Azul’s Execution of Developing High Potential Blue Oceans Spaces

Brazil’s Air Transportation Infrastructure and Its Implications For Azul
All airliners in Brazil face challenges in their domestic airports and air-traffic control infrastructures which need improvement. To improve Azul’s profitability and long term rate of return, Brazil is going to have to eventually upgrade these structures. Azul can form a coalition with other Brazilian airliners to help subsidize and push the government to improve Brazilian airports and air-traffic control infrastructure. This coalition needs to lobby hard for improvements, because it has a direct effect on all of their operations. For all Brazilian airliners, it will help raise margins, lower costs, and more importantly, improve safety. Because Azul seeks to compete with bus routes in smaller and mid-size towns, it is critical that small and localized airports have the appropriate infrastructure to accommodate Azul’s jets. For towns which were previously mainly accessed by buses and cars, a substantial amount of resources must be invested in the airports.

Mimic Southwest’s Best Practices
There are also other ways that Azul can access Blue Oceans like Southwest does. It can make sure it sticks to Southwest’s point-to-point routing throughout Brazil, and avoid using hubs. Neeleman can establish a brand personality. This can be done in a way that’s appropriate to Brazilian culture, but friendliness like Southwest’s is universal and would likely be a “hit.” It can keep costs down with a no- frills feature and service approach. Also, and less obvious to customers, is to “hawkishly” maintain low operational cost. This is absolutely vital margin maintenance.

Why Azul Will Succeed
Although we are in difficult economic times in the U.S. and Brazil, Azul has overcome financial and logistic challenges to begin operations. It has a solid business model and value proposition for its customers. But what is most compelling about Azul and David Neeleman is the fundamental Blue Ocean marketspaces which they seeking to create in the domestic Brazilian travel market. Just the creation alone should be enough for them to prosper; couple this with better macro-factors in the future, with even merely competent management, and Azul will be able to ride out this initial turbulence to become a leading Brazilian airliner.

JetBlue Founder Starts Azul in Brazil and Seeks Another Blue Ocean Airliner

Azul Like JetBlue – Seeks Blue Ocean Space
David Neeleman, founder of JetBlue Airways, has launched his fourth low-cost airline in Brazil, called Azul. According to The Wall Street Journal’s December 16th issue, it started service Monday with four jetliners and plans to acquire four more by next month. Azul is a lot like JetBlue; even its name means blue in Portuguese, and it offers low fares with two-by-two leather seats in all economy cabins. Planning for Azul began early this year with $150 million from investors in the U.S. and Brazil, and firm orders totaling $1.4 billion for 36 118-seat E-195 jetliners from Brazil’s Embraer. Azul’s competitors are TAM Linhas Aereas SA and Gol Linhas Aereas Inteligentes SA, which combined have a 90% share of the local market. Given this coverage already, it would seem that Azul is headed into a red ocean – but given their strategy, this is not true. As Neeleman did with JetBlue, he is creating Blue Ocean space, and moving away from Brazil’s current red ocean airlines marketspace.

Emulating Southwest’s Blue Ocean Strategy
Azul Airlines is seeking to create Blue Ocean marketspace by emulating Southwest’s Blue Ocean strategy. Azul is not attempting to compete directly for Brazil’s TAN and Gol Airlines’ customers. It’s emulating Southwest’s strategy of competing with the car and long distance buses in Brazil. For example, the bus ride from Campinas to Salvador de Bahia is 33 hours compared to a two-hour flight for 209 reals or $87. This is a classic Blue Ocean strategy of offering differentiation along the key dimension of time savings/speed of travel, while offering relatively low costs. It also is a Blue Ocean strategy by creating a new marketspace of travelers trading up performance with a slight shift in price.

Another Uncrowded Marketspace: Brazilians Who Don’t Travel
David Neeleman is creating a new dual marketspace by offering an affordable price point for air travel to Brazilians who don’t normally travel! Azul is enabling Brazilians to travel the country at low price points, thus creating a huge market which did not previously exist – and more importantly, creating a space which competitors will find hard to follow. While this is not a classic Blue Ocean strategy “create” factor, it accomplishes the same objective – competitors can not effectively follow them into this lowest price point space for air travel in Brazil. The essence of what Neeleman is doing with Azul is raising the speed dimension, while lowering the cost dimension for the Blue Ocean Strategy Value Canvas.

Dual Focus of Accessing Two Ripe Marketspaces
Azul is pursuing a dual focus to fully access both these marketspaces. They are both relatively close to each other in that they are low-cost-oriented. Neeleman has identified two types of buyers in Brazil’s domestic market. To synergize resources in a duality strategy, map the utility of both buyer profiles along key airline and industry offering dimensions. Azul should maximize resources along the dimensions which converge toward high feature/benefit desirability for both these types of customers.

Luxury–Goods Makers Coming Down Off Their Pricing Pedestal in Rocky Seas

Cut Prices For First Time In Recent Memory
“For the first time in recent memory, luxury-goods makers are cutting prices on designer apparel, shoes and handbags in the U.S. market,” according to the Nov. 14th, 2008 Wall Street Journal. This is in direct response to a shift in consumer spending habits even among the rich – who normally do not change consumption patterns even during economic downturns. According to the WSJ, “The cuts range from 8% to 10% on most products sold in U.S. from Chanel S.A. to Versace SpA, Christian Louboutin and Chloe.” These retailers are trying to “net” a critical mass of consumers in strategic groups that are looking to trade down price points.

Moving Down Price-Performance Grid
Shifting to move down the price-performance grid via lowering price is a partial Blue Ocean strategy. However, luxury-goods makers are not altering the performance, which is good news-bad news. The good news is that it does get more people to buy on a short-term basis, and really accomplishes the same thing as a sale. The bad news is that it’s not a complete or authentic Blue Ocean Strategy, because the competition can follow right along by lowering price too. These current luxury manufacturers are really slipping into a Red Ocean by lowering price and not changing the performance. It would seem to be a better value to consumers given a lower price even without changing the product – but as a luxury good, it’s also about perception and exclusivity. These two factors for luxury goods are usually more important than the actual product itself – especially for items such as clothes, bags, and perfumes.

The Lowing Price Red Ocean
These luxury-makers need to avoid Red Oceans at all costs, and maintain their product’s uniqueness – and in less crowded spaces. They should not pursue a mutually exclusive low-cost strategy without product changes – otherwise it’s not a strategy, but a sale! There is nothing wrong with lowering the product price, but these manufacturers should product features which have “stripped out” low utility features thereby reducing costs. Make the product different and less expensive!