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Strategic Management of NetJets
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Transcript of Strategic Management of NetJets
Andrew Bellini & Can Bayrak
Strategic Management of NetJets
MSA 636 – Aviation / Aerospace Planning Systems Final
Presentation
BackgroundMission StatementCorporate Social ResponsibilityExternal EnvironmentInternal AnalysisLong-Term ObjectivesMulti-Business StrategyConclusionRecommendationsReferences
2
Overview
HistoryExecutive Jet was founded in 1965
by General O.F. LassiterFractional Aircraft Owner Concept introduced in
1986European and Middle Eastern divisions
opened in 1997 Global Operations
Berkshire Hathaway Inc. acquires Executive Jet in 1998
Executive Jet is renamed to NetJets in 2002
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Background
Fractional Jet Ownership ConceptA share of the aircraft can be purchased rather
than the whole aircraftShares are determined by projected flight
hours per yearMinimum share is 1/16 or 50 flight hours.
High convenience, access, and time advantages of owning a private jet at a fraction of the cost
No responsibilities
4
Background
No formalized Mission StatementFollows 6 primary principles
Safety, Owner Value, Operational Excellence, Employee Value, Shareholder Value, Integrity
Company Philosophy Establishes a positive self conceptConcern for public image
NetJets should consider publishing a Mission Statement
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Mission Statement
The Carbon Offset ProgramProvides NetJets Owners the opportunity to mitigate the
unavoidable impacts from flying today by voluntarily offsetting the emissions by investing in projects that remove the equivalent amount of greenhouse gases from the atmosphere (NetJets, 2010)
The Corinth Coal Mine Methane Project The Enercon Wind Farm Project The National Family Dairy Farm Project The Newton-McDonald Landfill Gas Capture Project
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Corporate Social Responsibility
The Next Generation Jet Fuel ProjectNetJets is investing in cutting-edge research to identify more
environmentally-friendly aviation technologies by sponsoring this project at Princeton University and the University of California, Davis. This project developed an ultra-low emission jet fuel (Wilson, 2009)
The Solar Schools ProjectThe project will fund the placement of photovoltaic cells on school
roofs. The public schools of the State of California are focused.
Environmental Affairs Chairs in the US & European BranchesEstablishment of environmental councils which will be directed by
the Director of Environmental Affairs. The Director will report directly to the Office of the Chairman, David Sokol (NetJets, 2007)
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Corporate Social Responsibility
Remote EnvironmentEconomic Factors
Worldwide RecessionLow Interest/Inflation RatesHigh Credit Levels
Social FactorsVery high ethical standards for employeesParticipation in community events
Political FactorsComply with Federal RegulationsAntitrust lawsPollution and Environmental Regulations
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External Environment
Remote Environment (cont..)Technological Factors
Consistently improving aircraftKeep up with competitions
Ecological FactorsUse of Bio-FuelsCarbon Offset Program
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External Environment
Industry EnvironmentLow Entry Threats
Highly competitive marketHigh cost of entry
SuppliersSupplier selection (Over 15 aircraft types in use)Fairly high selling power
Aircraft manufacturersFuel suppliers
BuyersHigh control within the industryConstantly trying to drive the price downSubstitutes are available
10
External Environment
Industry Environment (cont..)Substitute Products
Customers can sell shares after contract endLow budget airline competitionSimilar corporate luxury carriers available
Competitive RivalryStrives to gain a competitive advantageFixed cost increasesProduct differentiation
High product loyaltyHigh value to safety
High exit barriers
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External Environment
Operating EnvironmentCustomers
Customer ProfilesBuyer BehaviorClient History
SuppliersNetJets has a big buyer power
12
External Environment
Operating Environment (cont..)Creditors
Important to maintain good creditNetJets is a responsible buyer
Maintains valuable stockLabor
Keep employees happy, and safeInteraction with customers
First to influence company reputationRaw Materials CostsFinancial PositionPrice Competitiveness
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External Environment
SWOT Strengths
Financial Background by Warren Buffett’s Berkshire Hathaway Pioneer of the Fractional Jet Ownership Program – Employee
Experience Fleet Size (more than 800 aircraft) Pilot experience (average of 7500 hrs.) Alliances with various Fortune 500s Safety Record Brand Name Global branches (the US, Europe, Middle East)
Weaknesses Expensive Fleet Diversity High Operating Costs Addressing only to frequent-flyers
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Internal Analysis
SWOT (cont.) Opportunities
Airport Congestion 9/11 Comfort & Privacy Time-Efficiency Good relationships both with suppliers and customers Private Flight Image given to customers Destination and Date-Time Flexibility
Threats FlexJet, CitationAir, Flight Options, XO Jet Fuel Costs Economic Downfall Ground Transportation (Especially in continental Europe) Customer’s Lease or Purchase options instead of fractional
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Internal Analysis
Turnaround oriented strategy
Aggressive strategy
Defensive strategy Diversification
NetJets
SWOT (cont.)
