Final Ppt 4 April JetBlue
Transcript of Final Ppt 4 April JetBlue
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Case Study Presentation
Immaculate Mary SackeyBridget FosuhemaaNaa Ayongo MensahPaa Kwesi FynnBenjamin Nii Mensah YemohJeroen Van Puyvelde
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Incorporated in Delaware in 1998 and founded by David Neeleman in 1999.
Started operations in 2000 at JKF (NY)
Start-up capital of more than $100m.
Listed on the stock exchange in 2002 (NASDAQ)
Company goals
leading low-fare/low-cost airline company and a differentiated product
Background of Jetblue
Source: www.jetblue.com
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In 2002: 108 daily flights
Stock in 2002 $20, in 2005 Already $26.4, now $ 5.10
Revenue in 2004 was $1.26billion, end of 2006 $2.36 billion,in 2010 $3.78 Billion.
In mid 2005:
Jetblue operated 77 new planes. 316 flights daily, serving 32 destinations in 13 states.
Background of Jetblue
Sources: www.jetblue.comwww.investor.jetblue.com
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Trend Analysis (per revenue)
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0
20
40
60
80
100
120
OPERATING INCOME
OPERATING EXPENSES
STAFF COSTS
FUEL COSTS
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Trend analysis of fuel costs
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Fuel cost compared to operating expenses
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
05
1015202530354045
Fuel cost as a Percentage of Operating Expenses
As a Percentage of Operating Expenses
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Financial performance of Jetblue
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
ROCE ROSF
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Jetblue vs competitors2003 2005 2008 2011
Southwest
Airlines
ROCE 4.76% 7.14% 3.99% 5.12%
ROSF 12.01% 11.67% 5.61% 4.79%
AMR Corp.
ROCE (5.61)% (0.44)% (17.94)% 6.93%
ROSF(408.41)
% (58.25)% 51.60% 27.83%
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Financial performance of Jetblue cont’d
ROCE 2003 (Highest ROCE)
Increase in revenue Increase in daily flights from 43% increase in number of passengers. Installation of satellites TV systems on non Jet Blue aircrafts. Reduction in operating expenses due to a 5% decrease in Selling, General and Admin expenses.
2005 and 2008 (Lowest ROCEs) Decrease due to natural disaster (3 hurricanes), high fuel prices and global economic meltdown.
2011 Drop in ROCE by 0.36% from 2010 due to severe weather storms and cancellation of 1400 bookings over 3 day period.
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ROCE CONT’D COMPETITORSCompared to direct competitors on a 4 year average.AMR Corporation – (4.27)%Jet Blue Airways – 4.69%Southwest Airlines – 5.25%
ROSF Average return for 10 years – 5.79% as compared to 3.75% from bank
deposits over the same period. Return over the 4 year period compared Southwest Airlines and AMR
Corporation. Jet Blue – 3.52% Southwest Airlines – 8.50% AMR Corporation – (96.81)%
Financial performance of Jetblue cont’d
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Profitability
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
-5
0
5
10
15
20
Operating Income MarginNet Profit Margin
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2003
2005 First loss recorded since becoming a public company. Due to natural disastersInability to raise air fares due to high competition.Increase in fuel prices by 52% caused $167m increase in total fuel cost compared to year 2004. 2008 – Loss in net profit margin due to: Additional cost of $400m resulting from unprecedented spike in fuel prices. $8m write-off related to temporary terminal facility at JFK. Additional expense of $13m in interest expense related to early conversion of portion 5.5% convertible debentures due 2038. $18m loss in interest income related to gain on extinguishment of debt. Other-than-temporary impairment of $53m related to write-down of value on auction rate securities.
2011Drop in operating and net income margins compared to 2009 and 2010 due to:
$6m loss related to the repurchase of $39m principal amount of their 6.75% convertible debentures due 2039.Increase in total operating expenses by 1.66% margin compared to 0.15% increase in 2010.
Profitability cont’d
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Measure of liquidity
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
00.20.40.60.8
11.21.41.61.8
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Current RatioAcid Test Ratio
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Liquidity cont’dCURRENT RATIO
Average of 1.14 for review period indicates ability to pay off obligations. Lowest CR’s recorded in 2005, 2007 and 2008 of 0.94, 0.84 and 0.84
respectively.
ACID TEST RATIO Average of 0.88 for review period indicates inability to pay off obligations. Lowest ATR’s of 0.03 and 0.02 recorded in 2011 and 2010 respectively
however show company’s preference for medium/long term investments as seen in huge purchases of available-for-sale-securities and held-to-maturity investments worth $1,052m and $1,935m compared with cash and cash equivalent holdings of $637m and $465m respectively.
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Capital structure
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
GEARING INTEREST COVER
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Jetblue vs competitorsGEARING
Gearing levels for the period under review higher than recommended benchmark of 30% - 50% indicating company is highly geared.
