United Airlines Holdings Strategic Analysis: Porter's Five Forces

Industry Analysis: Porter's Five Forces

Michael Porter's strategic model is one of the most effective tools for assessing the various trends affecting industry competition and attractiveness (Godfrey, 2015). This model is useful not only for identifying but also for analyzing the competitive forces that have an impact on a given industry. It is a particularly valuable tool for developing a deeper understanding of the forces shaping the airline industry — understanding that can help United Airlines Holdings formulate better strategies and remain relevant in a highly competitive market. The model comprises five forces: competitive rivalry, supplier power, buyer power, threat of substitution, and threat of new entrants (Amason, 2011).

According to Amason (2011), competitive rivalry concerns the strength and number of rivals in a given industry. The airline industry is intensely competitive, particularly because all major airlines compete in the same markets — flight destinations are in most cases identical, and carriers make use of the same airports. The main players in the industry also offer similar amenities and deploy similar pricing strategies. United Airlines Holdings' principal competitors include, but are not limited to, Delta Airlines, American Airlines, and Southwest Airlines. Other significant players at the global level include Lufthansa Group, Air France, IAG, and China Southern Airlines, alongside numerous regional airlines and value carriers. All of these players have the capability to undercut United Airlines Holdings, meaning that the company has relatively limited power as an individual market participant.

Supplier power relates to the ability of suppliers to drive up input costs (Amason, 2011). In the airline industry, the major supplier groups are fuel suppliers, labor suppliers, aircraft manufacturers, and engine suppliers. The influence these groups hold is considerable, as they are highly concentrated. Given the need to ensure parts and systems compatibility, a company like United Airlines Holdings faces significant supplier switching costs.

Buyer power refers to the power that customers have to exert downward pressure on prices (Amason, 2011). In the airline industry, customers hold significant power because they face no meaningful cost of switching from one airline to another. Customers are also presented with a wide range of choices through online ticketing platforms, which allow easy comparison of prices and services across a large number of airlines. This means that United Airlines Holdings must remain constantly aware of prevailing price levels even as it seeks to differentiate its service offerings.

Substitute products or services are those that customers could purchase and use in place of those offered by an enterprise (Amason, 2011). In the airline industry, no effective substitute exists — particularly in the context of long-distance travel. The threat of substitutes is therefore relatively low, and United Airlines Holdings faces minimal competition from other travel modes such as rail or automobile travel.

The threat of new entrants concerns how easily new players can establish operations in a given market (Amason, 2011). The airline industry presents massive entry barriers, particularly regarding the acquisition of aircraft and skilled personnel. Numerous regulatory standards must also be met and continuously maintained. As a result, the threat posed to United Airlines Holdings by new entrants can be considered minimal.

Competitive Analysis of Key Rivals

Three of United Airlines Holdings' main competitors are Delta Airlines, American Airlines, and Southwest Airlines. In addition to operating in the same industry, these three airlines target the same clientele and offer similar services. The most recent data from CSI Market (2021) indicates that American Airlines leads the group with a 20.76% market share, followed by Delta Airlines at 20.70%, and Southwest Airlines at 13.39%.

With regard to the broader market outlook, all players in the airline industry have been significantly affected by the COVID-19 pandemic. As nations around the world sought to contain the spread of the virus through mandated lockdowns, most flight schedules were cancelled, and all companies experienced decreased profitability over the past two years. However, as travel restrictions ease and the world begins to reopen, conditions are likely to improve. It may nonetheless take some time for profitability to return to pre-pandemic levels, given the economic downturn triggered by the pandemic.

Delta Airlines currently operates across six continents and serves at least 52 countries, flying to approximately 325 destinations (Delta, 2022). The company maintains a fleet of 750 aircraft and has recently undertaken a cabin branding upgrade in an effort to be more appealing to customers. Its key product offerings include business class (branded as Delta One), premium economy (branded as Premium Select), first class, economy class, and basic economy. Although Delta has a strong brand image, the pricing of its offerings is relatively high compared to value carriers such as Southwest Airlines. This may make it vulnerable during periods of significant economic downturn, when consumer disposable income declines and travelers seek cheaper alternatives.

