Running head: UNITED CONTINENTAL HOLDINGS

 

United Continental Holdings

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Abstract

The airline business has been a very competitive industry in all the various branches of operations. When airlines business is mentioned, it becomes hard not to think about the defining and trying times that were brought about by the terrorist tragedies of September 11th, 2001. The events of September 11th, 2001 did not only greatly affect the United States domestic airlines but also the global airlines were greatly affected. Due to this event the airline industry has witnessed government intervention in the sector in many ways such as compensation of the various stakeholders from events such as attacks from terrorists. There is a margin drawn between the various airlines that exist; the main difference is caused by the financial period income. There are those airlines which hit a revenue mark of 1 billion US dollars annually and they provide services both globally and locally (New York Times, 2010).

Introduction

The global airline industry was greatly affected by the global economic recession, with the revenue generated in the sector declining due to the low demand being experienced in the sector and increased fuel prices (New York Times, 2010). However, the industry is greatly expected to fully recover within the next five years as there is a steady increase in the amount of consumers and also the amount of international visits is expected to rise. The industry is also expected to greatly recover with the adoption of agreements which will see to it that travels between Europe and the united states have no setbacks this is because of the removal of many restrictions and borders this will increase the growth of the industry (New York Times, 2010).

 

Political, Economic, Social and Technological Overview of the Airline Industry

The application of political, economic social and technological analysis shows how the external environment surrounding the airline industry affects its operations, revenue and profitability

Political

The events of September 11, 2001 greatly affected the airline business not only in the United States but also the other international airlines (Douglas, 2009). This was majorly due to the reduced international visits and the number of consumers. This lead to reduced revenue which was also triggered by the increase in the crude oil prices (Douglas, 2009). The other events which lead to decreased revenue include;

  • Pricing regulations which made the airlines reduce their prices
  • There were also requirements from trade union such as guarantees and employees salary increment
  • There was also increased national airport security and other policies which had a great impact on the airline industry

Economic

The global airline industry was greatly affected by the global economic recession, with the revenue generated in the sector declining due to the low demand being experienced in the sector and increased fuel prices (New York Times, 2010). However, the industry is greatly expected to fully recover within the next five years as there is a steady increase in the amount of consumers and also the amount of international visits is expected to rise. The industry is also expected to greatly recover with the adoption of agreements which will see to it that travels between Europe and the united states have no setbacks this is because of the removal of many restrictions and borders this will increase the growth of the industry (Douglas, 2009). There is also a great slowdown in the rate of economic growth which has affected the industry negatively. The increase in fuel costs has also lead to a decrease in the revenue generated in the industry due to high operation costs. The other economic effect on the global airline industry is the fluctuations of the respective airline trading currencies for example the United States airlines have been greatly affected by the inflations and fluctuation of the dollar against the Euro and the Japanese Yen (Connie, 1997).

Social

Due to the global economic recession there has been increased layoffs hence having an effect in the general income received in all economic facets this also contributed to decrease travels by the people in the lower class and also the middle class. The above effects resulted to the decrease in revenue received in the airline industry. The other social events which affected the airline industry include. The negative attitude towards air travel which was caused by the terrorist event of September 11, 2001 (New York Times, 2010)

Technology

The dynamism of technology has had several impacts in the airline industry. There has been a great decrease in the airline travel agencies this is because many travelers can now contact their respective airlines directly this is due to the introduction of internet airline ticket reservations (Douglas, 2009). There is also increased best price shopping services and the availability of the Internet as a consumer and business fare and flight shopping tool. The airline industry is greatly characterized by rivalry and competition in terms of the number of passengers carried and the quality of services rendered. Of late the airline industry has seen a great step which will see the formation of the largest airline in the planet (New York Times, 2010).

The continental and united airlines have made a deal that will see the two companies merge to form the world’s largest airline overtaking the Delta Airlines. This merge also reduce the competition in the industry since the two since both are major players in the industry. Even thought the new united continental holding will have a great asset base and great market share there are many problems associated with such mergers is the antitrust issue despite the fact that the problems in the airline industry are too much to consider the issue of antitrust it is very important to consider it since it may have negative long term effects (New York Times, 2010).

