JetBlue Case Study

Regaining Altitude after the Regaining Altitude after the Valentine’s Day Massacre Valentine’s Day Massacre of 2007of 2007

1. JetBlue Takes Off2. The Perfect Storm3. JetBlack and Blue4. Misery Loves Coverage5. The Redemption Plan6. Image Restoration Strategies7. Discussion Questions

AgendaAgenda

JetBlue Airways Launched Operations in 1999

Improbable Early Success Despite: Track Record of Start-Ups Since 1978 Barriers to Entry for Industry Newcomers

• High Fixed Costs & Volatile Expenses• Intense Competition• Industry Sensitivity to Economic Cycles

September 11, 2001

JetBlue JetBlue Takes OffTakes Off


““It is a business whose margins are It is a business whose margins are so razor thin that a couple of so razor thin that a couple of

passengers on each plane can spell passengers on each plane can spell the difference between profit and the difference between profit and loss and where a one-cent rise in loss and where a one-cent rise in the price of jet fuel can cost the the price of jet fuel can cost the

industry an added $180 million a industry an added $180 million a year."year."

– Airline Industry Expert Barbara Peterson

JetBlue JetBlue Takes OffTakes Off Founder/CEO David Neeleman's Vision

Bringing the "Humanity Back to Air Travel"• Paperless Ticketing• Extra Legroom and Wide Leather Seats each

equipped with a personal TV Screen• Satellite TV Feeds• "Customers" not "Passengers"

Q. How was JetBlue able to provide this relatively luxurious flying experience?

A. By using IS to automate key processes like On line ticket sales Baggage handling Paperless processes

A. JetBlue’s investment in IT enabled the airline to turn a profit by running business at 70% of the cost of larger competitors


A. JetBlue filled higher percentage of its seats, employed non union workers and established enough good will to score an impressive customer retention rate of 50%

A. Some good Business Strategies: Flew only one type of plane from one vendor

Airbus 320 Helped standardize flight operations and

maintenance procedures which resulted in considerable savings

CIO Jeff Cohen used the same simple-is-better strategy for JetBlue’s Information Systems


A. Some good Business Strategies: Cohen used exclusively Microsoft software

products to design JetBlue’s extensive network Information Systems

JetBlue’s reservation system and systems for managing planes, crews, and scheduling are run by an outside contractor

Using a single vendor provided a technology framework where Cohen could keep small staff and favor in-house development of systems over outsourcing and relying on consultants

JetBlue spent only 1.5% of its revenue on IT as compared to 5% spent by competitors


By the end of 2006, the company was operating 500 flights daily in 50 cities

Along the way, JetBlue committed to purchasing a new plane every five weeks through 2007, at a cost of $52 Million each.

Operating revenue for 2006 totaled $2.36 billion Represented 39% Growth Over 2005

By 2007 JetBlue Airways: Served 52 Domestic and International

Destinations Operated More Than 575 Daily Flights


The The Perfect StormPerfect Storm Q. What happened on February, 14, 2007 and what

wrong decisions were taken by JetBlue ? A. February 14, 2007 was a wake up call A. A fierce Ice Storm stuck the New York city area

that day A. JetBlue made a fateful decision to maintain its

schedule in the belief that the horrible weather would break

A. JetBlue avoided pre-canceling flights, while most other Airlines began canceling flights early in the day, believing it was the prudent decision even though the passengers would be inconvenienced and money would be lost

The The Perfect StormPerfect Storm Valentine's Day Winter Storm in Northeast

U.S. Deteriorating Weather Conditions at JFK

Airport Gridlock on the Tarmac Frozen Ground Equipment Delay in Calling Port Authority for Assistance

Problems with JetBlue Reservations Hotline Inaccurate Flight Info on JetBlue Web Site

Passengers Stranded Inside Planes Supplies of food and water ran low Toilets in the restrooms began to back up

Horror Stories• 9 JetBlue Flights Sat on the Tarmac at

JFK in Excess of 6 HoursHero Stories

• Pilots and Flight Attendants Get Creative

• The $360 Cab Ride

The The Perfect StormPerfect Storm

According to Passengers Stranded Inside JetBlue Planes

The The Perfect StormPerfect Storm

"This has been one of the "This has been one of the worst experiences of our worst experiences of our

lives."lives."

"It was like – what’s the name of that "It was like – what’s the name of that prison in Vietnam where they held prison in Vietnam where they held

[Senator John] McCain? The Hanoi Hilton.”[Senator John] McCain? The Hanoi Hilton.”

"They are right on the edge of "They are right on the edge of human-rights violations… They human-rights violations… They have no contingency plan at all. have no contingency plan at all.

When they say no frills, they When they say no frills, they mean it."mean it."

