Assignment: #1 - Crafting and Executing Strategy

Antony Pulido
Strayer University







Strategic Management
BUS 599
Dr. Mary Collins
October 13th, 2011

~Discuss the trends in the U.S. airline industry and how these trends might impact a
company`s strategy.

The majority oI the U.S. airlines operate as discount airline carriers touting low Iares,
using quick operating point to point systems, utilize two types oI aircraIt, serve only snacks, and
use techniques to provide quick turnaround times at the airport. Most oI these airlines
concentrate on US domestic route, it is with these domestic Ilights the airlines gain a small
amount oI proIit margin. The larger proIit margin model is typically achieved in international
Ilights. There is extremely high competition between each airline to attract the customer. In
order to remain competitive, airlines have had to lower costs and cut out services. Many airlines
have started looking to save both money and time, leading to no meals served during the Ilight.
This also saves passengers time because the plane does not have to wait Ior catering services to
replenish the aircraIt. Also in order to save time, Ilight attendants typically clean up all the trash
on the plane, this also helps the airline save and Iocus their budget on system operations. Most
oI the airlines will use diIIerent pricing strategies to compete with other companies and reach
their Iinancial goals.
The Airline industry in the United States has been controlled in large part by three large
carriers (United, American, and Delta). These larger airlines employ a hub and spoke strategy
Ior routing oI Ilights. In other words iI a passenger wanted to go Irom a non-hub city to another
non hub city they would have to connect to another Ilight in a hub city to complete their trip.
Fuel costs are the most volatile cost that an airline has to contend with. To combat the
Iluctuating costs oI Iuels airlines have been Iorced to employ a strategy oI buying commodity
Iutures Ior jet Iuel and Iuel Ior the vehicles that are used in operations. These Iutures are usually
purchased at a price based on the current cost. Thus iI the price oI the commodity increases you
are locked into buying the Iuel at the lower cost. But this is not without risk; iI the price oI the
commodity Ialls you are still locked into the contract Ior the commodity at the higher price
unless you are able to sell you could end up putting your company out oI business.
So it`s not surprising that low-cost carriers operate on a reduced-cost model, typically
with a single jet model and simpliIied routes and Iare structures. In the U.S. their routes are
oIten conIined to the domestic market, Mexico and the Caribbean. U.S. legacy carriers said
international air travel boosted sales in March but that they lost ground at home to low-cost
airlines, a trend that pushed them into the role oI what the industry calls trunk carriers.
'Domestic is recovering more slowly Ior legacy carriers because low-cost carriers have become
entrenched in the local markets," said Terry Trippler, an airline analyst with Rules to Know, a
travel advisory. "Legacy has cut back on domestic capacity, low-cost carriers have too, but not to
the degree the legacy carriers have" (Hinton, 2010).
~Discuss 1et Blue`s strategic intent.


Jet Blue`s strategic intent is to establish the company as a leading lowIare, lowcost
passenger airline by oIIering customers highquality customer service and a diIIerentiated
product. The company intends to do so by oIIering low Iares that stimulate market demand
while maintaining a continuous Iocus on costcontainment and operating eIIiciencies. JetBlue
intends to Iollow a controlled growth plan designed to take advantage oI its competitive
strengths. The company`s growth will continue to occur by adding additional Irequencies on
existing routes, connecting new city pairs among the destinations they already serve, and
entering new markets oIten served by highercost, higherIare airlines.
JetBlue Airlines was Iounded as a low-cost carrier that in early 1999 by David Neeleman,
it was to be a 'carrier that provided low Iares and the amenities oI cozy den at home
(Thompson, Strickland, & Gamble, 2009, p. c-23). It boasted oIIering 24 channels oI live
television, leather seats, and gourmet snacks (Thompson, Strickland, & Gamble, 2009). These
amenities were very well received by a traveling public that had become accustomed to being
herded like cattle by other low-cost carriers. AIter the Iirst inaugural Ilight on February 11, 2000
the company enjoyed rapid expansion and growth due to the hunger oI the business traveller Ior
just such a travel option. As the route options grew so did a loyal Iollowing oI passengers. By
April 2002 jet blue was able to have its Iirst public oIIering oI stock. Even the investors on Wall
Street were impressed by the new startup airline.
One oI the successes oI Jet Blue that makes it more proIitable than most airlines is the
Iact that it has remained non-union. Despite this Iact, the employees oI the company retain a
number oI competitive beneIits and industry-standard compensation. JetBlue was started with
the notion oI bringing humanity back to air travel. The goal was to be a low discount airline
carrier that oIIered comIort and service to its customers. In addition, JetBlue was the Iirst airline
to publish a Passenger`s Bill oI Rights, a document disclosing its policies to passengers. JetBlue
is the only U.S. airline to be 100 ticket less, the only airline to install security cameras in
passenger cabins Ior customer and crew saIety, and the Iirst U.S. airline to install bullet-prooI
cockpit doors across its Ileet. (About Jet Blue Airlines, 2011)
~Discuss 1et Blue`s financial objectives and whether or not the company has been
successful in achieving this objective.

