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Teaching Note: Case 5 – JetBlue Airlines: Getting Over the “Blues”?
Case Objectives
1. To investigate the challenges of choosing an appropriate competitive strategy.
2. To examine how external and internal forces affect competitive strategy.
See the table below to determine where to use this case:
NOTE: There are both PRIMARY and Secondary chapters that can be used for this case. The
Chapter Use Key Concepts Additional Reading and/or
Exercises
PRIMARY
Strategy
Competitive strategy;
NOTE embedded video, Neeleman,
SECONDARY
Environment
Industry competition five
NOTE web links, stock price, video
3: Internal
Value-chain analysis;
4: Intellectual
Intellectual and human
6: Corporate-
Diversification; synergy;
Case Synopsis
JetBlue was a domestic airline in the United States with a geographically diversified flight
schedule that included both short-haul and long-haul routes. The mission of the company,
according to founder David Neeleman, was “to bring humanity back to air travel,” and become
America’s favorite airline. To stimulate demand, the airline focused on underserved markets and
As JetBlue grew, it made some changes. In February 2007, JetBlue joined an alliance with Aer
Lingus to facilitate easy transfers to both airlines’ customers, and signed a code-share agreement
with Cape Air for service to Cape Cod. In 2008, Germany’s Lufthansa acquired a minority equity
This turnaround was welcome. A disastrous storm on Valentine’s Day 2007 had exposed many
weaknesses in JetBlue’s operations and had a negative impact on the airlines’ reputation as well
as its financial performance. Founder and CEO David Neeleman had made a public apology and
Then, in 2014, the JetBlue board asked Dave Barger to step down to allow JetBlue’s current
president, Robin Hayes, to replace him. During Barger’s tenure, JetBlue was known for its
customer service, but operating margins had continued to be among the lowest of the U.S.
The answer appeared to be “yes”, as JetBlue was becoming a “hybrid carrier” model, in a niche
positioned between the ultra-low-cost and full-service network air carriers. By concentrating on
markets where it could become the top carrier, JetBlue was acting more and more like the big
Teaching Plan
The JetBlue case is a good example of how a firm can struggle to formulate and sustain a
competitive strategy. It also provides an opportunity to discuss how the external environment and
internal resources either support or challenge a firm’s choice of strategy – that strategic
The instructor can also position this case discussion with a sole PRIMARY focus on Chapter 5:
Business-Level Strategy, contrasting JetBlue to the Southest and Emirates cases – in discussing
choice of competitive strategy, students are encouraged to choose between low-cost leadership
and differentiation, but in the airline industry there is really no choice but competition based on
The instructor can also position this case discussion as a direct contrast to the Southwest case –
the Southwest story points out how careful attention to operational components is critical to the
effective implementation of a competitive strategy. The customer service differentiation
advantage touted by JetBlue may be misleading. In comparison to Southwest, for instance, many
For advanced students, the instructor may wish to assign Michael Porter’s 1996 article “What is
Strategy?” (Harvard Business Review, November-December, pp. 60-79) as companion reading to
Summary of Discussion Questions
Here is a list of the suggested discussion questions. You can decide which questions to assign,
and also which additional readings or exercises to include to augment each discussion. Refer
back to the Case Objectives Table to identify any additional readings and/or exercises so they can
be assigned in advance.
1. PRIMARY QUESTION: What are the components of JetBlue’s competitive advantage,
and what are the merits and demerits of these components?
2. SECONDARY QUESTIONS: What are key forces in the general and industry
environments that affect JetBlue’s choice of strategy?
3. What internal resources and assets does JetBlue have that may give it a competitive
advantage?
4. Is JetBlue’s competitive advantage sustainable?
Discussion Questions and Responses
1. What are the components of JetBlue’s competitive advantage, and what are the merits
and demerits of these components?
