Introduction
Established in 1998 as NewAir and consolidated as JetBlue JetBlue Airways Corporation in 1999, it is a leading airline career in Boston with its main office headquartered in Long Island, New York. It doubles up as one of the major American low-cost airlines, mainly operating from JF Kennedy International Airport and serves approximately 35 million customers yearly. As a local carrier, JetBlue Airways has an average of 950 flights daily ( Ford, 2004 ). The company has a fleet size of 257 operating in 102 local destinations. Working under a simple strategy of offering unbelievable flights with customer care attributes, JetBlue Airways provides an in-flight experience coupled with personalized in-flight entertainment. Its marketing strategy works on the aspect of customers conformability with all flights having free and unlimited snack offerings, unique and impeccable customer promotions as well as live in-flight television that comes at a low fare costs with quality service delivery.
How Southwest Airline deals with Risk and Uncertainty
The airline business is subjected to a high level of risks and uncertainties that are an agent to lose with unsure of the outcome based on a particular situation. Therefore the risk is associated with loss and gain of something in terms of value as the uncertainty involved uncontrollable as well as the unpredictable outcome. JetBlue Airways Airlines operates in an airline business coupled with a high level of risks and uncertainties and therefore have a specific framework on how to deal with prevailing issues at hand. First, the airline operates on a lower unit labour cost. Box and Saxton (2004) indicate that JetBlue Airway’s labour costs account for about 35% of its operating costs, an element that has led to its successful low-fare airline business model of the current airline operations. The airline is heavily unionized with considerate salaries weighing above average. The airline allows cross-utilization and embraces the long-standing culture of cooperation, which has increased its cost advantage over other network airlines.
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Second, the airline has implemented a fuel hedging strategy to cut fuel costs. Fuel costs affect the airline industry with drastic increases, hence accounting for 20 percent of the operating costs of the carrier. The airline has decided to remain competitive on the price by considering not passing fuel costs to passengers through hiking tickets prices, but implementing a fuel hedging strategy that saves fuel expenses ( Matos & Matos, 2017 ). Third, the airline embraces flight point-to-point services in its operations to stay cost-effective and minimize its operational efficiency. It is through operating short-haul flights that help it achieve better capacity utilization. Fourth, the airline flies its flight's operations to smaller or secondary airports to provide excellent services and eliminate travel delays to its customers. Other ways in which JetBlue deals with Risk and Uncertainty is though offering consistent aircraft with simplified operations, scheduling, and flight maintenance, offering e-ticketing that lowers its distribution cost and customer services that provide prompt response to the needs and wants of the passengers and customers. Additionally, the airline has a Frequent-Flyer Program that entails gate-to-gate Fly-Fi services offering entertainment and meeting customer’s expectations and experience to use the airline occasionally.
Advice for Risk Management Improvement
As a recommendation, the business needs to adopt and invest in digital techniques to deal with risks and uncertainties as far as risk management is concerned. Digital techniques help in the identification of associated risks and uncertainties and offer a quick response with a solution at hand. The airline should integrate its system with modern technology and update their systems that will meet the demands of the customers. For instance, the airline should optimize the use of OpsSuite, which is a web-based application that offers passengers with safety flight destination. Additionally, OpsSuite will enhance delivery processes to the existing digital information system based on the rate and time taken for data capturing, flight tracking, and elimination of issues at hand that affect customers directly.
Another recommendation is that the airline should consider using a benchmark and flexible strategy to meet better access to capital and respond quickly to issues at hand. A benchmarking strategy should be taken into consideration by the airline, given that the carrier service does not let risk and uncertainty affect its fundamental decisions. However, the flexible strategy will help JetBlue Airways be responsive, hence able to convert profits into a convex function of the risk factor. Additionally, the strategy will enhance airline business flexibility with ease of fit between the size of the planes and the local market conditions. The airline should also create the right culture to enhance, improve, and manage associated risks. Learning from previous risks, allowing all staff members to participate in the decision-making process and dealing with expectations and associated accountability forms a culture that will improve, enhance and manage risks and uncertainty in the airline operations
Adverse selection problem that impacts transactions
Adverse selection in risk management is a perception where asymmetric information affects market participation with the organization and customer conflicts. There are some of the adverse selection problems facing JetBlue Airways. Charging flight routes without prior knowledge of the passenger is one of the adverse selection problems facing the airline. The decision influence passengers and therefore, as a recommendation, the airline should understand the needs and demands of its customer when changing airline routes.
As a reflection, the airline operates point-to-point flights with the ability to survive a problem within a single airport. However, the systems are limited to local flights as the airline finds it difficult to cope with fewer international flights they have onboard through the utilization of short-haul flights. To facilitate remedy to the problem caused by short-haul flights as they anticipate to increase their international flights across Europe, the airline should study symmetrical behaviours of passengers as far as corporate and retail sectors are concerned ( Zhang & Wang, 2016 ). The behaviours are subject to changes and, therefore, it is paramount to put down a framework that would enhance its services and provide a quick fixation framework to associated adverse selection. Online flight search and flight books have been on the rise due to the behavioural change within the corporate and retail sectors. The airline should consider enhancing the use of frequent-flier plans model to enhance adverse selection problems, build customer relations, and build on the existing reputation.
