Wednesday, February 12, 2014

NetJets's blue ocean strategy


NetJets reconstructed market boundaries to create a blue ocean by looking across alternative industries. NetJets observed that business travellers, the most lucrative mass of customers, have two principal choices: They can fly business class or first class on a commercial airline or the company can purchase its own aircraft to serve its corporate travel needs. Why would corporations choose one alternative industry over another?

Commercial travel avoids the high up-front, fixed-cost investment of a multimillion dollar jet aircraft. Also, a company purchases only the number of corporate airline tickets needed per year, lowering variable costs and reducing the possibility of unused aviation travel time that often accompanies the ownership of corporate jets. On the other hand, corporations buy private jets to dramatically cut total travel time, to reduce the hassle of congested airports, to allow for point-to-point travel, and to gain the benefit of having more productive and energized executives who can hit the ground running upon arrival.

NetJets offers its customers one-sixteenth ownership of an aircraft to be shared with fifteen other customers, each one entitled to fifty hours of flight time per year. Customers get the convenience of a private jet at the price of a commercial airline ticket. Comparing first-class travel with private aircraft when direct and indirect costs—hotel, meals, travel time, expenses—are factored in, the cost of first-class commercial travel was significantly higher. NetJets’ smaller airplanes, the use of smaller regional airports, and limited staff keep costs to a minimum. Perhaps most appealing, your jet is always available with only four hours’ notice. If a jet is not available, NetJets will charter one for you. By offering the best of commercial travel and private jets and eliminating and reducing everything else, NetJets opened up a multibillion-dollar blue ocean wherein customers get the convenience and speed of a private jet with a low fixed cost and the low variable cost of commercial airline travel.

In just over twenty years NetJets has grown larger than many airlines, creating the blue ocean of fractional jet ownership, with over 690 aircraft, operating more than 370,000 flights to more than 150 countries.

Source: http://www.blueoceanstrategy.com/concepts/bos-moves/netjets/