78730119-Crafting and Executing Strategy

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CRAFTING AND EXECUTING STRATEGY 2

Trends in the American airline industry are enormous. Examples of these trends are

performance, prices of jet fuel, cheaper substitutes as compared to competitors, and excellent

security. The price of jet fuel is the key factor that an airline looks at while coming up with a

strategy. In the year 2012, the recent fuel price averages at around 129.7 dollars for every fuel

barrel. The effect that this years fuel bill has had on the global airline industry has gone up to

about 32 billion dollars. (Wensveen, 2010)

The Bureau of Transportation Statistics receives monthly reports regarding the causes of

delay and cancellation of flights. Delay and cancellation of flights has a disadvantageous effect on

performance; this means that an airline cannot perform on time. An airlines on-time performance

has many factors that include late arrival of flights, delay in carriers, extreme weather, security

check-point delays and equipment. Delays in air carriers are usually within the means of control by

an airline. Examples of these areas are baggage loading, maintenance and crew problems, fueling

and airplane cleaning. A flight that arrives late within one airline would cause a delay in the

connection of flights. Concourse or terminal evacuation, screening equipment malfunction, re-

boarding flights due to a breach in security, and long screening lines may also cause delay or

cancellation of flights. Other causes of delays and cancellation of flights are natural disasters like

tornadoes, hurricanes, and blizzards. Finally, delay in equipments includes heavy air traffic and

airport operations. (Wensveen, 2010)

Security in the airport is evolving on a continuous trend because of the high alert on

terrorism that was brought about by the September 11th

2001 attacks. Monte R. Belger who works

with the Federal Aviation Administration mentioned that the goal of such tight security in the

airlines is to prevent passengers, crew and the aircrafts from being harmed and to generally show

and give support to the security of the nation at large, and the counter-terrorism policy that the U.S


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formulated. Security measures in the airline industry were not so extensive before 1970, but after

the September 11th attacks, tight security measures had to be enforced. (Wensveen, 2010)

One significant impact to an airlines strategy is consumer knowledge. Such knowledge

helps an airline be well versed with consumer behavior. This means that an airline has to know

what the preferences of their consumers are and what criteria the consumers use in choosing an

airline. For example, consumers would choose an airline according to how much security they feel

the airline offers. This is so as to avoid getting harmed in case of a terrorist attack or a natural

disaster. Consumers may also choose an airline depending on how convenient the airline is. In

terms of convenience, consumers may look at the trend in how many times an airline cancels or

delays their flights. Finally, the consumers may choose an airline based on comfort, the pricing of

tickets, and the type of service they receive from the flight attendants/ cabin crew. (Dodds, 2007)

JetBlues strategy prior to 2008 was highly significant in the growth of the airline. The

delivery of a strong consumer experience is the key to a successful business. JetBlue was ranked

among the best airlines in consumer satisfaction in the US. This ranking was based on JetBlues

offer of cheap flights and traditional carriers. David Neeleman, the founder of JetBlue Corporation,

created the airline with the aim of offering excellent customer service and hence customer

satisfaction. He wanted to make air travel exceptional as he created profits for his corporation. He

also wanted his company to be known as an airline that provided low-cost flights as it offered

comfort and convenience as a traditional carrier. This comfort is provided by clean leather seats,

comfortable legroom for passengers and large overhead bins. Another strategy that the airline came

up with is that its pilots are provided with laptops, and do not use hard copy manuals like the

airlines competitors. Customer service was such a significant factor to the airlines growth that the


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airline had a policy of not cancelling any flights but delaying them in order to ensure that the

passengers reached their destinations. (Dodds, 2007)

David Neeleman also hired senior staff management cautiously- David Barger, was hired

as the airlines COO based on 10 year experience in the airline industry. John Owen was hired as

an Executive VP and CFO based on his previous work as a financial analyst at American Airlines.

Finally, Ann Rhoades was hired as an Executive VP in handling human resources. She was

experienced because she had worked at Southwestern Airlines as the head of People Development.

Finally, for the financial strategy, JetBlue launched first ceremonial flight to NY at $25

then $98 round-trip. Competitors were charging as high as $600 roundtrip. The airline even used

Mayor Rudolph Giuliani and Senator Charles Schumer as first celebrity passengers. This was a

way to attract new customers because it showed that the airline was comfortable enough to be

boarded by celebrities. The airline also introduced flight to Florida from JFK at $159, a price 70

percent lower than competitor prices. The airline saved costs via electronic ticketing. It employed

reservation agents who worked from home. This strategy was to help save on rent of office space,

paper tickets, mailing tickets. Finally, JetBlue expanded rapidly following the congestion at JFK.

