Case Study D: JETBLUE AIRWAYS

Names: ID:

Fatima Al-lbrahim 200800025

Jumana Al-Umran 200800444

Malika Al-sharif 200801556

Razan Al-Sanea 200801164

College of Business Administration

Instructor: Dr. Emmanuel Okey Ntui

ASSE 4311: LEARNING ASSESSMENT III

Section: 202

Submission Date: August 3, 2012

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Table of Contents

Introduction 3

Mission, Vision, and Policies 3

Objectives and Strategies 4

2007 Situation 4

Corporate Governance 5

External Environment: Opportunities and Threats 8

Internal Environment: Strengths and Weaknesses 13

Analysis of Strategic Factors (SWOT) 16

Alternative Strategies 17

Strategic Choice 18

Strategy Implementation 24

Evaluation and Control 25

Conclusion 26

References 27
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Introduction

JetBlue founder, David Neeleman, announced his plans for a new airline in early 1999.

After acquisition of 75 Airbus A320 and allocation of slots at JFK, the airline’s maiden flight

took off in early 2000 destined for Fort Lauderdale in Florida. The company later increased its

routes to Tampa, Orlando, and others. The company recorded good results in the early years of

its operation until 2005 when it acquired a new Brazilian jet. This slowed its progress for the two

consecutive years. During the 2011 final year results, the company announced that it flies for

more than 70 states and 12 countries. Additionally, it announced that it flies to New Mexico,

Puerto Rico, the Caribbean and Latin America (JetBlue, n.d.). JetBlue prides itself for providing

cheap flights that offer in-flight additions, such as television shows. In early 2012, the company

was operating more than 700 flights a day with a fleet of over 120 A320 Airbuses and slightly

more than 50 EMBRAER190 aircrafts (New York Times, 2012).

Mission, Vision, and Policies

Founder David Neeleman had the idea that humanity had been forgotten by the available

airlines. From that, he decided to bring humanity back to air travel. JetBlue strives to offer to its

customers the value, style, service and low costs. The company vision is to offer safety at all

times, care for its customers, propel its integrity and guarantee that all customers have

satisfaction with being comfortable, entertained, while paying less for the tickets. As part of its

policy, the company offers only one-way tickets and flies to short destinations. It has a policy of

assigning all seats and having ticketless travels. Moreover, the company has documented

customer-protection bill of rights which details a host of many options as pertains customer

needs and complaints. (JetBlue, n.d.)

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Objectives and Strategies

One of JetBlue strategies is offering customers hosts of in-flight entertainment options.

For example, it offers branded popcorns, a JetBlue spa among others. As one of JetBlue

objectives is to focus on short travels and offering the best services and entertainment on board,

JetBlue wanted to do this while offering value for the shareholders. Hence, in the early years

(2000 up to 2005), JetBlue recorded commendable results (JetBlue, n.d.). As part of its strategy,

the company has plans to add 35 aircrafts to its task force every year. This was hatched in 2010

by the board as part of the company’s expansion plans (New York Times, 2012). Another

strategy is offering branded products in the aircraft which includes foodstuff and pleasure

products.

2007 Situation

In the earliest of 2005, the company had been recording excellent returns of millions of

dollars. On that year, the company obtained new jets that would carry more passengers.

However, the company ignored the operational change that was needed to ensure continued

smooth runs in airports (JetBlue, n.d.). For example, rising prices of jet fuel put a strain on the

airline’s operational costs and competition had also intensified, and JetBlue operating costs also

rose sharply. Therefore, the company recorded sharp declines in profits and this was largely

blamed on the CEO and founder David Neeleman because he is the one who take the decision.

JetBlue’s problems spilled over in 2007. In February 2007, the national weatherman had issued a

warning to airlines regarding a possible snowstorm in the western coast. This was JetBlue’s main

operating route and it was a busy season owing to the fact that it was a favorite Valentine’s

destination. Therefore, the company offered a late and inconsequential warning to customers.

The airlines had severely been overbooked leading to large numbers of stranded passengers at
 5 | JETBLUE AIRWAYS

various airports. Furthermore, most of its operations had grinded to a shameful halt, and the

company was forced to make refunds and compensations amounting to over $30 Million. Its

leadership was also criticized and pilloried in mainstream media (New York Times, 2012).

Another notable situation that JetBlue grappled with in 2007 was a sudden surge in the

cost of fuel world over. In the previous five years of operations (2002-2007), JetBlue’s business

model had allowed price cuts for its passengers because of the manageable fuel costs. However,

this was bound to change (JetBlue, n.d.). The company had to increase its average travel rates by

over than $10 to remain afloat. This was coupled by tightening spending habits from Americans

because of the beginning of the economic crisis, which was more pronounced in 2008 (New

York Times, 2012).

