BBUS480Assignment1 Kim

From: To: Section: Date: Subject: Introduction Team 4 - Brad Buske, Kim La, Mary Ann Rainey, John Wright Mr. James Reinnoldt Bus 480A April 15, 2009 Which Country Next for JetBlue Airways: A Market Screening Exercise JetBlue Airways was launched in 2000 as a “low cost” airline that uses its price and convienence as competitive advantages against other airlines. It currently has 118 aircrafts and goes to 50 destinations within the United States and Caribbean. JetBlue’s key competitive advantage
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  From: Team 4 - Brad Buske, Kim La, Mary Ann Rainey, John WrightTo: Mr. James ReinnoldtSection: Bus 480ADate: April 15, 2009Subject: Which Country Next for JetBlue Airways:A Market Screening Exercise Introduction  JetBlue Airways was launched in 2000 as a “low cost” airline that uses itsprice and convienence as competitive advantages against other airlines. Itcurrently has 118 aircrafts and goes to 50 destinations within the UnitedStates and Caribbean. JetBlue’s key competitive advantages points are: the new fleet of air craftthey own, friendly and responsive service representatives, in-seattelevisions, convenient scheduling and low fares. These advantages are usedto target price conscious corporate and business travelers and leisuretravelers, which make up their main target market. Similar to othercompetitors, JetBlue prides themselves as being a ‘fun’ corporation andservice provider in the airline industry, which has won them many awards.Due to the decreases in deregulation in domestic markets abroad and theirsuccess within the United States and the Caribbean, many foreigngovernments have invited them to consider a joint venture and to expand. There are currently three governments that JetBlue is considering to beexpanding into: Thailand, Czech Republic and Australia. This paper will gointo an in-depth analysis of the three countries to assist JetBlue’s decision of which market would be best fitting for business as well as their company. Purpose and Scope The popular U.S. airline company, JetBlue Airways, specializes in providing low-costand convenient air travel to consumers in major markets. As their business modelfocuses on major points of travel and the desire to continue to expand the company,JetBlue has decided to pursue international expansion through a possible joint-venturewith foreign investors or foreign governments. The intent of this paper is to determinethe best potential market for expansion. Through JetBlue’s own analysis, the list of potential countries has been narrowed to Thailand, Czech Republic, and Australia. Thepurpose of this report is to eliminate two of the aforementioned countries and determinethe best potential market for expansion. Five indicators will be chosen for each countryand weighted according to importance to produce a ranking of the three potentialmarkets.The report is presented in the format of a market screening report, as previouslydescribed. The geographical scope of the report is limited to the previous mentionedcountries of Thailand, Czech Republic, and Australia, in addition to the home country of  Market Screening Project for JBA –April 15, 2009Page 1  JetBlue, the United States. The data for each indicator will be from 2008; the scope of the report is limited to the decision-making process going on presently and would not beas useful in the future as the data would change and could impact the resulting choiceof country. Executive Summary JetBlue Airlines is attempting to determine the viability of expansion of their domesticairline into one of three potential countries: Australia, Czech Republic, or Thailand. Thisreport determines five key indicators to establish the viability of each individual marketand weights them according to their importance. Secondary sources provided datapoints regarding general country and market development, per capita income,population growth rate, size and depth of current domestic airlines and the ease of doing business for each potential target market. One country rose to the top in all fivecategories; the resulting ranking indicates JetBlue’s most viable potential market. It isthe recommendation of this report that Australia provides the best target market for expansion and potential profit. Research Methodology Research for these markets was derived from various secondary sources available viathe Internet. Data sources include governmental and commercial market readinessreports as well as the World Bank and the UN. While most of the data presented isfrom 2008, uniform time frames for all five indicators were difficult to obtain. Data for GNI per capita divided by PPP is from 2007 as research indicates this information wouldbe relatively stable over the span of one year.The data point for Number and Size of Competing Domestic Airlines is a combination of those two separate data points. Available Seat Kilometers per week was divided by thenumber of airlines operating within each target country to provide a general indication of the depth and breadth of the current market.Difficulties in compiling the most relevant information across a single year were veryapparent. Many sources had time gaps that prevented easy access to a uniformanalysis from one year. Due to unavailability of 2008 GNI data provided from WorldBank, data from the most recent year of 2007 had to be used; this information was mostrecently updated October of 2008. A similar issue occurred with the United Nations dataconcerning the Human Development Indicators ranking. The information provided wasstated as 2008 data, yet further research gave suspect indicating that it referred to2006.Despite the certain obstacles of finding completely congruent data from the same year,it was deemed more relevant to have the crucial data rather than have different and lessrelevant data all from the same year. Explanation of the justification for the selection of each key indicator follows. II.Presentation of Key Data Market Screening Project for JBA –April 15, 2009Page 2  Key Indicators for Analysis Much data is relevant to analyzing the opportunity for development and success todomestic airline travel in a new market. The critical aspect found when limited to usingonly five sources of