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Managing the Growth of Jetblue Airways

Essay by   •  July 18, 2012  •  Case Study  •  1,308 Words (6 Pages)  •  2,588 Views

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Introduction

David Barger had to do something most newly appointed CEOs are never asked to do within 24 hours of their predecessor's resignation. He had to make a strategic decision that would change the future of the company. The company had recently decided that it needed to scale back operations in wake of the declining industry demand, but it was up to David Barger to decide how. Should he reduce the E190, a smaller, more efficient regional jet that represented the future of the company's growth? Or should he slowly retire the A320, JetBlue's principal aircraft that brought the company to its initial success?

The External Environment

A major economic event that affected almost every business in 2006 was the rise in the cost of fuel. Increasing fuel costs decreased the overall demand for transportation and forced many companies like JetBlue Airways to scale back operations. Unfortunately JetBlue had just purchased 23 new airplanes a year before. This provided the company with an even more complex decision on how to react to this decline in demand.

The Airline Industry

The airline industry was comprised of two major strategic groups. Legacy carriers such as Delta, Continental, and American held a long-standing presence in the industry and utilized the older "hub-and-spoke" method to operate their large, long-range fleets. Low-cost carriers (LCCs) such as Southwest Airlines represented a new strategic group that focused on shorter trips, a standardized aircraft, secondary airports, and a "point-to-point" method of operations to drive down airline fares. These two strategic groups represented the opposite ends of a mature, cutthroat industry but offered a unique opportunity for a company to create a strategic competitive advantage in between them.

The JetBlue Way

JetBlue Airways nestled itself right in between the these two groups as low-cost, point-to-point carrier that offered similar medium to long range flights as legacy carriers, but for 65% less. The company pursued Southwest Airlines' cost-leadership strategy and utilized a single-type of aircraft for its fleet in order to standardize training, maintenance, and scheduling. However JetBlue did not use the Boeing 737. Instead JetBlue introduced the Airbus 320 (A320), a medium to long range aircraft with a greater fuel efficiency than both the Boeing 737 and the larger aircraft utilized by the legacy carriers. The company also followed a product differentiation strategy and offered several amenities not available from its other LCC competitor Southwest. Leather seats, in-flight television, and assigned seating were just some of the luxury features offered by the company that separated it from its main competitor. JetBlue's four-year growth to over $1 billion in annual revenue made it clear that JetBlue's pursuit of an integrated cost leadership / product differentiation strategy was creating a competitive advantage.

JetBlue's success eventually led the company to seek out new markets to apply its expertise to. The company found the largest opportunity in the regional airports that serviced the larger airports in which JetBlue had already established its presence. JetBlue could reach an entirely new customer segment, realize synergies, and enhance revenue by offering regional customers the ability to fly JetBlue all the way to their destination. These smaller airports had been dominated for years by the regional airline subsidiaries of legacy carriers, but were limited by these carriers regarding the size of plane that could be flown at these airports.

JetBlue decided to vertically integrate into this market by purchasing a fleet of the brand new Embraer 190 (E190), a larger, more comfortable regional jet that offered a 12% greater range for 34% less than its regional competitors. The company also was able to design many of the comfort features of the E190 alongside Embraer since it was still in its design phase when aircraft was ordered. These actions created a significantly valuable, rare, and costly to imitate competitive advantage that was supported by the JetBlue's business structure. JetBlue then grew its fleet of E190s exponentially to achieve economies of scale and pursue further cost leadership.

JetBlue's competitive advantage did not come without a few organizational growing pains. Pilots of the E190 soon realized that their aggregate flight

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