United Continental Strategic Analysis: Mission, SWOT & Financials

Mission and Vision Statement Gap

United Continental does not have a mission statement or a vision statement, either on its website or in its annual report (10-K). Cochran, David, and Gibson (2008) argue that the mission statement is a critical first step in the strategic management process. It sets the framework for what the firm's strategies are supposed to accomplish, especially in conjunction with the vision statement. When a company lacks these things, it can lack strategic focus. Elements of the strategy can lack coherence and may be a poor fit with one another. A mission statement is also the most visible and public element of the strategic plan, so without one the company fails to communicate its direction to the public — or to its own employees.

A mission or vision statement can be simple and vague yet still provide a sense of direction, or it can be very specific (BRS, 2012). In the latter case, the company may already have a general sense of what it is and what it wants to be. This might be true of United Continental, which operates in only one business and likely has a fairly clear sense of what it wants to accomplish within that business. As a result, management may feel that the mission and vision are implicit, and that stating them explicitly is somewhat pointless. That is not the case, however. Given the number of similar competitors in the U.S. airline industry, United Continental needs to define what makes it special, and the mission statement can convey this to both internal and external audiences.

Mission and vision statements are especially valuable for companies like this that have just undergone a major merger. Employees and customers of both the former United and Continental airlines will benefit from having a unified sense of mission and guidance — one that defines the combined entity and highlights the vision that drove the merger in the first place. Without these statements, the new combined United Continental seems somewhat rudderless, and it is difficult to understand what the company wants to accomplish. That purpose is not implicit when viewed in the context of a highly competitive industry, and senior management is making a mistake by not developing formal mission and vision statements for the company.

The airline industry in the United States is highly competitive. Firms in the industry have limited power over buyers because switching costs are low, consumers are price sensitive, and there is little product differentiation. Firms also have low power over suppliers. The biggest costs for United Continental are labor and fuel (United Continental Form 10-K, 2010). Labor costs are governed in part through union negotiations, and the company has historically struggled to manage pension obligations in particular. Fuel costs are determined by global supply and demand conditions and account for between 27% and 39% of United Continental's total costs (Form 10-K). Fuel costs are highly volatile; while the company undertakes some hedging, it retains very little ability to control fuel prices. Its scale does provide at least a degree of leverage with aircraft suppliers.

External Analysis: Porter's Five Forces

There is a high threat of substitution on many routes, as flights compete with automobiles, public transportation, and — particularly among corporate buyers — electronic communications replacing face-to-face meetings as a cost-saving measure. There is a moderate threat of new entrants: despite high capital costs, new airlines start frequently, and some survive to become strong competitors for established carriers. The intensity of rivalry within the industry is high, driven by elevated exit costs and persistent overcapacity. As described by Porter's Five Forces framework, all told, the airline business is not a favorable industry in which to operate.

The CPM analysis focuses on the key success factors in the industry and assigns weightings to reflect their relative importance (no author, 2012). The key success factors in this industry are service, on-time flights, price, aircraft, cost control, loyalty program, advertising, and routing. A CPM matrix for the airline industry is presented in Appendix A below. United Continental is an average performer in this industry and has many areas in which it can improve. However, the combined airline does benefit from a strong route network. That said, it ranks third overall — but highest among the legacy carriers.

Competitive Profile Matrix (CPM)

The main strengths of the combined company lie in its extensive route network, its airline alliances, and its large fleet — all of which can be used to attract new customers by offering broad destination coverage. Weaknesses include the absence of a mission and vision statement, poor cost controls, limited customer loyalty, unstable profitability, and the operational and cultural challenges inherent in merging two major airlines. Opportunities include both domestic and international expansion, as well as the potential to achieve new efficiencies and cost savings from the combined operation. The main threats come from competition, fuel price volatility, the regulatory environment, and broader economic cycles.

Conclusion and Strategic Implications

United Continental faces a difficult strategic environment compounded by internal weaknesses and a weak financial position. Addressing the mission and vision gap, improving cost controls, and reducing debt are the most pressing priorities for management. The company's strong route network and scale represent genuine competitive assets, but these advantages cannot be fully leveraged without greater strategic clarity and financial stability. Developing formal mission and vision statements would be a meaningful first step in establishing the coherent strategic direction that the combined airline currently lacks.