SWOT ANALYSIS Strengths JetBlue find its strength from the following: Strong Brand JetBlue is considered as a strong brand widely known among the people of US. JetBlue was named the number one U. S. domestic airline by Coned Nast Traveler magazine’s “Readers’ Choice Awards” for the six years in a row. This further strengthen people’s trust to JetBlue and improves the company’s brand name and credibility among its clients and competitors. Unique flying experience JetBlue offers a new flying experience but at a very low cost.
They adhere to their company’s goal belief which is bringing “Humanity Back to Air travel”. It follows the low cost strategy of Southwest Airlines but differentiate itself by facilitating customer with entertainment stuff. They give unique flying experience by providing new aircraft, simple and low fares, leather seats, free live TV at every seat, pre-assigned seatings, reliable performance, & high quality customer service. They are also focused on point to point service to large metropolitan areas with high average fares or highly traveled markets that were underserved.
Efficient Utilization of Resources They formulated an operating strategy that had produced the lowest cost per available seat mile of any major US Airline in 2001 – 6. 98 cents versus industry average of 10. 08 cents. With its strong capital base, Jet Blue was able to acquire a fleet of new airbus A320 aircraft. Jet Blue’s fleet is not only reliable and fuel efficient than other airline fleets, but also attended greater “economies of scale”. Employees Strong people on top management, several JetBlue executives are former employees of Southwest Airlines.
They have prior experience in managing airlines thus any mistakes committed before and caused negative impact on pioneer airlines can be avoided. They can use their previous experience to formulate policies and decisions to improve JetBlue. E-ticketing With the help of Neeleman, the company was able to do E-ticketing using the system Open Skies, for the convenience of the passengers. With this, their passengers do not need to go directly to their ticketing offices, instead, they would be able to acquire their tickets online. Assured Valuation of Capital Investment Based on the computation of NPV, for both years, NPV is positive.
This means that after paying its obligations, they investment still yield positive money. Thus, it should be accepted. Furthermore, profitability ratio is more than one which is favourable. Jet Blue may continue the business even though they receive minimal percentage of profitability because based on the computation there is a possibility of earning more in the future. Favorable Collection and Distribution Based on the Stability Ratio analysis, Inventory days and collection, both possible sales (for the inventory) and collection (for the receivables) are not over 30 days.
In fact, under inventory, it will only take 2 to 3 days to sell the tickets while account receivables collection will only take less than a month or 22 days to be exact. Weaknesses Too Much Capital Borrowing Based on the income statement analysis of the JetBlue, the company’s life initially relied on borrowing capital investment. In fact, Too Much Debt Based on the Leverage Ratio Analysis, huge percentage of the Total Assets is debt. By looking at its Balance Sheet, it can be seen that JetBlue had accumulated too much current and long term borrowings.
By standard, capital investment borrowing should only amount to 30% to 40% but in JetBlue’s case, its debt amounts to 73. 54%. This has a negative implication for the company. Too much debt will also mean an increase in interest expense that the business should pay adding to its principal obligation. Negative Liquidity Liquidity Ratios of JetBlue is unfavourable. In both years, current ratio and acid-test ratio of JetBlue is less than one. This implies that JetBlue’s asset is not enough to cover its liabilities. Current Ratio is 0. 65 and 0. 4 in 2000 and 2001 respectively. This tells us that for every peso of liability, JetBlue only has 0. 65 in 2000 and 0. 75 in 2001 working asset for payment. Thus, they will probably resort to another borrowing to cover for this deficit. Acid-test ratio also tells us the same thing. Considering cash and other receivables, it is still insufficient to cover its liabilities. For every peso of liabilities, JetBlue’s cash and receivables can only cover 0. 61 in 2000 and 0. 71 in 2001. Low Profitability Net Income Margin of JetBlue shows low level of profitability.
