United Airlines: Strategic Marketing Analysis

Executive Summary

United Airlines has gone through several mergers, alliances and acquisitions since its establishment in 1926. These events have been interpreted to mean a marketing strategy that they have supported with the traditional market researches through administration of in-flight questionnaires to acquire primary data from their customers.

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The objective of this research paper is to establish the importance of secondary marketing research through the analysis of United Airlines marketing strategies, spearheaded by series of mergers, alliances and acquisitions ever the since its inception. It also launches strategic analysis of primary data information source that most firms like United Airlines rely on, to establish their strategic marketing plans in an effort to gain competitive advantages. The methodology applied is basically extensive sourcing of the available secondary sources. I first sourced for the data base of United Airline plus other competitors’ to compare the marketing concepts they use. The search continued with other available online sources including online academic journals and blogs then completed by search on published (print) materials like books, marketing journals, and newspaper articles to get the actual information and analysis of individual marketing scholars. The key findings reveal that secondary sources offer important sources of data that may not be revealed by primary research. United Airlines’ rapid successive mergers and acquisitions ever since have been used to position itself more widely in the global market, a strategy that is termed as marketing strategy. This strategy however, has not succeeded as the company went through a series of problems ranging from bankruptcy status (due to huge losses) to employees’ union strikes. A competitor’s strategies can reliably be found in the secondary data at more easier, faster, cost-effective, and wider perspective than primary data. Furthermore secondary sources of information offer critical support to primary data as observed in United Airline marketing strategy analysis.

Introduction

United Airline, founded in Boise, Idaho in 1926, is the oldest commercial airline in the United States, a claim attributed to Walter Varney’s Varney Airlines that specialized in airline services (Davies, 1998). Its change of name from Varney to United Aircraft and Transport Corp (UATC) in 1929 was as a result of acquisition by the Boeing Holdings (United Airlines, 2009). Its increased capacity in 1930 warranted the company to start passenger flights and the same year acquired the National Air Transport Inc, an airline carrier based in Chicago (Davies, 1998). It was in 1931 that UATC formed a corporation United Air Lines Inca, that was aimed at managing the subsidiaries of UATC Airline (United Airlines, 2009).

In later years, the airline expanded into a national carrier that plied its flights between West and East along the transcontinental route of City of New York- Chicago- Salt Lake City- San Francisco, then to the South and North along the West Coast (Zallocco, Scotton & Jeresko, 1983). Its merger with other airlines continued in earnest in the successive years, with the notable deal being the merger with Capital Airlines, which made it the largest commercial Airline in the World and managed to cover all the routes in the whole of United States (United Airlines, 2009). However, the economic turmoil as a result of the 1978 Airline Deregulation Act of 1978 worsened by the labor unrest caught up with the company and led to losses and the greatest employee turnover ever seen in the History of Airline industry (Sandon, 2006). The marketing partnership with Delta Airlines in 1998 saw the two companies sharing of lounges, reciprocal redemption program between SkyMiles and Mileage Plus (Davies, 1998).

These numerous mergers were aimed at asserting United Airlines’ presence in an extensive manner, a plan arguably agreed to have played a major role in the airlines’ plans for their survival. According to many airline executives, having a global reach appears more appealing in every airline’s strategic plan, attributed to the revenue factor rather than cost factor for their passengers and other clients (Zallocco, Scotton & Jeresko, 1983). This is arguably the reason for major mergers and alliance between the airline companies, and no doubt the main beneficial drive that prompted the United Airlines continuous mergers and acquisitions. The then American Airline Chief Executive Carty aptly said, “The biggest opportunity is not in the cost line, it is in the revenue line” (Rein, 2009).

So it’s clear that the strategic marketing core value for the airlines is in the alliances, mergers and acquisitions. This is backed by past researches, which intimate that most of the airlines co-operative arrangements by the airlines have been related to marketing and improvement of product offering rather than enhancing efficiency or even cost reduction in the production (McDaniel, Gates & Woodman, 1997). The alliance between United Airlines and Star was described as a “relationship of marketing partners” and other described it as the strategic marketing alliance (Kleymann &Seristö, 2004). This paper outlines a critical analyses and discussion of the marketing motives for mergers, acquisition and alliances at United Airlines, their roles in the marketing structures in relation to brand management, risks and problems this marketing strategy through the secondary data analysis.

Research Methods and procedures

The research focused on the secondary data that relates to the issues of marketing within United Airlines. The search was on United Airlines’ data base together with the data bases of other Airlines which proclaimed alliances, mergers and acquisitions to be part of their strategic marketing portfolios. I followed this with the research on the available secondary information (both electronic and hardcopy materials) about the Airline Industry analysis that entailed the academic journals, books, published newspaper articles. This was meant to get adequate information I needed to complete an intensive analysis of the topic in question; mergers, alliances and acquisitions’ impact on marketing strategies of United Airlines.

