JetBlue Airways vs. Southwest Airlines: Comparative Analysis

Topic: Company Analysis
Words: 3887 Pages: 14

Executive Summary

The transport business or industry, particularly the air travel sector, has experienced success and sometimes failure over the last ten years. Mainly, this has been due to the fuel costs not being constant and rising beyond projected levels. Most companies have been forced out of business after losses. Trying to offer low-cost prices to passengers or customers resulted in these organizations becoming bankrupt. Additionally, the air transport industry’s competition level has remained high. Southwest Airlines and JetBlue Airways are examples of corporations that have sustained themselves despite the uncertainties. This essay compares their performance in the period between 2010 and 2019.

Introduction

The air transportation industry has witnessed much change between 2010 and 2019. The reason for stating this is the advancement in technology that has greatly been adopted in the sector at the start of this era and the pandemic experienced at the end. In addition to that, the oil prices have been a constant discussion whereby companies have had to stop operating for a certain amount of time to ensure they do not experience losses as a result of high prices. Others have opted for a hike in ticket prices, which customers have not received well. Organizations must realize ways to maneuver even when the situation is tough and still be able to offer the same services at an affordable price.

JetBlue Airways and Southwest Airlines have been great at ensuring that the clients have low-cost fare seats to visit their preferred destinations. When the oil prices went high, these two had prepared for the moment by agreeing with suppliers that they would pay a certain price for a particular period. This allowed them to offer these fares consistently, especially between 2011 and 2014, when uncertainty regarding fuel costs was high in the sector. The essay aims to analyze the way JetBlue Airways and Southwest airlines operated in the 2010s, including their market strategies, service-price concepts, cost and revenue drivers, and pricing, productivity, and planning concepts.

Market Strategy and Positioning

JetBlue Airways’ marketing approach assists it in placing itself competitively in the market as well as meeting business objectives. It evaluates the brand with the marketing mix scheme, which covers product, place, price, and promotion. The company has been among the leading airlines in the last decade, with a fleet size of more than two hundred aircraft. According to (Miyoshi & Fukui, 2018), each one offers varying facilities to the clients. One fleet of airbus A320 can hold one hundred and sixty passengers and provides adequate legroom, comfortable seats, satellite television, and an eye-soothing ambiance attributed to its inside design. In addition to that, it offers some connectivity to allow people entertainment.

JetBlue Airways has traits such as gate-to-gate fly-fi, which offers its users the capability to stream videos on The Hub and Amazon. A Video-on-demand is available to the passengers as well and allows them the alternative of watching the preferred movie. Every seat has USB outlets and charging ports that offer people uninterrupted entertainment. Embraer 190, for example, gives clients spacious legroom and has a two-by-two layout which guarantees a traveler has either a window seat or an aisle seat. These are equipped with in-flight entertainment such as Sirius Radio with above one hundred channels.

JetBlue airways aim to bring back humanity to air transport which implies that they provide great comfort to the travelers while giving them low-cost fares. In contrast to competitors, for example, Southwest airlines, this company has been offering its fares at a much lower cost for the last five to ten years and still earn profits (Miyoshi & Fukui, 2018). Despite the prices varying depending on the type of aircraft a person chooses to use, the organization has been able to distinguish itself from rivals.

The headquarters of JetBlue airways are in Long Island City in New York and have more than one hundred branches, including South, Central, and North America. It is found in Barbados, Bahamas, Colombia, Bermuda, and Haiti as well. One of its objectives during the period between 2010 and 2019 is to start operations in the European countries. The airline has codeshare treaties with others worldwide which allows them to render services globally. Lastly, it has been using different marketing channels such as print, television advertisements, magazines, and recently, digital media. Since 2014, the company has greatly invested in promoting its services on YouTube and Hulu. This has enabled them to reach more people, especially the youth who spend much time on online platforms.

Southwest airlines are among the leading companies in the air transport industry in the United States. It has been recognized for providing low-cost travel to users in North America. The organization has only used Boeing 737 jetliner models (Miyoshi & Fukui, 2018). It is believed that it possesses the largest Boeing 737 fleet and can operate four thousand flights in peak seasons daily. It is a low-cost airline with point-to-point characteristics (Miyoshi & Fukui, 2018). It has been able to cut expenses by removing on-flight movies, meals, and skeleton crew. To separate itself from rivals in the market, the corporation was among the first to have its passengers book tickets online. Such a feature allows people to be more inclined to them. It has applied this as an edge over the JetBlue airways in the 2010s.

It possesses a range of great features such as entertainment channels, games, and movies that keep the passengers engaged throughout their journey. This is something that most people have confirmed attracts them to Southwest airlines. In addition to that, someone is not charged any fee for altering a flight. There is satellite-based connectivity at a low cost, and users can choose a preferred place of seating. Individuals with pets are asked to pay a small fee to be able to travel with their animals. All these features at customer-friendly prices have ensured that clients become loyal to the company.

