United Continental Holdings is an American Aviation Holding company. As of 2019, the company is known as United Airlines Holdings (UAL). The company was founded in 1968 in the United States. The company is headquartered in Chicago, US. The company operates through its subsidiaries, including United Airlines and United Express. United Express is a regional branch of UAL. It transports people and cargo throughout North America and destinations in Asia, Europe, Africa, the Pacific, the Middle East and Latin America (Forbes, 2021). It was the founding member of the star alliance, a group of the 27 largest airlines in the world. Porter’s five forces model is a valuable tool to identify threats and opportunities faced by United Airlines Holdings in the airline industry.
Competitive Rivalry in the Market
The aviation industry is very competitive. Air travel is a profitable business in the US because of prolonged travel distance and a higher percentage of passengers. UAL is a part of the leading five airlines of the country, which includes American Airlines, Southwest Airlines, Delta Airlines and Spirit. UAL market share was around 12.4% in 2020 (Statista, 2021). In the same period domestic market share of American Airlines, Southwest Airlines, and Delta Airlines were 19.3%, 17.4% and 15.5%, respectively (Statista, 2021). UAL has published an annual revenue of $43.259 Billion with a profit of $3.009 Billion in the last fiscal year; it is ranked 76 in Fortune 500 companies (Fortune, 2021). The competitive rivalry is high due to the presence of multinational companies in the region.
Threat of Substitutes
The aviation industry in the US took off due to long distances between cities and low cost. It is the better option available at the moment than train and bus transportation. The other mode of travelling is the automobile. The dawn of the 21st century bought technological revolution. The aviation industry moved with it. The aviation industry is ruling the transportation industry in the US. The reduction in carbon emission is causing a problem for the industry. Few pilot projects are going on for finding the better solution, such as Hyperloop (Wearefinn, 2018). The project is in developing stages, and it will take years to develop into the scale to compete with the aviation industry. All of these do not threaten United Continental holdings as of now.
Threat of New Entrants
The threat of new entrants in the airline industry is reasonably low, primarily due to the industry’s high entry and exit barriers. These barriers often dissuade new entrants from entering the industry because of the high expansion costs and the associated risks. The main barriers to entry in any industry are capital requirements, product differentiation, regulatory requirements, and economies of scale (Grant, 2010). The new entrant must compete with the industry runner; the industry is already concentrated. All airlines such as United Airlines Holdings spend Millions of Dollar for new planes and training of staff. Startups cannot compete with industry leaders. Considering the higher financial cost and regulatory hurdle, the threat of new entrants is low.
Bargaining Power of Buyers
Buyers exercise higher bargaining power if there are available options. The internet of things has shifted the whole aviation system. Consumer used to contact agent for booking the tickets, and they were at a blind end. Now, technology companies have removed this hustle and buyer can directly compare the available options in the market and choose for the group of multiple options. When consumers are aware of their importance to the business, they can exercise high bargaining power (Dess et al.,2006). Consumers now demand higher value and service from the suppliers of tourism products. The internet provided a means of obtaining information on service quality and cost and allowed the purchasing of products and services instantly and interactively. In the aviation industry, consumers hold higher bargaining power.
Bargaining Power of Suppliers
The major suppliers in the aviation industry are aeroplane manufacture and human resources provider. Airliner manufacturer is responsible for delivering the plans and providing parts for in-service maintenance. There is three major producers of Airliners Airbus, Boeing and Bombardier. Airbus and Boeing are considered industry leaders; they work with their partnered firms, such as General Electric and Rolls Royce, to deliver the plans. The suppliers’ industry is more concentrated than the industry to which it sells, and no readily available substitutes are available (Oregon State, 2021). In this case, suppliers are limited, and industry is concentrated. Which makes switching cost high, and there are not many other options available. In this case, the supplier owns moderate power in negotiating a better deal.
References
Dess, G. G., Lumpkin, G. T. and Eisher, A. B (2006). Strategic Management. Text and cases. International edition. London: McGraw-Hill.
Forbes. (2021). United Airlines Holdings. Available at: https://www.forbes.com/companies/united-airlines-holdings/?sh=2e1bf0f8193d
Fortune. (2021). United Airlines Holdings. Available at: https://fortune.com/company/united-continental-holdings/fortune500/
Grant, R. M. (2010). Contemporary Strategy Analysis. 7th Edition.
Oregon State (2021) Analyzing the Organization’s Microenvironment. Available at: https://open.oregonstate.education/strategicmanagement/chapter/3-analyzing-the-organizations-microenvironment/
Statista. (2021). Domestic market share of leading US airlines from January to December 2020. Available at: https://www.statista.com/statistics/250577/domestic-market-share-of-leading-us-airlines/#:~:text=U.S.%20airlines’%20domestic%20market%20share,in%20sales%20revenue%20in%202019.
Wearefinn. (2018) Is hyperloop a competitor to aviation? The jury is out. Available at: https://www.wearefinn.com/topics/posts/is-hyperloop-a-competitor-to-aviation-the-jury-is-out/