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JetBlue

Transcript: Southwest Airlines The New CEO had made many changes in helping the performance of JetBlue these include: Strengthend the balance sheet Improvement and addition to fleet of Aircraft Used a moderated and controlled approach to business expansion Embraced Social Media to improve Public Relations and Company Image Opportunities Jetblue Airlines September 11 Attack/ Accidents Increase in Fuel Price Strong Competition Global Economic Crisis CASM expected to increase between 1.0% and 3.0% Excluding fuel and profit sharing, CASM is expected to increase between 3.0% and 5.0% Expects roughly half of this to be driven by maintenance expenses CASM for the full year is expected to increase between 0.5% and 2.5% over full year 2012 Exluding fuel and profit sharing, CASM in 2013 is expected to increase between 2.5% and 4.5% year over year Capacity is expected to increase between 3.5% and 5.5% in the third quarter and to increase between 5.5% and 7.5% for the full year Repair to JetBlue reputation damages Balance Sheet Update A major US. airline and the world's largest low cost carrier David Neeleman was executive vice president of the Southwest Airlines Established in 1967 Has solely operated the Boeing 737s Differences in Structure Operating income for the quarter was $102 million, resulting in a 7.6% operating margin, compared to operating income of $130 million and a 10.2% operating margin in the second quarter of 2012. Pre-tax income of $60 million in the second quarter. This compares to pre-tax income of $86 million in the second quarter of 2012. Net income for the second quarter was $36 million, or $0.11 per diluted share. This compares to JetBlue's second quarter 2012 net income of $52 million, or $0.16 per diluted share. 100 Seat Seat Pitch: 34-36 inches length: 123 feets 3 inch wingspan: 111 feet 10 inches PRICE: $ 50-60 million Safety Caring Integrity Fun Passion Leather Seats Low Operating Cost Efficient Employee Excellent customer service Be on time 2/3 of its flights High level of service Operational Performance Where is JetBlue now? CEO Dave Barger Marketing Position " the worst operational week in JetBlue's seven year history" Under bad weather, JetBlue fliers were trapped on the runway at JFK for hours Lack of communication six day event 1100 flights cancelled- 40% of JetBlue operation 131 000 customers were affected by cancellation The A320 had proven to be an extremely reliable plane around which JetBlue had standardized its operations. A320s could feed into E190 flights each other, resulting in higher loads and improved economics for JetBlue 150 seats; three-by-three 100 Seat Seat Pitch: 34-36 inches length: 123 feets 3 inch wingspan: 111 feet 10 inches PRICE: $ 50-60 million A320 The salary paid differently for their employees Structure for E190 and A320 customers Airport infrastructure difference The amount of the aircrafts required by JetBlue The number of passengers required for a flight to meet the typical breakeven load of 75 to 80 per cent was much lower on the E190 than the A320 Customers review on JetBlue's Strategy "JETBLUE IS ULTIMATELY BETTER FOR HAVING GONE THROUGH THIS.” Continue with focus on Customer Relations and great Customer Service Improve Inflight Sevices e.g. Faster Wi-Fi, better quality inflight entrainment. Introduce First/Business Class on longer flights. Expand to South American Countries. Introduce more efficient engines on existing fleet and buy more modern and fuel efficient aircraft. Cut costs without compromising on quality by better matching capacity with growing network demand in key markets while reducing unit costs . February 2007 Crises 7 E190s in the last two month of 2005; 16 additional in 2006; plan another 18 in 2007. CSAM( cost per available seat mile) Get- to –the-destination – at all costs culture(for short- haul routes) Structure for E190 employees 100 seats; two-by-two Aim: to create a cost structure that would support low fares with high quality for customers Innovative measures No food is served for cost cutting Jetblue is trying to be different Operational revenue of $1.3 billion Revenue passenger miles increased 7.3% to 9.12 billion Yield per passenger mile was 13.40 cents, decrease of 2.8% Passenger revenue per available seat miles decreased 3.3% to 11.37 cents Operating revenue per available seat mile decreased 3.1% to 12.42 cents Operating expenses increased 7.5% or $86 million Operating expense per available seat mile decreased 0.3% to 11.48 cents Excluding fuel and profit sharing, it increased 3.3% to 7.15 cents Weaknesses Should they continue to support both the E190 and A320? Jetblue Airlines Core values Third quarter and full year outlook What Future Strategic Direction would you recommend for JetBlue? Neeleman apologised publicly to the 131 000 customers. Passengers stuck on the plain for more than three house received full refund and a voucher for a free roundtrip flight Issue of a customers bill of rights New CEO Ended second quarter with

