JetBlue Valuation
Executive Summary
JetBlue was started in 1999 by David Neeleman, whose vision is to give high-quality and reliable flying experience in a budget airline. Through sophisticated technology, brand new aircrafts, impeccable customer service and low fares, JetBlue was on its way to achieve this vision. Although the low-fare travel industry was gaining momentum, the September 11 attack brought a massive downturn to the already-risky airline industry. However, JetBlue was still able to deliver good performance despite the circumstances. It offered the lowest cost per available-seat-mile of any major US airlines. In order to support JetBlue’s growth plan and offset portfolio losses by its venture-capital investors, JetBlue wished to raise capital through initial public offering (IPO). The purpose of this report is to determine the appropriate JetBlue’s IPO price given the available data.
The report begins with the issue of underpricing, explaining the importance selling IPO at a correct price in order to avoid “leaving too much money on the table”. Then an analysis on the advantages and disadvantages for JetBlue to go public is carried out. The advantages include being able to support its growth trajectory, offsetting portfolio losses by its venture-capital investors, boosting equity base, improving debt-equity ratio, increasing the company’s visibility and reputation, being able to access multiple markets, and providing way to boost employee morale through stock incentives. On the other hand, the disadvantages involved are massive compliance costs, the need to manage investor relation, the risk of putting the company under public scrutiny, enormous expenses incurred and dilution of ownership.
The report then proceeds to discuss the timing of JetBlue’s IPO. The timing is deemed to be appropriate because the budget airline industry was gaining momentum and there had been outstanding reviews from JetBlue’s customers as well as massive oversubscription for the IPO.
JetBlue was started in 1999 by David Neeleman, whose vision is to give high-quality and reliable flying experience in a budget airline. Through sophisticated technology, brand new aircrafts, impeccable customer service and low fares, JetBlue was on its way to achieve this vision. Although the low-fare travel industry was gaining momentum, the September 11 attack brought a massive downturn to the already-risky airline industry. However, JetBlue was still able to deliver good performance despite the circumstances. It offered the lowest cost per available-seat-mile of any major US airlines. In order to support JetBlue’s growth plan and offset portfolio losses by its venture-capital investors, JetBlue wished to raise capital through initial public offering (IPO). The purpose of this report is to determine the appropriate JetBlue’s IPO price given the available data.
The report begins with the issue of underpricing, explaining the importance selling IPO at a correct price in order to avoid “leaving too much money on the table”. Then an analysis on the advantages and disadvantages for JetBlue to go public is carried out. The advantages include being able to support its growth trajectory, offsetting portfolio losses by its venture-capital investors, boosting equity base, improving debt-equity ratio, increasing the company’s visibility and reputation, being able to access multiple markets, and providing way to boost employee morale through stock incentives. On the other hand, the disadvantages involved are massive compliance costs, the need to manage investor relation, the risk of putting the company under public scrutiny, enormous expenses incurred and dilution of ownership.
The report then proceeds to discuss the timing of JetBlue’s IPO. The timing is deemed to be appropriate because the budget airline industry was gaining momentum and there had been outstanding reviews from JetBlue’s customers as well as massive oversubscription for the IPO.