Experimental Exercise Mark Lockhart

Experimental Exercise 4.1 Strategic Planning

Mark Lockhart

MBA602-O15-002 Dynamics of the Organization

Dr. Robertson

Experimental Exercise 4.1 Strategic Planning

The firm in this exercise is United Airlines. They have a past history of bankruptcy and merged with Continental. A clearly United Airline's has defined what business it is in and how it is different from its competitor, namely Delta Airlines. According to Bachman, United is spending big on the newest airplanes for their fleet. This is a huge capital investment that will drive up the cost of tickets for consumers. They will have to promote and market flying on their airlines as worth the cost of paying more for riding in a newer model airplane. Delta on the other hand will be able to make a higher profit at the same or even lower price tickets. The article stated that "Shareholders and customers are noticing and so far they don't appear to prefer that new-airplane smell." (Bachman). This United strategy does not make sense to me at all. Maybe I am making too many assumptions about the market and the airline industry.

First of all, to look for a successful business model in the airline industry, we have to look at southwest airlines. They showed every airline, that to make money in this industry you need to give good customer service, have competitive rates, and be reliable. Southwest airlines have made a profit when many other airlines were going broke. They have efficiencies built into their company's strategic plan that gave them a competitive edge in every area of their operations. For instance they have, for the most part just one model of airplane that they fly. This allows them to have a limited number of parts that they have in inventory so that when their planes break down, they will have the parts to fix it. They can fix it fast and they can get it back in the air. A plane on the ground out of service cost them money. Their mechanics only have to know one airplane system and they become experts in the Boeing 737 airplane. This makes it easier to keep costs down for maintenance. And it keeps their employees happier because they can do their job well and they are experts at what they do. Southwest Airlines is known for its competitive ticket prices. They have the basic amenities and consumers have shown historically that they like that. In an economy where every organization is cutting back, up to 15% of the country is unemployed, and everybody is looking to the future with thoughts of the United States having a financial uncertainty, nobody can assume that people will pay more for tickets just because they are flying on new airplanes. In this industry a Functional and Low Cost Strategy are what Southwest Airlines demonstrated that work.

United Airlines wants to be the luxury airline of the skies. When Delta will be the airline that is able to compete on price for tickets and not have the pressure of huge debt. I am making the assumption that United Airlines will not be able to make the same profit as Delta at the same ticket price.

We can only make assumptions based on past trends. That is why I site the southwest airline as a model for efficiency in the airline industry. Delta seems to be holding to that successful business model. I know that southwest airlines are not a global airline. But the management strategy they employ seems to be sound for any airline company.

The key strengths of the United Airline strategy are that the new airplanes will last another twenty to thirty years. And at some point in time Delta is not going to be able to fly those old airplanes that already have twenty plus years on them. In the future, the cost for the same airplane is going to become more expensive. Buying now gives united airlines a fleet that is going to be able to last for the next three decades. United airlines objective is to buy new airplanes so that they will not have high maintenance fees, they will be more reliable, and have more comfort and be much more fuel efficient. This is their internal strengths. The new airplanes come configured with the newest technology like wireless connections for multimedia devices, information portals for laptops and other portable business devices. Newer planes will be and added value but at what cost. . I am assuming that the new planes are more cost efficient as well. United Airlines must have had a large infusion of capital in order to make the big purchases that they made. They will be able to keep these planes flying for the next twenty to thirty years without having to make any more major investments. The spending spree at Paris makes this company look like they have money to spend. They have probably marketed to their own employee's and promised great success with the newest and greatest airplanes in the business. It looks like to the employee's that United is investing in them and their company. This will boost employee morale. Creating a positive employee environment is another internal strength.

The weakness of the firm is that it came out of bankruptcy in the past. They had problems handling the management of the income verses revenue in the past. They are now seemingly, jumping right back out into the same model of doing business that failed previously. They somehow felt that they could still succeed with their last management strategy. I was told many years ago that if you want different results you cannot continue to do the same things that you have always done. You have to change what you are doing to get different results. Internal weaknesses are that they will have a huge debt load. Their employees, investors, and customers are going to be unsure if they can be trusted as an employer and company that have staying power in the market. They have to prove that they can be competitive and not fail financially again. They are one of the airlines that started charging extra for luggage. Their customer services and price structure for those services put them at risk for loss of market share in consumer's eyes.

The external opportunities are that there are customers that will want to fly in the newest aircraft in the market.