United Airlines Strategic Analysis Report

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Introduction

Strategies in business present companies with a defined plan of action, which allows them to gain a competitive advantage. All successful strategies must be centered around the question of what an organization has to do to win in its given market (MindToolsVideos, 2014). Every company willing to stay competitive in its industry has to rely on a well-developed strategy based on a thorough assessment of both the internal structure of the business and the external environment. Strategic planning constitutes a process of developing an appropriate set of tactics and establishing both short-term and long-term goals in order to follow the strategy. George et al. (2019) conducted a study and discovered that strategic planning positively affects the performance of organizations since it presents a process of assessing available options and choosing the best one. Thus, strategic planning is an important component of finding the most effective solutions for the future of any company.

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Strategic management implies utilizing the AFI strategic planning framework, which includes three basic tasks analyzing, formulating, and implementing. During the first stage, companies have to assess their external environment and internal capabilities to understand better their prospects of gaining and retaining a competitive advantage (Rothaermel, 2021). It also involves clearly defining the organization’s values and executives’ roles in establishing and attaining strategic goals. Secondly, the company must formulate its strategy at different levels, including business, corporate, and global ones (Rothaermel, 2021). This will help it decide how the business will compete, for example, by offering cheaper products, as well as where it will compete, both geographically and industry-wise. Finally, the implementation step is vital for developing a design for deploying the strategy and ensuring that it aligns with the company’s ethical standards and corporate governance principles. A strategic planning framework is an invaluable tool for achieving long-term success and sustained competitive advantage. It allows organizations to be constantly aware of the current situation in the market and thus be flexible in the face of changes.

United Airlines Internal Environment

VRIO Analysis Findings

United Airlines is one of the largest U.S. airlines, which flies to nearly two hundred domestic and international destinations. Using the VRIO analysis, several key resources and capabilities of the company were identified and assessed according to value, rarity, inimitability, and the organization’s ability to exploit them. United Airlines Star Alliance is one of the main sources of sustainable competitive advantage since it is a unique association of twenty-six airlines around the world that operate in 195 countries worldwide (Star Alliance flight search, n.d.). United Airlines is the only American company participating in the alliance, which makes this resource practically inimitable. MileagePlus presents another sustainable competitive advantage since it is a program developed and utilized only by United Airlines.

The company employs a considerable number of people who are held to the highest standard of corporate ethics and provided with thorough training. For example, in 2019, thirty thousand employees participated in the compassion training program (Economy, 2018). Yet, having a well-trained personnel is a necessity for all airlines, and this resource can be considered a competitive parity. Similarly, United Airlines’ mobile app, available for both iOS and Android, is an effective tool but one which is also quite popular in the industry (Wilson, 2019). Finally, United Airlines has a unique approach to cost management, which is not used by its competitors but is possible to imitate and thus constitutes a temporary competitive advantage.

The organization manages to effectively utilize its strengths to meet its strategic goals and retain its leading position in the airline industry, which is extremely competitive. The company offers tickets across different price ranges, including the economy and business, which provides an opportunity for achieving a larger number of customers. Nevertheless, United Airlines’ main strategy for the upcoming years is based on growth and focusing on business travelers (Baker, 2019). In 2019, the company stated that it would concentrate on two primary areas to ensure its future growth, namely cost control and customer investments.

United Airlines maintains cost control using a unique approach to cost management, which incorporates introducing a new design of economy seats and increasing their number, as well as reducing expenses associated with delays and cancellations. The company started using slimline seats, which significantly expanded the amount of space in airplanes, and according to the company, are expected to generate one billion dollars of benefit (United, 2016). The company realizes its strategic decision to provide better customer service by relying on one of its main strengths, Star Alliance membership. This gives its customers an opportunity to receive various benefits such as airport lounge access and priority status for boarding, airport check-ins, and baggage handling in twenty-six airlines worldwide (Benefits and privileges, n.d.).

Organizational Structure

The organizational structure of United Airlines and its management system design are effective and significantly contribute to the company’s success. United Airlines’ executive team consists of ten people, each of whom has a particular area of responsibility. Scott Kirby is the CEO of the company, while Bret J. Hart is president and controls important aspects of the business such as corporate communications, advertising, and government affairs. Other team members include chief customer, operations, communication, financial, and commercial offices, vice president of human resources and labor relations, heads of strategy and planning, and technology. This system of management ensures that every vital area of business has a competent person responsible for it.

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The evidence of the effectiveness of this leadership approach can be found in the company’s financial reports published every quarter of the year. According to the 2019 last quarter report, before the COVID-19 pandemic crisis, the management’s efforts allow United Airlines to reach the adjusted diluted earnings per share target ahead of schedule (United, 2020). The company also has a board of directors, members of which are tasked with overseeing the performance of the leadership team. There are also committees, for example, audit and compensation ones, which ensure that the company is managed effectively in every key area.

