CASE30_UnitedAirlines

CASE30_UnitedAirlines - United Airlines INTRODUCTION United...

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United Airlines INTRODUCTION United Airlines is the fourth largest passenger airline in the U.S. in terms of market share. Only recently emerging from bankruptcy before the severe economic downturn in 2008, the company is finding it difficult to regain solid footing. Sharply declining air travel and revenues are forcing the company to take somewhat desperate measures to finance operations. With a 2008 net loss in excess of $5 billion, United is under immediate pressure to stabilize financial performance. In addition, enormous competitive challenges threaten to undermine current and future prospects for success. Unless the airline is able to restore profitability and establish a strategy which will ensure competitiveness in today's passenger airline industry, its survival is less than certain. What industry conditions impact the level of competitive rivalry among passenger airlines? What insights are revealed by comparing the resources, capabilities, performance, and strategies of United's major competitors? Can any viable strategies be identified by conducting a SWOT Analysis? What strategic initiatives should CEO Tilton pursue to address the company's dire situation? ANALYSIS Industry and Competitor Environments Competitive Rivalry . A variety of industry conditions can impact the level of competitive rivalry among firms. The intense level of competitive rivalry among passenger airlines is influenced by the following dynamics. Competitors are relatively equal in size and power, which leads to vigorous competitive actions and responses. Industry growth is slow. Low- or no-growth markets garner more aggressive rivalry as firms battle to increase market share by attracting competitors' customers. Actions and responses to protect market share can be fierce and typically result in reduced profitability for all industry participants. Fixed costs are high. Consequently, management is driven to do whatever it can to maximize productive capacity and spread costs across higher volumes. For commercial airlines, this has led to excess capacity across the market. To fill excess seats, firms cut ticket prices, and competition intensifies. United Airlines - 1
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United Airlines An absence of effective differentiation, customer loyalty, and switching costs also intensifies rivalry. In the U.S. airline industry, buyer decisions are based on price and destination. Relatively high strategic stakes exist for airlines. With the exception of some small cargo transportation operations, U.S. carriers are not diversified and are highly dependent on succeeding in passenger air travel. The existence of high exit barriers (including economic, strategic, and emotional factors) explains why airlines continue to compete in an industry that produces minimal return on invested capital. Specialized assets and the fixed costs of exiting the market deter owners from transitioning investments into another, more lucrative, industry. A strategic group is a set of organizations which emphasize similar strategic
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This note was uploaded on 03/22/2011 for the course ACCT 3391 taught by Professor Turpin during the Spring '10 term at Troy.

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CASE30_UnitedAirlines - United Airlines INTRODUCTION United...

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