JetBlue Airways IPO Valuation: Case Study Help
Introduction
The JetBlue Airways was founded in 1999. At the time, it competed against Southwest Airlines, AirTran, and Delta. Unlike most airlines, JetBlue focuses on business travelers. After all, these travelers are usually more profitable than leisure travelers, so JetBlue has focused on attracting these customers. The airline was one of the few low-cost airlines to produce a profit in 2001, and it quickly became one of the top three. The company has since become one of the most profitable airlines in the world. During this time, with its goal of bringing humanity back to air travel, JetBlue has expanded its network to include many cities in New England The company's success demonstrates its dedication to quality service. Its founders, David Needleman and John Owen, were Brazilians and American entrepreneurs. Both were involved in other airlines before JetBlue, and his first airline was bought by Southwest Airlines. After 9/11, he returned to the US to focus on the low-cost airline model. Ultimately, he had a vision. and Boston. The company's first major move was to hire David Barger as its CEO.(Michael J. Schill, 2003)
Situational analysis
Market condition
In its first decade of operations, JetBlue took off and grew. It's the only airline to have grown by leaps and bounds in an industry where more than 100 startups failed since 1978. In the aftermath of the 9/11 attacks, Despite its success, JetBlue Airways is currently battling strong competition and is not able to compete with larger, more powerful rivals. The airline's financial performance has fallen in recent years and the airline is not profitable. Its stock price has declined. But even before 9/11, the airline industry was already in trouble. Fuel and labor costs were rising annually, and average fares had fallen. The company also suffered from weak labor/management relations and sub-par service.
In order to cope up with these issues the company required to offer IPO’s and raise sufficient capital out of it. The aviation industry is a competitive one, and the competition is fierce. With fixed costs and low profit margins, the airline industry has a unique set of challenges. The resulting price cuts are the product of tighter regulations and lower operating costs for the companies. When the government makes it easier to do business, prices can be lowered, as they often are with low-cost carriers. However, low-cost airlines are a different story. They face a different set of challenges, and they have a unique position in the airline industry.
Under these market circumstances many players of the aviation industry adopted the low fares business model all around U.S and airlines around the world. The airline’s founders, David Needleman and John Owen, were Brazilians and American entrepreneurs. Both were involved in other airlines before JetBlue, and his first airline was bought by Southwest Airlines. After 9/11, he returned to the US to focus on the low-cost airline model. Historically, competition in the airline industry has improved passenger service and the economy as a whole. The U.S. airline industry has become more efficient. With competition, airlines have increased capacity, improved services and quality meals. Overall, the competitive environment has benefited the traveler by lowering prices. Despite its low fare and low-cost carrier status, it is among the few airlines to produce a profit during 2001. The company went on to become one of the best-rated airlines, with the highest customer satisfaction ratings. In May 2007, the airline changed its command structure.
Short and Long-Term Effect of 9/11 on Airline Industry
In the aftermath of the 9/11 attacks, the airlines faced severe challenges and had to find new ways to compete. The airline industry suffered from mass cancellations, a weak reservation system, and poor baggage handling systems. The airline industry suffered a weakened economy following the 9/11 attacks. Airlines faced severe challenges in the wake of the attacks, and the impact on low-cost operations was significant. Delta Express ceased to operate in the months after the terror attack, and a number of other low-cost carriers closed. Fortunately, JetBlue managed to offset the impact of the crisis more than most carriers. In fact, it was one of the few airlines to post a profit during this difficult period.
These 9/11 attacks also left long-term effects as it created a layer of fear among the people and they were afraid from any other incident like this. The government also imposed many rules and regulation on the aviation industry and people also not used to prefer traveling together in the after math of these incidents.
Competitors
The competition in the U.S. airline industry is highly unlikely. The U.S. Department of Transportation has imposed numerous regulations to protect consumers. These regulations have also stifled competition and reduced efficiency. In addition, many major airlines have hiked their fares in tandem with government regulation and added fees. In the end, this has hurt consumers and increased costs. In many industries, this leads to a few dominant companies. In the U.S., Southwest and USAir are the top two low-cost carriers, but both are known for their inefficient management. The company has reduced costs by introducing new services and implementing a customer-first approach. The airline is utilizing technology to attract new customers and improve its service. It has made significant progress in e-ticketing, online registration, and onboard TV channels. Despite these challenges, the company continues to introduce new features and services that contribute to its competitive advantage. This has benefited customers by cutting operational costs and lowering fares.
Management:
Using a people-centered organizational approach, the leadership of JetBlue took a different approach to change than other companies. The company's strategy was to "bring the human element back to air travel" and to encourage its crewmembers to connect their daily work with the company's overarching purpose. To accomplish this, leadership began by bringing crewmembers into conversations. They sought to make people more emotionally connected to the organization and to help them understand the connection between their work and the success of the organization.
The leadership team at JetBlue believes that their culture is essential to long-term success. In addition to implementing management principles, the company's senior leaders have conducted one-on-one conversations with crewmembers to better understand the barriers that stand in the way of delivering outstanding service. They have also engaged their crew members to understand what obstacles prevent them from providing world-class service.
The executives at JetBlue have implemented a number of innovative practices that have improved the organization's customer service. Their goal is to improve the overall experience for passengers, which is what makes their flights unique. This has helped the airline earn high marks on customer satisfaction surveys and has helped to develop an incredible brand image. The company is now able to charge its passengers a flat rate for their tickets, which helps them make a profit.
Initial public offering
The initial public offerings generally known as IPO is process that companies do to go public. This process basically includes the very first offering of the company’s stake to public. Through this process the companies raise its capital by appealing various investors to invest in their company’s stake. This is a very crucial process for the original owners of the companies as through this process they basically sell some part of their stake to the public. Once the company is went public and its IPO is offered in the share market the company’s shares are sold off and various investors become the stakeholders in the company by providing sufficient capital.
Based on the calculated cash flows of the case the determined share price of 225 dollars is not normal because of them fact that the cash flows were estimated for about thirty years and this much long period makes the calculations from FCF approach irrelevant because of many factors and constraints included an arising in the mention duration.
Instead the PE valuation approach should be considered and used to calculate the per share price because it considers market averages to determine the EPS. Based on the PE valuation approach per share price of the company is determined to be 42 dollars/ share which is still more than that of its competitors. The $25/share is the best EPS suggested to the company because it seems much feasible for the company to be comparably successful in the market.....
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