The following are critiques and analysis of the Jet Blue ppt uploaded that other students have posted pertaining to the topics in bold. Each discussion has a topic in bold that was critiqued by a student. Read the Jet Blue Case PPT uploaded and respond in detail to each of the following students' critiques. Answer any questions and/or concerns that are expressed by each student in each of the following discussion posts:
Discussion 1:
Industry analysis (except for five competitive forces analysis), as well as its alignment/consistency with the case report as a whole. Support of the selected strategy should also be assessed.The group did a really good job on their interpretation of the airline industry. They made sure to exclude those that fly private jets, or military flight. This is evident of their use of constraints. For example they made it known in the beginning that a 50 person minimum must be transported at all times for a company to be a member of their defined industry. I also appreciated that they stated “commercial” as this allowed me to better visualize what company I, the reader, would be comparing the strategies outlined in the case of Jet Blue. When I first read the case, I took into consideration that the team presented us with a growth rate of 3.8% for their defined industry. When I saw that the group then set a goal of 14% growth in revenue for the next 5 years, I thought; “Wow that’s a very lofty goal”! Of course the first thing that came to my mind was the competition which easily can take advantage of economies of scale, the safety of a well-established brand, and the ability to obtain contracts with businesses that have travel expenses. Understanding the group’s strategy, they are looking to capitalize on the “hidden gems” of discount flight. I see that the group is looking to concentrate heavily on marketing which would allow the organization to increase their market share. Of course most companies such as Jet Blue have the challenge of not having much visibility, thus an organization such as Jet Blue has a lot of potential to increase their revenue. Should they have a solid marketing plan, Jet Blue does have its challenges. So many times people looking to book a flight normally look for the larger companies I would be interested to know more specifically the demographics that compromise specifically the discount companies such as Jet Blue. Another concept I was hoping to see (or maybe I overlooked this), is how JetBlue would compete with the airlines which partner with such websites like Expedia or Priceline which I assume would contract with specific companies. Would JetBlue explore these avenues as means to increase revenue? Another part of strategy in part with their industry analysis is which demographic group JetBlue was looking to target in terms of their marketing strategy. My reasoning is that with the allocation of marketing resources, I would wonder if the team was planning on concentrating on college campuses, or if they would be presenting to businesses that often secure companies such as Jet Blue as their vendor for air travel. I did feel the group presented the challenges that plague the airline industry. Such issues raised were the threat of terrorism, the unpredictability of today’s weather patterns, and of course the all too popular cost of fuel.
In term of their Pro-Forma statement, I feel that the group allocated nicely between capital raised, and expenses incurred their plan to fund their venture. As a reader their plans were clearly outlined, and I was able to follow their costs. My only question is how they plan to level off their cost reduction, as I would assume that as Jet Blue gains market share, they will end up spending more to reduce their overall costs. I am curious to see how the group came up with the idea to keep this area as stagnant as it appears to be.
Challenges that Jet Blue would face, had this been a real life situation is the fact they are attempting to increase their market share, invest in equipment to accommodate increased ridership, while keeping their “low cost” platform. The 14% increase in revenue is attainable in my eyes, but part of achieving this goal will also mean that JetBlue will have to examine their price points as a budget carrier to accommodate the increase in variable costs associated. The strategy and the costs associated with JetBlue’s goals are overall consistent, and really come together to tell the reader a store about how a budget carrier will sustain its brand in the midst of corporate giants.
Discussion 2:Five competitive forces analysis, as well as its alignment/consistency with the case report as a whole. Support of the selected strategy should also be assessed.Great job, JetBlue Team. I think that you made a sound argument that was carried throughout your whole presentation. The section that I was responsible for review was the five competitive forces analysis, as well as support of your selected strategy.
Five Competitive Forces
The purpose of the section was to portray the level of competition within the industry, which in turn would explain its effect on industry profitability. If each of the forces ranked as strong, that would reflect negatively on industry profitability. And opposite, if the competition ranked weak, that would reflect that competition has little to no effect on industry profitability. For the sake of our assignment, we were supposed to rank the Five Forces as either very strong, strong, weak or very weak.
When it came to your five competitive forces analysis, your team used a ranking system of strong, weak and moderate. Because you deviated from the assigned ranking system, it was a little difficult to understand which side your analysis was supporting. For example, did your “moderate” ranking fall more towards the side of strong? Or more towards the side of weak? I can only assume, given your overall strategy, that industry competition greatly impacts profitability, and therefore your “moderate” rankings would lean more towards strong – is this correct?
Rivalry – I would have ranked this particular force as Very Strong. I think that the industry, in addition to your key points, also shows 1) growth in product demand 2) competition is trying to grow in market size 3) high potential payoff for strategic moves 4) volume is important. I am curious why you decided to only identify this as “strong” versus "very strong"?
Entry – I completely agree with your assessment as weak. While there is a possibility of entry, it is not as probable as other industry. There are many risks involved, high costs and already established brand loyalties. In addition there is a pretty high learning curve, with special skills required.
Substitutes – I would have ranked this as strong. I think due to economic times, people aren’t travelling as far and therefore can use alternate modes of transportation. In addition, business are relying more on technology to bring together webcasts, conference calls, etc – much cheaper alternatives. I also agree with all the other points you have listed.
Buyers – I would rank this category as weak. I agree with all the comments that you have listed. I am curious which way you would lean towards ranking this force given the above ranking scale?
Suppliers – I would have ranked this as strong. I think you guys are correct with your analysis. There are very few substitutes for suppliers' s products, the product is very important to the airline business, and suppliers probably have differentiated products and/or switching costs.
Overall, if your team was to re-rank using the scale of very strong, strong, weak or very weak, I am curious what your overall assess would show in terms of effect on industry profitability.