Following the standard, it should amount to at least 18%-20%. However, through profitability ratios, although earning profits, JetBlue have not met the conservative percentage of net income margin. It only has 11. 02% net income margin in 2001. We should remember that we should not only focus on profitability per se but on improving its value to stakeholders. Opportunities Improving Sales in New York City Since JetBlue has already tapped the market in New York City, it can capitalized on this market by improving its marketing strategies to increase sales.
It should maximized the concentrated population and relative large number of travellers in the City. New Market JetBlue can also consider tapping new markets such as expanding to other US states and even other countries that has high level of travellers or with high demand for airline services. They can also increase number of flights to cater for more customers. Other services JetBlue can also include additional services on their air travel. They can provide tour packages through tie-ups with hotels for tourist or additional services such as food offering inside their airlines. Threats Terrorism
Because of political instability in some countries affiliated with the US and the reign of terrorism highlighted by the 9/11 incident, an increase in the security threat of airlines somewhat affect the sales and demand for airline services. Furthermore, clients somewhat lost their confidence to low-cost air travel service, thinking that they are less safer than high-cost-high-class air travel services. Economic Instability Threat for US recession may also trigger decline in the sales of airline industry. Business fluctuations may reduce spending of people to travel which will have an impact to airline’s sales.
Oil Price Instability Fuel prices unpredictability can also affect JetBlue’s financial condition. Since it adheres to low cost travelling but still providing additional services, any increase in fuel prices will mean an increase in the cost of production of JetBlue, thus, forcing it to either increase its price or shoulder the additional cost to retain its price thereby reducing its revenues. Competition Since JetBlue is still new in the business, its competitor is also considered as a given threat to the company. Existing airline companies can follow the strategies of JetBlue and cannibalize the market where JetBlue is located.
ALTERNATIVE COURSE OF ACTION I. Implement its initial public offering (IPO) to raise additional capital. Implementing initial public offering can give JetBlue an ample amount of cash that it can use to increase its profitability and competitiveness. To tapped the opportunities stated in the SWOT analysis, cash gathered from the IPO can help. It can be used to create a marketing mix that can increase the company’s sales and improve its services to attract more clients. In other words, going public will help JetBlue increase its asset base. Moreover, going public can lower company’s cost of capital since they can easily sell the shares.
Also, it lowers the proportion of debt to equity which is favourable to lenders. This can help JetBlue increase lenders’ confidence and can ask for more a larger amount of debt. II. Do not implement IPO at the moment. Wait for the time where JetBlue is already ripe for opening. Since JetBlue is highly indebted, going public will force the company to pay for its costs. Cost of conducting an offering is quiet high since the underwriter needed to facilitate the offering can charge a higher fee as a percentage of the amount raised in order to cover its costs and still earn profit on the transaction.
Likewise, the company will encounter other problems such as loss of control, information disclosure and the obligation to serve not only the management but also the investing public. RECOMMENDATION Based on the analysis conducted, the group arrived at the following recommendations: 1. JetBlue should not implement its IPO as of the moment since based on the analysis of its financial conditions, it will be unfair for the public to buy shares from a company that is not so financially sound. Ratio analysis shows that the company is highly indebted, thus, money that will be gathered from the sale of shares will only be used to finance this debts.
Furthermore, payback period is estimated to be at 5 years and 263 days. Considering the standard, it will be favourable if payback period will be at 3 years or less. Also, according to its ARR, after two years of operation, there is only 5% share of net income on the invested capital of JetBlue Airways. JetBlue should show not only its financial statement but also analysis of these statements in order for its stakeholders to understand its current condition. JetBlue is not that solvent to open for IPO. 2.
JetBlue should conduct strategies and efforts to increase its sales to earn more profits and stabilized the earning of dividends to its existing stockholders. In that case, common shareholders can receive its said to be dividends. They can do this by applying marketing mix that can increase demand for their products at the same time increase in sales and revenues. JetBlue should also consider market segmentation and evaluation of other markets. If the future balance sheet indicates the condition of profitability (18 to 20%), then it can attract other stockholders to be part of Jet Blue. Then, that’s the time IPO is ripe for opening.