History of JetBlue Airways - Assignment Example

History of JetBlue Airways JetBlue airway is an airline in the United States owned by the JetBlue Airways Corporation and a major competitor of the southwest airlines. It was founded by David Needleman in the year 1999 and it was then referred to as NewAir. However, the airline was officially authorized in the year 2000 by the United States which opened doors for the company to officiate its operations in the country. The company went public or began carrying out public functions in the year 2002. Most of its executives were former employees of southwest airlines which saw the airline adopt the approach of southwest airline of low-cost maintenance. It is relatively smaller than the southwest airlines but most recently it has posed a major competitive threat to southwest airlines. Like the southwest airlines, the Jetblue airways adopted the low cost strategy to ensure continuous profitability is maintained. The JetBlue Airway is based in New York, forest hills and it operates about 500 flights on daily basis in about 50 cities. Unlike the southwest airlines, the Jetblue airways operate two types of fleets which are composed of Embraer 190s and airbus A320 and it has a total of 147 jets currently. The average age of the JetBlue Airways fleet by the year 2008 was 3.4 years. By the year 2006, it had gross revenue of about $3.3 billion. Inception of this airline led to a complete change in the operations of the airlines and an increase in competition and quality of services in most of the airlines (Hoover, n. d). JetBlue Airway’s destinations which it serves are mainly located within the United States which constitutes its main market although it has flights to Bermuda, Caribbean, Mexico and the Bahamas. Following its inception in the airline industry, the company was performing profitably until the year 2006 when it reported first quarterly loss. However, this loss was offset during the subsequent years. Today, JetBlue Airways flies to about 58 destinations in over 12 countries. It is set to being its services to California and Los Angeles states in United States by June this year. Domestic markets are the main source of revenues for the airline. Like all other airlines, JetBlue Airways has encountered incidents although none of them had resulted in fatalities and/ or hull losses (Interavia Business & Technology, 2003). Financial performance of JetBlue Airlines As mentioned above, jetblue airway has had its good and bad times in terms of profitability or financial performance. After it was introduced and officiated, jet blue airways took off in a positive note as far as profitability was concerned. By the fact that it was incorporated during the September 11 terrorist attack in the country, this had significant effect on the financial performance of the airways. The financial success of the JetBlue Airways began after it launched its initial public offer (IPO) in the year 2002 on NASDAQ stock exchange. The success that the IPO had made the airline to become among the most popular and best airline stocks in United States history. Currently, JetBlue airway has a market capitalization of about $ 2 billion. Throughout the period following the September 11 terrorist attack in the united states that is, between the years 2002 and 2004, the airline continued to report strong financial reports which saw most of the analysts lauding the airways for this success (Flouris & Walker, 2005). JetBlue Airways entered to the market with a bang and its presence was felt in the airline industry. To respond to the presence of the airline in the industry, mini rival carriers such as Ted and song were started by the united airlines and delta airlines respectively. To ensure its profitability continued to increase, jetblue airlines acquired live TV in the year 2002 which cost the company $ 40 million cash $ 39 million for the retirement of debt used while acquiring the live TV. Unlike other airlines, the plane shunned raising money through sale of snacks to customers during flights. This strategy in conjunction with others advertising aimed at showing the airlines commitment to its customers helped the airline to continue making profits during this period. The financial success of the jetblue airways took a negative turn in the year 2005 when its quarterly profit in October reduced from $ 8.1 million to about $ 2.7 million. This downturn in the financial performance was attributed to increased fuel costs. During this period also, jetblue airways was struggling with Embraer 190 aircraft which it had acquired. Fuel prices, operational issues and an aim to maintain low fares were the main cause of the dwindling financial performance of jetblue airways during this time. Also, the higher costs as a result of the numerous amenities of the airline were also making the airline to become less competitive in the industry. Regardless of this negative financial performance, the airline was still planning for future growth and in the year 2006, the airline acquired 36 new aircrafts. The airline however had trouble with the horizon and as analysts had earlier predicted, the growth of the airline was becoming unsustainable. Despite this fact, jetblue airways continued to add more planes as well as routes to this fleet at a rapid pace (Wynbrandt, 2004):. By the year 2006, February, the airline reported its first quarterly loss since it was incorporated. For the last quarter of the year 2005, the company had lost over $ 42 million an amount which was enough to render the airline unprofitable for the whole 2005 financial year. A loss was also reported during the 1st quarter of the