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Jetblue Strategic Management

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Industry Profile:

Market Size: Approximately $95 billion

Market growth rate: Domestic 2.9%, International 5.0% (forecasted to 2017)

Stage in life cycle: mature for domestic, growth for international

Number of companies in industry: 43 mainline carriers and 79 regional airlines

Scope of competitive rivalry: primarily major carriers (revenue more than $1 billion). Legacy carriers developing low-cost offshoots

Customers: 661 million domestic passengers. Expected growth in business customers

Degree of vertical integration: mixed; some have low cost reservation systems, alliances with regional and international airlines as well as hotels. Hedged fuel costs. Sabre Holdings and Galileo International connect airlines with travel agents. No mention of airlines employing in-house catering.

Learning curve effects: not a factor in this industry

Ease of exit/entry: aircraft, terminals, infrastructure and staffing are expensive

Technology/Innovation: R & D essential in creating efficiencies and reducing expenses with turn-around times, fuel costs, reservations etc

Product Characteristics: diverse; customers can receive top end service through to low cost travel and ongoing international hook-ups.

Scale Economies: the industry contains several very large players and multiple medium to small players

Capacity utilisation: high rates required to achieve suitable profitability

Industry profitability: subpar to above average; fuel and maintenance costs, a growing senior staff division, unionisation of employees and competitive price wars are margins concerns.

Porter’s 5 forces

Threat of New Entrants - Moderate – Deregulated industry. Threat of new entrants higher during downturns in industry (e.g. JetBlue’s entry point). Existing airlines may encroach on an opponent’s major or regional market-share. High cost of entry into industry

Bargaining Power of Buyers – High – No or very low cost in switching airlines

Bargaining Power of Suppliers – High – two key supplies needed are planes and fuel. Fuel prices are negotiable on quantity. There are only two airplane suppliers, Airbus and Boeing.

Threat of Substitutes - Low – Buses, boats, trains and cars are substitutes but usually not cost or time effective substitutes for most consumers

Degree of Rivalry - Very High to Intense – Multiple competitors, high strategic stakes, innovation often easily imitated, and low switching costs for consumers

Value Chain

Support Activities

Infrastructure – Flat organisational hierarchy

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