JetBlue Acquires Spirit Airlines: Will Straddling Work?

Source: Getty Images

The bidding war for Spirit Airlines has ended.  JetBlue and Frontier both sought to acquire Spirit.  Today, we learn that JetBlue has completed the deal at a price of $3.8 billion.  Alison Sider of the Wall Street Journal reported on the deal, quoting JetBlue CEO Robin Hayes: 

Buying Spirit would supercharge JetBlue’s growth, accelerating its plans by years, Mr. Hayes has said. The combined airline will have 458 planes—up from JetBlue’s fleet of just over 280 jets now—and will have over 300 more on order. Spirit’s pilots are a big part of the allure as well, at a time when airlines are struggling to replace the thousands who retired during the pandemic and are facing a growing shortfall.

Will the deal create value in the long term for JetBlue?  It's a fascinating question.  Historically, firms in the airline industry has struggled to be consistently profitable.  Richard Branson once joked that the easiest way to become a millionaire is to start as a billionaire and then open an airline.  Airlines have had even more trouble being profitable when they have tried to straddle two contrasting business models.  For instance, when Delta launched Song to compete with the likes of Southwest, they struggled mightily.  The same goes for United with Ted, and British Airways with its Go! subsidiary - which aimed to compete with EasyJet and Ryanair in Europe.  In each case, the full-service legacy carrier tried to also run a low-cost subsidiary, and the two business models did not co-exist successfully in the same corporation.  

Joanna Bailey wrote about this deal several months ago for the Simple Flying website. She noted,

 

"The offer of $3.6 billion, or $33 per share, represented a premium of around 30% over the price Frontier had agreed. Clearly, JetBlue sees a value in the carrier, but why?  On the surface, they aren’t exactly a match made in heaven. Spirit is a true ULCC (ultra low cost carrier), lightweight, efficient and no-frills; JetBlue is very much a hybrid airline, offering better services at affordable price points, but not truly low-cost. At first glance, Frontier looks to be the better option, but how does that pan out when we consider routes, fleet, and what’s best for the passengers?"  

Bailey concludes that Frontier seemed a better fit as you consider competitive positioning, fleet configuration, and route network.  She explained, "The Frontier-Spirit tie-up would have created the largest ULCC in the country, with a fleet of almost 500 aircraft targeted by 2026."  

Perhaps, though, JetBlue doesn't plan on operating two contrasting business models moving forward.  A quote from CEO Robin Hayes in the Wall Street Journal today seems to suggest a shift away from the ULCC strategy at Spirit:

“This is about creating a larger JetBlue,” Mr. Hayes said Thursday. JetBlue has said it plans to retrofit Spirit’s distinctive bright yellow planes to match its own fleet, including tearing seats out of Spirit’s more crowded cabins. The combined airline would be based in New York, with Mr. Hayes at the helm, the airlines said Thursday.

Ok, so perhaps we won't see an attempt to straddle.  This quote though suggests a different question: If JetBlue plans on transforming Spirit to match the existing JetBlue strategic positioning, then what's the rationale for the merger?  Why acquire the airline rather than just contining to add planes and routes to the existing JetBlue network?  It will be interesting to hear and see why acquisition might create more value than organic growth in this case.  Many people have their doubts about this deal... understandably.  

Rules for Living a Happy Life

Image source: Forbes

Harvard Business School Professor Arthur Brooks writes a terrific column for The Atlantic about achieving happiness in life. He also teaches a course on this subject to MBA students, as described in this recent Wall Street Journal article. To celebrate his 100th column this weekend, Brooks highlighted his "three biggest happiness rules."

Maxim 1: Mother Nature doesn’t care if you are happy.

Brooks argues that we are wired to desire and pursue worldly rewards such as power and wealth. However, these materialist pursuits rarely lead to enduring happiness.

Maxim 2: Lasting happiness comes from habits, not hacks.

Books, social media, and television all love to proclaim the value of various "hacks" for increasing our happiness.  While these may provide a short-term boost for us, they also don't tend to lead to substantial and enduring increases in our happiness.  Instead, Brooks argues we should focus on cultivating good habits, rather than chasing the latest popular hacks.  

Maxim 3:  Happiness is love.

Brooks writes, "Research on people who wind up happy (and healthy) as they grow old shows that the most important part of life to cultivate is a series of stable, long-term love relationships...Here’s a handy formula to go by: Happy people love people and use things; unhappy people use people and love things."

What Driving a New Car Teaches Us About Managing Enterprise Risk

If you have purchased a new car in the past few years, you probably have many new technological features to "assist" your driving:  forward collision warning, lane departure warnings, lane keeping assist, back-up camera, adaptive cruise control, blind spot monitoring, etc.   Hopefully, these features make us safer.  Theoretically, they should help reduce human error.  However, four countervailing forces emerge when you install such an array of safety features in a vehicle.  

1.  Drivers develop a false sense of security, and therefore, they take more risk.  Perhaps they drive faster, or they are more apt to text behind the wheel.  

