Southwest Airlines and JetBlue Airways: The Comparison

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The comparison of the economic performance of the two airlines with similar business models can help identify significant aspects of operation and drivers that influence success in the airline industry. As objects of evaluation, Southwest Airlines and JetBlue Airways are selected, the American low-cost companies. Specific work parameters are analyzed: market strategy, cost and revenue drivers, service-price concepts, pricing policies, and productivity and planning. Based on the results of the assessment, relevant recommendations are given to airline managers, in particular, the need to expand the fleet size, the significance of maintaining sustainable financial activities, and the importance of introducing innovations in the service sector. Southwest Airlines provides wide services inside the country, although JetBlue Airways also operates stably and has a wider range of routes both domestically and abroad.

Business approaches and practices used to manage large airlines differ in many ways. In particular, the financial aspects that form the key economic indicators of development are distinctive for many air carriers, and in addition to pricing policies, other parameters are significant nuances of development. As objects for analysis and comparison, two American low-cost airlines will be considered – Southwest Airlines and JetBlue Airways. The nature of the services provided by both carriers is similar due to the identical strategy of attracting passengers by offering low-cost tickets and, accordingly, the policy of accessibility. At the same time, some unique aspects of their economic activity are different, and such indicators will be reviewed as drivers of costs and revenues, planning concepts, and some other factors that form the individual image of each carrier. The purpose of this report is to demonstrate the characteristic features of two air carriers with similar economic development strategies based on publicly available data on the financial and other policies of the airlines in question.

Airlines’ Description

The characteristic development strategies of the two carriers under consideration differ, despite the similar business model promoted by both companies in today’s market. Each of the two companies follows individual approaches to attracting the target audience and maintaining a stable profit. In addition, unique bonus programs are offered to customers, and these incentives are additional strategic approaches to engaging passengers and communicating with interested parties.

Southwest Airlines

The approaches used by Southwest Airlines’ management to create a sustainable business are in line with current trends in customer-oriented policies. In particular, passengers can obtain all the necessary information about the company through a specially developed mobile application, and bonus points acquired during trips are a unique offer of the carrier (“Southwest,” 2020). In addition, the company is involved in charitable activities, which is reflected in its image favorably.

JetBlue Airways

JetBlue Airways’ business model is also based on the provision of low-cost air travel services. Like Southwest Airlines, this company offers customers a system of bonus points that can be accumulated and used as a means of paying for trips (“Welcome to JetBlue,” 2020). JetBlue Airways also promotes a program of unique proposals based on the sale of tickets at the lowest prices on specific dates, which also serves as an additional incentive to involve customers. However, when comparing the individual economic and development indicators of the two carriers, one can note unique features and distinctive tactical solutions.

Market Strategy and Positioning

Market growth and development require using effective strategies that are individual in a highly competitive environment. In the aviation industry, according to Zaki Ahmed and Rodríguez-Díaz (2020), carriers’ positioning is often determined by customer ratings, and different variables are utilized as determinants, for instance, service quality, brand value, and some other characteristics. When citing the example of Southwest Airlines, one can note that the company covers the entire United States and, based on the information from January 2020, has served 93 markets (Bureau of Transportation Statistics, 2020b). The implementation of low-cost transportation is the main business strategy. Despite the fact that Southwest Airlines performs international flights (in 2018, the percentage of international services was 3%), the emphasis is on the domestic US market (Airline Data Project, n.d.f). Thus, the company positions itself as the largest low-cost carrier in the country.

JetBlue Airways is also a major low-cost airline that has achieved significant results in recent years. In January 2020, this carrier served 96 markets, which is a higher rate than that of the former company (Bureau of Transportation Statistics, 2020a). Also, despite the fact that JetBlue Airways operates mainly in the USA, the share of international market coverage is bigger. According to Airline Data Project. (n.d.c), in 2018, the figure was 22%, which is a greater outcome compared with that of Southwest Airlines’. Therefore, in the context of market strategy and positioning, JetBlue Airways differs from Southwest Airlines in its wider reach of accessible markets, despite the fact that the latter has the status of the largest American low-cost airline (“Southwest,” 2020). This means that over time, JetBlue Airways has the prospect of gaining a leadership position due to broader international activities.

