JetBlue and the Lessons of Business Agility

It's important to remember customers want a good price - not the lowest price

I’m an admirer of JetBlue and I thought their operating model was pretty agile. So I was surprised to see them run into so much trouble in the last few weeks and surprised it took them so long to recover. It’s gotten me to thinking about what happened and what I would have done if I’d been their CIO or COO or CEO last month.

I think the root of their problem lay in JetBlue’s failure to literally capitalize on the fact that they had built the premium brand name in the low cost airfare market. For the last couple of years customers would have paid a few percent more (as in 2% to 4% more) for JetBlue tickets in order to receive the fantastic customer service JetBlue became known for. Customers could still feel they were getting a good price compared to prices on legacy airlines and they’d also pay just a little bit more for that great JetBlue experience. And the extra few percent in revenue could have funded their capability to continue delivering the customer service they were known for.

[ I do lively presentations on this and related topics - mhugos@yahoo.com ]

Instead, JetBlue’s relentless focus on cost control led them to continue competing mostly on price, they kept ticket prices dangerously low and deferred investments that should have been made over the last three years to support the huge growth they experienced. They outgrew the capabilities of critical systems like their reservation system and the systems that schedule flights and match up pilots and crews with airplanes. Those key systems failed under the stress of what happened when unexpected ice storms grounded their planes.

Not only did their automated systems fail but they also discovered they had no manual backup process to handle those activities. They’ve been hiring so fast they were not able to train people in anything more than their immediate duties; there wasn’t any time or money for cross-training. So even though JetBlue people showed up and wanted to help out during the crisis there wasn’t much they could do.

If you listen to the post their CEO put up on YouTube you can hear him say they are going to focus on beefing up key systems, cross training their people to be more effective in emergencies, and they are going to double the size of the group that does the flight scheduling and crew assignment tasks. They are now going to embark (at great expense) on a crash course to do what should have been done more gradually (and less expensively) over the last 36 months.

Wal-Mart is the low cost operator in the retail business yet Target has done a great job of competing by being perceived as lower cost than traditional department stores but still offering a higher quality and more stylish line of products. Well, Southwest Airlines is the low cost operator in the airline business and JetBlue was on its way to replicate Target’s success by being seen as a low cost airline yet with a bit more style. JetBlue customers were willing to spend a bit more just as Target customers are willing to spend a bit more.

What JetBlue had to do was find ways to charge that little bit more and use the extra revenue to build out its systems and train its people. They didn’t do that. So when the ice storms hit they had no flexibility in their operations; they had no way to respond effectively; they couldn't be agile. They had no Plan B (and winners always have Plan B).

Adding 2% to gross profits over the last three years would have amounted to around $40 million (which is about what they say this trouble has cost them) and that money could have been spent in a more orderly fashion building the systems infrastructure and depth of staffing they needed to handle what happened when the ice storms hit.

I appreciate that the airline business is a relentlessly competitive business and is very hard to succeed in. JetBlue started off well with an obsessive focus on cost control. Then as they grew they differentiated themselves through their high level of customer service, but why raise customer expectations if you then lose your ability to meet those expectations? Invest in those abilities; they are the main reason customers do business with you.

Here are the takeaways that I come up with. First of all, unless you are the low cost leader in your industry, you should pursue a strategy of being “efficient enough” and concentrate instead on developing the agility you need to be super responsive to customers in the market segments you serve. Pick your customers carefully, tailor your offerings to what they value, and let your customers know how well you can take care of them.

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