Case Analysis #1 JetBlue
JetBlue Airways was founded in 1998 by former Southwest Airlines employee, David
Neeleman, The company looks to utilize similar cost savings techniques as Southwest
and has even improved, expanded and added some. In addition, JetBlue has attempted
to offer differentiation in service to improve the customer experience.
Unlike most pointtopoint airlines, JetBlue decided to add a second airplane model in
order to expand into the regional flights. A deal was struck to purchase up to 200 jets
from Embraer through 2016. The growth the company forecasted was soon realized to
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Influenced by: Regulation/Deregulation, protocol and guidelines, customer
dissatisfaction, Department of Transportation and Federal Aviation Administration
Five Forces Model
Threat of New Entrants:
The barriers to entry in the airline industry are relatively low. The airplanes themselves
can be rented or leased, and the regulations to enter the industry are not intensive.
Especially currently with low interest rates and an ease to acquire capital, new entrants
will be able to finance initial investment somewhat cheaply compared to the past. In
addition, new companies can easily sway customers to switch loyalties if the new
company provides cheaper service or better quality.
What helps existing firms is that they have established economies of scale in the
industry along with relationships with buyers and suppliers. Also, it is a highly capital
intensive industry and initial costs will be high. Often companies will have to sustain
losses for prolonged periods of time upon entering the industry. Even then, profit
margins are low in comparison to other industries so there is not a large incentive to
Due to all this, the threat of new entrants is low.
Power of Suppliers:
There are only two suppliers for the industry, Boeing and Airbus which increases their
power. Those suppliers are also often able to lock in long term contracts to the airline
companies.There are other suppliers that produce regional jets, which affects large
companies if they offer regional service or own subsidiaries that specialize in doing so.
Airplane producers however do not pose a threat of forward integration and are
somewhat reliant on the firms for business because they have very few revenue
The power of suppliers is medium.
Power of Buyers
There is no threat of backward integration from buyers since they are simply travelers
and passengers but buyers have very much power in this industry. There is little brand
loyalty since consumers will be sensitive to price and forced to take the airlines that will
get them to their destination. Although there are programs such as “frequent flyer” that
try and induce increased loyalty, there is still very little. Customers are also very easily
aware of price differences due to online sites and other than the lossed “frequent flyer
miles” there is no switching cost. Fluke events such as the events of February 2007 for
JetBlue can cause dramatic changes in consumer habits and they normally can easily
avoid certain companies if they so chose.
For business travelers, companies are increasingly able to telecommute or
econference so the need for business travel is becoming less prevalent. Buyers have
many alternatives such as cars and trains and the shorter the distance, therefore the