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JetBlue Corporate Communications Report

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This is a report I did for my Corporate Communications class at the Fashion Institute of Technology, showcasing the competition and trends in the airline industry.

This is a report I did for my Corporate Communications class at the Fashion Institute of Technology, showcasing the competition and trends in the airline industry.

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  • 1. JetBlue Research PaperTerm Project – AC 413Lauren HarperApril 30, 2013
  • 2. 1Table of ContentsBackgrounder…………………………………………………………………………………………… 2 – 4Competitive Analysis………………………………………………………………………………… 5 – 9Informational Interview…..……………………………………………………………………….. 10 – 12Financial Analysis…………………………………………………………………………………….. 13 – 14Sources…………………………………………………………………………………………………….. 15
  • 3. 2BackgrounderJetBlue is one of the largest airlines in North America, and it is constantlystriving to remain on top while competing with other large airlines, and adapting tothe trends in the industry.JetBlue started in 1999, by founder David Neeleman. It was first known as“New Air”. Within the first year of the company starting, it revealed that all of itsaircrafts would offer 24 channels of live satellite television at every seat, a first forthe airline industry. In that same year, the company received an unprecedentedexemption for 75 takeoff and landing slots at JFK Airport. On April 11, 2002, JetBlueannounced the initial public offering of its common stock. In the next two years, itwould launch services to/from hundreds of more locations, add more channels to itsDIRECTV programming and launched itsTrueBlue customer appreciation program.In 2003 it was even named Best US Airline by Conde Nast Traveler Readers for the2nd year in a row. In 2005, JetBlue received the FAA’s highly coveted DiamondCertificate of Excellence Award and then announced a partnership with AmericanExpress for a cobrand credit card. In 2007, the airline started something that noother airline currently offered. After an ice storm that resulted in 23% of its flightsto 11 different cities being cancelled, JetBlue CEO offered a nationwide apology andannounced it would be instating a “Customer Bill of Rights.” This would act as areimbursement program for delayed passengers in certain situations. For example,any 1-2 hour delay would grant the consumer with $25 off a future flight, 2-4 hourdelays would result in $50 off and delays over 6 hours would grant consumers with
  • 4. 3a free round-trip ticket. From 2007-2009 the Smithsonian’s Cooper-Hewitt NationalDesign Museum, J.D. Power and Associates North America Airline CustomerSatisfaction Study, HRC’s Corporate Equality Index and the AIGA recognized JetBluefor its services and customer satisfaction.One of the major trends in the airline industry is the rising price of fuel.According to the International Air Transport Association (IATA), the price of fuelhas climbed 12 percent since 2011. “Iran has threatened to close the Strait ofHormuz, the main shipping outlet for Gulf countries’ oil, in response to internationalsanctions against its nuclear research program. In addition to the direct effect onfuel costs, the I.A.T.A. said, the airline industry is at risk of becoming unprofitable ifoil prices rise enough to hurt the global economy,” according to The New YorkTimes. This issue is obviously tragic for JetBlue and the airline industry as a whole,considering that fuel makes up one third of airline costs, according to the I.A.T.A. InJetBlue’s 2011 Annual Report, it recorded a fuel expense of $550 million.Another industry trend is the “unbundling” of airline fees. For a few yearsnow, customers have been hit with a load of extra charges that used to comeincluded in the price of the ticket. Baggage fees are among the highest, with airlinescharging up to $80 for a single checked bag, and even more if that bag is over the 50lb. limit. JetBlue is one of the only U.S. airlines that still offers a free checked bag(under 50 lbs.) for every passenger. Some other charges include seat-reservationfees, pillows and blankets, food and beverage and headphones. The airline industry,as a whole, has gotten a lot of criticism because a majority of these fees are not fullydisclosed at the time of purchase. According to the Chicago Tribune, there has been
  • 5. 4talk that some companies are starting to “rebundle” fees, allowing consumers tochose which flight upgrades they want to purchase, at an overall cheaper price.JetBlue has grown a lot of consumer respect and loyalty over the past few yearsbecause it does not charge fees for baggage, food and non-alcoholic beverages orseat-selection.
