Jetblue Capacity at Its Hub Airports, Case Study Example

Introduction

JetBlue are a budget airline operating out of the United States of America. The airline has its headquarters located in Queens New York and began operations in 2000. It was created with the objective of providing low cost travel options. The airline now operates to more than 50 destinations in six countries. The main focus of operations being on the eastern seaboard of the USA.Jet Blue provides a high quality, low cost airline travel option for domestic passengers in the United States and six other countries.  They have differentiated themselves by offering a quality of service that includes such items as: 36 Channels of direct TV, more than 100 channels of satellite radio and leather seats on all the aircraft.

Statistics on JetBlue compiled in 2009

• Operating revenue : $3.29 billion
• Operating Expenses : $3.01 billion
• Long term debt : $2.9 billion
• Assets / ratio of industry : $6.55 billion
• Market cap / ratio of industry : $1.63 billion
• 2009 Passenger traffic 25.96 billion

Advantages of JetBlue

The firm has very good cash flow and liquidity, extremely good employee relations, provides good customer service and has retained a loyal customer base.  It has a very fuel efficient fleet of aircraft and received investment from the German airline Lufthansa.

Disadvantages

The airline runs with a high debt load. It has struggled with investment in infrastructure and technology in order to keep pace with its high growth.

JetBlue are now facing serious capacity and congestion problems at their airport hubs. One particular case study being the continued growth experienced at Boston International (Logan) Airport.

Boston Logan Airport Capacity Issues

JetBlue Airways has took just 7 years to advance in front of all airline competition in order to establish itself as the biggest carrier from Boston Logan Airport.  It is reported that it tops in excess of 100 flights per day from this single location. The Airline arrived at Boston in 2004 and since that time it has made Logan Airport its second largest base of operations.  It has had an amazing expansion rate over the last two years seeing its capacity increase by a growth rate in excess of 30%.  In addition the airline plans to further extend its operations to additional locations over the next several years.  The Management team at JetBlue state that to reach its primary objectives of 150 flights per day from Logan Airport it will require an additional 21 gates to be completed at Terminal C.  (Adams, S. 2011)

The firm Massport is undertaking a study that advances the proposals for $55 million of expansion at Terminal C in order to meet the needs of JetBlue.  The proposed work for Terminal C includes the building of additional Security Gates, a new central check in desk, new ceiling lighting and heating and ventilation systems.  (Adams, 2011). The expansion of capacity, broadly defined as that of available seat miles and revenue passenger miles, has continued to outpace JetBlue’s rivals and this has seen available seating capacity for the airline increase by up to 7% from 2010.  This being reported as 22% higher than the capacity figures recorded in 2006.  This compared to rival Delta airline that only saw a corresponding 1% increase in 2010.  The growth of JetBlue at Boston Logan airport provides a significant Logistics challenge for the Airport.  (Churchwell, D.  2011).

Budget travel or value for money travel is the driving force for pushing up demand for consumers using the services of Jet Blue.  The aviation industry has been in decline for many decades.  This has resulted in labour disputes, a lack of customer satisfaction and a loss of orders for many airlines.  A new concept of the low budget airline has started to revitalise the industry and provide a new model of low cost, high quality air travel.  A number of the low cost airlines have been dubbed as “no frills airline” for the very reason that the services are stripped down to the bare minimum to save costs. Hence no food available, limited drinks that you have to purchase, no in-flight entertainment etc.  This often is no problem in short-haul flying but you may not wish to consider this option for a long haul flight.

A number of the quality name airlines have also tried to move into this space. One of the recent entrants being that of the UK operator Virgin. They established as base out of San Francisco in order to offer a number of short haul shuttle routes across the USA including that of Los Angeles, San Diego and Washington DC.  They dovetailed these into hub airports that fed their transatlantic carrier services.  Virgin has established a reputation for quality, reliability and good service in the air transportation industry.

