A summary of the AFI framework
United Airlines is one of the largest airline carriers in the U.S. and worldwide. The AFI framework of analyzing, formulating, and implementing strategic decisions showed that the company has reliable business and corporate strategies. Yet, it faces considerable competition in the airline industry and experiences pressure from the increased bargaining power of suppliers and clients. It effectively utilizes its sources of sustainable competitive advantage but can improve its strategic position by investing in innovations, becoming more customer-oriented and environmentally-conscious.
Results from VRIO analysis
Conducting an internal analysis by applying the VRIO framework helped assess and determine the capabilities of United Airlines and understand how the company manages to stay successful. As a result of this research, two key sources of sustainable competitive advantage were identified, namely its membership in Star Alliance and MileagePlus Program. The former can be considered an inimitable resource since United Airlines is the only company from the U.S. which so far has entered this partnership. Alongside other twenty-six airline carriers around the world, which in total provide services in 195 countries, United Airlines has an opportunity to offer its customers a seamless experience when they are traveling to international destinations (Star Alliance flight search, n.d.). MileagePlus Program is another inimitable resource which grants the company its sustainable competitive advantage. Essentially, it is United Airlines’ loyalty program that allows its customers to earn miles when they fly with the company and spend them when purchasing tickets (United Airlines – Earn, n.d.). Moreover, the miles gained by passengers with United Airlines can also be redeemed when booking flights with other members of Star Alliance.
Additionally, the VRIO analysis helped establish other United Airlines’ capabilities, which both represent sources of its temporary competitive advantage, as well as competitive parity. The company was successful at implementing a strategy of decreasing overheads to achieved improved cost-efficiency. For instance, the company introduced new slimline seats, which allowed it to expand the number of available seats in airplanes and are expected to generate one billion dollars of benefit (United, 2016). Nevertheless, the cost management approach of United Airlines can be easily replicated and therefore gives it only a temporary advantage. It also possesses two sources of competitive parity, elements which are considered standard in the airline industry. First of all, this is United Airlines’ highly-trained staff who always undergo training such as compassion training in 2018 (Economy, 2018). Finally, the company has its own mobile app, which facilitates the process of buying tickets for passengers, yet does not provide the company with a competitive advantage since other carriers also have their own apps.
Another analysis using the PESTLE model concerned the external environment of United Airlines and the factors which affected its operations. The primary political factor which can potentially impact the company is the introduction of legislation concerning passengers’ rights. For example, laws regulating the size of seats and the utilization of free space inside planes can increase the company’s overheads and eventually disrupt profits. The key economic factors are economic crises and fuel prices. The former entails the drop in people’s earnings which forces them to cut their expenses associated with traveling and flying. While high fuel prices have the potential of making United Airlines’ business model nonviable since they would lead to a surge in the ticket fees and the subsequent loss of numerous passengers. The sociocultural phenomena which can theoretically affect United Airlines are controversial incidents involving the company or extraordinary events such as the COVID-19 pandemic and lockdowns.
Other types of external factors include technological, ecological, and legal, which also have the capacity to influence the way United Airlines operates. For instance, online services represent a considerable challenge for the company since they allow their users to choose freely from a variety of flight offers and find the most appropriate ones for them. Climate change is also an important issue which can change the current state of the world, and United Airlines has to respond to it by becoming more environmentally-conscious. Sustainable fuel is one of the possible solutions for this problem, and the company already pledged forty million dollars to this cause (United Airlines pledges, 2019). Laws of different countries are a legal factor which United Airlines has to consider when undertaking international flights and has to ensure that it complies with all the regulations, which can vary from country to country.
Five Forces model
The Five Forces model helped analyze the competitive environment of United Airlines and determine the strategic position of the company within the industry. The analysis demonstrated the airline industry had low barriers to entry because establishing a new company in this market did not require any rare or significant resources, apart from a fleet and a license. This factor stimulates the rivalry among existing players, which is extremely intense. The threat of substitutes is high domestically since people can choose other options for traveling, such as cars or trains. Yet, internationally, this threat is minimal. The clients of airlines have high bargaining power because they often can choose from different options when buying tickets. Suppliers such as aircraft manufacturers also possess substantial bargaining power since there are only two major companies, Boeing and Airbus.
SWOT analysis was the next step in the research process, and it was conducted to gain an understanding of United Airlines’ current state to be able to propose recommendations for its future strategy (Virtualstrategist, 2016). First, the company’s strengths were assessed, and it was determined that it possessed a large fleet of planes and operated in numerous destinations. In total, United Airlines has 827, which depart from eight hubs which are strategically located to ensure a larger number of possible routes (United airlines fleet, n.d.). This allows it to offer flights to its clients to two hundred destinations in the U.S. and a hundred cities in total, including international routes (“Popular travel,” n.d.). As for the company’s weaknesses, it was discovered that United Airlines was prone to having technical issues with its software which resulted in overbooking and subsequent incidents which had unfavorable implications for its image. For instance, in 2017, a passenger of the airline was dragged out of his flight because of overbooking (Zdanowicz & Grinberg, 2018).
The primary opportunity of United Airlines is becoming the number one carrier for passengers who travel in the business class, and the company makes progress in this direction, for example, it launched a premium travel option, United Polaris (United Polaris, n.d.). At the same time, by focusing on business travelers, it risks facing the threat of low-cost carriers, which can draw those United Airlines’ passengers who prefer affordable travel.
Currently, United Airlines embraces two business strategies, the differentiation, and the focus ones. The company appeals to average passengers by providing them better amenities and operating in more destinations than competitors. It also focuses on business travelers by offering different premium travel options. While its corporate strategy involves global operations, transportation of passengers and cargo, and the lack of vertical integration. The aforementioned strategies are suitable for the company and do not need to be changed. Yet, United Airlines may consider adding certain features to the existing strategies.
Namely, management can implement a strategy which would focus on increasing customer satisfaction, investing in businesses offering innovative solutions for disrupting the current bargaining power of suppliers, and transitioning into an environmentally-conscious company. These recommendations align with United Airlines’ organizational structure and governance because the management team has the capacity to quickly correct the existing strategy and introduce necessary changes. The recommendations also reflect the company’s ethical responsibility of seeking to prevent incidents such as the one involving a man who was escorted from his plane because of the company’s mistake. Additionally, the company has an ethical responsibility of cutting its emissions which can be achieved by implementing the recommendations.
Economy, P. (2018). United Airlines employees will now be required to take compassion training (Some say it’s about time). Inc. Web.
Popular travel destinations. (n.d.). Web.
Star Alliance flight search and destinations. (n.d.). Web.
United Airlines – Earn MileagePlus frequent flyer miles. (n.d.). Web.
United Airlines fleet details and history. (2021). Web.
United Airlines pledges $40 million to further decarbonize commercial air travel. (2019). Web.
United Polaris. (n.d.). Web.
United. (2016). United Airlines outlines value-driving initiatives. Web.
Virtualstrategist. (2016). How to perform a SWOT analysis. Web.