Jet Blue: A New Challenger

CASE DESCRIPTION The primary subject matter of this business policy case concerns the competitive strategy and background of a new, very successful airline -JetBlue Airways (JetBlue). The time frame of the case is from the firm's inception to the end of fiscal year 2002. The case has a difficulty level of four--five, appropriate for senior level undergraduates or first year MBA students. The case is designed to be taught in one seventy minute class and will require approximately two to three hours of outside preparation by the students. CASE SYNOPSIS JetBlue is a new, very successful low cost airline. In their first full year of operations (2001) they achieved a $32 million net profit on revenues of approximately $320 million. This is particularly notable in that the entire industry lost approximately $10 billion during the same year. JetBlue flies point to point routes--much like Southwest Airlines and offers distinctive service features -reserved seating, leather seats, seat back TVs (24 channels) and very customer oriented personnel. JetBlue, at least superficially, appears to be an example of a Low Cost Leader. In their initial foray into the New York to Florida market they offered ticket prices about half of the existing competitor's ticket prices and a serious focus on customer convenience--including such things as no mandatory Saturday night stay to get the lowest ticket price. All tickets are sold online or through a unique Salt Lake City reservation system. were the first airline to introduce electronic ticketing and their use of Information Technology is extensive. Jet Blue's founder--David Neeleman--is a young (43 year old) career entrepreneur with dyslexia. He is a practicing Mormon with nine children and prior to founding JetBlue had experience with two other airline startups. INTRODUCTION On February 11, 2000, JetBlue launched operations with its inaugural flight from New York's John F. Kennedy Airport to Fort Lauderdale, Florida. With $160 million in startup capital, David Neeleman, CEO and founder, was flying in the face of conventional wisdom. Since deregulation of the U.S. airline industry--mandated by Congress in 1978--the market had seen the demise of 87 new airlines due to cost pressures and unremitting competition. Neeleman was a young, successful entrepreneur with two prior airline startups under his belt. In 1993 Neeleman sold his first airline (Morris Air) to Southwest Airlines for $130 million. After a very short five month tenure with Southwest Airlines where Neeleman reports They (Southwest executives) were as sick of me as I was of them, he was fired and forced to sign a domestic non-compete agreement. Recruited by investors in Canada, he cofounded WestJet where he employed many of the tactics and strategy he had learned at Morris Air. Neeleman also created Open Skies (based in Salt Lake City) an accounting and reservation software firm serving the airline industry. In the late 90s Neeleman sold most of his interest in WestJet and began accumulating venture capital funding and regulatory permission to begin JetBlue. OPERATING STRATEGY JetBlue is a low cost, highly competitive airline, serving selected East Coast and West Coast markets. Aircraft are exclusively Airbus A 320s. These 162 seat planes have a slightly lower operating cost than Southwest Airlines' Boeing 737s and are equipped with leather seats and seat back TVs. No meals are served--even on transcontinental flights--thus saving the cost of meals and galley equipment. All planes in the fleet have been purchased new from Airbus and are decorated in a distinctive blue cabin interior. Two of the distinctive competencies are JetBlue's targeted gate turnaround time of 30 minutes and its choice of airports--generally away from the congestion of the major airports. JetBlue has a unique approach to personnel. All pilots, for example, are required to interview with top executives prior to being hired. …

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