On February 11, 2000 JetBlue Airways took off on its first flight.

At that

time, the company only had two aircrafts and provided service to one

destination. In five years, on January 1, 2005, JetBlue became a major U.S.

airline as categorized by the U.S. Department of Transportation. The airline

achieved this status faster than any airline in aviation history. Currently,

JetBlue Airways flies to 60 destinations in 12 countries and has a fleet of 151

aircrafts. This is a very significant milestone due to the far-reaching effects

on an industry wide shakedown of costs such as fuel and labor. In order to

continue competing effectively in the marketplace, it is crucial for JetBlue to

understand the dynamics of its industries and markets. It is known that

JetBlue Airways exists in an intensely competitive market and industry, but

just how competitive is it? This paper analyzes the US Airlines Industry

through the use of Michael Porter’s Five Forces Analysis to understand the

degree of competitive power and strength of JetBlue Airways.

The airline industry can be broken down into three categories: major ($1

billion or more in revenue), national ($100 million too $1 billion in revenue)

and regional/ commuter (revenue less than $100 million). JetBlue falls in the

major category with $1.7 billion in revenue but is considered small, revenue

wise, compared to other major airline companies. Based on Porter’s Five

Forces Model, the factors that directly influence the firm and its competitive

actions and responses are:

• The threat of new entrants

• The power of suppliers

• The power of buyers

• The threat of new substitutes

• The intensity of the rivalry between

competitors

Threat of new entrants- Low

Potential and existing competitors influence average industry

profitability. In JetBlue’s case, the threat is from existing competitors already

in the market. This is mainly due to the current economic state we are in

which greatly affects the market entry barriers. The cost of entry consists of

extremely high fixed costs and massive capital requirements. In this

economy, it would be nearly impossible to find funding with the excessive

risk, low buyer confidence and debt to asset ratio of the airline industry.

Major competitors of JetBlue are already decreasing flights and merging with

one another in order to consolidate debt and stay in business since fixed

costs are extremely high.

 However, it is difficult to differentiate between products and services in

this industry since there is little protection of key technologies. Fortunately,

since its inception, JetBlue has offered many innovative strategies. These

include personal satellite TV (with programming from DIRECTV), satellite

radio (from XM), roomy leather seats, snacks and beverages. The cabins

would have only one class of seats which tied into everything eluded an

overall first class experience. To close, the airline industry has a low threat to

entry with little to no appeal.

Power of Suppliers- High

The key inputs in the airline industry are the jet fuel and aircraft

suppliers. The airplane manufacturing industry is dominated by Boeing and

Airbus, supplying the majority of airplanes for medium to large airline

companies. For this reason, the suppliers have most of the bargaining power

in setting and increasing prices when costs rise. However, because of the

hard economic times Airbus and Boeing are struggling with the airline

companies since they are not experiencing any growth and have re-designed

their strategies to discontinue purchasing aircrafts. As a direct result, JetBlue

and it’s competitors have an increase in the bargaining power of this market.

On the other side of the spectrum, there are plenty of jet fuel suppliers.

However, the price of jet fuel has been on a constant rise and is the primary

reason most airline companies are not making any profits. On the bright

side, since JetBlue's fleet consists of only two types of aircrafts it keeps the
cost of the airplanes lower than if they had a fleet of all different types of

airplanes. Nevertheless, most airline companies have very little bargaining

power given that there is a market price for jet fuel and most airline

companies pay exactly or close to that price. In addition, the volume of fuel

supplied to the airlines is extremely important because JetBlue has

prescheduled flights that require a certain amount of fuel. To close, the

bargaining power of suppliers is high.

Power of Buyers- High

There are several options available to customers with what airline they

choose to fly. Since products and services are essentially standard,

customers of this industry are price conscious under their belief that all

airline companies will get them to their destination but would prefer to fly

with the one that can get them there cheaper. With websites such as

cheaptickets.com and universal booking and ticketing online, it is easily

accessible for customers to research the best price.