Corporate Governance

1. Board of Directors

Chairman • Joel Peterson

Vice Chairman • Frank Sica

• David Barger (CEO and President),

Peter Boneparth, David Checketts, Virginia
Directors Gambale, Stephan Gemkow, Gen. Stanley
McChrystal, Ann Rhoades, Ellen Jewett, Jens
Bischof

Note. From. "Corporate Governance," by JetBlue, n.d.

The Board of Directors of JetBlue Airways is composed of employee and independent

directors. Most of the Board members are independent directors. The Board of Directors has an
 6 | JETBLUE AIRWAYS

Audit Committee, Compensation Committee, and Corporate Governance and Nominating

Committee. The Board may establish new committees from time to time to direct special projects

for the Board. (JetBlue, n.d.)

The business of JetBlue Airways is directed by the Board of Directors. The Board of

Directors is responsible for setting up general corporate policies, counseling and offering

direction to the management for the long-term interests of the corporation, stockholders, and for

the corporation’s performance in general. However, the Board of Directors is not engaged in the

daily operation details. The Board offers the advice to the corporation through regular reports

and analyses and discussions with the Chief Executive Officer and other officers. (Wikinvest,

2009)

A candidate for election as a director of the JetBlue Board of Directors should have

several characteristics. The Board looks for independent directors with different backgrounds. A

candidate for election as a director has to have experience in positions that required a high degree

of responsibility, be chosen based upon the assistance he/she can provide to the Board, and upon

his/her willingness to dedicate enough time and effort to Board tasks. Before a candidate for a

director is chosen, the Committee will take into consideration the number of other boards he/she

is working for, his/her profession, and whether he/she has a business or not. Candidates for

director elected by shareholders should meet the independence standards of the Nasdaq

Marketplace Rules and approved by the Board. (Bourgoin, n.d.)

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2. Top Management

Chief Executive Officer,

• David Barger
President, and Director

Chief Financial Officer • Mark Powers

Chief Information Officer • Eash Sundaram

Executive Vice President and

• Joanna Geraghty
Chief People Officer

Executive Vice President and

• Robin Hayes
Chief Commercial Officer

Executive Vice President,

Corporate Affairs, General • James Hnat
Counsel, and Corporate Sec.

Executive Vice President and

• Rob Maruster
Chief Operating Officer

Note. From. "Corporate Governance," by JetBlue, n.d.

JetBlue top management’s involvement in strategic management is classified as

“Catalyst” due to their direct involvement. They make strategic decisions in an environmentally

sustainable approach. In addition, JetBlue has its own “Jetting to Green” program. The purpose

of this program is to inform the customers and the crewmembers about environmental issues and

to inform the community about their “green” projects, such as compliance with the Airport Noise

and Capacity Act of 1990, projects for curbing greenhouse gas emissions, and social

responsibility programs. (Bourgoin, n.d.)

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External Environment: Opportunities and Threats

External factors, involve:

1. Environmental factors

 Weather fluctuations such as storms or hurricanes.

2. Technological factors

 Computerization of tickets booking and personal check-in facilities.

 Internet.

 The use of social media.

 The capability of consumers to search and equate prices of different airlines.

3. Legal and political factors

 Deregulation of the airline industry in 1978.

 The bankruptcy laws.

 Terrorist occurrences on 9/11.

 Federal Protocols, which necessitate one flight attendant for every 50 passengers.

 The growing amount of safety and environmental regulations.

4. Economic factors

 Weakening of economic of US airlines industry.

 The rise of Oil prices

 Interest rates volatility.

5. Industrial forces

 The entrance of new players to the airline industry.

 Alternative airlines.

 Supplier bargaining power

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 Consumer bargaining power

 Rivalry between competitors in the industry.

Opportunities:

Technological opportunities:

Technological innovations can be considered as a pronounced opportunity for the

company. The Internet usage has opened new openings for JetBlue. Such technologies can

decrease the costs of operations. This can assist in building a competitive advantage for JetBlue

in airline industries by having low costs. Technologies can include, computerization of tickets

booking which refers to using direct booking for tickets from the airline’s website without using

agencies for booking. Another technological opportunity is using Electronic cockpits instead of

paper ones, personal check-in facilities, and the use of luggage tracking technologies. Providing

extensive customer service is another opportunity for JetBlue. Employees in JetBlue can extent

their services for their clients to their homes. Technology furthermore can support in growing the

amount of in-flight features and mechanisms such as Internet. Lastly, JetBlue can use social

media to sponsor their brand and services in order to look attractive to more customers.

(Micanada.org, n.d.)

Legal and political opportunities:

Deregulation of the airline industry in 1978 proposed an opportunity to enter the airline

market. It permitted different market segments such as the low cost to enter the market. This

helped JetBlue to emerge in the market. It will correspondingly provide it with the opportunity to

expand more in the industry. (Micanada.org, n.d.)

