Crafting and Executing Strategy
Discuss the trends in the U.S. airline industry and how these trends might impact a company’s strategy
The airline industry is facing one of its most difficult times in history. A worldwide recession along with the terrorist attacks of September 11, 2001 have led to a decrease in passenger traffic, reduction in revenue and rising fuel prices. Additionally, airline companies face the increase competition from new entrants. The shortage of pilots has also caused problems for the airline companies.
In 2008 when the economy started to take a down turn, businesses began to cut back on employee travel, consumers were being more conscious about their spending. Airlines had to come up with a strategy by charging consumers for check bags, headphones pillow and blankets to increase revenues to offset high fuel prices. “The Airport Transport Association determined that each 1 cent increase in the price of a gallon of jet fuel cost the industry an additional $190 million to $200 million a year” (Thompson, Strickland, & Gamble, 2009, C-68).
New competition included Virgin America which is a low-fare carrier with a hub in San Francisco and administrative offices in New York City. It serviced flights between San Francisco and New York. It also operated 5 daily flights between San Francisco and Los Angeles. Another competitor was Newair & Tours based out of Canada.
According to Thompson, Strickland, & Gamble (2009) training schools were not providing enough schools for airline pilots. The airline industry needed 3,000 more pilots each year to make up for the shortage. The shortage was caused by thousands of pilots retiring every year. It was also caused by the lack of hours of first officers.
The airline industry has responded to this difficult environment by taking measures to restructure their strategy. If they do not restructure their strategy they will possibly go bankrupt. Discuss Jeb Blue’s strategic intent
JetBlue offered low fares, operated point-to-point systems, used two types of aircrafts, maintained quick turnaround times at airports and offered excellent customer service. JetBlue fares were considerably low compared to other airlines. For example, a flight between Buffalo and New York City was only $98. Other airline fares were around $600 roundtrip. JetBlue was able to provide such low costs because its operating cost was low compared to other airlines. In the first quarter of 2008, JetBlue’s total operating income totaled 12.77 cents per revenue passenger mile compared to 20.95 cents per revenue passenger mile for Delta.
Jeb Blue operated more than 550 flights a day and served 52 destinations in 21 states. It offered nonstop flights between Washington, DC and Boston; between Oakland and Fort Lauderdale; and between New York and Bermuda. “JetBlue was one of the first companies to use information technology to keep costs down. It operated open skies software to handle electronic ticketing, internet bookings, and revenue management” (Thompson, Strickland, & Gamble, 2009, C-59). JetBlue also had a high percentage of customers to book flights on its website. In fact, JetBlue lead the industry in website bookings.
JetBlue’s fleet consisted of the Airbus A320 and the Embraer 190. The Airbus A320 was more fuel efficient and cost less to operate than the Boeing 737. Since the Airbus A320 were new, maintenance cost were low. JetBlue states that, “We maintain one of the lowest cost structures in the industry due to the young average age of our fleet, a productive workforce, and cost discipline” (www.jetblue.com).
JetBlue provided excellent customer service to its customers. It partnered with Bally Total Fitness to offer in-flight yoga cards. Customers could perform yoga positions while seated. JetBlue partnered with Oasis Day spa to offer its customers private massages, manicures, and hair styling. It also partnered with Google Maps so that flights could be...
References: JetBlue. (2010) JetBlue. Retrieved from http://www.jetblue.com/phoeniz.zhtml
Thompson, A., Jr., Strickland, A.J. III, and Gamble, J. (2009). Crafting & Executing Strategy The Quest for Competitive Advantage Concepts and Cases. Boston: McGraw-Hill Learning Solutions.
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