Case Notes/Answers
JetBlue Airways Managing Growth By Robert S.
Huckman and Gary P. Pisano
Discussion Questions:
1. How would you describe JetBlue’s operations strategy prior to the November 2005 adoption
of the E190?
2. Compare the economics of the E190 and A320 for JetBlue. What are the key drivers of
profitability for each type of plane?
3. Do you agree with JetBlue’s decision to add the E190 to its fleet? Be prepared to state the
rationale for your decision.
4. How should JetBlue slow down the growth of its fleet? Should it cut growth in A320 capacity,
E190 capacity, or both?
, 5-610-069
REV: JULY 27, 2010
TEACHING NOTE
JetB
Blue Airways
A s: Manaaging Growth
G h
Syno
opsis
Th
his case consiiders a 2007 dilemma faciing Dave Barrger, the receently promoteed CEO of JeetBlue
Airwaays, regarding g how the airrline should slow
s its rate of
o growth in th he face of softtening demannd for
air traavel, increasin ng fuel prices, and a highhly publicized d operationall crisis that had
h recently forced
f
the caancellation off 40% of the airline’s flights over a siix-day period d. To compliccate matters, these
trendss hit the airline soon afterr it had decid ded to add a second
s aircraaft type—the Embraer E1990—to
its exiisting fleet off larger Airbu
us A320 planees. Given its rapid
r growthh, JetBlue had been held up p as a
modeel for other airrlines in the loow-cost carrieer (LCC) segm ment of the inndustry. The decision
d to ad
dd the
E190, however, was w widely viiewed as anaathema to th he traditionall LCC modell, which aim med to
leveraage the operational standardization allo owed by a sin ngle type of aiircraft.
Baarger’s dilemm ma was not about
a whetherr JetBlue shoould slow its rate of grow wth but ratherr how
reducctions in the rate of grow wth should bee allocated accross the its two t types off aircraft. Thee case
provides students with an opp portunity to examine
e the rationale
r for JetBlue’s
J initiial decision too add
the E1190 and evaluuate its impacct on the airlin
ne’s operationns strategy. Itt also allows students
s to gaain an
appreeciation of thee challenges that
t accompaany the process of operatio onal diversification. Finallly, the
case helps
h studentss realize that attempts to slow
s growth can
c create opeerational and d strategic con ncerns
that are
a as significa ant as those created by effoorts to spur growth.
Teacching Objectives
Th
he case has been
b taught inn both MBA and executiv ve courses in
n operations strategy. It iss also
appro
opriate for corre courses in operations
o m
management. I primary teaching objecttives are:
Its
• To highligh
ht the tendenccy for manag gers to undereestimate the strategic
s impllications of grrowth
through opperational diversification
• To examinee the operatio
onal and strattegic challeng
ges associated
d with slowin
ng the growth
h of a
young firm
m
• To develop p the notion of
o operationall diversificatiion not only as
a a source of options for a firm
but also as a source of coommitments
• To illustratee how seemin
ngly similar fiirms can havee significantly
y different op
perations strattegies
, 610-069 Teaching Note—JetBlue Airways: Managing Growth
Assignment Questions
1. How would you describe JetBlue’s operations strategy prior to the November 2005 adoption
of the E190?
2. Compare the economics of the E190 and A320 for JetBlue. What are the key drivers of
profitability for each type of plane?
3. Do you agree with JetBlue’s decision to add the E190 to its fleet? Be prepared to state the
rationale for your decision.
4. How should JetBlue slow down the growth of its fleet? Should it cut growth in A320 capacity,
E190 capacity, or both?
Case Analysis
The case analysis is divided into five sections. The first considers the structure of the airline
industry and discusses JetBlue’s value proposition relative to other airlines. The second examines
JetBlue’s operations strategy prior to the adoption of the first E190 by the airline in November 2005.
The third addresses JetBlue’s strategic rationale for adopting the E190, and the fourth covers the
implications of the E190 for the airline’s operations strategy. The final section examines options for
slowing capacity growth in the face of rising fuel costs and softening demand.