Service-Price Concepts

The provision of air transportation services is accompanied by several significant criteria that form the image of companies among passengers. Among them, Medina-Muñoz, Medina-Muñoz, and Suárez-Cabrera (2018) mention the quality of service and ticket prices as factors that are the basic determinants of airline rankings. At Southwest Airlines, air transportation at the cheapest cost is a priority strategy. The company’s management sees the priority of development in providing low-cost services and, consequently, expanding the customer base. This approach is paid off: in January 2020, 158,385 passengers used the services of Southwest Airlines, and this figure is almost the same as in 2019, which proves consumer recognition (Bureau of Transportation Statistics, 2020b). The market share, in this case, is 16.77%, which is a higher indicator compared with other low-cost carriers (Bureau of Transportation Statistics, 2020b). Therefore, the service-price concept is addressed competently by the airline’s management.

At JetBlue Airways, the aforementioned figures are lower due to the lesser popularity of the company. For instance, the number of passengers in January 2020 was 33,786, which is almost five times less than that of Southwest Airlines’ (Bureau of Transportation Statistics, 2020a). Accordingly, the company’s market share had a parameter of 5.52%, which is logical in terms of lower traffic (Bureau of Transportation Statistics, 2020a). Nevertheless, while comparing the current figures with those of 2019, one can note that they are almost identical, which allows talking about the carrier’s ability to maintain its status and succeed in following the strategy of providing affordable services to the target audience.

Cost and Revenue Drivers

Airlines’ revenues are the factor that allows talking about the sustainability of their business in a highly competitive environment. At the same time, according to Alderighi, Nicolini, and Piga (2019), when coordinating pricing policies competently, air carriers can reduce their costs, which is also a valuable prospect. As Renold, Kuljanin, and Kalić (2019) note, various interventions can affect airline profits, for instance, organizing seat capacity or offering passengers additional services. At Southwest Airlines, in 2019, operating revenue was $22.402 million, which exceeded the 2018 figure by almost one million (Bureau of Transportation Statistics, 2020b). The total passenger revenue per employee indicator was $350,700 (Airline Data Project, n.d.e). However, expense items are also numerous; in 2019, operating costs were $19,290 million (Bureau of Transportation Statistics, 2020b). Also, the additional costs of paying salaries and bonuses to employees should be considered. For instance, in 2018, the average salary for pilots and co-pilots was $234,796 (Airline Data Project, n.d.e). Therefore, a competent assessment of revenue and cost drivers is a valuable aspect of financial activities.

In comparison, JetBlue Airways’ parameters may be given, which are lower. In 2019, the company’s operating value was $8,032 million, and the indicator of costs was $7,234 (Bureau of Transportation Statistics, 2020a). The parameter of passenger revenue per employee in 2018 was equal to $387,800, and pilots’ and co-pilots’ average salary was $188,036 (Airline Data Project, n.d.b). JetBlue Airways’ figures are lower compared with those of Southwest Airlines’, but in the context of the scale of operations, the ratio is similar. Thus, when taking into account the given ratios, one can assume that profit growth is directly proportional to the costs of ensuring business sustainability, and the more the airline earns, the higher are the expenses on maintaining stable operations. For JetBlue Airways, costs may increase as the scope expands, and this will be a logical outcome.

Pricing Policies

Low-cost airlines’ pricing policies are different from those maintained by network carriers. In their research, Wehner, López-Bonilla, López-Bonilla, and Santos (2018) argue that the average ticket price of low-cost companies is 40%-60% compared with identical network company flights (p. 33). There are several reasons for this significant difference, and one of the main ones is the quality of service provided by two types of companies.

