JetBlue’s board promoted Barger to the CEO role in the wake of a highly publicized operational crisis in February that led to the cancellation of over 1,100 JetBlue flights and adversely affected the travel plans of thousands of passengers. Though numerous interviews and meetings during the past day allowed Barger to outline his vision for the airline, he realized that he needed to move quickly in implementing that vision to maintain the confidence of customers, employees, and shareholders.
Just a few miles outside Barger’s window was John Fitzgerald Kennedy (JFK) Airport, where JetBlue began operations as a low-cost carrier (LCC) in 2000 and, by the beginning of 2007, held a 30% share of domestic departures.
Looking beyond the construction site for JetBlue’s new Terminal 5—an $800 million state-of-the-art facility that was scheduled to open in the fall of 2008 and would offer 26 gates and a wide range of passenger amenities—
In late 2005, JetBlue added the E190 to its fleet, which was then composed exclusively of 85 A320s. This decision was a break with the traditional practice of many LCCs of limiting their fleets to one type of aircraft to streamline operations and reduce costs. JetBlue was in the simultaneously advantageous and risky position of being the launch customer for the E190.
By the end of 2006, JetBlue had 23 E190s in its fleet of 119 planes.
By late 2006 JetBlue, like other airlines, faced softening demand and higher costs due to increasing fuel prices. Barger played a large role in the airline’s decision at the end of 2006 to slow its rate of growth by reducing its purchase commitments for new planes.
In light of the operational challenges faced by JetBlue in February 2007, as well as the unabated rise in fuel costs (Exhibit 1), Barger realized that the airline would need to take further steps to slow its rate of growth. Though convinced JetBlue needed to decrease plane deliveries once again, Barger was not certain as to how these reductions should be distributed across E190s and A320s.
The E190 was a promising plane that presented interesting growth opportunities and challenges for JetBlue. At the same time, the A320 was a proven plane that served as the basis for JetBlue’s operations over the past six years and the company had developed a high level of comfort with it.
WHICH PLANE SHOULD HE reduce his purchasing on????
LCCs and the Airline Industry
The airline industry in 2006 included two groups of competitors: legacy carriers and LCCs.
Most of the best-known U.S. airlines, such as United or American Airlines, were legacy carriers, so called because of their long histories reaching back, in some cases, as far as the 1920s.
One part of this legacy was the “hub and spoke” system that characterized the operations of these companies. In this system, airlines created large “hubs” at specific airports where thousands of passengers were shuttled everyday to connecting flights (the “spokes”). The “hub and spoke” was pioneered by Delta Air Lines in 19551; it became increasingly useful to airlines in the turbulent years after airline deregulation in 1978 as a means to keep their costs low and protect their market share.
* By centralizing the transfer of passengers during long journeys across the country, such structures allowed passengers to travel between numerous destinations without changing airlines. * Some carriers also used hubs to dominate geographical segments of the market, as did Delta in Atlanta’s Hartsfield International Airport.
Despite the advantages of the hub-and-spoke model, this kind of centralization proved challenging if weather, maintenance problems, and air traffic delays interfered with flight schedules.
Emerging in Texas in the late 1960s, Southwest Airlines offered an alternative business model of air transportation. : LCC!!!!!!!!
In contrast to the...