  • 6. 5Competitive AnalysisUnited Air LinesUnited Air Lines is one of the main competitors of JetBlue. Its productsinclude its commercial airline and a United Visa Credit Card offered through Chasebank. It has pretty much the same products as JetBlueThe strengths of the company are that it retains over 15% of the marketshare, giving it a lot of brand recognition and resources to improve. It also has alarge-scale trans-Pacific network.The weaknesses that the company faces mostly deal with customer serviceand satisfactions. The airline charges $25 for the first checked bag, and it alsocharges for any food and drink a customer might want. These extra fees are provento make customers unhappy because they used to be considered complementary.According to the Airline Quality Rating (AQR), its on-time arrival performancedeclined from 85.2% in 2012 to 80.2% in 2011. United’s mishandled baggage rateincreased to 3.66 per 1,000 passengers, up from 3.40 in 2011. It also had a highercustomer complaint rate (2.21 in 2011 compared to 1.64 per 100,000 passengers in2010). Its overall AQR score declined from to a -1.45 (-1.31 in 2010). That was theworst AQR score out of all of the top 11 airline carriers ranked. Some of this sameinformation is also shown on RITA, Research and Innovative TechnologyAdministration Bureau of Transportation Statistics. A chart of its on-timeperformance summary is shown below.
  • 7. 6Throughout all of this negative feedback from customers, United still claimed15.6% of the domestic market share from December 2011 – November 2012. That’sthe second largest domestic airline in the industry, second only to Delta.
  • 8. 7DeltaDelta is another main competitor of JetBlue. Delta’s products include: airlineflights and Delta Skymiles American Express credit card. It also offers “economycomfort”, which is a flight upgrade that offers more legroom, more reclining roomand free spirits on most international flights.One strength of the company is its popular “SkyMiles” customer rewardsprogram. It’s the only major U.S. airline without mileage expiration. As well asreceiving points, you also get a free checked bag for anyone who has the card. Thispast year, its customer service has been a big strength for Delta. According to AQR,its on-time percentage shows an improvement (82.3% from 77.4%). Its rate ofmishandled baggage (2.66) lowered below the industry average of 3.35 mishandledbags per 1,000 passengers. Not only that, but it had a decrease in denied boardingand a reduced rate of customer complaints. This moved its AQR score to -0.88,which was the second largest improvement of the airlines rated. Its biggest strengthis that it takes up 16.3% of the domestic market share.The weaknesses of the company are that its flights are generally moreexpensive than its competition, plus it charges extra fees for almost anythingadditional. For example, the first bag checked costs customers $25, the second $25and the third $125. If you want a snack on a Delta flight, it charges anywhere from$3-$6.99 and $4.99-$9.99 for meals.
  • 9. 8American Airlines:American Airlines is another major competitor of JetBlue. The products itoffers are its commercial airline flights and its AA credit card, which offers differentlevels of rewards.The strengths of the company are that it holds 12.9% of the airline industrymarket share. Also, its stocks have been on the rise since the beginning of the NewYear. It also has a large global network, which flies more than 200,000 people to 250cities in more than 40 countries. Another strength of the company is itsAAdvantageTravel Rewards program, the world’s first and most popular frequent flier program.AA also has its first class cabin accommodations, which include a swivel seat, apremium cabin duvet, power connections, in-seat personal video system, under seatstorage space and an electronic recline.
  • 10. 9American Airlines didn’t receive high customer service ratings for the pastfew years. According to their AQR score, the only area they approved in wasmishandled baggage performance. It received negative reviews for on-time arrivals,denied boarding and customer complaints. Its overall AQR score was -1.24. Theairline also participates in charging customers for checking bags, at $25 for the first,$35 for the second and $150 for the third. It also charges for any snacks, beveragesand preferred seating.
  • 11. 10Informational InterviewOn the afternoon of March 29, 2013, I conducted an informational interviewwith NiluferKoray, the marketing director of the Mustang Group RestaurantCorporation. I began the interview by asking her to describe a typical day on the job.I could tell by her response to this question that she has a lot on her plate. Ms. Koraywent through a checklist of checking/responding to emails, checking all of the socialmedia platforms for all 5 of the restaurants she handles, collaborating with theoutside marketing firm they deal with, sending out email blasts, as well as any othermiscellaneous tasks she’s asked to work on. As she was describing this to me, I wasastounded by how endless all of her workload seemed. I soon came to learn that themarketing department consists of her, and one intern who only comes in a fewhours, 3 times a week. The internal marketing department was only created asrecently as 6 months ago. Before that time, the restaurant group had an outsidemarketing company handling their social media accounts, to some extent, and theirwebsite. I went on to ask her what her favorite and least favorite part of her job was.She said that by far the least favorite part was building the company’s database andall of the data-entry involved. She talked about how she got into the restaurantmarketing business because she grew up in restaurants, going from makingsandwiches in her local deli, to being a server and then a manager, and she lovedalways being able to interact with customers and get immediate feedback. After all,people are passionate about their food. I found her response interesting becausethat’s the exact reason why I want to go into this business. Come to find out, sherarely gets to interact with anyone anymore, but that was her favorite part of her
  • 12. 11job (when she actually got to do it). The other thing she listed as a non-favorite wasdealing with customer complaints on the social media sites. For example, she readoff some of the negative reviews one of the restaurants had gotten on Yelp. Acustomer gave them a one-star rating, and said he was upset because his serverdidn’t inform him that soda refills were not free. She explained that most peoplewould agree that this is a ridiculous thing to criticize them on, since almost everyNew York City restaurant does this. But, the problem was that people probablywould never read his review, they would just see that their overall star rating wentdown.Ms. Koray told me she’s had a rough road, since she’s building thisdepartment from the ground up, but she sees this changing a lot recently becauserestaurants are bringing their marketing departments internal. It makes sense tome, because there are thousands of restaurants in the city and competition isincredibly tough. Mustang Group decided to bring the department internal in aneffort to make sure that they could trust their employees and maximize the moneythey were spending.Throughout the interview I had made a few comments about how herreasoning for going into the restaurant marketing industry were similar to mine. So,when I asked her if she had any advice for me, or anyone, wanting to follow in herfootsteps, she responded by saying, “Know what you’re getting yourself into. Thisindustry is tedious and time consuming and can be very frustrating. Be ready towork your ass off. But, if you can pull it off, you’ll earn the trust of people throughoutthe industry. Owners know other owners and that spreads like wildfire throughout
  • 13. 12the industry. It’s all about recommendations.” I think this is the best advice I’veheard in a while. Ms. Koray made me realize that there are people out there who areone extreme or the other. The ones who put their whole heart and soul intosomething to try and make it work, those who take risks, are the ones who gain bigin the end.
