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.