Dealing with the moral hazard problem
Moral hazard problems revolve around asymmetric information that is subject to behavioural change between the two parties when striking a deal. There are ways on how to handle the moral hazard problem. First, the airline should embrace co-pay and deductibles framework and policy so that when moral hazard problems happen, issues on claims for money paid during ticketing are avoided. The airline industry should not underpay its employees since a good payment rather than a basic incentive motivates employees, and work output usually is above the expectations ( Endrizalová, Novák, & Kameníková, 2017 ). Loyalty programs also serve the best solution to deal with the moral hazard problem. Employees under loyalty programs, which couples with bonuses, accomplish tasks above-average workload, hence creating cultural behaviours where loyalty becomes a motivational factor for a high level of productivity.
Tools used to align incentives and improve profitability
Despite the airline having its boarding process working well, improvement needs using the right tool to align its incentives and improve profitability. The principal-agent problem at hand is that customers wait longer to board the plane, and therefore it is paramount for the airline to find the right channels and tools that will align the problem at hand. It is also expensive and less profitable when a plane sits on the ground rather than on-air due to the longer time taken for a passenger to be on board. Information message board indicating departure, activities, and timely expectation for passengers and flight attendants is a powerful behavioural science tool that can enhance and align incentives as well as airline profitability ( Brooks, 2016 ). Boarding experience and employee operations are harmonized through the tools mentioned above, therefore creating confidence, loyalty, and belief among the passenger and the management at large. Less time took also improves profitability as the plane takes less time on land, which is cost-effective to the management and associated accounting.
Right Organizational structure to increase overall profitability
A rights organization structure has both formal and informal procedures and policies that govern business operations. The airline is among the large airline carrier that needs the right organizational structure to oversee and manage its business functions and employees well. First, the airline has to streamline its business operations to increase overall profitability. The airlines should have a specific department that works on specific professionalism to offer timely solutions on specific problems. Functions completed by specific departments turn out to be efficient and improves overall profitability. Second, the airline should improve its decision-making process. The organizational structure should have the ability to make a business decision through the executive level of management that channels information to specific entities responsible for specific business functions ( Alamdari & Fagan, 2017 ). For instance, booking issues should be solved by IT and customer front office service rather than channelling into another department that would not offer a timely solution.
The organizational structure should also have a management chain that oversees all activities and what is happening at every location they are serving. The airline has more than 100 locations where they serve their flights, and therefore having an organizational structure with proper chain is paramount for the overall profitability. Additionally, the airline organizational structure should focus on customer service and sales delivery and have a framework under which new and existing employees undergo continuous training to get in touch with the pace and transformation of the airline sector. It helps in eliminating errors and improving service delivery that, in turn, has positive impacts on the overall profitability.
Conclusion
JetBlue Airways serves various local flight destinations in the United States. The airways operate in an airline business coupled with a high level of risks and uncertainties, and therefore it is paramount to have a specific framework on how to deal with prevailing issues at hand. First, the airline operates on a lower unit labour cost and implements a fuel hedging strategy to cut fuel costs. Also, the airline embraces flight point-to-point services and flies its flights to smaller airports to stay cost-effective, eliminate travel delays, offer excellent services, and minimize its operational efficiency. As a recommendation, the airline should embrace the use of OpsSuite and frequent-flier plans model to deal with associated risks and uncertainty.
References
Alamdari, F., & Fagan, S. (2017). Impact of the Adherence to the Original Low-cost Model on the Profitability of Low-cost Airlines. In Low Cost Carriers (pp. 73-88). Routledge.
Brooks, E. T. (2016). How fun works: A case study of Southwest Airlines' Fun-LUVing Attitude (Doctoral dissertation, Capella University).
Box, T. M., & Saxton, S. E. (2004). Jet Blue: A new challenger. Journal of the International Academy for Case Studies , 10 (1), 69-74.
Endrizalová, E., Novák, M., & Kameníková, I. (2017). Development and trends in airlines business models. In International Conference on Marketing Management, Trade, Financial and Social Aspects of Business .
Ford, R. C. (2004). David Neeleman, CEO of JetBlue Airways, on people+ strategy= growth. Academy of Management Perspectives , 18 (2), 139-143.
Matos, P., & Matos, P. (2017). 2012 Fuel Hedging at JetBlue Airways. Darden Business Publishing Cases , 1-23.
Zhang, D., & Wang, X. (2016). Investigating the dynamic spillover effects of low-cost airlines on airport airfare through spatio-temporal regression models. Networks and Spatial Economics , 16 (3), 821-836.
