Presentation of Strategy Audit Findings of United Airlines
ContentsAbstract………………………………………………………………………………….3
Value proposition……………………………………………………………….…….…4
Market position………………………………………………………………….………4
Competitive advantage………………………………………………………….………5
Current environment and Assessment of external factors applying five forces…….…..6
Strategic issues………………………………………………………………..…….……8
Summary/key findings and recommendations…………………………………..………9
References …....................................................................................................................11
Abstract
United Airlines is one of the largest airline corporations in the United States and among the most major airlines globally. The history of United dates back to the beginning of the aviation evolution. United’s mainline fleet of aircraft consists of both wide body and narrow body airplanes. The average age of the mainline fleet of the organization is thirteen years. Also the United Express fleet consists of two hundred and ninety-two aircraft (Forty, 1997). Approximately forty percent of the capacity of United is deployed in various international markets, and sixty percent of her markets are dedicated to domestic markets. Also, United has employed over forty thousand people in different capacities. United also regularly earns its income from catering services, cargo services, and enterprise owned hotels. The purpose of this paper is to highlight the five porter’s methodology that will highlight the factors affecting the organization, the implications of the activities, the recommendations that the organization can use to improve its overall reputation, revenues, and sustainability.
Value proposition
The value proposition of any company is highly significant when the aspect of its strategy is considered. It is one of the primary elements of its strategic triangle. The key factor in the value proposition of United Airlines is that the organization offers a simplistic and complete product at a very consumer friendly price for any traveler. This element might be a different commodity and the price point for a family of four visiting a particular area. There are several segments in the airline markets, however; the recognition of the importance of quality to their customers is one of the objectives of the company.
In the United States, each type of airline differs from their price concerning their budget, elasticity, their desire for flexibility and control over their purchase framework The business model of United Airlines is offering a consumer-friendly, high-quality commodity. Several passengers have made assumptions that all airlines offer similar experiences and a similar type of service. These clients have made several decisions during their purchases based on the pricing of the product. It is highly significant that the airline industry articulates the challenges and differences between the various products offered. The Airlines Company has started utilizing customer messaging frameworks and has become dedicated to educating their clients concerning the services and products provided. Providing good pieces of advice to customers may double as excellent marketing.
Market Position
The only market where the Airlines Company has a significant leadership position is in San Francisco and Houston. However, its dominance does not approach those of American and Delta Airlines in their top hubs. Additionally, the market share of United in these areas is slowly eroding due to the growth of Virgin America and Southwest Airlines respectively. The lower market share of United in their hub markets originates from its strategic decision to locate its hubs within the top business travel markets. The primary objective here is to acquire a competitive advantage in bidding for contracts from corporate entities. So far, this benefit has been outweighed by the high competition levels in every individual market. United has performed better than expected in their second quarter earnings assessment (Doganis, 2002).
This report provided much impetus for this lift. The organization has also posted a fifty-one percent increase in the adjusted earnings per share in their last quarter and also have created a reliable forecast for their next their quarter. This result was a huge achievement, considering that the profit margin of United has been highly dormant compared to those of American and Delta by five to six percentage points in the recent assessments. If this organization is highly similar to American or Delta, then it might have been easy for the organization to close their deficits in their profit margins. However, there are numerous significant structural variations between United Airlines and these other two network organizations.
Competitive Advantage
Another differentiation aspect is the competition the airline corporations face within their top hub markets. Delta has completely dominated air travel within its top hub markets. It has superior control in Detroit, Minneapolis, and Atlanta. This statement is also true for American Airlines as it has superior dominance in Dallas, Charlotte, Denver and Washington D.C. Rogers, (2010) stated that by contrast, United Airlines has much greater competition in most of its important hubs. For example, Chicago is its largest market concerning the daily departures where it challenges for a portion of the market share from the sizeable hub of American Airlines. It has also faced stiff competition in Los Angeles and New York.
The airline industry has a fierce competitive element. In recent years, the United States airline sector has been steadily growing. This trend may continue in the future as may provide an opportunity for the organization to strengthen its carrier network and also their financial position. This framework would enable them to gain a competitive advantage over their rivals. United can indeed become a leader in the airline industry through the use of effective strategies that capitalize on components such as growth combined with the acquisition of new fuel-efficient planes and also the merger with Continental Airlines. This merger has also enabled them to gain a competitive advantage.
The international market is highly competitive especially in the Asian region where United Airlines has more capacity compared to American or Delta. In the Asian region, the profitability of the enterprise has been damaged by the rapid development and growth of the various airlines especially Chinese carriers. These airline firms aim to develop a foothold strategically in the U. S market. Several routes are currently being contested by the competitors whose primary objective is market share and short-term profits; this element is one of the reasons why the profit margins of United Airlines are highly lower than those of their rivals (Clark, 2016).
Current Environment and Assessment of External Factors
Analysis of United Airlines using the Porter’s Five Forces methodology is highly relevant in evaluating the external environment where the United Airlines operate. The airline industry has been regularly met with numerous challenges from several external elements such as increased operating expenses, a decline in passenger traffic, high fuel prices and greater maintenance and landing costs. The power of the suppliers in the airline sector is great since there are three critical inputs that all airline corporations, including United, need regarding labor, aircraft, and fuel. These elements are all affected by the external environment. For example, the aviation fuel cost is highly subject to fluctuations in the worldwide market for oil.
