Case Study #2: Travel and United Airlines
Drew Deas, Maia Fawcett, Belinda Flores, Matt Gilbert, Julie Hemann, and Nataly Hernandez,
Graham School of Management, Saint Xavier University
MGMT 590: Strategic Management
Prof. Faisal Rahman
March 30, 2023
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Current Status of the Company
United Airlines (NASDAQ: UAL), led by CEO Scott Kirby, reported net income of $737 million
for FY 2022 (United Airlines, 2023). The company operates out of three main hubs (Denver, O’Hare, and
Houston) and continues to expand its operations with the recent purchase of one hundred Boeing 787
Dreamliners, including options to purchase one hundred more. United will soon offer flights to three new
cities: Malaga, Spain; Stockholm, Sweden; and Dubai, United Arab Emirates. This expansion will bring
their total number of flights to Europe, Africa, India and the Middle East to 37, more than all other US
carriers combined.
With the entire airline industry recovering from Covid-related disruptions, United is grappling
with rising costs and shrinking margins. Comparing their FY 2022 results to their last “normal” year of
earnings in 2019, United’s operating revenue has fully recovered ($45B in ‘22 vs. $43B in ‘19) while
operating expenses have grown thanks to a 46.5% increase in the cost of fuel (United Airlines, 2023).
Additionally, interest expenses and materials costs have risen substantially, leaving United with a diluted
earnings per share of $2.23 in 2022, compared to $11.58 in 2019.
Overall, the firm continues to rebound and plan for growth in the face of rising costs and
geopolitical headwinds, but the prospects for increasing future profitability are dwindling, given rising
cost of inputs such as fuel, labor, and materials.
Sector Analysis /Effects of COVID-19 on the Travel Industry
The impact of COVD-19 on the world economy cannot be understated, but as governments across
the world began to close their borders and local lock-downs and shelter-in-place orders were announced,
the travel industry came to a screeching halt. No one could predict the events that occurred in Spring of
2020. As the world was facing a global pandemic unlike any in modern times, the travel industry
certainly had no playbook to reference.
On an international basis, the COVID-19 pandemic hit hard – impacting a wide range of
industries in the travel sector. “According to the latest UNWTO World Tourism Barometer, the collapse
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in international travel represents an estimated loss of USD 1.3 trillion in export revenues - more than 11
times the loss recorded during the 2009 global economic crisis. The crisis has put between 100 and 120
million direct tourism jobs at risk, many of them in small and medium-sized enterprises. ‘While much
has been made in making safe international travel a possibility, we are aware that the crisis is far from
over.’ Due to the evolving nature of the pandemic, many countries are now reintroducing stricter travel
restrictions. These include mandatory testing, quarantines and in some cases a complete closure of
borders, all weighing on the resumption of
international travel. At the same time, the
gradual rollout of a COVID-19 vaccine is
expected to help restore consumer confidence,
contribute to the easing travel restrictions and
slowly normalize travel during the year ahead.”
(United Nations World Tourism Organization,
2021)
On the domestic front, the US airlines were facing some harsh realities as well. Many began
dropping flights in mid-March and soon the number
of passengers drops by the end of may as stay at
home orders are issued. Clearly, the COVID-19
pandemic had a wide range of drastic world-wide
effects on the travel industry.
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Sector Analysis / Effects of War on Travel
The impact of the war on the world has been damaging, especially when it comes to
traveling. According to agency data provided to NPR, domestic tourism, which the agency
defines as leaving your home city for leisure, increased 24% between 2019 and 2021. Nearly 4.2
million foreign tourists visited Ukraine in 2021, a 30% jump over the previous year. Trips into
Ukraine by international tourists are down between 85% and 90%, says Oleskiv. Tour operators
in safer areas of Ukraine reported to
the government that occupancy rates
are down 50% this summer compared
to last. She says tourism in places such
as Odesa and other parts of southern
Ukraine closer to the front line of the conflict has "stopped completely."
War does decrease in tourism because when they stop all flights going into the country
due to precautions and the countries limit what countries can visit during the war. Hotels suffer
massive losses due to cancellations of bookings and pull outs of visitors who are already staying
in the hotels.
Competitor analysis
We know that many people largely avoided flying during the pandemic, but we can see how the
airlines carriers stacked up by looking at the breakdown of the leading US domestic airlines and their
market shares. We will be doing a United Airlines competitor analysis with American Airlines, Southwest
Airlines, Delta Airlines, and JetBlue Airways. We can start by looking at the percentage of US airlines
market shares by domestic flights. United being 12.9%, falling behind American being 19.5%, Southwest
being 17.4%, Delta being 16.3% and we will look at JetBlue with a market share of 5.3% (McCain, 2002)
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Company:
Southwest Airlines Co.