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Internal AnalysisOpportunities
Threats
Weaknesses Strengths
Value-Chain Analysis Primary Activities
In-bound Logistics• Receiving the latest technology aircraft from various suppliers (Gulfstream, Dassault,
Cessna, Hawker, Boeing)• Receiving Fuel (depends on the airport)
Operations• Air crew scheduling• On-site service (door-to-door)• Gate Assignments• State-of-the-art operational centers (quality & safety)
Out-bound Logistics• Return of aircraft
Marketing and Sales• Website & Telephone arrangements• Adverts (TV-series, movies, sports)• Special Events
Service• Door-to-Door• Guaranteed Availability• Preparing the flight in 4-hours• Destination Flexibility• On-flight service (catering, entertainment)
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Internal Analysis
Value-Chain Analysis (cont..) Support Activities
General Administration Fractional Ownership Program Executive Jet Management Marquis Jet Card Program Dedication to Safety Berkshire Hathaway’s Subsidiary (company image, capital usage)
Human Resource Management The most experienced pilots Maintenance Personnel Flight Attendants Corporate Personnel Training
R&D Exceeding the FAA and the industry standards in maintenance
quality and flight safety NextGen (Gulfstream Avionics) Going Green by various CSR activities
Procurement Purchasing the latest technology aircraft Frankfurt-Egelsbach Airport acquisition (Financial capital, Operational Advantage)
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Internal Analysis
Resource Based View Tangible Assets
Aircraft Employees (Pilots, Maintenance, Corporate, Flight Attendants) Maintenance & Operation Centers (Columbus, Frankfurt, Paco de Arcos, London, and
Jeddah) Frankfurt-Egelsbach Airport Capital by Berkshire Hathaway
Intangible Assets Company Name & Reputation Pilot experience Organizational Fractional Jet Ownership Experience Jet Chartering experience (only by Executive Jet Management) Strategic Alliances with various Fortune 500 (customer loyalty) Alliances with aircraft manufacturers (Dassault, Gulfstream, Boeing, Cessna)
Organizational Capabilities Safety Elite Service Fractional Jet Ownership Pioneer (the most experienced company) Comfort & Privacy of Private Aviation Flexibility in Time and Destination selection (multiple sister companies throughout the world) Bargain Power over Suppliers (800+ aircraft)
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Internal Analysis
Balanced ScorecardCustomer Market
High value for customer serviceThe NetJets Experience
Financial PerformancePrimary Goal= Generate a profitEfficiencySatisfy's demands of shareholders
Dividends
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Long-Term Objectives
Balanced Scorecard (cont..)Internal Business Process
Valuable safety cultureFulfill customer needs
On time flightReliability
Learning and GrowthProactive about the futureFuture expansionProper TrainingAircraft Maintenance
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Long-Term Objectives
Generic StrategiesStrives to gain a competitive advantage
Low-Cost Leadership Reduces costs not essential for business Reduces administration costs
Product Differentiation Creative loyalty
Outstanding Customer Service Telephone Services Ferry Waiver Program Marquis Jet Card
Creative flairDefined Focus Market [Primary]
Defined Target Market Efficient Advertising
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Long-Term Objectives
Grand StrategiesConcentrated Growth
Fractional Jet OwnershipCustomer Loyalty
Market DevelopmentFocused Advertising Campaigns directed towards
target marketConcentric Diversification
Executive Jet ManagementNetJets Europe, NetJets Middle EastNJI Inc.
