Patrick Belliveau 991191026
Jet Blue Case Study St udy Executive Summary JetBlue operates in a highly competitive co mpetitive industry where technology is a predominant predo minant success factor because all other competitors are utilizing it. Furthermore, the industry is often unpredictable because of weather making forecasting a nightmare. Therefore, an upgrade in information processing systems is necessary because at any t ime numerous cancellations can occur and the system syste m must be able to handle the inrush. Meeting with a software engineering company is essential because a unique u nique information system must be designed for JetBlue. However, upgrades in systems alone are not sufficient. Great employee training must be implemented, therefore a one week mandatory training session is recommended to ensure employees¶ full understanding of company procedures. Moreover, a copy of the employee e mployee training manual should be available ava ilable at all times for employees to use online as a researc h tool with integrated functions allowing quick information retrieval. Renegotiations of at home employee¶s contracts must happen in order to insert an ³on call´ clause. This T his allows JetBlue to call upon their employees in times t imes of crisis. crisis. Finally a statistician stat istician must be hired to create a risk assessment portfolio essentially dictating when to begin cancelling flights based o n weather forecast. This will allow for some forecasting from top management and e mployees. The total recommendation will cost $3,708,740 $3,708,74 0 assuming no emergency situations arise. It may seem expensive, but customer satisfaction must be met or JetBlue will have serious trouble competing in the industry. Furthermore, JetBlue reported cash and investment securities of $834,000,000 in the beginning of 2007,1 therefore in regards to operating expenditure it is an inexpensive fix to a problem of potentially bankrupting proportions. Introduction JetBlue is a United States domestic airline company co mpany who operates on a ³low-cost´ principle which translates into cheaper airfares to its customers. In February 2007 Jet Blue underwent a particular event that could have been its last. Since its beginning in 1998 JetBlue became the 11th largest company in the industry within six years. Aside from Southwest airlines, JetBlue JetBlue was the t he only company who had been able to keep its books positive while the United States had undergone a terrorist attack and all other companies were reporting loses. Strategic Critical Success Factors for this company - Safety - Low Cost - Processes, procedures supported by consistent technology techno logy systems
1
2007 "JetBlue Announces 2007 Annual Profit (Nasdaq:JBLU)." GlobeNewswire - Press Release Distribution - EDGAR Filings - Video News Releases. 15 S ept. 2010 .
Patrick Belliveau 991191026 Defining the Problem
In February 2007, JetBlue faced its toughest challenge yet, when instead of cancelling flights early management kept from cancelling flights hop ing weather would turn. However, weather became fiercer causing incredible wait times for customers and many flights cancelled at the same time. The instant cancellations caused a catastrophic volume of calls, which JetBlue had not planned for. This showed the incapacity of the telecom system, the employee tracking system and lack of employee training and resulted in the information process reaching capacity too early. Problem Statement JetBlue does not have an emergency plan. Therefore, when faced with an unusually high volume of calls or customer interactions, their systems proved limited, and t he employees do not have the training to handle extraneous situations.
Analysis JetBlue competes in a U.S. industry that has only a hand full of big companies, which makes competition fierce. Furthermore, most companies operate flights to the same domestic locations allowing customers the choice of which airline to choose. Moreover, customers also can easily compare prices, and flight times online making it crucial for companies to appear different from its competition. Also, any ³small´ mistake can beco me enormous if one company makes a mistake that other companies do not. In the case of JetBlue in February 2007, every other company did cancel flights, but did not wait until the last possible second to cancel them. This led to quicker customer rebooking, and potentially less wait times for customers in airplanes on the tarmac. JetBlue, who differentiates itself with lower fares, invested just enough money to ensure day-to-day operations ran smoothly, but had no plan for a crisis. Precautionary measures on JetBlue¶s part will have to revo lve around better employee training, and upgrad ing their information systems to handle high volumes of calls in times of panic. SWOT Analysis Strengths - JetBlue is known as the low cost airline of the United States - Powerful top management executives, most are former executives of Southwest airlines - Differentiates themselves from competing low cost airline Southwest by providing greater in flight entertainment for customers. - Low employee turnover rates relative to other airline companies - Brand is a common name in many households who travel via airplanes - Named the number one U.S. domestic airline by Conde Nast Traveler magazines ³Readers Choice Awards´ six years straight - Major differentiation through offering an unprecedented ³monthly pass´ where passengers pay a fixed fee and enjoy unlimited travelling for a month. - JetBlue has for the most part, the youngest and most fuel efficient planes Weaknesses - Unprepared for emergency situation in February 2007 - In 2005 JetBlue bought a set of new planes in hopes of lowering costs, but instead it cost them far more money
Patrick Belliveau 991191026 -
