United Airlines Case Analysis
BSAD 449 – Professor Muss
May 9, 2006
by
Renee Graham, Tamar Ferguson, Hope Halberg
Jessica Powers, and Laura Rickard
Summary Overview
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• Introduction
• Industry Analysis
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• Company Analysis
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• Competition
• Problems
• Recommendations
• Conclusion
General Environment and Trends
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• Demographic
• Sociocultural
• Economic
• Technological
• Political/Legal
• Global
General Environment and Trends
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• Industry
– Low-Margin
– Capital-intensive
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• Cost components
– Labor
– Fuel Costs
• Unions
• Price Competition
General Environment and Trends
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• Techonology-
• Internet
• Decrease of customer
loyalty
• Global Trends
•
•
-1992 Strategic
alliance with Air
Canada
-1997 Star Alliance
General Environment and Trends
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• Sociocultural Trends-
•
•
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-September 11, 2001
- United Airlines
Response
• Political/ Legal
• -1978 Deregulation
• -Air Transportation
Safety and System
Stabilization Act
•
-Emergency Aid
Loans
General Environment and Trends
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• Opportunities for continued success
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• The deregulation act of
1978
• Market size
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• The point-to-point
system
• Hub-and-spoke system
• Alliances
• Rolling hub system
PORTERS
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Porters Model
JET BLUE
SOUTHWEST
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Threat of new
entrants
Supplier
relationships
OIL COMPANIES
UNIONS
Threat of
substitute
goods
AMR UAL
DELTA LUFTHANSA
JAPAN
TRAVELERS
FREIGHT COMPANIES
POSTAL SERVICE
Bargaining power of
consumer
ROADWAY TRAVEL
TRAINS
SWOT
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BREAKDOWN
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PRICE
JET BLUE
0.4
AMR
9
22.5
Next
GATE PERFORMANCE
0.2
UAL
7
17.5
8
40
SWEST
7
17.5
8
40
DELTA
8
20
8
40
8
20
8
40
8
40
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QUALITY
0.2
9
45
RELAIBILITY
0.1
35
9
90
MARKETING
0.1
1.00
298.5
6
30
5
50
6
60
TOTAL
7
40
6
60
4
40
8
4
218.5
5
25
80
40
213.5
8
4
40
6
60
4
40
278
194
JetBlue
High
Japan
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S
E
C
U
R
I
T
Y
UAL
DAL
Lufthansa
SW
Ryanair
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AMR
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CAL
Low
High
Medium
Cost to Consumers
Low
Tangible and Intangible Resources
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• Value
– Price
• Tangible
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• Intangible
• Brand Loyalty
• Frequent Flyer
Differentiation
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• Market Share
– Point-to-Point
• No Change
• Competition Strategy
• Delta
UAL Financial Ratios
United Airlines Financials
1997
1998
∆ '97 to
'98
1999
∆ '98 to
'99
2000
∆ '99 to
'00
2001
∆ '00 to
'01
Gross profit
margin
43.5%
43.9%
0.4%
47.3%
3.4%
42.4%
-4.9%
28.5%
-13.9%
Net profit margin
5.5%
4.7%
-0.8%
15.6%
10.9%
0.3%
-10.6%
-13.3%
-2.7%
Return on assets
6.0%
4.4%
-1.6%
13.4%
9.0%
0.2%
-13.2%
-8.5%
-8.7%
Return on equity
38.9%
20.5%
-18.4%
46.5%
26.0%
0.9%
-4.5%
-69.0%
-23.4%
Debt to assets
81.3%
77.9%
-3.4%
70.7%
-7.2%
76.3%
5.6%
87.7%
11.4%
Debt to equity
527.1%
361.0%
-166.1%
245.2%
-115.8%
322.8%
77.6%
710.2%
387.4%
LT debt to equity
9.6%
2.4%
-7.2%
1.5%
-0.9%
3.0%
1.5%
39.1%
36.1%
Cash ratio
0.06
0.07
0.01
0.06
-0.01
0.26
0.20
0.21
-0.05
Quick ratio
0.36
0.34
-0.02
0.36
0.02
0.55
0.19
0.46
-0.09
Inventory
turnover
1.77
1.78
0.01
1.90
0.12
1.74
-0.16
1.40
-0.34
Fixed asset
turnover
1.09
0.93
-0.16
0.87
-0.06
0.86
-0.01
0.73
-0.13
Total asset
turnover
1.10
0.95
-0.15
0.86
-0.09
0.79
-0.07
0.64
-0.15
Receivables
turnover
16.53
15.43
-1.10
14.04
-1.39
15.91
1.87
15.41
-0.50
Avg.collec.period
0.05
0.04
-0.01
0.04
0.00
0.04
0.00
0.04
0.00
Payables
turnover
16.87
15.26
-1.61
18.64
3.38
16.29
-2.35
12.73
-3.56
Days of cash
6.20
8.11
1.91
6.28
-1.83
31.67
25.39
38.18
6.51
Ratio
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UAL Expenses
Components of UAL Income Statement as a
Percentage of Sales
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Percentage of Sales
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80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
-10.0%
-20.0%
Cost of Goods
Sell gen&admin.exp.
Net Income
1997
1998
1999
Year
2000
2001
Industry Ratios
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Airline Industry Profitability Ratios
Airline Industry Leverage Ratios
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800.0%
100.0%
600.0%
80.0%
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60.0%
400.0%
CAL
CAL
AMR
AMR
40.0%
DAL
DAL
200.0%
USAir
USAir
20.0%
UAL
0.0%
Debt to equity
LT debt to equity
UAL
0.0%
Gross profit margin
-200.0%
-20.0%
-400.0%
-40.0%
Net profit margin
Industry Ratios
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Airline Industry Liquidity Ratios
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Airline Industry Activity Ratios
40.0
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60.0
35.0
50.0
30.0
Help
CAL
25.0
CAL
40.0
AMR
AMR
DAL
20.0
DAL
30.0
USAir
USAir
15.0
UAL
UAL
20.0
10.0
10.0
5.0
0.0
0.0
Cash ratio
Quick ratio
Inventory turnover
Payables turnover
Days of cash
Selected Company Figures
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($ in millions)
CAL
AMR
DAL
USAir
UAL
Net Income
-$95
-$1,562
-$1,216
$1,989
-$2,145
Net Sales
$8,969
$17,484
$13,879
$8,253
$16,138
A/R
$404
$1,371
$368
$272
$1,047
Cash
$1,132
$117
$2,210
$537
$1,688
Airline Industry Financial Figures, 2001
$20,000
Help
$15,000
CAL
AMR
$10,000
DAL
USAir
UAL
$5,000
$0
Net Income
-$5,000
Net Sales
A/R
Cash
Recommendations
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• Liquidation
– $72 Million Cut
– $500 Million in Future
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– $572 Million in Cost Reduction
• Continue Strategies
• Changing System
– American Airlines
– Long-term Contracts
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• Questions?