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

3

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

5

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

6

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)

7

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

8

External Environment

Remote Environment (cont..)Technological Factors

Consistently improving aircraftKeep up with competitions

Ecological FactorsUse of Bio-FuelsCarbon Offset Program

9

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

11

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

13

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

14

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

15

Internal Analysis

Turnaround oriented strategy

Aggressive strategy

Defensive strategy Diversification

NetJets

SWOT (cont.)

16

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)

17

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)

18

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)

19

Internal Analysis

Balanced ScorecardCustomer Market

High value for customer serviceThe NetJets Experience

Financial PerformancePrimary Goal= Generate a profitEfficiencySatisfy's demands of shareholders

Dividends

20

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

21

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

22

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.

23

Long-Term Objectives

BCG Growth-Share MatrixGrowth Rate

Private Air Travel GrowthFractional Jet Success9/11Airport CongestionTime EfficiencyImageDestination FlexibilityComfort & PrivacySafetyIn-flight Meetings

24

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..)

25

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

26

Multi-Business Strategy

Industry Attractiveness – Business Strength Matrix

27

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

28

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

29

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

30

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.

31

References