data is to cover major categories that are independent of eachother. The most crucial categories must cover the potential for development of anindustry, the economy of a nation, the sustainability with population, the competition andneed of the service in the new market, and bureaucracy and government imposed lawsand customs. Each category alone can leave little insight to the market, yet when theyare considered as a whole, a greater understanding can be grasped.The 5 key indicators selected are: ã HDI Ranking according to the U.N. ã GNI per capita adjusted to Purchasing Price Parity ã Population Growth ã Seat km per week/ # of domestic airlines ã Ease of Business Ranking according to The World Bank GroupTo cover the potential for continuous development and sustainability of an economy,thenational HDI ranking will address such issues. Included in the United NationsDevelopment Programme are the national statistics for literacy rate, life expectancy,GDP per capita, and educational attainment. The countries are ranked by using thequantifiable statistics in each category and are then listed as developed, developing, or underdeveloped. A higher ranking signifies greater stability and sustainability for anairline industry. There is less demand for domestic air travel in nations that arestruggling at the international level for higher skilled jobs that often require domestic air travel. The nations were ranked from one to 179; the best being firstand worst being179. The numbers were then inverted to ensure the more desirable market would beassigneda greater weight in the weighted data tables. There is an issue with lessdeveloped countries that do not have large enough customer bases that have theincome to pay for pleasure domestic travel, which lead to the key indicator of GrossNational Income (GNI) per capita adjusted by purchase power parity (PPP).To understand the economic position of a nation and to determine if there will be a largeenough customer base to sustain operations, GNI adjusted byPPP is used. The GNI of a country divided by the population gives a general understanding of the averageincome of the market’s citizens. When the figure is adjusted by PPP, an understandingof the cost of living in the target market can be attained. This can help Jet Blue Airlinesto determine if there is a potential demand for domestic travel that can be afforded bythe population. The higher the GNI per capita adjusted by PPP, the better the outlookfor demand of domestic air travel for business and pleasure. The next key indicator addresses the sustainability of the industry through population growth.Population growth can be an indicator of multiple issues for Jet Blue; sustainability,increasing revenue potential, a declining market, economy, and immigration are eachaffected by population growth. The most significant aspect of population growth Market Screening Project for JBA –April 15, 2009Page 3  relatable to Jet Blue is the immigration factor. With higher growth and immigration, itcan be assumed that there is higher demand for business and a pleasant environmentin which to live. This will usually lead to an increase in domestic routes and need for air travel.Seat kilometer per week divided by the number of domestic airlines is a convertedanalysis of the number and size of competing airlines. This statistic gives clear understanding of the infrastructure that is already in place in the market. The demandfor the domestic air travel is equally addressed. With a higher figure that takes the totalnumber of seats and the total kilometers traveled divided by the total number of domestic airlines, greater understanding of the market is attained. Jet Blue would likethere to be higher numbers to signify a higher demand and greater revenue. One thingthat can be controlled to minimize the impact of fixed costs is the maximum amount of flights flown which will be executed according to maximize efficiency. If there is a lackof customers, which is signaled by low travel distances, little can be done to minimizethe impact of fixed costs.The ease of business ranking is the final key indicator for Jet Blue Airlines. This willaddress the ease of entry into the market, acquisition of permits, any potential tariffs or taxes that will be accrued, employment potential, and protection of investors. With ahigher ranking according to The World Bank, there is better outlook for potentialrevenue by thecompany. The rankings were out of 181 nations and were inverted togive the best qualifying nations a higher weighting in the indicators comparison. Thisinformation is significant because it allows for insight to potential future obstacles thatJet Blue could face in the new market when it comes to returning revenues to theinvestors of the company.The next step in the analysis is to interpret the data and understand the weightingprocess. This was carefully done to give the most significant data the most importancein the final decision. Key Indicators Data Tables Moving from the description of the key indicators that have been chosen to the actualtables presenting the data, it is important to understand the weighting that was appliedto distinguish the importance of each data set. The most important groupings werethose that directly qualified the airline industry and the demand for the service of domestic air travel. Subsequently, seat kilometersper week divided by the number of domestic airlines got a 30% weighting and the ease of business ranking was weightedwith 25% of the significance to the decision. The HDI ranking by the United Nationsdetermined the level of development in the nation by educational and economicstandards. This once again got a higher weighting of 20% due to the significance of theneed for a developed nation to provide a growing and sustainable market that includescustomers and employees. The GNI per capita adjusted by PPP was weighted with15% significance to the overall decision because it gave strong understanding of thepotential for domestic ticket purchase and insight to the cost of living in a country whichis relatable to the disposable income of a nation’s population. It was deemed not as Market Screening Project for JBA –April 15, 2009Page 4

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