United Airlines Case Analysis

BSAD 449 – Professor MussBSAD 449 – Professor Muss

May 9, 2006May 9, 2006

byby

Renee Graham, Tamar Ferguson, Hope Halberg Renee Graham, Tamar Ferguson, Hope Halberg Jessica Powers, and Laura RickardJessica Powers, and Laura Rickard

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Summary Overview

• Introduction

• Industry Analysis

• Company Analysis

• Competition

• Problems

• Recommendations

• Conclusion

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General Environment and Trends

• Demographic

• Economic

• Political/Legal

• Sociocultural

• Technological

• Global

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General Environment and Trends

• Industry– Low-Margin

– Capital-intensive

• Cost components– Labor

– Fuel Costs

• Unions

• Price Competition

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General Environment and Trends

• Techonology-

• Internet

• Decrease of customer loyalty

• Global Trends

• -1992 Strategic alliance with Air Canada

• -1997 Star Alliance

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General Environment and Trends

• Sociocultural Trends-

• -September 11, 2001

• - United Airlines Response

• Political/ Legal

• -1978 Deregulation

• -Air Transportation Safety and System Stabilization Act

• -Emergency Aid Loans

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General Environment and Trends

• Opportunities for continued success

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• The deregulation act of 1978

• Market size

• The point-to-point system

• Hub-and-spoke system

• Alliances

• Rolling hub system

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PORTERS

JET BLUESOUTHWEST

ROADWAY TRAVELTRAINS

OIL COMPANIESUNIONS

TRAVELERSFREIGHT COMPANIES

POSTAL SERVICE

AMR UALDELTA LUFTHANSA

JAPAN

Porters Model

Threat of new entrants

Supplier relationships

Threat of substitute goods

Bargaining power of consumer

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SWOT

  BREAKDOWN JET BLUE AMR UAL SWEST DELTA

PRICE 0.4 9 7 7 8 8

    22.5 17.5 17.5 20 20

GATE PERFORMANCE 0.2 8 8 8 8 8

    40 40 40 40 40

QUALITY 0.2 9 7 6 8 5

    45 35 30 40 25

RELAIBILITY 0.1 9 5 6 8 4

    90 50 60 80 40

MARKETING 0.1 6 4 4 6 4

    60 40 40 60 40

TOTAL 1.00 298.5 213.5 218.5 278 194

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SWUAL

Cost to Consumers

High Medium Low

JetBlue

RyanairLufthansa

Japan

DAL

AMR

High

SECURITY

Low

CAL

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Tangible and Intangible Resources

• Value– Price

• Tangible

• Intangible

• Brand Loyalty

• Frequent Flyer

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Differentiation

• Market Share– Point-to-Point

• No Change

• Competition Strategy

• Delta

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UAL Financial RatiosUnited Airlines Financials

Ratio 1997 1998∆ '97 to

'98 1999∆ '98 to

'99 2000∆ '99 to

'00 2001∆ '00 to

'01

Gross profit margin 43.5% 43.9% 0.4% 47.3% 3.4% 42.4% -4.9% 28.5% -13.9%

Net profit margin 5.5% 4.7% -0.8% 15.6% 10.9% 0.3% -10.6% -13.3% -2.7%

Return on assets 6.0% 4.4% -1.6% 13.4% 9.0% 0.2% -13.2% -8.5% -8.7%

Return on equity 38.9% 20.5% -18.4% 46.5% 26.0% 0.9% -4.5% -69.0% -23.4%

Debt to assets 81.3% 77.9% -3.4% 70.7% -7.2% 76.3% 5.6% 87.7% 11.4%

Debt to equity 527.1% 361.0% -166.1% 245.2% -115.8% 322.8% 77.6% 710.2% 387.4%

LT debt to equity 9.6% 2.4% -7.2% 1.5% -0.9% 3.0% 1.5% 39.1% 36.1%

Cash ratio 0.06 0.07 0.01 0.06 -0.01 0.26 0.20 0.21 -0.05

Quick ratio 0.36 0.34 -0.02 0.36 0.02 0.55 0.19 0.46 -0.09

Inventory turnover 1.77 1.78 0.01 1.90 0.12 1.74 -0.16 1.40 -0.34

Fixed asset turnover 1.09 0.93 -0.16 0.87 -0.06 0.86 -0.01 0.73 -0.13

Total asset turnover 1.10 0.95 -0.15 0.86 -0.09 0.79 -0.07 0.64 -0.15

Receivables turnover 16.53 15.43 -1.10 14.04 -1.39 15.91 1.87 15.41 -0.50

Avg.collec.period 0.05 0.04 -0.01 0.04 0.00 0.04 0.00 0.04 0.00

Payables turnover 16.87 15.26 -1.61 18.64 3.38 16.29 -2.35 12.73 -3.56

Days of cash 6.20 8.11 1.91 6.28 -1.83 31.67 25.39 38.18 6.51

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UAL Expenses

Components of UAL Income Statement as a Percentage of Sales

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

1997 1998 1999 2000 2001

Year

Per

cen

tag

e o

f Sal

es

Cost of Goods

Sell gen&admin.exp.

Net Income

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Industry Ratios

Airline Industry Leverage Ratios

-400.0%

-200.0%

0.0%

200.0%

400.0%

600.0%

800.0%

Debt to equity LT debt to equity

CAL

AMR

DAL

USAir

UAL

Airline Industry Profitability Ratios

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Gross profit margin Net profit margin

CAL

AMR

DAL

USAir

UAL

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Industry Ratios

Airline Industry Liquidity Ratios

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Cash ratio Quick ratio

CAL

AMR

DAL

USAir

UAL

Airline Industry Activity Ratios

0.0

10.0

20.0

30.0

40.0

50.0

60.0

Inventory turnover Payables turnover Days of cash

CAL

AMR

DAL

USAir

UAL

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Selected Company Figures

($ in millions) CAL AMR DAL USAir UAL

Net Income -$95 -$1,562 -$1,216 $1,989 -$2,145

Net Sales $8,969 $17,484 $13,879 $8,253 $16,138

A/R $404 $1,371 $368 $272 $1,047

Cash $1,132 $117 $2,210 $537 $1,688

Airline Industry Financial Figures, 2001

-$5,000

$0

$5,000

$10,000

$15,000

$20,000

Net Income Net Sales A/R Cash

CAL

AMR

DAL

USAir

UAL

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Recommendations

• Liquidation– $72 Million Cut

– $500 Million in Future

– $572 Million in Cost Reduction

• Continue Strategies

• Changing System– American Airlines

– Long-term Contracts

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•Questions?