?1. Despite the challenging industry environment, airlines like Southwest Airlines and JetBlue earn superior returns. How? Answer: + Cost advantage: Low cost carrier are able to compete by keeping their cost low, and operate at 70% of the major airlines costs with full passengers in a fly. Southwest Airlines: Provider of low cost air travel for business and leisure travelers on budget Point to point service between secondary airport Operations were designed for simplicity: all Boeing 737 fleet, no meals and seat assignments, all-coach cabin with no frills, flexible work rules and an enthusiastic workforce contributed a very short times and high aircraft utilization. Southwest management worked closely with employment union Southwest pricing’s structures were simple and transparency to passengers (few class of fares and restrictions) First mover advantages: capture the market and be able to gain more profit margin than the incumbents. Also, airline industry is costly to invest,so the first mover will be able to win the market and become the threat of the new entry. (Slower expansion, doing well for longer time in profitable routes) JetBlue: Use new Technology to reduce cost; Customer can contact JetBlue to buy seat online (60% of seats were sold by using internet), no paper; Each pilot carried a laptop computer with operations manuals and software for flight planning Highly capitalize start up company ($130million) No meals were served but blue potatoes chips were available. Different job types, one year contract and job-sharing package No union. Top managements call employees “crew members” and supervisors “coaches” Fast on the ground turnaround and timely departures Reasonable low fare with no restrictions Highly capitalized start-up, so can provide convenient service( e.g. new models of Airbus) Differentiation strategy ( JetBlue: Use new Airbus, Flexible, convenient, fast on the ground turnaround and timely departure. T