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Module 1 Regional Airlines – JetBlue

Module 1 Regional Airlines – JetBlue. Michelle Kelly. Background. 15 mainline carriers and 70 regional carriers Industry Revenue: $138.3 billion Profit: $6.9 billion (5%) Largest Competitors Delta – 18.1% United – 16.1% Southwest – 12.4% American – 10.3% United – 7.7%.

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Module 1 Regional Airlines – JetBlue

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  1. Module 1Regional Airlines – JetBlue

    Michelle Kelly
  2. Background 15 mainline carriers and 70 regional carriers Industry Revenue: $138.3 billion Profit: $6.9 billion (5%) Largest Competitors Delta – 18.1% United – 16.1% Southwest – 12.4% American – 10.3% United – 7.7%
  3. Current Environment - Decline Decrease in Demand 9/11 caused a large decline in air travel Market recovered over the next 7 years 2009- decline in revenue of 16.3% Causes: Financial Crisis Global Health Epidemics (Swine Flu) Slow recovery Increased costs Crude oil prices increasing Employee wages and benefits plans
  4. Generation of revenue Traditional Activities Passenger fares Carrying mail and cargo Sale of alcohol on board flights In-flight entertainment (movies etc.) More Recent Activities Charging for checked bags Selling “premium” seats Charging for food in coach Selling frequent flyer credits to other companies (credit cards, hotels, etc.)
  5. Five Forces – Industry Competition Industry Competition very high Top five companies have over 55% market share Mergers and Acquisitions causing further concentration Internal Competition – Budget airlines vs. full service airlines
  6. Five Forces – Bargaining Power of Buyers Medium bargaining power Low switching costs Minimal Brand Loyalty Created through frequent flyer programs, credit card miles etc. Ability to fare shop
  7. Five Forces – Bargaining Power of Suppliers Only two suppliers – Boeing and Airbus Large rivalry between the two Difficult to switch suppliers Different parts Long term contracts Oil producers have power because oil is necessary for operation of the industry Overall: medium threat
  8. Five Forces – Threat of Substitution Number of substitutes – cars, boats, train or bus For business travelers, substitutes also include video conferences Business travelers are a large part of airline business Threat: high
  9. Five Forces – Threat of Entry Threat is low Highly capital intensive industry Consumers tend not to trust new companies Difficult to get licensed by regulatory agencies
  10. Future outlook Revenues are expected to continue to grow as the industry recovers from the financial crisis Annualized growth of 1.5% Increased oil prices continue to be a threat Offset by additional fees and charges Decrease in the number of routes offered Stick to profitable routes/hubs More consolidation expected
  11. jetBlue Low Budget Airline Headquartered in Queens, NY Major Airport: JFK Market Share: 5.1% Serve 84 destinations in 24 states
  12. Overview Started in 1998 by former Southwest employees Modeled after Southwest Difference is that jetBlue offers amenities like free in-flight entertainment, free bag One of the only airlines to make a profit after 9/11 Since, fuel costs have severely hurt profits
  13. Strategy Offer distinctive flying experience Low cost but high value “jetBlue experience” – try to build brand loyalty Try to offer superior customer service Serve high value areas: New York Boston Florida
  14. Strategy – Network Routes Formed alliances with other airlines to increase the number of routes available to customers Not a member of any international airline alliance Created agreements with airlines individually Purpose: Allows for more options for customers looking to travel beyond jetBlue’s limited locations Affiliated mainly with international airlines (exception: American Airlines)
  15. Strategy – Reduced Costs Can afford to offer cheaper fares to customers because costs are lower than bigger airlines Reduced employee costs
  16. SWOT Analysis
  17. Conclusion jetBlue needs to concentrate on offering quality customer service at reasonable prices to: Increase market share Increase profit margins to combat rising oil costs
  18. Questions?
  19. Sources www.jetblue.com IBISWorld http://clients1.ibisworld.com.proxy.library.nd.edu/reports/us/industry/default.aspx?entid=1125 S&P Capital IQ http://www.netadvantage.standardandpoors.com.proxy.library.nd.edu/NASApp/NetAdvantage/simpleSearchRun.do?ControlName=IndustriesSurveySearch jetBlue 2012 10K
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