Ty Montague's (CEO at Co:Collective) article "Why JetBlue does not need First Class" inspired me to write a response that tries to understand why JetBlue actually does need First Class. I try to keep these strategic musings to under 20 slides.

1. Why is JetBlue adding First Class?
Business and Marketing Strategy in 20 Slides or Less
By Dexter King
September 4, 2013

2. Agenda
• Hypothesis: JetBlue’s introduction of 1st class is a natural response to
competitive and economic stimuli – pg. 3
• Understanding JetBlue’s true competitive set is key to understanding its
move to introduce 1st class – pg. 5
• JetBlue’s financial situation is showing signs of decline & weakness – pg. 7
• JetBlue original brand story was based on a consumer target that is in
decline and can no longer drive the airline’s growth – pg. 9
• Offering 1st class, sold as business class to corporations, makes perfect
sense – pg. 11
• Conclusion: JetBlue has to pursue short term profit growth in order to fund
long term innovation around its brand story – pg. 13

3. “THE ANNOUNCEMENT OF FIRST CLASS ISN’T THE BEGINNING OF CHANGE AT
JETBLUE, IT’S THE END OF IT. IT SIGNALS THAT JETBLUE IS OUT OF INNOVATIVE
IDEAS AND HAS NOW RESIGNED ITSELF TO BEING PRETTY MUCH
INDISTINGUISHABLE FROM ANY OTHER MAJOR AIR CARRIER, WHICH IS SAD. BUT
IT’S ALSO BAD BUSINESS. WHILE MARGINS MAY BENEFIT IN THE SHORT TERM,
COMMODITIZATION IS THE INEVITABLE RESULT.”
Ty Montague, Quartz.com, “Why JetBlue does not need First Class”

4. Ty Montague, CEO at Co-Collective, wrote an article*
stating why he thought JetBlue’s addition of 1st class was
a big mistake
―JetBlue recently announced a seemingly minor change to its service—it is
adding first class cabins on transcontinental flights. This will almost certainly
add profit margin in the short run and increase options for customers… But
in the long run, we will look back at this event and recognize it marked the
end of one of the great brand narratives spanning the last decade.‖
• Ty also believes that, over the long term, adding first class to JetBlue will result in
commoditization of the carrier.
• Ty’s points have validity but do not recognize that JetBlue is already facing financial
and competitive pressure in the short term
– Its weakening financial results demonstrate a compelling need for JetBlue to update its
strategy in the short term.
– The consolidation of its competitors, giving them an advantageous cost structure and
increased buying power, puts JetBlue at a disadvantage.
– The economic decline of its original target consumer provides a compelling need to shift its
target to one that is growing and profitable.
*Source: Ty Montague, Quartz.com ―Why JetBlue does not need first class‖ August 23, 2013

5. “WHEN YOU’RE BROUGHT INTO A PROBLEM, YOU SHOULD FIRST ASK WHAT’S
WRONG WITH THE PROFIT-AND-LOSS STATEMENT. IT’S CRUCIALLY IMPORTANT TO
FRAME THE PROBLEM IN THE CONTEXT OF THE P&L RATHER THAN SOMETHING
NEBULOUS, LIKE THE CULTURE, THE STRUCTURE, THE PROCESSES, AND ALL
THESE OTHER THINGS.”
Idris Jala, CEO Malaysia Airlines, Interview with McKinsey & Co, November 2008

6. In order to understand JetBlue’s tactics, you must first
understand the airline’s true competitive set
JetBlue’s true competitive set is
comprised of the major carriers and
not other discount airlines. Most
people compare JetBlue to other
discount airlines, but JetBlue is a
major carrier and is faced with
responding to the strategies and
tactics of other major carriers.
• The passenger airline market in highly
fragmented in the US but is rapidly
consolidating.
• JetBlue is the 6th largest passenger
airline in the US.
• On January 1, 2005, JetBlue became a
major US airline as categorized by the
US Dept of Transportation.
United
17%
Delta
16%
American
13%
Southwest
10%
US Airways
8%
JetBlue
5%
Other
31%
Playersin Airline Market
Based on Revenue Passenger Miles
Source: S&P Capital IQ Report on JetBlue Airways Corp; August 10, 2013

7. “DELTA, UNITED AIRLINES AND AMERICAN AIRLINES HAVE ALL OUTLINED
LARGE INVESTMENTS TO INSTALL NEW BUSINESS CLASS SEATS, FOR…
TRANSCONTINENTAL LEGS – FROM NEW YORK TO LOS ANGELES OR SAN
FRANCISCO”
The New York Times “The Race to Build a Better Business Class,” August 3, 2013

8. Value has migrated away from JetBlue to its competitors
as JetBlue’s costs have increased while its average one
way fares have declined*
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JetBlue Price-Volume Graph
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Delta Price-Volume Graph
• Q2, 2013 JetBlue announced declining
earnings + increased operating costs.
JetBlue also saw its one way fares fall.*
• Major airlines are using business class as a
revenue and profit driver.
• Increased profitability allows airlines to invest
in innovation and upgrade passenger
experience.
Charts Data Source: Google Finance; ―Share Price vs Volume Traded‖ August 27, 2013 *Source: The Columbus Dispatch; August 6, 2013
$7.50
$20.12
$4.36
$6.36
$5.55
$16.16

