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External Environment Analysis on Jetblue

Essay by   •  June 18, 2012  •  Case Study  •  1,725 Words (7 Pages)  •  5,229 Views

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EXTERNAL ENVIRONMENTAL ANALYSIS OF JETBLUE AIRWAYS

JetBlue Airways began its operation in the beginning of 2000 as the low cost carriers (LCC). After 5 years in the airlines industry, JetBlue has become the 9th largest passenger carriers. By the year 2007, it held 30% of the domestic departures. JetBlue break the traditional practices by typical LCCs by adding another type of flight in its operation. A typical LCCs company is normally limited their flight to one type. By breaking these traditional practices, JetBlue put at simultaneously at advantages and risky position.

From the case study, we perform an external environmental analysis of the firm using various frameworks/methods (i.e. PESTEL framework, Porter's Five Forces). We also analyse the competitive environment of JetBlue Airways.

PESTEL analysis

PESTEL is a framework used to categorized and analyse an important set of external forces that might impinging upon firm. The external forces being analysed are; political, economic, social cultural, technological, ecological, and legal.

Political factor is any process or actions of the government bodies that influence the decisions and behaviour of the firm. Economic factor that is important in this framework is growth rate, interest rate, level of employment, price stability, and currency exchange rate. Social cultural is the society's cultures, norms and value. Ecological is another force that is analysing in the PESTEL framework which concern broad environmental issues such as the natural environment and global warming. The last force is legal. Legal environment captures the official outcomes of the political processes as manifested in laws, mandates, regulations, and court decisions.

Below is the analysis of the external environment of JetBlue based on the case study.

1. Political issues

a) September 11, 2001 terrorist attack.

After September 11, the airlines industry has experienced troubles. The domestic airline yields dropped almost 20% in the aftermath of the attack and remained below pre-attack levels until 2005.

b) Political stability.

The Valentine's Day crisis highlighted the need to reconsider JetBlue's long-standing operating principle of not cancelling flights. The crisis has lead to the introduction of JetBlue's Customer Bill of Rights.

c) Competitive Airline Industry.

JetBlue is often compared to Southwest Airlines due to the emphasis on the low fares and its decisions to avoid the hub-and-spoke architecture of legacy airlines.

The airline industry was rocked by the deregulation, fare wars, over capacity and the terrorist attack of September 11.

2. Economic issues

a) Rise in inflation

By late 2006, JetBlue face soft earning demand like other airlines. Analysts from Barclays have warned that once the price per barrel of oil reaches $150 this would trigger inflation in both developed and developing economies. They foresee a 2.7 percent increase in inflation in developed countries and a 4.5 percent increase in inflation in developing countries.

b) Rise in fuel price

The operational is challenged by the unabated rise in fuel cost. As the fuel price is increased, JetBlue slow its rate of growth by reducing its purchase commitments for new planes.

c) Improved purchasing power

Customers have more choice as JetBlue served the medium-sized cities by its E190 that were currently served by regional airlines affiliated with legacy carriers.

d) Level of employment (Shortage of pilots)

Though individual pilots could theoretically be trained to fly both A320 and E190, dual certification was practically infeasible. Certification is depended on the number of flights a pilot had flown on a given aircraft type. As a result JetBlue pilots were only trained to fly one type of flight.

As baby boomers retire by the thousands, the airline industry is experiencing a shortage of pilots. Before becoming captains, pilots must earn sufficient fly hours. However, flying schools do not have enough instructors to train enough new pilots.

3. Social issues

a) Greater customer awareness

When JetBlue decided to served the short-haul routes by its E190, they are going to serve the business travellers. These groups of customer are more concern on the on-time time schedule as compare to the leisure travellers as they serve before in A320. It will be more challenging if the technical problems occurred while serving these customers because if they are not satisfied at the first time, it's hard to get them back.

b) Increased entertainment level

Southwest focused on customers whose priority was low-cost, on -time performance. JetBlue differentiate its operation by adding some comfort features such as assigned seating, leather upholstery and satellite TV. JetBlue offered fares are up to 65% lower than the legacy competitors.

c) Security level of customers

Federal Aviation Administration (FAA) prohibited domestic flights from take off during "ice-pellet" condition.

d) Best / Bad services

JetBlue's flights were heavily booked on the President's Day weekend but the weather forecast predicted early snow turning to rain. Despite the fact that the snow lingered longer than expected, JetBlue continued to board flight. Unfortunately the snow turned to freezing rain has the FAA to prohibited domestic flights to take off. It has created havoc on the entire JetBlue system. This Valentine's Day Crisis has prompted Neeleman to introduced JetBlue's Customer Bill of Rights.

Prior to the crisis, BusinessWeek had compiled its lists of top performing companies with respect to customer service, placing JetBlue in the fourth spot.

4. Technological issues

a) Beginning of e-ticketing

To support its lower fares, they provide customers with incentives to reserve and purchase ticket via company's website. To support customers who wanted to make reservation via phone, the company set up a corps of reservation agents who work part-time form home.

5. Ecological issues

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