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What does all this say about the industry, and JetBlue?
Regarding the airline industry, a 2007 article at The Motley Fool
http://www.fool.com/investing/general/2007/06/15/remove-that-clothespin-from-your-
nose.aspx said “Even Warren Buffett is skeptical about making money in airlines (he
should know from his experience with USAir). In a 2002 interview he was famously
quoted as saying:
If a capitalist had been present at Kitty Hawk back in the early 1900s, he
should have shot Orville Wright. He would have saved his progeny
You've got huge fixed costs, you've got strong labor unions, and you've got
commodity pricing. That is not a great recipe for success. I have an 800
Given the above, and the fact that it’s fairly easy to start up an airline, but hard to
consistently make money at it, what might be a good competitive strategy for
JetBlue to adopt going forward?
1. What internal resources and assets does JetBlue have that may give it a
competitive advantage?
Referencing Chapter 3: Analyzing the Internal Environment of the Firm
When one firm outperforms others by a wide margin over a long period of time, it’s
important to figure out how this could be. The answer may lie in how that firm arranges
Remember, value-chain analysis is a strategic analysis of an organization that uses value-
creating activities. Value is the amount that buyers are willing to pay for what a firm
provides them and is measured by total revenue, a reflection of the price a firm’s product
Every activity should add value. Take a look at Exhibit 3.1 to see the value chain
activities. Based on the relationships between these elements, JetBlue can make a choice
of how to proceed to craft a competitive advantage. See the following suggestions:
Value chain activity How does JetBlue create value for the customer?
Primary:
Inbound logistics (distribution
systems, warehouse layouts)
Web-based booking gives greater control on managing
Operations (efficient workflow
Paperless cockpit, no meals served, no paper tickets--all
Outbound logistics
processing)
New A320s are larger and more fuel-efficient. Less
Marketing and Sales (motivated
sales people, innovative
customer segments &
distribution channels)
Web-based ticketing as a distribution channel. Market
segment properly identified i.e., business travelers
Service (ability to solicit
customer feedback & respond)
Customers need to be informed of changes or
inconveniences. The Customer Bill of Rights providing
Secondary (or support):
Procurement (win-win
supplier)
Aircraft procurement plan to support growth. Increased
Technology development (state
personnel)
Investments in technology from the beginning of the
Human resource management
(effective recruitment, incentive
Non-unionized workforce (so far), reward systems such
as stock-option plans, profit sharing, innovative
General Administration
(effective planning systems to
establish goals & strategies,
Change of the CEO from David Neeleman to Dave
Barger in May 2007, then to Robin Hayes in 2014
signaled shifts here. Top management with expertise in
Primary Activities
In terms of primary activities, the key to JetBlue’s ability to successfully compete in the
market appeared to reside primarily in its operations. Having copied many of its
operational systems from Southwest, JetBlue was able to effectively control costs.
Support Activities
With regards to support activities, a competitive advantage can be achieved by
developing a strong general administration that is built around visionary leadership and a
supportive human resource, technological or external network of willing partners.
In addition, see the concept of the resource-based view of the firm, and the three key
types of resources: tangible resources, intangible resources, and organizational
capabilities. A firm’s strengths and capabilities – no matter how unique or impressive –
do NOT necessarily lead to a competitive advantage. The resource-based view of the firm
An important issue to focus on here is the importance of intangible resources like
innovation and reputation. Especially in mature brands, sustaining reputation is essential.
Look at resources that are controlled by JetBlue that might enable it to develop and
implement value-creating strategies. Based on their reading of the case, students might
identify those resources to include:
Tangible Resources:
Financial: Hard to reliably assess. Cost fluctuations in fuel and fees are hard to
Physical: New terminal at JFK, new planes, but questions remain about financing and
Technological: Doesn’t appear that these resources are any more developed than any
Organizational: Too early to assess Hayes’ affect on the organization.
Intangible Resources:
Human: Originally, this might have been a strength. Now union troubles, financial and
Innovation and creativity: Neeleman’s original vision for the airline – to “bring humanity
Reputation: Originally, JetBlue had a very good reputation – consistent travel awards –
but after the Valentine’s Day incident the reputation became tarnished. Now extra fees for
things like pillows may confuse customers. What does JetBlue stand for?