2.  Drivers become overly dependent on the technology.  Over time, their skills erode as the car makes more and more decisions for them.   Consider a scenario where suddenly your back-up camera and parking assist features go away.  Can you parallel park as effectively as you did ten years ago?  

3.  Drivers develop alarm fatigue.  All the warnings and signals become annoying, and drivers simply start ignoring some of them (or turning them off).   

4.  The additional complexity of the vehicle becomes problematic and adds to the risk of a major failure.  For instance, consider renting a vehicle from a different manufacturer than the car you own.  Will the different systems befuddle you a bit? Could the confusion lead to errors?  Similarly, could the added complexity mean that the car is more prone to break down and be costly to repair, given all the technology embedded in the vehicle?

These four concerns all apply to your enterprise as well.  As you add systems to "assist" decision makers, you face these countervailing forces.  Redundant systems may provide crucial back-up to protect against human error, but they add complexity and they create these offsetting risks because of human nature.  We should all be aware of these other risks as we embrace the use of fail-safe, back-up, and decision support systems in our organizations.  

Ingredients of a Career "Hot Streak"

Director Peter Jackson
Source: Indiewire

Under what conditions do people experience a burst of unprecdented success in their careers? Scholars have been studying the ingredients of career "hot streaks" for some time. At first, scholars thought that such unusual periods of success occurred randomly. However, new research methods have capitalized on artificial intelligence to advance our understanding of such hot streaks. Scholars Lu Liu, Nima Dehmamy, Jillian Chown, C. Lee Giles, and Dashun Wang developed an AI system to study the work of 2,128 artists, 4,337 directors, and 20,040 scientists.  They found that hot streaks emerged when these artists, directors, and scientists first engaged in a period of broad exploration of creative options and then shifted to an exploitation phase in which they focused intensely in a particular domain.  Kellogg Insight summarized their findings:

The results make clear the “recipe” for a hot streak: exploration of creative options followed by exploitation of a specific “lane” of work ultimately leading to greater success. This held true across all three domains studied.  For example, director Peter Jackson made films that fell into horror, comedy, drama, and other genres (reflecting a period of exploration) before hitting it much bigger with the Lord of the Rings fantasy franchise. Analysis of painter Jackson Pollock’s work, similarly, showed exploration of a wide range of styles before the focused “drip period” (1946–1950) that elevated him to global fame.

The research found, further, that exploration or exploitation by itself is not enough for a hot streak. That is, only the specific exploration-exploitation sequence led to the highest increase in likelihood of a hot streak: hot streaks following that sequence were 20.5 percent, 13.8 percent, and 19.2 percent more likely for artists, directors, and scientists, respectively, versus after a random point in a given career. Exploration and exploitation alone were associated with no such increase.

“If you just do one or the other, you don’t get the full impact,” Chown says. “It has to be the combination of exploration followed by exploitation: experimenting in different areas, learning different domains and approaches, then really hunkering down and developing that body of high-impact work.”  Wang agrees: “Our work shows that people experiment and likely gain new skills from work in different subfields, and then help find the best one to exploit, which seem crucial for hot streak.”

As I read this study, I was reminded of a terrific book I read several years ago by David Epstein.  In that book, Range: Why Generalists Triumph in a Specialized World, Epstein argues that we should not specialize early and narrowly in our lives.  Instead, we should explore and develop competence in multiple areas.  He argues that these generalists ultimately create more innovation than people who specalize narrowly.   This AI-driven study of scientists, directors, and artists takes Epstein's argument one step further.  It confirms the value of being a generalist, though it emphasizes the benefits of a shift from broad competence to specific expertise over time.  Either way, both Epstein's book and this study provide a compelling argument for not restricting yourself too early in your career.  Unfortunately, in many professions, the pressure to specialize can be very powerful.  Take my profession, for instance.  In management academia, the path to early career success seems to emphasize mastery of a narrow domain - and too often, that entails a quite esoteric focus.  Broadening the mind has many benefits, and we should not forget that as we coach and mentor young people in their careers.  

Announcing the Release of Case Companion!

Over the past 8 months, I've been working on an exciting new project in collaboration with Harvard Business Publishing & Torrance Learning. We are now proud to announce the release of Case Companion - an engaging and interactive multi-media introduction to case study analysis that is ideal for undergraduates or any student new to learning with cases. 

Thank you to our amazing team including Jenna Fleming, Jordan McKenzie, John Lafkas, Carla Torgerson, Allison Mitton, Anthony Reisinger, Nicole Harris, Anne Spencer, Dave Di Iulio, and Elie Honein.  What a pleasure to work with all of you!  I hope that faculty members and students will benefit from this new multi-media experience that teaches us how to analyze a case study.  

Employee Retention: The First 90 Days

Source: Small Biz Daily

Chip Cutter of the Wall Street Journal reports today on the work being conducted at several firms to reduce new employee turnover, particularly among hourly workers.  Cutter writes:

Hold on to an employee for three months, executives and human-resources specialists say, and that person is more likely to remain employed longer-term, which they define as anywhere from a year on in today’s high-turnover environment. That has led manufacturing companies, restaurants, hotel operators and others to roll out special bonuses, stepped-up training and new programs to prevent new hires from quitting in their first three months on the job.

