Any company has to make decisions in order to respond to the external environment and gain a competitive advantage in the market. Yet, for these decisions to be effective, they have to be motivated by solid frameworks which regulate them and constitute business and corporate strategies. Applying them is extremely important since they define the behavior of the organization in difficult situations and help the management maintain consistent operations, which eventually contribute to achieving the corporate objectives. United Airlines is a large company, and it is integral to it to have both business and corporate strategies in order to be successful and offer products which will attract customers. Thus, analyzing them and determining how they coincide with the United Airlines’ business model, as well as assessing its corporate structure and management systems, is a task which has considerable significance for the company’s future.
Business Strategy of United Airlines
As it was mentioned earlier, business strategy has to be maintained by any large company, and the organization’s activity and decisions must be centered around it. Every business strategy concerns the question of how a business has to compete in its industry to attain a favorable position and ensure exceptional performance (Rothaermel, 2021). it provides a clearly-defined path for the organization to take to become successful and for its products to be in demand. Porter proposed three basic strategies which can be employed by an organization and called them “generic” because they are applicable almost to any industry (Porter, 1996). The first one is cost leadership, which relies on the idea that a business can attain a competitive advantage by providing goods at the lowest price compared to its competitors. The second strategy is differentiation, which implies offering products with unique features which are provided by other companies in the field. Finally, the focus strategy means concentrating on proposing goods to a particular type of customer or marketing it in a certain niche.
While analyzing, it is important to note that any company can simultaneously utilize more than one strategy, and United Airlines is not an exception. This decision is partially motivated by the industry in which it operates since the market of airline carriers in the U.S. is exceptionally competitive while the demand is limited. Moreover, there are no significant entry barriers for new companies in the industry, and the most widespread strategy for recently-established carriers focused on providing low-cost services. Additional pressure on the market is imposed by the suppliers, namely manufacturers of planes and fuel companies. The former are few in number, for example, United Airlines has a fleet which consists mostly of planes which were produced by two companies, Boeing and Airbus. This means that the two manufacturers have considerable leverage over the market of airline carriers and can charge large prices for their products. The aviation fuel companies also have significant control and can manipulate their prices, especially during periods when there is high demand.
United Airlines, as a big organization, has to rely mostly on the differentiation strategy and offer its customers more comfort, benefits, and destinations in exchange for a larger price compared to its competitors. Yet, the choice of possible amenities is quite limited and can be easily replicated by others in the industry, including Delta and American Airlines. For example, if one company were to equip their basic class seats with an entertainment system, others would soon copy this approach. Thus, the only solution for differentiation available for airlines is to create a source of a competitive advantage which will not be imitable. In the case of United Airlines, this is its membership in Star Alliance, which consists of numerous airline carriers worldwide which provide benefits for international travelers. The company also uses the focus strategy, which implies targeting business travelers since seventy-five percent of the business traffic in the U.S. departs from United Airlines’ hubs (Baker, 2019). This approach allows the company to respond to the needs of different customers and, as a result, increase its revenues.
United Airlines uses a variety of ways when employing its business strategies to attract its clients and be better positioned against its competitors. Utilizing the differentiation strategy, it offers flights to two hundred destinations in the U.S. and a hundred cities in total (“Popular travel,” n.d.). This allows the company to be competitive against the low-cost carriers, which provide their customers with affordable pricing but a limited number of routes. Additionally, the company possesses its exclusive loyalty program, which grants its users miles which they can use in the future to receive discounts or fly for free (“MileagePlus,” n.d.). The most important feature of the program is that its active across thirty-five other international airlines which are partners of the company. As for the focus strategy targeting business travelers, United Airlines provides them with the business class option called United Polaris, which includes bedding, amenities, and entertainment (“United Polaris,” n.d.). Thus, the company’s business strategy is based on differentiation and focus, which are the primary sources of the competitive advantage possessed by United Airlines.