Referencing Chapter 5: Business-Level Strategy
How firms compete with each other and how they attain and sustain competitive advantages go
to the heart of strategic management. In short, the key issue becomes: why do some firms
outperform others and enjoy such advantages over time? The viability of a firm’s success is
A business-level strategy is a strategy designed for a firm or a division of the firm that competes
within a single business. Within the firm’s industry environment generic strategies include basic
●Overall cost leadership
oLow-cost-position relative to a firm’s peers
●Differentiation
oCreate products and/or services that are unique and valued
●Focus strategy
oNarrow product lines, buyer segments, or targeted geographic markets
Generic strategies are plotted on two dimensions: competitive advantage and strategic target. The
overall cost leadership and differentiation strategies strive to attain advantages industry wide,
In order to achieve a sustainable competitive advantage, JetBlue had to assess its ability to
contend with other airlines. The two bases of JetBlue’s competitive advantage were cost
JetBlue achieved cost leadership by attaining efficient operations. New planes minimized
maintenance and fuel costs, larger planes ensured more revenue per flight, longer hauls on an
However, JetBlue needed to be careful. Firms pursuing low-cost strategy generally get trapped in
focusing on too few of value chain activities, or lack parity on differentiation with competitors.
The other component of JetBlue’s strategy is differentiation. This is based on creating differences
in the firm’s product or service offering by creating something that is perceived industry wide as
unique and valued by customers. Firms may differentiate themselves in both primary and support
The problem with differentiation strategy is that differentiating features could be easily imitated.
Firms employing combination strategies should have a much stronger strategy to outperform
JetBlue employed a combination of these two strategies that, if successfully implemented, could
give it a distinctive competitive advantage. It combined low-cost services with a differentiated
offering. The company invested in technology for efficient operations right from its inception
Currently, the key activity appears to be JetBlue’s degree of differentiated service. The only
current differentiators JetBlue have are the LiveTV and inflight social networking, the extra
legroom, and the new planes with leather seats. These are all easy for other airlines to imitate. It
As explained in the chapter, competitive parity means a firm’s achievement of similarity or being
“on par” with competitors with respect to low-cost, differentiation, or other strategic product
characteristics. Competitive parity on the basis of differentiation permits the cost leader to
translate cost advantages directly into higher profits than competitors. Thus, the cost leader earns
Instructors can ask students if it’s possible to compete on differentiation in the airline industry. In
discussing choice of competitive strategy, students are encouraged to choose between low-cost
leadership and differentiation, but in the airline industry there is really no choice but competition
Although it might seem reasonable to pick one of the generic strategies and proceed, a firm’s
competitive strategy is also dependent on both the external forces it faces and the internal
resources available to it. JetBlue needs to do an analysis of both the general and industry
2. What are key forces in the general and industry environments that affect JetBlue’s
choice of strategy?
Referencing Chapter 2: Analyzing the External Environment of the Firm
Organizational leaders must become aware of factors in the overall environment that might affect
their ability to create a competitive advantage. So how do managers become environmentally
Environmental scanning involves surveillance of a firm’s external environment to predict
environmental changes and detect changes already under way. It is a BIG PICTURE viewpoint
Environmental monitoring is a firm’s analysis of the external environment that tracks the
evolution of environmental trends, sequences of events, or streams of activities. Leaders need to
What factors or trends might be most important to JetBlue? To assess how the external
environment might affect JetBlue’s strategy, it’s necessary to take a look at the factors in the
Political-Legal: Under the legal factors, the deregulation of the airline industry in 1978 provided
an opportunity to several players to enter the market. It allowed new market segments such as
that of the low cost, point-to-point services to emerge. It thus changed the industry landscape.
Economic: The airline industry is susceptible to upturns and downturns with the trends in the
economy. A growing economy and booming business mean greater demand for air travel, and a
slow-down in the economy means reduced demand, consequent unutilized capacity and
intensified competition. The availability of venture capital, and other capital sources have an
Sociocultural: The airline industry is highly susceptible to the extreme events such as the
September 11, 2001 attacks on the World Trade Center, and publicity surrounding any air
accidents. These create fears in the minds of customers toward air travel and have a severe
Technological: The emergence of Internet technology and other breakthroughs have had an
impact on the way the airlines conduct their businesses. For example, the Internet reduced the
It’s also necessary to assess the segments of the external competitive environment that include
Suggested:
the threat
of substitutes such as
car, limo, bus, train, is
short.
