Discuss the Trends in the U.S. Airline Industry and How These Trends Might Impact a Company's Strategy

Discuss the trends in the U.S. airline industry and how these trends might impact a company's strategy.

The following are some trends in the U.S. airline industry and their impact on a company's strategy. In the first six months of 2008, the U.S. economy slowed and crude oil prices rose to a record of $140 per barrel. Businesses began to cut back on employee travel, and consumers started to save money by avoiding vacations. Jet fuel prices skyrocketed as crude oil prices rose. The Airport Transport Association determined that each 1-cent increase in the price of a gallon of jet fuel cost the industry an additional $190 million to $200 million a year. Rising fuel cost was a challenging factor on a company's strategy by trying to come-up with ways to offset this cost. The airlines charged the consumer $25 for a fuel surcharge; $15 for the first checked bag; and started to charge for headphones, pillows, and blankets. They even went as far as cutting their operating costs by lowering employee wages and grounding aircraft to save money.

Fuel cost also impacted smaller airline companies causing them to go bankrupt, while larger companies merged. Another trend in the industry is the lack of qualified pilots. The International Air transport Association estimated that the global airline industry needed 3,000 more pilots each year than training schools were providing. This shortage was caused by the thousands of pilots from the baby-boom generation who were retiring and by the necessary thousands of flying hours needed by first officers to get become qualified captains. This had a negative affect on a company by having a lack of pilots to fly their planes. Smaller companies struggled to survive due to losing their pilots to the larger airline companies due to better salaries and benefits (Thompson, Stickland & Gamble, 2009, p C68-C71).

2. Discuss Jet Blue's strategic intent.

David Neeleman's idea was to start a company that would combine the low fares of a discount airline carrier with the comforts of a small den in people's homes. His idea included services to accommodate both business and customers who were traveling for personal reasons. The goal was to make flights affordable for everyone that were comfortable, as a addition current entertainment was provided for customers. He also placed a lot of emphasis on making customers a priority and happy. Mr. Neeleman had a bad experience on a flight where the fabric seat he was assigned happened to be soaked with urine. This awful experience motivated him to equip the plane with leather seats. Leather seats are easier to clean, and more comfortable (Thompson, Stickland & Gamble, 2009, p 53).

David Neeleman resigned due to a unfortunate situation in 2007 because the company failed to provide exceptional customer service. A new management team was put in place to help reestablish Jet Blue's damaged reputation and to implement new techniques to prevent future mishaps. The new management team needed to put in place new operation procedures, communication systems, and information technology solutions to prevent another weather related debacle. It needed to deal with rising jet fuel prices and the emergence of new competitors just as it was making the transition from a start-up airline to a major domestic carrier. Jet Blue's vision is good except for the weather mishap which caused the company to go under new management (Thompson, Stickland & Gamble, 2009, p 53).

3. Discuss Jet Blue's financial objectives and whether or not the company has been successful in achieving this objective

Jet Blue did not deliver value to its stockholders over the five-year period ending in December 31, 2007. None of the major airlines did. The common size income statements show that Jet Blue's fuel cost consumed 33 percent of its operating revenues versus 26 percent for Southwest. Southwest hedged more of its jet fuel costs. Jet Blue's net interest expense was 6 percent of operating revenues versus 1 percent for Southwest. Southwest had hedges to protect over 70 percent of expected fuel consumption at an average crude oil equivalent price of $51. Southwest even had hedges in place to protect 15 percent of 2012 fuel needs. Jet Blue failed to accurately forecast the high cost of jet fuel compared to their competitors (Thompson, Stickland & Gamble, 2009, p C64-C67).

4. Discuss Jet Blue's strategic elements of cost, organizational culture, and human resource practices and evaluate whether each element provides the organization with a competitive advantage.

Jet Blue was a discount airline carrier. It offered passengers low fares; operated point to point systems; used two types of aircraft; served only snacks; and maintained quick turn