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The bankruptcy laws have a momentous responsibility as they permit even loss making

and non-profitable firms to operates and continue in the industry when they are protected

(Micanada.org, n.d.). This considered as an opportunity to JetBlue to recapture market share.

Economic opportunities:

A weakening of economic of US airlines industry was because of the 9/11 attacks. Major

airlines suffered dramatically from the incidence. However, JetBlue was able to standstill during

this crisis. The focal reason why it didn’t undergo lots of troubles during this time is because

JetBlue was offering low prices and they were concentrating on second-tier airports instead of

going against big players in the market. Its usage of new aircrafts and non-unionized

employment were some of the reasons that helped in the accomplishment of the airline (Brizek,

2007). Another reason for JetBlue survival and major success during those hard times was

because JetBlue concentrated on building a name and a reputation for its brand. “Today, JetBlue

has a market value that is nearly as large as that of United, American and Delta combined”

(Frost, 2006). Gareth Edmondson-Jones, JetBlue’s Vice-President of Corporate Communication

said, “JetBlue has prospered more significantly by its brand work than by disruption after 9/11.

It’s certainly a combination, but more so the brand. More importantly, it was the pre-9/11 era

that did most damage to the legacy carriers, when they were making massive profits with poor

quality, indifferent service and high fares. That was the platform upon which JetBlue launched.

September 9/11 certainly meant that the big guys were distracted while we grew” (British Design

Innovation, n.d.).

Threats:

Environmental threats:
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Weather fluctuations such as Hurricanes and storms can be considered as a threat because

storms can cause postponements of the flights and very severe ones can cause a major danger for

the aircrafts and the passengers (Bennett et al, n.d.).

Technological threats:

Consumers now have the capacity to search and equate prices of different airlines, which

can create a price competition for JetBlue and other low cost airlines in the industry (Bennett et

al, n.d.).

Legal and political threats:

Terrorist attacking the World Wide Centre on 9/11 created a threat for the airlines

industry. After the attack, people started to have fears from travelling via airlines. Consequently,

this leads to security fears, postponed flights, and a lot other effects in the airline industry.

Subsequently, this can cause a great effect on the profitability of the company. (Bennett et al,

n.d.)

Federal Protocols, which necessitate one flight attendant for every 50 travelers will

increase the operational cost since it will increase the number of flight attendants, which can

cause more increase in wages payable (Bennett et al, n.d.). Also, the growing amount of safety

and environmental regulations can lead to increase of the operational cost of the company

(Bennett et al, n.d.).

Economic threats:

The increase of Oil prices cause operating costs of JetBlue to go up and have a great

influence on the profitability of the firm. Airplane fuel expense amplified 24% or $177 million.

This is instigated because of 67 million more gallons of aircraft fuel used, which resulted in $133

million of additional fuel expense, and a 5% rise in average fuel cost per gallon or $44 million.
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Aircraft fuel prices persisted in 2007 with average fuel price per gallon of $2.09 equated to $1.99

on December 31, 2006. The fuel costs of JetBlue represented 35% and 34% of their operating

expenses in 2007 and 2006, correspondingly. Cost per available seat mile enlarged 11%

predominantly due to the high fuel prices. (Corporateir.net, 2007)

Fluctuation in interest rates will affect the earnings of JetBlue. Interest expense amplified

31% or $52 million, chiefly due to the rise of $34 million in interest related with the debt or

capital lease financing for new aircraft deliveries. $13 million of interest for the financing of

previously unsecured property and $18 million of interest related to productions duties for new

terminal at JFK. Interest expense was condensed by nearly $7 million due to the arranged pay

downs of the long-term debt commitments and by an additional $6 million related to retired debt

for sold aircraft. The increase in capitalized interest was mostly attributable to the higher interest

expense used for the new terminal. (Corporateir.net, 2007)

Industrial threats:

The entrance of new players to the airline industry particularly in the low cost sector in

the industry can generate a threat of JetBlue. Following the deregulation of the airline industry in

1978, new players can enter the market very effortlessly due to the reduction of the barriers of

entry after the deregulation. Though, having strong operating procedures that opponents will not

be able to duplicate could intensify those barriers. Another way to intensify those barriers is by

product differentiation. JetBlue preservation of customer’s gratification and loyalty programs by

using membership cards, points system, or upgrades to reward loyal customers can create a

difference in the industry and will keep the customer from switching to other airlines. This can

create an opportunity out of the new entrants' threat. (Micanada.org, n.d.)