In the two companies under consideration, the similarity of business models explains an identical approach to price planning and capital accumulation policies. As Southwest Airlines exceeds JetBlue Airways in terms of fleet size and the number of employees, the attention of the former carrier to pricing is a more responsible task. At the same time, some indicators do not differ based on the business size. At Southwest Airlines, in 2018, the price per gallon of aviation fuel was $2.11 (Airline Data Project, n.d.e). At JetBlue Airways, during the same period, the cost of identical raw materials was $2.16, which suggests the prospect of reducing this item of expenditure and finding cheaper fuel to save (Airline Data Project, n.d.b). The overall purchases are also different between the two carriers. According to data from open access, in 2018, the price of all goods bought by Southwest Airlines as a compulsory purchase amounted to $3,270,434 (Airline Data Project, n.d.d). At JetBlue Airways, over the same period, this figure was $1,386,851 (Airline Data Project, n.d.a). This difference makes it possible to state that the latter carrier needs less control over its pricing policy.

Productivity and Planning

Productivity, as one of the valuable indicators of airline sustainability, is a criterion that reflects success in providing services and maintaining a high level of performance. Gosnell, List, and Metcalfe (2020) note the direct relationship between skilled labor and productivity and argue that air carrier management should make efforts to ensure staff are highly qualified. Pineda, Liou, Hsu, and Chuang (2018) point out the importance of planning as one of the significant aspects of productivity and remark that achieving financial sustainability is impossible without appropriate preparation and the assessment of the operating mode.

As specific indicators that determine the performance of air carriers, one can mention fleet size. In 2018, at Southwest Airlines, this figure was 524, and compared with previous years, this figure decreased slightly (Airline Data Project, n.d.d). According to the latest 2020 data, the airline’s load factor is 83.6%, and the twelfth position among all carriers confirms the tight schedule of movement around the country (Bureau of Transportation Statistics, 2020b). There are different destinations as routes, but the share of passengers from Chicago is the largest, and in January 2020, it was 9.28 million people (Bureau of Transportation Statistics, 2020b). These data allow making specific forecasts: for Southwest Airlines, a gradual reduction in fleet size may result in the loss of a leading position in the low-cost market for carriers, although the passenger flow is stable.

When comparing the same indicators with those of JetBlue Airways’, one can note lower performance results, although the planning characteristics are sufficiently high or the airline to be considered a reliable carrier. The company has a stable fleet (in 2018, the total number was 191) (Airline Data Project, n.d.a). In January 2020, the load factor was equal to 84%, and of all routes throughout the country, the east coast was the most popular destination for passengers (20.18% of the total share of transportation) (Bureau of Transportation Statistics, 2020a). These results give an opportunity to predict the stable operation of JetBlue Airways and a possible increase in its fleet size.

Recommendations for Airline Managers

As recommendations for airline managers, some advice can be offered based on comparing the activities of the two air carriers with similar business models. In particular, productivity is a valuable criterion for sustainable development and overcoming the competitive barrier, and expanding fleet size along with increasing the number of destination routes are significant work prospects. Also, an emphasis on pricing policies should be a mandatory component of managerial interventions. The ratio of revenue and costs should be evaluated and calculated regularly in order to exclude significant financial challenges and prevent the loss of positions. Finally, market positioning as a low-cost carrier does not imply restrictions on operational activities, and any innovations and the optimization of the workflow can always be implemented in order to maintain high outcomes and gain customer recognition as one of the main success factors.

Conclusion

The analysis of the two low-cost carriers’ economic factors of development makes it possible to compare these airlines’ results of operating activities. On the basis of publicly available data, the sustainability of their work is assessed in the context of important operating parameters, in particular, service-price concepts, cost and revenue drivers, and some other aspects. The results of this comparison make it possible to assert that Southwest Airlines demonstrates better results than JetBlue Airways, although the latter is progressing successfully not only in the domestic but also in the international air transportation market. Expanding fleet size, maintaining sound financial strategies, and timely managerial interventions are potentially valuable recommendations for airline leaders.

References

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