year 2006 prompting the airline to forecast losses for that whole year citing operating inefficiency, fleet costs and high fuel prices. After the first quarter, the chief executive officers also the founder of the airline together with the president of the airline came up with a plan which they called return to profitability or simply RTP which was meant to reduce costs thus improving profitability (Flouris & Walker, 2005). This plan sought to reduce annual costs by $ 50 million which boosting the profits by about $ 30 million. The second quarter in the same year, jetblue airways recorded a $ 14 million on net profit which was attributed to cost cutting and also the airlines strong revenue which helped in offsetting fuel costs. In the third quarter of the year (2006), the airline reported a net loss of $ 0.5 million which prompted the airline to put up a plan which was meant to regain this loss. Some deliveries of E190 were deferred and 5 of the A320s were also sold (Centre for Asia Pacific Aviation, 2009). JetBlue Airways came up with a different component of the original RTP in the last quarter of the year 2006. the airline removed a row of seats from A320s which was move meant to reduce the weight of the aircraft by 410 kg, reduce the number o in-flight crew from 4 to 3 which would in turn offset the revenue lost following the seats removal. Lightening the aircraft was also meant to reduce the fuel consumption or burned by the plane thus reducing the overall costs to the airline. In the last quarter of the year 2006, jetblue airways recorded a profit reducing the net loss of $ 20 million in year 2005 to only $ 1 million. In the year 2007, jetblue airways reported increase revenue which amounted to $ 730 million which was a major step towards regaining profitability. Since then, the profitability trend has continued to date and the airline has undertaken different initiatives to ensure this trend is continued (Centre for Asia Pacific Aviation, 2009). Marketing strategies employed by JetBlue Airways Jetblue airways as mentioned earlier concentrates more on domestic market serving point to point routes with about 22 destination in eleven states in the US. Its main focus is on underserved markets as well as metropolitan areas which have higher average fares. With the emergence of other airlines in the market, marketing is vital for the airline and as such, it has undertaken different initiatives to ensure it remains profitable and competitive. The airlines major competitor is the southwest airlines as most other airlines in the company face the threat of bankruptcy. One of the major strategies that the airline has undertaken is that of cost reduction which in turn enables the airline to lower fares as compared to most of the airlines. However, as mentioned above, this strategy was originally from the south west airlines and as such it offers high competition as far as fares are concerned. “Fare wars” strategies are the major competitive strategies that most airline companies use to attract and retain customers’ loyalty and commitment. To ensure it remains competitive, jetblue airways have continuously sought to ensure that it offers the lowest charges. It has also come up with other strategies like the frequent fliers plan whereby passengers are given credit depending on their frequency in either of the airlines. Once enough credits have been accumulated, a passenger is then given a free flight by the company. This approach of giving credits to frequent passengers has helped the airline to create customer loyalty. This is vital for the success and profitability of any company. Fliers of Jetblue company are entitled to receive the frequent fliers after making 5 transcontinental round trips or on booking for thirteen short round trips. The airline is also targeting students in different states and it has come up with a strategy of lowering the costs for university students using its services during school functions like academic trips (Smith, n. d). By the fact that southwest airlines also operates or has implemented such strategies, and also because it has been in operation for a longer period than jetblue airways, southwest airlines still remains the largest competitor for jetblue airlines. However, despite the fact that Jetblue airline is smaller in size, it still competes fairly with southwest airlines. Apart from southwest airlines, Jetblue airway is the second favored airline in the industry by customers (Dilworth, 2007). JetBlue Airways also uses other customer based programs such as jetpaws to help it gain competitive advantage in the airline industry. In most airlines, pets are usually not allowed on board and passengers traveling with their pets are sometimes forced to leave the pets behind. With an aim of capturing such passengers, jetblue airways came up with jetpaws program which enables pet owners to travel with their pets. Up to four small dogs or cats are allowed in the cabin of the plane for both international and domestic flights. Frequent flier points are also awarded on pets which earns the owner credit for free flights. Every pet is charged a non refundable fee of $ 100 for each flight. This program has helped in attracting most of people or passengers who wants to travel with their pets (Greenberg, 2008). The cost reduction strategy as well as the jetpaws program for the jetblue airways. The cost reduction strategy which forms the basis of the profitability and competitiveness of this airline has so far been successful. Also, the discount and credits granted by the airline has helped in increasing customers’ loyalty and commitment to the airline. The recently