Responding to a changing external
business environment
Introduction
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Many business organisations operate in complex business
environments that can be hard for them to fully understand and
impossible for them to fully control. Whereas internal factors
within businesses can generally be managed and dealt with
effectively, external factors cannot be controlled in the same way.
The full impact of these external factors, which can be devastating
for a business, may also be hard to assess. This makes it hard for
managers to make the best decisions for their organisation.
It is difficult for even the best decision makers to monitor their
business environment and then respond appropriately to changes as
and when they occur. In competitive industries, where organisations
continually face challenges posed by a volatile external
environment, decision makers have to be particularly ready to
respond. This involves making strategic changes that bring the
organisation’s internal structure and operation into line with the
changed external environment.
Airlines operate in a particularly challenging business environment.
Although the airline industry has experienced regular, ongoing
growth since 1991, it sometimes experiences massive, destabilising
shocks. The events of September 11th 2001, for example, had huge
repercussions for major airlines, many of which saw their business
fall away.
Airlines are also affected by the actions of regulatory bodies such
as aviation authorities, the Air Transport Users Council (which
promotes the wider interests of passengers), national governments
and consumer bodies.
Major airlines also carry huge fixed costs that make it very difficult
for them to adjust quickly either to expansions or contractions
within their markets. Large scale, unpredictable reductions in
business turnover can be particularly damaging.
This Case Study focuses upon how United Airlines, one of the
world’s largest airlines, has responded flexibly to severe challenges
within its external environment; challenges that forced the airline to
file for bankruptcy protection in a US court in December 2002, a
position from which it will emerge in 2004 having trimmed its
costs, by making its existing assets more productive, and by using
its marketing mix as a strategic tool to improve the ways it meets
its customers’ needs.
United Airlines
United Airlines was formed in 1927 from four airlines: Boeing Aeroplane
Company, National Air Transport, Varney and Pacific Air Transport. From
being predominantly a USA domestic carrier, United Airlines expanded
into international routes to become the world’s second largest air carrier.
With hubs in Chicago, Denver, Los Angeles, San Francisco, Washington
D.C. and key international gateways in Tokyo, London, Frankfurt, Miami
and Toronto, United flies to 117 destinations in 26 countries. United
employs more than 80,000 people worldwide and carries more than
210,000 passengers daily. Through the Star Alliance, United’s customers
have access to more than 700 destinations around the world.
By using marketing activities to provide customer-focused products and
services, United remains an industry innovator. In a service-based
industry, customers and the services they require are at the centre of any Legal influences
marketing strategy. In addition to offering convenient scheduling Like all airlines, United must observe the rules and regulations of the
throughout its domestic and international routes, United seeks to attract USA’s Federal Aviation Authority (FAA) and the UK’s Civil Aviation
high-yield customers and to earn their preference and loyalty. It does this Authority (CAA). This leads to heavier costs and more administration.
by being quick to innovate in areas such as frequent-flyer programmes as Under current USA/UK agreements, only four major airlines may land at
well offering enhanced products and services such as e-tickets, and Heathrow on direct flights between the two countries. These are United
improved electronic display systems, gate readers and scanners.
Airlines, American Airlines, British Airways and Virgin Atlantic. With
European legislation focusing upon opening up this market, any form of
Assessing the external environment anti-trust legislation could lead to increased competition.
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Economic influences
Social influences Legal influences Governments are under pressure to create ‘open skies’ as well as to
force down prices on high traffic routes such as Heathrow. In recent
External environment years, airlines have had to cope with higher landing charges as well as
additional taxes imposed upon the air-travelling public. World events
such as SARS and the Iraq war also have a direct economic influence
Technological influences Political influences Economic influences
upon airlines’ activities.
One useful way of assessing an organisation’s external environment
involves grouping forces into five areas using a SLEPT analysis. A recent
analysis of factors affecting United Airlines produced the following:
Social influences
Many UK travellers fly frequently to various destinations. Because they
have plenty of choice and also know something about key world issues
and events, their travel selections are influenced by many different factors.
For example, the widely reported SARS epidemic and various acts of
terrorism each caused a significant fall in numbers travelling to certain
destinations. Over a period of time, however, others factors that
influence travel destinations and people’s willingness to fly come into
play, and travellers regain confidence in destinations and in modes of
transport they had temporarily deserted.
 Political influences
The political environment is determined largely by governments and
powerful decision makers able to create laws, regulations and codes.
Transatlantic carriers look for Heathrow landing slots as well as USA
landing rights, but American politicians are under pressure to protect
lucrative internal USA flights from overseas competition as travellers
arrive at key hubs and then travel onwards within the USA. Politicians
are also involved in European/US negotiation of bi-lateral agreements
and in many countries it is they who frame and enforce anti-trust
legislation as well as, perhaps, minimum wage legislation.
Technological influences
The safety of passengers and crew remains a prime concern for all
airlines. Faced with rapidly advancing technologies, United is actively
aware of an ongoing need to invest in aircraft and update its fleet while
at the same time providing more and improved customer service
benefits, both in-flight and on the ground.