Average gearing level of 57.91% for the period, Shows long term lenders have high stake in company thus have an ability to restrict company’s
finances based on high exposure. Not good for actual shareholders as it shows Jet Blue to be high risk investment.
Gearing level assumes downward trend from 2006 (65.83%) with current level for 2011 recorded to be 50.36%.
Average gearing level of 57.45% for Jet Blue for significant 4 years compared with levels for Southwest and AMR Corp whose average of 21.11% and 50.40%, Jet Blue must strive to do better in order to increase shareholders’ confidence in investment in company.
INTERST COVER Interest cover ratio of less than 1.5 for years 2005 to 2009 show that Jet Blue’s income generation
ability was not sufficient enough to meet its interest expenses. Improvement in ability to meet interest expense as evident in ratios recorded for 2010 and 2011.2003 2005 2008 2011Southwest Airlines 16.71% 13.73% 31.06% 22.96%
AMR Corporatio
n45.06% 59.17% 53.31% 44.04%
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Investor ratio’s
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
-150
-100
-50
0
50
100
P/EEPS
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Investor ratio cont’dEPS
Jet Blue’s highest EPS of 1.07 was recorded in 2003 when the company had a strong financial position for the period under review such that for every share held, shareholders received 107 cents.
Lowest EPS ratios of (0.13) and (0.37) in 2005 and 2008 respectively indicating that for every share held, Jet Blue’s shareholders lost 13 cents and 37cents respectively due to loss of revenue and high operating expenses incurred from high fuel prices, natural disasters and the global economic crisis.
Jet Blue’s average of 22 cents is lagging behind Southwest (who has an average EPS of 39 cents) but is ahead of AMR Corp. (who has an average of -676 cents) for the 4 significant years compared. Jet Blue was thus able to bring a higher return to its shareholders when compared to AMR Corp.
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P/E RATIO Investors confidence in the airline industry has been waning: Evident in decreasing and further unstable trend shown in the graph due to
the uncertainty of the airline business most especially the US industry. Natural disasters (Hurricanes) Rising nature of fuel prices Passenger Behaviour due to the general state of the economy at any
point in time, international events, industry capacity and pricing actions taken by other airlines.
Jet Blue’s average P/E ratio of -24.71 for the selected 4-Year period lags behind compared to Southwest (34.55) and AMR Corporation’s (-1.49) implying less confidence in Jet Blue.
RATIO2003(in
times)
2005(in
times)
2008(in
times)
2011(in
times)Southwest Airlines
EPS 0.48 0.61 0.24 0.21P/E 38.42 27.08 33.04 39.67
AMR Corporatio
n
EPS (7.76) (5.21) (8.16) (5.91)
P/E (1.66) (3.26) (0.98) (0.06)
20Source: finance.yahoo.com
Industry analysisJET BLUE AIRWAYS
SOUTHWEST AIRLINES
AMR CORPORATIO
NINDUSTRY
No. Of EMPLOYEE
S11, 733 45, 392 80, 100 9.85k
REVENUE (ttm) 4.50b 15.66b 23.98b 3.65b
OPERATING MARGIN
(ttm)7.15% 5.28% -1.24% 9.07%
NET INCOME
(ttm) 86.00m 178.00m -1.98b N/A
EPS (ttm) 0.28 0.23 -5.91 0.21P/E (ttm) 18.23 38.96 N/A 17.18
(ttm) – trailing twelve months (as of 31 Dec 2011), b=Billions, m=Millions, k=Thousands, N/A= Not Available, Industry = Regional Airlines
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Efficiency
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0
5
10
15
20
25
30
ASSET TURNOVERRECEIVABLES PERIODPAYABLES PAYMENT PERIOD
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In general
Offering greater value By means of lower prices.
Providing greater benefits and service that justifie higher prices.
For Jetblue
Low prices combined with great service in order to gain competitive advantage.
What is competitive advantage?
Sources: www.jetblue.comcase study Jetblue Airways
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Elements of organisational resources:
Strong HR-policy, hiring the best people and support them with excellent training and equipping them with the best tools. Employees are highly motivated to be service oriented.
Technology: live satellite tv at every seat.
Infrastructure: keeping the fleet up-to-date.
Efficient and on time when arriving and departing, better than the competitors.
IT: Their website is a real revenue generator and a significant cost saver.
Advertising and promotion through media channels, although they mostly rely on word-of-mouth advertising.
Organisational resources
Source: www.jetblue.com
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Tangible resources
Asset-acquisition of new planes Labour-stringent recruitment policies CEO
Non-tangible
Reputation low fare and low cost airline Time efficient Customer service
Organisational culture
All employees seen as crew members and all passengers as customers.
Resources
Sources: www.jetblue.comCase study Jetblue Airways
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Resources needed to meet customer’s requirement, to stay in the business.
A. Provision of comfortable accommodations.B. Bullet proof cockpit doors across the fleet.C. Provide every day the same complete service.
Treshold resources
Sources: www.jetblue.comCase study Jetblue Airways
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Underpinning competitive advantage and difficult to imitate.