CEO:
Gary Kelly
Founders:
Herb Kelleher and Rollin King
Year founded: 1967 (as Air Southwest) and
1971 (as Southwest Airlines)
Headquarters: Love Field Drive, Dallas, Texas
Employees:
62,333 people
Destinations: 121 destinations in the US and
10 other countries.
Fuel Used:
286 million gallons.
Revenue:
$23.8 billion (2022)
Strengths
● LUV culture – Southwest has mastered
the art of bringing the customer into
their family and earning the customer’s
loyalty.
● They have a “low fare calendar” where
passengers can book flight tickets as low
as $45.
● Effective management from financial to
human resources, from the top to middle
levels increases stability making it one
of the best in the industry.
● Southwest operates over 4,000 flights
per day and is very competitive.
Weaknesses
● Lack of diversification and relies on a
single source of revenue. Any issues that
hinder tourism or travel can impact
revenue.
● Dependent on the US market and not
enough international and long-distance
flights available.
● Over dependence on Boeing 737s
Opportunities
● Expand globally and continue to grow
to be able to serve all markets.
● Improve the booking process with ways
to expand e-payments options for its
customers.
● Exploit new technologies to speed up
the security process.
● Expand cargo business into the growing
global logistics market.
Threats
● The global economy is about to enter a
recession and it will impact the airline
●
●
●
by decreasing the purchasing power of
the people.
Boeing 737 Max issues can affect the
revenue with negative impacts on the
customer choice to fly with them.
Increase in fuel prices threatens
Southwest’s profitability and
sustainability due to higher operating
costs.
Global warming has increased and
natural disasters such as storms and
tornadoes can disrupt airlines’
operations. Also, with FAA stringent
regulations and inspections.
Company:
American Airlines Group, Inc
CEO:
Robert Isom
Founder:
Charles Lindbergh
Year founded: 1930
Headquarters: Fort Worth, Texas
Employees:
127,000 people
Destinations: 269 domestic destinations and
92 international destinations in 48 countries
Fuel Used:
1 billion gallons.
Revenue:
$49 billion (2022)
Strengths
● Global destination – offers 117
international destinations and 234
domestic destinations in 59 countries
across the world. Deals with 500,000
passengers daily and 200 million
annually.
● Strong brand image over the years like
providing so many amenities increase
the satisfaction level of customers.
● Loyal customers because of all the
programs offered to retain their
customers.
● Market leader of 19.3% as the airline
with the leading role in the domestic
market.
Weaknesses
● Tech issues regarding the pilot
scheduling system left a bad reputation
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between the Allied Pilot Association and
the airlines.
● Claims of discrimination have left an
impact on the brand image.
● Financial decline during the pandemic
has put some stress on the business.
Opportunities
● Expansion by adding more destinations
and countries to its list.
● Offer HDTV into their entertainment
services.
● Adding more loyalty programs to keep
customers and bring new ones,
Threats
● Global warming has increased and
natural disasters such as storms and
tornadoes can disrupt airlines’
operations.
● Fuel prices and international politics can
cause the disruption of fuel supply.
● Lower fare airlines and a lot of
competition in the airline industry.
● The Russia-Ukraine war has financially
made the airline suffer due to this war
because it has had to suspend operations
to Russia.
Company:
Delta Airlines, Inc
CEO:
Ed Bastian
Founder:
C.E. Woolman
Year founded: 1929
Headquarters: Atlanta, Georgia
Employees:
83,000
Destinations: 325
Fuel Used:
3.9 billion gallons
Revenue:
$50.58 billion (2022)
Strengths
● Strong revenue trends: 2022- $50.58B
up 69% YOY, 2021- $29.89B up 75%
YOY.
● Known for excellence in passenger
experience, customer service, and
workplace culture.
● Strong rewards programs to grow
customer loyalty.
● Reasonable pricing versus competitors
with a better experience.
●
Large financial investments into their
planes and paying down long-term debt.
Weaknesses
● Higher pricing than most airlines.
● High luggage fees for checked bags.
● Lack of direct communication to
passengers.
● Bad publicity around the industry that
has caused lack of trust in airlines.
Opportunities
● Finding new and better ways to relay
information such as flight delays and
boarding procedures.