The airline started operating away from JFK at Steward Field in Newburgh, New York and

Wechester County Airport. This strategy was convenient to their passengers who would then just

catch flights close home instead of traveling all the way to JFK. These strategies were successful

because while creating the airline, David Neeleman thought that his target market would only be

the people leaving around JFK, however, young, affluent professionals from Manhattan were also

attracted to the airline. In April 2001, JetBlue started its direct service between D.Cs Dulles

International Airport and Fort Lauderdale, Florida. This was the first time the companys operated

as a point-to-point carrier. In 2002 April 12th, JetBlue raised $182 million from its first public


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offering of stock. The airline sold 5.87m shares at $27 per share. In September 2002, JetBlue

acquired LiveTv LLC, its provider of in-flight entertainment systems. (Strickland & Gamble,

2003)

Just like any other business, JetBlues financial objectives were to maximize profits as they

created shareholder wealth. The airline was remarkably successful in its first five years of

operation. However, the airline failed to satisfy its stakeholders through delivery of value in the

fiscal year ending December 31 2007, just like its competitors and other airlines failed. The

airlines revenue grew from approximately 998 million dollars in 2003 to approximately 42, 842

million dollars in 2007. However, the large operating expenses that had increased by 222 percent

and the 532 percentage increase in jet fuel expenses overrode this revenue. In addition, the airlines

non-operating costs and interests grew to approximately 658 percent. JetBlue also has a long term

debt of about 46.2 percent of its total assets. The airline, therefore, formulated a strategy that

would help them deal with this issue. In 2008, JetBlue enforced a conservative financial approach

whereby the airline maintained larger liquid ratios as compared to its competitors. In the first

quarter of 2008, it listed approximately 713 million dollars, this sum having excluded

approximately 313 million dollars of investment securities. This strategy helped JetBlue emerge as

one of the few American airlines that made a profit during the financial crisis that the airline

industry faced after the September 11th attacks. The current financial reports show that JetBlues

performance is impressive and even better than its competitors. This implies that there is

sustainability in the airline. (Strickland & Gamble, 2003)

JetBlues strategic element of cost is that the airline offers low cost flights so as to attract

consumers. In 2008, the airlines total operating costs summed to approximately 12.77 cents per

revenue passenger mile as compared to Deltas (a competitor) revenue passenger mile of 20.95


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cents. The airline also keeps the element of cost low by buying new aircrafts that have a 5-year

warranty. In addition, the airline cuts costs via electronic ticketing. It employs reservation agents

who work from home. This strategy helps save on rent of office space, paper tickets, mailing

tickets. Finally, no meals are served aboard flights. Therefore, there is no restocking needed for

food, and there are no huge food expenses.

Ann Rhoades, the companys first executive VP of human resource helped the company

create a strong organizational culture. She based this creation on the belief that people can perform

best when they are given assigned responsibility and authority. Firstly, she helped determine the

JetBlues values. These values were caring, safety, integrity, passion andfun. These values were to

guide staff members in the decision making process. Safety was provided by healthcare through

Medaire Inc, caring was in the form of understanding and respect, integrity implied doing the right

thing, passion implied loving ones work and fun implied a friendly work environment. (Strickland

& Gamble, 2003)

For human resource practices, the companys managers were extremely selective when it

came to hiring employees. This is because they needed employees that would put their customers

needs and safety first. The criteria they used in this selection was that they asked all job candidates

to state what selfless deeds they had done in their lives. The employee needs were also highly

considered through the provision of healthcare and retirement plans. Finally, the human resources

ensured that customers were listened to and their needs put at the forefront. Employee and

customer feedback helped in the decision-making process.

JetBlues strategies for 2008 and beyond have made the companys managers confident

that the company will have a bright future. Such new strategies include cost cutting and capacity

reduction, reevaluation of the companys use of assets, offering improved services to customers,


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increasing ancillary revenues, forming strategic partnerships and raising airfares and growth in

target markets. To be successful in these strategies, JetBlue increased its net cash through the sell

of 9 of its used Airbus A320s. The company also delayed the purchase of 21 new Airbus A320s

scheduled for the year 2009 through 2011 to 2014 and 2015. This helped postpone payments and,

therefore, save on operating costs. Service growth was created by offering international flights

from Orlando to Cancun and between Orlando to Santo Domingo. Finally, the airline increased

airfares to approximately 138 dollars and still managed to offer low cost flights way below average

domestic fare of approximately 331 dollars. (Strickland & Gamble, 2003)

References


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Dodds, B. (2007).JetBlue Airways: Service Quality as a Competitive Advantage. Retrieved April

13, 2012, from www.cluteonline.com:

http://journals.cluteonline.com/index.php/JBCS/article/view/4863

Strickland, T., & Gamble, J. E. (2003). Crafting and Executing Strategy: The Quest for Competitve

Advantage. New York: McGrawhill.

Wensveen, J. (2010). The Airline Industry: Trends, Challenges and Strategies. Sydney, Australia:

The University of Sydney.

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78730119-Crafting and Executing Strategy