The Airline Industry and JetBlue’s Strategic Position
The passenger and cargo airline industry in the United States generated $3.1 billion in adjusted
net income on $165.5 billion of revenue.1 The passenger portion of the industry included two broad
categories of firms—legacy airlines and low-cost carriers (LCC)—which were distinguished not only
by their fares but also by their business and operations strategies.
Legacy airlines, such as United, American, and Delta, had route structures that connected
numerous small markets to one another via connecting flights (i.e., spokes) through major airports
(i.e., hubs). The objective of hub-and-spoke models was to consolidate volume to improve aircraft
utilization per flight (i.e., load factor) to and from smaller cities. As noted in Case Exhibit 2, the load
factor for legacy carriers in 2005 ranged from a low of 76.5% for Delta to a high of 81.4% for United.
Legacy carriers also tended to fly passengers over long distances, with an average flight distance of
more than 1,000 miles (see Exhibit TN-1 for the average flight length for major North American
carriers in 2005 based on data from Case Exhibit 2). It is worth noting, however, that even with long
flights and relatively high load factors, all of these airlines lost money in 2005. These losses reflected
the high level of competition in the industry and the sensitivity of airline performance to fuel costs.
In contrast to legacy airlines, LCCs—the most prominent being Southwest Airlines2—tended to
serve shorter routes using “point-to-point” route structures (i.e., direct flights without connections
through a hub). The objective of point-to-point flying was to maintain aircraft utilization by
increasing the number of flights per plane per day rather than the average distance per flight or the
average load factor. For example, Southwest’s load factor was well below that of the legacy carriers at
1 Adjusted net income excludes one-time charges and gains. The unadjusted net income figure was $18.2 billion. See
http://www.airlines.org/economics/finance/Annual+US+Financial+Results.htm, accessed March 19, 2010.
2 For detailed discussion of Southwest’s operating system and business model, see Jody Hoffer Gittell, 2003. The Southwest
Airlines Way, New York, NY: McGraw Hill.
2
JetBlue Airways Managing Growth By Robert S.
Huckman and Gary P. Pisano
Discussion Questions:
1. How would you describe JetBlue’s operations strategy prior to the November 2005 adoption
of the E190?
2. Compare the economics of the E190 and A320 for JetBlue. What are the key drivers of
profitability for each type of plane?
3. Do you agree with JetBlue’s decision to add the E190 to its fleet? Be prepared to state the
rationale for your decision.
4. How should JetBlue slow down the growth of its fleet? Should it cut growth in A320 capacity,
E190 capacity, or both?
, 5-610-069
REV: JULY 27, 2010
TEACHING NOTE
JetB
Blue Airways
A s: Manaaging Growth
G h
Syno
opsis
Th
his case consiiders a 2007 dilemma faciing Dave Barrger, the receently promoteed CEO of JeetBlue
Airwaays, regarding g how the airrline should slow
s its rate of
o growth in th he face of softtening demannd for
air traavel, increasin ng fuel prices, and a highhly publicized d operationall crisis that had
h recently forced
f
the caancellation off 40% of the airline’s flights over a siix-day period d. To compliccate matters, these
trendss hit the airline soon afterr it had decid ded to add a second
s aircraaft type—the Embraer E1990—to
its exiisting fleet off larger Airbu
us A320 planees. Given its rapid
r growthh, JetBlue had been held up p as a
modeel for other airrlines in the loow-cost carrieer (LCC) segm ment of the inndustry. The decision
d to ad
dd the
E190, however, was w widely viiewed as anaathema to th he traditionall LCC modell, which aim med to
leveraage the operational standardization allo owed by a sin ngle type of aiircraft.
