External Environment for United Airlines
For any company, the external environment consists of a set of external circumstances and forces that can affect the organization (Kennedy, 2020). As one of the biggest US airline company, the external environment for United Airlines consists of numerous factors, such as fuel cost, government regulation, competitors, aviation technology, consumer trend, and many others. Since it consists of abundant number of factors, it is convenient to break down the concept of the environment into two elements: the general environment and its industry environment.
The general environment includes the dimensions of the broader society that influence an industry and the organizations within it (Hitt et al., 2007). One of the most important tools that can be used to organize the general environmental aspects is PESTEL analysis, which is an abbreviation for Political, Economic, Socio-cultural, Technological, Environmental, and Legal (Kennedy, 2020).
For instance, the terrorist attacks of September 11, 2001, created a severe downturn in revenues for the entire airline industry that pushed United Airlines to file for Chapter 11 Bankruptcy in 2002 (Hitt et al., 2007). The tragic event has dramatically shaped the external environment for United Airlines and created uncertain political, economic, legal, and socio-cultural situations that significantly affect the company.
The industry environment, which is also called the competitive environment, consists of organizations that provide similar goods, services, or both, resulting in competition among them (Kennedy, 2020). The competitive environment for United Airlines generally consists of other airline companies and other transportation services that can become a substitute for air transportation. Some of the direct competitors are American Airlines, Delta Airlines, and Southwest Airlines. Newer “low-cost” airlines have also brought another competition to United Airlines.
The unique aspect of the external environment for United Airlines, and the aviation industry in general, is that it can be really contingent on a change in environment. For example, hurricane Katrina in 2005 brought huge problems on top of the increasing fuel price. It led to some of the airlines filing for bankruptcy later in the year. The Covid-19 pandemic had also severely upset these airlines.
The external environment for United Airlines is dynamic and continuously changing. The company must always be aware of these external changes and quickly change its strategic management whenever the change may bring significant impact.
Also read about PESTEL and Five Forces Analysis of Nike
United Airlines Strategic Group
A strategic group consists of a set of companies in a competition that have similar characteristics to one another but differ from the members of other groups in essential ways (Kennedy, 2020). For instance, United Airlines is not in a strategic group with the low-cost airlines since the company has different essential characteristics and it is not competing in the low-cost competition.
The competition between companies that are members of a strategic group is greater than the competition between a member and companies that belong to another strategic group (Hitt et al., 2007). For United Airlines, the strategic group may include the four main domestic carriers: American Airlines, Delta Airlines, and Southwest Airlines, along with United Airlines. Others would argue the strategic group for United Airlines includes only legacy carriers, which are the three biggest US airlines: American Airlines, Delta Airlines, and United Airlines (Lew, 2016) as Southwest Airlines is a low-cost carrier. I tend to agree with the latter.
Many people consider the U.S. airline industry an oligopoly controlled by those four main domestic carriers (Segal, 2022). An oligopoly prevails when a market is dominated by a small group of companies, usually because of the high entry barriers.
In the U.S. airline industry, the high entry barriers include soaring startup costs, the limitation of airport infrastructure that constrains the availability of take-off and landing slots, and the incumbents’ large economies of scale (Segal, 2022). This is how United Airlines have a relatively small strategic group.
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References Hitt, M. A., Ireland, D. R., & Hoskisson, R. E. (2007). Strategic Management, Competitiveness and Globalization: Concepts and Cases (7th ed.). South-Western College Pub. Kennedy, R. (2020). Strategic management. Virginia Tech Publishing. This book is licensed under a Creative Commons by-nc-sa 3.0 Attribution-NonCommercial-ShareAlike CC BY-NC-SA license. https://pressbooks.lib.vt.edu/strategicmanagement/ Lew, J. (2016, July 20). Are US Legacy Car. https://www.travelpulse.com/news/airlines/are-us-legacy-carriers-finally-getting-better.html Segal, T. (2022, February 7). Is the Airline Industry an Oligopoly? Investopedia. https://www.investopedia.com/ask/answers/011215/airline-industry-oligopoly-state.asp