Porter’s Five Forces of Competition to the airline industry by drawing a diagram on the board
similar to the following, and having students fill in the details:
Based on the external environmental factor analysis, the airline industry has many competitors
trying to carve out a piece of the “profit” pie. Here are some details:
Threat of new entrants: The extent of threat due to new entrants is determined by how high or
Economies of scale. This did not work out well for the players in the airline industry. The hub-
and-spoke model developed by the major players, led to more of diseconomies of scale than
Product differentiation. Airlines try to create strong brand identification and customer loyalty by
using the frequent flyer programs. When there is strong brand identification, it forces the new
entrants to spend heavily on weaning away customers from the existing players, thus
discouraging their entry. However, in the airline industry the brand identification has not proved
Suggested: there
competitors; low
switching costs
for consumers.
Substitutes
Suppliers’
Power
High
Rivalry
Very High
Buyers’
Power
Suggested: there are only two
Suggested: there are low barriers
to entry, especially for the low-cost
Threat of
New
to be so strong as to prevent people from switching to other airlines. Some low-cost players are
trying to achieve some product differentiation (e.g., JetBlue providing more legroom, LiveTV at
each seat, etc., Southwest emphasizing commitment to customer service). However, these are not
Switching costs. There are virtually no switching costs for customers. The frequent flier
programs attempt to create switching costs. However, when the customers are presented with
Thus, the airline industry faces a high threat of new entrants particularly in the low-cost segment.
Bargaining power of suppliers is high when there are few suppliers in the industry, there are no
easy substitutes to supplier’s products, when the buyer industry is not an important customer of
the supplier group, the supplier’s product is an important input to the buyer’s business, the
Bargaining power of buyers is low as the buyers are not concentrated. While the buyer does not
have any switching costs, and there are several choices available, they still lack concentration.
Threat from substitutes is high when the distances traveled are shorter. In such cases, the
customer can choose to travel by land, by car/limo/bus/rail as they might prove to be cheaper
The intensity of rivalry among existing competitors in the airline industry is very high. There are
numerous competitors, and in times of low or moderate industry growth, the competition gets
fiercer as each one tries to nab customers from the other in order to keep their capacity
In addition, as described in the case, there were traditionally three segments to the U.S. airline
industry: major airlines such as the legacy carriers American, United and Delta, regional airlines
such as Sky West (based in Utah) and Cape Air (out of Barnstable, MA), and low-fare carriers
such as Southwest, Virgin America and Allegiant Air. Although JetBlue is identified as a low-fare
(See http://www.investopedia.com/features/industryhandbook/airline.asp for one source of
information on the industry.)
NOTE – ADDITIONAL WEB LINKS TO FINANCIAL DATA AND COMMENTARY,
INCLUDING VIDEO:
Use the tools available at this link to identify JetBlue’s stock price fluctuations over the last 5
years, compared to competitor Southwest Airlines: http://finance.yahoo.com/q/bc?
t=5y&s=JBLU&l=on&z=l&q=l&c=luv
More comparison between JetBlue and Southwest in early 2009 shows both airlines struggling:
http://www.centreforaviation.com/news/2009/06/08/jetblues-unit-revenue-icestorm-southwests-
prasm-tailspin/page1
And although JetBlue did post a rare first quarter profit in 2009, JetBlue said it is being helped
Some analysts liken the airline industry in 2009 to the automobile industry, calling both a
“meltdown”:
http://www.thestreet.com/story/10514020/1/meltdown-101-will-airlines-go-bankrupt.html
From the customer’s perspective, the carriers’ cost concerns and consolidation in the industry
have eroded expectations of customer service. From an analysis in 2015, the airlines with the
highest profit margins also have the lowest customer service scores, implying that “the more an
airline earns, the less it cares about service… The highest rated airline, JetBlue, with a customer
