Jetblue Front End
Jetblue Front End
JetBlue Front End
After a thorough review and analysis of JetBlue Airways business strategy and industry, a few issues arise as to whether JetBlue will be able to sustain its growth and continue to prosper in an already turbulent environment. Thus far, JetBlue has overcome most challenges in the industry that fellow competitors seem to fall prey to. JetBlue has maintained a constant degree of success due to their distinctive commitment to customer service combined with its ability to be a low cost leader. However, management must continue to be innovative in their ideas and stewardship if JetBlue is to continue its success. The major issues that require much thought and examination by management are the management of operating costs throughout the company and competition.
Managing of Operating Costs.
Implementing A Hedging Strategy
Jet fuel expenses for any airline cost a substantial amount and nonetheless, over the past several years, prices in the industry have increased significantly causing evident pressure on all airlines. By failing to hedge the risks of rising commodity prices, JetBlue
will be affectively bearing all these unwanted risks in its business model. Although JetBlue has minimally addressed this issue by moderately hedging its fuel costs, more effort and expertise is needed in this crucial area if Jetblue is to continue its success. It is
highly recommended that a dynamic hedging strategy be employed and continually managed throughout the year. The two options that are available are Over the Counter instruments and Exchange traded features. Though the first option is more expensive and more risky due to counterparty risk, it is far more customizable which will be better suited to our changing needs. When trading on the exchange since there are no futures on Jet fuel, futures on crude or heating oil will have to be used because they are highly positively correlated. During hedge implementation, JetBlue must vary its oil products over the oil price cycle. When the cycle is in its lower range, the firm should enter into fixed swaps because the likelihood of prices declining is very little, so locking in a good price is essential. In the medium range of the cycle, collars are used to lock in specific price ranges to ensure prices dont go up to much or down to much. Finally, in the higher range, price caps are used to prevent losses due to excessive price increases. Since other competitors in the airline industry are not hedged at the present moment, using derivatives to hedge jet fuel costs will create a competitive advantage, which will increase firm value. Also by hedging the cash flows generated will be more stable and consistent making investment decisions easier. So by hedging jet fuel, JetBlue will be able to effectively reduce volatile of earnings and take advantage of investment opportunities that could promote growth. JetBlue has cut operating costs by having a standardized air fleet consisting of only Airbus A320s. This model, which is very fuel efficient and roomy, has kept costs low since pilots and maintenance technicians