JetBlue

Transcript: Focuses on Cost effectiveness without compromising quality Using technology for automation - JetBlue pilots were given laptops to make required calculations - This in turn reduced ground time at airports, leading to more efficiency with increased no. of flights. Utilizing cost savings for meal in value added services - Leather seats: feeling of luxury and comfort - More leg space between seats - Personalized TV’s along with headsets Differentiation “JetBlue‘s vision to inspire humanity guides everything we do and helps us plan for the future.” Background Safety first Award 2001 – “A” rating – Best consumer feedback Award 2001 – Best Uniform Award 2002- Best Onboard service Award 2002- Best Onboard Entertainment JetBlue was able to identify niche market and cater to it - Focusing on few and not many routes - Concentrated on New York, California and, Florida - Flying to secondary airports Flying at airports which the competitors did not use - Able to fly more flights than competitors Point-to-point flights - Hub and spoke network - Direct transportation without going through a central hub Awards Any questions? Effective Cost Management  After 9/11 JetBlue installed heavy titanium doors between the pilot and passenger. Growing middle class and its spending No inter-regional highways/railroads due to geography of the region Low landing fees Tourism growth “If you don’t like people or you can’t deal with rude customers, you will be fired”- Neeleman Point to point flying - Flights are cheaper and faster - Lower travel time and minimum expenses Turnaround time for flights: reducing ground time -JetBlue flights were ready for their next trip in 35 minutes unlike others which took an hour or more Technology and electronic ways of doing business also reduces cost - In-house development of IT rather than outsourcing - Less employees required for booking tickets online (saving labor charges) - Passenger check-ins and baggage claim also reduces manpower Operational Advantage • David Neeleman along with Tom Kelly started developing the business model for JetBlue. • It is a No-frills low cost carrier • Started with initial capital of $160 million on February 11, 2000 (established in 1998) • Decided to base his airline in John F. Kennedy International Airport due to little competition • Concentrated on certain areas such as West Coast, Northeast and, Florida • IPO of 5.5 million shares traded on NASDAQ at the price of $22 and $24 and then shot up to $45 Background Business Strategy - Cost Leadership - Differentiation - Focus Culture Competitive Advantages - Sustainability Budget Airlines in U.S. and Asia - PEST Recommendations The two bases of JetBlue’s competitive advantage are ‘cost leadership’ and ‘differentiation’. - Identify and eliminate non value-adding costs and enhance quality of service - Replaced meals with Snacks and beverages. - Provided more amenities than other airlines including personal Televisions. - Leather seats although they were more expensive but lasted longer. - Operated Airbus-320 which was more costly but easier maintained and more fuel efficient. - JetBlue’s Cost per passenger mile was 6.43 cents. Comparison and Contrast Between Asia and the U.S. - 2002 was the year when major airlines in the industry were expected to have a loss of $9 billion (approximately). - JetBlue however recorded net income of $55 million on revenues of $635 million. - Had a 35% increase in earnings (reported during first quarter of 2003 - Added 65 new planes. - Had more than 12 million passengers within 3 years of operations. - Achieved all this due to its operating efficiency and quality of service. Business Strategies PEST JetBlue's Culture Recruitment Scheme JetBlue rewards employees’ initiative by free tickets of vacations - Pilots tends to help in cleaning the plane after flight. - A pilot provided his cell phone to customers after a flight delay. Profit-sharing program and bonuses to encourage customers. New employees are treated alike regular employees in terms of housing and food expenses, unlike competitors.  Neelman’s attitude was reflected on his employees.  Neelman is treating his employees equally. Overview Long-Term Viability Customer-Oriented Cost Leadership Sustainability The airline is growing and can control costs. No labor problems as the company is still small and the management can oversee most of the operations. More competitors are attracted to the niche markets that JetBlue is serving such as Delta and Virgin Airline. Airlines are seeking the same technological changes such as personal TV and internet access. Challenge is to replicate the same model on a greater scale. Serving snacks instead of meals - Normal meal costs $4 per person whereas snacks cost 12-14 cents - JetBlue saves over $3 per passenger using this strategy One standard fleet in planes - No division of economy/business class - Helpful in controlling costs since spare parts, furnishings and crew were interchangeable Airbus A-320