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Data Analysis and Findings

The May 2000 announcement by the United Airlines to acquire its competitor US Airways at a value of $11.6 billion in was seemed a complex deal was resisted by many stakeholders, especially the employees and the consumer groups (Kleymann& Seristö, 2004). United Airlines cancelled the deal after meeting resistance from the regulatory sentiments, just before the Department of Justice ruled against the merger on the grounds of antitrust arrangements (USA Today, 2009). The same period was also marred by contract dispute between the company and its employee pilots, represented by the pilot’s union (USA Today, 2006). This was as a result of the disagreement on the company’s plan of cashing on the busy summer period through offering more flights to the holiday destinations than before (U.S. Department of Transportation, 2009). So the pilots were to fly overtime, an arrangement that was utterly rejected by majority of them, prompting the airline management to cancel most of the plans and closing even most of its routes by reducing the number of flights (Rein, 2009).

United Airline hugely cashed on the dot.com boom that offered a big boost to their premium traffic West coast of Francisco (Sandon, 2006). However, the boom was only to be temporary as the company could not keep up with increased cost of operation that was worsened by the salary hike of 28% to its pilots, dwindling network due to waning dot.com hype, the September 11 attack, and the astronomical rise in oil prices (Rein, 2009). All these events contributed to the loss of $2.14 billion in the financial year of 2001/2002 from a revenue base of $16.14 billion. With no loan approval from the government, the company resorted to chapter 11 bankruptcy protections (Rein, 2009).

United Airlines continued to operate under their bankruptcy status, despite cutting costs to the lowest level, leading to laying-off of many employees, closing its branch offices (Ovide, 2008). Furthermore, the reduction in their flight had reduced significantly from 557 to 460 fleets even before the September 11 terrorist attack (Kleymann & Seristö, 2004). The company was forced to hike its fare on their international flights in 2004 and 2005, and on the other hand cancelled local flight capacity by massive 14% to reduce operation costs (Ovide, 2008). The worst of all events came when the company controversially cancelled its pension plan, touted as the largest of such default the history corporate America, an event that forced management to renegotiate its contracts with the pilots’ and mechanics’ unions and the Association of Flight Attendants to accept pay cut, but the Chief Executive Officer got unprecedented criticism over this renegotiation plans from employees, accusing him of taking home the highest salary of any major United States airline chief executive (USA Today,n2006).

Earlier research on strategic alliances that involved most manufacturing firms has identified two categories of the objective for alliances as project objective and knowledge objectives (Zallocco, Scotton, & Jeresko, 1983). Product objectives involve either two goals; product enhancement or cost reduction, while knowledge objective involve goals of learning new technology from a partner.

However, many researchers argue that the objectives of alliances of firms can be categorized into 3 sections: market-defensive, market offensive and efficiency- seeking objectives (Zallocco, Scotton & Jeresko, 1983). They concur that the main objective for alliances in the airline industry is largely to enhance the value of services to the customers and value enhancement that can either be offensive or defensive. The larger airlines seek market power to enhance values for customers by pursuing larger network coverage, higher frequencies, more extensive loyalty programs, and dominance of hub airports. Medium- sized and small airline carriers appears to be more defensive; by being more interested in market coverage rather than market power in an effort to counter the power of larger carriers. However, Davies (1998) states that airlines “are not marketing even if they think they are. Consumers, for the most part, choosing based on where their frequent flyer miles are (that they collect through their jobs) and price. The typical leisure traveler these days is checking online via Orbitz or Expedia for price and schedules.” The why do airlines spend a lot of resources in advertisement?

Last year, 2008, an infamous incident occurred at O’Hare airport in Chicago, which has since damaged the airlines reputation. Rein (2009) narrates, “Dave Carroll, a guitarist was seated in a window seat of a United Airline plane when he watched with surprise baggage handlers hurling his guitar cases through the air. He alerted the flight attendants; who responded with indifference and failed to take any action. When the plane landed in Nebraska, he found out that his instrument had been destroyed. His long months of complain to the airline got no genuine response, and he decided to write a song, ‘United Breaks Guitars’. He performed the song in several events and worse still, posted it on YouTube, where it reportedly got viewed by three million people within the first 10 days alone”. Another incident that got posted on several blogs was about a United Airline flight attendant who refused to assist an elderly passenger tow his luggage. The problem got worse on her return trip when the plane stayed on the tarmac for more than three hours and was later cancelled till the next day due to fuel leak (Rein, 2009).

According to research findings done by McDaniel, Gates & Woodman (1997), it was reported that “today’s customer service in the airline industry relies heavily on reputation and trustworthiness, and that this is no less true in the new form of system service”. In essence, consumers are keener on the services offered in terms of safety, trustworthiness, care, and elimination or minimization of risks that are essentially connected to the customer care (McDaniel, Gates & Woodman, 1997). It is almost certain that the two incidences have made the Airline Company more vulnerable in this cut-throat competitive industry that has been marred by high cost of operation and recession complexity.

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Have United Airlines achieved this feat? Considering the above cases that have hyped their negative publicity, the answer is a definite NO.

