Jet Blue Airways - Strategic Management Case Study Presentation Transcript

1. JETBLUE AIRWAYS CORPORATION - 2005A Strategic Management Case 2. Outline 2IntroductionStrategy Formulation Stage Vision & Mission Formulation SLEPT Analysis CPM, EFE, IFE SWOT, SPACE, Market Focus Matrix IE, Grand Strategy Matrix QSPMStrategy Implementation Stage Recommendations Annual Objectives and PoliciesStrategy Evaluation Stage

Stock price $20 in 2002 and peaked at $26.4 in 2005. By mid 2005, fleet of 77 new Airbus A320 Aircraft 108 flights in 2002 and 316 in 2005 serving 32 destinations. Focus on underserved markets. Goal has been to establish itself as a leading low-fare, low-cost passenger airline by offering customers high-quality customer service and differentiated products. Established in 1998 and started service in 2000 JetBlue High competition in US airline industry.3. Introduction 3

United Southwest American Major Competitors First and only to install security cameras. First to install bulletproof cockpit doors. Only US to be 100% ticketless. First to introduce paperless cockpit technology. First and only to broadcast the Olympics live at every seat. First and only to offer 24 channels of live satellite free at every seat. First and only US to launch with more than 100 million in capital JetBlue Facts Sheet 4. Introduction 4

5. Vision & Mission 5PROPOSED VISIONAt JetBlue our vision is to be the best regional air carrier by providing low-fare, low-cost, enjoyable and safe flight experiences to our passengers.

6. Vision & Mission 6Proposed Mission StatementsJet Blues mission is to be the leading lowfare, low-cost passengerairline offering high quality customer service to underservedmarkets and customers who are looking for the best value in theirflight. We have the newest most advanced planes that are reliable,safe, fuel efficient, utilizing advanced technologies, and unique inmultimedia entertainments. Our philosophy is to give customersthe best price value for their ticket and maintaining distinctiveservices. At JetBlue we hire highly motivated employees and trainthem to reach a high level of competency to provide betterexperiences to customers. We believe that our high-value, highquality service philosophy will lead the way to becoming thenumber one in the industry.

7. External Opportunities and Threats 7SLEPT Analysis SLEPT Influences External Opportunities External ThreatsSocial 200 million passengers will be Obese passengers contributing carried in 2005 (4.1% increase to high fuel consumption costs than previous year) (275 million additional cost to High demand for air travel airlines)Legal Increase in labor wages Union labor contract & strikes Bankruptcy of many rival Mergence of competing airlines airlines New regulations New regulationsEnvironmental and Ethical None High oil prices Availability of Jet fuelPolitical None Rising security rules and obligations.Technological Utilization of the internet for Reliability of the internet and sales system downtime. New airplanes fleet

8. Competitive Profile Matrix (CPM) 8 High Demand Weight JetBlue High Sales American Southwest UnitedMarket 0.10 3.00 3.00 4.00 1.00CapitalizationEmployees 0.10 4.00 1.00 3.00

2.00Quarterly Rev 0.12 4.00 2.00 2.00 1.00GrowthRevenue 0.10 4.00 4.00 4.00 4.00Gross Margin 0.10 4.00 3.00 4.00 2.00Net Income 0.12 3.00 2.00 4.00 1.00EPS 0.10 High Efficiency 3.00 1.00 4.00 1.00 Low costP/S 0.08 4.00 1.00 4.00 1.00Expense 0.18 4.00 2.00 2.00 2.00PassengerMilesTotal 1.00 3.68 2.12 3.30 1.68

9. External Factor Analysis 9 Factors Weight Rating Weighted ScoreOpportunitiesRapid growth of discount airlines due to bankruptcy of rival airlines 0.06 3 0.18200 million passengers will be carried in 2005 (more than the year before by4.1%) 0.08 3 0.24Air travel is much safer than other means of transportation 0.05 4 0.2Emergence of new federal laws enhancing security in airports 0.04 3 0.12Threat 0High oil or jet fuel prices 0.08 4 0.32Union labor contracts, wages, benefits & strikes 0.09 4 0.36Fierce competition from other rival airlines 0.07 3 0.21Availability of jet fuel 0.09 3 0.27Market is maturing 0.07 3 0.21Rapid growth of discount airlines 0.05 3 0.15Emergence of new US federal laws (e.g., change in daylight saving time) 0.07 2 0.14Pricing is weak 0.05 4 0.2Obese passengers contributing to high fuel consumption & negativeenvironmental impact 0.06 3 0.18Rising security rules and obligations 0.08 4 0.32Rising breakeven load factor 0.06 3 0.18 Total Weighted Total weight 1 Score 3.28