JetBlue

Transcript: Awards Received JetBlue's Motto A lot more west coast flights On Time Performance History Uses digital advertising to target customers Adds VH1 Classic, Nickelodeon/Nick at Nite and TV Land to DIRECTV programming JetBlue was one of the few airlines to still make a profit Marketing Strategy 2000: Based in John F. Kennedy International Airport The first route from JFK to Fort Lauderdale, FL Known for their low fare rates Had their millionth customer JetBlue History Fly-Fi!!! Teams up with Virgin Atlantic seat lies down to almost 7ft long! Fuel Hedging JetBlue recorded $59 million in profit on fuel hedges in 2013 Recorded $26 million in losses on fuel hedges in 2014 Hedging was 20% of fuel consumption this year expecting losses on fuel hedges in 2015 From Flightstats a website that tracks The 20 most active routes for Jetblue Tracked between January to March 15th 2015 The best on time percentage for a route was 72% LA to NY Out of 411 flights only 296 were on time. 103 were late or delayed 12 were cancelled Temkin Experience asked 10,000 customers on different airlines based on if they got what they wanted how easy was it to get how they felt after the transaction 75% approval rating Big jump from 2014 JetBlue is the official Airline of the Boston Redsox... Along with the New York Jets... $599 one way free wifi parting gift 1st to get luggage headrest touch screens lounge to wait in 2011 On time continued Jetblue flew 24548 routes, their average on time percentage is 67%. 8100 flights were delayed, late, or canceled. To give a comparison, US Airways has 73% of its flights on time. which may seem only like a little bit but this means that with the same amount of flights US Airways would have 1472 planes on time more than Jetblue 2015 America's Top 500 Best Employers (#19) Forbes magazine 2014 Best Places to Work for LGBT Equality Human Rights Campaign 2014 Top Low Cost Airline for Customer Satisfaction JD Power and Associates 2014 Soar with Reading wins Cynopsis Kids !magination Award for Best Pro-Social Campaign Cynopsis Media 2014 JetBlue's CSR and Sustainability Programs win seven awards The Bulldog CSR Awards 2014 “BE GREAT” award Boys and Girls Clubs of Central Florida 2013 Spot on list of most innovative users of business technology InformationWeek 2013 Top Low Cost Airline for Customer Satisfaction JD Power and Associates 2013 Friendliest Terminal; Best Terminal for Cleanliness and Condition; Best Concessions; Best Overall Experience (T5/JFK) Port Authority Customer Care Awards 2012 Top Low Cost Airline for Customer Satisfaction JD Power and Associates 2012 Best Places to Work Glassdoor 2012 Best Domestic Airline Porthole Cruise Magazine award 2012 Best Innovative Consumer Experience Concept or Practice - Live From T5 Concert Series Airports Council International-North America (ACI-NA) 2012 Ten Best Travel Apps of 2012 SmarterTravel 2012 The new jetblue.com – Best in Class, Gold Aware W3 Awards, The Interactive Media Awards 2012 Best of the Web Mobile Leaders Compuware 2011 Best Airline Logo TV's NewNowNext Travel Awards 2011 Best Airline Website Booking Experience U.S. Air Travelers’ Choice Award 2011 Best U.S. Budget Airline About.com 2011 Excellent Web Service 2010 Compuware Gomez Web & Mobile Performance Awards 2011 Best Value Airline (Domestic), Most Customer Friendly Airline, and Best Coach Class Experience Travel 2011 Editor's Choice Awards 2011 Top Low Cost Airline for Customer Satisfaction JD Power and Associates 2010 Top Low Cost Airline for Customer Satisfaction JD Power and Associates 2010 Spot on list of Top Technology Innovators Across America Information Week 500 2010 Top Rated Large Domestic Airline' for Economy and 'Best In-flight Entertainment' for Domestic Flights Zagat Airline Survey 2010 Best Cabin Ambiance Passenger Choice Awards™, Airline Passenger Experience Association (APEX) 2010 #1 Airline Brand 2010 Brand Keys Customer Loyalty Engagement Index® 2010 CIO 100 Award Honoree CIO Magazine 2010 Best Concessions Program Design (T5/JFK) ARN's Best Airport and Concessionaires Awards 2010 Most Unique Services (T5/JFK) ARN's Best Airport and Concessionaires Awards 2010 Best Overall Concessions Program (T5/JFK) ARN's Best Airport and Concessionaires Awards 2010 Best Concessions Management Team (T5/JFK) ARN's Best Airport and Concessionaires Awards 2010 Best Coach-Class Experience SmarterTravel Editors' Choice Awards 2010 Most Customer-Friendly Airline SmarterTravel Editors' Choice Awards 2010 Most Pet-Friendly Airline for Carry-on Pets SmarterTravel Editors' Choice Awards Opened up a second base in Long Beach, California Mint service The worst percentage they received was from Fort Myers, FL to Boston, MA at 54% Out of 374 flights only 202 were on time This means that 172 were delayed or late A staggering number of 40 flights were canceled. Interesting Facts 1999: David Neeleman announces JetBlue Ordered 75 new A320s 2nd largest airline to book online reservations 1st airline to offer