introduced jetpaws program has also been successful as most of the pet owners willing to travel with their pets are using this airline. Jetpaws program has been identified as one of the most successful initiatives which the company has undertaken lately giving the airline an edge in the market. Most of the marketing strategies employed by the jetblue airways have been viable and successful thus there may be no need of changing them (RedOrbit, n. d). Aircraft Fleet operated by the JetBlue Airways As mentioned above, Jetblue airways have at least 147jets which are composed of Embraer E-190s and airbus A320s. The airline is the largest operator of the A320s airbus and currently it has a total of 110 airbuses. The average age of a fleet owned by the jetblue airways as per the estimates of the year 2008 was 3.4 years (JetBlue Airways, 2009). The airways flies to over 55 destinations which are located in 12 countries as mentioned earlier. The airways operate in different routes within these destinations. In the year 2006, the airline launched its services to charlotte, Pittsburgh, Bermuda, Aruba, Raleigh and Nashville. It also serves Mexico, Cancun and also in Houston hobby, Columbus, Sarasota and Tucson. Other routes include New York JFK and also Washington Dulles which connects the three northeast cities that is New York, Boston and Washington DC. Several new routes have been suggested which are meant to take effect in this year. They included daily and nonstop airline services between Montego Bay, New York City and Jamaica, another such route between Los Angeles and New York City, between Los Angeles and Boston among other routes. The airways offer point to point services in all its routes (Airline Industry Information, 2006). Most of the A320s fleets operated by the jetblue airways are leased from the GE capital aviation services commonly known as the GECAS. This aviation services company offers leasing services to most of the airlines and it has over 1000 owned aircrafts and it manages about 300 others. Since the inception of jetblue airways, the airline has entered into a lease agreement with GECAS two times for the A320s aircrafts. The idea of leasing was made so as to reduce the initial costs of purchasing an airplane. Also, this decision was vital especially during the time when the airline was undergoing an economic crisis and as such, purchasing an aircraft would have worsened the situation. The GECAS also offers pilot training for its customers thus reducing such costs. This was a sound and rational decision by the management of the jetblue airways as it is consistent with the airline’s aim of reducing costs. This also enables the company to obtain new fleets quickly as well as maintenance services (Business Wire, 2002). In the year 2008, the airline opened one of its primary hub terminals in John F Kennedy and it cost the company over $ 800 million. This hub is connected to the airport at JKF Terminal 5. Another hub operated by the airline is the long beach hub and quasi hub which is located at JKF-New York (Noack, n. d). Multimodal Transportation in Puerto Rico Puerto Rico is one of the routes which JetBlue Airways serve. However, this area has other modes of transport which have brought competition in the area for the airline. Tourism is a major activity in Puerto Rico and the nearby islands. The main mode of transport employed in most of ports in Puerto Rico is cruise ships especially in San Juan port. This port is among the busiest ports dealing with cruise ships in the Caribbean region. In the year 2007, more than 59 cruise ships which visited the San Juan port. These ships are reported to have made over 560 calls in the same year with the number of calls increasing to over 580 in year 2008. The total number of passengers who were ferried to Puerto Rico in the year 2008 through the use of Puerto Rico was estimated to have been 1.49 million, an increase of 9% over the previous year. The cruise ship facilities which are found in the port of San Juan are composed of 6 piers which have the capability of docking simultaneously ten cruise ships (Destination360, 2008). Other transport modes present in Puerto Rico are the ferries which are used to provide internal services in this areas and also between nearby islands and Puerto Rico. The ferry services are offered by maritime transportation authority and the fares are relatively low as compared to those offered by jetblue airways. There are currently about seven ferries operated by this company. Ground transportation found in Puerto Rico includes extensive use of private cars. Puerto Rico has 3.2 million vehicles which are registered currently with an average of 2.4 million drivers who are also registered. Expressways and road systems are also extensive and networked consisting of primary, secondary and tertiary road systems. Cargo is usually transported using the road although rail construction and expansion plans are underway in this region. Presence of the various modes of transportation has made air transport in this region quite difficult and unprofitable. International Operations of JetBlue Airways JetBlue Airways operates in both the domestic and the international airports with the airline serving 12 different destinations including Mexico, Dominican Republic, Costa Rica, Colombia, Aruba, Bermuda, Bahamas, United States, Puerto Rico and Netherlands among other countries. The airline still has plans to open more routes in different countries around the world. The airline as a means of improving its services and also opening up new routes has entered or formed different alliances with different airports and airlines. In the year 