INTERNAL ENVIRONMENTAL ANALYSIS

United Airline Holdings: Internal Environmental Analysis

Strategic Role of Corporate Strengths/Weaknesses in the Internal Strategy Analysis

a) Corporate-Level Strategies

In basic terms, an enterprises corporate-level strategies refer to the approaches embraced by the top management in efforts to steer the entire organization towards success (Godfrey, 2015). Towards this end, they tend to have an impact on the entire organization. With this in mind, the corporate level strategies of United Airline Holdings could be conceptualized as all the organizational undertakings meant to further promote the entire companys competitive advantage in the airline industry. Strategies of this nature would also relate to the determination of the overall direction that the company takes going forward.

With the worst effects of the COVID-19 pandemic now behind us, United Airline Holdings appears to be focused on stability. In the words of Brandoni (2018), stability strategy could come in handy when a company finds that it should continue in the existing business and is doing reasonably well in that business but no scope for significant growth (107). Josephs (2022) indicates that over the last few months, demand for travel appears to have increased. The author is also categorical that despite many households having been hit by inflation, most travelers (both business and leisure travelers) have not yet shied away from higher ticket prices (Joseph, 2022). At this present moment, United Airline Holdings has its sights set on its functional performances incremental improvement. Indeed, the CEO of the company has been quoted saying that this season, the companys main attention is reliability (Josephs, 2022). This is more so the case given that within the last two pandemic years, before the present rebound, customers have had to contend with numerous cancellations following the disruption of most airline routines. It is also important to note that the company has largely taken a cautious approach in as far as the addition of capacity is concerned (Joseph, 2022). According to the author, this contrasts with the approach embraced by some of its other rivals in the market including, but not limited to Spirit Airlines and American Airlines.

b) Partial SWOT Table

An evaluation of United Airline Holdings Strengths and Weaknesses would come in handy in efforts to examine some of the companys key internal factors. This would be useful in the formulation of strategies meant to rein in the companys weaknesses, and further reinforce or enhance its strengths.

Internal Factors

Strengths

1. Brand image

2. Fleet size

3. Innovative culture

4. Little debt

5. Competent management

Weaknesses

1. High employee turnover

2. Lack of diversity in its managerial team

3. Financial decline/Decline in profitability

4. Price rigidity

Table 1: Strengths and Opportunities Table

Discussion

A total of four weaknesses have been identified in the table above. To being with, with regard to brand image, United Airline Holdings is perceived by customers as a trusted and stable enterprise owing to the period of time it has been in operation. The two companies that came together to form United Airline Holdings (i.e. United Airlines and Continental Airlines) had been in operation in this particular industry for many decades. Next, the fleet size of United Airline Holdings is impressive. At present, the number of regional and mainline aircraft operated by the company stands at 522 and 835 respectively (United Airline Holdings, 2022). This essentially means that the company can better serve the various routes of interest as the market begins to awaken after the two year hiatus. With regard to innovativeness, it is important to note that the company has in the past embraced various technological innovations that ease its ability to serve customer needs better. Indeed, as the company indicates, it is committed to developing innovative technologies that will create value commercially, for the customer, or throughout Uniteds expansive operations (United Airline Holdings, 2022). Lastly, the company has in place a team of highly competitive managers and executives, led by Scott Kirby the CEO, with extensive experience in the realms of airline operations, engineering, and business management. This is a team that could steer the company into even greater accomplishments in a business environment that is increasingly competitive.

When it comes to weaknesses, it should be noted that the company has a rather high rate of employee turnover. Available data indicates that in the year 2020, United Airline Holdings had a total of 74,400 employees (Macro Trends, 2022). This, according to Macro Trends, represents a 22.5% decrease in the number of employees in comparison to the previous year, i.e. 2019. Losing crucial talent is counterproductive as it means the company loses its capability to serve customer needs in an effective manner It should also be noted that in this case, United Airline Holdings has to constantly engage in recruitment, selection, and training of employees. This results in wastage of crucial organizational resources which could have been deployed elsewhere. Next, the companys top management appears to be largely male dominated both at the board level and at the executive team level. This is more so the case given that there is only approximately 20% female representation in both instances. This could deny United Airline Holdings crucial insights as well as the confidence of key stakeholders that are keen on equal opportunities. Next, it should also be noted that over the last two financial years, the company has posted negative returns. For instance, in the year 2020, the company posted a net loss of $7 billion, whereas in 2021, it posted a net loss of $1.9 billion. The said decline in profitability could have a negative impact on the companys ability to settle its financial obligations. Lastly, when it comes to price rigidity, it should be noted that United Airline Holdings does not have in place offerings that rival those of low-cost carriers such as Southwest Airlines and AirAsia, and EasyJet. This is to say that at present, United Airline Holdings appears incapable of minimizing its operating costs as well as eliminating some of the amenities it has in place so as to be able to offer competitive prices to price-sensitive customers. This could hurt the ability of the company to compete effectively in case of a massive or significant downturn in economic activity that ends up shaving off peoples disposable income.