Business Model of United Airlines
United Airlines also has its business model, which constitutes the company’s approach to the problem of how it makes money. In other words, it is the process which occurs when a strategy is put to actual practice, and it determines the tactics and initiatives the organization will use (Rothaermel, 2021). United Airlines espouses the spoke-hub model and generates its profit by operating a network of hubs which serve as the central points from which routes are directed. The company has eight hubs, including in the cities such as Denver, Houston, and Los Angeles, which are important links in the network (“Airports,” n.d.). These are positioned strategically in order to ensure a maximum number of possible routes, which allows United Airlines to cover not only all major cities in the U.S. but also smaller ones. This model is also used by the company to operate its cargo services and provides it with many opportunities. Apart from its own international destinations, the company also has access to those cities where it does not operate due to its membership in Star Alliance, which helps clients transition without any problems.
The core product of United Airlines is its carrier services, which are available both in the U.S. and worldwide. Yet, the company offers different options for its customers and attempts to target all price ranges. For more affordable travel, United Airlines has Economy and Basic Economy tickets, which have lower fares but also imply certain restrictions. For example, clients will not be able to pick their seat for free, change their flight or cancel it, additionally, they will have to pay for their baggage. For those who seek exceptional experience, it offers premium classes such as business, United First, and United Polaris. These have higher fares but provide clients with quality time and absolute comfort aboard; for instance, they can receive chef-designed meals and sleep amenities, as well as lounges in several airports. Thus, the company’s customers can choose from many options and be sure that they will find a ticket. Moreover, United Airlines also offers cargo transportation services and works in partnership with international companies such as All Nippon Airways and Lufthansa Cargo, which significantly expands its network.
How It Generates Profit
As it was mentioned earlier, United Airlines is able to make money by offering an extensive selection of possible destinations and frequent flights. According to the company’s annual financial report, in 2019, it earned more than thirty-nine billion dollars by providing services to its passengers (United Airlines Holdings, 2020). This includes selling tickets for flights, insurance, and annual subscriptions, which grant the clients certain benefits such as choosing seats, as well as charging for baggage. This makes the company one of the largest carriers not only in the U.S. but worldwide and provides it with significant brand promotion. People who used United Airlines’ services once will be more likely to do it again and recommend it to friends and family. This becomes a significant force behind the growth of United Airlines and its further development because, as it was mentioned before, the competition in the industry is extreme.
It is worth noting that the situation with the COVID-19 pandemic significantly affected the airline transportation market, and it is unclear whether the company will be able to retain its profits in the future. According to its official website, in 2020, United Airlines reported an annual loss of seven billion dollars (“United announces 2020,” 2021). This shows that the company will have to readjust its operations and introduce significant changes to ensure a swift and effective recovery after the end of the crisis.
Additionally, United Airlines is engaged in the freight shipment business and recently became the first commercial airline carrier to safely deliver COVID-19 vaccines into the U.S. (The Hub Team, 2020). Such services in 2019 earned the company one billion dollars, which is a large sum for a company which mainly specializes in transporting passengers. Nevertheless, as stated earlier, United Airlines works in partnership with foreign companies, which expands its network. There are other sources of revenue for the company, including advertising, but they are less sufficient, and the majority of its income comes from the services provided to travelers.
Customer Value Proposition
The value proposition of United Airlines is summarized in the company’s purpose and shared values, which are present in different marketing materials and on the website. The carrier’s main slogans are “Connecting People. Uniting The World” and “We Fly Right,” which reflect the organization’s commitment to helping its customers reach their destinations safely (“Our shared purpose,” n.d.). It demonstrates that the value proposition of United Airlines is about offering services which are reliable and global. It does not concentrate on the pricing and instead focuses on the quality of its operations and ensures that the company works in accordance with the strict standards.
