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We’ve all heard the economic arguments about outsourcing—the good, the bad and the ugly ones. A most compelling point is that outsourcing is a deflation phenomenon. It’s all about cutting costs which lead to lower prices, not to mention lower wages.
But JetBlue is proving a counter-argument—that the real forces behind deflation are technology, innovation and domestic market competition, not just globalization and lower costs of production overseas. Witness the new JetBlue flights between New York and Boston. JetBlue has bought 100 of the new Embraer jets that fly shorter routes with about 100 passengers.
The new jet planes and engines by GE allow JetBlue to cut the one-way ticket price to $25 for tickets bought by this Thursday. After that, the flights will cost between $40 to $120. This pushed American Airlines to begin offering $25 tickets on the same route. Delta introduced a $40 fare.
It may also be that excess liquidity—available capital—is a factor. JetBlue was able to easily raise the money to buy the 100 new short-haul jets. This added capacity, plus JetBlue’s reputation as a great consumer experience, knocked down prices.
Companies are under the gun for outsourcing. The reality of the global marketplace is far more complicated.
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