Southwest airlines have distinguished itself from rivals who attempt to display a corporate image. The company has applied humor in the last ten years in its advertisements to obtain the clients’ attention. In addition to that, it has established itself in the American sports community by sponsoring baseball teams, for example, Baltimore Orioles and San Diego Padres. Supporting N.B.A. teams such as Houston Rockets, it has promoted its brand to a wider audience. This has helped the corporation to gain more customers in the 2010s.

Service-Price Concepts

In the years before 2010, both JetBlue and Southwest airlines offered inexpensive rates to users who booked in advance. They provided clients with seat reservations at high prices and integrated overbooking practices. The economic effect of yield management approaches used by these companies has been clear. From 2010 to 2019, the two organizations have collaborated with management experts to sell the ideal product to the right client, at the right moment, at fair rates, and via the best distribution avenue. Among the crucial elements of revenue management includes dynamic pricing. Conventionally, airlines have been utilizing static pricing (Narcizo et al., 2020). They create their fare structure with the use of a limited number of price points according to the reservation booking designators and then published through the Airline Tariff Publishing Company.

A single price point is created for a particular client segment and a demand situation. Some of the price-sensitive users are not settled on a particular date or schedule and will choose the cheapest fare irrespective of long layovers. Others have to reach a specific place without delay and are willing to pay any fee to travel on a certain day. Considering that and other factors such as time of flight and purchase, seat class, and sales channel, an airline, creates price points for various user groups. This segmentation done by JetBlue and Southwest airlines is something that remains shallow.

Without comprehension of the competitive landscape, fare distribution, market conditions, and complex data that can be retrieved via analytics, these companies cannot effectively classify users beyond the usual leisure or business scenario. This is particularly essential for low-cost carriers that require more sophisticated and creative solutions to remain profitable and competitive (Narcizo et al., 2020). Thanks to data-driven capabilities as well as technological improvement, both JetBlue and Southwest are changing concerning revenue management approaches. They now consider numerous classifications in real-time and deliver individualized pricing. This is referred to as dynamic pricing by business experts in the air transport industry.

Dynamic pricing is a method based on the current conditions in the market. It is important to understand that prices alter in real-time according to timely data. Information on client booking patterns, weather, popular events, and competitor prices can influence the demand and need one to adjust charges to increase the profits. This is most valuable to products that have common characteristics, for example, expiry and limited capacity. Both features apply to flight fares, whereby the high fixed costs and low variable costs make one seat’s value to be ridiculously high. Thus, to ensure much revenue, JetBlue and Southwest need to sell the greatest number of seats for the highest possible price (Narcizo et al., 2020). To know what the price is, they must learn about the nuances of user behavior and market demand which is something dynamic pricing is slowly helping the two organizations to accomplish.

The dynamic pricing concept that is slowly adopted by both JetBlue and Southwest airlines has its limitations. One can easily identify that the issues are interdependent, and there are solutions to them since the sector is on its way to changing the way airlines create or price offers to clients. Ancient and rule-based software programs lag in technical finesse and keep up with new distribution trends. The first issue is applying old strategies to solving one of the primary tasks in revenue management, which is forecasting demand. Information technology systems require access to several data sources as well as employ procedures to pinpoint demand signals in real-time. The other limitation originates from depending on conventional distribution models that stop airlines from utilizing data from external sources (Narcizo et al., 2020). Unless a company has control over the offer creation on indirect channels, it cannot deliver an individualized experience.

Cost and Revenue Drivers

Airlines operate with the ultimate goal of making money, and although they may receive government bailouts, the bulk of the revenue is from the passengers. Apart from the ticket costs, they can collect fees from travelers that seek to add to their profit margins. This is not different for JetBlue airways and Southwest airlines, as they have aimed to have profitable operations. It is believed that they receive close to sixty percent of their earnings from users of their flights. The rest, which is forty percent, is from selling frequent-flier miles to credit card organizations as well as other travel partners. The revenue consists of the fees, and cost of airfare, among other travel charges.

In the last ten years, much of the sixty percent in revenue harnessed by the two airlines have been obtained from business passengers. This is even though they only account for twelve percent of the total number of travelers. They seem to pay for more expensive seats, purchase last-minute tickets, and are usually twice as profitable as other travelers. On some flights, these individuals are responsible for seventy-five percent of an airline’s revenue. This changed towards the end of 2019 as the COVID-19 pandemic was discovered. Even before this, the advancement in technology had enabled individuals in the corporate world to start having online meetings. This meant that the need for air travel to different destinations was reduced.