Baarger’s dilemm ma was not about
a whetherr JetBlue shoould slow its rate of grow wth but ratherr how
reducctions in the rate of grow wth should bee allocated accross the its two t types off aircraft. Thee case
provides students with an opp portunity to examine
e the rationale
r for JetBlue’s
J initiial decision too add
the E1190 and evaluuate its impacct on the airlin
ne’s operationns strategy. Itt also allows students
s to gaain an
appreeciation of thee challenges that
t accompaany the process of operatio onal diversification. Finallly, the
case helps
h studentss realize that attempts to slow
s growth can
c create opeerational and d strategic con ncerns
that are
a as significa ant as those created by effoorts to spur growth.
Teacching Objectives
Th
he case has been
b taught inn both MBA and executiv ve courses in
n operations strategy. It iss also
appro
opriate for corre courses in operations
o m
management. I primary teaching objecttives are:
Its
• To highligh
ht the tendenccy for manag gers to undereestimate the strategic
s impllications of grrowth
through opperational diversification
• To examinee the operatio
onal and strattegic challeng
ges associated
d with slowin
ng the growth
h of a
young firm
m
• To develop p the notion of
o operationall diversificatiion not only as
a a source of options for a firm
but also as a source of coommitments
• To illustratee how seemin
ngly similar fiirms can havee significantly
y different op
perations strattegies
, 610-069 Teaching Note—JetBlue Airways: Managing Growth
Assignment Questions
1. How would you describe JetBlue’s operations strategy prior to the November 2005 adoption
of the E190?
2. Compare the economics of the E190 and A320 for JetBlue. What are the key drivers of
profitability for each type of plane?
3. Do you agree with JetBlue’s decision to add the E190 to its fleet? Be prepared to state the
rationale for your decision.
4. How should JetBlue slow down the growth of its fleet? Should it cut growth in A320 capacity,
E190 capacity, or both?
Case Analysis
The case analysis is divided into five sections. The first considers the structure of the airline
industry and discusses JetBlue’s value proposition relative to other airlines. The second examines
JetBlue’s operations strategy prior to the adoption of the first E190 by the airline in November 2005.
The third addresses JetBlue’s strategic rationale for adopting the E190, and the fourth covers the
implications of the E190 for the airline’s operations strategy. The final section examines options for
slowing capacity growth in the face of rising fuel costs and softening demand.
The Airline Industry and JetBlue’s Strategic Position
The passenger and cargo airline industry in the United States generated $3.1 billion in adjusted
net income on $165.5 billion of revenue.1 The passenger portion of the industry included two broad
categories of firms—legacy airlines and low-cost carriers (LCC)—which were distinguished not only
by their fares but also by their business and operations strategies.
Legacy airlines, such as United, American, and Delta, had route structures that connected
numerous small markets to one another via connecting flights (i.e., spokes) through major airports
(i.e., hubs). The objective of hub-and-spoke models was to consolidate volume to improve aircraft
utilization per flight (i.e., load factor) to and from smaller cities. As noted in Case Exhibit 2, the load
factor for legacy carriers in 2005 ranged from a low of 76.5% for Delta to a high of 81.4% for United.
Legacy carriers also tended to fly passengers over long distances, with an average flight distance of
more than 1,000 miles (see Exhibit TN-1 for the average flight length for major North American
carriers in 2005 based on data from Case Exhibit 2). It is worth noting, however, that even with long
flights and relatively high load factors, all of these airlines lost money in 2005. These losses reflected
the high level of competition in the industry and the sensitivity of airline performance to fuel costs.
In contrast to legacy airlines, LCCs—the most prominent being Southwest Airlines2—tended to
serve shorter routes using “point-to-point” route structures (i.e., direct flights without connections
through a hub). The objective of point-to-point flying was to maintain aircraft utilization by
increasing the number of flights per plane per day rather than the average distance per flight or the
average load factor. For example, Southwest’s load factor was well below that of the legacy carriers at
1 Adjusted net income excludes one-time charges and gains. The unadjusted net income figure was $18.2 billion. See
http://www.airlines.org/economics/finance/Annual+US+Financial+Results.htm, accessed March 19, 2010.
2 For detailed discussion of Southwest’s operating system and business model, see Jody Hoffer Gittell, 2003. The Southwest
Airlines Way, New York, NY: McGraw Hill.
2
