Free Business Essays - International Business Strategy – A Case Study on: ‘JetBlue Airways: Neeleman’s Future Bet’
Question 1.
1. Conduct an Environmental Analysis (Five Forces Analysis as the chosen analysis method)
Understanding and being in touch with the environment of any organisation is critical to being able to function as an ever-changing organisation. Many of the forces for change an organisation experiences arise in the external environment. These come from customers, suppliers, competitors, technological advances, globalization of businesses, and the demands of different cultures and regulations established (Pieters & Young, p.23).
In a competitive environment, it is usually useful to perform the ‘five forces analysis’. With respect to understanding the broad aspects of the environment, the strategy is to search for opportunities to identify bases of advantages over competitors. Although the five forces analysis by Porter was designed primarily with commercial organizations in mind, it is of most value to organizations (Johnson and Scholes, p.108).
Key forces at work in a competitive will differ by type of industry. For the low-cost airline industry, new entrants with more commercial experience might be the central issue (Johnson and Scholes, p. 118). Sometimes, global forces are driving the way competitiveness is established in the low-cost airline industry such as the rising oil prices which are forcing some of the airlines to increase their charges.
The threat of entry to an industry will depend on the extent to which there are barriers to entry. Most of these are related to economies of scale, the capital requirement of entry, access to distribution channels, and cost advantage independent of size. There is also the expected retaliation, legislation or government action, and differentiation. In the low cost airline industry, it is easy to identify the factors which affect the barriers to entry of new low cost carriers (LCCs).
The capital needed by low cost carriers to enter the low cost airline industry is capital-intensive. It usually requires a huge investment. In the past, government deregulation of the industry in 1978 allowed new players to enter the industry. However, most were not able to sustain their business as major players took most of the market share and these new players had insufficient capital. Most of the major players in the entire airline industry are established players who know the market very well.
By today however, most of these major airlines were faced with different sets of economic problems which the LCCs easily took advantage of. The threat of new entrants was still relatively low because of the low fares being offered by established LCCs. Problems in the middle east (the war in Iraq and the Iran Nuclear dilemma) are continuing to discourage the entry of new players. In the future, LCCs would have been able to consolidate their hold on the low cost airline market thereby making it harder for new players to enter the market. At the same time, the reality faced by the world today with regards to world crude supply will continue to linger and continue to pressure the prices of crude products.
All organizations have to get hold of resources in order to be able to provide goods and services. The power of buyers is likely high when there is a concentration of buyers. It will be further increased when the supplying industry comprises a large number of operators. The power of suppliers would be high when there is a concentration of suppliers than a fragmented source of supply. Sometimes, if the brand name is powerful, there is a risk that the organisation would not be able to do without it.
The threat of substitutes may take many forms. There could be a product-for-product substitution, substitution of need, generic substitution, and even doing without. The availability of substitutes can place a ceiling price for an organisation.
Organizations need to be concerned with the extent of direct rivalry between themselves and competitors. There are questions like ‘what is it based upon’, or ‘is it likely to increase or decrease in intensity’. The extent to which competitors are in balance can be one of the forces which affect competitive advantage.
Prior to the deregulation of the airline industry, there were a number of major players who are catering both to the international and domestic market. In 1971, the low cost model was started by Southwest airlines. During this time, stiff competition was mostly brought about by the major players engaging the LCCs. After the deregulation of the airline industry in 1978, competition started to heat up further with the entry of new players in the LC industry. In the heat of the competition, big players were able to gobble up the smaller LCCs in the process. At present, the competition is still high as existing LCCs are continuing to consolidate their advantages over the other. In the future, competition is expected to be more intense as major players fix their finances and return to the fold to compete with the international market and with the LCCs while existing LCCs consolidate their competitive edge and engage the major players possibly in the international front.
2. Competitive advantage
Competition is a crucial fact of life to most organizations operating in a commercial environment like the airline industry (Palmer, 2002).
The value chain analysis has been widely used as a means of describing the activities within and around an organisation, and relating them to an assessment of the competitive strength of an organization. The two basic steps of identifying separate activities and assessing the value added from each were linked to an analysis of an organisation’s competitive advantage.