10. Internal Factor Evaluation Factors 10 Weight Rating Weighted ScoreOpportunitiesDeployment of technology in terms of paperless tickets (i.e., e-commerce) 0.08 4 0.32Attention to security in terms of bullet-proof in cockpit cabin and cameras inpassenger cabins 0.09 4 0.36JetBlue fleet maintains a new fleet of aircrafts 0.06 4 0.24JetBlue offer inflight entertainment 0.06 3 0.18JetBlue hires the best crew in terms of skills and employees 0.08 3 0.24Jet Blue has a very well clear strategy in terms of leadership 0.09 4 0.36JetBlue offers exceptional training physical resources to company employees 0.08 4 0.32Availability of customer service management 0.07 3 0.21JetBlue has the lowest labor wages compared to other rival airlines ($3.13 witheach seat flown) 0.05 4 0.2JetBlue has a loyalty program, named TrueBlue, which rewards programmembers 0.03 3 0.09JetBlue maintains a higher net income ($39.24M) compared to industry ($27.61) 0.03 2 0.06JetBlue maintains a higher revenue ($1.35B) compared to industry ($1.24B) 0.03 2 0.06JetBlue maintains a higher operating margin (7.84%) than its industry (6.86%) 0.02 3 0.06JetBlue has a high market capitalization ($2.19B)compared to industry ($536.6M) 0.02 2 0.04JetBlue maintained a higher P/E ratio (59.21) compared to industry (14.16) 0.03 3 0.09JetBlue has a high P/S ratio (1.63) compared to industry (0.42) 0.03 2 0.06JetBlue maintained a high gross margin (36.12%) compared to industry (23.08%)and other rival airlines 0.03 3 0.09JetBlue has a higher quarterly revenue growth (29.5%) compared to industry(20.4%) and other rival airlines 0.03 2 0.06ThreatJetBlue reported a high PEG ratio (3.90) compared to industry (0.93) 0.04 1 0.04JetBlue reported low EBITDA (191.54) compared to industry (154.38M) 0.05 2 0.1 Total Weighted Total weight 1 Score 3.18

11. Internal-External Matrix 11 4 3 2 1 I II III 3IFE IV V VI 2 VII VIII IX 1 EFE 12. SPACE MATRIX 12 13. Grand Strategy Matrix 13 14. SWOT analysis 14 STRENGTHS WEAKNESSESConstant financial growth over past 3 years. Relatively new company.Low operating cost and labor cost due to Serving only 13 States.strong utilization of resources. Low fares could mean less profit.High service passenger airline. Lower percentage of full time employeesComfortable accommodation. compared to

competitors.Product differentiation due to unique in-flight Lowest in market cap among competitors.digital entertainment systems. Single fleet of planes (77 Airbus A320 AircraftKnown for being efficient and on time. only).Dedicated staff due to their strong hiring Relying mostly on word of mouth advertising.process. Higher percentage of airborne time and75.4% online reservation Effective use of higher number of diverted flights thanwebsite. competitors.100% ticketless.

15. SWOT analysis OPPORTUNITIES THREATSNorthwest may be heading for Risk of strikes (Trade Unions)Chapter 11. Fuel price and fuel availability.Demand in air travel predicted to Risks of hedging fuel.increase by 4.1%. Break-even load factor is increasing.Possibility of senate approving Rapid growth of discount airlines.daylight savings hitting competitors in Strong competitions as competitorsEO market. move to Cost leadership strategy.Using luggage tracking technology Some competitors are merging to rivalcould help in the lost luggage with discount airlines.department. New taxes from govt. Security & Terrorism 15