Labor is also subject to the power of airline unions that bargain and acquire reasonable and expensive concessions from the airline. United Airlines need aircraft on an outright sale basis. This necessity means that the carriers must depend on the Boeing and the Airbus aircraft for their needs. This is an essential element in the supplying power of retailers concerning the three significant inputs (Ireland, Hoskisson, and Hitt, 2005).
Due to numerous instances of the proliferation of tickets and also the distribution system, the organization, their customers no longer have to suffer at the hands of incompetent agents and their intermediates for their tickets. Also, the tight regulation policies imposed by the government have safeguarded all stakeholders of the organization. These factors relinquish the dominance of the enterprise to the clients and therefore, the power of the buyers becomes high as per the five forces framework.
United Airlines is not completely under threat from complementarities and substitutes unlike those located in developing nations. In this area, the consumer does not take the bus or train for their journeys. In some of these developing nations, flying is a natural phenomenon for users and therefore, the substitutes concerning the bus and the train is minimal in their effect. United Airlines face stiff competition from other industries due to factors such as entry of low-cost carriers and stringent regulations scheme. Here, the safety of the organization becomes necessary, and these elements lead to increased operating expenses, and the fact that the United Airlines works following a business model, that is slightly outdated especially during situations of rapid turnovers.
Strategic Issues
The largest bases of United Airlines such as San Francisco and Houston give it dominance in markets such as Latin America, China, and Europe. However, several investors have been affected by the situational defect of the domestic revenues and therefore, United has to improve their overall performance especially in their Chicago base and manage the various exposures to the ultra-competitive markets in Dallas. In Dallas, the rival airlines have added significant capacities and have influenced the gained connecting passengers with low prices on ticket fares.
Heavy reliance on third party providers
Hoffman and Bateson, (2016) stated that the heavy reliance on third party providers for the organization has heavily been influenced by the third party vendors. Several of the operations of the company such as customer call service centers, aircraft maintenance and repairs and other critical services that should be integral aspects of the business have been outsourced to various third party members. The heavy dependence on external vendors has reduced the revenues and increased expenses of the airlines corporation.
Also, when United enters into agreements with the suppliers, they do not directly control them. If one or several providers fail in performing their jobs, most of these losses incurred will fall under United Airlines Company. They may also be affected by a bad reputation and also delays in flight schedules. Also not controlling their third party vendors results in security or safety breaches inside the corporation. Breaches such as the terrorist attack that occurred on September 11 would have destroyed the reputation of the company, and this may also result in bankruptcy or a buyout by another better rival airline.
Customer Service
Frequent customers have stated that the employees of the company are less likely to assist their counterparts at other large airlines. Half of the workforce of the airline has attended to customers in a polite way, but the other halves have shown resentful sentiments towards their clients.
Canceled flights and delays
Last year the time performance of the organization trailed its largest peers by a significant margin. In early 2015, the organization canceled several flights on their United Express regional brand which is operated by other airline corporations.
Technology glitches
Since the merger with Continental Airlines, the organization has suffered significant damages in their operations such as widespread outages that have led to numerous instances of delayed or canceled flights.
Summary/Key Findings and Recommendations
United Airlines has been continuously performing below the market and industry average for the past decade. However, new cost-effective frameworks and also numerous other strategies implemented during the last few years have begun showing the benefits. The revenue of the organization has slowly increased from2004 to 2008.The economic conditions have allowed the revenues of the Airlines during 2009. The company can use cost reduction measures such as reduction in employees, accurate fuel hedging and the elimination of the pension plan of the workers will return the organization to profitability. Last year, United Airlines relieved around nine thousand workers. By releasing these workers, the company saved seventy-three million dollars in severance payments.
The company can also acquire new fuel efficient aircraft. This strategy would remove elements of differentiation between United Airlines and its competitors as the age of the fleet will be reduced from twelve to eight years. The benefit of this strategy is that it will develop cost leadership benefits for the corporation. This fuel efficient aircraft will actually reduce carbon emissions and fuel costs compared with the aircraft they will replace. Also, the lifetime costs of repairing and maintaining these aircraft will be forty percent lower per available seat mile compares with these current aircraft they will replace (Zack, 2009).
References
Clark, P. (2016). Stormy Skies: Airlines in Crisis. Routledge
Doganis, R. (2002). Flying Off Course: Economics of International Airlines. Psychology Press
Forty, S. (1997). United Airlines. Plymouth Press
Hoffman, K. D. & Bateson, J. E. G. (2016). Services Marketing: Concepts, Strategies, & Cases. Cengage Learning
Ireland, R. D. Hoskisson, R. & Hitt, M. (2005). Understanding Business Strategy: Concepts and Cases. Cengage Learning
Rogers, E. M. (2010). Diffusion of Innovations, 4th Edition. Simon and Schuster
Zack, M. H. (2009). Knowledge and Strategy. Routledge