United Airline Holdings Competitive Analysis

United Airline Holdings: Tools Analysis

Industry Analysis

Michael Porter’s strategic model happens to be one of the most effective tools in the assessment of the various trends affecting industry competition and attractiveness (Godfrey, 2015). Thus, this particular model comes in handy in not only the identification, but also the analysis of the various competitive forces that have an impact on the industry. This would be a crucial tool in seeking to develop better understanding of the various forces that have an impact on the Airline industry. Such understanding could be instrumental in United Airline Holdings’ efforts to formulate better strategies and remain relevant in the hugely competitive market. The model, as its name suggests, comprises of five forces namely; competitive rivalry, supplier power, buyer power, threat of substitution, and threat of new entrants (Amason, 2011).

a) Competitive Rivalry

According to Amason (2011), competitive rivalry has got to do with the strength as well as number of rivals in a given industry. The airlines industry happens to be hugely competitive. This is more so the case given that all the major airlines compete in the very same markets – i.e. owing to the fact that flight destinations are in most cases identical. This is in addition to making use of the very same airports. The main players in this industry also offer similar amenities and deploy similar pricing strategies. The other airlines against which United Airline Holdings competes are inclusive of, but they are not limited to; Delta Airlines, American Airlines, Southwest Airlines, etc. Other significant players, particularly at the global stage, are Lufthansa Group, Air France, IAG, and China Southern Airlines. There are also other multiple regional airlines, as well as numerous value carriers. All these players have the capability to undercut United Airline Holdings. Thus, to a large extent, United Airline Holdings has lesser power as an individual player.

b) Supplier Power

This relates to the ability of suppliers to drive up input costs (Amason, 2011). Essentially, fuel suppliers, labor suppliers, aircraft suppliers, as well as engine suppliers happen to be the major supplier groups in this particular industry. The clout they possess in the industry could be deemed huge owing to the fact that they happen to be highly concentrated. With this in mind, and given the need to ensure parts and systems compatibility, a company like United Airline Holdings has to contend with huge supplier switching costs.

c) Buyer Power

This relates to the power that customers/clients have to pile a downward pressure on prices (Amason, 2011). In the airline industry, customers have significant power. This is because they incur no significant cost of switching from one airline to another. Customers are also spoilt for choice following the growth in the popularity of online ticketing platforms – meaning they have easy access to a wide range of airlines to choose from, i.e. following comparison of prices and services. This means that a company like United Airline Holdings has to be constantly aware of prevailing price levels even as it seeks to differentiate its services.

d) Threat of Substitution

Substitute products or services are those that customers could purchase and utilize in place of those offered by an enterprise (Amason, 2011). In this particular industry, there exists no substitute that could be deemed effective. This is more so the case in relation to long distance travel. The threat of substitutes is, thus, rather low. By extension, United Airline Holdings faces minimal threats from other travel modes such as rail or automobile travel.

e) Threat of New Entrants

This has got to do with how easily new players can set up operations in a given market (Amason, 2011). This particular industry has massive entry barriers, i.e. with regard to the acquisition of aircraft and skilled personnel. Further, there are numerous regulatory standards that have to be met and maintained. It therefore follows that the threat that United Airline Holdings faces from new entrants could be deemed rather minimal.

Competitive Analysis

Three of United Airline Holdings’ main competitors are Delta Airlines, American Airlines, and Southwest Airlines. In addition to operating in the same industry, the three Airlines also target the very same clientele and offer similar services. The most recent data from CSI Market (2021) indicates that American Airlines leads the pack with a 20.76% share of the market. The airline is followed by Delta Airlines which has 20.70% share of the market. The third player, Southwest Airlines, has a market share of 13.39%.

In as far as the market outlook is concerned, all players in the airline industry have been affected by the COVID-19 pandemic. As nations from across the world sought to contain the spread of the virus, i.e. with the mandated lockdowns, most flight plans were cancelled. Thus, all companies have experienced decreased profitability over the last two years. However, as the world begins to open up following the easement of travel restrictions, the situation will likely improve. However, it may still take a while for profitability to go back to pre-pandemic levels due to the recession or downturn in economic activity triggered by the pandemic.

a) Delta Airlines

The airline presently operates in a total of 6 continents and serves at least 52 countries (Delta, 2022). Further, it flies to approximately 325 destinations. The company has 750 aircrafts in its fleet (Delta, 2022). The company has recently undertaken an upgrade of its cabin branding in an attempt to be more appealing to customers. Essentially, it offers three key products: business class (christened Delta One), premium economy (christened Premium Select), first class, economy class, and basic economy. Although the airline has a strong brand image, the prices of its offerings happen to be rather high in comparison to value carriers such as Southwest Airlines. Thus, it may be unable to withstand significant downturn in economic activity, where customer disposable income goes down and they are forced to seek cheaper alternatives.

b) American Airlines

The airline operates in a total of 50 countries and flies to approximately 350 destinations (American Airlines, 2020). The company has an impressive fleet size (862 aircraft) and operates local, regional, as well as international flights. The products offered by the airline at present are inclusive of: first class, business class, premium economy class, and economy class. It has also in the past embraced a number of programs to rope in more customers, such as a frequent flyer program called AAdvantage. In this case, customers can benefit from hotel stays, discounted car rentals, or even redeem tickets on miles accumulated at any given point. One key strength of this airline is a loyal customer, thanks to the AAdvantage loyalty program. However, the company’s image has been tainted by claims of discrimination, i.e. with the company being sued in 2020 by a group of passengers over claims of racial discrimination (Oliver, 2020).