  • 14. 13Financial AnalysisIn terms of revenue, JetBlue did better in 2011 than they did in the two yearsprior. The total operating revenues for 2011 were $4.5 million, as opposed to $3.7million and $3.2 million in 2010 and 2009, respectively. In passenger revenuesalone, they raised their revenues by $1.2 million from 2009. To combat that figure,JetBlue’s operating expenses got up to $4.2 million, up from $3 million in 2009.When looking at all of the numbers together, their overall net income was $86million. This figure is down from $97 million the year prior (2010). Their earningsper share, $0.31, were also down from 2010, when the earnings per share were$0.36.Their income expenses are broken down into a few categories. By far, theirlargest operating expense is aircraft fuel and related taxes. This coincides with thetrend of rising fuel costs in our economy, which was recorded by JetBlue as having a10% increase in the December 31, 2011 cost per gallon of fuel. Salaries, wages andbenefits took up 22.6% of the expenses they had. “Other operating expenses” camein second, taking up 12.7% of their expenses, with landing and other rents coming inthird. Aircraft rent, surprisingly, was their smallest expense, costing them $135,000.When comparing their financial statements from 2011 to the ones in 2010,they had an overall decrease in net income, operating income and diluted earningsper share. Although, their operating revenues did increase 19%, primarily due to a$36 million increase from the Even More Space seats. The chart below shows theexact breakdown of the increase/decrease in operating expenses, comparatively:
  • 15. 14Geographically, in 2011 JetBlue focused on growing their key Boston andCaribbean markets, by reducing the seasonality of the markets and attractingbusiness travelers. In result, their operating revenues per available seat mileincreased 11% over 2010. JetBlue also added five new destinations in Boston, tryingto achieve the goal of the largest carrier in Boston. In the Caribbean and LatinAmerica region, they became the largest airline serving both Puerto Rico and theDominican Republic. In particular, their focus on San Juan, Puerto Rico gainedattention by providing service to many of the intra-island Caribbean destinations.JetBlue now has 25% of their capacity in the Caribbean and Latin America region.The company also expanded their route region to service Providenciales, Turks andCaicos Islands, Martha’s Vineyard, St. Croix, St. Thomas, Dallas/Fort Worth, Texas,and New York’s LaGuardia Airport, along with several more.
  • 16. 15SourcesJetBlue Annual Reporthttp://www.jetblue.com/about/ourcompany/history.aspxhttp://articles.chicagotribune.com/2012-12-30/business/ct-biz-1230-outlook-airlines-20121230_1_consumer-travel-alliance-airline-fees-rick-seaneyhttp://www.nytimes.com/2012/03/21/business/global/Fuel-Expense-Is-Forecast-to-Erase-62-Percent-of-Airline-Profits.html?_r=0http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/press_releases/2012/bts044_12/html/bts044_12.htmlhttp://www.airlinequalityrating.com/reports/2012aqr.pdfhttp://airconsumer.dot.gov/reports/2012/September/2012SeptATCR.PDFhttp://travel.usnews.com/features/Americas_Meanest_Airlines_2012/www.delta.comhttp://www.kayak.com/airline-feeshttp://phx.corporate-ir.net/phoenix.zhtml?c=117098&p=irol-IRHomehttp://www.aa.com/i18n/travelInformation/duringFlight/firstClassCabin.jsp