Cutter reports that many firms have retooled their onboarding, training, and feedback processes to focus on reducing "quick quits" - i.e., employee departures during those first ninety days.  Employers have come to understand that it takes roughly three months for new employees to build a comfortable, steady work routine.  Employers are working hard to set clear expectations, as well as to establish short-term goals for each employee.   Then, they are keeping in close touch with those employees to measure progress, listen to concerns, and provide feedback.   Firms are also providing their front-line supervisors with critical tips for how to help smooth that transition for new employees, often based on extensive research on employee retention at the companies.  The payoff is clear for these firms: employee turnover is extremely costly, particularly in this era of worker shortages.  

Of course, I'm quite sure firms need to tread carefully with these efforts.  Sometimes, a new employee is simply not a good fit.   Trying desperately to hold onto that person might, in fact, be a case of the sunk cost effect (throwing good money and effort after bad).  Determining how to let certain people walk away because they aren't likely to be engaged, satisfied, and productive team members is a key capability that firms must develop as well.  

Effective Leaders Share the Spotlight

Source: whodoyoulead.com

Some leaders love to bask in the spotlight, taking credit for all that goes well in their organizations.  They spend a great deal of time polishing their image and trying to make sure others recognize their successes. Others work hard to share the credit.  They are not afraid to ask for help, and then they express gratitude publicly to those who helped them achieve key goals.  We would like to believe that the latter type of leader is more effective in the long run.   A recent study, thankfully, confirms that conventional wisdom.  Research by Harvard Business School scholars Yuan Zou and Ethan Rouen demonstrates that leaders thrive when they engage and include their team members, and their firms benefit as well.  The study is particularly interesting because of its methodology.  They used earnings conference calls to evaluate CEO behavior.  Here is an excerpt from an HBS Working Knowledge profile regarding this research: 

Using transcripts from earnings conference calls held by Standard & Poor’s 1500 companies, the researchers looked for managers who turned to colleagues for input. Conference calls, the researchers say, are likely to offer insights into interactions between managers and team members that might be difficult to gauge any other way.  Combing through data that included 10,673 managers and 2,316 firms from 2010 to 2019, the researchers examined the characteristics of managers who include others, how their behavior shaped their career trajectories and team cohesion, and how promoting these managers affected companies.

Managers calling on other team members during earnings calls over the span of a year were 4.9 percent more likely to be promoted than managers who didn’t call on other team members in that same timeframe. Managers who called on multiple colleagues in a year were 11 percent more likely to be promoted than those who made no calls.  “We found that if a manager is more inclusive, that person is more likely to be promoted to CEO within the next year, and twice as likely to be promoted than the average manager in our sample,” says Zou.  Including others also boosted retention, according to the research. Employees working with a CEO willing to share credit were significantly less likely to leave the firm the following year.  The team found that female managers were 4.9 percent more likely and older managers were 0.6 percent more likely to call on colleagues than were male and younger managers.

The willingness to engage colleagues in the boardroom appears to also pay dividends in the stock market. Firms with CEOs who made a habit of calling on colleagues had higher three-day market-adjusted returns than firms with less inclusive leaders, the researchers say, providing “economically meaningful evidence that investors value inclusive CEOs.”  When a company exchanged a less inclusive CEO for one who brings others into conversations, the firm’s value increased the year after. Naming an inclusive CEO increased a company’s average three-day return by 0.8 percent. This is likely because these managers retain staff, which may result in increased operating efficiency and innovation, Zou says, and markets seem to quickly reward these trends.

The Wrong Way to Interview Customers

Source: Kaizenco

Consultant Katelyn Bourgoin recently posted an insightful Twitter thread highlighting the five key mistakes that market researchers make when interviewing customers.  Here are her five common errors to avoid:

1. Asking people what they want:  Don't ask them what product or service they desire.  They typically won't be able to invent a new product for you.   Ask them instead about the pain points they are experiencing with existing products and services.  Dig deep to understand their frustrations and any workarounds they may currently employ.  Then build on that to develop a solution to the customers' problems.

2.  Asking people about future behavior:  Customers often cannot predict their future actions accurately.  Therefore, avoid asking them what they might do in the future. Focus on what they are doing currently.  

3. Relying too much on opinions:  Focus on actual behaviors rather than viewpoints.  Remember that people often don't do what they say they do.  They say one thing and do another in many instances.

4.  Talking to the wrong people:  You often get more valuable information from actual consumers rather than people who you think may use your product or service in the future.   Be careful about the conclusions you draw from people in your desired target market who may have not ever purchased your product or service (or even a competitor's product or service). 

5.  Talking to people at the wrong time:  Talking to people who may have purchased your product several years ago may be problematic.  Memories fade over time.  The best timing occurs when you interview people who have recently purchased from you or a rival, or perhaps even better, are currently in the midst of their research/purchasing/usage journey.