JetBlue Case Study

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IntroductionJetBlue is a low-cost domestic airline launched in 1999 in the United States which follows a rather interesting combination of 'low-cost and differentiation' as its strategy. The core of JetBlue's strategy was low-cost achieved through a smaller and more productive workforce; automated processes; better use of technology; use of brand new single model planes that reduced maintenance costs and training costs at the same time. It had been the only other airline apart from Southwest airlines, to have been profitable during the aftermath of the September 11, 2001 attacks on World Trade Centre, and at a time when the entire airline industry was experiencing losses. After a few years of strong growth and continuous success since its origination, JetBlue transformed its ownership to become a public listed company in 2002. The process of this transformation is a complex and expensive business however, one can expect high returns and rapid growth that follows.

This report describes the process of going public by first explaining the importance and application of firm valuation. The second part of the report introduces the advantages and disadvantages of the transformation. The third part of this report summarises main methods of firm valuation which follows by the illustration of a valuation for JetBlue. In addition, to the process of going public and firm valuation, SWOT Analysis as well as Porters Analysis for JetBlue is also considered as these are necessary in determining current position and future direction of the firm.

One of the most vital determinations that every private and public firm must consider is its value. The principle behind firm valuation is to express its price in monetary terms taken into account the firm's assets, debt and equity. The value of the firm is not found in the financial statements because the value arises from expectations. These expectations lay in the future cash flows. Valuation of a firm is used for many applications. These are listed below:1.In company buying and selling operationsa.For the buyer, the valuation will tell him the highest price he should pay1.

b.For the seller, the valuation will tell him the lowest price at which he should be prepared to sell1.

2.Valuations of listed companiesa.The valuation is used to compare the value obtained with the share's price on the stock market and to decide whether to sell, buy or hold the shares1.

b.The valuation of several companies is used to decide the securities that the portfolio should concentrate on: those that seem to it to be undervalued by the market.

3.Public offeringsa.The valuation is sued to justify the price at which the shares are offered to the public1.

4.Inheritances and willsa.The valuation is used to compare the shares' value with that of the other assets.

5.Compensation schemes based on value creationa.The valuation of a company or business unit is fundamental for quantifying the value creation attributable to the executives being assessed1.

6.Identification of value driversa.The value of a company or business unit is fundamental for identifying and stratifying the main value drivers1.

7.Strategic decisionsa.The value of a company or business unit is a prior step in the decision to continue in the business, sell, merge, grow or buy other companies1.

8.Strategic Planninga.The valuation of a company or business unit is fundamental for deciding what products/business lines/countries/customers etc. To maintain grow or abandon1.

b.The valuation provides a means for measuring the impact of the company's possible policies and strategies on value creation and destruction1.

Firm valuation is the most important process for any ownership transformation. After the value of the company is certain, JetBlue has to go through the Going Public process in order to become a public listed company. This is explained below.

The Going Public processThe going public or the Initial Public Offering...
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