The primary activities of the organization are grouped into five main areas: inbound logistics, operations, outbound logistics, marketing and sales, and service. Each of these primary activities is linked to support activities such as procurement, technology, human resource management, and infrastructure.
Inbound and Outbound logistics
JetBlue was able to lobby for exemptions for additional 75 slots at John F. Kennedy (JFK) airport. With this strategy, JetBlue was able to avoid the hubs for major players and at the same time, was able to target nineteen million New Yorkers who lived within a sixty mile radius. JetBlue was able to maximize and take advantage of the current infrastructure of JFK.
Aside from JFK, Neeleman chose the Long Beach airport (LGB) instead of opting for the crowded Los Angeles airport (LAX).
This strategy allowed JetBlue to target six million potential customers within the 20 miles of LGB and 16 million people living in Los Angeles. It was also able to avoid the hubs of the major players and at the same time, lower airport and gate rents.
This strategy has the potential to explore both worlds of the logistics issue. Using a busy, highly developed airport like JKF and a less crowded airport like LGB can provide Neeleman with the needed experience and data to further device strategies and innovation.
JetBlue uses a single aircraft type from Airbus Industrie. Most of these are A320s which are more technologically advanced and more fuel efficient. With this strategy, it was able to reduce the need to stock up on spare parts and at the same time, spent less time and money on pilot training of other aircraft types. This approach however, may limit the organisation’s ability to engage the expertise of other airline makers like Boeing. Despite its potential for adding value to the company in terms of support and other services from Airbus Industrie, it would be to the disadvantage of the JetBlue once Boeing introduces a more advanced, good for short destination planes that can be acquired at a lesser cost that other LCCs can take advantage of.
JetBlue University (JBU), a centralized training department provided the company new opportunities to further improve on the different aspects of its service offerings. It was to be based in Orlando, Florida. Centralizing the training program through this tie-up with New York University (NYU) can further add value to the entire training process by helping preserve the culture of the company. This could also help the company sustain its competitive edge.
Operations
JetBlue’s base of operations was primarily founded on the need to tap new markets in previously untapped areas of the United States. Its operations are likewise influenced by the presence of major airlines. Its fuel hedging program provided additional savings for the company.
JetBlue does not provide meals during their flights but instead provided their passengers with “all you can eat” snacks. Their pilots and technicians are equipped with laptops in order to have ready access to updated flight manuals and other documents. These strategies have added value to the operations of the company as it speeded up the need to access information. It has enabled the company to concentrate their expenses, services and add further value to the in-flight comfort of their passengers which is not centered on what food is served.
Marketing and Sales
One of JetBlue’s marketing strategies was to emphasize on customer service as evidenced by the different marketing awards it garnered in 2002 and 2003. Its own marketing department survey surprisingly found out that the number one reason people recommend airlines to their friends is its service. Most first-time passengers chose the plane because of word of mouth. Because of this, JetBlue made some dramatic approaches which defined customer service to a new level. The use of “above humane” strategies (for soothing customer problems and complaints has helped the company add value to their marketing efforts and has also made it easier for them to attract new customers and retain others. The use of technology and the Internet has provided new avenues for reducing marketing and sales costs.
3. Analyze Results
Based on the company balance sheet from 2001 to 2003, Cash and Cash Equivalents increased from period 2002-2003 than period 2001-2002. Short Term Investments increased from period 2002-2003 than period 2001-2002. Net Receivables increased from period 2002-2003 than period 2001-2002. Inventory increased from period 2002-2003 than period 2001-2002. Other current assets increased from period 2002-2003 than period 2001-2002. Total Current Assets increased from period 2002-2003 than period 2001-2002. Accounts Payable decreased due to probable payments or over payments. Short/Current Long Term Debt increased due to additional borrowing. Other Current Liabilities increased due to additional borrowing. Long Term Debt increased due to additional borrowing and could prolong the life of the business. These are signs of strong performances by the company.
