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Case Study: JetBlue airways

Microsoft Case Study: Using Mobile and Media to Connect Communities by Erica Wadley and Paolo Tosolini, Microsoft. Keywords: Sharepoint, podcast, user generated content, online video
by

james Lim

on 4 June 2012

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Transcript of Case Study: JetBlue airways

JetBlue airways Contents Choi Kyu Hwa
Choi Hyung Soon
Kim Eun Ryul
Lim Hyung-june
Lee Byoung Joo 1 2 3 4 Overall Business Model of JetBlue Possible Future Crisis of Airline Industry Crisis from the Outside
New Opportunities in relation to the Decline of Legacy Carriers Proposal Conclusion Overall Business
Model of JetBlue Possible Future Crisis of Airline Industry Mckinsey’s Suggestions to JetBlue Conclusion Beyond Global Challenge JetBlue as a LCC JetBlue as a Value Firm 1. Fuel, Labor, Airport & Airplane Fuel Labor Airport & Airplane Using fuel-efficient aircraft fuel efficiency Lower labor cost 30~40% than Lagacy carrier
Using fewer employees
The lack of unionization Only two models of aircraft
Minimizing ground time and fly more
Using secondary airports 2. Cost Structure Analysis : ABC and CVP Analysis JetBlue as a LCC
JetBlue as a ValueCarrier 1. High Quality Service, Low Fee Comfortable leather seats & more legroom than any other coach carrier

In-flight entertainment (live TV, free XM satellite radio 등등)

Unlimited brand name snacks and beverages, specially-designed products for overnight flights

Friendly, customer-service oriented employees

Customer Bill of Rights Despite
these high quality services it provides, JetBlue could maintain its competitive low fee by cost reduction from various parts Policy of not overbooking

Automated e-ticket system 2. Administrative Innovation
reservation system Huge amount of cost reduction 3. Marketing strategy leads JetBlue to Cost Reduction For the Better JetBlue 1. Cost Reduction with Creative Ideas unlimited using ticket standing seats 2. Value Creation with Creative Ideas You above all 3. The importance of quality improvement and enhancement 6 Sigma Customers’ satisfaction & positive brand imagery Cutting down marketing and advertising costs Find your own way ! Thanks :) An Option Case Assumption for analysis:

 Only two alternatives exist for JetBlue
 Their capital expenditure regarding new investment will be paid at a time
 It takes 10 years to finish business extension
 Operating revenue changes according to the number of aircrafts only
 70% salaries is paid to pilots and crews on board
 50% of other expense is fixed regardless of increase in the number of aircrafts
 Operating efficiency would not be affected by extension
 Discount rate equals to 3%
 NPV of investment will be measured in terms of operating income, not cash flow
 If JetBlue focus on reducing cost, fixed cost will be decreased by $300 $12,350M > $11,462, So Should Invest? Use Real Option Strategy! Current market condition Increased income due to expansion (No tax deduction) Expected Income per a year : NPV of expected income : - Since this calculation is based on the numbers of depression era…

- When airline industry gets better, expansion would yield more income! Cost Buying aircrafts, Increase in landing Fee Buying Aircrafts : 115 x $600,869 = &70M(year 0) 10 years additional landing fee: 400M per year (year1~year10) NPV of costs all together : Benefit - Unrealistic assumption of low cost of capital(3%)

- No tax deduction

- Efficiency distortion by expansion is not reflected

- Difference between cost and profit is not big enough Joint Venture Hedging Joint Purchase
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