Presentation of Strategy Audit Findings of United Airlines
In the first module I choose to discuss the airline industry. This has been something that I am passionate about as well as have studied for the last 5 years. Using firsthand experience, management guidance and research on the web, I will continue this paper for the external environmental scan. As a potential future leader of the company, it is important to evaluate many factors of business to remain successful. Economic, geographical, technological, social, and political trends are all a concern when a leader of a successful business. This will be imperative to profiting from an industry that already has very low profit margins. Let’s get started.
First we are going to look at the current economic trends of the airlines as a whole. Reading the last document, we have established that the airlines are the first to show recession and the last the recover. Since the tragic day of September 11th the economic factors of the airlines has decided. Since then the aviation market has returned to a profitable business. There has been a 20% increase in domestic flight traffic since 2010. With over 87,000 flights a day air travel is the way to go. Although less than half of those fights are commercial, that equates to 1.73 million passengers a day. The economic trends have continued to claim and over the next 5 years aviation is projected an additional 27% increase. (Notis, 2015)
Political factors affect every profession. In the airlines it has been a problem. The biggest political issue that is facing the airlines today is Federal Aviation Regulation. In 2009 Colgan Air 3407 crashed killing all 50 people on board. The National Transportation Safety Board released a statement stated that it was pilot error due to inexperience. The FAA then changed pilot regulation from pilots needing 495 Hours of total flight time to 1500 hours to get in entry level position in the airlines. This has created a problem because 4 year graduating pilots only have about 300 hours. Every position requires more hours which makes it difficult for young pilots to join the airlines. With an increase in air travel and decrease in pilots due t regulation it has created a pilot shortage. Since September 11th there as been a further decrease in pilots as they were furloughed and found other positions. With changing politics and pilots from dessert storm ready to retire, political trends have created a major shortage over the next 5 years.
Currently regulation and political factors drive part of the societal trends. Do to the recession and change in regulation. There have been political changes. Due to low profit margins the attacks on the twin towers put commercial aviation into a tailspin. Not only has that but more recently, the Malaysia Airlines effected how people see air travel. Airlines have been merging to stay profitable and it really takes a huge toll of customer relations. The top 5 U.S. carriers are under the top 40 and the world. This is because most of the U.S. carriers have merged within the last 15 years and haven’t fully recovered from September 11th followed by the most recent recession (Staff, 2015). United is a perfect example of this. Their merger was in 2010 and now in 2016 they are finally producing a profit. Customer relations were not good landing them last in the U.S. market in social factors after the merger.
Since 2001 there have been some major upgrades that has made air travel safe and more comfortable. A prime example of this technology is the new Boeing 787. According to Boeing these planes are currently on back order for the next 5 years. These new aircrafts are a prime use of innovation and comfort. The new 787 planes are now equipped with Direct TV in each seat and on board Wi-Fi satisfying the needs of the customers. Now customers can stay connected where ever they go at 35,000ft in the air. These planes are also now able to be pressurized at a lower altitude allowing more passenger comfort. Lower pressurization allows the body to not work as hard adapting to the change in pressure eliminating jet lag. It has the ability pressurize the aircraft to the altitude of Denver which was not the case with older planes. These aircrafts are a reason that passengers have strong loyalty with companies that have the most of these aircraft. Unfortunately for some, the companies that didn’t believe in this $220 million technology now have to wait 6 years to get their hands on one. (Ausick, 2015)
Geographical treads play a huge part of the airlines. Currently United Airlines is the world’s largest in relations to destinations served. This isn’t an easy thing to do and stay profitable. There are daily evaluations on routes to make sure they are profitable. United Airlines runs constraint programming for analyzing routes in order to squeeze out every cent of profit out of each trip. Once a trip becomes unprofitable the route is then changed or canceled and picked up by a competitor.
Looking at Porter’s five forces with airlines being so large, there really isn’t a treat of new competition. The profit margins are so small that if anything companies are margin and going bankrupt. It will take too much money to enter the ring with larger competitors. Regulation has allowed smaller airlines to emerge which are great for low time pilots for getting their hours. Currently airlines can leverage their debts and assets to create major buying power. Although rivalry will keep prices down, destinations serviced will keep airlines apart. For the aviation industry, many things are changing. If nothing is done we may seem the next fall of the airlines.
Works CitedAusick, P. (2015, July 26). What Does Boeing 787 Dreamliner Cost? Retrieved March 28, 2016, from 24/7 Wall St: http://247wallst.com/aerospace-defense/2015/07/26/what-does-boeing-787-dreamliner-cost/
Naidu, R. (2016, March 31). Aviation flying high with domestic air traffic growth over 20%. Retrieved March 31, 2016, from Economic Times: http://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/aviation-flying-high-with-domestic-air-traffic-growth-over-20/articleshow/51624361.cms
Notis, K. (2015, November 12). Airline Travel Since 9/11. Retrieved March 28, 2016, from U.S. Department of Transportation: http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/special_reports_and_issue_briefs/issue_briefs/number_13/html/entire.html
Staff. (2015, July 20). These Are the Best Airlines in the U.S. Retrieved March 28, 2015, from Huffington Post: http://www.huffingtonpost.com/hoppercom/these-are-the-best-airlin_b_7833258.html
Bagbe, C. (2016, March 23). Interview of United Operations. (E. Speechley, Interviewer)
Staff. (2006). Encyclopedia. Retrieved March 23, 2016, from United Airlines: http://www.encyclopedia.com/topic/United_Air_Lines_Inc.aspx
United. (2016, March). Maps of Uniteds Hubs. Retrieved March 23, 2016, from United: https://www.united.com/CMS/en-US/travel/Pages/routemaps.aspx