Another value mentioned by United Airlines is “We Fly Friendly,” which seeks to persuade potential clients that they will face excellent treatment from the personnel onboard the planes. This is especially relevant for the company since it previously was involved in various scandals concerning incidents which happened on board of their planes. For example, in 2017, a passenger of United Airlines was escorted against his will from the flight because of overbooking (Zdanowicz & Grinberg, 2018). It is clear that the company has to improve the public perception of its brand, and including the aforementioned line as one of its values is a good decision on the part of the management.
Moreover, the company further aims to persuade its customers that they are important and their voices matter by including “We Fly Together” as one of its values. This shows that the company is willing to adjust to fit better the needs of the customers and is ready to not only provide transportation services but also maintain excellent communication with passengers. Finally, the last value promoted by United Airlines is “We Fly Above & Beyond,” which reflects its commitment to be the best carrier in the market.
United Airlines’ profit proposition is shaped by its value proposition, which implies its commitment to safe and comfortable travel for all of its customers. According to the company’s financial report, in 2019, its operating expense constituted more than thirty-eight billion dollars, and the operating income was four billion dollars (United Airlines Holdings, 2020). The primary expense of the organization is the salaries and related costs, which shows that the carrier does not try to decrease its prices by underpaying the employees. The company also spends more than one billion dollars on maintenance and repair materials to ensure that the planes comply with the company’s high standards. The company could easily reduce its costs, but the management understands the profit it generates is dependent on the quality of experience the company offers to customers, which is dependant on salaries and maintenance.
As it was mentioned earlier, the situation in the air transportation industry was considerably disrupted by the COVID-19 pandemic and the onset of various travel restrictions. Therefore, the strategy of gaining profit, which was relevant for United Airlines in 2019, was altered by the management to respond better to the current challenges. Apart from the loss of seven billion dollars in 2020, the company announced that it made a series of strategic decisions to decrease the cash burn to be prepared for the recovery. Nevertheless, even despite the radical drop in the number of passengers, United Airlines allocated significant resources for the maintenance of its aircraft fleet and invested in the overhauls of engines. Additionally, the company identified more than one billion dollars in cost savings, which will help it become more efficient and contribute to the increase in its profits (“United announces 2020,” 2021). United Airlines set a goal of exceeding its pre-pandemic earnings before interest and taxes by 2023, which is achievable only if the company cuts its costs.
Business Model and Business Strategy Fit
Thus, the company’s business model implies providing safe travel of high quality to a large number of destinations both in the U.S. and internationally and offering exclusive options for business travelers. There is a direct link between this model and United Airlines’ business strategies, namely the differentiation and focus. The former is achieved by utilizing the eight hubs, which are strategically positioned around the country to ensure access to different cities where the company operates. Moreover, some of the hubs serve as the locations from which United Airlines’ planes depart to foreign countries, which reflects its business model’s stress on the variety of routes available to its clients. Additionally, the company works in partnership with foreign carriers, which allow its customers to travel internationally and use their earned miles to pay for flights. This alliance with other carriers ensures the safety of the United Airlines’ customers traveling abroad when transitioning to planes of other carriers, which is another part of the company’s business model.
The safety and quality aspects also manifest themselves in the organization’s willingness to pay good salaries to the personnel and maintain the planes, which is not always the case with low-cost carriers. As it was mentioned earlier, the company did not stop investing in the maintenance of its planes and overhaul of engines even despite the pandemic and a major drop in demand. This shows that the company pursues its differentiation strategy during difficult times and understands that many of its customers choose to fly with it because of the exceptional safety it provides compared to the competitors. Finally, the exclusive options included in the business model are maintained through the focus strategy, which enables United Airlines to market business class tickets to select individuals. Thus, the company manages to ensure that its business model is consistent with its business strategies, which allows it to operate successfully even under challenging circumstances such as the COVID-19 pandemic.