Although they experienced fast growth they are still not operating in all states
Opportunities - Further penetrate U.S. market - International markets untapped Threats - After 911 some people are still skeptical of flying, and may be using alternate modes of transportation - Increased airport security for which costs are paid for by the airlines - Rising fuel costs - Recession in the U.S and Canada leading to less consumer expenditure - Faced with great competition Porters 5 Forces The U.S. airline industry is a highly co mpetitive one, with a few big players. Profits have been hard to come by in recent years which does not make the industry very attractive to new entry. Rivalry (High) - Competitors are all large and roughly equal in size, industry growth is low, and exit barriers are very high Threat of Entry (Low) - Great capital requirements - Knowledge of the aviation industry is essential - So many already established brands cause fierce competition - Many government regulations to adhere to Threat of Substitute (High) - Travel is the goal and consumers have choices such as driving, trains, and boats. - The industry it is high in rivalry because every airline has to try to appear the best choice or they will fly half empty planes Bargaining Power of Buyers (High)
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High rivalry gives consumers some bargaining power to keep prices at their lowest Consumers can easily compare prices online between airline companies
Bargaining Power of Suppliers (Low)
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Fuel is a supply for which airline companies have no control over Airplane manufacturing companies solely depend o n airline companies to buy their product - Limited differentiation because a plane is a plane, perhaps different specifications, but still a plane
Patrick Belliveau 991191026 Alternatives Alternative One Considering their current information processes are capable of running the ³normal´ day to day volume of inbound calls, they could duplicate the same system and run it parallel to the original system. Essentially, when the first system maxes out it then redirects over flow to the new system running freely. A software engineer wo uld need to be hired to make modifications to the existing process in order for it to redirect o verflow, and re-create the old process. One other feature needed is the ability to quickly cross reference the location of pilots and attendants to give them direction on where to go, including possible terminal changes or even scheduled t imes. Through maintaining the old system, all employees would not have to be re-trained and experienced employees could easily assist fellow colleagues. This system of running parallel processes combined with the cost of altering the current process will cost $100,000 as well as monthly fees of running an additional system of $15,000. While less training would be needed in the information process aspect, major employee training needs to occur in order to prepare them to deal with ³difficult situations´. Therefore, each employee new or old will have to go through mandatory one week training or re-training sessions in order to ensure everyone is clear o n procedure. The mandatory training is going to cost $1200 per employee. Procedure brings up the next point of recommendations because employees had seriously limited resources to help them. Therefore, it leads to untrained personnel having essentially no way of quickly trying to understand how they could help or what to do. Everything that is taught during the two-month training period should be provided in writing to each employee, provided in writing in the work place, and be available anytime online. This will give all employees the opportunity to refresh themselves during stressful times which often causes memory blocks or other obstacles. This section will cost $1,000 and $75 per additional handbook printed. Weather was the root cause of this problem and clearly management has no control in this respect. However, what led to an extremely high volume of calls at one time was the decision from management to delay cancelling flights in hopes of the weather c learing. A risk assessment portfolio should be designed so that if a 70% chance of hail is the forecast for example, management can begin to cancel a specific percent of flights immediately. This will in turn cause less of an ³instant´ strain on employees. This will allow them adequate time to respond to the first wave of cancellations, and then the next and so on. During February 2007 their ³call centers´ were people who worked from home. Assuming all that was required was an internet connection and one phone line, it is no wonder customers could not get through to agents. Therefore, a proper call centre should be put into place where supervisors are standing by to assist any subordinate with questions, and a phone system that can directly transfer calls to the next available agent. During peak hours of normal operation a minimum of fifty employees are standing by, while at off peak times only thirty employees are standing by. In extraneous situations employees will be called in and a minimum of one hundred employees will be standing by. Assuming they had a minimum of ten employees at any given time this will cause cost to rise five-fold during peak times and three-fo ld during off-peak times. Finally, during difficult situations they will increase their number of employees ten-fold. In addition to the cost of having more employees, a rental fee of $8,000 a month is included as well as utilities. The final tally of opening a call centre will be an average cost of $1,248,000 per year during normal operation and an increase during difficult situations depending how long they last. See appendix 1 for further cost explanation and break down.