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Suppliers bargaining power can be a threat for JetBlue. Restricting of quantity of

suppliers for airplanes, their engines and in flight features can be hazard. Since there are the

simply two chief suppliers in the airline industry, Boeing and Airbus, there are not a lot of

available replacements to supplier’s products. “When the buyer industry is not an important

customer of the supplier group, the supplier’s product is an important input to the buyer’s

business, the supplier products are differentiated or built up switching costs, the supplier group

poses a credible threat of forward integration”. (Micanada.org, n.d.)

Threat of alternative airlines is excessive when the distances traveled are shorter. People

can switch to the cheaper alternatives such as cars or buses for short distance travelling instead of

going via planes. However for longer distances and for rushed customers, the airlines may face

substantial threat from alternative airlines such as Southwest airlines. (Micanada.org, n.d.)

Consumer bargaining power, which has been discussed in the technological threats, is

also considered as one of the industrial threats. Consumers now have the capacity to search and

equate prices of different airlines, which can create a price competition for JetBlue and other low

cost airlines in the industry. Consequently, they have the switching power. (Micanada.org, n.d.)

Rivalry between competitors in the industry is considerably high. There are numerous

corporations, which compete vigorously in the airline industry overall and in low cost segment in

particular. As considered previously, the bankruptcy laws offer the opportunity to remain in the

industry for an extensive period of time even to unprofitable firms, hence escalating competition.

(Micanada.org, n.d.)

Internal Environment: Strengths and Weaknesses

Internal factors, involve:

1. Management and employees

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2. Costumer service

3. Marketing and sales

4. Machine

5. Material

6. Money

7. Production

Strengths:

Management and employees:

JetBlue treat its employees so well by arranging comfortable workplace that promotes the

operating plans and service delivery structure. JetBlue aims to satisfy its employees to increase

their loyalty and productivity. It uses the strategy of part-time employees. According to Dodds

(2007), “A JetBlue flight attendant who used to work for United relates anecdotal evidence that

while her base pay is lower; she makes it up by working overtime and participating in the stock

purchase plan.” Its employees have the skills to deal with all situations and all kinds of clients

“knowing how to retain customers” (Bill Dodds, 2007). This in turn leads to powerfully run

internal structure that broadens to the external environment.

JetBlue hires the experts to help the employees to learn from their experience and to put a

good system to follow based on their knowledge. The top management insures good reputation

and values.

Costumer service:

JetBlue provides a good service by communicating with its customers. The costumers can

complain or say anything they want to the CEO. The CEO travels to get it directly from them.
 15 | JETBLUE AIRWAYS

Moreover, the company spends a lot of money to train its employees to have a good customer

service.

JetBlue uses advanced strategy that allows its customer to have online booking and

automatically passengers’ luggage carrying, which makes their life easier and save their time.

However, JetBlue spends a lot to keep tracking with the new technology to support its growth.

Marketing and sales:

According to Gareth (2005), “With JetBlue, all seats are assigned, all travel is ticketless,

all fares are one-way, and an overnight stay is never required.” JetBlue has a great service that

other airlines or competitors don’t provide. JetBlue offers a good price to business people.

Passengers usually care about low prices and high quality service, and JetBlue has both of these

features. In addition, it has good advertisements. JetBlue provides the lowest price comparing to

its competitors, while generating a good profit.

New and efficient aircraft (machine):

JetBlue uses effective aircrafts, such as Airbus A320 and Embraer 190. These kinds of

aircrafts are valuable to the airline because they reduce the expenditure on maintenance and

sparing parts. They also minimize training and increase scheduling flexibility. JetBlue’s planes

stay at the entry for about 35 minutes, which is 25 minutes less than its competitors. Also,

JetBlue does not allow the planes to spend a lot of time on the ground; an average JetBlue’s

plane is in the air for 13 hours a day. JetBlue airlines did studies and researches to develop their

growth by purchasing new planes. Moreover, JetBlue has a great record that shows that the

flights are safe and fast.

Weaknesses (money, development):

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JetBlue has limited destinations that just cover 11 countries. It is not existed in Asia and

other regions. Another weakness is that JetBlue has one class for all passengers. It also has some

financial problems.

Analysis of Strategic Factors (SWOT)

As mentioned earlier, One of JetBlue’s opportunities is taking advantage of the

bankruptcy laws, which have a momentous responsibility as they permit even loss making and

non-profitable firms to operates and continue in the industry when they are protected

(Micanada.org, n.d.). This considered as an opportunity to JetBlue to recapture market share.

Weather is one of the major threats for any airline. What JetBlue faced in February 2007

was one of the main reasons for their big losses. When the snowstorm warning was published in

the western coast, and the lack of planning of how to behave in those situations led to a loss of

millions of dollars. Since it was JetBlue’s main operating route and it was a busy season of

Valentine, the company wasn’t able to lead the situation appropriately which led to a refund of

almost 30 million USD. Also, JetBlue’s reputation as a customer-friendly airline was tarnished.

