Cost Leadership Strategy Essay

Submitted By Bryce-Harlow
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Case 2­1:
JetBlue Airways: Managing Growth

Team 6

Page 1

Executive Summary

JetBlue is an airline company which has a strategy of low­priced, no­hassle ticketing, and efficient customer service. JetBlue’s primary focus was to do away with all of the insanity that comes with most commercial air flying and set a high standard for customer satisfaction. In the beginning, JetBlue exceeded these goals and gained a large profit. When most of the legacy carriers had declared bankruptcy, JetBlue thrashed its competition by offering low‐cost, customer‐focused service.
While under David Neeleman, JetBlue evolved into a major player in the airline industry.
Operating domestic flights on a point‐to‐point system, JetBlue primarily manages East‐West and
Northeast‐Southeast routes. While this direction started off proving profit for the company, the rising costs and heated price competition are now threatening JetBlue’s market share. JetBlue must reevaluate their strategy in order to rejuvenate its business. Neeleman then established his airline around five main values: safety, caring, fun, integrity, and passion. Neeleman also wanted to make air travel a more delightful and hassle­free experience for their customers and employees. It is demanding for a company to stay successful in the airline industry. A company can obtain profits only by maintaining low costs in what has evolved as an extremely price competitive market. Fuel and aircraft maintenance costs are steadily rising. Some of JetBlue’s financial battle in past years is due from the company’s lack of a viable strategy to manage these expenses. The company formerly had lower costs than the industry average due to its young

Team 6

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aircraft, developing aircraft crew, and single‐type aircraft fleet. However, as their operating aircraft and crew members grew older, JetBlue could no longer maintain its previous cost advantage. It was at this point JetBlue realized it was time for a change. David Barger was then promoted to CEO of JetBlue.
Attractiveness of the Airline Industry

There are limited inventions that have made a sizeable influence on the way individuals live, work, and experience the world like the airplane has. As stated by S&P Capital IQ (S&P),
“By shortening travel time from weeks to hours, air travel has altered our concept of distance.
The world has become smaller, as people can visit and conduct business in places once considered far­flung. The transformation of the Wright brothers’ early twentieth­century invention from a novelty to a commercial industry required considerable technology refinements and government assistance. That view broadened in 1925, when airplanes began carrying mail.
With the passage of the Air Commerce Act of 1926, the US airport and air traffic control (ATC) infrastructure began to take shape. To promote the then­fledging passenger travel industry, the
Watres Act of 1930 changed the airmail fee structure: fees paid to air carriers to move mail were increased expressly to subsidize passenger service. Furthering the cause of air travel was the introduction in the US of the jet aircraft for passenger service in 1958. The industry was deregulated in 1978, freeing it from government control of fares, routes, merger and acquisition activity, and alliances. This step helped to complete the transformation of air travel from a luxury to a mass­market service.” The airline industry has managed to shrink the globe.

Team 6

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The commercial world and its borders are changing swiftly in both size and speed. Traveling is no longer a luxury but a requirement for most of the population. For example, traveling for business. In the past, traveling use to be primarily for wealthy people, but students, as well as individuals with low to average incomes, are now able to benefit from traveling. Due to this, the
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