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JetBlue Airways (JBLU)Stock (Airlines Industry, Transportation Industry)
 JetBlue Airways Co. (Nasdaq:JBLU) is a low-cost passenger airline who focuses on delivering an enjoyable, high quality flight experience at an affordable price. Incorporated in 1998, JetBlue is one of the airline industries youngest (the average age its fleet of aircraft is 3.2 years).[1] The company serves 53 cities and operates 550 daily flights.[2] JetBlue specifically targets high-fare areas where they can more easily leverage their low-cost/low-fare structure against the competition. JetBlue currently flies to 50 destinations in 21 states, Puerto Rico, Mexico, and the Caribbean. The company's operations are heavily concentrated in the cities of New York, Boston, and Washington D.C. Service to Los Angeles will begin in May 2008. Despite a minor loss from 1st quarter 2008 operations, JetBlue is running against the airline industry by continuing to expand operations and total passenger miles traveled. Albeit, this growth plan has been lowered to an expected rate of 3-5% from the 5-8% past projection. Their margins have not suffered nearly as much as the industry averages, and they continue to keep operating costs low. Unit costs to fly passengers, excluding fuel costs, fell 0.2% in the quarter.[3]
[edit] Strategy & Competitive Advantages[edit] Low Operational CostsJetBlue's strategy hinges on its ability to maintain operating costs lower than its industry peers. Since its inception, JetBlue has been successful in keeping a cap on costs; in 2006, its cost per available seat mile was ¢5.19, the lowest of all major U.S. airlines. Several strategies allow JetBlue to keep costs lower than industry peers: [edit] Efficient Aircraft UtilizationJetBlue is an industry leader in scheduling and deploying its aircraft fleet. By doing so, the company is able to spread its fixed costs over more flights which works to boost its operating margins. JetBlue employs a variety of tactics to get the most out of its airlines. It's efficient airport operations enable the company to minimize the amount of time an one aircraft remains on the ground. Additionally, the company runs "red eye" flights, which typically operate very late at night and fly from the West to the East Coast. JetBlue's efficiency and maximized use of its fleet resulted on an average operation time of 12.7 hours per day per aircraft, easily outpacing most other major U.S. airlines.  [edit] Low-Cost TicketingJetBlue also keeps a tight lid on costs by only using electronic tickets. Electronic tickets allow JetBlue to save costs on paper, postage and frees up time to boost worker productivity. Furthermore, JetBlue's purely electronic ticketing system allows the company to book its business primarily on its website www.jetblue.com, which translate into lower commission costs for travel agents. In 2006, 79% of the company's tickets were booked through the company's website, its least expensive form of distribution. [edit] Maximizing Workforce ProductivityJetBlue strives to get the most out of its workforce in the same way that it tries to maximize the use of its aircraft. JetBlue achieves industry leading worker efficiency through a variety of unconventional tactics. For example, it employees part-time employees much for effectively and extensively that its competition. Additionally, its sales agents work from home which allows maximized scheduling flexibility and happier more productive workers. The company constantly hunts for new ways to contain costs and boost efficiency while maintaining a high standard of quality. [edit] Aircraft Uniformity Unlike its larger rivals whose fleets are composed of a hodgepodge of different aircraft, JetBlue maintains a new fleet composed on only two types of aircraft: the Airbus 320 and the EMBRAER 190. By having two standard aircrafts, JetBlue cuts down on spending for training its pilots and its maintenance technicians which repair[[ the aircraft. Additionally, it has a smaller inventory of spare parts because the parts are interchangeable. Finally, newer aircraft tend to be more fuel efficient, an critical factor in an era of sky high fuel prices. [edit] Low Fares, High DemandThe second prong of JetBlue's strategy is to translate its low operational costs into low fares. With these low fares, JetBlue targets markets that have high average fares. By doing so the company seeks to capture more cost conscious travelers, particularly leisure and business travelers who travel consistently. In addition to this strategy, JetBlue has targeted new, mid-sized markets where it seeks to increase the frequency of flights to its existing primary airports. JetBlue is meticulous is identifying and moving on new market opportunities. The company conducts an analysis that compares historical passenger numbers, capacity and fares and only enters the market it sees increased demand due to lower fares and upside regardless of the response airlines in that market. In addition to this structure, JetBlue has recently added a plan to charge $20 for a second checked bag.[4] This will offset increased fuel for increased weight, while not punishing passengers who chose to pack light. [edit] Affordable Price, High Quality JetBlue's low fares are even even more attractive in light of its exemplar flight experience. JetBlue's self-proclaimed mission is to "bring humanity back to air travel." Since its founding, JetBlue has prided itself in the high quality of of its flight commonly referred in the company has the "JetBlue Experience." The JetBlue Experience entails customer friends employees, new aircraft, comfortable leather seats each with its own personalized television screen that offers 36 channels and XM satellite radio, free of charges. This unique entertainment experience may be in jeopardy, though. After record oil costs caused a loss of $8 million in the first quarter of 2008, JetBlue hired an adviser to explore the sale of its LiveTV unit.