● Keeping prices reasonable versus other
airlines that advertise lower prices.
● Building value in passenger experience
to justify higher prices.
Threats
● Lower priced airlines that offer the
same/similar services for much lower
prices.
● Global Relations and Politics.
● Surging prices for jet fuel.
● Safety and wellbeing of passengers.
Company:
JetBlue Airways
CEO:
Robin Hayes
Founder:
David Neeleman
Year founded: 1998
Headquarters: Queens, NY
Employees:
22,000
Destinations: 104
Fuel Used:
696 million gallons
Revenue:
$9.15 billion (2022)
Strengths
● Offer free WIFI gate to gate.
● Voted the most legroom space by
travelers in 2021.
● Free live TV and brand-name snacks at
every seat.
● Much lower prices than large
competitors.
Weaknesses
● Lack of destinations versus 3 largest
airlines (typically ⅓ of total
destinations).
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●
Much lower margins than competitors
with similar costs.
● Was titled “Worst Performing US
Airline Carrier” by the Wall Street
Journal.
● Ranked outside the top 5 in almost every
category for extreme delays and 2 hour
tarmac delays.
Opportunities
● Increase margins by dialing back some
perks that other airlines don’t offer.
● They do not do a good enough job
building value in their brand.
●
Increase prices to ensure financial
stability.
Threats
● Large competitors that simply do the
passenger experience better.
● Lack of destinations and very little
international presence.
● Buyout potential from competition.
● Bankruptcy
● Diminishing pool of commercial pilots
and increase of demand.
Effect of Covid-19 on the Company
The early days of the COVID-19 pandemic hit hard for all airlines. United Airlines was no
exception. The airline was suffering financially from government shutdowns, closed borders and stay at
home orders as nations grappled with the response to the deadly spread of the virus. United Airlines, like
other carriers across the globe, had to ground planes and furlough crews. Profits immediately were
down. “United Airlines on Tuesday said it lost $1.63 billion during the second quarter, driven by a
plunge in air travel demand because of the coronavirus pandemic. During the same quarter last year, it
posted a $1.05 billion profit” (Josephs, 2020) The financial outlook was bleak for the most airlines. How
were they able to sustain in this economy?
An October, 2021 Forbes Article Describes United Airlines using a theory called the “Flexible
Stance” to stay viable during the COVID-19 pandemic. “The flexible stance is built on humility about
our ability to predict the future. That humility is especially warranted in the Covid-19 pandemic. United
CEO Scott Kirby is quoted saying, ‘We’re not going to pretend we know what demand will be.’ “United
took action at likely choke points before bottlenecks arose. Pilots would be hard to quickly return to
service. A pilot needs three takeoffs, landings and approaches in the last 90 days or will lose qualification
to fly. Pilots who have been idle for 90 to 180 days need ground school, simulator training plus a check
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flight. And after 180 days, they train as if they were just starting. United’s response was to rehire pilots
and flight instructors well ahead of the economic rebound. This required a cash outlay for wages, but gave
the company flexibility. Many other jobs did not require such substantial retraining, so workers were
called back only as needed.” (Conerly, 2021) The flexible stance concept may have saved United
Airlines millions in revenues.
United was innovative in their approach to the pandemic. “United executives in the summer of
2020 assembled the ‘bounce back team’ representing the airline’s operations, network planning, finance,
labor relations, IT, safety and several other divisions, say United executives involved in the effort. Senior
leaders told executives who had focused on shrinking the airline to turn their attention toward how to
rebuild. Many had never worked together or met before starting their regular virtual meetings. Over the
course of that summer, their focus turned from predicting when demand would return to putting pieces in
place so United could be prepared whenever it did, thinking through pitfalls that could trip up its eventual
recovery.” (Sider, 2021) When United Airlines stopped trying to predict the pandemic and began to
focus on the “flexible stance” – the ability to pivot quickly and make decisions in the short term.
Employing this flexible stance for United airlines during the COVID pandemic was an excellent business
strategy and enabled the airlines to focus quickly on the unpredictable issues that came up during the
pandemic.
