United Airlines
Case 4
Business Strategies
Anna Hassanova
Pauliina Andersson
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Introduction and Background
This case is about United Airlines of America which is nowadays the second largest
airline company but it wasn’t always keeping its leading position. United Airlines was
founded in 1929, when William E. Boeing (1881–1956), Frederick B. Rentschler (1887–
1956), and their associates founded United Aircraft Transport Corporation, a mixture of
both aircraft manufacturing and air transport. By 1930 it had acquired four mail carriersBoeing Air Transport, Pacific Air Transport, Varney Airlines and National Air Transport.
At this time it pioneered a new route from San Francisco to New York They also
developed the busiest road between Chicago and New York As a result Chicago’s
O’Hare Airport became United’s home base.
They made huge progress by acquiring Pan America’s Pacific Ocean routes and aircraft
and placed it as a major carrier to the Far East.
United States Post Office decided to experiment by delivering mail by airplanes in 1910’s.
The post-war economic boom that swept the United States included a strong demand for
air travel. President William A. Patterson responded by expanding United's workforce,
acquiring new routes and purchasing United's first jet aircraft.
In 1970, United posted a $46 million net loss, a massive turnaround from the $45 million
profit it reported the previous year. Airline observers cited various causes, including
higher costs, lower fares and a flattened market.
Between 1970-1989 management changes were made and with this came new directions
and a new image. United changed it’s logo and made a new design and color scheme in
its employee’s uniforms.
By the time they got to the 21st century United Airlines started to face financial problems.
The first big problem began around the same time when 9/11 happened. There has been
discussion that was this an effect of 9/11 or did it start already before it.
In the first six months of 2001 before the terrorist attack United had a pretax loss of
1 051 000 000$ and a net loss of 678 000 000$. During the period between 2001-2002
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United experienced a net loss of over 10 billion. This lead to the company’s bankruptcy
and was related to losses, directly focused on cash availability and flow.
On a quick view United’s cash balance seems impressive with 2 700 000 000$ in the
bank account. But unfortunately the company was losing 2-5 million dollars per day and
reducing the cash balance to less than 800 000 000$.
External Analysis
General Environment
Even after the crucial situation of bankruptcy the CEO and chairman of United Airlines
(Glen F. Tilton) tried to keep the company alive. He wanted to notify everyone that UAL
will continue to fly during the busy holiday season and he wanted to minimize all
cancellations from customers. Secondly he wanted to meet face to face all his employees
and to make clear that they will not lose their jobs. Last thing that he wanted to do was to
contact five important groups without the media interrupting. Those five groups were the
flying public, stockholders, suppliers to United, Wall Street and United creditors and
United’s partners. In 1958 two airplanes collided with each other killing 128 people and
this lead to the creation of Federal Aviation Administration with its primary purpose to
increase safety and traffic control. This lead to a so called naturally competitive
environment and later on the Congress passed the Airline restriction Act which eliminates
restrictions and control of routes and fares.
Competitor and Industry Environment
In the 1980’s and 1990’s competition increased between existing airlines and this
motivated new airlines to enter: People Express, ValuJet, Jet Blue, AirTran, America
West, South West Airlines and others. They were similar to the old existing airlines but
had lower operating costs and offered highly discounted fares. Due to the low fares
people started to fly more and it lead for the industry to grow twice as much as the
economy grew at that time. Strong competition made older airlines demise, such as Pan
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American, Braniff, Eastern and Transworld. UAL had the resources to buy new aircraft
which could cost up to 250 000 000$. This gave them an advantage in the market to gain
more customers because customers prefer to fly with new aircraft (e.g. safety issues):
new aircraft had a wide body, fly-by-wire controls, quieter engines, improved fuel
economy and upgraded passenger features (in-seat video, phones, high technology seats).
Porter’s Five Forces
Competitive Force
Magnitude of Force
Conclusion
Intensity of Rivalry
Strong
There are a lot of
competitors in airline
industry.
Supplier Power
Strong
Suppliers have power
because aircraft is
expensive to produce.
Buyer Power
Fairly weak
Customers will pay what is
needed for their tickets. Not
much bargaining power.
Threat of Substitutes
Weak
In airline industry not much
substitutes, mostly due to its
quickness.
Threat of New Entrants
Quite Strong
When looking at the amount
of competitors it seems to
be strong.
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SWOT Analysis
Strengths

Loyalty of employees

Capital for buying aircrafts

Strong Background

Reputation

Second largest airline company worldwide

Uniqueness among the major domestic airlines ( more than 55% is employee
owned)

Mail and cargo delivery and passengers ( wide range of fields of operation)

Highly discounted fares ( brings more customers)

Good service

New strategy ( Hub and Spoke)
Weaknesses

Money control ( when they started to sell tickets threw internet they couldn’t keep
the costs in control)

Other financial problems

Almost bankrupted

Cutting salaries, which lead to conflicts between employees

Employees never got industry-leading wages

Strict work rules ( “no sneaking in line”) and customers became unsatisfied
Opportunities

They can diversify

Improve aircraft technology

Develop new aircraft

Expanding the company to another country

Weaknesses of competitors
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Threats

Competitors¨

Terrorist attacks

Bankruptcy

New innovations

Political factors (e.g. war)

Environmental (e.g. storms, hurricanes etc.)

IT-Technology (replacing pilots with computers)
Internal Environment
The company’s core competencies are cheap prices for quality service before, during and
after boarding. The company started to do better after they switched to a new strategy
called hub-and-spoke. So, to get to one place you have to make a stop in another
destination by changing a plane, before continuing your travel. This means that there is a
central hub through which all routes go from and of course this means more landings and
crew costs, but it seems that revenues go up.
They were having trouble in tangible resources (they didn’t have a stable capital) and
they were trying to avoid bankruptcy by taking on loans, which sometimes they got and
sometimes they didn’t. They were good in intangible resources for example when looking
at the fact that the employees were the biggest part of cash flow it must mean that they
were taken care of.
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Conclusion
United Airlines is a huge company which is doing well nowadays. It has good
possibilities in staying competitive and keeping the market. Still it has to be careful about
its financial issues. They have to avoid being in a crucial situation as they were earlier.
They have made a good decision by improving their aircraft which improves customers’
opinions about their company. They have to keep being innovative in this way since
competition is fierce in this industry. It is not an industry where substitute products are
available (at least not yet) so there are good chances to stay in the market.
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