Question No: 01 Read the case-let below and answer the questions that follow: In the period between 2001 and 2003, when JetBlue's growth was at a peak, most of the major airlines in the United States were suffering from the adverse effects of the September 11 attacks. JetBlue had taken advantage of its competitors' weakened state to boost its own growth. In 2003, JetBlue launched flights from Atlanta to Los Angeles, one of the busiest routes in the United States. Atlanta was Delta's hub, and when JetBlue entered the market, Delta responded by instantly adding capacity and lowering prices on this route. It also added routes to other destinations in California, quickly establishing its dominance in the region. AirTran, another LCC that operated from Atlanta, also responded aggressively by leasing new planes to increase capacity. Eventually, JetBlue was forced to withdraw from Atlanta in December 2003, just seven months after it started its operations there. Legacy carriers also launched low-cost subsidiaries of their own, in an effort to compete with the growing number of LCCs. Delta launched an LCC called Song in April 2003, to compete directly with JetBlue. Song was also based at JFK, and flew many of the same routes as JetBlue. Like JetBlue, Song also offered amenities such as leather seats, and a free personal entertainment system at every seat. It also served beverages, but charged for meals and liquor JetBlue also faced competition from LCCs such as Southwest, Air Tran, America West, Spirit Airlines (Spirit), and Frontier Airlines (Frontier). Although none of these airlines offered the same kind of service as JetBlue, all of them were well established in their home markets, and had loyal customer bases. Southwest especially had the lowest cost even among the LCCs, and was very popular among passengers who were willing to give up in-flight services for cheap tickets. AirTran and Spirit operated two classes on their flights and targeted business passengers successfully with their low-fare Business Classes. With the exception of Southwest and Spirit, all the LCCs also offered some form of in-flight entertainment, although AirTran was the only other airline that offered it free. When JetBlue had first started operations, it had used new planes and fittings, which did not cost much in terms of maintenance. However, a few years later, as the fleet aged, maintenance costs began to rise. Further, JetBlue had to employ more people to meet its requirements, and also give pay increases to people who had been with the airlines for several years. In an effort to differentiate itself from its competitors, JetBlue had also kept adding new in-flight services. In 2003, the airline changed the configuration of its A-320 aircraft, removing one row of seats from the plane, in order to improve legroom for passengers (the number of seats was brought down to 156, from 162). While this made the aircraft more comfortable for passengers, it also lowered JetBlue's revenue earning capacity. However, the move was expected to cut fuel costs, due to the lower weight of the aircraft. Another issue was the problems that JetBlue experienced with its new Embraer-190 aircraft that entered service in late 2005. JetBlue faced a lot of glitches in integrating the new aircraft into its operations. To begin with, Embraer delivered the planes two weeks behind schedule, which caused several flight delays and cancellations. Second, JetBlue's employees lacked familiarity with the planes. Third, the Embraer-190 had some technical issues that caused several delayed flights and significantly lowered JetBlue's aircraft utilization rates. In the opinion of some analysts, JetBlue had been too optimistic in placing such a large order for the untried Embraer planes. After two consecutive losses in the last quarter of 2005 and the first quarter of 2006, several analysts started comparing JetBlue to People Express Airlines, a low-cost airline operated in the United States between 1981 and 1987. In April 2006, soon after announcing the first quarter loss, Neeleman and Barger announced a recovery plan for JetBlue called the Return to Profitability plan (RTP). The main aims of the RTP were revenue optimization, improved capacity management, cost reduction, and retaining the commitment to deliver high-quality service on every flight. As a part of the revenue optimization goal, JetBlue announced that it would reduce the number of long-haul flights and shift its focus back to short-to- medium routes. The company said that it planned to reduce the ratio of long-haul to non-long-haul flights from 1.5:1 in 2005, to 1.2:1 during 2006. JetBlue also said that it would offer fewer tickets at very low fares and more tickets at mid-level fares on all its routes to improve the mix of fares in its revenues. The average fare was expected to rise to at least partly reflect the increased fuel prices. During 2006, JetBlue increased its le transcontinental fare from $349 to $399. The RTP also committed JetBlue to manage capacity better by cutting it on unprofitable routes, and adding it on high-demand routes. During 2006, JetBlue added only 21 percent capacity, instead of the previously projected 28 percent. The capacity on the New York Florida route was cut by 15 percent, while the New YorkLos Angeles route saw an 8 percent reduction in capacity. In addition to this, JetBlue was also putting in efforts to improve the efficiency of its crew members and was trying to accomplish more with fewer full- time employees per aircraft than before. The elimination of one row of seats allowed JetBlue to operate each flight with three attendants instead of four, as federal regulations require one flight attendant for every 50 passengers. JetBlue also began to go slow on hiring people for non-operational positions. Better flight scheduling practices were also implemented to control costs. JetBlue started charging for some premium services. For instance, the company changed some of its refund policies, and increased the fees it charged for flying unaccompanied minors and the cancellation charges on confirmed flights. Q. Based on the above case study, analyze the US low cost carriers industry in the early 2000s. Mention any two opportunities and threats (each) for JetBlue in this industry. [2 + 4 = 6] Based on the above case study, analyze Return to Profitability plans of JetBlue that was introduced in 2006. Which type of directional strategy was employed by JetBlue through this program? Mention the reasons (minimum two) for the fall of performance of JetBlue post 2003. [4 + 4 + 2 = 10]