Logan Airport Meeting the challenge

Boston Airport houses 27 different airline operators and conducts in excess of 375,000 flights per week, these covering some 93 destinations.  This being half the capacity of nearby rivals New York JFK Airport.  The network of operators at Boston is dominated by domestic airline services and the Carrier JetBlue is reported to have 20% of the market share with 74,736 weekly seats going to 33 different destinations.  In 2010 IATA statistics indicated that Boston handled over 23.8 million passengers with Jet Blue accounting for 15% of this. Jet Blue plans to continue its strategy of expansion at Boston, this with a view towards becoming the largest domestic carrier linking up the Cities on the East and West coast by providing a series of non-stop services.  In addition appealing to the East Coast tourist hub providing more flights to locations throughout the Caribbean Islands.  (Routes Online, 2011).

Importance of customer relations

In a study conducted in New York in 2008 it was found that Alaska Airlines, Continental Airlines and JetBlue Airlines ranked the highest in terms of overall customer satisfaction. It was the deteriorating levels of customer service that have resulted in the overall dissatisfaction of the airline industry. The decline is a three year low and people factors are blamed rather than increases in airline fees. The study pointed out that a general lack of politeness by airline staff, poor facilities at reservations and airline check in desks, together with poor service by flight attendants created the decline in satisfaction between 2006 to 2008.  Of all the low cost carriers it was JetBlue who stole the accolades for the highest ranking spot and provision of overall best customer service. JetBlue also rated highly on keeping their customers informed about any flight delays and were perceived as caring for the welfare of their passengers. (Tews, J. 2008

A further study carried out in 2010 stated the position has now reversed itself and customer satisfaction was starting to improve again after a period of decline.  JetBlue were stated to have won a sixth consecutive customer satisfaction award. Recognition for having 36 Channels of direct TV, more than 100 channels of satellite radio and leather seats on all the aircraft.  This recognition seems to be evidenced by the excellent customer feedback that JetBlue receives.Generally speaking  the Management of JetBlue have performed exceedingly well. They have experienced historical difficulties including the period of the Valentine Day meltdown –  a series of communication and management failings because of adverse weather conditions. It exposed a series of management shortcoming and illustrated the gap between that of the airlines phenomenal growth record and its failure to invest in the systems and infrastructure in order to support same.  This left the Company with inadequate systems and insufficient human resources to deal with tough adverse weather situations.  This ultimately resulted in a customer service disaster with cancelled flights, grounded planes and an angry customer base that were left stranded at many airports across the USA. The airline also had a strict rule of following orders and procedures, hence once the system broke down the staff literally did not know what to do . They attempted to follow procedures and this made matters even worse. Nobody was prepared to evaluate the situation and make on the spot decisions.

Since this time JetBlue have started to pick up their game and have received investment from Lufthansa that has helped them to devote more energies into the building of systems and infrastructure. They are still however very process and procedure oriented and some passengers have criticised this as it tends to lack flexibility on certain occasions

Conclusions

JetBlue are indeed an example of one of the more successful pioneers of low cost budget airlines.  They have succeeded in creating a business that promotes service quality, high customer loyalty and service excellence.  This in itself created unprecedented growth for the airline and this did cause them to wobble i.e. the Valentine Day Meltdown.  They did however recover from this and adopted a strong lessons learned program. This essentially focusing on more inward investment in terms of systems, technology, infrastructure and more human resources in order to deal with the growth profile.Confidence in the firm is endorsed by the strong investment from Lufthansa the German national airline.

References

Adams, S. (2011). JetBlue aims to increase flights by 50% at Logan Airport. PatriotLedger, 1-4.

Churchwell, D. (2011). From the survey: Jet Blue Airlines. ValueLine, 1.

Routes Online. (2011, 11 29). JetBlue continues growth in Boston. Retrieved from Routes Online: http://www.routesonline.com/news/36/the-hub/80453/jetblue-continues-growth-in-boston/

Tews, J. (2008). Overall satisfaction in the Airline industry declines to a three year low. Landing Gear, 1.