United continental holdings

The United continental Holdings incorporation is the holding company for both Continental Airlines and the United Airlines, the company is listed in the New York Stock Exchange (Zacks, 2010).

Benefits of the Merger

The key benefits of the merger is the increase of consume options. This is because the merger is able to create a network that will be able to create a network which will stand a chance to give the customers more flight choices according to the companies’ vice president Greg Hart “Numerous communities will gain our services as well as begin to capitalize on the opportunity to use our combined fleet more efficiently” (Daily Markets, 2010). The merger will also see to it that both the United and Continental airlines experience new market opportunities due to increased flight routes and consumer choices.

Future Strategies

United Continental Holdings, Inc. (NYSE: UAL) has plans to launch services on new routes, the company is also planning to launch a service on the new nonstop routes in the year two thousand and eleven (2011) all this in a bid to utilize the combination of the route networks of both the Continental Airline and the United Airline (Daily Markets, 2010).The merger will see to it that there will be additional flights conducted by both the airlines for example Continental airlines  will add new flights between Houston's Bush Intercontinental Airport and Bakersfield and Palm Springs, Calif.; Cedar Rapids, Iowa; Grand Junction, Colo.; Hobbs, N.M.; Montreal; and Reno, Nev. From Cleveland Hopkins International, Continental will begin flights to Cincinnati, Ohio, and from New York/Newark Liberty, the carrier will begin service to Des Moines, Iowa (Daily Markets, 2010). United airline also plans new service from Washington Dulles International Airport to Louisville, Ky.; Minneapolis; Salt Lake City; Tulsa, Okla. and Grand Cayman in the Cayman Islands, if the government approves (Daily Markets, 2010). United airlines plan to start services from Denver International Airport to Amarillo, Dallas Love Field and Lubbock, Texas; from Los Angeles to Austin, Texas and from San Francisco International Airport to New Orleans. The above strategies are majorly characterized by increase of the service provided and utilization of new market opportunities (Daily Markets, 2010).

 

Strengths of the Merger

The greatest strength of the company is that, the merger has increased consumer options and increase in the market share. The increase in the air travel routes will also be a positive stride for the company since the company can exploit the new travel routes. The company is also the world’s largest airline (Zacks, 2010). This means the company has a wide asset base and also has the potential to expand its global flights operations (Zacks, 2010).

Weaknesses

The greatest weakness of the company is the antitrust issue; this issue greatly affects mergers even though the airline industry has many problems to address which are more important than this. It is good to address the antitrust issue since it may have long term negative consequences (Zacks, 2010).

Opportunities

With the large asset base; increased consumer choices and increase in the travel routes the company stands a great chance of increasing its operations. The company is faced with a great opportunity to be a great player in the airline industry. By increasing its services to the global scale the company stands a chance to increase its revenue hence increased profitability (Zacks, 2010).

Threats

Competition from the local firms is a great threat to the company; this is because there are other small airlines which provide services at cheaper prices which are also referred to as Low Fare airlines. Low-fare airlines were among the top four airlines in terms of airline quality, for example Jet Blue, Alaska America west and southwest were rated the highest quality airlines all these apart from Alaska are Low-Fare airlines. This means they stand a great chance of controlling the market with the low prices but high quality services (Zacks, 2010).

 

References

Beaver, Douglas F (2010) Agreement will set pattern for other carriers retrieved 12th November  

 2010 from http://www.answers.com/topic/ual-corporation 

Daily Market, (2010), United Continental Holdings, Retrieved November 12th 2010 from

http://www.dailymarkets.com

Lee, Connie J, (1997) Wall Street Journal 'Airline Stocks Advance on Cut in Commissions-

            Analysts Say Lower Fees for Agents to Aid UAL, But Fallout Is a Concern,’ p. B18

New York Times, (2010), United Continental Holdings, Retrieved on November 12th 2010

Zacks investment research, (2010), United Holdings Investments, Retrieved November 12th 2010

            From   http://www.dailymarkets.com