Determining whether the internal resources are valuable, rare, difficult to imitate, or
difficult to substitute (VRIN) can help a firm sustain a competitive advantage. See Exhibit
3.6. Applying the VRIN concept, in case of JetBlue, it is too early to say whether its
resources are inimitable. This is because there is not much of path dependency or causal
Referencing Chapter 4: Recognizing a Firm’s Intellectual Assets
See the concepts of intellectual capital, human capital, and social capital, all of which
are intangible assets that a company such as JetBlue needs to have in order to compete
successfully. Intellectual capital is a measure of the value of a firm’s intangible assets, its
Human capital involves the individual capabilities, knowledge, skills, and experience of
the company’s employees and managers. This knowledge is relevant to the task at hand,
as is the capacity to add to this reservoir of knowledge, skills, and experience through
Success in retaining human capital could also be attributed to the nurturing of the “social
ties” or social capital. Social capital is a function of the network of relationships that
individuals have throughout the organization and beyond. Relationships are critical in
Dynamic capabilities involve a firm’s capacity to build and protect a competitive
advantage, which rests on knowledge, assets, competencies, complementary assets, and
technologies. Dynamic capabilities include the ability to sense and seize new
opportunities, generate new knowledge, and reconfigure existing assets and capabilities.
Intellectual assets or intangible resources are critical to organizational success. The
growing importance of knowledge, coupled with the move by labor markets to reward
Human capital: does the organization effectively attract, develop, and retain talent?
Does the organization value diversity?
Social capital: does the organization have positive personal and professional
relationships among employees and alliance partners?
Technology: does the organization effectively use technology to transfer best practices
across the organization, codify knowledge, and develop dynamic capabilities for
competitive advantage?
Organizational Capabilities: Hard to say what JetBlue’s current capabilities are now.
Specific Competencies or Skills: Originally, JetBlue’s operations were its most valuable
competency. Barger seemed interested in operational controls and extending relationships
Capacity to combine resources: Analysts are frustrated – JetBlue should be able to use
2. Is JetBlue’s competitive advantage sustainable?
Referencing Chapter 6: Formulating Corporate-Level Strategy
Corporate strategy focuses discussion on the questions of what businesses a corporation
should compete in, and how the businesses should be managed so they can create
Diversification is the process of firms expanding their operations by entering new
businesses. In related diversification, a firm enters a different business in which it can
benefit from leveraging core competencies, sharing activities, or building market power.
Some possibilities include:
●Mergers and acquisitions
●Strategic alliances
Whatever the choice, it should create value for all stakeholders – employees, suppliers,
Companies can achieve synergy through diversification in two ways:
Through related businesses (horizontal relationships)
●Sharing tangible resources
Or through unrelated businesses (hierarchical relationships)
●Value creation derives from corporate office
Core competencies reflect the collective learning in organizations—how to coordinate
diverse production skills, integrate multiple streams of technologies, and market diverse
Sharing activities means that value chain elements are shared across business units, so
that two or more activities are done by one of the businesses. This allows for cost
Acquisition is the incorporation of one firm into another through purchase. It can be a
means of obtaining valuable resources that can help an organization expand its product
JetBlue was in an interesting position. It had carved out a niche for itself, competing
using a combined strategy, but was this enough for long-term growth? JetBlue at the end
JetBlue had so far relied on a hub-and-spoke model, using New York as the hub, but as it
expanded routes to provide a point-to-point service via code share arrangements, it was
NOT IN THE CASE: CEO Barger had said he was not interested in doing any
acquisitions, and he did not see JetBlue as a target for a buy-out offer, even though the
Luftanza deal had caused some speculation about this. Yet the airline had expanded into
Alaska and on the West Coast of the U.S., and there were multiple code share agreements
in place as of 2015. See http://www.jetblue.com/airline-partners/ Was JetBlue
diversifying or not?
