JETBLUE AIRWAYS

JetBlue’s approach is to replicate Soutwest’s approach but with added relative advantage.

Essentially discount airfare with services bundled in as differentiator.

Also relied on technological advancement to reduce cost and increase efficiency.

Avoid direct competition with Southwest by focusing on the northeast of the US.

Experienced early successes but started experiencing turbulence by 2006.

High interest expense eating into operating profit.

BASIC CONCERNS

Rising cost due to increase in fuel price.Rising cost due to operating 2 aircraft types.Increase in labour cost as employees age and

accumulates seniority.Possibility of unionization in the long-term.Operational problems due to airport and area

congestion.Need to anticipate possibility to having to face

Southwest in the future.How to position to tap into expanding international

market (Exh. 7)?

SCRUTINIZING THE DATA

2006 2005 2004 2003 2002

Operating Ex/Rev 94.6 97.2 91.2 83.2 83.5

Y-2-Y increase in revenue 38.9 34.5 26.7 56.9

Y-2-Y increase in operating expenses.

35.2 43.2 38.8 56.8

Salary expenses/revenue 23.4 25.2 26.7 26.7 25.5

Fuel/revenue 31.8 28.7 20.1 14.7 11.9

Landing fees/revenue 6.6 6.6 7.2 7.0 6.9

Depreciation/revenue 6.4 6.8 6.1 5.1 6.8

Aircraft rent/ revenue 4.4 4.3 5.5 6.0 6.4

S & M/revenue 4.4 4.8 5.0 5.4 4.2

Maintenance/revenue 3.6 3.8 3.5 2.3 1.4

Y-2-Y increase in interest expenses

61.7 101.8 82.7 38.1

Current ratio (Exh. 10) 1.1 .94 1.05 1.74 1.05

Coverage rati o (Exh. 11)o .7 .7 2.7 8.4 7.1

OBSERVATIONS

Increase in operating expenses exceeded increase in operating profit in 2004 and 2005.

Even though use of multiple aircraft model said to affect maintenance cost, data doesn’t seem to show it is currently a problem. As a percentage of revenue it experienced a small initial

increase.

Salary expenses as a percentage of revenue has been constant

A key problem appears to be the substantial increase in fuel price and interest expense (see exhibit 1).

KEY ACTIONS: REDUCE COST

Immediate step is to reduce JetBlue’s major cost items.Need to plug the leak by reducing leverage and

interest expenses Either renegotiate loan or seek capital injection Consider sell and lease back hub facilities at JFK Airport.

Slow or freeze recruitment and move to more automation of passenger services.

Minimize very short haul flights to improve fuel economy of aircraft.

Restrategize relative advantage with view to cut cost Relative advantage may not matter since JetBlue and Southwest are

currently in geographically separated markets.

KEY ACTIONS: INCREASE REVENUE

Given that high fuel price affects all airlines similarly, it can be expected that in the long-term all airlines will feel the pressure to raise fare.

Can try to link with airlines from Asia though JetBlue is geographically disadvantaged Better located to take in passengers from Europe. A collaboration with international airline can be source of

capital injection.

Diversify into related businesses.Defer international expansion

International route sinto Asia will need different operational model but one that can still confer cost advantage.