In the recent past, one of the trends observed in the US airline industry is increased fuel cost (Thompson et al., 2010). Towards the end of the last decade, the world experienced fuel shortages. This was due to the uprising that were taking place in many of the Arab countries both in the Middle East and North Africa, which are the major producers and suppliers of fuel.. The shortage caused the prices of fuel to increase. According to Thompson and colleagues, in the year 2008, the cost of one barrel of fuel went up from US$50 to US$140. This dramatic increase in fuel cost led to increase in airlines’ expenses. As a way of offsetting the high fuel costs, many of the airlines started introduced new fees to their customers. The air ticket prices increased whereby the airlines introduced charges such as fuel surcharge, security surcharge, fee for snacks and drinks, fee for heavy baggage, as well as fee for using a pillow or a blanket inside an aircrafts. Although the fuel and gas prices have reduced, airlines are still charging their customers high prices. This is because of the unstable nature of fuel producing countries. The implication of this trend to JetBlue is increased expenses, thus reducing the company’s net income.
Shortage of pilots is another trend experienced in the US airline industry. Thompson and colleagues state that the baby boomers constitute a big percentage of the US airline workforce (2010). However, as many of the baby boomers reach their retirement age, the airline industry is experiencing workforce shortage, especially the pilots. This has led to increased demand for pilots, against the low supply. The low supply of pilots is due to the inability of flying schools to admit and train the required number of pilots every year. Studies indicate that every year, approximately 3,000 pilots are needed (Thompson et al., 2010). However, training resources available in flying schools can only accommodate around 2,000 pilots every year. Due to low supply of pilots, airlines have been forced to offer very competitive pilots’ remunerations in order to ensure that they attract the best pilots from the few that are available. The implication of this strategy to JetBlue is increased operating costs (remuneration to its pilots).
After the September 11 attacks in the US, increased air security has emerged as a trend in the US airline industry (Kaplan, 2006). Immediately after the attacks, the Congress passed a law, which created the Transport Security Administration. The Transport Security Administration introduced a number of security measures, which the companies operating in the airline industry had to implement. These include baggage screening procedures, biometric screening of frequent air travelers, limiting fluids in the planes, x-ray screening of computers and computer peripherals, armed pilots, and presence of armed undercover security personnel in all flights, among others. These security measures have had big financial implication to companies operating in the airline industry including JetBlue Airline. According to Kaplan (2010), since the September 11events, every year, the airline industry spends around US$6 billion in security.
JetBlue’s strategic intent prior to 2008 included offering discounted air services to its customers. Its intent was to appeal to the young and the wealthy people in New York (Dearman, 2009). JetBlue did this through introducing electronic ticketing that was convenient to the young and the wealthy people, as well as incentives such as in-seat television for its passengers. JetBlue’s strategy also included expanding its operations within and outside the US. The company was to achieve this through introducing flights to different destinations. Between the year 2003 and 2007, JetBlue had established 53 destinations (JetBlue, 2009).
Prior to 2008, JetBlue’s financial objectives included maximizing its profits through expansion. It therefore embarked on an ambitious expansion project (Dearman, 2009). However, between the years 2003 and 2007, the value of JetBlue stock dropped by a half. At the same time, its revenues grew with 185 percent between 2003 and 2007 while its expenses grew by 222 percent in the same period (Dearman, 2009). The company started recording losses, thus causing the value of its stock to drop. The high expenses were attributed to increased fuel cost and interest expenses. In order to solve this problem, the company took a conservative financial strategy where it maintained a high liquidity ratio than other airline companies. This strategy enabled the company to reclassify its securities from short-term assets to long-term investments. Presence of high-valued long-term investments enabled the company to raise new capital through equity financing. The company was able to obtain sufficient money to help it recover from the setbacks experienced (Dearman, 2009).
In terms of competitive advantages, JetBlue has a cost advantage over its competitors. This is because it offers low-cost air services. A 2008 survey of the airline industry revealed that the cost per revenue passenger mile for JetBlue was US12.17 while its competitors such as American Airline, Southwest, US Airways, and Delta Airways recorded US$18.18, 19.13, 21.45, and 20.95 operating expenses per revenue passenger mile for each company respectively (JetBlue, 2009). In addition, since the company started its operations in the year 2000, most of its planes are not old like those used by its competitors. This allows the company to enjoy low maintenance costs than its competitors.
The competitive advantage of JetBlue’s organizational culture is that its organizational structure is based on the company’s values: caring, safety, passion, integrity, and fun. Whenever the managers are hiring new employees, they ensure that they hire employees who mirror the company’s values. . During hiring of new employees, managers are allowed to use their creativity to be able to identify employees who mirror JetBlue’s values. Presence of employees who uphold the values of the company has helped JetBlue to maintain its culture of exceeding customers’ expectations. This strategy has helped the company gain competitive advantage through attracting and maintaining not only customers but also the workforce (Dearman, 2009).
In human resources, JetBlue recognizes and appreciates the efforts of its workforce. Recently, it entered into partnership with universities teaching aviation courses through a program known as Aviation University Gateway. Through this program, the company offers internship to potential students. Moreover, JetBlue opened a development center at Orlando where it provides its employees with an opportunity to develop their careers. These strategies have been successful in achievement of competitive advantage because JetBlue has been able to attract and retain some of the best pilots in the US labor market. Moreover, JetBlue’s employees are among the best and the most competent employees in the US airline industry (Dearman, 2009).
In 2008, JetBlue developed a strategic plan by the help of KR Consulting, LLC (Kelly, 2008). In the strategic plan, JetBlue intent was to cut down on operating costs, increase fares without causing a big financial burden to the customers, and increasing extra-ordinary revenues. In order to achieve this, the company entered into an agreement with Lufthansa, which enable JetBlue to use Lufthansa’s terminals at JKF International Airport. JetBlue also entered into agreement with Continental Airlines, which enabled both companies to provide live TV to their customers (Kelly, 2008). In order to reduce costs, the company increased its fares, although they remained below those of its competitors. It also introduced new methods of generating revenue such as fees for a second baggage and fees for selecting specific seats (Kelly, 2008). The company’s 2009 annual report indicated a positive financial performance. It was able to generate US$140 million more revenue than in year 2008 (JetBlue 2009).
Based on this analysis, JetBlue is likely to have a successful future. Its strategic plan (developed in 2008) demonstrated the company’s determination to achieve competitive advantages over its competitors through maximizing its revenues, reducing its operation costs, and controlling its capital expenditures. If the company is able to direct its efforts on the aforementioned aspects of its strategy, then it is likely to achieve the much-needed competitive advantages in the US airline industry.