Corporate Strategy of United Airlines
The corporate strategy is equally important as the business one since it regulates the way a company approaches the fundamental questions concerning its operations. The corporate strategy has to provide answers to three questions, in which stage of the value creation the business should participate, which product it has to offer, and where geographically it should operate (Rothaermel, 2021). Essentially, a corporate strategy is responsible for navigating a company in its activities in all spheres of operation. People who are tasked with developing a corporate strategy must always search for new opportunities and markets. Corporate and business strategies must always be consistent with each other, otherwise, a company may struggle with articulating its strategic objectives and eventually fail to produce any goods or service wanted by the consumer. Ultimately, every corporate strategy must shape the business one and offer a direction which will lead the company to success and a leadership position in different markets and industries.
As it was mentioned earlier, the company in question is engaged in an extremely competitive environment of the commercial airline industry, which does not give it much leverage. The industry’s value chain consists of the players involved in the upstream activities such as airplane manufacturers and leasing companies, fuel suppliers, caterers, while the downstream segment includes travel agents and global distribution systems. This places United Airlines and other carriers into the middle of the industry’s value chain, where it is tasked with managing human resources, inbound and outbound logistics, marketing, after-sales services. Specifically, the company has to engage in the employment of workers and training them according to all of the aviation standards, especially in the area of safety. Additionally, United Airlines must control its supply chain to ensure finding companies which can provide it with the best aircraft parts and fuel prices. The company is also responsible for managing the baggage of its customers, gate operations, scheduling, and maintaining flight connections in case if a customer needs to use several routes to get to their location.
United Airlines does not pursue the strategy of being active simultaneously in many different industries and instead focuses on the transportation of passengers and cargo. The actual diversification occurs within the individual areas of the organization’s interest, for example, it offers various travel options to customers. Additionally, it is diversified in terms of its destinations and presence, which coincides with the company’s geographical scope of operation. United Airlines can transport its customers and cargo to different parts of the world and various cities in the U.S. because it has a solid network of hubs and a large aircraft fleet.
Historical Development and Vertically Related Activities
Over time, the company significantly expanded its product line but stayed in the same field of operation, as well as partially gained control over its vertically related activities. According to the official website of United Airlines, the organization was established in the 1920s, and in 1984, it started operating in all fifty states. It also constantly updated its travel options, and in 2016, it presented United Polaris, a new business class which has many exclusive features (“United Airlines,” n.d.). As a transportation company, United Airlines is particularly dependent on new trends and has to adjust in order to gain profit and not lose in the competition. Due to the COVID-19 pandemic, many countries closed their borders and did not allow foreign citizens to enter. This altered the tourism industry and forced people planning to spend their vacation abroad to search for available options. United Airlines recognized the need for new destinations and, in 2020, started to offer new routes to respond to the demand (“United Airlines announces eight new routes,” 2020). This shows that the company is always developing and expanding the number of destinations for its clients.
United Airlines does not own any significant vertically related activities, apart from its website, which allows customers to buy tickets and can be considered as one. Airline companies face significant difficulties in trying to acquire their suppliers to reduce prices for their products. For example, the industry of passenger aircraft manufacturing is dominated by two companies, Airbus and Boeing, which are multi-billion-dollar companies buying which United Airlines practically cannot afford. The only possible option for the organization is to establish a business which would provide additional services to its passengers, such as a car rental.
Corporate Structure and Key Management Systems
The corporate structure of the company and its main management systems are largely based on the traditional design. There is an executive team which includes ten people where everyone is assigned their field of responsibility. The CEO of United Airlines is Scott Kirby, who is followed by the president, Bret J. Hart, who manages corporate communications and government affairs. Apart from them, there are customer officer, communication, operations, commercial and financial officers, vice president of human resources, strategy, and planning, technology executives. For example, Linda Jojo, executive vice president and chief digital officer, is tasked with developing United Airlines’ digital strategy, maintaining the company’s cyber security, implementing digital products, and managing data analytics and e-commerce operations. This system has some rigidity, yet it benefits the company since the management team can quickly react to the external environment and introduce changes. Moreover, taking into consideration the fact that despite a challenging situation caused by the pandemic and enormous losses, the company still managed to stay solvent and continue operating shows that its management system is effective.
