Group Case Analysis -Jet Blue Strategic Planning

Group Case Analysis – Jet Blue Strategic Planning

In 2017 JetBlue faced challenges that included rising fuel prices, troubling technical disruptions, and declining quality of the flying experience. Since the beginning of 2016, JetBlue had enjoyed low fuel prices that helped increase their earnings about 18 percent during the second quarter of 2016,1 but the company experienced technical issues that caused booking problems and resulted in delays, as well as bad publicity. In order to cope with the likelihood of a rise in future fuel prices, JetBlue undertook massive cost reductions by investing in cabin restyling, for instance, adding more seats to JetBlue’s A320 airplanes. However, the shrinking legroom that accompanied the cabin restyling was despised by passengers, which posed a problem for an airline that had once offered customers a captivating (as opposed to a captive) flying experience. To meet the challenges, new CEO Robin Hayes orchestrated various initiatives that the company planned to take through 2017. Those initiatives included wider fare options, enhanced Mint services, cabin restyling, new lines of JetBlue credit cards, and partnerships with other airlines.2 The founding CEO of JetBlue, David Neeleman, had been ousted by the board of directors after a notorious event when an ice storm severely disrupted the airline’s operations.3 In 2007, Dave Barger, an employee since the inception of JetBlue in 1998, became the second CEO of the company. Ultimately Barger was pressured to step down amid constantly depressed stock prices. In February 2015, Robin Hayes took charge of the company as its third chief executive. Hayes was the executive vice president of British Airways for the Americas before joining JetBlue in August 2008. Having worked for about 25 years and having extensive experience in the airline industry, Hayes was considered an optimal choice to become the third chief executive of Jet Blue.

 

The U.S. Airline Industry

The U.S. airline industry consists of three primary segments: major airlines, regional airlines, and low-fare airlines. Major U.S. airlines, as defined by the Department of Transportation, are those with annual revenues of over $1 billion. Most major airlines utilize the hub-and-spoke route system. In this system, the operations are concentrated in a limited number of hub cities, while other destinations are served by providing one-stop or connecting service through the hub. Scheduled flights serve most large cities within the United States and abroad and also serve numerous smaller cities. Regional airlines typically operate smaller aircraft on lower-volume routes than do major airlines. They typically enter into relationships with major airlines and carry their passengers on the “spoke”—that is, between a hub or larger city and a smaller city. Unlike the low-fare airlines, the regional airlines do not have an independent route system. Deregulation of the U.S. airline industry in 1978 ushered in competition in the previously protected industry. Several low-cost, low-fare operators entered the competitive landscape that Southwest had pioneered in 1971. The low-fare airlines operate from point to point with their own route systems. The target segment of low-fare airlines is fare-conscious leisure and business travelers who might otherwise use alternative forms of transportation or not travel at all. Low-fare airlines have stimulated demand in this segment and been successful in weaning business travelers from the major airlines. Southwest is the outstanding example; however, Southwest has become a major airline, having crossed the $1 billion mark in 1990.6 The main bases of competition in the airline industry are fare pricing, customer service, routes, flight schedules, types of aircraft, safety record and reputation, code-sharing relationships, in-flight entertainment systems, and frequent-flier programs.

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