JetBlue Launched Its Business With Thesis

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many of its rivals. Its high debt load contributes to its cost disadvantage. The corporate culture does not give it a competitive advantage. JetBlue's culture is easily replicated by any other airline and provides no particular benefit that the customer appreciates. They lag Southwest in this regard. The human resource practices work to make the firm functional, but again JetBlue does not do anything unique that adds sustainable value to the firm.

JetBlue's six strategies for 2008 were to "reevaluate the ways the company was using its assets; reduce capacity and cut costs; raise fares and grow in select markets; offer improved service to corporate travelers; form strategic partnerships; and increase ancillary revenues.

The company was able to make ground in strategic partnerships via its equity sale to Lufthansa, which required them to bring a Lufthansa executive on their board. This also represented a move towards redeploying key assets, including the JFK hub. The firm also was able to utilize its LiveTV asset better as well. The company reduced its routes and began to focus on Orlando and other vacation cities. Fares increased as well, although in the early part of the year the cost of jet fuel rose significantly as well. Other new service fees were introduced.

JetBlue has successfully implemented most of its six strategies. Whether these strategies will have a positive impact on the firm or not remains to be seen. The changes bring JetBlue's operations more in line with those of a legacy carrier, especially with regards to increasing both fares and ancillary costs to the customer.

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Beyond the massive increase in fuel prices, the company was unable to contain other costs in early 2008. Marketing, maintenance and "other" operating expenses all skyrocketed. This reduced their operating margin. Operating expenses overall increased 28% while revenues only increased 25%. The company's move towards a higher cost structure was met with lower load factors. The airline industry is subject to high price elasticity of demand, which makes it difficult for airlines to increase their prices, even when they themselves are subject to higher fuel costs.

Over the long-term, it seems that JetBlue will have difficulty sustaining their success. The company does not appear to have the pricing power that its management believed it to have. This means that margins will continue to be squeezed. The airline's poor performance in 2008 was also a direct result of their lack of fuel hedging for that year. The financial figures for late 2008, however, will show a declining fuel price environment and therefore may be healthier. However, JetBlue's overall strategy is that of a differentiated provider and they are finding it difficult to maintain either that or a low cost strategy. They appear to have committed the mistake -- especially with their 2008 strategic changes -- of being neither differentiated nor low cost. Their partnership with Lufthansa marks a move towards….....

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