16. SWOT analysis 16 SO STRATEGIES WO STRATEGIESMarket Penetration: Expand and offer flights Raise fares slightly but keep it lower thanto Europe and market their superior price value competitors.to Europe. Advertise on TV to increase customerMarket Penetration: Capture markets of awareness.airlines heading for Chapter 11. Market Penetration: Start flying internationallySet up TV adds to advertise Jet Blue low price to increase profits.and their product differentiation. Product Development: Add new fleet of airplanes. ST STRATEGIES WT STRATEGIESHorizontal Integration: Take over emerging Revise/optimize their flight schedule, timingsdiscount airlines. and destinations to improve the number ofIntroduce programs to build confidence of diverted flights and to improve the high break-trade unions. even load factor.Raise awareness on their security measures(bulletproof cockpit).

17. Market Focus Matrix 17 Embryonic Growth Mature AgingDominant Defend position Fast Grow Defend Position Fast grow Focus Attain cost leadership Attain cost leadership Start up Renew Renew Defend position Renew Defend position Grow with industry Fast Grow Attain cost leadership Find niche Start upStrong catch-up renew, focus Hold niche differentiate attain cost leadership differentiate Hang-in fast grow differentiate grow with industry Grow with industry, harvestFavorable Differentiate Harvest, catch-up Start up focus hold niche. Hand-in Retrench differentiate catch-up turn around Turn around focus grow with industry focus, grow with industry Harvest, catch-up HarvestTenable Start up Divert hold niche. Hand-in turn around Retrench grow with industry turn around find niche focus focus, grow with industry retrench Find Niche Turn Around Withdraw divest catch-up RetrenchWeak grow with industry Withdraw

18. Quantitative Strategic Planning Matrix QSPM STRATEGY 1 STRATEGY 2 STRATEGY 3 Expand Acquire Buy new Marketing United Fleet channels AirlinesExternal Factor Evaluation 1.31 1.27 1.87Internal Factor Evaluation 3.42 3.23 2.64 TOTAL SCORES 4.73 4.5 4.51 18

Complexity Speed: 871 km/h Competitors: Boeing 717 CR Range: 6,000 km Cost: $85 million Fuel Efficiency Seating capacity: 180 passengers Manufacturer: Airbus 19. & Cargo capacity: 40 m3737

20. Recommendation 20As per the Strategy formulation, we recommend 3 strategies:Strategy 1: Market DevelopmentAdd domestic locations and fly internationally, extend flights to major hubs in Europe tostart off, then as that takes off, offer flights to Asia, Australia, etc. The new planes willmitigate risk of losing customers due to unplanned delays.Cost: $600 million for 7 planes,

fuel for a year and maintenance & hiring costs.Strategy 2: Market PenetrationBy increasing advertising and Expand to Other Media. JetBlue could advertise on TV,Radio, and Online to boost revenues and popularity of the airline instead of heavilydepending on word of mouth.Cost: About $4,000,000.Strategy 3: Related Diversification:Build Partnership Travel Website. In this website, users can look up information aboutdifferent travel destinations, find hotels, restaurants, hot spots, etc, and book a flightthrough JetBlue all while comparing prices from other airlines.Cost: About $30,000 to start off, then about $60,000 per year to maintain (for a small site).

21. Recommendation 21How to Play?JetBlue should implement these strategies in three stages.Introductory Phase Implement new advertising campaigns to raiseawareness in target markets simultaneously adding 7 new planes totheir fleet.Middle Phase Start the travel website to help attract new people toJetBlue, get them to fly, and build a reputation.End Phase Start flying internationally. Once customers know JetBlueand JetBlue gains a reputation for high quality and low prices, peoplewill want to fly them no matter where they go.Horizontal Integration in the Long Term.

22. Annual ObjectivesDeliver the Decade 8-10% Sales 10%+ Growth Profit 13% Growth +0.6% Margin pts/yr Improvement TSR Cash Flow 45% GM Asset Growth 60 P/E 1.78c CL Efficiency 90%

Customer Kn Financial performance23. Strategy EvaluationOver the next decade, JetBlue strategy will be evaluated annually based on 4 perspectives: Learning Internal Business Processesowledge & Growth 23

24. THANK YOUfor flying with us 24