Another threat, which led to the current difficulties that JetBlue is facing, is the increase

of fuel prices. The increase Oil prices caused operating costs for JetBlue to go up and had a great

influence on the profitability of the firm. Aircraft fuel prices persisted in 2007 with average fuel

price per gallon of $2.09 equated to $1.99 on December 31, 2006. The fuel costs of JetBlue

represented 35% and 34% of their operating expenses in 2007 and 2006, correspondingly. Cost

per available seat mile enlarged 11% predominantly due to the high fuel prices. (Corporateir.net,

2007)

Consumers now have the capacity to search and equate prices of different airlines, which

can create a price competition for JetBlue and other low cost airlines in the industry (Bennett et
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al, n.d.). Moreover, proposing low prices will not be enough to keep JetBlue’s customers, unless

JetBlue focuses on customers’ loyalty.

One of JetBlue’s strengths is operating with a well-organized and established set of

aircrafts such as, Airbus A320. Those kinds of aircrafts are more fees saving in maintenance and

sparing parts. So if JetBlue starts to invest more on these kinds of aircrafts, its aircraft

maintenance expenses will decrease leading to a decrease in its overall expenses. However,

buying more aircrafts will have a great influence on JetBlue expenses. Thus, JetBlue should keep

this strategy to the future since it is already making a loss because of its high expenses.

Alternative Strategies

Several Strategies can be generating in order to help overcome this difficult situation. This can

include,

 Cooperative Strategies, which can be used to achieve a competitive advantage inside the

industry by operating with other firms.

 Collusion

 Strategic alliance:

 Mutual service consortium

 Joint venture

 Licensing Arrangements

 Value-Chain Partnerships

 Competitive Strategies

 Differentiation Strategy is about generating product or service that is exceptional and

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unique in the industry.

 Cost leadership Strategy is the ability of the firm to design, manufacture, and market a

comparable product more efficiently than its competitors. (Wheelen & Hunger, 2012,

p.235).

 Market Development.

 Market Penetration.

 Related Diversification

 Investing in technologies.

 Reduction of long flights and focusing on short ones.

 Slight increase in the prices of JetBlue.

 Stopping unprofitable flights, and increasing the profitable ones.

 Increase the number of destinations.

 Creating sets of policies for refund and cancellations.

 Preservation of customer’s gratification and loyalty programs.

 Investing more on aircrafts that are more fees saving in maintenance and sparing

parts and selling old aircrafts.

 Reducing its expenses

Strategic Choice

In order to choose the best strategies that work with JetBlue 2007 situation, a financial analysis

for JetBlue over the last five years (2002-2006) is needed.

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1. Liquidity ratios: Not applicable

2. Profitability ratios:

2002 2003 2004 2005 2006

Operating Margin (Net Oper. Income / Total

Sales) 16.53% 16.91% 8.92% 2.82% 5.37%

Net Profit Margin (Net Income / Total Sales) 8.64% 10.41% 3.75% -1.18% - 0.04%

Note. From. "Annual Reports," by JetBlue, n.d.

By comparing the operating margin ratio of JetBlue from 2002 to 2006, it is

obvious that the operating margin was generally decreasing. From 2002 to 2006,

JetBlue’s operating margin decreased by 67.5%. By looking at the income statement, you

can realize that this sharp decline in the operating margin is back to the decline in the net

operating income that is influenced by the increase of JetBlue’s operating expenses, not

by decrease of JetBlue’s total sales since the total sales was even rising.

Similar to the operating margin, JetBlue’s net profit margin from 2002 to 2006

was generally decreasing, but with different values sine the numerator here is the total net

income, not just the net operating income. From 2002 to 2006, JetBlue’s net profit

margin decreased by 100.46%. This sharp decline is caused by the decrease of the net

income, not the total sales as it was continuously increasing.

3. Activity ratios: Not applicable

4. Leverage ratios: Not applicable

5. Common size balance sheet and income statement:

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JETBLUE AIRWAYS
CORPORATION
CONSOLIDATED BALANCE
SHEETS
((2002-2003) In thousands and
(2004-2006) In millions, except
share data)

2002% 2002 2003% 2003 2004% 2004 2005% 2005 2006% 2006

ASSETS
CURRENT ASSETS:
Cash and cash equivalents 17.89% 246,752 26.11% 570,695 0.68% 19 0.15% 6 0.21% 10
Short-term investments 0.81% 11,101 1.67% 36,610 0.00% — 0.00% — 14.23% 689
Receivables, less allowance 0.87% 11,931 0.77% 16,723 15.41% 431 12.28% 478 1.59% 77
Inventories, less allowance 0.35% 4,840 0.38% 8,295 1.32% 37 2.42% 94 0.56% 27
Deferred income taxes 0.21% 2,846 0.00% — 0.36% 10 0.54% 21 0.00% —
Prepaid expenses and other 0.41% 5,589 0.61% 13,417 0.61% 17 0.92% 36 2.56% 124

