Course Unit: Corporate Strategy

Students: Tina Sikharulidze

Mauricio Pereira Cardoso
Tamuna Papaskiri

Professor: Victor Tavares

 1. What type of generic business strategy is Jetblue pursuing: cost
leadership, differentiation or integration?

JetBlue Airways is an American low-cost airline headquartered in New York City, which was founded by former
Southwest Airlines (SWA) employee David Neeleman in 1998. JetBlue carries more than 35 million customers a
year to 100 cities in the U.S., Caribbean, and Latin America with an average of 925 daily flights. According to
records in its website, Jetblue is one of the most popular airline stocks in history. This kind of reputation has seen
many customers, award winnings and large-scale sales of the company’s products. Now, when we know a brief
history of JetBlue, it’s interesting to discuss about generic business strategy of this airline.

Firstly, let’s define cost leadership, differentiation and integration strategies, which will help us to guess which
strategy was used by JetBlue.

The goal of a cost-leadership strategy is to reduce the firm’s cost below that of its competitors. In a cost-leadership
strategy, the focus of competition is achieving the lowest possible cost position, which allows the firm to offer a
lower price than competitors while maintaining acceptable value.

The goal of a differentiation strategy is to increase the perceived value of goods and services so that customers will
pay a higher price for additional features. In a differentiation strategy, the focus of competition is on value-enhancing
attributes and features, while controlling costs.

And Integration Strategy is a combination of differentiation and cost-leadership strategy.

In our case, JetBlue generally is pursuing integration strategy, which was started with cost leadership. JetBlue
reproduced many cost-reducing activities such as flying point to point to directly connect city pairs. It also
predominantly uses one type of airplane, the Airbus A320, to lower its maintenance costs. And in addition, it flies
longer distances and transports more passengers per flight per then SWA, further driving down its costs.

JetBlue also incorporated the differentiation strategy in their model. They executed the differentiation strategy by
offering value-enhancing features include high-end 100-seat Embraer regional jets with leather seats, individual TV
screen with movies, Live TV, Fox TV, and Direct TV programming, 100 channels of XM Satellite Radio, and free
in-flight Wi-Fi capabilities. In addition, while JetBlue offers a highly functional website for reservations and other
travel-related services, some customers prefer speaking to live agent. Rather than outsourcing its reservation system
to India, Jetblue employs stay at home parents in the Rocky Mountain states. By offering these unique features,
JetBlue made an attempt to enhance their differentiation appeal.

To sum up all above-mentioned information, we can see that JetBlue is using integration strategy in which the
company tries to combine cost leadership and differentiation strategies.

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 2. What challenges is JetBlue facing with its chosen business strategy? What is the
cause of these challenges? How should they be addressed?

JetBlue strives to become a key player in aviation and their business strategy is supposed to help them with this goal.
Since the beginning, they competed against the 3 major airlines such as American Airlines, Delta Air Lines and
United Airlines, but their biggest competitors were the low-cost airlines: Southwest Airlines and Alaska Airlines.
They wanted to leave their teenage phase to become adults by entering mainstream business with their loyal customer
base. In order to compete with them, JetBlue needs to maintain their low-ticket prices, reduce costs for fuel and their
operational management, offer new routes, invest in their planes and keep their good customer relationship. Over the
years JetBlue kept facing many challenges and always tried to react as quick as possible.

In order to improve their customer relationship, they recruited from the start ‘’stay-at-home parents’’ from the Rocky
Mountain States and cancelled the idea of outsourcing to India with their customer service. They knew that the wages
would be higher in the United States of America, but were convinced that the 30% of customers, who rather like to
talk to a live agent would appreciate that service a lot.

In 2007 the airline was facing a scandal, in which a snowstorm was the reason for many cancellations and JetBlue
trapped their passengers in the planes for 9 hours and for days in the airport. Their slogan ‘’we bring back humanity
to flying’’ was criticized a lot and the former President David Neeleman introduced afterwards the bill of rights. The
bill of rights should be a compensation to the customers which would be in a similar situation. David Neeleman left
the company and the airline struggled with their best trait: reputation.
In 2014, JetBlue targeted new customers in order to incease their revenue. With JetBlue Mint they introduced their
business class. A seat one way would start at the price of 600 Dollars, which is only a fraction of other airlines.
Business Class normally makes up 30% of the total revenue and includes only 5% of all passengers. Still, the airline
was struggling with delays of suppliers and designers and by that time, JetBlue already needed to think about
introducing Economy Plus seats.
Even though JetBlue tries to reduce costs, they also invest heavily in new destinations to europe, electric aircrafts
and travel booking plattforms. This is a big challenge and risk for the airline, since they don’t want to lose their status
of being new and innovative.
2018 was one of the hardest years for the company. The fuel price gone up to 10%, the stock went down to 30%,
they needed to fire many employees in the headquaters, they can’t keep up with fuel bills and cabin upgrades to fit
more customers, add amenities, struggle with on time arrivals and their pilots created a union, which could increase
wages. They airline tackles all these challenges right now with cutting costs. Their goal is to cut cost up to 300
Million Dolars by 2020.
JetBlue never had it easy. They faced 9/11, 2 big recessions, impatient investors and operational problems, but their
motivation and strength to be innovative always helped them out.

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 3. What do you recommend JetBlue's top management should do to
improve the airline's competitiveness?

Competitive advantage basically is a superior performance of the firm compared to its competitors, in other words
it is the process of creating the biggest EVA (Economic Value Added). Eva is the difference between the value the
company generates and the costs in order to generate this value. So the company may gain competitive advantage
either by lowering costs or offering high value. As my colleagues have already discussed, JetBlue practicing
integration, so called “Blue ocean” strategy, was able to gain competitive advantage in both, it had low costs and
high value for customers at the same time. But at a certain time of its performance it couldn’t successfully match
differentiation and cost-leadership strategies, because of as a cost-leader it had to sacrifice its image in critical
situation, like in one, when it made its customers sit on the ground for nine hours.

The case is, integration strategy worked for good for JetBlue in the beginning, but then the company was frozen
on one point, and it was unable to grow, because for growth it needed more unique features, but unique features
needed more resources. As we all know, if the company doesn’t grow, investors lose confidence and stop investing
in such companies, because the marketplace is full of better opportunities. So, in this scenario JetBlue had an only
option to improve and sustain competitive advantage - to switch from “Blue Ocean” strategy to either cost
leadership or differentiation strategy. The only question was which one to choose.

As JetBlue already had cool features on their aircraft, which set them apart from other companies, and as
mentioned in the case customers valued their experience so much, that it made up for the differential costs of the
company, choosing differentiation strategy is very logical. In this scenario the threat of entry is reduced because
competitors will find intangible advantages time-consuming and costly, and maybe even impossible to imitate.

In conclusion, , if JetBlue uses currently employed integration strategy as a bridge to transfer and change its profile
from cost leader to a differentiator, valuable, rare, and costly to imitate resources owned by the company would
provide a long-term, sustainable advantage.

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References

About JetBlue Airways. (n.d.). Retrieved from Jetblue.com: http://investor.jetblue.com/media-

room/about-jetblue-airways

Strategic Management: Concepts and Cases. (2013). In Rothaermel. New York: McGraw-Hill.

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