Surveys in Marketing Research

In many marketing research projects applied by the United Airlines, they have faced several procedural intricacies due to their global presence; which means distributing hundreds of thousands of questionnaires with over nine different languages to people traveling to their destinations of over 40 countries (Kleymann & Seristö, 2004). On their questionnaires, passengers are asked to fill questionnaires that entail questions related to customer satisfaction in across the board services. The outcome data from the surveys are used by the management as part of their strategic planning procedure, product positioning, and target marketing after looking into their competitive performance (Kleymann & Seristö, 2004).

Why does United Airline value marketing surveys?

In a research that was done in 2004, at least 126 million Americans have been interviewed at some point in their lives and that about 7 million Americans get interviewed every year in the United States, an equivalent of over 15 minutes pre adult per year. According to McDaniel, Gates, & Woodman (1997), surveys have become a popular way of collecting data due to very many reasons namely:

  • The need to know why- in marketing there is a critical reason to know why people do or do not do a particular thing. For instance United Airline needed to know why their competitors like Stellar Airlines are doing better in certain areas like customer satisfaction and brand loyalty. What made travelers prefer the competitor to us? What influenced their choice? This helps to develop some ideas of causal forces behind success or failure,
  • The need to know how- the company is bale to know some specific steps that the customers take before purchasing a product. How did they decide to make such decisions? Where was that decision made and at what time period? What are they planning to do next?
  • The need to know who- the researcher is bale to know who the person is from the demographic or lifestyle perspective, some information on age, occupation, income, marital status, family life stage, education and many other factors that may influence choice in a particular market segment (McDaniel, Gates, & Woodman, 1997).

However, some of these surveys have faced significant challenges like complex logistics and survey errors that lead to biased results. The United Airlines have got it wrong in several occasions due to their global nature; which means getting a fairer marketing strategy for all its customers across globe despite the obvious diversity in business culture and beliefs.

This is why many of the marketing experts insist the brand loyalty matters in the modern airline business than anything else. Kleymann & Seristö (2004) state that “winning companies such as Apple go beyond customer satisfaction and create true brand loyalty through their caring and trustworthy customer care executive and flight attendants”, thus the emphasis on good customer care. It is elaborated that loyal customers will not only spend more, but are likely to become “brand ambassadors and bring along other customers”. It’s also said that an employee of a firm is its no.1 ambassador for marketing (Rein S, 2009). Unsatisfied staff means terrible customer service, as reflected by the two incidences illustrated above (Sandon, 2006). Does this sound a bell to United Airlines? Historically, the company has had the worst moment with its employees; ranging from strike of workers (pilots) to cutting of wages and withdrawal of pension schemes.

Conclusion and Recommendations

Despite the fact that traditional market researches still hold dear in terms information retrieval, it is always important to try out the modern unconventional marketing research strategies that will give true picture of the customer feelings and brand preference, one such area is analyzing the available secondary data (Sandon, 2006). Secondary data give the information on what the competitors do in practicality rather than theoretically. For instance, it is through secondary data that the researcher would know that United Airlines does not value customer care, brand loyalty development and their competitors’ marketing strategies (Rein, 2009). Secondary data (through blogs, academic journals, and many more online materials) are rich source of information that would not only report the actual feelings of people, and is likely to give support to primary data.

Limitations

Despite its importance in terms of quick and vast source of information, secondary data is short of originality. Some information that still exists may lack authenticity; especially the online sources therefore give unreliable information. Unreliable data is as useless as no data at all. Again some of the information that are published may be stale or out of date, hence may render the process of research more difficult. Furthermore, many resources are bought online, a far reach for a student with no institutional funding for a research.

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Reference List

  1. Davies, R.E.G., Airlines of the United States since 1914, 1998, Smithsonian Institution Press, p. 75
  2. Kleymann, B., & Seristö, H. (2004). Marketing research essentials, Chicago, Chicago University Press.
  3. Ovide, S., (2008). Single Web Hit Led to UAL Glitch, Tribune Says. Wall StreetJournal. Web.
  4. Rein S., (2009). United Airlines Show How Not To Run Your Business, Fobes Magazine, Web.
  5. Sandon A. (2006). Strategic Marketing or Marketing in Aviation? Articlebase, Free online Dictionary.
  6. Sorkin, R., & Bailey, J., (2006). United and Continental Discussing Possible Merger. New York Times.
  7. United Airlines, (2009). United History: Era 1: 1910-1925.
  8. USA Today, (2004). United’s bankruptcy tab: $335 million-plus in fees.
  9. USA Today,(2006) “Workers took pay cut while others got rich,” 1995.
  10. U.S. Department of Transportation, (2009). Enforcement and Proceedings, Aviation Consumer Protection Division.
  11. Zallocco, R., Scotton, D., & Jeresko, D., (1983). Strategic Market Planning in the Commercial Airline Industry. Journal of the Academy of Marketing Science, Vol. 11, No. 4, 404-416.
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