American Airlines operates in 50 countries and flies to approximately 350 destinations (American Airlines, 2020). The company maintains an impressive fleet of 862 aircraft and operates local, regional, and international flights. Its current product offerings include first class, business class, premium economy class, and economy class. The airline has also embraced customer retention programs, most notably its AAdvantage frequent flyer program, through which customers can benefit from hotel stays, discounted car rentals, or ticket redemptions based on accumulated miles. A key strength of American Airlines is its loyal customer base, built through the AAdvantage program. However, the company's reputation has been affected by allegations of discrimination — including a 2020 lawsuit filed by passengers over claims of racial discrimination (Oliver, 2020).

Southwest Airlines is one of the best-known low-cost carriers in the world. It currently operates in 10 countries and flies to 121 destinations, with a fleet of 735 aircraft (Southwest Airlines, 2020). Unlike Delta Airlines and American Airlines, which operate aircraft from multiple manufacturers including Airbus and Boeing, Southwest Airlines uses Boeing aircraft exclusively (Southwest Airlines, 2020). The airline does not offer first class or business class products; instead, it provides economy class only. In addition to its low-cost strategy, Southwest operates a frequent flyer program as a customer retention mechanism. A key advantage of this airline is its low-cost business model, which may be particularly attractive to customers during periods of economic hardship. However, compared to the top three competitors, Southwest serves fewer destinations.

Key Success Factors in the Airline Industry

Key success factors are those attributes that provide players in the airline industry with significant competitive advantages and that customers consider crucial when choosing a carrier. Eight such factors are assessed below.

Customer retention: Given the level of competition in the industry and the associated cost of acquiring new customers, retaining existing customers over the long term is essential.

Quality of services: Comfort and safety are two of the most critical considerations for airline customers and must be consistently prioritized.

Cost of services: With customers having a wide range of options, airlines cannot rely on enhanced services alone — particularly in the current economic environment.

Employee retention: A low employee turnover rate is critical in this industry, given that the cost of training new employees in areas such as safety and customer service is substantial.

Technology adoption: Technology can greatly enhance airline operations and help reduce costs while further improving the customer experience.

Branding and marketing: Strong branding is instrumental in building emotional connections with customers, which supports both customer acquisition and retention.

Strategic alliances: Strategic alliances are important in the airline industry because no single carrier can economically serve all destinations worldwide. Partnerships with regional airlines can help fill these gaps.

Organizational culture: Airlines must cultivate and perpetuate values, behaviors, and systems that support talent attraction and retention.

Conclusion

The discussion above clearly indicates that to implement strategies that further enhance its ability to compete in an increasingly competitive global marketplace, United Airlines Holdings ought to be aware of not only its internal but also its external environment. This is particularly important when it comes to understanding the industry's sources of competition, competitor strengths and weaknesses, and external influences that could affect its operations.

More specifically, the analysis indicates that the airline industry is highly competitive and that buyers and customers hold significant power. Each of the key competitors possesses unique strengths that United Airlines Holdings must take seriously. The Competitor Profile Matrix comparison reveals that relative to its three main competitors, United Airlines Holdings has identifiable strengths and weaknesses. On the basis of these findings, the airline should seek to strengthen its customer retention strategies and consider adopting a more competitive cost approach — a direction further supported by the threat of global recession highlighted in the EFE analysis.

United Airlines Holdings' external environment analysis also indicates that the company's interests would be best served by integrating technology more deeply into its operations and pursuing strategic alliances to extend its global reach. At the same time, the company should actively seek to minimize its exposure to the adverse effects of geopolitical instability and competitive pricing pressures.

References

Amason, A. (2011). Strategic Management: From Theory to Practice. New York: Routledge.

American Airlines (2020). About Us.

Brondoni, S. M. (2018). Competitive Business Management: A Global Perspective. Taylor & Francis.

CSI Market (2021). Market Share. https://csimarket.com/stocks/competitionSEG2.php?code=DAL

Delta (2022). About Us. https://www.delta.com/

Godfrey, R. (2015). Strategic Management: A Critical Introduction. New York: Routledge.

Kotler, P. T., & Lane, K. (2019). Marketing Management. Pearson.

Oliver, D. (2020). Passengers sue American Airlines alleging racial discrimination.

Southwest Airlines (2020). About Southwest. https://www.southwest.com/