Patrick Belliveau 991191026 Total costs for this alternative for the first year will be $11,609, 000 without any difficult situation arising. Pros
Running two systems parallel to each other is a sure fire way of being able to deal with overflow. Also, if the main system were to crash, the other system is already booted and running so there should be little to no downtime while repairs are done. Less training on processes must occur because some employees have been using the system since day one, and can act as strong resources to fellow colleagues. Ensuring that training manuals are always at employees finger tips, will lead to not only knowledgeable employees, but also resourceful employees. This will in turn mean less wait time for customers. Developing a risk assessment portfolio is a way to standardize flight cancellations, and a solid attempt at ³softening the blow´ for e mployees, because not all flights will be cancelled at once. Opening a structured call center is a better way of managing a work team because everyone is in one place. Employees will be able to quickly ask questions to supervisors or transfer disgruntled customers to their supervisors for further customer service. Cons
Running two systems simultaneously costs $280,000 in the first year, but the cost of operating this way is much too high for a company who operates on a low cost principle. Higher cost will lead to higher fares which in turn would cause JetBlue to lose their main competitive advantage. Not having to re-train every employee on a new system is great, but there will be some changes to the original system causing more training to veteran operators. Cancelling flights earlier is good for employees, but will cause unhappiness to customers who do not want their flights cancelled. Furthermore, if other companies are not cancelling flights, this will cause JetBlue to potentially lose customers to co mpetitors. Opening a call center is a great idea, but its costs are far too high to continue operating at a low cost. Alternative Two Even though JetBlue¶s current information processing system can handle most normal inbound call volumes, it simply does not have the capacity to handle difficult situations. JetBlue needs to hire a software engineer to develop a new system, which has the ability of doing the old systems job but at a much higher capacity and efficiency is crucial. The current cross-referencing software implemented by JetBlue IT employees would have to be written in the new system. The interface would ideally resemble the old interface as much as possible so employees can take some comfort in using a familiar system, but employee training or re-training will not only be essential, but mandatory. The system should also run a powerful website where customers can do everything themselves if they so choose. This would include anything from changing cancelled flights to new flights, and maintaining the live feed providing emails alerts to its customers. The cost of the new system will be $200,000 and will cost $4,000 per month to employ. Although employees will enjoy familiar interface, intense training sessions will be needed. A one week intensive training period in normal day to day activities as well as ³difficult
Patrick Belliveau 991191026 situation´ protocol is a must, because regardless of system abilities employees need to understand how to work this system. The one week training period will cost $400 per employee. The human mind is a wonderful tool, but one that at times is forgetful. Therefore, ensuring that employees have access to training manuals is necessary, but instead of hard copies, the manuals will be online. The online component will not only save money, it will allow marketers to market JetBlue as going paperless or ³green´, but most of all employees will be able to use tools such as ³find´ to quickly look up information. A ³frequently asked questions´ page will be updated as needed which will serve as a powerful tool for new employees specifically to look up relatively frequent questions. The online manual will cost $500 to set up and $20 a month to employ on the servers. A risk assessment portfolio is a must to decide when t o cancel flights. This portfolio must be extensive and define at which weather probability to begin cancelling flights. Drawing from past experiences and comparing when other companies cancel flights, this tool must be well rounded. The risk assessment portfolio will not only provide structure in decision making, but will become a powerful forecasting tool. Essentially, managers will be able to forecast flight cancellations allowing them extra time to ca ll in additional customer service representatives. This will translate into greater efficiency for employees, but much less wait times for customers because even though their flight may be cancelled they will quickly have the ability to rebook. Without this tool, managers are only acting on instinct, which has proven flawed. Hiring a statistician will be important because this portfolio must be as near to perfect as possible. This will cost $3,000 and any additional changes if the FAA changes takeoff or landing policies will be subject to further charge. In an effort to keep costs low, JetBlue currently employs people who work from home. Considering low operating costs is its livelihood, drastic expensive changes are not the answer. Therefore, contract negotiations should surface making all ³from home´ employees having to report for work in ³difficult situations.´ Essentially, they would be ³on ca ll´ but very seldom would they ever actually be called in. There is no point in hiring many new employees because difficult situations are not part of everyday business and JetB lue was able to get enough employees when required, but none with enough training to really resolve any issues. This will cost an added $100,000 per year for ³on call´ compensation for all employees, and additional overtime inputted during emergencies. The total first year cost for this alternative is $3,708,740 assuming no ³difficult situation´ arises. Further cost breakdown is provided in appendix 1. Pros -
The greatest pro is that this alternative is a viable answer, but at a much friendlier cost. Installing a new information processing system using previous failures as mandatory improvements should provide JetBlue with a more than adequate system to operate without process limitations. - Employee training can only result in better situations between employees and customers and within the company. - Having an online resource with integrated powerful search tools will boost efficiency and in turn result in less ³on hold´ scenarios for customers. - A structured risk assessment portfolio will allow employees of all levels to anticipate busy times, or possible times where employees will be ca lled in due to high velocity of calls. It will also take the ³guess work´ out of cancelling flights for management.
