The trends in the U.S. airline industry and their impact a company’s strategy
Perhaps, the most significant trend in the airline industry both in the U.S. and worldwide is a constant rise in oil prices. Moreover, the spread between oil and jet fuel prices is continuously growing. These two factors put a significant pressure on the profitability of the airlines and dictate the need to reduce costs. For Jet Blue the increase in fuel prices might indicate the need to raise ticket prices, thus forgoing its status of a low-cost carrier. Furthermore, Jet Blue may need to change its strategy of not hedging fuel costs, since the current upward trend in fuel prices does not seem to change in the nearest future. Hedging may help the company to reduce uncertainty and to improve planning. In order to respond to the cost pressures, the company should also implement strategies to increase efficiency and to reduce operating costs. Thus, Jet Blue already tries to cut fuel consumption of the aircrafts by reducing their weight, increases efficiency by flying on higher altitudes, and closes down less profitable destinations.
After the tragic events on September, 11, 2001, the U.S. airline industry faced new challenges. The increased emphasis on security has both raised the cost of introducing additional security measures, such as surveillance cameras on board of the aircrafts, and increased the time on the ground. However, this trend has also created additional opportunities for the company. Thus, Jet Blue is exploring the possibility of fast-track security checks as an ancillary service for its passengers.
One of the current industry trends in the airline industry is a shortage of pilots. According to the statistics, every year there are 3000 fewer graduates from pilot schools than the industry requires. This trend leads to an increasing competition for qualified pilots between airlines. Companies attract pilots from smaller rivals by offering higher wages and benefits. This fact significantly increases the labor costs in the industry and puts additional pressure especially on low-cost carriers, such as Jet Blue, which do not usually provide the highest salaries in the segment.
Jet Blue’s strategic intent prior to 2008
As Jet Blue is a young company, its strategy before 2008 was majorly focused on expansion and growth. Firstly, the airline expanded its operations into new areas. Secondly, the company signed multiple codeshare agreements with other airlines, thus expanding the possibilities for its customers and exploring the opportunities of transporting international passengers to their final destination in the U.S. Moreover, company established partner relationships with non-airline companies, such as Dunkin Donut, in order to enhance customer experience and to derive synergies from the expanded offering.
The main strategic objective of the company during this phase was establishing Jet Blue brand as a synonym of high quality service at a low price. The possibility to offer impeccable service helped the company to create competitive advantage and to target both the customers of traditional airlines and those of the new low-cost rivals. This fact made Jet Blue popular among business travelers, who are becoming more important and lucrative for the company.
Jet Blue’s financial objectives
Jet Blue has been very successful in achieving high profitability and growth over the past years. The ability of the company to generate high revenues even after 9/11 events has demonstrated high financial stability and long-term profitability. The conservative financial practices allowed the company to maintain one of the highest liquidity ratios in the U.S. airline industry. However, as the growth phase of Jet Blue’s development was slowed down by the economic crisis, the company started to address the issues of declining stock prices and low return on assets. The company also received financing from its long-term strategic partner Lufthansa, which helped the airline to overcome financial difficulties during 2008 oil price increase.
Jet Blue’s strategic elements and evaluate their impact on competitive advantage
Jet Blue has always put a lot of emphasis on cost reduction that allowed the company to offer low-cost tickets to its passengers without jeopardizing the high level of service. It was one of the first companies in the U.S. to implement IT system for ticket handling, and hired home-base operators to run its call-center. Moreover, the company pays careful attention to efficient deployment of its aircrafts by using only a few types of aircrafts, optimizing fuel consumption and operating small planes that allow faster turnaround and better capacity utilization. All the cost-reduction initiatives help Jet Blue to maintain low ticket prices, while offering amenities to the passengers that are not common in the low-cost segment. This strategy gives the company a competitive advantage both over the low-cost carriers and more traditional airlines.
Company organizational culture has contributed to the success of Jet Blue and helped to gain competitive advantage. The culture of Jet Blue is based on 5 elements: safety, caring, integrity, fun and passion. These values aim to exceed employee and customer expectations and to create cohesion between JetBlue brand promise and the company spirit. By adhering to these principles the company demonstrates that customer service is the highest priority for them, that employee are willing to “go an extra mile” in order to satisfy the passengers and that every member of Jet Blue company is valued by the company.
Human resource practices at Jet Blue have always emphasized the focus on people, or the “crew members” of the company. It is crucial for the airline to ensure that its people share its values and mirror the culture. That is why special attention is paid to the spirit of a person rather than experience or educational background. JetBlue has developed several career paths that allowed accommodating career aspirations and personal situations of every employee. Moreover, the company puts a lot of emphasis on training its personnel and on offering possibilities for career advancement. While base salaries in Jet Blue are on average less than those of the main rivals, the company compensates this fact by offering profit sharing opportunities and additional , such as medical insurance. All these factors make Jet Blue an attractive employer and create a feeling of belonging and employee loyalty that give the company a competitive advantage, which is especially important in the light of the increasing shortage of qualified labor in the airline industry.
Jet Blue’s strategies for 2008 and beyond
After the economic turmoil in 2008 Jet Blue had to alter its strategies in order to adjust to the contemporary business environment. Firstly, the company is introducing additional measures to reduce costs and to improve asset utilization. Secondly, it no longer expands at the same pace and even closes some of the less profitable destination. The prices of the Jet Blue tickets were increased; however they still remain below those of the heritage airlines. Moreover, Jet Blue has expanded its operations internationally and continues to expand its partner network in order to offer transit opportunities to its customers.
Today, a large proportion of the revenues is derived from ancillary services, such as fast-track security checks or additional legroom seats. The main target customer group has also shifted to more business passengers, who offer further opportunities for growth.
The abovementioned strategies reflect the demands of the current business environment and are consistent with Jet Blue’s business model. Distinct market positioning and strong competitive advantage allow the company to remain successful in the market. However, the volatility of the airline business and the increasing competition in the industry make further Jet Blue’s development and profitability extremely challenging and require continuous adjustment of the strategy to the realities of the business.