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CRAFTING & EXECUTING STRATEGY
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Trends in the U.S. Airline Industry
Operating as a low-cost airline in the United States, means that Jet Blue is susceptible to
trends within the U.S. airline industry. With recent changes in the industry and developing
trends, many different factors may affect Jet Blue in a potentially negative way. One of the major
trends seen in the U.S. airline industry is the rising cost of jet fuel. As the cost of crude oil has
risen over the past several years, so too has the cost of jet fuel. In fact, for Jet Blue alone the cost
of jet fuel increased by 532 percent between 2003 and 2007 (Rovenpor, and Michel). While
some airlines in the industry were able to offset the rise in cost some through hedging, the steep
price in fuel adversely affected the industry as a whole.
Other trends began because of the high fuel prices. Some of these trends included
airlines flying their aircrafts at higher altitudes or at slower speeds in an attempt to minimize
resistance and improve fuel efficiency. Additionally, modifications were made to aircrafts, such
as additions to wings or removing seats to reduce drag, as well as making new aircrafts of lighter
weight materials. Airlines also began using one engine, rather than two, to taxi on the runway,
began carrying less water to reduce weight, and engaged in “tankering” when planes are fueled
up where the jet fuel is less expensive.
In an effort to recover some of the additional expenditure which came with the rising fuel
prices, trends have also developed in regards to the charges levied on passengers. Fares
themselves were increased due to the increased expense of operation. In addition to increased
fares, throughout the industry passengers found themselves faced with fuel surcharges, as well as
fees for checked baggage, headphones, snacks, and other amenities which were previously free.
While the passengers absorbed some of the additional expenditure, the expense was also
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recovered partially through the reduction of ground staff and a decrease in compensation
packages for employees.
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Aside from the additional costs that had to be managed, there is an increasing shortage of
pilots. The pilots that have been working in the industry are rapidly aging and retiring, causing
the demand for new pilots to increase. However, the number of pilots being produced each year
is not enough to meet this demand, which is partially due to lack of instructors. With a shortage
of pilots, larger airlines have taken to offering enticing compensation packages, with better pay
and benefits, to woo pilots from smaller organizations. This has sparked the beginning of a trend
of higher labor costs that will soon play an important role throughout the entire U.S. airline
industry.
Jet Blue’s Strategic Intent prior to 2008
Jet Blue’s strategic intent prior to 2008 was to operate as a low cost airline that focused
upon “bringing humanity back to air travel,” (Rovenpor, and Michel). All efforts were made to
make passengers as comfortable as possible, all while keeping fares to hot destinations low.
Seats were made of leather, for both comfort and their ease of cleaning, while seats also had
entertainment screens installed for each passenger, allowing them to watch television in comfort
as they flew to their final destination. Jet Blue acquired LiveTV—the satellite company that
offered the inflight entertainment—to have greater control over the entertainment offering,
partnered with Google Maps for live tracking of the flight, and offered Dunkin’ Donuts coffee
onboard the flight.
Jet Blue also focused on keeping costs low and service good. Efforts were made to
minimize the company’s operating expenses per passenger. One approach was to pay their
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employees less than other airlines in the industry. Hourly wages were lower than those offered
by other companies. For instance, Jet Blue offered pilots $108 per hour, while their competitor
US Airways offered their pilots $134 per hour (Rovenpor, and Michel). However, Jet Blue
offered benefits to their employees, which exceeded those provided by competitors. Despite the
benefits being offered, this was still a cost savings for the company.
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Another approach was to place strategic focus upon the aircrafts utilized on their routes.
Rather than filling their entire fleet with the Airbus A320, they also added the Embraer 190 to
their fleet as well. The Embraer had fewer seats and was slightly more efficient than the airbus.
Therefore, it was more financially sound for the company to use plane with fewer seats that was
cheaper to fly for routes that did not have all seats sold on the aircraft. This again helped the
organization save on expenditure and pass these savings along to passengers.