2007, jetblue airways started negotiations regarding an alliance with Aer Lingus. This alliance was meant to facilitate and ease of transferring customers from both the airlines. However, the airlines would not be allowed to sell seats to each other. This was a move from the traditional alliances known as codeshare. Details of the alliance were released by the airline in the year 2008 with the alliance being officiated in the same year. Through this alliance, customers both from the United States and the Irish communities are able to book flights at lower fares between Puerto Rico, United States and Ireland. Customers also enjoy airport transfer facilities which are seamless. Jetblue airways have also entered into an alliance with the Lufthansa airline which holds 19% shares of jetblue airline. Jet airline has plans to join the global airline alliance with star alliance being the most desired choice. Jetblue airlines entered the first codeshare in 2007 with Cape Air. This agreement allowed jetblue to transport its passengers to Cape Air’s destination from Logan airport in Boston via Cape Cod and all other nearby islands. This agreement also allowed passengers from both airlines to purchase tickets using one reservation and to book either airline. Other codeshares includes Lufthansa and Aer Lingus (Wynbrandt, 2004). Alliances have helped the airline gain access to different and international airports like in Ireland thus increasing growth and profitability. Becoming a member of the global alliance for airlines could be helpful for jetblue airlines as this would introduce the airline to the global airlines. However, such airlines may be detrimental to the stakeholders as they may end up losing the control of the airline (Doganis, 2006). Personnel Issues/Security following September 11terrorist attacks After the 9/11 attacks in the United States, all the airlines were required to implement tight security measures to help in thoroughly screening all the passengers before commencement of a flight. The panic that engulfed in the country as well as the passengers required tight measures to ensure that the public confidence was restored in the airline industry. Jetblue airways like all other airlines also had to ensure the security of its passengers was not at risk or threat of terrorist attack. One of the major personnel issues that the airline has undertaken is to train its employees dealing with inspection of passengers on measures to identify and/ or recognize suspected terrorists or members of a terrorist group. The 9/11 attack in United States happened because there were no strict measures to ensure all individuals are thoroughly screened before boarding a plane. To cub such deficiencies, jetblue airways has installed video cameras in various strategic points to ensure that all individuals are screened. Also, in collaboration with the crime intelligence department in the country, the airline has undertaken training programs for its workers to enable them fight or prevent or reduce the terrorist threats facing the airline as well as the country (Karber, 2002). Apart from screening the individuals boarding the plane, the airline has also put strict measures to ensure that even the luggage carried by the passengers are highly screened and searched to ensure that there are no terrorist threats. Summary JetBlue Airways is among the most recent airline companies and it has established itself well and competitively. Despite the fact that it has been in public operation for less than ten years, jetblue airways have brought stiff competition for airlines like southwest which has been in operation for over 30 years. One the major reason as to why the jetblue airways has grown and expanded so fast is because it was laid down using the strategies which were in use in the southwest airlines thus giving the airline a head start in the airline industry. As noted earlier, most of the top management team of the jetblue airways who helped in establishing this airline were former employees of the southwest airline and had garnered extensive knowledge regarding airline management especially the cost reduction strategy. The entry of jetblue airways brought a new phase in the airline industry and an overhaul in the running of this industry. Competition increased while airline services offered to passengers became better and of high quality as airlines tried to attract and retain passengers’ loyalty and commitment (Doganis, 2006). Since its inception, jetblue airway has been performing well financially with most of the period recording high profits. This airline gained a boost especially after the 9/11 terrorist attack in United States which involved a Boeing 737 from the southwest airlines. Public confidence on southwest airlines went down and a shift of passengers from this airline to jetblue was noted which led to its increased profitability and growth. With the company growing rapidly, the management focused on its expansion during this “boom” period and this trend continued even as fuel price continued to increase. Growth was becoming unsustainable as operating cost started to increase leading to a decrease in profitability and the ultimate loss in the year 2006. Losses which were being recorded led to major strategic decisions being taken like the sale of 3 A320s and a reduction in the operation of E 190s. Also, the major reconstruction of the airbuses to reduce weight and thus costs were some of the strategies which were used to regain profitability in the airline. Since the inception of the jetblue airline, competition increase in the airline industry and most of the United States airlines currently