The recession and overall increase in fixed costs has hit the industry

hard and as a result, they have had to raise their prices. By doing so it has

led to airlines not filling some flights. High bargaining power for the buyers is

a product of this condition because it keeps the average flight cost lower

than what it should be given the current industry conditions and promoted

competition to the airlines to be price leader.

Threat of Substitute products- High

 The numbers of substitutes available in the traveling industry as a

whole are numerous. They range from trains such as Amtrak, buses such as

Greyhound to boats and personal vehicles. The airline industry faces little

threat from substitute products however since the cost of traveling is on the

rise, people desire a cheaper way to get around if it is feasible. Furthermore,

with the state of the economy people are inclined to travel less hurting the

industry as a whole and now more than ever people will drive further if they

believe it will save them more money.

Intensity of Rivalry among Competitors- High

The intensity of rivalry among competitors in the airline industry is

very high. This is due to the numerous companies that strive for the

dominant market share in the industry. Airlines typically try their hardest to

differentiate themselves to gain a competitive advantage, but these actions

typically invite competitive responses from the others. Other factors that

contribute to rivalry include high fixed and storage costs, slow industry

growth as a whole and readily available prices via the Internet.

By adding all these factors up, it is clear that the airline industry is not

attractive. However, by JetBlue’s application of unique business strategies

and core competencies they have been able to make a profit in excess of the

industry average. JetBlue has been able to accomplish this in the hardest

times following the September 11 attacks by reporting a net income of $28.3

million on total revenues of $224.9 million.

"To report a profit in the third quarter while most of our industry is

reporting unprecedented losses is a great tribute to the dedication and

hard work of the entire JetBlue team," said David Neeleman, CEO of

JetBlue.
 JetBlue's current strategy is an integrated cost

leadership/differentiation strategy approach. A large part of their identity, as

a company, is centered on their low-cost flights paired with other luxuries

they have provided for their customers. Without the low-cost alternative to

the major airlines, JetBlue would not have had the same level of success.

JetBlue's core competencies begin with their employees who are trained and

hired the right way. Communication channels are open throughout the

organization and the executives of JetBlue are readily accessible. Customer

service is another area where JetBlue distinguish themselves through a high

degree customer satisfaction. This is especially evident when on June 30,

2009 when the company was ranked 'Highest in Customer Satisfaction

Among Low Cost Carriers in North America' by J.D. Power and Associates.

This customer satisfaction recognition was received for the fourth year in a

row. JetBlue performed particularly well in two of seven measures: aircraft

and in-flight services.

If JetBlue is

able to continue to
applying their core competencies and business model, then I believe they

will remain a successful company in an industry that is currently in turmoil.

Last year, the only competitor that was able to end the year with a positive

net income was Southwest Airlines. JetBlue came in second to Southwest

with a net income of -$76 million dollars and third was Alaskan Air with -

$135.9 million dollars. This is a triumphant feat for JetBlue considering the

rampant bankruptcies of major airline competitor Delta Air, whose ending

net income in the same year was -$8.92 billion dollars.

http://www.jetblue.com/about/pressroom/pressreleases/pr.asp?
year=2001&news=11072001_q32001

JetBlue Announces Third Quarter Profit

New York's Hometown Low-Fare Airline Reports Solid Operating Income and
Net Income During Difficult Industry Times

New York, NY, 11/07/2001

Study: JetBlue, Alaska Airlines Satisfy Customers

by Tanya Irwin, Thursday, July 2, 2009, 3:28 PM

http://www.mediapost.com/publications/?
fa=Articles.showArticle&art_aid=109093

http://www.associatedcontent.com/article/1075407/case_study_jet_blue_plan

e_company_pg5.html?cat=3

charts

http://www.wikinvest.com/stock/JetBlue_Airways_(JBLU)/Data/Net_Income/2008