On the other hand, their work is also controlled by the board of directors, which is engaged in overseeing how the company performs. The board of directors consists of individuals with a lot of experience in the sphere of managing enterprise, for example, the executive chairman, Oscar Munoz, worked as the chief executive officer of United Airlines. All of its members participate in different committees with specific tasks, including audit, to ensure that United Airlines is on the right track. For example, one of the members of the audit and finance committees is Barney Harford, former chief operating officer at Uber, who possesses excellent expertise and knows well how a company has to function. The board of directors is also responsible for correcting the company’s decisions to better reflect the interests of its shareholders and assessing the performance of the executives, especially of the company’s CEO.
Additionally, the company has a variety of departments which are grouped according to their responsibilities in the sphere of operations. For example, there are inflight services, which include flight attendants, the department of network operations, which manages dispatching, the technical operations involved in maintenance and repairs, as well as food services (“Operations,” n.d.). This corporate layout indicates that United Airlines relies on the functional structure, which is common among businesses.
Diversification, Vertical Integration, and Globalization
Moreover, this structure is perfect for the needs of the company since it does not have a high level of diversification and, as a result, does not require any additional executive management for each branch. It was mentioned that the company mostly does not own its vertically related activities and instead focuses on the basic spheres which are relevant for its operation; this makes United Airlines a vertically disintegrated company. The organization has managed to stay competitive during globalization and used it to its own advantage by launching new destinations. It operates in Europe, Asia, South America, and Africa and has more than one hundred available options for people traveling abroad.
Globalization also contributed to the company’s partnership with other international airlines, which are considered big players in their own markets. This led to the establishment of Star Alliance, a global network of twenty-six carriers which are active in 195 countries worldwide (“Star Alliance,” n.d.). United Airlines is the only company from the U.S. which has a membership in this alliance, which gives it a sustainable competitive advantage. This partnership is a substantial part of the corporate strategy because it enables the company to have access to foreign markets and the ability to sell tickets to those destinations. Moreover, the United Airlines’ clients significantly benefit from this partnership since they receive an opportunity to earn and spend their bonus miles when buying tickets from all of the members of Star Alliance. In addition to its passenger transportation, the company is involved in the business of shipping, where it also has connections with other players in the industry, including Lufthansa Cargo. Thus, global alliances play an important role in United Airlines’ business model and its efforts to stay competitive in the industry.
Business and Corporate Strategies Fit
United Airlines maintains a reliable strategic fit between its business and corporate strategies by aligning its objectives and using them to complete each other. The corporate strategy of the company is based on providing transportation and shipment services, international availability, and largely not being vertically integrated. While the business strategy involves pursuing differentiation and focus, which serve as the basic act ivies to achieve competitive advantage. United Airlines differentiates in terms of the available routes on which it operates and the number of which is further increased because of the membership in Star Alliance. It also offers relatively more comfort and ensures better safety for passengers compared to low-cost carriers, which tend to cut their expenses by saving on maintenance and salaries. Nevertheless, the company’s differentiation occurs within its larger product of passenger transportation, which explains its lack of vertical integration since it is involved in a narrow segment of the aviation industry.
United Airlines is a well-established company which requires clearly-defined corporate and business strategies, as well as a business model, to operate successfully in its industry. The company’s business strategy focuses on differentiation, which involves offering different travel destinations and options, and focus, which implies providing premium services to business travelers. Additionally, its business model is based on being a safe and reliable international carrier, as well as a company which can satisfy the needs of the business class passengers. According to the company’s corporate strategy, it operates internationally, does not pursue vertical integration, and offers two main products passenger and cargo transportation. United Airlines has a solid management system, which allows it to perform well since every department and manager have their particular tasks.
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