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Long-Term Objectives
BCG Growth-Share MatrixGrowth Rate
Private Air Travel GrowthFractional Jet Success9/11Airport CongestionTime EfficiencyImageDestination FlexibilityComfort & PrivacySafetyIn-flight Meetings
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Multi-Business Strategy
Market Share NetJets’ Domination
Fractional Jet Pioneer• Organizational Experience• Purchasing a fraction,
not the whole• New Entrants follow
NetJets’ footsteps Pilot Experience Fleet Size & Diversity Global Service Capital Advantage Safety Record Service Quality
BCG Growth-Share Matrix (cont..)
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Multi-Business Strategy
NetJets
Market Share
Gro
wth
Rate
Industry Attractiveness – Business Strength Matrix Allows managers to analyze in a broader way than BCG Growth-Share
Matrix Business Strength
Pioneer of Fractional Jet Ownership Program [Market Domination] Multiple sister companies throughout the world [Worldwide Diversification] Very large fleet size and various operational centers [High Investment] Very experienced crew of pilots, maintenance, and corporate personnel [Skill Level] Service quality and safety record [Company Image]
Industry Attractiveness Popularity of Fractional Jet Ownership Program [Competitive Rivalry & Market
Growth] Various New Entrants [Market Diversification] Bombardier, Cessna [Competitor’s Parental Company Strength]
Strategy Selection Seek to Dominate Seek attractive new segments to secure strengths Fill Weaknesses Accept moderate near-term profits
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Multi-Business Strategy
Industry Attractiveness – Business Strength Matrix
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Multi-Business Strategy
Premium [Invest for Growth]
Selective [Invest for Growth]
Protect / Refocus
[Selectively Invest for Earnings]
Challenge [Invest for Growth]
Prime [Selectively Invest for Earnings]
Restructure [Preserve for
Harvest]
Opportunistic [Selectively Invest for Earnings]
Opportunistic [Preserve for
Harvest]
Harvest or Divest
I
nd
ust
ry A
ttra
ctiv
en
ess
Business Strength
NetJets
Lack of a solid Mission StatementAchievable CSR Goals
Based on Environmental IssuesMore Community Relevance rather than
AviationCompetition is rising in the fractional jet
ownership industry Strong Alliances with both customers and
suppliersVery experienced crew Very large diverse fleetValued Safety Culture
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Conclusions
Top-level management should be able to sustain the leading position in the marketVast CapitalOrganizational Strengths & Capabilities
Outstanding customer serviceExceeds the industry standards in terms of
avionics, safety, and qualityVarious fractional and chartering options
Marquis & Executive JetCompetitors lack on this matter
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Conclusions
A solid Mission StatementReduction in Fleet Diversification might help
in operating and maintenance costsAdditional jet services such as chartering, air-
taxi, or sales of aircraft as a whole would secure NetJets’ position in the whole private aviation industry.
Creating subsidiary Headquarters in South East Asia, Australia and Latin America
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Recommendations
NetJets. (2007, September 13). NetJets Announces Comprehensive Climate Initiative. Business Wire. Woodbridge, NJ: Author.
Flottau, J. (2009, February). NetJets Buys GA Airport Near Frankfurt, Germany. Aviation Daily, 375(21), 1. Retrieved April 8, 2010, from ABI/INFORM Trade & Industry. (Document ID: 1645326111).
NetJets Inc. (2010, March). Fractional Aircraft Ownership Decision – Support Matrix. Woodbridge, NJ: Author.
NetJets. (2010). Aircraft Carbon Credits Carbon Offset Investments & Carbon Offsetting for Aircraft. Retrieved July/22, 2010, from http://www.netjets.com/About_NetJets/ offsetting_unavoidable_impacts.asp
NetJets. (2010). NetJets Carbon Offset Program Offsetting Aircraft & Jet Emissions. Retrieved July/22, 2010, from http://www.netjets.com/About_NetJets/netjets_ climate_initiative.asp
Starry, C., & Bernstein, G. (2008). The economics of private business jet travel. Business Economics, 43(4), 36. Retrieved from http://ezproxy.libproxy.db.erau.edu/login?url=http://proquest.umi.com/pqdweb?did=1632635051&Fmt=7&clientId=17916&RQT=309&VName=PQD
Swickard, J. E. (2009, January 1). NetJets, FAA Sign NextGen Agreeement. Business & Commercial Aviation, 11.
Wilson, B. (2009, November 9). Netjets unveils major environmental effort. Aviation Week Intelligence Network, p.12.
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References