chaebol system of management, possible clash of its cargo business with its own shipping company, limited focus on the domestic market and growing competition from LCCs. How would Korean Air manage growth as a family-owned conglomerate? The case offers enriching scope for analysing a family business’s turnaround strategies, with all the legacy costs involved. Pedagogical Objectives • To discuss the (operational) dynamics of Korean Chaebols - their influence/ effects on the country’s industrial sector and the economy as a whole • To analyse how family-owned businesses manage the transition phase - from a supplier-driven economy to a demanddriven economy • To identify all the possible reasons for Korean Air ’s turbulent times and assessing whether they are controllable or not • To critically evaluate Korean Air ’s transformation efforts - in terms of growth, productivity and cost cuts, especially the efficacy of '10,10,10' goal in a family-run business • To identify various challenges...
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...Instructors Manual Case Studies Table of Contents Introduction Shipper Manufacturing Company ………………………………............ C-2 FHE, Inc. ……………………………………………………………….. C-5 Early Supplier Integration in the Design of the Skid-Steer Loader……... C-9 Process Design Eastern Gear, Inc. ………………………………………………………. C-17 Southwest Airlines: Singin’ the (Jet) Blues …………………………….. C-21 The Field Service Division of DMI ……………………………………. C-29 Pharmacy Service Improvement at CVS (A) …………………………… C-36 U.S. Stroller …………………………………………………………….. C-37 Quality Customer-Driven Learning at Radisson Hotels Worldwide ……………. C-41 Quality at Gillette Argentina …………………………………………… C-46 Bayfield Mud Company ………………………………………………… C-47 Six Sigma at 3M, Inc. …………………………………………………... C-53 Capacity and Scheduling Crocs: Revolutionizing an Industry’s Supply Chain Model for Competitive Advantage …………………………………….. C-58 Unifine Richardson …………………………………………………….. C-59 eBags: Managing Growth ……………………………………………… C-60 Merriwell Bag Company ……………………………………………….. C-69 Lawn King, Inc. ………………………………………………………… C-74 World Industrial Abrasives ……………………………………………... C-84 Inventory Consolidated Electric …………………………………………………... C-88 Southern Toro Distributor, Inc. ………………………………………… C-93 ToysPlus, Inc. …………………………………………………………... C-99 SHIPPER MANUFACTURING COMPANY Teaching Notes Synopsis and Purpose Shipper Manufacturing Company is a manufacturer of electrical products, laminated materials...
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