100% ticketless
24 channels of live tv
Broadcast of Olympic games during flights.
Installation of security camera’s in passenger cabins for customer and crew security.
Unique resources
Sources: www.jetblue.comCase study Jetblue Airways
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Strong focus on vision of low-fare/ low-cost passenger airline and providing high customer services.
Direct marketing skills and database management.Design and deliver a ‘customer interface’ that personalises online booking making it more efficient.
Reliability and efficiency
These competences are activities and processes which underpin competitive activities.
Core competences
Sources: www.jetblue.comCase study Jetblue Airways
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HR: hiring and training the best people
Online booking system
New fleet
Activities and processes required to produce the product/services.
Threshold competency
Sources: www.jetblue.comCase study Jetblue Airways
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A resource or competency to be a source of competitive advantage needs to be:
ValuableFirst airline to use security camera’s for customers and crew safety. Bullet proof cockpit doors.
RareBroadcasting satellite tv, 100% ticketless.
Non-imitableImitable but at a very high cost. (high entry barriers)
Effectively organisedYes, because of the trained staff, use of new technologies, e-commerce,…
Barney’s Vrio-model
Source: Barney 1995Lecture 6
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Pestel AnalysisPolitical/legal
Reformation after 9/11Extending daylight saving
time
Economic
Oil pricesUnions and strikes
Labor wagesDelays & security
Socio-cultural
Increase of obesityEnvironmental
CO² emission
LEGAL
Increasing security fees on airline tickets
Employement law differsLots of regulations
National airline policy
Technological
Luggage-tracking technologyNew planesE-commerce
Sources: www.cdc.govwww.faa.gov
https://ec.europa.euwww.deredactie.be
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Swot AnalysisStrengths
• The product itself• Customer service• Strong mkt policy and brand• New Fleet• Training of staff & equipment
Weaknesses
• Spoilage rates• Break-even load factor• Figures worse in recent years
Opportunities• National Airline Policy• Further expansion of their partnerships• Market growth• Technology advancements
Threaths• Economic downturn• Ever increasing costs of fuel and labor.• Governmental intervention• Unions and strikes
Sources: www.ehow.comCase study Jetblue ariways
www.faa.govwww.nytimes.com
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Porter’s 5-forces • Potential entrants
* Capital requirements Startup costs Fixed costs
* High risk nature of the industry.
* Legislation and governmental actions.
* Access to distribution channels.
Only 2 have been successful in recent years.
Sources: www.ehow.comCase study jetblue airways
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Porter’s 5-forces • Buyer Power
* Struggle in ongoing price wars* Strenghts and weaknesses
• Supplier power
* High power for delivering materials.
• Threat of substitutes
* No threat beyond 500 miles.* Planes win in every factor.
Sources: www.ehow.comCase study jetblue airways
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Porter’s 5-forces • Rivalry/competition
* Entry and substitutes: no
* Buyers and suppliers: high
* Market growth
* Costs
Competitive business
Sources: www.ehow.comCase study Jetblue airways
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Strategic group analysisHigh
Low
National International
Posit
ioni
ng p
rice/
serv
ice
Geographical Sources: nationsonline.orgHome sites of het different
airline companies
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Bowman’s strategy clock
Jetblue is low price strategy
* Lower prices than competitors
* With good service
* Positioning of competitors
Sources:www.mindtools.com (logo)Lecture 9
37Source:www.airbornesurfer.wordpress.com
RecommendationsFor LT financial and strategic development of the organisation.
Look for other suppliers to promote competition among them.
Consider partnerships in order to provide Canada And Mexico to enhance their northern American coverage and build up their market share.
Review the fuel hedging policy .
Expansion of domestic route network.
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Thank you for your attention!
Questions?
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http://southwest.investorroom.com/sec-filings [ March 29 2012] AMR Corporation Annual Report (2005) [Online] available from
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http://southwest.investorroom.com/sec-filings [ March 29 2012] AMR Corporation Annual Report (2011) [Online] available from
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Jet Blue Airways Annual Report (2003) [Online] available from http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol-reportsAnnual [ March 13 2012]
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Jet Blue Airways Annual Report (2004) [Online] available from http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol-reportsAnnual [ March 13 2012]
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Southwest Airlines Co. (2003) [Online] available from http://southwest.investorroom.com/sec-filings> [March 29 2012]
Southwest Airlines Co. (2003) [Online] available from <http://southwest.investorroom.com/sec-filings> [March 29 2012]
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Southwest Historical Share Prices [Online] available from <http://southwest.investorroom.com/historical-stock-price > [March 29 2012]
US Department of the Treasury , Data and Charts Centre - Interest Rate Statistics - Historic Long Term Rates. [Online] available from <http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/Historic-LongTerm-Rate-Data-Visualization.aspx> [March 28 2012]
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www.jetblue.com
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http://www.ehow.com/about_5347649_airline-industry-swot-analysis.html#ixzz1oMO1mdpg
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www.faa.gov
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