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Critiques on Finance - Case Study Example
JetBlue, a low-cost airline has witnessed phenomenal growth over the last few years, and is now ranked as the fifth largest airline in the United States. However, a recent crippling of its services at JFK airport in February 2007 exposed the vulnerability of such low cost airlines…
Rising fuel costs forced cost cutting measures and hence necessary upgrades were put on the back burner. Flight and crew scheduling systems, reservation and call-center systems all need to be upgraded if the airline wants to retain its passenger share. Parallels are already being drawn to People Airline Express, another low cost carrier that sank without a trace in 1997 under similar constraints as are being faced by JetBlue today. JetBlue however, still has something going for it in the form of a healthy balance sheet, and $699 million in cash. It has also re-structured its ambitious growth plans as it tries to consolidate its operations.
The problem JetBlue is facing is basically that, "rapid expansion [has] outstripped management's ability to keep everything together". Rough and ready methods, suitable for small, low-cost operations contribute to profitability. But these methods start falling apart when the size of the operations cross a certain optimum level. At this stage JetBlue risks having the same overheads and union problems, as do other larger carriers, thereby nullifying the advantage of being a low cost carrier.
In October 2005, after six years of double-digit growth, Avon sales suddenly slumped all over the world as, "the global diversity that had long propped up the company's performance suddenly began to weigh it down". ...