Lost Luggage Piles Up JetBlue Planes and Flight Crews Out of Place

Throughout the U.S. The "Reset" Plan Cancellations

1,200 between February 14-19 $20 Million in Lost Revenue $24 Million in Refunds and Vouchers

JetJetBlack and BlueBlack and Blue

The Primary Culprits Bad Weather Flawed Decision-

Making Inadequate Communication

Processes Overwhelmed Reservations System Lack of Cross-Trained Personnel

JetJetBlack and BlueBlack and Blue

Misery Loves Misery Loves CoverageCoverage

Media Interest in the Crisis 5,000 Phone Inquiries

Over Six Days Battling Misperceptions Concern on Wall Street Congress Comes Calling

"Call it the perfect storm, the imperfect "Call it the perfect storm, the imperfect storm, the Valentine’s Day Massacre."storm, the Valentine’s Day Massacre."– A JetBlue Vice President

The The Redemption PlanRedemption Plan

"This is going to be a different "This is going to be a different company because of this. company because of this. It’s going to be expensive. It’s going to be expensive. But what’s more important is to win But what’s more important is to win

back people’s confidence."back people’s confidence."– JetBlue Founder and CEO David Neeleman

Image Restoration Image Restoration StrategiesStrategies Shift the Blame to the Weather Reduce the Perceived Magnitude of the

Crisis Make Sincere and Repeated Apologies Compensate Customers Impacted by the

Crisis Take Corrective Action

Neeleman: Let's Issue a "JetBlue Airways Customer Bill of Rights"

Selected Key Publics Customers Impacted by the Crisis Unaffected JetBlue Customers Employees Shareholders Government

• Industry Authorities•Eager Legislators

Media

Image Restoration Image Restoration StrategiesStrategies

1. What types of Information Systems and Business Functions are described in this case?

A: Transaction Processing Systems

Ticket Sales, Baggage Handling Reservation System

Management Information Systems System for managing planes, crews & Flights Scheduling

DSS – No evidence of one ESS – No evidence of one Communication System – There was one, but it proved to be inadequate

Case Study Questions:Case Study Questions:

1. What types of Information Systems and Business Functions are described in this case?

A. Contd. There is no evidence of integrated systems like enterprise

applications, CRM etc.


2. What is JetBlue’s Business Model? A:

JetBlue’s Business Model is to provide luxurious flying experience at a very low price.

Simplicity was JetBlue’s Mantra It used a very lean, non union workforce Flew only one type of plane from one vendor allowing it to

standardize flight operations and maintenance procedures and streamlined its business processes to bare bones minimum.


3. How does its Information Systems support its business model?

A: Its Information Systems were simplified to a single vendor

that provided a technology framework in which the supporting staff could develop systems in house rather than use outsourcing or consultants.

JetBlue spent only 1.5% of its revenue on IT as opposed to 5% spent by Competitors


4. What was the problem experienced by JetBlue in this case? What people, organization and technology factors were responsible for the problems?

A: The real problem JetBlue experienced wasn’t with the

weather – that was only a contributing factor. The Real problems were:

Transaction Processing System was not scalable. The TPS JetBlue used was good for normal traffic and normal business conditions. – Tech.

Reservation System was not adequate to handle the increased no. of customers using it when the flights were cancelled. – Tech.


4. A: Contd. No MIS was available to manage crews – Org.. and Tech. Inadequate comm. System for crews to call and get new

assignments – Tech. and Org.. Lean Staffing – Org. and People No system in place for managing stranded, lost or

unclaimed baggage. – Org. & Tech. Web Site was not scalable to handle the additional traffic –

Tech. Lack of DSS for managing crew assignments – Tech. & Org.


5. What kinds of systems and functions were involved in JetBlue’s problem?

A. TPS : Baggage Handling, Reservations, CRM MIS : Crew Scheduling, Communications, Operations

Planning DSS : Crew Allocation, Aircraft Allocation, Flight Planning EIS : Weather Monitoring, Cancellations and Reallocation


6. What solutions did the Airline come up with? What other solutions can you think of that JetBlue hasn’t tried?

A. Solutions: The Airline purchased new software to improve comm. With

Pilots and Crew members It trained 100 employees from its corporate office to serve

as backups for Depts. that did not have enough staffing. It created customer bill of rights to enforce standards for

customer treatment and Airlines behavior. It changed its operational philosophy to accommodate

inclement weather situations.


6. A. Solutions: Contd. Recommendations: Increase the number and type of Info. Systems in the

company. DSS for crew management TPS for Baggage More scalable web site for reservations and customer

communications


7. How well is JetBlue prepared for the future? Are the problems described in this case likely to be repeated? Which of JetBlue’s business processes are most vulnerable to breakdowns? How much will customer bill of rights help?

A. JetBlue could experience similar problems in the next crisis

unless it ramps up its information systems The company prided itself on a lean and mean simplified IT

infrastructure Yet it is the very lack of infrastructure itself caused many

of its problems.


7. A. Contd. May be competitor’s are doing the right thing of spending

3.5 % more of their revenues on Information Systems / Technology. It’s necessary

Most of the same problems are likely to re-occur except perhaps crew management.

Business processes which are most vulnerable to breakdowns are Reservations, Baggage, Plane Maintenance and Communications.

The new customer bill of rights is a step in the right direction as far as sales, marketing and customer relations are concerned.

But it won’t mean much if the Airline does not create the proper infrastructure to support the policy in the next crisis.


Systems should be able to handle the crisis Information Systems should be ramped up as the

need grow IT Infrastructure should be adequate to handle

spikes in volumes More scalable websites for reservations and

customer communications Trained staff back ups should be available within

the Airlines Decision support systems for crew management,

transaction processing for baggage must be in place

In today’ context, better option is Cloud Computing

Lessons LearnedLessons Learned

Documents

JetBlue Case Study