Financial Objectives
Jet Blue’s initial financial objective was to provide value to shareholders. However, as of
December 31, 2007, they failed to do so. In fact, $100 invested in Jet Blue in 2002, was only
valued at $49 in 2007. While overall, Jet Blue failed to meet their financial objectives of
providing value, the company was able to increase their revenues throughout the years. In fact,
the growth in revenues showed an increase in revenue passenger miles. Failure to meet these
financial objectives came from the massive increase in expenses, due in part to the rising cost of
jet fuel. The company’s other operating expenses increased as well, but the cost of jet fuel
increased at a faster rate, thus having a greater impact upon Jet Blue’s bottom line.
It is also important to note that the airline industry as a whole, failed to perform
successfully during this period. Many airlines reported losses. Southwest Airlines, a low-cost
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competitor to Jet Blue, also posted a loss, but not as severe of a loss as Jet Blue. While Jet Blue
has implemented additional fees to offset the rising cost of fuel and other rising expenses, the
company needs to re-evaluate their pricing, expenses, and operations in order to achieve their
financial goals in the future.
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Jet Blue’s Strategic Elements
Many strategic elements are used by Jet Blue including cost, organizational culture, and
human resource practices. Each plays a role in the success of the organization as a whole. The
strategic element of cost helped attract passengers to the low cost airline. The low fares brought
customers back repeatedly, and was ultimately a major contributing factor to the success of Jet
Blue. However, this meant the organization operated at a lower profit margin than their
competitors did. Despite paying employees less, Jet Blue still had expenditures that drastically
ate into their revenues. Jet Blue’s expenditures resulted in lower profitability, with expenses
accounting for 94.1 percent of the company’s revenues, as opposed to Southwest, a competing
low cost airline, whose expenses only accounted for 92 percent of their revenues (Rovenpor, and
Michel).
However, Jet Blue’s organizational culture and human resources practices positively
contributed to the company’s strategic success. The company placed immense focus and
importance upon five key values—safety, caring, integrity, fun, and passion—with safety being
of the utmost importance. Shaping all decisions of the company around these values helped
provide strategic direction for the organization. Following these values were also essential in
order to put “humanity back in air travel.” Jet Blue’s human resource practices also followed
these values. The company focused on selecting candidates that embodied these values, even if
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other candidates had more experience. Jet Blue also ensured employees had the appropriate
training needed to be successful in their positions. These values were also realized in
compensation packages as well. Even though the company paid employees less, they still
provided them with decent benefits. By focusing upon the values desired within the company for
every practice and decision made, strategic direction was provided and these elements have
ultimately become a major factor in the success of the organization.
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Jet Blue’s Strategies for 2008 and Beyond
Jet Blue has not been immune to the economic struggles that were beginning to be
realized at the beginning of 2008—companies restricted travel, and the everyday consumer
looked to save money and have “staycations” as opposed to traveling via air for vacation. These
new trends were likely to affect Jet Blue, as well as the rest of the airline industry, in a major
way. With JetBlue already operating at relatively low profitability, a lull in revenues could be
devastating to the organization. Therefore, it was essential that the company establish strategies
in an effort to deal with new trends that were likely to rise.
One of the many strategies Jet Blue had implemented as of 2008 included signing
additional contracts for LiveTV to offer inflight entertainment for other airlines in the industry.
Another strategy employed by Jet Blue was to reduce capacity by selling some the aircraft within
their fleet, as well as delaying the purchase of other aircrafts. The company also reduced the
amount of time each aircraft was used on a daily basis. Additionally, Jet Blue suspended service
out of Columbus, Nashville, and Tucson, while it cancelled planned service between Los
Angeles and Boston and New York.
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The company also raised their fares, raising their average one-way fare from $98 to $138.
Additionally, the company has also begun imposing a call-center charge of $10 on customers
that book a flight on the phone or at the airport, $1 for headphones at the gate, $20 for a second
checked bag, and additional fees for seat with extra legroom.
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These strategies are likely to be sustainable and work to maintain profitability if
implemented correctly. Jet Blue has founded themselves upon their low prices and high quality.
By charging new fees, the prices charged to customers will increase. Successful implementation
of these strategies means that transparency is required. While consumers will have to pay higher
prices, understanding why these charges are being implemented and that they are necessary to
keep the airline afloat, will help with the acceptance of the increased prices. Additionally, as
long as Jet Blue is able to keep the charges to a minimum, as long as their overall prices remain
lower than competitors do, the airline will still be the low cost provider of choice.

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