United Airlines External Environment

PESTEL Analysis Findings

United Airlines experiences a direct impact of external factors which significantly affect its operations and need to be analyzed in order to determine future strategic decisions. The PESTEL model helped identify the main factors of the company’s environment, which have to be taken into consideration (Rothaermel, 2021). The political factors include potential legislation, which can significantly limit the organization’s ability to freely utilize available space in its airplanes. The company previously lobbied against the adoption of new laws mandating a minimum size of seats and the right of family members to sit next to each other (Bass, 2017). These regulations can potentially increase the expenditures of the company and seriously undermine its efforts of achieving a strategic goal of efficient cost management.

The economic factors are among the most important ones in the airline industry since they pose a direct threat to companies’ financial stability. For example, economic crises can significantly contribute to a drop in demand due to the fact that people will have less money for traveling. Moreover, economic crises usually last over a prolonged period of time, which leads to situations when airline companies have to sell some of their airplanes and dismiss their staff so as not to enter bankruptcy. Additionally, fuel prices play a major role in airline companies’ process of setting fares for their services.

Sociocultural factors which United Airlines needs to consider are various controversial incidents associated with their brand and extraordinary events such as a pandemic. Previously, the company faced disturbing situations on board, including one when a passenger was removed from his seat by force due to the flight being overbooked (Zdanowicz, C. & Grinberg, 2018). Such incidents have a negative impact n the company’s image and may potentially lead to a loss of a considerable number of clients in the future. Another sociological problem airline companies have to always be prepared for are events such as the recent COVID-19 pandemic, which significantly reduced the demand for air travel.

Technological factors relevant in the case of United Airlines are the emergence of advanced solutions for improving customer experience and the interlocution of new airplanes to the market. Nowadays, clients expect airlines to provide them with a maximum level of comfort when they buy their tickets. Thus, companies have to always innovate in order to present technological solutions which can present them with a competitive advantage, for example, United Airlines can add unique features to their mobile app. Moreover, new airplanes also pose a challenge for airlines because they have to buy them in order to meet certain safety guidelines.

Ecological factors are currently among the most pressing issues facing airline companies, partially because they significantly contribute to the level of greenhouse gas emissions. Climate change is a serious challenge for both countries and businesses worldwide, and United Airlines has to develop solutions that would allow it to be more environmentally conscious. One of the possible ways is investing in research on green fuel, which can be utilized in the future to reduce the company’s impact on the environment.

Legal factors are closely associated with political ones because the governments are responsible for adopting laws that ultimately affect airline companies. Currently, there are many regulations that establish clear and necessary guidelines for airlines to follow, and often they interfere with the companies’ internal procedures. Moreover, due to the fact that United Airlines has international destinations, it must take into consideration all the local laws in foreign countries, which can be different compared to the domestic ones.

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Five Forces Analysis Findings

As was mentioned earlier, United Airlines competes in a challenging industry, which has to be analyzed in order to understand all the potential areas of growth. The Five Forces model is a reliable framework for assessing all key components of any given industry, which allows for defining a company’s strategic position (Rothaermel, 2021). The analysis demonstrated that the airline industry has low entry barriers since all the resources necessary for establishing an air carrier business can be easily purchased, which allows new companies to emerge every year. Moreover, the rivalry existing in the industry is extremely serious, as of 2020, in the U.S. alone, there were eighteen major airlines (Mazareanu, 2020).

Passengers also have significant bargaining power and leverage over airlines since there are usually several companies operating in the majority of destinations. Clients, especially those who value affordability, can easily choose to buy a ticket from a carrier that offers the lowest price. Moreover, suppliers similarly have a considerable bargaining factor because there are not many companies that provide solutions for airlines. For example, there are only two manufacturers of large airplanes used by United Airlines, Boeing, and Airbus (United Airlines fleet, n.d.). There is also a significant threat of substitutes since people in the U.S. can utilize alternatives such as cars, buses, and trains. Nevertheless, for international trips, airlines offer the best and the fastest options available to customers.

Recommendations on the Response to the Forces

Despite the fact that the air travel industry is an extremely competitive one, United Airlines manages to retain a good strategic position. This is evidenced by the fact that it is the fourth-largest airline in the world (Zhang, 2019). Nevertheless, there are still options it can explore in order to effectively respond to the five forces to gain a better position. For example, it can invest in innovative companies manufacturing large airplanes to disrupt the existing bargaining power of Boeing and Airbus. Additionally, United Airlines can develop a special software solution for analyzing the existing fares of its competitors in certain destinations to offer more attractive prices to its customers.

Alternatively, the company can introduce lower prices for customers who choose to stick with the company and frequently use its services. Moreover, United Airlines may open new destinations which are not covered by its competitors or have fares that can be reduced by the company. Another option available to the airline is providing customers with superior service and better amenities compared to other companies in the industry. Finally, United Airlines can attract new customers by investing in marketing and advertising in order to make people who never used the company’s services try it.