JetBLUE Presentation

Transcript: JetBlue History Leather seats Unlimited snacks & soft drinks Free in-flight entertainment -Live T.V for every customer Free Fly-Fi for all customers Customer friendly approach Creates a fun environment Power of Buyers: High JetBlue Airways - Founded by David Neeleman, 1999. - Single fleet operations, Airbus A320. - 1 of 3 airlines to make a profit post 9/11. - 2005, 5th largest airline in the U.S - 2007 Valentines day disaster. - Won several awards including 4* Skytrax. - Proven to be hugely successful since 1999. - Consistent growth and expansion. - Recently jeopardized it's mission statement. - Reduced profit margins compared to other in sector. - Proven dynamic business model - Strong future. Threat of Substitute Product or Service: Medium - Continue to differentiate attracting greater mix of customers. - Revisit their cost-leadership business model. - Expand on their current route network. - Grow their international route network (Western Europe). - Investigate diversification of business model. - U.S is the single largest market in the world. - Largest domestic airline in North-East. - New aircraft has created opportunity for new routes. - Improved fuel efficiency. - Commercial Partnerships. - Business customers account for significant portion of domestic flights (Mint). Non-hierachical Flexible working conditions Voted one of the best airlines to work Mainly non-unionized workforce Bonus's & Profit Sharing Rivalry Among Existing Competitors: High - Other modes of transport. - Technological advances. Power of Suppliers: High Industry Analysis - High debt levels. - Relatively new to industry. - Highly dependent domestic markets. - Low profit margins. - Ticket Holders - 895 million U.S passengers 2015. - High bargaining power. - Low switching costs. - Loyalty Programs. - New & Efficient Aircraft. - Highly aircraft utilization helps to maintain low cost structure. - Strong brand recognition flying to 93 destinations. - Innovative technology and processes. - Award for highest customer satisfaction amongst LCC's. Strengths Dynamic Business Model Employee Culture Weaknesses - Fluctuating fuel prices. - Increased intense competition. - Political & economic uncertainties in new markets. - Unionization of employees (Pilots). - Fluctuation on demand. Opportunities Live T.V Paperless tickets Web-based booking system 24hr online access to manuals & SOP's First U.S A320 carrier to use ADS-B Paperless cockpit, EFB's & iPads Thanks for flying JetBlue Any Questions? - Aircraft Manufacturers -Highly Concentrated Industry - Airports -Monopolistic power - Fuel -Largest operating cost (26.6%) Amenities Conclusion Technology - Extremely competitive industry - 130 Carriers in the US - JetBlue's Market share has decreased by 2014 TrueBlue MINT service Densify aircraft cabin Diversifying to International Markets Customer