please paraphrase the case study bellow

Analyzing the External Environment of the Firm

Organizational leaders must become aware of factors in the overall environment that might affect their ability to create a competitive advantage.

What factors or trends might be most important to JetBlue? To assess how theexternal environmentmight affect JetBlues strategy, its necessary to take a look at the factors in the general external environment. JetBlue must consider the political/legal, economic and global, sociocultural and demographic, and technological forces that might affect the ability of the firm to deliver its service and sustain its business.

Political-Legal: Under the legal factors, the deregulation of the airline industry in 1978 provided an opportunity to several players to enter the market. It allowed new market segments such as that of the low cost, point-to-point services to emerge. It thus changed the industry landscape. Also, the bankruptcy laws had a significant role to play as they allowed even non-profitable operators to continue in the industry when they were protected.

Economic: The airline industry is susceptible to upturns and downturns with the trends in the economy. A growing economy and booming business mean greater demand for air travel, and a slow-down in the economy means reduced demand, consequent unutilized capacity and intensified competition. The availability of venture capital, and other capital sources have an impact on the number of new entrants into the industry. Interest rate fluctuations have an impact on the cost of operations for companies that have high levels of debt. Moreover, JetBlues example shows that severe weather can have a major influence on airline profits and ultimately also its brand image. Furthermore, wars with other nations and increases in fuel prices strongly impact the air industry.

Sociocultural: The airline industry is highly susceptible to the extreme events such as the September 11, 2001 attacks on the World Trade Center, and publicity surrounding any air accidents. These create fears in the minds of customers toward air travel and have a severe adverse impact on the industry. It also means increased security concerns, delayed flights, increased turnaround times all these have an impact on customer perception of value, and therefore affect airline profitability.

Technological: The emergence of Internet technology and other breakthroughs have had an impact on the way the airlines conduct their businesses. For example, the Internet reduced the dependence on ticketing agents. Most of the low-fare airlines sell tickets through their websites. Customer service is being extended by personnel working from their homes. All these have made it possible to reduce the costs of operations making it favorable for the low-cost airlines to operate. Also, with the Internet, customers now search and compare prices of air tickets much more easily than earlier and this accentuates the price competition. Its also necessary to assess Porters Five Forces of Competition. Based on the external environmental factor analysis, the airline industry has many competitors trying to carve out a piece of the profit pie. Here are some details:

Threat of new entrants: In the airline industry, deregulation and availability of alternate sources of funding reduced the barriers to entry.

Economies of scale. This did not work out well for the players in the airline industry. The hub-and-spoke model developed by the major players, led to more of diseconomies of scale than economies. However, the large investments already made by the major airlines, and their established networks do pose a significant threat to new entrants unless they counter it with highly efficient operations.

Product differentiation. Airlines try to create strong brand identification and customer loyalty by using the frequent flyer programs. When there is strong brand identification, it forces the new entrants to spend heavily on weaning away customers from the existing players, thus discouraging their entry. However, in the airline industry the brand identification has not proved to be so strong as to prevent people from switching to other airlines. Some low-cost players are trying to achieve some product differentiation (e.g., JetBlue providing more legroom. However, these are not very strong barriers to entry as the other entrants are imitating them rather easily.

Switching costs. There are virtually no switching costs for customers. The frequent flier programs attempt to create switching costs. However, when the customers are presented with low-cost options, there is nothing strong enough that could prevent them from switching to other airlines.

Thus, the airline industry faces a high threat of new entrants particularly in the low-cost segment. The barriers can be heightened only when they have very closely tied and ultra-efficient operating routines that competitors find it difficult to copy or imitate.

Bargaining power of suppliers is high when there are few suppliers in the industry, there are no easy substitutes to suppliers products, when the buyer industry is not an important customer of the supplier group, the suppliers product is an important input to the buyers business, the supplier products are differentiated or built up switching costs, or the supplier group poses a credible threat of forward integration. There are only two major suppliers, i.e., Boeing and Airbus, to the industry and when the airline trains its pilots on either Boeing or Airbus, switching costs get built in terms of pilots training in the event the airline decides to change the supplier. Thus, the supplier does enjoy considerable bargaining power. However, there is no credible threat of forward integration by the suppliers such as Boeing or Airbus.

Bargaining power of buyersis low as the buyers are not concentrated. While the buyer does not have any switching costs, and there are several choices available, they still lack concentration. Internet impacted in increasing the buyer bargaining power because the buyers can compare the prices more easily and in view of no switching costs, they could choose whichever airline offers a low price. Thus, the buyers may be able to influence the airlines to reduce their prices over time. There is no threat of backward integration from the buyers.

Threat from substitutesis high when the distances traveled are shorter. In such cases, the customer can choose to travel by land, by car/limo/bus/rail as they might prove to be cheaper alternatives. However, for longer distances and for more hurried customers, the airlines do not face significant threat from substitute modes of travel.

The intensity of rivalry among existing competitors in the airline industry is very high. There are numerous competitors, and in times of low or moderate industry growth, the competition gets fiercer as each one tries to nab customers from the other in order to keep their capacity utilizations at acceptable levels. The exit barriers are high because it is difficult to dispose of grounded planes, as there would be few buyers. Also, due to the bankruptcy laws, even the loss-making companies might still be around for a long time thus intensifying competition. So, it is easier to get into the industry but might be difficult to get out. The only solution for many companies is to merge, which is why there has been so much consolidation in this industry over the years.

In addition, as described in the case, there were traditionally three segments to the U.S. airline industry: major airlines such as the legacy carriers American, United, and Delta, regional airlines such as Sky West (based in Utah) and Cape Air (out of Barnstable, MA), and low-fare carriers such as Southwest, Virgin America, and Allegiant Air. Although JetBlue is identified as a low-fare airline, the external environmental shifts in recent years meant the legacy carriers could provide innovative offerings similar to those of low-cost airlines while still maintaining their alliances with regional carriers. The gap between low-cost airlines and the traditional network-based carriers was diminishing rapidly. JetBlue was caught in this squeeze, forcing it to evaluate its operational decisions even more carefully.