I am of the opinion that there are various strategies that United Airline Holdings could deploy in an attempt to capitalize on the strengths highlighted above, while at the same time reining in the weaknesses identified. To begin with, the company ought to embrace marketing strategies that connect with the customer in more meaningful formats. This would come in handy in efforts to further reinforce the companys brand image. Next, I am convinced that the company should consider exploring untapped markets specifically in East Africa and Asia. For instance, the East African region is considered a fast-growing regional economic hub and countries like Kenya and Tanzania have traditionally been popular tourist destinations. The airline could, thus, take advantage of its massive fleet to explore these markets going forward. Next, United Airline Holdings could further...…to further enhance its ability to meet the travelling needs of clients, it has also partnered with other airlines under the Star Alliance banner.

The company is keen to be a leader on the innovative front going forward. For this reason, it appears to be keen on research and development activities. For instance, the airline has partnered with Archer Aviation to develop an electric aircraft that will largely be deployed as an air cab to ease urban mobility. This is largely in line with the vision of the organization, i.e. in relation to pursuing solutions that could be deemed effective and innovative. In as far as finance and accounting is concerned, the company strives to adhere to the statutory accounting and reporting conventions in place. Thus, it has fully embraced GAAP in the preparation of its financial statements.

Strategic Financial Analysis for the Year Ended 31st Dec 2021

In seeking to assess the financial situation of United Airline Holdings, as well as its financial performance, it would be prudent to compute a number of financial ratios. These have been highlighted in the table below:

Ratio

Formula

Computation

Value

Industry Average

Leverage Ratios

Debt-to-Equity Ratio

Total Debt/Total Equity

30,361M/ 5,029

6.04

0.15

Liquidity Ratios

Current Ratio

Current Assets/Current Liabilities

21,834M/ 18,304M

1.19

3.32

Efficiency Ratios

Fixed Asset Turnover Ratio

Net Sales/Average Fixed Assets

24,634M/

46,341M

0.05

0.52

Profitability Ratios

Return on Equity

Net Income/Shareholder Equity

(1,964M)/ 5,029

-39%

-101.1%

Table 3: Financial Ratios

Discussion

The debt-to-equity ratio would be instrumental in efforts to assess United Airline Holdings financial leverage. As per the table above, the airline has a lower debt-to-equity ratio than its peers in the industry. A low ratio in this case, as Moyer, McGuigan, and Rao (2012) observe, means that an enterprise has not been aggressively using debt to fund growth. Thus, United Airline Holdings could be deemed a relatively safe company especially in an uncertain business environment where the ability of companies in this particular industry to repay debt might be affected by the developing events on the geopolitical front. With regard to the current ratio, it is clear that United Airline Holdings is not at risk of facing any challenge settling its short-term obligations. The fixed asset turnover ratio on the other hand indicates that for every dollar that United Airline Holdings has in fixed assets, it earns a return of $0.05. This is rather low in comparison to its peers in the industry. As Brigham and Houston (2012) indicate, a low ratio on this front is an indicator that an enterprise is underperforming in sales and has a relatively high amount of investment in fixed assets (217). Lastly, when it comes to return on equity, it should be noted that companies in the industry were significantly affected by the COVID-19 pandemic, especially following the massive cancellation of flights. However, the said ratio indicates that United Airline Holdings was able to perform better than its peers by posting a lower loss figure.

Conclusion

In the final analysis, it is clear from the discussion above that to remain relevant in an increasingly competitive industry, United Airline Holdings ought to adapt its approach to the conduct of business. This is more so the case in relation to an adaptation of its business-level strategies. The airline industry could be negatively impacted by a number of factors going forward, specifically on the geopolitical front. There is thus need for players in this industry to further enhance their ability to wither downtown in economic activity and/or flight disruptions. A recommendation has been made to minimize operating costs. Further, the companys ability to compete effectively could be determined by how well it reins in its weaknesses and capitalizes on…