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OUTLINE

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					OUTLINE
 INTRODUCTION            MARKETING ANALYSIS
 KEY STRATEGIC ISSUES    STRATEGIC ANALYSIS
 KEY THREATS &           FINANCIAL ANALYSIS
  OPPORTUNITIES           MANAGEMENT TEAM ANALYSIS
 INDUSTRY ANALYSIS       PROPOSED STRATEGIC PLAN
 PORTER’S COMPETITION    BIBLIOGRAPHY
  ANALYSIS
 INTERNAL STRENGTHS &
  WEAKNESSES
INTRODUCTION
 Founded in 2000 by David Neeleman, a successful airline
  entrepreneur from the 1990s
 Went public in spring of 2002 from $27 to $45 on the first day
 2002: Owned 20 jets, 16 cities, and 108 daily flights
 2011: Owned 160 jets, 63 cities, and 650 daily flights
 Market Share: 2.2%
 Average Stock Price: $4--$5
 Skytrax Rating: 4 stars
 One of the only non-union staff among major US airlines
STRATEGIC ISSUES
   Operates in an extremely competitive industry
   Highly dependent on the availability of fuel and subject to price volatility
   Significant amount of fixed obligations and will be incurring even more fixed obligations
    that could harm JetBlue’s ability to service the current or future fixed obligations
   Substantial indebtedness may limit JetBlue’s ability to incur additional debt to obtain
    future financing needs, especially because of global credit crisis
   Political and economic instability pose risks associated with JetBlue’s presence in
    some of the international emerging markets
   Recent changes to labor laws has made unionization easier to achieve, which may
    create work stoppages, slowdowns or increased labor costs
   Aircraft utilization rate that keeps the costs low also makes JetBlue vulnerable to
    domino-effect delays
   Highly dependent on electronic and internet-based systems, which any failure of these
    would immediately harm JetBlue
   Maintenance costs will increase as average age of the aircraft grows and warranties on
    the parts expire
  KEY THREATS & OPPORTUNITIES
OPPORTUNITIES                              THREATS

Corporate Profit Increase                  World price of crude oil
Inbound trips by non-US residents          Recession - decrease in air travel
Technology advances = cost savings         Terrorist attacks and increase in
from more fuel efficient aircraft          security
Changes in perceptions - Price-            New government regulations and tax
sensitive customers
Insurance (Equitime) providing             Compliance with future environmental
war/terrorism risk insurance               regulations
protection for participating US airlines

Bankruptcies and consolidations            Outbreak of a disease or an
                                           environmental disaster
INDUSTRY ANALYSIS
Major Industry: Airline
Segment: Domestic mainline services/regional airline services/International
Process: Air freight service/scheduled domestic air transport
Firms in industry in 2011: 345 (contracting by an estimated 2.8%) per year
History/Background:
 The passenger airline industry in the U.S. has traditionally been dominated by the
  major U.S. airlines
 Major airlines = $1 billion revenues = 12 airlines
 Deregulation of the U.S. airline industry in 1978 = emergence of Low-cost airlines;
  competition on many routes for the first time; Southwest
 Since September 11, low-cost airlines have been able to fill a significant capacity
  void left by the traditional network airline fight reductions.
 Due to the restructuring, the difference in the cost structure and competitive
  advantage previously enjoyed has diminished.
  INDUSTRY ANALYSIS
 Life Cycle Stage     Decline     Regulation level       Medium
Revenue Volatility     High      Technology Change        High

 Capital Intensity     High       Barriers to Entry       High
    Industry          Medium    Industry Globalization    Low
   Assistance
Concentration level   Medium      Competition level       High
INDUSTRY ANALYSIS
Industries’ life cycle: Declining
 Industry participation is falling through a decline in the number of firms,
  establishments and employment. Major change - after the September 11.
 Services offered are clearly segmented/stable.
 Per capita passengers numbers are falling
Environmental dynamics of the industry: competitive
 The principal competitive factors are as follows: fares, customer service, route
  serviced, flight schedules, types of aircraft, safety record and reputation etc
 Low-cost airlines have increased the level of price competition in the industry.
 Substitutes
Industry Efficiency
 Capacity utilization: fewer aircrafts/code-sharing
 Industry profitability: profitability in the domestic airlines industry is highly volatile.
COMPETITORS
Market Share (domestic)
 Delta Airline Inc (15.2%)
 United Continental Holdings Inc (14.8%)
 Southwest Airlines Co. (10.8%)
 AMR Corporation (9.7%)
 US Airways Group Inc (7.0%)
 JetBlue (2.2%)
PORTER’S 5 FORCES
 INTERNAL STRENGTHS AND WEAKNESSES
Strengths                           Weaknesses