Net Income applicable to common stockholders increased due to net earnings in the two periods. Interest Expense is negative due to probable advance payment. There was also a noted increase in the volume of passengers. Sales and Marketing costs decreased due to probable decrease in advertising.
While most of these measures indicated that the company has been performing strongly, it was noted that other assets increased and this could be brought about by some assets being reclassified. This is considered a weakness because if assets are restricted, they could be lost in the future.
In reality however, the turnover fluctuated due to probable increase in expenses that failed to compensate even with additional ticket sales. The fluctuation of the number of days tickets' sales could be due to over prepared flights and probably some flights that failed to materialize in any way due to certain circumstances.
The rhetoric about the “JetBlue Effect” was probably over hyped. Giving such rhetoric might probably be a marketing strategy aimed at young workers and travelers. The figures about advanced tickets actually being lower by the 30% to 40% as compared to industry standards might be difficult to validate considering that it is quite a big difference. Again, there are questions about the sustainability of JetBlue’s promotional airfare capability in the long run.
4. Business and Competitive Strategy
JetBlue has been distinctively known for low fares and low charges. It has selectively used technology to its full advantage and focused more on improving customer service. For example, it collaborated with IBM and rolled out 150 self service kiosks which allowed their customers to check-in, select, or change their assigned seats. It saw to it that flights are never overbooked so that it won’t inconvenience their customers. It has introduced the TrueBlue Frequent Flyer Program for its frequent flyers. It uses the trademark color blue from its tickets to its planes’ tailfins.
JetBlue’s sustainable competitive advantage comes from its unorthodox customer treatment and its capability to invest on their well-being. Its innovation strategies are still customer-centric. It has installed bulletproof Kevlar doors and titanium bolts in its entire fleet. Even with these investments coupled with low fares, it has managed to survive the competition.
5. Culture and Architecture
In the Goffee and Jones cultural model, solidarity is the degree to which people think in the same ways, sharing tasks and mutual interests. Sociability comes from mutual esteem and concern for ones colleagues. The main driving force in making decisions is emotion and social concern..
Positive sociability is people helping one another to succeed. Negative sociability is covering up for other people and tolerating poor performance in the name of friendship or ‘saving face’. The double-S model is a two-by-two matrix that identifies four cultures, depending on high and low solidarity and sociability.These four cultures are networked, communal, fragmented, and mercenary. Each of these four cultures arranged in a two-by-two matrix have different levels of solidarity (high or low) and sociability (high or low).
Jet blue has a communal culture. A communal culture displays high solidarity and high sociability. It has highly visible corporate symbol (the trademark “blue” color). The workforce can identify with the Jetblue core values (in safety, caring. integrity, fun, and passion). In a communal culture, there is focus on face-to-face communications. In JetBlue’s working environment, every newly hired person met the CEO, the heads of operations and human resources on their first day on the job. Training programs for the customer service include operational training as well for all the group of employees. One of their core values is to embrace a healthy balance between work and family, typical in a communal culture where the work attitudes of its employees are the same as living.
There was a need to maintain the feel of a small organisation and a strong company culture. The company saw to it that its employees are happy and of course, satisfied. Hierarchy was downplayed by eliminating titles. Different work schedules were developed. The core values of the company have emboldened the organisation to accept innovation and change as part of their overall strategy. These are company values which they needed to be identified with and be able to share this with each other. It has provided them avenues to create some form of distinctions and innovations. Eventually though, compensation issues and other labor related matters will begin to pose challenges and provide obstacles to possible organizational changes.
6. Innovation and Learning
Neeleman’s experience as an aviation industry veteran helped his vision for more investments and consolidation of his hold on a large segment of the LCC market. So far, JetBlue’s track record of innovation and adaptation is good but its ability to sustain and create new room for adaptation remains to be seen in the long term. To date, aside from offering very competitive fare rates, it has managed to differentiate itself in another dimension in the LCC competition by design innovations in its plane designs, uniforms, and tickets. Their marketing strategies are also adapted to the realities of flying after the September 11th attacks. They are always open to the idea that there is no such thing as a perfect security (terrorists and other extremist may eventually find flaws in airport security structures and may attempt some form of attacks) and that prevention on their part is better than relying on other organizations to provide for them.