While discussing the revenue drivers for airline companies in discussion between 2010 and 2019, it is important to recognize that the main expenses that impact organizations in this sector are fuel and labor costs. The latter is greatly fixed in the short term, whereas the former can swing ridiculously depending on the oil price. This prompts business analysts to pay more attention to the cost of fuel in the near term. The majority of the expenses of flying a flight are fixed, thus, alterations can turn a profitable airplane into a loss which is dependent on the number of passengers on board.

Historically, especially in the 2010s, the sector has continued to be greatly competitive despite the business of flying individuals throughout or country having been established as a fundamental part of life. From 2015 to 2019, the trend shows that the cost of flying is reducing for users preferring to use either JetBlue or Southwest Airlines. The internet as well has established much more transparency in this period, therefore, minimizing margins. Labor is responsible for about thirty percent of all operating expenses, which account for seventy-five percent of every non-fixed cost.

During the downturns period close to 2019, management of the JetBlue airways looked to cut labor costs by laying off employees and reducing the pay of some remaining. This is the consequence of being part of a competitive environment whereby clients have little or no loyalty. Airlines must compete on price instead of quality (Narcizo et al., 2020). Due to the difficulty of growing profits, organizations are forced to minimize expenses to ensure profitability. Some of the fewer costs for airlines include parts and labor, maintenance, airport fees, handling luggage, marketing, travel agent commission, and taxes. Altogether, these makeup more than fifty percent of the total costs of operating.

When examining the cost drivers of an airline over a set period, for instance, JetBlue or Southwest airlines, between 2010 and 2019, one has to consider fuel expenses. These are responsible for ten to twelve percent of operating costs. Most companies have methods of handling fuel costs (Tian et al., 2021). For example, the two in discussion purchase future agreements to ensure that their prices remain constant for a set time. This has proven to be advantageous when there is a rise in fuel prices. The reason behind the two organizations not charging more than normal for their air tickets is due to such contracts. Others in the same industry slowly increase the amount needed for a ticket when they predict a hike in oil prices. Some go to the extent of reducing the number of flights.

A little before 2010, oil reached a high of one hundred and forty-seven dollars per barrel. The majority of the airlines were not prepared and thus underwent severe restructuring to thrive. During this period, the NYSE ARCA airline index fell to nearly sixteen. A few years back, the figure was at fifty-six when the oil price was sixty dollars per barrel. The ridiculous alterations underline the universal association between the value of airline organizations and oil prices at that moment. During the time between 2010 and 2014, the sector witnessed an improvement in the economy and oil prices that gradually rose higher prior to settling at about one hundred dollars. The drop was specifically beneficial for flights since the economy did not stop strengthening with travel increasing.

Pricing, Productivity, and Planning Concepts

Route Planning

Route planning refers to a process undertaken by airline managers to compute effective methods of transportation via numerous stops. It helps them to ascertain which way is the most cost-effective when in movement from a place to another. The average trip length traveled by a passenger using the JetBlue Airways aircraft is 1,131 miles which is above the industry average in the United States, standing at 495 miles in the 2010s. As for Southwest Airlines, the company has recorded 749 miles in the same period (Chen & Wang, 2021). Headquartered in Dallas, state of Texas, Southwest Airlines has scheduled service to one hundred and twenty-one destinations in the U.S. and ten other nations (Cote, 2018). By 2018, it carried more local passengers than any company, including JetBlue Airways, which flies to one hundred and four places in the Americas.

Regarding scheduled time, both companies understand that choice of destination will determine the flexibility accorded to the passengers after booking a flight. For instance, they know that flying into New York on the afternoon of Friday will have delays (Sricharoenpramong, 2018). Therefore, extra time is added is required to the schedule. However, it is important to note that the additional time is not necessary for arrival on any Sunday around 11 p.m.

JetBlue Airways has strategically reduced its economy fares to place itself in a better position to compete with an ultra-low-cost carrier such as Southwest Airlines. They have accomplished this while improving the benefits of standard as well as premium tickets by removing change fees (Walton, 2018). Southwest Airlines remain ensures that they remain competitive by ensuring they conduct extremely efficient operations, provide low-cost prices, and acquire innovative logistic solutions. All these help the company to offer an enhanced user experience.

Regarding the target market, on the one hand, Southwest Airlines promotes itself as a low-frills and low-cost carrier with regular flights to numerous destinations across the U.S. It has focused its marketing efforts on small business owners, middle-class families, young adults, and individuals traveling short distances (Zou & Yu, 2020). On the other hand, JetBlue Airways targets leisure passengers, low-cost ticket travelers as well as cost-conscious business users.

Schedule Development

Determining the time and how frequently someone should operate a flight is important for airline companies as it can establish a competitive edge for them. For instance, JetBlue Airways has one thousand flights on a daily basis, serving about 100 destinations in the United States and outside (Melancon & Dalakas, 2018). Similar to Southwest Airlines, they prefer flying to an area such as New York at night or morning to avoid delay. Additionally, users on local flights are advised to be on board fifteen minutes before departure. For the international passengers, they are asked to be on board twenty minutes prior to leaving.