c) Southwest Airlines

This airline is one of the best-known low-cost carriers in the world. At present it operates in 10 countries and flies to a total of 121 destinations (Southwest Airlines, 2020). It boasts of a total of 735 aircraft. It is, however, important to note that unlike both Delta Airlines and American Airlines which have in their fleet aircraft from multiple manufacturers, i.e. Airbus and Boeing, Southwest Airlines makes exclusive utilization of Boeing aircraft (Southwest Airlines, 2020). Also, unlike the two other airlines highlighted, the company does not have first class and business class products. Instead, it only has on offer the economy class. However, in addition to embracing a low-cost strategy, the airline also has in place a frequent flier program in what could be considered a customer retention approach. One key advantage of this particular airline is a low-cost business model that could be appealing to customers during economic hardship periods. However, in comparison to the top three competitors, the airline flies to fewer destinations.

Key Success Factors

These are the various factors that provide players in the airline industry with advantages deemed significant, and that customers would consider crucial. A total of eight factors have been briefly assessed below:

Customer retention: Given the level of competition in the industry, and the associated cost of acquiring new customers, there is need to ensure that existing customers stay in the long-term.

Quality of services: This is in relation to comfort and safety, which are two crucial considerations for customers on this front.

Cost of services: With customers having a wide range of options to choose from, airlines cannot only rely on enhanced services and offerings alone, i.e. in the current economic environment.

Employee retention: A low employee turnover rate is crucial in this industry given that the cost of training new employees, i.e. on safety and customer service, happens to be rather high.

Technology adoption: Technology could greatly enhance airline operations and help in both cost reduction and the further enhancement of customer experience.

Branding and marketing: Branding is instrumental in efforts to connect emotionally with customers. This could come in handy in customer acquisition (and retention).

Strategic alliances: Strategic alliances in the airline industry are crucial given that airlines cannot possible serve all destinations across the world owing to cost/economic viability considerations.

Organizational culture: There is need for airlines to ensure that some values as well as behaviors and systems are maintained and perpetuated, i.e. purposes of talent attraction and retention.

Competitor Profile Matrix

United Airline Holdings

Delta Airlines

American Airlines

Southwest Airlines

Critical Success Factor

Weight

Rating

Score

Rating

Score

Rating

Score

Rating

Score

Customer retention

Quality of services

Cost of services

Employee retention

Technology adoption

Branding and marketing

Strategic alliances

Organizational culture

Total

CPM Table

Explainer

To begin with, I ensured that the weights were assigned according to the success factor deemed most critical. Then, I proceeded with an assessment of how each of the airline was doing in each realm. This helped in the development of the rating. The rating was then multiplied by the weight to obtain the score.

Partial SWOT Analysis

This would be an instrumental tool when it comes to the assessment of the competitive position of United Airline Holdings. More specifically, the consideration of ‘Opportunities’ and ‘Threats’ would help in the evaluation of crucial external factors that either work in favor of the airline or threaten its performance and/or profitability going forward.

Opportunities

Threats

1. Global expansion

2. New products and services

3. Technology advancements

4. Strategic alliances

5. Social media marketing

1. Global recession

2. Regulation

3. Political instability

4. Terror threats

5. Competition

‘Opportunities’ and ‘Threats’ table.

Analysis

Opportunities

a) Global expansion

The world of today is essentially a global village – meaning that interconnectivity between nations has greatly increased over the last few decades. This has resulted in the opening up on numerous destinations to air travel. Some of the emerging markets that United Airline Holdings could take into consideration include Asia and Africa. For instance, one region that the airline could consider expanding into is East Africa which has been touted as a regional economic/tourism hub – which means that it is a popular destination for investors and tourists.

a) New products and services

The millennial generation happens to be a significant spender in as far as air travel is concerned. This particular generation has been associated with technological savviness and global mindset. Forward-thinking airlines ought to also be cognizant of Generation Z (i.e. those who were born between the year 1997 and 2012). This is more so the case given that although they are not heavy consumers at this moment, they influence the spending decisions of others, i.e. their parents, and are a key future market.

b) Technology advancements

According to Brondoni (2018), technology has been used in various industries to drive down costs. In the airline industry, technology comes in handy as a customer engagement tool, i.e. in terms of the further enhancement of digital interactions with potential and existing customers. This is especially important given the significant competition in the industry. Artificial intelligence could especially be instrumental on this front.

c) Strategic alliances

There is a limit as to the number of destinations that a specific airline can service. Establishing operations in some destinations could be counterproductive from an economic point of view, i.e. owing to low volumes of passengers or seasonal nature of travel. Strategic partnerships with other regional airlines could be instrumental in this case.

d) Social media marketing

Unlike traditional marketing, social media marketing has the potential to reach a greater number of people at a fraction of the cost (Kotler and Lane, 2019). Further, it becomes easy to target certain segments of the market and actively engage in diverse interactive formats with customers. United Airline Holdings ought to consider scaling up its activities in this case.

Threats

a) Global recession

The COVID-19 pandemic has had a negative impact on the economies of many countries. For this reason, there are fears that many nations could experience downturns in economic activity. This has an effect on the disposable income as well as purchasing power of consumers. All businesses, including airlines, are likely to be impacted as consumers seek to scale down spending.

b) Regulation

The airline industry happens to be amongst the most heavily regulated industries. This is more so the case given the need to ensure the safety of passengers, crew, as well as persons on the ground. Further, following the September 11 terror attacks, various regulatory agencies have been focused on ensuring that a repeat of the same does not take place. Thus, there is always the possibility of introduction of new regulations – which could positively or negatively impact players.