It did not bother to compete with the majors because it knows that since these established players are in the red, it would be doubly hard on them to make any difference in their adaptation. Their adaptations to emerging economic, socio-political, and environmental challenges are centered on capitalizing on their current competency (a high quality, a low budget airline) and various innovations in order to stay competitive.
JetBlue shows that it can also step on the brakes in order to slow down its aggressive growth. Its strategy of not opening a lot of new flight destinations blanketing the country too rapidly but instead added flights between existing destinations shows that it knows how to adapt to emerging uncertainties.
Perhaps, it’s about time that they take innovation to another level. Although various innovation strategies are working to their advantage, the need of the times will eventually call for newer and more radical and economical innovative approaches. Global oil supply concerns should give them a hint that things are not expected to get better in the foreseeable future. Maximization of their resources should take into consideration the conservation of fuel. Fuel conservation strategies should also take into account possible disruptions of supplies in the event of attacks in oil facilities in the Middle East.
JetBlue’s commitment to safety, security, and high standards are driving and stimulating the company’s various learning (JBU) and innovation strategies. It has the passion to overcome barriers to good service and look for innovative solutions to business problems and issues. The company’s track record in stimulating the environment where it entered is phenomenal. Proof of this is that it had one of the highest load factors in the industry (LCC) with an average of 82% of its seats filled in the years 2001-2003. It was also able to convert drivers on short haul routes to fliers because of additional services at a much lower cost and at a much more convenient and faster manner for them to travel.
7. Strategic Issue
The business environment is constantly changing. Nutt (1992, p.42) takes the view that strategy tends to emerge from a stream of choices made by key people in an organization. According to this view, strategies are realized than created. Neeleman’s vision for JetBlue is already seen as the company’s strategy.
Even if JetBlue has been profitable all these years, it is still not free from future problems and challenges. In fact, analysts are worried about its ability to maintain its low costs and maintain growth with the current woes being experienced by other major airlines. Major events in the Middle East and global oil supply concerns might eventually force JetBlue to increase costs.
It might encounter labor problems later on. The stock option for its workers may eventually lead them to unionize to be able to bargain for better remuneration packages (as compared to owning stocks which are declining in value). There is also the concern that JetBlue’s aggressive growth strategy (through the increase in its fleet of planes) may eventually eat up the company’s gains and profit and further lower the revenue available per seat. Also, it was beginning to show signs of slowing down its search for possible operations (as denoted by adding only one new destination city in 2003 as compared to 19 cities in 3 years of operations).
There is a saying that the tree that bears the most number of fruits gets stoned more often than the less productive ones. This saying applies to JetBlue. It is now the target of other major and small players in the US airline industry because they saw the available opportunities at hand. There could be more troubling for JetBlue once these major airlines improve on their financial capabilities.
These challenges and emerging business issues should encourage JetBlue to consolidate its hold on the market. It has the capability to match whatever other players can offer: ability to offer low-fare, improve and innovate on customer service, add new planes to the current fleet, and add new flight destinations.
However, if these major players could target JetBlue’s market, then it could also try to target the international market. Given its track record of innovation, it would be possible to move up and give the major players a good and decent fight. This could however, be a risky move as it would likely, according to US analysts, weaken its ability to maintain its competitive advantage.
8. Strategic Options
At the rate the industry is taking shape, there are issues related to available resources, acceptability, consistency, effectiveness, and sustainability of strategic options facing the company. How will it sustain the big number of planes in its fleet if labor and oil problems are encountered? How will it be able to keep a tight grip on its market hold?
At any rate, the company should continue on its growth strategies using its available fleet which is consistent with its core values. It should continue to increase its flights in order to add capacity to saturate the market and force their competitors to look somewhere else. While maintaining its presence in the its area of existing flight destinations, it should start exploring opportunities of acquiring other smaller LCCs in order to leverage available and existing resources. This strategy might be able to preempt any moves of their competitors to target them. At the same time, it should start planning ahead on how to employ predatory pricing in the international market so that it can slowly gain a foothold on this area.