With above seven hundred operating more than four thousand flights daily, Southwest Airlines prefers flying to various routes at a time that will avoid delays for their passengers. For instance, they always choose to arrive at some destinations in the United States on Sundays around 11 p.m. The company asks its users to be on board thirty minutes before departure. The main reason for this is to ensure that the process of undergoing different checks does not consume much time and cause them to miss their flight.

Network and Fleet Management

In network and fleet management, it is important to have a model that will position an airline company in the best position to operate effectively. There are two choices from which organizations choose, including hub-and-spoke and point-to-point (Fu et al., 2019). On the one hand, the latter refers to a route whereby the origin, as well as destination traffic, is only focused on by a carrier (Ren, 2020). On the other hand, airlines that use hub-and-spoke move people between two places and connect individuals from different destinations through a single hub (Moir & Lohmann, 2018). JetBlue Airways relies heavily on the point-to-point network as it enables them to save about thirty percent in costs as a result of direct flights with zero stops (Fu et al., 2019). Southwest Airlines as well prefers this approach but combines it with a rolling hub network in some cities.

Fleet Planning

In fleet planning, there are two approaches, including top-down fleet planning and bottom-up planning. Both Southwest Airlines and JetBlue Airways prefer the latter as it provides them with adequate data concerning the demand, schedule and competitiveness, and operating cost (Kim et al., 2021). Regarding the type of aircraft used, Southwest Airlines operates mainly the Boeing 737. Focusing on only one jetliner enables the company pilots and attendants to be able to work in any aircraft without restrictions. Additionally, this aircraft is among the most fuel-efficient planes as it reduces the use of fuel.

JetBlue Airways is known to operate the Airbus, the main reason being it is believed to be safer than Boeing as it has recorded fewer accidents. Furthermore, this aircraft carries less fuel, and therefore, it is more fuel-efficient and cheaper to operate. Having a total of 282 planes, this company only owns fifty-two percent of them and leases the rest (Lee et al., 2020). Despite leasing being an extra expenditure to an organization, the agreements reached offer an airline some money in the short term. Southwest Airlines exclusively owns 622 aircraft and only leases 120.

It is important to note that JetBlue Airways earns much of its ancillary revenue from loyalty revenue, baggage fees as well as a travel products subsidiary. As for Southwest Airlines, its greatest source is its ten-year-old EarlyBird Check-In initiative. Regarding costs, there are two types, including fixed and variable. The latter are those that change according to the quantity of output produced. Both companies in the discussion have experienced great expenses in labor since companies are asked to improve the salary they offer to employees every year. However, concerning fixed costs, Southwest Airlines rank higher than JetBlue Airways since the former lease more aircraft. Lastly, data suggests that travelers prefer JetBlue as it fills more seats. In terms of the passenger load factor, JetBlue records 84, whereas Southwest stands at about 78.

Regarding market strategy in terms of service between vital city-pairs, JetBlue recognizes some airports for utilization of passengers when they rebook a schedule altered flight. These include John F. Kennedy in New York and Providence in Boston. Southwest Airlines uses a single nonstop flight segment while flying to various places. Both companies stress about long-term in their operations to ensure that they can plan the way to counter issues in the future, earn profits and maintain their market share. The fare and rate structure levels vary depending on both companies’ destinations, ticket demand, and flight time.

Five Key Lessons for Airline Managers

There are various lessons that an airline manager can learn from the paper. For instance, it is important to understand that low-cost fares combined with great quality services will drive customers to associate with a particular company. For example, both Southwest Airlines and JetBlue Airways offer cheap and affordable ticket prices and other services such as entertainment and connectivity for their passengers (Parast & Golmohammadi, 2021). This has helped the two to establish a client base that is loyal to them (Melancon & Dalakas, 2018). Another lesson is that it is essential to protect the interests of one’s customers. The paper has shown that the two organizations in discussion aim to fly and arrive at destinations at unique times that can prevent delays. Some travelers take trips for business purposes, and they would not appreciate being late.

Conclusion

The essay has focused on analyzing how the JetBlue airways and Southwest airlines operated in the 2010s, including their market strategies, service-price concepts, cost and revenue drivers, pricing, productivity, and planning concepts. On the one hand, it has been established that the marketing approach implemented at JetBlue airways helps the organization to place itself in the right place competition-wise in the market. Additionally, it allows the company to meet its set objectives formulated at the start of every financial year. The marketing department at the company uses it to evaluate the brand’s chance of excelling in one of the most competitive industries. The same happens with Southwest airlines, whereby the focus is thriving despite the emergence of more rivals.

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