Trends in the U.S. Airline Industry

Trends in the U.S. Airline Industry

One trend in the Airline Industry which has not endeared them to investors has been stock prices. According to Thompson, Strickland, and Gamble, (2010) a significant trend in a drop in stock value has occurred from 2002 to 2007. Analysts indicate positive directions in the next year, however with the Airline Index at $40, Jet Blue showing $5.54, and Southwest at $11.63 one is tempted to ask if there is any direction they can take but up, or out. One can anticipate airlines seeking cost cutting measures, added with increasing revenue streams in order to revitalize the value of the companies, and through such the value of investments.

Analysts indicate a trend towards an increase in airline travel demand over the next year. As one of the leading analysts Dirks (2011), points out that despite increase in Video Telecommuting for business resulting in reduction in business travel, many families are finding the cost of fuel is causing them to rethink driving and relooking at air travel. Statistics support this and reflect that as of this past November among the top six airlines, two reported their best traffic levels in 18 months. Many airlines reflected increases in miles flown per passenger, and passenger numbers have returned to the high passenger counts of 2007. These factors are supplemented by the Official Airline Guide (2011) which tracks air industry trends. The OAG reports a record number of seat bookings in April 2011. Many airlines are focusing on more appropriate alignment of routes in order to maximize bookings.

Another trend is towards airline and supplier consolidations; an example of this cones from the case study discussion of Jet Blue and on board video provider LiveTV. A number of airlines have expanded their reservations services through merger of online services, and some have followed the Southwest example of pulling their reservation links from outside agencies such as Expedia, by providing much expanded services in house - retaining all income from bookings. The strategy of teaming between airlines, online booking organizations and vendors will be discussed later in this document.

Other trend changes include seeking unique new methods for revenue increases which include many items which were previously free. Many airlines instituted booking fees for dealing with an agent, and in some cases they have even implemented it for certain online booking options. A very public frustration to travelers is that quite a few have instituted baggage fees, and based on the increase in carry-on baggage, some are considering carry-on fees. This has resulted in congressional interest which may force regulation on the industry, with regard to baggage fee options. Many of the airlines have adjusted up their fees for changing travel plans.

The trend of environmental responsibility has been proposed by many airlines, both as a public relations benefit, and as a cost saving factor. Some of the airlines have developed carbon offset programs allowing their customers to promote methods for supporting the environment. Many have implemented shorter routes and efficient landing operations as well as best practices in fuel management to reduce emissions. A number of airlines, both as an environmental measure and as a cost savings tool have begun to adopt eco-friendly bio-fuels.

Another significant trend is the changes in union interaction. There are many factors in play, with the state and federal government in contrast. While many states are focused on reduction in the power of unions, with Wisconsin as a primary example in eliminating many union strength areas, the federal government is taking a different tact. The U.S. Federal Mediation Board is considering eliminating the requirement of majority vote of potential members for unionization, and there are bills which provide for increased bargaining power. Both of which could result in higher costs for the industry. In the case of Jet Blue, the strategy has been to work hard to maintain an extremely positive relationship with employees, and remain union free.

Jet Blue's Strategic Intent

This author was a traveler that discovered Jet Blue, along with the founder's strategic intent, quite accidentally. While assigned to Tampa the need to fly into New York on a regular basis became the norm. Browsing flight options on the preferred travel data Jet Blue, a relatively new airline, and one not utilized previously, had the only non-stop flight, a critical consideration to the author, at least on that travel date. Obtaining a seat all the way in the back, the author-traveler anticipated a horrible trip. Upon settling in the seat, the comfort became readily apparent. Legs were not cramped, and the television popped on with a tremendous selection of options for entertainment. Leaning back it felt like sitting in the family room recliner, especially with the sound-suppressant headset. As the plane landed in New York the first negative factor presented itself; there were 10-minutes remaining on the show being watched. However there was a backup on the taxi way, and it took an additional 10-minute trip to get to the terminal. Good news or bad? The author saw the end of the show, still arrive in time, and as an added bonus as Jet Blue had chopped $30 off the price charged for the ticket, due to the unexpected delay! Jet Blue had taken a huge step towards gaining fierce loyalty.

During this episode Jet Blue had certainly presented their strategic intent, they combined the low fares of a discount airline, yet they had duplicated the comfort of a cozy family room. In addition they had presented the top level of customer service and performance.

Jet Blue's Financial Objectives

Jet Blue had a number of financial objectives. The first step was to be well funded, and through such allow for rapid expansion. Another focus was to sell low, eliminate food, beyond snacks, in order to eliminate catering time speeding up turn-around. Use of a newer fleet allows for more fuel efficiency and lower maintenance cost. Information technology was heavily leveraged to keep cost down, using Open Skies, Internet booking, and revenue management. Jet Blue was processing tickets for approximately $1 while competitors were typically seeing $10 for their paper tickets. Each of the steps noted have proven very successful in meeting their objectives.

While Jet Blue took all of the aforementioned steps to reduce cost, Morey and Miller (2004) remind us that there were some unusual steps in which Jet Blue assumed expenses that other airlines rejected. Jet Blue noted they could absorb some unusual costs in anticipating a higher level of customer