[5] In a complete change of direction, JetBlue used its LiveTV unit to make an acquisition. On June 9, the company announced that LiveTV had purchased the Airfone unit from Verizon. JetBlue hopes to offer internet access on its planes in the near future.[6] While openly opposed the declining quality of food that characterizes most of the U.S. airline industry, JetBlue offers high quality snacks and beverages. The company is constantly looking for new ways to improve its customer's experience; recently, the company decided to remove one row of seats from its A320 aircraft which gave its passengers between 36 to 34 inches of leg room, the most coach room among major U.S. airliners. Importantly, the company actively listens to its customers and response to feedback to provide a continually improving flight experiences. In order to quality service, JetBlue strives to stand out as the most reliable airline in the industry. In 2006, JetBlue completed 99.6% of its scheduled flights, the highest level of its competitors. [edit] Business Drivers[edit] CapacityThe total supply of available seats is a key driver of airline profitability, as it impacts carriers' ability to keep prices high. Seat supply is tracked as Available Seat Miles (ASM), the total number of available seats times the number of miles flown. All else being equal, as industry-wide ASM drops, airlines have an easier time raising fares and remaining profitable. As more capacity is added to the system, however, prices tend to drop dramatically. With a limited number of customers and an oversupply of capacity, carriers often cut fares to attract customers to fill what would otherwise be empty seats. Airlines' decisions to increase or decrease capacity create a prisoner's dilemma which has historically led to price cuts and has contributed to the difficulty airlines have remaining profitable. If all carriers were to restrict supply, prices would stay high and all would earn profits. However, as some carriers are restricting capacity, any individual carrier has an enormous incentive to increase it's own capacity, steal market share, and earn greater profits. but if all carriers were to behave in this manner, available seats would outstrip demand and the industry's profits would likely vanish as airlines compete to fill their planes with passengers. [edit] Importance of Capacity at the Regional LevelLarge carriers tend to focus on specific regional markets where they have high market share. For example, Delta Airlines (DAL) has XX% of ASM flying into and out of Atlanta, and JetBlue's largest markets are in New York, Los Angeles, Washington D.C. and Boston. Because airlines compete in some markets and not others, nation-level changes in ASM can be misleading. For example, if American Airlines (AMR) increases flights between Chicago and Dallas, that change is unlikely to affect JetBlue Airways (JBLU), which does not fly to either market. [edit] Factors Impacting Capacity: Mergers, BankruptciesWhen carriers merge or acquire, they tend to cut redundant flights, reducing capacity for the industry overall. As such, airline mergers tend to benefit the entire industry, not just the companies that combine. Airlines in bankruptcy proceedings often cut capacity in an attempt to reduce costs and return to profitability. This reduction in capacity can benefit the entire industry, so a single airline's bankruptcy can provide its competitors more room to maneuver. [edit] Recent Trends in CapacityOverall industry ASM fell 5% in the six months ending XXXX -- a potential harbinger of good times to come. The fall in ASM can be closely linked to radical changes affecting the airline industry. Recently, major U.S. airlines such as Northwest (NWA), Delta Air Lines Inc. (DAL), and United Airlines (UAUA) have emerged from bankruptcy with much lower costs and much keener strategies, often borrowing a page for their low cost rivals. As they consolidate these major airlines have reduced capacity dramatically while other carriers like JetBlue and Southwest Airlines Company (LUV) have seized the opportunity to grow aggressively, ordering new planes, increasing flights, and expanding into new markets. [edit] Customer DemandAirline profits are highly susceptible to economic downturns, terrorist attacks and other trends that can reduce passenger numbers. Fewer passengers is a double whammy for the airline industry -- leading to fewer filled seats, and fiercer competition for the remaining passengers which can knock down fare prices. News items highlighting geopolitical instability or a slowing economy can send the price of airline stocks tumbling. Despite this difficult environment, JetBlue managed to increase its total miles flown by passengers by 10.4%. Most of the industry, including United Airlines (UAUA) and American Airlines (AMR) reported year over year decreases in miles flown.[7][8] This may be evidence that an Economic Moat is currently developing around the JetBlue brand as they continue to increase market share.[9] [edit] Importance of business travel and route breadthBusiness travelers are attractive to airlines because they are less price sensitive than leisure travelers, and because business traveler demand is less cyclical than that of leisure travelers. For example, economic downturns may lead leisure travelers to cancel their vacation in the Bahamas, but business travel is impacted less dramatically. JetBlue with its high quality and reasonable prices has had a decent amount of success attracting these lucrative business travelers, particularly because of its point-to-point traveling system. However, JetBlue's limited route map and codeshare partnerships make it difficult for a company to use JetBlue for all its travel needs, and most companies choose a single favored carrier. [edit] Competitors
 JetBlue Airways2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available [edit] References
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