strategic-management

28 MERNOUSH BANTON
hub (Terminal 5 in John F. Kennedy Airport in New York). The new terminal offers many
modern amenities and concession offerings. Southwest now flies out of New York’s
LaGuard: an airport eight miles from Kennedy.
JetBlue continuously markets itself through advertising and promotions in newspapers,
magazines, television, radio, and on billboards. The firm relies on word of mouth
because it believes this is the most effective advertising for the company. The primary distribution
channel is through the company’s Web site (www.jetblue.com), promoting its
low-fare partnership with American Express Rewards, discounts, and customer loyalty
program (TrueBlue Flight Gratitude). TrueBlue Flight Gratitude is an online program
designed to reward and to recognize the company’s customer. This program offers many
incentives; the members earn points for each one-way trip flown based on the length of the
trip. Points accumulate for each member in an account and then expires after 12 months.
The member receives a free round-trip award to any JetBlue destination after attaining 100
points within a consecutive 12-month period.
Through American Express, JetBlue offers the JetBlue Business Card, which provides
small business owners with a 5 percent discount on JetBlue travel and automatic
enrollment in the American Express OPEN Savings program. In addition, small business
owners with any American Express OPEN small business card receive a 3 percent discount
on JetBlue travel. Every time card members make a purchase, either by their JetBlue Card
or a JetBlue Business Card from American Express, they earn points. The company also
has an agreement with American Express allowing its cardholders to convert their
Membership Reward points into JetBlue TrueBlue points.
E-Commerce
The percentage of JetBlue’s total sales booked on their Web site averaged 77 percent for
the year ended December 31, 2008. In 2008, their bookings through global distribution
systems, or GDSs, and online travel agencies, or OTAs, became their second largest distribution
channel, accounting for 13 percent of our sales. They booked the remaining 10 percent
of their 2008 sales through the 800-JETBLUE channel.
The number of estimated travel awards outstanding at year-end 2008 was approximately
196,000 awards and includes an estimate for partially earned awards. The
number of travel awards used on JetBlue during 2008 was approximately 297,000,
which represented 4 percent of the total revenue passenger miles. Due to the structure of
the program and low level of redemptions as a percentage of total travel, the displacement
of revenue passengers by passengers using TrueBlue awards has been minimal
to date.
Financial Conditions
Behind labor, the second largest operating expense for airlines is fuel. JetBlue enters into
crude oil option contracts and swap agreements to partially protect itself against significant
increases in fuel prices. Exhibit 2 provides JetBlue fuel costs.
Exhibits 3 and 4 provide a historical data on company’s finances since 2006.
EXHIBIT 2 JetBlue Fuel Cost
Year Ended December 31
2008 2007 2006
Gallons consumed (millions) 453 444 377
Total cost (millions) $1,352 $ 929 $ 752
Average price per gallon $ 2.98 $ 2.09 $ 1.99
Percent of operating expenses 41.2% 34.8% 33.6%
Source: JetBlue, Form 10K (2008).