9. THE ECONOMIC POLICY INSTITUTE ESTIMATES THAT BETWEEN 2007 AND
2012, WAGES FELL FOR THE LOWEST 70%OF ALL WAGE EARNERS, DESPITE
PRODUCTIVITY GROWTH OF 7.7%.
The New York Times “Not Really Labor Day” September 2, 2013

10. The uneven economic recovery and growing income
inequality means businesses selling high ticket items and
looking for incremental revenue have to cater to
corporations or affluent consumers
JetBlue’s original brand story was based on catering to a consumer, bargain
hunting vacationer, i.e. the middle class, that can no longer fuel its growth.
• According to Joseph Stiglitz, over the past decade the top 1% has seen their incomes
rise 18% while the incomes of the middle class has declined.1
• Stiglitz also stated the top 1% control 40% of wealth and 20% of income.1
• According to the Wall Street Journal, Procter & Gamble has reduced its focus on
middle-market items and is focusing on luxury and bargain items
Corporations have large amounts of cash on their balance sheets allowing
them to increase travel and client entertainment budgets.
• Corporations are holding a record $1.7 trillion in liquid assets (cash, etc) on their
balance sheets.2
• In 2012, 45% of a corporation’s short term liabilities was in liquid assets and sharp
increase from 2001 when the number was 25-30%.2
1 Source: Vanity Fair ―Of the 1%, by the 1%, for the 1%‖ May 2011 2 Source: US Federal Reserve as of June 6, 2013

11. “THE BUSINESS AND CORPORATE TRAVEL MARKET IS BY FAR THE MOST LUCRATIVE
ONE FOR THE AIRLINES. BUSINESS TRAVELERS ARE EXPECTED TO SPEND $273
BILLION THIS YEAR ON AIRFARES, ACCORDING TO A FORECAST BY THE GLOBAL
BUSINESS TRAVEL ASSOCIATION, A 4.3% GAIN FROM 2012.”
The New York Times “The Race to Build a Better Business Class,” August 3, 2013

12. Offering upgraded service to compete on high volume and
high profit transcontinental routes is precisely the move a
discount carrier should make
• The transcontinental routes… are among the most popular domestic routes in the
US. Over 3 million passengers flew from LA to NY in the year ending in April 2013.*
• ―Round-trip tickets on business and first-class seats on cross-country flights sell for
$3,000 to $5,000 on Virgin America, Delta and United Airlines, while economy seats
for the same routes are priced at about $600 to $700.‖*
Upgraded business class offerings for transcontinental flights are becoming the
price of entry for airlines competing for the US business customer.
• In November 2013, American plans to take delivery of Airbus A321 jets with 20 lie-flat
seats in the business-class section for its transcontinental flights.*
• In March 2013, Delta began offering lie-flat seats in its Business Elite section on
fights from LA and SF to New York.*
• In May 2013, United announced plans to install lie-flat seats in its Premium Service
on flights from LA and SF to NY, with rollout completed by the end of the year.*
*Source: LA Times ―JetBlue to add lie-flat seats on cross-country flights‖ August 5, 2013

13. YOU'VE GOT TO EAT WHILE YOU DREAM. YOU'VE GOT TO DELIVER ON SHORT-
RANGE COMMITMENTS, WHILE YOU DEVELOP A LONG-RANGE STRATEGY AND
VISION AND IMPLEMENT IT. …SUCCESS [IS] …DOING BOTH. WALKING AND CHEWING
GUM IF YOU WILL. GETTING IT DONE IN THE SHORT-RANGE AND DELIVERING A
LONG-RANGE PLAN, AND EXECUTING ON THAT.
Jack Welch

14. JetBlue is adding first class as a means to drive higher
profits and growth, thus allowing it fund the innovation
needed to evolve and update its brand story
JetBlue’s original business model, or ―story,‖ is fundamentally being pulled
apart by economic forces.
• JetBlue’s brand story was built on appealing to a consumer base that is being
decimated by the economic downturn.
• To retain its ability to tell a compelling ―story‖ and pursue innovation, JetBlue must
pursue higher profit growth strategies.
• Transcontinental routes are both high volume and high profit drivers for JetBlue’s
competition and ideal for a competitive response from the airline.
• JetBlue’s competitive response, first class sold as business class at a lower price, fits
perfectly with an evolved version of its brand story.
Innovation is not free and corporations need profitable cash flow to fund it while
also growing its core business. JetBlue is generating the necessary profits
to provide a platform for growth and evolving its brand story.

15. About the Author – Dexter King
Education:
• BA, Economics, University of Virginia
• MBA, The Fuqua School at Duke University
Experience:
• Brand Marketing and Management: Procter & Gamble, Coca-Cola, LVMH
and Diageo
• Marketing and Growth Strategy: McKinsey and Company
The Fun Stuff I Love:
• Photography, Cinema, Food (Bacon Cheeseburger Enthusiast)
Contact
• E: dexterking@gmail.com