Meeting the external challenges
4 a key way to counter adverse environmental forces. United’s e-ticket
The SLEPT analysis illustrates the complexity and uncertainty of the
airline environment. To handle this, United Airlines must itself
continually change and evolve to ensure that it remains the carrier of
choice, based upon its leading position as a major innovator. Only then
will sufficient customers continue to prefer United Airlines and remain
loyal to it.
Whilst ticket prices certainly matter to airline passengers, customer
service is also highly important, being a major feature of passengers’
choices and a key factor through which many major airlines compete.
Good customer service doesn’t just happen: it has to be worked at. It
involves pre-transaction considerations and the processes designed to
satisfy customer needs as well as post-transaction considerations that
are designed to ensure that as customers complete their journey they are
happy to describe their positive experience to others.
In response to changes identified through the SLEPT analysis, United
has acted. It has:
◗ developed a route structure spanning five continents and offering
the most non-stop flights from the Pacific Rim to the USA
◗ set new standards for the comfort and safety of its aircraft fleet
◗ developed the Star Alliance network, bringing together 15 carriers
who offer services to over 700 airports in more than 120 countries
◗ further developed and invested in its airport lounges
◗ created the Red Carpet Club, providing members with access to
over 40 facilities worldwide
◗ offered First and Business customers access to an arrivals suite
with the opportunity to shower, enjoy a continental breakfast and
utilise business services.
In a technologically-based industry, using new technology creatively is
service has simplified check-in procedures. Changes in computer
hardware have enabled United to provide large-screen electronic
display systems as well as gate readers and baggage scanners to
improve the tracking of luggage. United recently received the highest
ranking among airlines for its effective use of the Internet. Behind the
scenes there are flight information systems and other software systems
designed to provide up-to-date information for customers.
The importance of marketing
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Market orientation lies at the heart of United’s recovery operation. Its
Chief Executive believes that although hard times may make reductions
in the labour force inevitable, and may also lead to adjustments to its
aircraft fleet and to the balance between aircraft purchase and aircraft
leasing, marketing activities should not be reduced.
According to the UK’s Chartered Institute of Marketing, marketing is
‘the management process responsible for identifying, anticipating and
satisfying customer requirements profitably’. United Airlines takes the
view that marketing helps to sustain, maintain and (in the medium to
longer-term) develop customers’ perceptions and thoughts about the
business by developing a series of brand values that keep the United
Airlines brand moving forward.
United also appreciates the need to match the marketing mix to the
particular business environment. For example, UK customers do not
usually respond well to global messages. Where changes within a
business environment affect different parts of the air travel market in
different ways, it is important to develop a polycentric approach to
marketing. This involves applying different marketing mixes in
different countries to meet the needs of each consumer group. United
Airlines communicates with UK consumers in ways that satisfy their
particular concerns, and also provides specific messages for each sector
of its UK audience.
For example more people are taking control of their own travel
arrangements. These “independent leisure travellers” can be reached
through a certain style of advert which links in with their independent
attitude e.g. “I prefer holidays off the beaten track” or “I have a keen
sense of adventure”. This group is reached through media such as
consumer press and music radio. The business traveller is reached
through statements like “We know business travel isn’t glamorous but
we’re doing our best to make it as good as it can be.” This statement is
backed up by offers of free upgrades to Business or First Class to
frequent business flyers.
United Airlines also created a campaign specifically for the UK
audience in order to promote its products through sales promotions.
For example:
◗ Frequent flyer newsletters address customer retention and have led
to providing customers with details about a range of offers linked
to additional ‘Business Miles’.
◗ Discounts are provided for travel agents based upon the sale of
leisure and business tickets.
Conclusion
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This Case Study illustrates that if decision takers know and understand
many of the influences and changes in their own business environment,
they can use this data to make key decisions that help counter many of
the challenges and threats that they face. It shows how United Airlines
has used marketing as a strategic tool to move the organisation forward
and to provide it with a series of important competitive advantages.
Glossary
Anti-trust legislation: Laws making certain agreements/activities
illegal because they restrict competition.
Brand values: Series of perceptions, thoughts and images created
by a brand that influence customers and encourage them to
choose it in preference to other brands.
Business environment: The complex range of factors outside
an organisation’s control that influence its ability to compete.
Fixed costs: Costs that remain unchanged at all levels of output
in the short-run. e.g. interest charges on loans, cost of lease for
aircraft, salary entitlements of staff on permanent contracts,
pension rights of retired employees, insurance premiums.
Industry innovator: An industry mover-and-shaker who is
normally the first to do something new, different and worthwhile.
Leasing: The use of an asset over a period in return for payment
of a fee.
Market orientation: The degree to which the consumer
becomes the driving force behind everything an organisation does.
Marketing mix: A series of variable factors such as the four Ps
(product/price/place/promotion) used by an organisation to meet
its customers’ needs.
Polycentric: Many-centred.
Sales promotions: Incentives to encourage the sales of products
and services.
© Business Case Studies LLP. www.businesscasestudies.co.uk
SLEPT analysis: A method of interpreting the changing factors
within an organisation’s external environment by categorising them
into social, legal, economic, political and technological influences.
For more information about United please browse:
www.unitedairlines.co.uk