The Role of Leadership in the Strategic Planning Process

Leadership plays a major role in the process of strategic planning since executives often bear sole responsibility for the success and failure of the company they manage. Leaders have to both have enough competence to choose the most appropriate strategy and be able to successfully implement it in their organization. Moreover, top management must possess a strategic intent, and a desire to lead their companies to a position of being ahead of competitors, which will guide the business in setting short-term objectives (Hamel & Prahalad, 2005). Leaders have to be constantly aware of the competition in the industry and devise opportunities for gaining competitive advantages in the future. They cannot copy the practices and tactics of other businesses in the field and instead need to focus on developing their own vision for the company (Jabbar & Hussein, 2017). They also have to enable employees to adhere to their strategies and commit themselves to help the organization achieve its strategic goals.

Moreover, members of the top management have to possess an exemplary reputation and take into consideration the ethical aspects of strategic planning. The strategic proposals and decisions made by the company leaders have to be consistent with the ethical standards and not infringe upon customers’ rights and violate established laws. Integrity must become a central value for corporate leaders, especially during the process of strategic planning since it eventually defines the plan according to which the company will operate in the future.

Recommended Course of Action

Based on the conducted analysis of United Airlines, the company’s leadership can follow a course of action that involves providing better customer service, investing in new technologies, and ensuring environmental sustainability. The airline’s management has to implement a strategy that would be based on the idea of increasing the level of customer satisfaction. This will include training of the staff, better amenities for passengers, improved loyalty programs, and prioritizing ethics over the company’s benefit. Additionally, the company has to consider investing in companies and new technologies which develop products that can potentially disrupt the existing bargaining power of suppliers. Finally, United Airlines has to commit to gradually transitioning into a more environmentally-conscious company, for example, by utilizing fuel that produces fewer emissions. Thus, by following these recommendations, the airline’s leadership will be able to ensure that the company stays competitive in the future.

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References

Baker, M. B. (2019). United execs outline 2020 plans. Business Travel News. Web.

Bass, F. (201). United Airlines spent millions fighting proposals to protect passenger rights. MapLight. Web.

Benefits and privileges – Star Alliance flight search and destinations. (n.d.). Web.

Economy, P. (2018). United Airlines employees will now be required to take compassion training (Some say it’s about time). Inc. Web.

George, B., Walker, R. M., & Monster, J. (2019). Does strategic planning improve organizational performance? A meta‐analysis. Public Administration Review, 79(6), 810–819. Web.

Hamel, G., & Prahalad, C. K. (2005). Strategic intent. Harvard Business Review, 83(7/8), 148–161.

Jabbar, A. A., & Hussein, A. M. (2017). The role of leadership in strategic management. International Journal of Research – GRANTHAALAYAH, 5(5), 99–106. Web.

Mazareanu, E. (2020). Number of air carriers in the United States from 1995 to 2020. Statista. Web.

MindToolsVideos. (2014). What is strategy? [Video]. Web.

Rothaermel, F. (2021). Strategic management (5th ed.). McGraw-Hill.

Star Alliance flight search and destinations. (n.d.). Web.

United Airlines fleet & aircraft Information. (n.d.). Web.

United. (2016). United Airlines outlines value-driving initiatives. Web.

United. (2020). United Airlines reaches 2020 adjusted earnings per share target one year ahead of schedule. Web.

Wilson, B. (2019). Airlines with great mobile apps. TripSavvy. Web.

Zdanowicz, C., & Grinberg, E. (2018). Passenger dragged off overbooked United flight. CNN. Web.

Zhang, B. (2019). The 20 biggest airlines in the world, ranked. Business Insider. Web.

Appendix A

United Airlines VRIO Analysis

Resource or Capability Valuable Rare Inimitable Organized to Exploit Result
Star Alliance Yes Yes Yes Yes Sustainable competitive advantage
Highly-trained Staff Yes No No Yes Competitive parity
MileagePlus Program Yes Yes Yes Yes Sustainable competitive advantage
Cost management Yes Yes No Yes Temporary
competitive
advantage
Mobile App Yes No No Yes Competitive
parity

Appendix B

United Airlines PESTEL Analysis

Political Potential legislation concerning the protection of rights of airlines’ passengers
Economic Economic crises
Fuel Prices
Sociocultural Controversial incidents
Change in customer demand due to extraordinary events
Technological Online services
New airplanes
Ecological Climate change
Sustainable fuel solutions
Legal Laws of different countries

Appendix C

United Airlines Five Forces Analysis

Threat of new entrants Low barriers to entry
Bargaining power of buyers High bargaining power of clients due to intense competition
Bargaining power of suppliers High bargaining power of suppliers due to their limited number
Threat of substitute products or services Serious threat of substitutes domestically but a low one internationally
Rivalry among existing competitors Serious rivalry among the existing airlines, including Delta and Southwest Airlines

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