Marketing                           Cautious about growth

Customer Service                    Costs are fixed

Commitment to employees/customers   Management inconsistencies


Costs in check                      Destinations in big cities

Their people is their competitive   Macroeconomic factors
advantage
STRATEGIC ANALYSIS
Pursuing growth while staying small
 CEO Neeleman defines small as maintaining a homey, corporate culture that
  centers on customer as VIP and is sustained by core values
Southwest Airlines is the Model
 Both carriers fly point to point, offer one class of service, hire extroverts, and
  make funny commercials
Acquisition
 Sept. 2002 JetBlue acquired LiveTV LLC
Minority Stake
 March 2008 Deutsche Lufthansa AG announced an agreement to acquire 42
  million newly issued common shares = 19% stake in JetBlue
Rights Issue
 June 2009 JetBlue announced a public offering of 23 million of its common
  share at a price of $4.25/share
COMPETITIVE STRATEGY
People + Strategy = Growth
Customer Service
Differentiation
 Differentiates itself from Southwest model: flies internationally and
  offers reserved seating, Direct TV, and unlimited free snacks
 Business model is not easily duplicated
 Rely on people as a fundamental way to do business
MARKETING ANALYSIS
Product
 Model: primarily point-to-point route
 Locations: 63 destinations in 21 states, Puerto Rico, and eleven countries in the
  Caribbean and Latin America
 Focus cities: Boston, Fort Lauderdale, Los Angeles/Long Beach, New York/JFK, and
  Orlando
 Average number of flights per day: 650
Promotion
 You Above All
 $55 million ad cost (2010) (SW:$204M; US Airways:$11M)
 Target: primarily leisure; and more increasingly business
 Media: traditional media (i.e. newspapers/TV/billboards) + mobile marketing + social
  media = promoting brand awareness and complementing strong word-of-mouth channel
 JetBlue Experience: Award-winning customer service, newer aircraft, roomy leather
  seats with the most legroom in coach, free DirecTV, free XM satellite radio and premium
  movie channel, unlimited brand name snacks/beverages, free wireless, Customer Bill of
  Rights
MARKETING ANALYSIS
Pricing
 focus on providing differentiated customer service at a competitive fare, with options to upgrade
  the in-flight experience
 Yield/Passenger Mile: 11.28 cents (SW: 13.29 cents; US Airways: 13.52 cents)
 Revenue per passenger: $102 (SW: $119; US Airways: $118)
Place (Distribution)
 Jetblue.com is the single biggest distribution channel (75% of customers)
 Global Distribution Systems (GDS): computerized system used to store and retrieve information
  and conduct transactions related to air travel
 Online Travel Agents (OTA) - Expedia, Travelocity, Orbitz, and Priceline
Positioning
 Best domestic coach/providing customers more value for their purchases/maintaining a low
  cost structure
 Well-Positioned in the Northeast, Caribbean and Latin America
    JFK accounted for 40%+ of all domestic passengers; Boston accounted for 20%
    23% of its capacity was in the Caribbean and Latin America; and keeping growing
                                                                         12 Months Ended
Consolidated Statements of Operations (USD $)
In Millions, except Per Share data                            Dec. 31,                     Dec. 31,
                                                                         Dec. 31, 2009
                                                               2010                         2008
OPERATING REVENUES
Passenger                                                     $ 3,412       $ 2,934        $ 3,060
Other                                                          367            358           332
Total operating revenues                                       3,779         3,292          3,392
OPERATING EXPENSES
Aircraft fuel and related taxes ($39, $34, and $45 in 2010,
                                                               1,115          945           1,397
2009, and 2008, respectively)
Salaries, wages and benefits                                    891           776           694
Landing fees and other rents                                   228            213           199
Depreciation and amortization                                  220            228           205
Aircraft rent                                                  126            126           129
Sales and marketing                                             179           151            151
Maintenance materials and repairs                               172           149            127
Other operating expenses                                        515           419            377
Total operating expenses                                       3,446         3,007          3,279
OPERATING INCOME                                               333            285            113
Total other income (expense)                                   (172)         (181)          (202)
INCOME (LOSS) BEFORE INCOME TAXES                               161           104           (89)
Income tax expense (benefit)                                    64            43             (5)
FINANCIAL AND RISK ANALYSIS
Financial Strength   2008    2009    2010
Cash ($ millions)    561     896     465
 Working Capital     -119    377     275
  ($ millions)

  Current Ratio      0.89    1.33    1.25
 LT Debt/Equity      226.9   188.9   172.3
    Ratio (%)
  FINANCIAL AND RISK ANALYSIS

Ratios (%)   2008     2009      2010

Gross PM     55.0     66.8      65.9

Op. Margin   3.2      8.7       8.8

Net Margin   -2.5     1.9       2.6

ROA          -1.5     1.0       1.5

ROE          -7.4     4.3       6.1
   FINANCIAL ANALYSIS
5-YEAR AVERAGES                                KEY FINANCIAL RATIOS
Return on Equity                       1.5%    Current Ratio          1.25
Return on Assets                       0.3%    Quick Ratio            1.21
Return on Invested Capital             0.5%    Cash Ratio             0.43
Gross Profit Margin                    40.2%   Total Asset Turnover   0.57
Pre-Tax Profit Margin                  1.5%    Receivable Turnover    44.99
Post-Tax Profit Margin                 0.6%    Debt Ratio             0.75
Net Profit Margin (Total Operations)   0.6%    Profit Margin          2.57%
SG&A as a % of Sales                   27.3%   Return on Equity       6.10%
Debt-to-Equity Ratio                   2.15    Return on Assets       1.47%
Total Debt-to-Equity Ratio             2.39
   COMPARISON TODAY VS THE INDUSTRY
Ratio               JetBlue     Industry