Total current assets 20.53% 283,059 29.54% 645,740 18.38% 514 16.32% 635 19.14% 927

PROPERTY AND
EQUIPMENT
Flight equipment 63.03% 869,101 55.83% 1,220,272 65.61% 1,835 65.96% 2,567 64.24% 3,111
Predelivery deposits for
flight equipment 8.19% 112,934 8.53% 186,453 9.40% 263 298 5.02% 243
71.22% 982,035 64.36% 1,406,725 75.01% 2,098 73.61% 2,865 69.25% 3,354
Less accumulated
depreciation 2.05% 28,203 2.77% 60,567 3.90% 109 4.62% 180 5.00% 242
69.17% 953,832 61.59% 1,346,158 71.11% 1,989 68.99% 2,685 64.26% 3,112
Other property and
equipment 3.85% 53,098 4.34% 94,899 6.29% 176 9.04% 352 8.71% 422
Less accumulated
depreciation 0.71% 9,769 0.93% 20,366 1.25% 35 1.52% 59 1.98% 96
3.14% 43,329 3.41% 74,533 5.04% 141 7.53% 293 6.73% 326
Total property and
equipment 72.31% 997,161 65.00% 1,420,691 76.15% 2,130 76.52% 2,978 70.99% 3,438

OTHER ASSETS
Purchased technology, net 4.95% 68,278 2.85% 62,256 1.93% 54 1.10% 43 0.66% 32
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Other 2.21% 30,425 2.61% 57,070 3.29% 92 5.29% 206 2.89% 140
Assets constructed for others 0.00% — 0.00% — 0.25% 7 0.77% 30 3.84% 186
Restricted cash 0.00% — 0.00% — 0.00% — 0.00% — 2.48% 120
Total other assets 7.16% 98,703 5.46% 119,326 5.47% 153 7.17% 279 9.87% 478

TOTAL ASSETS 100.00% 1,378,923 100.00% 2,185,757 100.00% 2,797 100.00% 3,892 100.00% 4,843

CURRENT LIABILITIES
Accounts payable 3.34% 46,042 2.42% 52,983 2.54% 71 2.54% 99 2.81% 136
Air traffic liability 7.07% 97,534 6.16% 134,719 6.22% 174 6.24% 243 7.02% 340
Accrued salaries, wages and
benefits 2.69% 37,140 2.83% 61,851 2.00% 56 1.49% 58 1.51% 73
Other accrued liabilities 0.47% 6,515 1.06% 23,081 1.36% 38 1.36% 53 1.88% 91
Short-term borrowings 1.57% 21,679 1.37% 29,884 1.57% 44 1.67% 65 0.81% 39
Current maturities of long-
term debt 3.68% 50,754 3.07% 67,101 3.75% 105 4.06% 158 3.61% 175

Total current liabilities 19.56% 269,664 16.91% 369,619 17.45% 488 17.37% 676 17.63% 854

LONG-TERM DEBT 46.38% 639,498 46.28% 1,011,610 49.91% 1,396 54.03% 2,103 54.22% 2,626
DEFERRED CREDITS
AND OTHER
LIABILITIES
Deferred income taxes 2.80% 38,545 4.53% 99,030 4.33% 121 2.98% 116 2.81% 136
Construction obligation 0.00% — 0.00% — 0.00% — 0.00% — 3.84% 186
Other 1.20% 16,543 1.57% 34,362 1.36% 38 2.21% 86 1.84% 89
4.00% 55,088 6.10% 133,392 5.68% 159 5.19% 202 8.49% 411

CONVERTIBLE
REDEEMABLE
PREFERRED STOCK
COMMITMENTS AND
CONTINGENCIES
STOCKHOLDERS’
EQUITY (DEFICIT)
Preferred stock 0.00% — 0.00% — 0.00% — 0.00% — 0.00% —
Common stock 0.05% 638 0.05% 1,021 0.04% 1 0.05% 2 0.04% 2
Additional paid-in capital 29.55% 407,471 25.27% 552,375 20.77% 581 19.63% 764 16.79% 813
Retained earnings
(accumulated deficit) 1.15% 15,791 5.48% 119,689 5.90% 165 3.73% 145 2.97% 144
Unearned compensation -0.68% (9,414) -0.35% (7,544) -0.21% (6) 0.00% — — —
Accumulated other
comprehensive income 0.01% 187 0.26% 5,595 0.46% 13 0.00% — -0.14% (7)
Total stockholders’ equity
(deficit) 30.07% 414,673 30.70% 671,136 26.96% 754 23.41% 911 19.66% 952
 22 | JETBLUE AIRWAYS

TOTAL LIABILITIES AND

STOCKHOLDERS’
EQUITY (DEFICIT) 100.00% 1,378,923 100.00% 2,185,757 100.00% 2,797 100.00% 3,892 100.00% 4,843

Note. From. "Annual Reports," by JetBlue, n.d.

