JETBLUE AIRWAYS • JetBlue’s approach is to replicate Soutwest’s approach but with added relative advantage. • Essentially discount airfare with services bundled in as differentiator. • Also relied on technological advancement to reduce cost and increase efficiency. • Avoid direct competition with Southwest by focusing on the northeast of the US. • Experienced early successes but started experiencing turbulence by 2006. • High interest expense eating into operating profit.
BASIC CONCERNS • Rising cost due to increase in fuel price. • Rising cost due to operating 2 aircraft types. • Increase in labour cost as employees age and accumulates seniority. • Possibility of unionization in the long-term. • Operational problems due to airport and area congestion. • Need to anticipate possibility to having to face Southwest in the future. • How to position to tap into expanding international market (Exh. 7)?
OBSERVATIONS • Increase in operating expenses exceeded increase in operating profit in 2004 and 2005. • Even though use of multiple aircraft model said to affect maintenance cost, data doesn’t seem to show it is currently a problem. • As a percentage of revenue it experienced a small initial increase. • Salary expenses as a percentage of revenue has been constant • A key problem appears to be the substantial increase in fuel price and interest expense (see exhibit 1).
KEY ACTIONS: REDUCE COST • Immediate step is to reduce JetBlue’s major cost items. • Need to plug the leak by reducing leverage and interest expenses • Either renegotiate loan or seek capital injection • Consider sell and lease back hub facilities at JFK Airport. • Slow or freeze recruitment and move to more automation of passenger services. • Minimize very short haul flights to improve fuel economy of aircraft. • Restrategize relative advantage with view to cut cost • Relative advantage may not matter since JetBlue and Southwest are currently in geographically separated markets.
KEY ACTIONS: INCREASE REVENUE • Given that high fuel price affects all airlines similarly, it can be expected that in the long-term all airlines will feel the pressure to raise fare. • Can try to link with airlines from Asia though JetBlue is geographically disadvantaged • Better located to take in passengers from Europe. • A collaboration with international airline can be source of capital injection. • Diversify into related businesses. • Defer international expansion • International route sinto Asia will need different operational model but one that can still confer cost advantage.