are almost bankrupt. This necessitated development of marketing strategies to help the company to remain competitive. Some of the strategies which the company used is by charging low fares to the customers which was made possible by implementation of cost reduction measures in the airline. Charging lower fares was a major attraction cause for most of the passengers. Also, the introduction of frequent fliers plan is also another means which the airline used to attract and retain passengers by creating loyalty and commitment. The latest move which have been a very successful advertising strategy is the introduction of jetpaws program which enables passengers to travel with their pets. This attracted over 80,000 pet travelers from the country thus increasing the profitability of the airline (Wynbrandt, 2004). Another aspect which have helped the airline to be productive is through the alliances and codeshare agreements which the airline has engaged in. this have helped the airline to enter new markets and to go global. Also, leasing of some airplanes and land for construction of hub structures and airports have also helped in reducing costs thus enabling the airline to continue offering lower charges for flights to its passengers (Hoover, n. d). Recommendations To ensure profitability and growth of the airline, the management should consider opening more hub structures and airports within the country. As it stands currently, jetblue airways do not serve all the states in United States thus meaning there are still untapped potential within the country. The company can increase its profitability by increasing and expanding its services to ensure that all the major towns have booking offices for the airline to ensure that the passengers are able to book the airline more conveniently (Doganis, 2006). JetBlue Airways unlike its counterpart the southwest airlines, it have not been very keen on promoting internet or online booking services. Technology in the current world has advanced and the airline should ensure that it is keeping in pace rather than lagging behind. Active campaign on online booking would lead to higher bookings and thus profitability. This strategy has been in use in the southwest airlines and since the company started advocating and campaigning for online booking services, more online bookings have been realized. The same strategy can work for jetblue airways. As noted earlier, jet blue unlike most other airlines does not sell snacks to its customers during flights. Although it is still a marketing strategy for the company, a change in this strategy can help the airline earn a lot of money. The airline should reconsider this strategy especially as competition has continued to increase and airlines are coming up with a variety of snacks to attract the passengers. Passengers are always willing to pay an additional cost as long as they feel the quality is high and of standard. Due to the quick growth jetblue airways has experienced for the past six years after it became public, it is vital for the management to come up with ways to ensure that this growth is sustainable for growth and profitability continuity. One of the ways that the airline can adopt is by joining the global alliance. This would help the airline to enjoy the privileges which comes with economies of scale and would also help in expanding the base of the airline. By going global, the company would also be exposed to the global airline operation and it would also attract global funding and investment which is vital in ensuring sustainable growth. Due to the increased terrorist threats in the country as well as around the world, the airline should work closely with crime investigation department, the FBI and all other crime fighting departments in the country to help reduce terrorist threat. Also, the airline should install modern technology for screening individuals and luggage before they are taken on board to ensure terrorist threats are reduced. Video monitors should also be installed in the cock put which should be fitted with hidden cameras in the entire cabin. The pilots and the captains through the hidden cameras would be in a position to view the cabin and everything going on in there. This would help take appropriate action in cases of eventualities (Doganis, 2006). In the next one decade, JetBlue Airways will be a global airline given the expansion and growth it has shown since its inception. Also with plans underway to join the global alliance in the near future, this will hasten the globalization of the airline. Despite its relatively small size as compared to Southwest Airlines, within the next ten years, JetBlue Airways will be comparatively equal and even bigger in size and also in operations than Southwest Airlines if the growth trend continues. Reference: Airline Industry Information (2006): JetBlue seeks to focus on less competitive routes. Retrieved on 19th May 2009 from, http://www.encyclopedia.com/doc/1G1-143256798.html. Business Wire 2002: GECAS Provides JetBlue Airways With Financing For Seven New A320-300 Aircraft. Retrieved on 19th May 2009 from, http://www.allbusiness.com/banking-finance/leasing-industry-capital-equipment-leasing/5945326-1.html. 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(n. d): Jetblue Yonder Carrier Launching New York Route Today. Retrieved on 19th May 2009 from, http://www.thefreelibrary.com/JETBLUE+YONDER+CARRIER+LAUNCHING+NEW+YORK+ROUTE+TODAY.(Business)-a0132759647. Wynbrandt, J. (2004): Flying high: how JetBlue founder and CEO David Neeleman beats the competition-- even in the world's most turbulent industry. ISBN 0471655449, John Wiley and Sons Read More