bill of rights Embraer 190 JetBlue Strategy The Future of JetBlue - U.S Domestic low cost carrier. - Headquarters: New York City, JFK. - Point-to-Point operations. - Employs over 14,000 people, (Non-Unionized). - "To bring humanity back to air travel". - 93 destinations in U.S, Caribbean & Latin America JetBlue Overview Threats SWOT Analysis Michael Barcoe - LCC business model differentiating using amenities. - Invests heavily in technology & new aircraft. - Non-hierarchical culture within JetBlue. - Consistently evaluates & adapts business model. - Overview - History - Business Environment - Airlines Strategy - Business Model - Future - Conclusion "Not a low-cost carrier, not a legacy airline, JetBlue goes a third way" (Ortiz 2013)

Jetblue

Transcript: Terminal Value Resources Transperency Public Scrutiny Southwest = pioneer Market Cap: SW > Other Airlines Combined AirTran, Frontier, Alaska Air Few Aircraft types Air travel Valuation used to determine FV on certain date Screens inappropriate estimates Constant Growth $10-13 Trailing EBITDA Multiple Multiple Price Average (All airlines) (17.3) ($143) Average (Low fares) 9.2 $31 Ryanair only 26.4 $144 Southwest only 13.4 $59 Jetblue Airways IPO Valuation By: Robert Bilski Kelly Bowler Alex Hallahan Comparable Multiple Approach IPO Process: Underwriter IPO Process What do you think Jet Blue is worth? Cons: Negative values Relative measures Duties: Launched in July 1999 by David Neeleman 87 failures over last 20 years Bringing "humanity back to air travel" Fixing everything that 'sucked' about airline travel Prerequisites Business Plan Audited Financial Statements Prospectus Due Diligence Syndicate SEC review Access to capital market Liquidity Incentives Credibility High-quality customer service Technology advances Safety and security Low price What is an IPO and why is it such a big deal? Background Pros vs. Cons Pros: Convenience Helpful of shaky firm Conclusion 5.5 million shares x $27 share price= $149 million Opening Price = $32 (19% above offer price) Closing Price = $45 (67% above offer price) Underpricing Phenomenon New Market Cap: 5.5 million shares x $45 share price=$248 million Market Confidence vs. Deal Compromised Business model: Low fare airline Aircraft/Revenue Growth Operating Margins Fairy-tale growth SW Discount rate used to find FCF 9.7% $22<------->24 (Initial Pricing) + Blow-out demand = $25<------>$26 (Price Revision) Launching stock for public (JBLU) On securities exchange (NASDAQ) Underwriter (Morgan Stanley) Support growth Offset portfolio losses (VCs) Compares similar firms within same industry Assumptions: Similar assets sell at similar prices Company ratios = same across the board Negotiating final offering price Selling agreement confirmed Price-stabilizing activites Acting as market-maker Forecasting

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