Merits and Demerits of Competitive Advantage Components:
Cost leadership and differentiation strategies have been the bases of JetBlue’s Competitive Advantage since its inception in the airline industry. Moreover, its value chain analysis shows its ability to win the competitive battle in several key areas relative to the bases of competition. Thus JetBlue has continuously created value for its customers through fair pricing, high-quality services, customer care, point-to-point routes etc, by focusing on the process that reduces cost and at the same time give quality oriented traveling experience to customers
JetBlue has become operationally an efficient airline to implement its cost leadership and thus providing the lowest possible fares in the domestic markets of the U.S and certain other countries. Maintenance and fuel cost is reduced by bringing a new same type of planes (Airbus 320) into the existing owned fleet of the company. In addition, these larger planes serve the company’s purpose of being a cost leader as they ensure more revenue per flight, longer hauls on average rather than point-to-point services. Furthermore, the cost is reduced by offering no-frills services which result in quicker turnarounds. As most of the reservation agents work at home, this reduces the need for physical infrastructure, and thereby overhead cost is reduced. In addition, maintenance checks and turnaround times have been reduced by creating first paperless cockpit. Moreover, agents’ commission has been minimized by offering online tickets. JetBlue chose the niche markets which have been ignored by major carriers nationwide and thus it does not compete for head to head with major airlines. In this way, rather than supporting a costly hub-and-spoke system to reach all markets, it offered point-to-point services in high volume corridors .
One of the demerits of such lean low-cost strategy is that firms put too much focus on too few of the value chain activities, or sometimes lose the grounds of differentiation with competitors. Moreover, as the people are increasingly becoming internet savvy, they will have competitive pricing information easily available, and this may cause the low-cost advantage to get eroded. It has been seen over the years that the low-cost strategy can be imitated too easily.
Differentiation is the second most important component of JetBlue’s strategy. It has built a strong brand image among the low-cost carriers by offering various distinguishing features such as DirectTV with choice of channel for every passenger at each seat, more legroom, efficient check-in, leather seats, and direct routes at affordable prices etc.
One of the merits of its differentiation component is that it has successfully differentiated itself from its close competitor, Southwest Airlines by not only providing low-fares but also higher quality traveling experiences through comfortable seats, movies etc.
Another good thing about its differentiation is that JetBlue has been continuously innovating to keep itself different from other discount-carriers. These innovations are also essential in the dynamic phase of the worldwide economy where industries are increasingly changing and going into new directions.
The same problem lies in differentiation strategy as it can also be easily replicated by rivals in the industry. Sometimes it is much difficult for customers to value some features as the firms get entrapped in too much differentiation.
The demerit of the differentiation strategy of JetBlue’s competitiveness was seen practically when new discount carriers such as ‘Song’ imitated JetBlue’s differentiation product offering. This new airline gave rise to certain questions to the viability of both the bases of JetBlue’s competitive edge in the airline industry. In addition to this, it is expected that JetBlue would compete head-to-head with other major national airlines and discount carriers such as Southwest Airlines as it expands its operations into different geographical markets.
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JetBlue was able to develop a distinctive competitive advantage in the highly competitive airline industry by employing a combination of these strategies. It offered services with low-cost and differentiation as compared to the competitors in the market. To emerge a low-cost carrier in the industry, JetBlue invested in innovative technological solutions for having efficient operations right from its beginning. Going forward, JetBlue’s ability to maintain this combination of ‘low-cost and differentiation’ will determine whether it has a sustainable competitive advantage. The figure on the following page reflects the mutually reinforcing components of JetBlue’s strategy.
As the activities are interconnected, any change in one of the components can have a serious impact on these activities. Due to these impacts, doubts are being raised over JetBlue’s strategy of targeting mid-sized markets and also reverting from its single aircraft business model.
Sustaining Competitive Advantage:
In fact, JetBlue can sustain its dominance as well as its competitive advantage in the long-run by successfully integrating its low-cost strategy with differentiation. Moreover, it requires to avoid the pitfalls of either of the strategies while their implementation process. It has been seen over the years, with the combination of both strategies, companies are able to bring a stronger strategy to outperform rivals. JetBlue will have to focus on a wide spectrum of techniques and tactics to which are necessary to build and have a lasting competitive advantage in the hyper-competitive airline industry.
To keep its competitive advantage of cost leadership sustained over the long term, it is vital for JetBlue to differentiate continuously itself from other low-cost no-frill carriers especially Southwest Airlines which is increasingly emerging to become the largest U.S national carrier. As it has been observed that the major threat to its competitive advantage of being low cost comes directly from Southwest Airline, JetBlue has become more vigilant and aggressive in its approach of differentiation by running more nonstop flights than Southwest in the markets they compete closely. These nonstop flights, even for long-haul trips serve a key differentiation point for JetBlue as compared to Southwest.
JetBlue’s competitive edge also seems sustainable in the light of its low fare and differentiated products that stimulate demand. Its carefully selected target market comprising prince sensitive leisure travel and small business travelers often remain neglected by premium airline carriers whose target marker reside with mostly Fortune 500 travelers with the Amex Gold Card. However, it does not seem unique in the presence of another discount carrier, Southwest, but still, JetBlue carefully enters into only those markets where it can generate new demand. Hence its strategy is working.
However doubts over JetBlue’s sustainable competitive advantage are increasing as the oil prices are surging worldwide, it may be difficult for it to keep its both strategies of low fare and high service in the industry.
Moreover, its dependence on a single type of aircrafts Airbus A 320 may also pose certain threats to its low maintenance and training cost, if it is they are discovered to have flaws and grounded for any reason, the business would stop. Furthermore, it may also not possible to keep its cost low as the organization grows and become unionized, and employees demand higher wages and other benefits.
Over the last few decades, we have observed that regulations and protectionism have straitjacketed airlines, and prevented the mergers and the emergence of low-cost carriers. Now the succession of economic calamities coupled with liberalization policies in many parts of the world has led to changes in the whole airline industry where consolidation has emerged as an overwhelming imperative. Thus new threats seem to come in the way of JetBlue’s sustaining its cost-leadership competitive advantage.