United Airline Holdings: Tools Analysis

Industry Analysis

Michael Porters strategic model happens to be one of the most effective tools in the assessment of the various trends affecting industry competition and attractiveness (Godfrey, 2015). Thus, this particular model comes in handy in not only the identification, but also the analysis of the various competitive forces that have an impact on the industry. This would be a crucial tool in seeking to develop better understanding of the various forces that have an impact on the Airline industry. Such understanding could be instrumental in United Airline Holdings efforts to formulate better strategies and remain relevant in the hugely competitive market. The model, as its name suggests, comprises of five forces namely; competitive rivalry, supplier power, buyer power, threat of substitution, and threat of new entrants (Amason, 2011).

a) Competitive Rivalry

According to Amason (2011), competitive rivalry has got to do with the strength as well as number of rivals in a given industry. The airlines industry happens to be hugely competitive. This is more so the case given that all the major airlines compete in the very same markets i.e. owing to the fact that flight destinations are in most cases identical. This is in addition to making use of the very same airports. The main players in this industry also offer similar amenities and deploy similar pricing strategies. The other airlines against which United Airline Holdings competes are inclusive of, but they are not limited to; Delta Airlines, American Airlines, Southwest Airlines, etc. Other significant players, particularly at the global stage, are Lufthansa Group, Air France, IAG, and China Southern Airlines. There are also other multiple regional airlines, as well as numerous value carriers. All these players have the capability to undercut United Airline Holdings. Thus, to a large extent, United Airline Holdings has lesser power as an individual player.

b) Supplier Power

This relates to the ability of suppliers to drive up input costs (Amason, 2011). Essentially, fuel suppliers, labor suppliers, aircraft suppliers, as well as engine suppliers happen to be the major supplier groups in this particular industry. The clout they possess in the industry could be deemed huge owing to the fact that they happen to be highly concentrated. With this in mind, and given the need to ensure parts and systems compatibility, a company like United Airline Holdings has to contend with huge supplier switching costs.

c) Buyer Power

This relates to the power that customers/clients have to pile a downward pressure on prices (Amason, 2011). In the airline industry, customers have significant power. This is because they incur no significant cost of switching from one airline to another. Customers are also spoilt for choice following the growth in the popularity of online ticketing platforms meaning they have easy access to a wide range of airlines to choose from, i.e. following comparison of prices and services. This means that a company like United Airline Holdings has to be constantly aware of prevailing price levels even as it seeks to differentiate its services.

d) Threat of Substitution

Substitute products or services are those that customers could purchase and utilize in place of those offered by an enterprise (Amason, 2011). In this particular industry, there exists no substitute that could be deemed effective. This is more so the case in relation to long distance travel. The threat of substitutes is, thus, rather low. By extension, United Airline Holdings faces minimal threats from other travel modes such as rail or automobile travel.

e) Threat of New Entrants

This has got to do with how easily new players can set up operations in a given market (Amason, 2011). This particular industry has massive entry barriers, i.e. with regard to the acquisition of aircraft and skilled personnel. Further, there are numerous regulatory standards that have to be met and maintained. It therefore follows that the threat that United Airline Holdings faces from new entrants could be deemed rather minimal.

Competitive Analysis

Three of United Airline Holdings main competitors are Delta Airlines, American Airlines, and Southwest Airlines. In addition to operating in the same industry, the three Airlines also target the very same clientele and offer similar services. The most recent data from CSI Market (2021) indicates that American Airlines leads the pack with a 20.76% share of the market. The airline is followed by Delta Airlines which has 20.70% share of the market. The third player, Southwest Airlines, has a market share of 13.39%.

In as far as the market outlook is concerned, all players in the airline industry have been affected by the COVID-19

As nations from across the world sought to contain the spread of the virus, i.e. with the mandated lockdowns, most flight plans were cancelled. Thus, all companies have experienced decreased profitability over the last two years. However, as the world begins to open up following the easement of travel restrictions, the situation will likely improve. However, it may still take a while for profitability to go back to pre-pandemic levels due to the recession or downturn in economic activity triggered by the pandemic.

a) Delta Airlines

The airline presently operates in a total of 6 continents and serves at least 52 countries (Delta, 2022). Further, it flies to approximately 325 destinations. The company has 750 aircrafts in its fleet (Delta, 2022). The company has recently undertaken an upgrade of its cabin branding in an attempt to be more appealing to customers. Essentially, it offers three key products: business class (christened Delta One), premium economy (christened Premium Select), first class, economy class, and basic economy. Although the airline has a strong brand image, the prices of its offerings happen to be rather igh in comparison to value carriers such as Southwest Airlines. Thus, it may be unable to withstand significant downturn in economic activity, where customer disposable income goes down and they are forced to...

…power of consumers. All businesses, including airlines, are likely to be impacted as consumers seek to scale down spending.

b) Regulation

The airline industry happens to be amongst the most heavily regulated industries. This is more so the case given the need to ensure the safety of passengers, crew, as well as persons on the ground. Further, following the September 11 terror attacks, various regulatory agencies have been focused on ensuring that a repeat of the same does not take place. Thus, there is always the possibility of introduction of new regulations which could positively or negatively impact players.

c) Political instability

Various geopolitical events could make it impossible for airlines to operate key routes. A good example is the developing situation in Ukraine which could affect flights in the region.

d) Terror threats

Given that the September 11 terror attacks were largely successful in the eyes of terrorists, there is a possibility that they could deploy the very same approach in their future attacks. This is a threat that players in the industry must always be cognizant of.

e) Competition

This happens to be a rather competitive industry. This is particularly the case given that there are multiple players targeting the very same clientele and offering similar services.

External factor Analysis (EFE)

Key External Factors

Weight

Rating

Weighted Score

Opportunities

1. Global expansion

2. New products and services

3. Technology advancements

4. Strategic alliances

EFE Table

Explainer

In this case, a weight was allocated in line with the relevance of the external factor. I then sought to find out how effectively United Airline Holdings is positioned to respond to the external factors identified. This was done via the assignment of the relevant ratings. To get the weighted score, I multiplied each rating with the weight.

Conclusion

It the final analysis, it should be noted that the discussion above clearly indicates that to be able to implement strategies that further enhance its ability to compete in an increasingly competitive global marketplace, United Airline Holdings ought to be aware of not only its internal, but also its external environment. This is more so the case when it comes to understanding the industrys sources of competition, competitor strengths and weaknesses, external influences that could impact its operations, etc. More specifically, the discussion indicates that the airline industry happens to be rather competitive. It also indicates that buyers/customers possess significant power. Each of the competitors also possesses unique strengths that United Airline Holdings ought to be aware of. A comparison of the company with its competitors in the industry (i.e. via CPM) indicates that relative to its three competitors, it has a number of strengths and weaknesses. On this front, it should seek to further enhance its customer retention strategies and embrace a low cost strategy. The latter finding is further supported by threat posed by global recession (i.e. as highlighted by the EFE score). United Airline Holdings external environment analysis also indicates that its interests would be best served by seeking to integrate technology in various operational…