Patrick Belliveau 991191026 Cons - If the main system crashes there is no backup system running parallel ready to be employed. - Extensive employee training is costly, and some may not stay with the company very long. - Flight cancellations are never a good thing, therefore some customers may be angry if JetBlue cancels flights too early. - The problem with ³on call´ employees is that you have no way of knowing for sure that your employees will actually come through.
Recommendations and Implementation Recommendation Although both alternatives are viable from an operations perspective, they are not both financially feasible. Alternative Two provides a means to t heoretically never go through another ³meltdown´ as experienced in February 2007. Pros and Cons will exist in any decision, but Alternative Two provides sufficient pros compared to cons and financially allows JetBlue to remain competitive within a cut throat industry. Although Alternative Two costs a hefty $3,708,740 it is feasible with starting cash and investment securities of $834,000,000.2 Implementation First, management must form a training team with who m they will decide on exactly what training is needed to ensure knowledgeable employees. After a curriculum is agreed upo n, meetings and training session must begin immediately in case another emergency were to occur in the near future. Second, management must consult with the IT department and go over exactly where the system failed and at what point of usage. Afterwards, they would have to hire a third party software engineering company. Appoint a team responsible for ensuring everything expected gets completed in a timely fashion. Once the new system is ready, they must have a downtime period where the new system will be installed. However, before full launch of the new system, core employees will have to undergo training with the software so that there is no unnecessary downtime once the information process is up and running. Next, management must arrange a meeting with its lawyers to fine tune the contracts that will be given to all employees. JetBlue¶s employees are not unionized therefore contracts will be renegotiated within the company and then relayed to employees. It should ensure the ³on call´ clause is explained as well as explanation of the added pay for this service. To ensure employee satisfaction an online survey should be sent to see if employees believe the new contracts are fair. Assuming all goes well, the new contract s will replace the old ones and JetBlue is never faced with a shortage of employees during emergencies.
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2007 "JetBlue Announces 2007 Annual Profit (Nasdaq:JBLU)." GlobeNewswire - Press Release Distribution - EDGAR Filings - Video News Releases. 15 S ept. 2010 .
Patrick Belliveau 991191026 Following this, management must get together and hire a statistician to develop the risk assessment portfolio. They need to ensure he u nderstands the level of risk they are willing to undertake, and also ensure he analyzes the industry standards of flight cancellations as well. The in-house IT team must launch the employee handbook online and ensure the integrated search tools are available and wo rking properly. Conclusion
Maintaining low cost was crucial, but some money has to be spent to ensure the sustainable livelihood of the company. Alternative Two assessed all problems that arose in February 2007 and gave a realistic solution to all problems for a relatively low cost compared to the other alternative.
Patrick Belliveau 991191026 Appendix
1
Cost Analysis for Alternative 1 -
Information process system duplicate with minor alterations «««««««..$100, 000 Yearly cost of running 2nd systems parallel to the other ($15,000*12)««....« $180, 000 Mandatory training based on rough estimate of 84003 customer service representatives«.«««««««««««««««««««.««««..$10,080,000 o Based on assumption of 8 hour training day, 5 days a week, for 3 weeks, with an assumed average of $10 per hour - Printed employee handbook ««««««««««««««««««««.«. $1,000 - New call center «««««....«««.««««««««««««««......$1,248,000 o based on 30 employees working 12 hours a day, with an extra 20 employees for the 6 hour peak times all assumed to be making $10 an hour $8,000 unit rental fee o - Total Alternative 1 cost for first year««««««««««««««««.$11,609,000
Cost Analysis for Alternative 2 -
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3
Completely new information processing system «««««««««««...«$200,000 Running new system ($4000*12)««««««««««««««««..««.. $48,000 Mandatory training based on rough estimate of 84004 customer service representatives««...««««««««««««««««.........................$3,360,000 Based on 8 hour training day, 5 o days a week, for 1 weeks, with an assumed average of $10 per hour Online employee handbook «««««««..«««««««««««««««$500 Monthly fee of $20 to run handbook on servers «««««««««««..«««.$240 ³On Call´ compensation per year ««««««««««««««««..««$100,000 Total Alternative 2 cost for first year «««««««««««««..««..$3,708,740
2007, By. "FltOps.com - Guiding Pilots to Their Professional Goals." FLTops.com: Guiding Pilots to Their Professional Goals. Web. 14 Sept. 2010. . 4
Ibid
Patrick Belliveau 991191026
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