JETBLUE AIRWAYS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
((2002-2004) In thousands and (2005-2006) In millions, except per share amounts)

2002% 2002 2003% 2003 2004% 2004 2005% 2005 2

OPERATING REVENUES
Passenger 96.85% 615,171 96.67% 965,091 96.43% 1,220,758 95.24% 1,620 9
Other 3.15% 20,020 3.33% 33,260 3.57% 45,214 4.76% 81 5
Total operating revenues 100 % 635,191 100% 998,351 100% 1,265,927 100% 1,701 1

OPERATING EXPENSES
Salaries, wages and benefits 25.53% 162,191 26.78% 267,334 26.63% 337,118 25.16% 428 2
Aircraft fuel 12.01% 76,271 14.76% 147,316 20.17% 255,366 28.69% 488 3
Landing fees and other rents 6.91% 43,881 6.88% 68,691 7.20% 91,181 6.58% 112 6
Aircraft rent 6.43% 40,845 6.01% 59,963 5.55% 70,216 6.76% 115 4
Sales and marketing 6.98% 44,345 5.37% 53,587 4.99% 63,198 4.35% 74 6
Depreciation and amortization 4.24% 26,922 5.05% 50,397 6.05% 76,540 4.76% 81 4
Maintenance materials and
repairs 1.41% 8,926 2.32% 23,114 3.55% 44,901 3.76% 64 3
Other operating expenses 19.97% 126,823 15.94% 159,116 16.94% 214,509 17.11% 291 1
Total operating expenses 83.47% 530,204 83.09% 829,518 91.08% 1,153,029 97.18% 1,653 9

OPERATING INCOME 16.53% 104,987 16.91% 168,833 8.92% 112,943 2.82% 48 5

OTHER INCOME (EXPENSE)

Interest expense -3.31% (21,009) -2.89% (28,897) -4.22% (53,478) -6.29% (107) -
Capitalized interest 0.84% 5,325 0.52% 5,203 0.70% 8,874 0.94% 16 1
Interest income and other 0.84% 5,314 0.76% 7,539 0.67% 8,483 1.12% 19 1
Government compensation 0.06% 407 2.28% 22,761 0.00% — 0.00% — 0
Total other income (expense) -1.57% (9,963) 0.66% 6,606 -2.85% (36,121) -4.23% (72) -

INCOME BEFORE
INCOME TAXES 14.96% 95,024 17.57% 175,439 6.07% 76,882 -1.41% (24) 0
Income tax expense 6.32% 40,116 7.17% 71,541 2.32% 29,355 -0.24% (4) 0
 23 | JETBLUE AIRWAYS

NET INCOME 8.64% 54,908 10.41% 103,898 3.75% 47,467 -1.18% (20) -
Preferred stock dividends -0.94% (5,955) 0.00% — 0.00% — 0.00% — 0
NET INCOME
APPLICABLE TO
COMMON
STOCKHOLDERS 7.71% 48,953 10.41% 103,898 0.00% — 0.00% — 0

EARNINGS PER
COMMON SHARE
Basic 0.00% 1 0.00% 1 0.00% 0 0.00% (0) 0
Diluted 0.00% 1 0.00% 1 0.00% 0 0.00% (0) 0

Note. From. "Annual Reports," by JetBlue, n.d.

As shown in the common size part of the balance sheet, JetBlue’s total assets

were increasing. From 2002 to 2006, the total assets increased by 251.20%. This increase

in total assets was consistent with the increase of both liabilities and stockholders’ equity.

However, stockholders’ equity proportion of total liabilities and stockholders’ equity was

generally decreasing from 2002 to 2006, and liabilities proportion of total liabilities and

stockholders’ equity was generally increasing. Thus, the increase in JetBlue’s total assets

was supported by the increase in its liabilities more than its stockholders’ equity.

JetBlue’s total current assets had exceeded its total current liabilities from 2002 to

2006, except for 2005 where the total current liabilities exceeded the total current assets.

However, the difference was not a lot; it was for about 1%. This shows that JetBlue was

easily able to pay its current liabilities and other day-to-day expenses.

By looking at the common size part of JetBlue’s income statements from 2002 to

2006, you can see that there are very obvious changes, which should be pointed out.

