United Airlines analysis
Organization: United Airlines
Name: ___________________
HELPS
Help No.1: The price of jet fuel is on a decreasing trend due to the weakening of the dollar in light of the current financial crisis affecting the United States.
Justification:
According to the Air Transportation Association (ATA), fuel is an airline’s second largest expense. Since fuel makes up a significant portion of an airline’s total costs, a decrease in the price of this primary input becomes an opportunity for United Airlines to save on operational cost. This is true especially in its short-haul flights in which planes consume more fuel due to their constant take-offs compared to planes who handle long-haul flights.
Help No. 2: After the 9/11 crisis, there is increasing demand in airline travel. However due to current capacity shortages in airports this limits the entry of new competition.
Justification:
This entry barrier limits the entry and expansion of low-cost carriers. In this situation market leaders such as United Airlines have the opportunity to be the only key players in the market without the intrusion of low-budget airlines who cannot afford to overcome the entry barrier. In other words, this limits the competition.
Help No. 3: Change in US administration in the following weeks which could have a positive impact on the national economy.
Justification:
It is usually the case that the US economy improves based on the optimism in having a newly elected government sit in office, whether the new President is Democrat or Republican. It is a historic trend that could have a beneficial effect on the economy thereby improving market opportunities for United Airlines.
Help No. 4: Advancement of new technologies in selling flight tickets.
Justification:
Since buying tickets nowadays has become as easy as paying for a movie ticket, this could have a very positive impact on United Airlines in terms of saving on ticket production costs and eliminating the need for the infrastructure needed to facilitate the selling of tickets (like ticket booths). The current technology saves both time and money for the airline and the traveler.
HURTS
Hurt No.1: There is an emergence of airline alliances and other partnerships which could hurt major market players like United Airlines.
Justification:
Although in the short-term the effect of these alliances may be beneficial, the longer-term effects of these alliances may be exclusionary. This ultimately forces some unaffiliated U.S. airlines out of international markets by diverting their feed traffic and weakening their overall route structure to the detriment of domestic competition.
Hurt No. 2: There is still the problem of congestion and delays caused by the inefficient provision of airway and airport capacity.
Justification:
The situation above affects not only the on-time performance of airlines, but also the routes airlines, the schedule and design of airline networks, and the types of equipment used. For a major player like United Airlines which caters to almost 12% of the entire US market, this could prove to be a big headache.
Hurt No.3: Current high cost of credit wherein banks even refuse to lend.
Justification:
The high cost of credit would affect significantly United Airlines ability to pay for its labor cost. Labor cost comprises the largest chunk of operational cost in the airline industry. This refers to salaries and bonuses paid to flight attendants, pilots and other airline employees.
Hurt No: 4: In May 2008, the American Customer Satisfaction Index scored United Airlines last among US-based airlines in customer satisfaction with a 21% decrease since the study began in 1994 and an 11% decrease over the previous year.
Justification:
With this low rating, this potentially hurts United Airlines translating into loss of sales. If a key market player is rated very low in customer satisfaction surveys, this represents the low regard of consumers of the services provided by the airline. In this case, it is like a death sentence foir United Airlines if it does not improve and act on customer complaints.
References:
1. http://www.iata.org/whatwedo/economics/fuel_monitor/price_development.htm
2. http://www.investopedia.com/features/industryhandbook/airline.asp
3. http://www.reuters.com/article/pressRelease/idUS66487+11-Feb-2008+BW20080211
