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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. 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.
The high cost of jet fuel led to the bankruptcy of some smaller airlines that were no
longer able to operate with such high expenses. Meanwhile, the high fuel prices also prompted a
trend of merging within the industry. One of the major mergers that resulted from the rise in fuel
prices was the merge between Delta Airlines and Northwest Airlines. In addition, 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. Other trends included making modifications 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
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themselves were increased due to the increased expense of operation. A prime example of this is
the average cost of a one way fare for Jet Blue increased from $98 at the time the company was
created to $138 in 2008 (Rovenpor, and Michel). In addition to increased fares, throughout the
industry passengers found themselves faced with fuel surcharges, as well as additional fees for
checked baggage, headphones, blankets, snacks, and other amenities which were previously free.
While the passengers absorbed some of the additional expenditure, the expense was also
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 trend in the
industry which will likely lead to a shortage of pilots. The pilots that have been working in the
industry are rapidly aging and retiring. As this happens the number of pilots is decreasing,
meaning the demand for pilots is increasing. However, the number of pilots being produced each
year is not enough to meet this demand, which is partially due to lack of instructors. This has
resulted in a shortage of pilots. 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 why keeping fares to hot destinations low. The
founder of Jet Blue wanted passengers to feel as though they were sitting in their den, when they
CRAFTING & EXECUTING STRATEGY
flew with Jet Blue. This was a major motivating factor in the design of the service and planes of
Jet Blue. Seats were made of leather, for both comfort and their ease of cleaning, while seats also
had entertainment screens installed for each passenger. This allowed passengers to watch
television in comfort as they flew to their final destination. The company took passenger comfort
seriously, acquiring LiveTV—the satellite company that offered the inflight entertainment to
have greater control offering televisions shows, movies, and music; partnering with Google
Maps for live tracking of the flight; and offering Dunkin’ Donuts coffee onboard the flight.
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Jet Blue was also heavily focused upon keeping costs low and service good. All efforts
were made to minimize the company’s operating expenses per passenger. One approach the
company took towards minimizing expenditure, which in turn allowed for lower prices, was to
pay their 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.
The company also focused upon cost savings by placing 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.
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Jet Blue’s Strategic Elements
There were many strategic elements used by Jet Blue including cost, organizational
culture, and human resource practices. Each of these strategic elements played a role in the
success of the organization as a whole. The costs charged to consumers was a strategic element,
which helped attract passengers to the low cost airline. Low fares are what brought customers
back time and again, and ultimately was a major contributing factor to the success of Jet Blue.
However, the focus upon low cost for consumers meant that the organization operated at a lower
profit margin than their competitors. Despite paying employees less than their competitors, Jet
Blue still had expenditures that drastically ate into their revenues, thus leaving the company with
less profitability. For instance, Jet Blue’s expenditures still 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. Additionally, these values were not only helpful
in providing strategic direction, but adhering to them was also essential in order to fulfill the
purpose of putting “humanity back in air travel.” Jet Blue’s human resource practices also
followed these values closely. Human resource practices used by the company focused upon
selecting candidates that embodied these values, even if there were other candidates who had
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more experience. Jet Blue also ensured that employees had the appropriate training needed to be
successful in their positions. When it was discovered that employees had been promoted but had
not been given the tools to succeed in their now positions, the company took it upon themselves
to retrain these individuals so they could be successful within the company (Rovenpor, and
Michel). These values were also realized in compensation packages for the company as well.
Even though the company paid employees less, they still showed employees they cared by
providing them with decent benefits as well. When employees expressed issues with being able
to find a provider in their area, Jet Blue offered a second type of insurance, to ensure their
employees were covered. 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
While Jet Blue has been successful, the company has not been immune to the economic
struggles that were beginning to be realized at the beginning of 2008. With the economy
slowing, companies were restricting travel, and the everyday consumer was looking to save
money and have “staycations” as opposed to traveling via air for vacation. These new trends that
were being realized due to the economic conditions 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.
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As of 2008, Jet Blue had many strategies in which it had implemented or was in the
process of implementing. One of these strategies included signing additional contracts for
LiveTV to offer inflight entertainment for other airlines in the industry. For instance, in 2008 a
contract was signed for services with Continental, while service was already being provided to
other airlines including WestJet, Virgin Blue, and AirTran. Another strategy employed by Jet
Blue was to reduce capacity. The company intended to do this by selling some the aircraft within
their fleet, as well as delaying the purchase of other aircrafts. The company also reduced
capacity by reducing 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 began to slowly raise their fares, which was a contributing factor to
their average one-way fare rising from $98 to $138. However, simply raising fares and the other
measures taken by Jet Blue would still not be enough to offset the lull in revenues and high fuel
prices. Therefore, 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. The company also started charging $1
for headphones at the gate, charged additional fees for seat with extra legroom, and began
charging a $20 for a second checked bag.
While the company has made every effort to remain a low cost airline that put “the
humanity back in air travel,” the strategies that have been implemented over the years have been
necessary for the survival of the organization. This is especially true in recent years with rising
fuel prices, increased competition from new entrants to the low cost airline market, and the
changing economic conditions.

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