Company Positioning for the Future
The general employment situation is still strong, and shoppers are still spending despite ongoing
inflation. A forthcoming recession is becoming less and less plausible in the near future. The majority of
CEOs in the tourism sector are incredibly upbeat and are now moving into 2019 with an eye toward
potential for further development rather than recuperation. The largest purchase placed by a U.S. airline in
commercial flight history will add up to 200 widebody aircraft to its fleet, which will make it bigger and
stronger than it used to be. United anticipates receiving 700 new aircraft in total by the year 2032, with an
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output of more than two per week in 2023 and more than three per week in 2024. As the top U.S. airline
across the Atlantic and Pacific, adding widebody aircraft enables everyone to give passengers even more
options across our worldwide network. It is anticipated that the airline's older, smaller mainline planes
and at least 200 of its regional jets would be replaced, which will increase fuel economy overall. In order
to get closer to the objective of becoming completely green by 2050, the new widebody aircraft are
anticipated to emit less carbon dioxide than the older planes they will replace.
Segmentation, targeting, and positioning make up United Airlines' positioning strategy. A
specialized niche strategy is being used by United Airlines. At the moment, it is concentrating on business
class travelers. In an effort to draw in its target demographic, United Airlines emphasizes that it offers
almost everything business travelers desire. The five typical placement techniques include:
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Strategic approach for customer service.
●
Positioning approach based on practicality.
●
A strategy ensures based on price.
●
A method is as follows based on quality.
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Differentiating oneself.
The first airline to pledge to reach net zero GHG emissions by 2050 without using conventional
carbon offsets like forest management or volunteer offsets was United. Also, by 2035, we want to cut our
coal consumption by 50% compared to 2019. On the strength of solid passenger interest and rising
optimism about the carrier's future long- and medium-term prospects, United Airlines is looking for
50,000 new employees over the next five years, including 11,000 new staff this year alone. In order to
secure those employment, United declared on Tuesday that it will work with OneTen, a partnership of top
CEOs and their businesses that aims to create opportunities. The personnel is required to fly and maintain
new aircraft as well as the new routes that airlines may arrange. Scott Kirby is interested in expanding but
he doesn't want to risk operational dependability in the process. He will need to hire additional staff after
replacing the ones he fired due to the epidemic. Moreover, United notes that it is the only significant
American airline to have its own flying school. The Aviate Academy, which was just recently established,
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is now teaching its inaugural class of pilots, 80% of whom are either women or persons of color. By
2030, the academy hopes to have trained around 5,000 new pilots, at nearly half of them should be
women or ethnic minorities. The future of United Airlines and travel sounds quite determined to complete
the task at hand and be successful in their long-term goals. It is our goal to develop as a business and
make travel considerably easier, quicker, and smoother. Future initiatives aim to benefit both the
employees and the passengers simultaneously. There are objectives for employees to have better access to
resources, to make their jobs simpler, and for customers to choose and remain with United Airlines. But
most importantly give more opportunities as a workforce as well.
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References
Conerly, B. (2021, October 27). How United Airlines Used The Flexible Stance In The Pandemic.
Forbes.com: https://www.forbes.com/sites/billconerly/2021/10/27/how-united-airlines-used-theflexible-stance-in-the-pandemic/?sh=5e925a0d343f
Curran, Andrew (2022). United Airlines Aims to Add 50,000 Employees in 5 Years. Simple Flying.
https://simpleflying.com/united-airlines-aims-to-add-50000-employees-in-5-years/.
Baldanza, Ben (2022). Four Initiatives That Have Changed United Airlines' Flight Plan. Forbes
Magazine.
Josephs, L. (2020, July 21). United Airlines loses $1.6 billion in second quarter but expects to further
lower cash burn. CNBC.COM: https://www.cnbc.com/2020/07/21/coronavirus-pushes-unitedairlines-ual-to-a-1point6-billion-loss-in-second-quarter.html
McCain, Abby (2022, May 9). 20 American Airlines Statistics: Passengers, Revenue, and Facts. Zippia.
Retrieved March 28, 2023 from https://www.zippia.com/advice/american-airlines-statistics/
Sider, A. (2021, October 21). What Happened When United Stopped Trying to Predict the Pandemic.
Wall Street Journal: https://www.wsj.com/articles/united-airlines-predicting-covid-travel-flying11634751129
Statista Research Department (2023). Leading Airlines in the US by Domestic Market Share 2021.
Statista. Retrieved March 28, 2023 from: https://www.statista.com/statistics/250577/domesticmarket-share-of-leading-us-airlines/
United Nations World Tourism Organization (2021). 2020: Worst year in tourism history.
https://www.unwto.org/news/2020-worst-year-in-tourism-history-with-1-billion-fewerinternational-arrivals
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United Airlines (2023). United Airlines fourth-quarter and full-year financial results.
https://www.united.com/en/us/newsroom/announcements/cision-125254