기업분석#(JetBlue Airways-1)

   

Statement Problem

 

          Jetblue is launching is initial public offering and needs to determine an initial price. The current price could leave money on the table but if they were to raise the price it could compromise the success of the IPO. If they raise the price it could send a strong signal of confidence to the market but since its only 6 months after September 11th if the price is too high the IPO could fail.

 

      Company Background

 

          In July 1999, Fonder David Neeleman announced his plan to launch a new airline that would bring “humanity back to air travel.”  JetBlue is a low-cost airline focused on customer service. JetBlue started off with large amounts of capital from high profile firms and recruited people such has former vice president of Continental Airlines David Barger as COO and former vice president of southwest airlines John Owen as CFO. In 7 months JetBlue had a small fleet of Airbus A320 aircraft slowly adding more destinations as the company grew. JetBlue’s early success was attributed to Neelemans expertise in the airline startups such as Morris Air which was sold to Southwest Airlines.

         

         JetBlue’s strategy was focused on fixing things that “sucked” about air travel. JetBlue offered low-cost travel with leather seats, free live TV at every seat, preassigned seating, reliable performance, and high-quality customer service. JetBlue soon became the cheapest per mile airline in the industry in 2001 and acquired new aircraft allowing it to be the most reliable and fuel-efficient airline. A key strategy of JetBlue was to buy a single type of aircraft allowing it to achieve greater economies of scale which helps them keep low prices by minimizing maintenance costs. JetBlue was also very innovative after the attacks on September 11th they were the first airline to equip bullet proof  Kevlar doors on the cockpits as well as install security cameras.

      Industry Analysis  

        The airline industry is a major part of the increasing global economy contributing to tourism and international trade. In 2001 the airline suffered substantial loses due to the attacks on the world trade center on September 11th. In 2001 the industry as a whole suffered -7,234,855 decrease in net income. JetBlue was a small airline at the time so there loses only contributed -15,837 (7). After the attacks the number of airline passengers remained low until about 2004 when the number of flights finally reached pre 9/11 levels. With less seats available due to the shift caused by 9/11 when more people started flying, planes were able to fill up making them more efficient. During the recovery more passengers started flying low cost carriers and the price of air fare decreased showing a shift from legacy airlines to low cost carriers. “Annual available seats on low-cost carriers increased by 24%4, from 182 million in 2000 to 226 million, in 2004, and passengers increased by 27%, from 124 million to 158 million, during the same period.” (6). The decrease in the price of air travel also expanded the market to people who previously couldn’t afford it. Low cost airlines were able to keep costs low by keeping employment costs low by focusing on fewer airports with high volume of travel. This is one of the biggest advantages of LLC strategy since employment is most costly things to the industry with fuel being a close 2nd. JetBlue was able to keep fuel costs below other airlines by only buying new planes which were more fuel efficient.

        Threats of new entrants in this industry would be low because of high barriers to entry and high exit costs. The buying power of suppliers is very low in the industry since only a few companies manufacture planes and it isn’t very likely that an airline starts producing their own. Power of buyers is medium to high, the difference between one airline and another is relatively low and the price competition is high. The availability of substitutes is low if you have the money to fly the likelihood you choose to drive from Michigan to Florida is low considering the difference in costs and the time saved. Rivalry in the low cost carrier industry is high there is significant price competition, fixed costs are high and excess capacity can be a drain on profits.