Question 1:
Growth can sometimes be sudden that it can already cause additional problems. It can serve as a magnet for competitors to plan strategies to be able to eat up a slice of the company’s market share.
JetBlue has the capability to bankroll a lot of projects (plane acquisitions, kiosks, etc) even if it offers a very competitively low airfare. This growth strategy of JetBlue has worried some analysts because it can affect the revenue available per seat mile. At the same time, it would be doubly hard for JetBlue to continually operate on a low-fare platform in the event of untoward incidents in oil producing countries or even a shakeup of the industry. On top of this at present, its labor force is not unionized. There is the potential however, of the company workforce to unionize once the value of company stocks continue to dip. In this case, its workforce will be forced to bargain for a higher compensation package in place of stocks which would mean sourcing out for additional revenues later on. With the growth in the number of fleets and the costs associated with it, the only way for the company to sustain its employees’ satisfaction is to increase its airfare and eventually, lose out some loyal customers to other new players which are capable of doing what JetBlue previously did.
Neeleman has already responded to the intensification of competition by placing orders for a hundred new Embraer 190 100-seater aircraft. This was quite a deviation from its single aircraft policy. With this strategy in place, it would likely have to restructure its stock room of spare parts and provide additional expenses for pilot training.
There are elements which would likely be affected by high growth strategies. Sustaining the need to satisfy the needs of passengers would likely be difficult if growth strategies are centered on purchasing aircrafts. On the other hand, the purchasing of new aircrafts might have been a direct response to threats of new entrants, and low cost subsidiaries of major players. Perhaps, these planes were needed in order to support the need to increase the number of flights between point to point destinations and eventually, make it harder for new players and major airline subsidiaries to compete and regain control of the LCC market.
The growth of the entire airline industry is always affected by a lot of global factors such as trade barriers, landing rights, terrorism, and surging oil prices. This has made aggressive growth strategies quite risky and even hasty. It would have been better if these factors are considered first before embarking on aggressive strategies.
Question 2a.
One option would have been geographic expansion into less fiercely competitive environments. This strategy is like fighting two wars on two fronts: one where there is a consolidation and strengthening of forces while the other would be on planning on new deployment of forces. This would send a signal to competitors that JetBlue is capable of maintaining its stronghold on its own market while at the same time, opening up new fronts for new areas of competition. It would also allow JetBlue to purchase airplanes based on the need to have them and not on the need to immediately embark on an aggressive marketing strategy which might eventually backfire.
Question 2b.
There is some form of similarity between the two given options. Both might or might not be acceptable at all. Acceptability as an issue connotes agreement to organizational values, environment, and culture. These two options are basically pitting two issues against each other. One issue has something to do with confronting fierce competition by engaging in aggressive growth strategies and stretching too far while the other has something to do with a employing a more softer but calculated stance towards fierce competition. For an organisation like JetBlue, it is highly unlikely that analysts or even the members of the organisation would accept such aggressive action on the part of Neeleman considering that it JetBlue has record of going beyond industry trends (on the normal course of airplane orders). Caution usually has to be thrown at this kind of strategy considering that the industry is vulnerable to different kinds of shock. Imagine how the organisation would react if those orders (planes) were delivered and the prices of oil surges to record highs! At the same time, the workers would suddenly demand new compensation schemes on top of their existing low pay. Should there be a need to reduce the number of flights on a certain destination, how will the planes be managed and further utilized?
It would also be helpful to note the case of People Express Airlines where the inability to manage aggressive growth has eventually lead to disaster. The industry is not exactly in a high growth area. A fair and careful approach to emerging threats to competitive advantage is still the acceptable growth strategy which might be good for the entire low cost airline industry. In the event that JetBlue is able to capitalize on these new plane orders, there is still the possibility that it might not be able to handle the rapid increase in volume. At this rate, there is a valid reason why analysts are still skeptical about the acceptability of such aggressive strategy. If it is forced too early on, the company will eventually find itself in a crowded space with no space to maneuver on.