Overall Support of the Strategy
Again, I think the JetBlue team did a very nice job identifying a sound strategy. I think that for the most part, the strategy was consistently supported throughout the whole presentation. The only section that confused me, and didn’t flow with the strategy, was the VIRO analysis. The VIRO analysis is supposed to show a sustainable competitive analysis not an advantage looking at sustainability (or eco friendly practices). The sustainable competitive advantage of JetBlue is its low cost leadership – also noted as the #1 strength on your SWOT analysis. This advantage is what separates JetBlue from competitors and will sustain the profitability of the company. It is Valuable, Inimitable, rare and organizationally capable – thus JetBlue will be able to maintain a sustained competitive advantage.
If the JetBlue team were to look this section over again, would they agree that it was done incorrectly? And I am curious as how you would rank the company in terms of valuable, inimitable rare and organizationally capable? This ranking will show whether the team feels that the company has a sustained competitive advantage.
Discussion 3:Five competitive forces analysis, as well as its alignment/consistency with the case report as a whole. Support of the selected strategy should also be assessed.Porter’s five competitive forces include rivalry, potential entry, substitutes, buyers, and suppliers. Per the guide for this case analysis, each force was to be assessed using the following factors: 1) very strong, 2) strong, 3) weak, or 4) very weak. Your team provided excellent information and support to your assessments.
Rivalry
I agree that JetBlue’s rivalry force is strong. Many of the factors provided in the guide point to a strong assessment. With 30+ competitors, the competition is definitely high and with JetBlue becoming an industry player as recent as 2000, competition does seem to be increasing. Did your team come across any other recent competitor additions? Another extremely important factor to assessing this force is the associated exit costs. As explained in the guide, a strong rivalry force indicates high exit costs which are obviously a factor within the airline industry. The costs associated to enter the industry are extremely high (labor costs, equipment, marketing, etc.) so to exit, one can only believe the financial ramifications will be just as high. Fixed costs associated are another factor. My assumption is that airplanes and the airline industry have substantial fixed costs. Besides these few main factors, I am also leaning towards the following factors being attributable to JetBlue’s rivalry assessment: a high potential payoff for strategic moves, increased threat of buyouts of competitors exist from large corporations, volume is important, low switching costs, and that some competitors are dissatisfied with market share. All being said, I’m leaning towards rivalry possibly being very strong. Was there anything specific your group came across that decided on a strong assessment vs. very strong?
Potential Entry
Again, I would agree JetBlue, at a minimum, has a weak potential entry force. The airline industry has high capital requirements, high brand preference and customer loyalty, requires a specialized know-how with obvious learning curves, and competitors seem to have high dedication to the industry. Similar to my thoughts on rivalry, with so many factors pointing to a weak force, I lean towards an assessment of very weak. Was there anything specific that caused your group to select weak vs. very weak as an assessment, maybe the deregulation with the industry?
Substitutes
Substitutes is a tough one within this industry. I would agree with a moderate assessment but if I had to choose from the options given within the case guide, I would probably go with a strong assessment. I’d choose this based on the low cost/price structure for substitutes. Technology, such as the internet and Skype, and car, train or bus substitutes all are available at substantially lower costs than flying. In addition, I’d argue these substitutes rank high in quality and performance. Costs to switch between a flight and one of these substitutes are very low, and finally, these substitute options come from high profit industries including technology and transportation. I think the one factor holding back from a very strong assessment to this force is the fact that the possibility to substitute absolutely depends on the distance and reason behind a decision to fly.
Buyers
The buyer force is also difficult to pinpoint. First, buyers can either be business or individuals as you mentioned. I think this probably causes the most difficulty. But, if we look at it from an individual purchaser perspective, I think buyers purchase low volumes. This supports a weak assessment. Another area of question, where I feel one could go either way is in determining if the products are considered standard. I think generally, most flights are. But then again, there are flights that offer first class, meals, beverages, larger seats, entertainment, etc. and some that do not. This supports a differentiation in products. Differentiated products also support a weak assessment. Again, we see low switching costs; supporting a strong force, and buyers having full information (through the use of technology); supporting a strong force. The final factor presented is the buyer’s threat of backward integration. With a focus on individual purchasers, there is no threat for a single buyer to affect this industry. This too supports a weak assessment. While I think a moderate assessment is quite clear based on the review of these factors, if I had to choose from the options provided in the case, I would lean towards buyers being a weak force simply because there are more weak factors than strong.
Suppliers
A moderate assessment for this force also seems appropriate but if I had to choose I would go with a strong assessment. Suppliers seem to be dominated (for the most part) but a few companies, substitutes on what to use to manufacture a plane seem very limited, supplier products are important to the airline industry, and because the products provided by suppliers are differentiated, switching costs may be a factor. All of these factors support a strong assessment. I did have a difficult time wrapping my head around the factor about suppliers posing a credible threat of forward integration. What were your thoughts on this?
As far as your overall strategy is concerned, I think making acquisitions, attaining market share leadership, increasing marketing, and implementing cost reductions are all great ideas. I was stunned to see the huge revenue growth rate presented at the beginning of the analysis and then to turn around and see a loss. After reading through your case analysis, I can see how such could happen, but never-the-less still very surprising. How devastating to have 40% average revenue growth over 4 years but to still incur a loss. I think that just goes to show how difficult it is to enter this industry, how much capital it takes, and how much expertise and preparedness is needed to succeed. This isn’t an industry you just half-heartedly jump into. In this industry you absolutely have to spend money to make money. So, I think acquisitions and growing aircraft is important but also implementing cost reductions in other areas at the same time. This needs to be done without affecting quality and by dominating the four major cities it operates in now and by expanding into additional cities. Sounds like a tough industry!