Starting in 2014 JetBlue “will begin vying for big-spending business travelers” by
offering “lie-flat seats and private suites on transcontinental flights on the highly
competitive routes between Los Angeles and New York and San Francisco and New
York… the new seats added to Airbus A321 planes will have adjustable firmness, a
And as another example of how JetBlue was trying to add special “perks” to its service,
here’s a story from August 2013: “as the airline industry continues to put the squeeze on
luggage fees, US-based carrier JetBlue has launched a baggage delivery service that will
allow flyers to bypass the carrousel and proceed directly home or to their resort holiday.
Finally, the instructor can discuss a recap of the 2007 Bill of Rights incident, pointing out
customers, some of whom said they appreciated this. As congress has said, all airlines
Based on passenger’s traditional issues, such as leg room, baggage handling, and
effective communications, does JetBlue appear to have addressed the general concerns
Further regarding JetBlue’s activity system, and the importance of all mutually
reinforcing components’ affect on strategy, see the following graphic adapted from one
produced for Southwest Airlines:
JetBlue’s activity system - modeled after Southwest’s activity system
As in M. E. Porter. 1996. What is Strategy? Harvard Business Review, November-December, pp.60-79.
Also according to this article, the darker circles indicate the higher-order strategic themes. These are
Limited but
Lean,
e
Reliable
High
Short and
Brand
assigned
seating,
etc.,
No baggage
Limited
connections with
Quick gate
turnaround
Effective
Non-
implemented through the clusters of tightly linked activities which are in the lighter circles.
NOTE – this activity figure is not reproduced in the powerpoint slides. If the instructor
NOTE – ADDITIONAL READING, VIDEO INTERVIEWS WITH NEELEMAN &
BARGER:
JetBlue continues to rank highest in the J.D. Power Airline Satisfaction Survey
http://www.jdpower.com/press-releases/2015-north-america-airline-satisfaction-study
JetBlue has embraced social media. See JetBlue’s Twitter page at
http://twitter.com/JetBlue
The use of technology and marketing through social networking is an attempt to broaden
JetBlue’s appeal. However, most airlines, including JetBlue have begun charging for all
kinds of things like pillows, blankets, checked baggage, and new CEO Hayes announced
Regarding areas where JetBlue has stumbled with its competitive (dis)advantage, the
February 2007 ice storm in the Northeast created many problems for JetBlue’s passengers
Further investigation showed that these JetBlue customers could not use JetBlue to get
home to Sacramento. They had to pay to get an ATA flight to Chicago’s Midway, and then
a Southwest flight to Sacramento, California. JetBlue also lost their luggage… This kind
Do you think the existence of a bill of rights might have appeased these travelers?
Here is Neeleman’s video apology for the February fiasco:
https://www.youtube.com/watch?v=-r_PIg7EAUw&list=PL8F3BBDA63E013068
Do you think the learning and strategies outlined will be sufficient to prevent future
problems?
Business Week’s first ever ranking of the 25 companies who provide the best customer
service had Southwest in 13th place (the only airline on the list), and dropped JetBlue
from contention altogether based on their February 2007 customer service failure. Here’s
In May of 2007, when Neeleman was replaced as CEO, the thought was “he’s a great
entrepreneur, but perhaps one of those types who is much better at innovating than
CEO Dave Barger, in his first year on the job in October 2007, explained JetBlue’s
competitive advantages:
According to one analyst in 2012, “JetBlue isn’t immune to the industry’s bane: soaring
fuel costs. Ten years ago jet fuel cost an average of 71¢ a gallon; JetBlue now pays an
average of $3.15. Higher fuel costs represented 71 percent of its yearly increase in
operating expenses,” and JetBlue is planning on adding more routes attractive to business
Regarding the questions about whether JetBlue is positioned for being a buy-out target, as
of 2012, Barger doesn’t see acquisitions or mergers as an option. He believes he can grow
What do you think new CEO Robin Hayes needs to focus on the most?
Just as an ironic note, in 2008, after leaving the JetBlue CEO job, Dave Neeleman started
an airline in Brazil, Azul (“Blue”), using the Brazilian Embraer airliner, with the same
As of 2015, Azul was Brazil’s third biggest airline, and poised to raise additional capital
for expansion by selling shares in an IPO. Perhaps Neeleman was successful in Brazil
References
Porter, M.E. 1996. “What is strategy?”, Harvard Business Review, 74(6): 61-78.