5 Yr. Growth Rate   11.63%      6.84%

Quick Ratio         1.00        1.00

Current Ratio       1.20        1.20

Total Debt/Equity   1.79        1.14

Interest Coverage   1.70        3.90

Revenue/Employee    $446,499    $345,529
MANAGEMENT TEAM ANALYSIS
Chief Executive Officer, President, & Director:
    David Barger
   1998 to 2007: JetBlue Chief Operating
    Officer
   1988 to 1998: Various management &
    director level positions at Continental
    Airlines
Chief Financial Officer & Executive Vice
    President: Ed Barnes
   Joined JetBlue in 2006 as Vice President of
    Cost Management & Financial Analysis
   Held senior financial leadership roles in
    different industries, as well as Southwest
    Airlines & America West Airlines
MANAGEMENT TEAM ANALYSIS
Chief People Officer & Executive Vice President : Joanna Geraghty
   Joined JetBlue in 2005 as Associate General Counsel and Director
    of Litigation and Regulation
Responsible for ensuring that crewmembers have a voice and are valued,
    appreciated and understand their role in the company’s success
Chief Commercial Officer & Executive Vice President : Robin Hayes
   Joined JetBlue in 2008
   Responsible for revenue, network, sales and marketing strategy
   Previously served as Executive VP of the Americas for British Airways
Chief Operating Officer & Executive Vice President : Rob Maruster
   Joined JetBlue in 2005 after his 12-year career at Delta Air Lines
   Responsible for the safe and efficient delivery of the JetBlue
    Experience on every flight
 PROPOSED STRATEGIC PLAN
Invest in Research and Design
 Invest cash in R&D to continue developing/purchasing fuel efficient
  planes. Oil prices so volatile that can cut into revenue
Compose cost-benefit analysis of adding flights to and from Dallas and
   Atlanta
 Atlanta biggest passenger airport in the US. Expand services into
  metropolitan cities.
Expand International Destination and Arrival Cities
 Look to add more cities in Central and South America as well as
  Canada. Become a well established brand internationally
  PROPOSED STRATEGIC PLAN
Market Special Deals during peak travelling times
 Create deals and market them for a short period of time during peak
  traveling seasons.
 Continue and promote fare alert program on website
Continue enhancing True Blue Program
 Build on customer loyalty and capture greater market share
Senior Management Stability and Restore Investors Confidence
 Investors react strongly to changes in senior management
Keep Costs and Fees in Check
 JetBlue one of the few airlines that offers free first checked bag
BIBLIOGRAPHY
   Stoller, G. (2011). Fliers happier with airline service, but not fees, fares. USA Today,
   Gunther, M. (2009). Nothing blue about this airline. Fortune V. 160 No. 5 (September
    14 2009) P. 114-16, 118, 160(5), 114-116.
   How I do it. (2011). Marketing News V. 45 No. 3 (March 15 2011) P. 30, 45(3), 30.
   Neeleman, D. , & Ford, R. (2004). David neeleman, ceo of jetblue airways, on people +
    strategy = growth. The Academy of Management Executive (1993-2005), 18(2), 139-
    143.
   Fiorino, F. (2002). Jetblue pursues growth while staying ‘small'. Aviation Week & Space
    Technology V. 156 No. 23 (June 10 2002) P. 41-3, 156(23), 41-43.
   Bisignani, G. (2006). Airlines. Foreign Policy, 22-24,.
   Samadi, N. (2011). Ibisworld industry report 48111b; domestic airlines in the us. Taking
    off: Travelers will return o the skies, but competition and high fuel costs will cut into
    growth, Retrieved from http://0-
    clients.ibisworld.com.opac.library.csupomona.edu/industryus
BIBLIOGRAPHY
   Taub, S. (2007, November 12). Jetblue hits air pocket after cfo quits. Retrieved from
    http://www.cfo.com/article.cfm
   Lexisnexis academic. (n.d.). Retrieved from http://0-
    www.lexisnexis.com.opac.library.csupomona.edu/hottopics/lnacademic/
   (n.d.). Retrieved from www.jetblue.com
   Jetblue Airways Annual Report 2010 on form 10-k. Retrieved from
    www.investor.jetblue.com
   Jetblue airways corporation. (n.d.). Retrieved from http://finance.yahoo.com
   Jetblue airways corporation. (n.d.). Retrieved from
    http://finapps.forbes.com/finapps/jsp/finance/compinfo
   Histotrical Oil Prices Retrieved from
    http://inflationdata.com/inflation/inflation_rate/historical_oil_prices_table.asp
   Jetblue airways. (n.d.). Retrieved from
    http://www.dailyfinance.com/quote/nasdaq/jetblue-airways/jblu/financial-ratios

				
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