ValuJet’s growth in the early fall of 1995 was impressive, and Lewis Jordan – the company’s president and chief operating officer – wondered about the next step to consider to sustain the company’s remarkable performance. Launched in October 1993, the company had shown consistent profitability since its second month of full operations. Now ValuJet is ranked third in financial strength among global airlines despite being relatively young. Its rapid growth resulted from a working strategy that included providing a simple and inexpensive service, employing a motivated and productive workforce, defining productivity-oriented corporate culture, utilizing an integrated automation system, taking advantage of inexpensive resource costs, and distributing services directly to customers.
The company used several innovations to achieve its strategy, with the most notable being ticketless (or electronic) traveling. Ticketless travel reduced the company’s operational costs by eradicating traditional revenue accounting functions and some direct and indirect costs, including ticket handling expenses. Labor management and the exclusive use of second-hand McDonnel Douglas DC-9-30 aircraft also allowed the company to achieve further cost savings.
The company’s cost savings had gone so far that the company was unwilling to cater to some specific expenses that most other airlines used to pay. For example, ValuJet required its pilots to pay the DC-9 training fee which ranged between $8,500 and $9,500. Additionally, the airline embraced an efficient route structure, designating Atlanta as its “focus city.” Notably, the company selected its destination cities using a simple and basic approach. It considered the city’s population and distance.
The ideal destination had a population of at least one million people and was 750 miles from Atlanta. Its overall strategy was to produce the lowest costs within the industry, and this strategy had worked impressively, facilitating the company’s fast and unprecedented expansion. Indeed, in its first year of operation, the company announced that it expected $142,000 in operating profits but posted $22 million when the year ended.
The first year’s impressive performance led the company to add Dulles Airport in Washington as its second focus city. It then commenced non-stop operation in 11 local cities and one international destination (from Washington to Montreal). The airline also decided to fly non-stop between Atlanta and Boston. By late 1995, ValuJet was in 26 airports in the United States, with 105 and 27 departures from Atlanta and Dulles, respectively, but had ceased Montreal flights.
The rapid expansion meant that the company had to originate another aircraft strategy, especially because the supply of its preferred used models was shrinking significantly towards the end of 1995. Given the rising purchase price of the McDonnell Douglas DC-9-30 aircraft, the company was toying with the idea of acquiring 50 new McDonnel Douglas MD-95 aircraft at $1 billion, with delivery scheduled to begin in 1999. The company’s CEO considered the long-term implication of such a purchase while noting that it was still possible to acquire second-hand planes.