To gain success, three Iinancial objectives were established by the company. These
three Iinancial objectives helped move JetBlue in the correct direction: The Iirst Iinancial
objective oI JetBlue, in order to keep ticket prices low, is Iocusing on keeping operating cost to a
minimum. According to JetBlue Airways, a high level oI satisIaction by their customers is based
on the diIIerentiated services available to them. (Rovenpor, 2011) This is the primary goals oI
success. The second Iinancial objective oI JetBlue, in order to stay the highest in the airline
industry, is to constantly maintain their great liquidity coverage ratio. This is the overall success
oI the company being able to Iocus primarily on their conservative Iinancial strategy. In order to
make the ideal money and optimum utilization oI the capital, the company must continuously be
successIul in this objective. The third Iinancial objective oI JetBlue is to keep Iuel prices at a
minimum by hedging the risk oI the potential increase. Two derivatives were maniIested in
concern Ior this problem. They were option contracts and swap agreements. This objective is
essential Ior the company`s low Iares Ior the passengers. By taking hold oI the rising Iuel prices,
the company can continue having success.
Although JetBlue showed a lot oI promise, the stock was worth only $49 in the period
ending December 2007. JetBlue`s Iinancial revenues grew 185 between 2003 and 2007; the
growth in operating revenues reIlects both the increase in revenue passenger miles Ilown and a
modest increase in the average Iare. Their operating expenses grew 222 during the same
period. This revenue loss was attributed to jet Iuel (a 532 increase) and interest expense (a
658 increase). Because oI a conservative Iinancial strategy, JetBlue maintained strong liquidity
through the Iirst quarter oI 2008, and had one oI the highest liquidity coverage ratios oI major
airlines (Thompson et al., 2009 Custom Edition). JetBlue was successIul in obtaining new
equity capital and credit needed in 2008 to keep the company aIloat despite the setbacks.
~Discuss 1et Blue`s strategic elements of cost, organizational culture, and human resource
practices and evaluate whether each element provides the organization with a competitive
advantage.

Cost. Jet Blue is a discounted airline are oIIering low Iares, point-to-point systems, used
two types oI aircraIt, served only snacks, and maintained quick turnaround times at airports. Its
operating costs were low compared to those oI other U. S. airline companies. Jet Blue chose
newer airplanes, cutting down on maintenance and repair costs Ior the Iirst couple oI years in
operation. Jet Blue was one oI the Iirst companies to use inIormation technology to keep costs
down, hiring Iull-time reservation agents to work Irom home selling tickets over the telephone.
They paid attention to the little details that customers Iound special.
Organizational Culture. Ann Rhoades, HR Executive Vice President, helped JetBlue
implement a strong organizational culture. She believed that 'people can accomplish the
extraordinary when they are given the authority and responsibility to succeed. The company
achieved extraordinary results by implementing Iive steps:
1) Determine the company`s values saIety, caring, integrity, Iun and passion.
2) Make sure managers hire employees who mirror company values
3) Ensure the company continually exceeds employee expectations
4) Ensure the company listens to customers
5) Create a 'disciplined culture oI excellence
Human Resource Management Practices. Each year, JetBlue receives 130,000 resumes
Irom which 3,000 qualiIied candidates are hired. The Blue Review recruitment team siIts
through online applications, prescreens qualiIied candidates via telephone interviews, and invites
qualiIied applicants Irom the phone interview to an 8-hour event in Forest Hills, Queens.
JetBlue University was created, with campuses in New York, Orlando, Salt Lake City, Boston
and Long Beach. The University was separated into Iive disciplines: pilots, Ilight attendants,
maintenance crew, gate staII and reservation agents. JetBlue was known Ior paying employees
lower base salaries than its competitors, but made up Ior these diIIerences by oIIering health
coverage, proIit-sharing, and 4019k) retirement plans. JetBlue also had a no-layoII policy and
relied on downsizing through voluntary packages and attrition during diIIicult economic times.
~Discuss 1et Blue`s strategies for 2008 and beyond and evaluate whether or not 1et Blue
will be successful implementing these strategies.


As JetBlue experienced growth, their marketing strategy adapted to suit their and their
customer`s needs. Building a group oI loyal JetBlue customers, management created the 'True
Blue loyalty program to reward the airline`s most Irequent travelers. Rather than rewarding
customers with industry-standard 'miles, JetBlue created their own 'points system where trips
were classiIied into short, medium, or long haul trips based on distance Ilown. Each type oI trip
was then awarded a set amount 'points. For every 100 points earned, a 'True Blue member
earned a round-trip Ilight anywhere JetBlue served. As JetBlue gained market share, they Iound
a unique positioning where they competed with other low-cost carriers (i.e. Southwest, AirTran)
as well as major carriers (i.e. Delta, United, Continental). Amenities such as their live in-Ilight
television, Iree and unlimited snack oIIerings, comIortable legroom, and unique promotions
Iostered an image oI impeccable customer service that rivaled the major airlines while
competitive low Iares made them a threat to low-cost no-Irills carriers as well. (JBA, 2010)
In the Iirst 6 months oI 2008, the U. S. economy slowed and crude oil prices rose to a
record oI $140 per barrel. Jet Iuel prices skyrocketed as crude oil prices rose. Some airline
companies did not survive; JetBlue has survived by Iocusing on bringing humanity back to air
travel at low Iares. They Iocused on providing value, customer service, and unique extras Ior
customers that no other airline was oIIering.



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