These changes can be summarized as follows. The total operating revenues were sharply

increasing over those years. However, the net income was generally decreasing recording
 24 | JETBLUE AIRWAYS

a net loss in 2005 and 2006. The decrease in the net income is caused by the general

increase in JetBlue’s expenses.

Rising prices of jet fuel and increased aircraft maintenance expenses and service

costs along with other expenses led to an increase in JetBlue’s overall expenses. These

expenses could not be offseted by JetBlue’s high, increasing revenues leading to net loss

of $1 million in 2006. Moreover, JetBlue’s reputation as a customer-friendly airline was

tarnished in February 2007 by its inability to deal with a severe snowstorm in the

Northeastern U.S., which stranded thousands of JetBlue’s passengers at airports. Thus in

our opinion, the best strategies that work well with JetBlue’s 2007 situation and solve its

problems are:

 Preservation of customer’s gratification and loyalty programs.

 Reducing its expenses, mainly the ones related with jet fuel and aircraft maintenance (see

strategy implementation part for more explanation)

Strategy Implementation

The first strategy is to focus on customer satisfaction and loyalty. In order to do this, we

suggest that JetBlue makes its flight more pleasant by adding Live TV and Wi-Fi in the airplane,

so that people can check their emails. In addition, JetBlue can provide online booking and hire a

full time reservation agent or voice machine to sell ticket over the telephone. JetBlue

preservation of customer’s gratification and loyalty programs can also be done by using

membership cards, points system, or upgrades. (JetBlue Airways, n.d.)

The second strategy is to reduce the expenses, mainly the ones related with jet fuel and

aircraft maintenance. In order to reduce jet fuel expenses, we recommend JetBlue to use smaller
 25 | JETBLUE AIRWAYS

aircrafts in low seasons and leave the large ones for high seasons. In addition, JetBlue can

implement plans to save aircraft fuel, increase fuel efficiency, and reduce fuel burn. (JetBlue

Airways, n.d.)

Maintenance is really important for airlines as it is needed to insure that the engines are

running good, and there are no defaults in the engines. JetBlue need to find new strategies that

can be implemented to reduce the maintenance expenses of the aircrafts. JetBlue can outsource

the maintenance to lower cost countries that have a lower cost labors, or source the maintenance

and repair through a tender to other airlines (Reals, 2008). Moreover, JetBlue can put off non-

essential repairs and maintenance to further date, which helps JetBlue to send flights over and fly

safely to the other destination, while eliminating redundant maintenance (Reals, 2008). By using

some or all of these suggestions, JetBlue can reduce its expenses.

Evaluation and Control

By reading JetBlue’s Annual Reports, we realized that JetBlue had used almost the same

strategies that we suggested. The company focused on its customers’ loyalty and satisfaction by

doing many things, such as introducing the JetBlue Customer Bill of Rights that offers

compensation to customers who face troubles with JetBlue, having over five million members of

its TrueBlue loyalty program, providing online reservation opportunity, and offering Wi-Fi in the

airplane. JetBlue had also focused on cost reduction by doing several things, such as using

single-engine taxi and ground power to save aircraft fuel, postponing aircraft deliveries from

manufacturers and selling aircraft, and replacing Airbus A320s with smaller EMBRAER 190

aircraft, which has 100 seats, in low seasons. (JetBlue Airways, n.d.)

For several reasons, we believe that both our suggested strategies and JetBlue’s strategies
 26 | JETBLUE AIRWAYS

are good strategies. These reasons can be summarized as follows. Rising prices of jet fuel and

increased aircraft maintenance expenses along with other expenses led to an increase in JetBlue’s

overall expenses. These expenses could not be offseted by JetBlue’s high, increasing revenues

leading to net loss of $1 million in 2006. Moreover, JetBlue’s reputation as a customer-friendly

airline was tarnished in February 2007 by its inability to deal with a severe snowstorm in the

Northeastern U.S., which stranded thousands of JetBlue’s passengers at airports.

Conclusion

Rising prices of jet fuel and increased aircraft maintenance expenses along with other

expenses led to an increase in JetBlue’s overall expenses. These expenses could not be offseted

by JetBlue’s high, increasing revenues leading to net loss of $1 million in 2006. Moreover,

JetBlue’s reputation as a customer-friendly airline was tarnished in February 2007 by its inability

to deal with a severe snowstorm in the Northeastern U.S., which stranded thousands of JetBlue’s

passengers at airports. Competition had also intensified and several airlines were taking

advantage of bankruptcy protection to recapture market share through price cuts. To solve these

problems, we did SWOT and financial analysis for JetBlue, which helped us to come up with the

strategies that JetBlue should follow to solve its problems. These strategies are preservation of

customer’s gratification and loyalty programs, and reducing the expenses, mainly the ones

related with jet fuel and aircraft maintenance.

 27 | JETBLUE AIRWAYS

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