This case is based on United Airlines, which is a large commercial air carrier operating in the United States and internationally. The information contained in the case shows that the company is struggling to cover the costs of flights from San Francisco to Washington D.C. because of low revenue and high expenses on these particular flights. The apparent decision, in this case, would be for the company to discontinue flights on this route. However, a more in-depth analysis of the case shows that this might not be the best decision and that there are other possible solutions to the issue.
First of all, it is essential to note that the costs of operating two hubs in San Francisco and Washington D.C. are fixed. They will not change if United Airlines were to discontinue the service from San Francisco to Washington D.C. because there would still be other United Airlines flights originating from or arriving at these airports. For example, in 2017, United Airlines increased the number of flights to and from San Francisco (United Airlines, 2017).
The fixed costs of the airline’s operations at the two airports will not change as a result of discontinuing one flight route, and they should not have been included in the cost analysis. Therefore, the losses incurred by the airline are less significant than the WSJ estimates, and the decision on whether or not to discontinue the chosen flight route should take into account other factors.
The most important factor is that low revenue is only evident for flights in one direction since the report does not mention the same issue on flights from Washington D.C. to San Francisco. This suggests that air transportation between these two destinations is in demand. At the same time, the competition in the U.S. air transportation sector is intense, with a great variety of carriers available to choose from (Heimlich, 2017).
If United Airlines were to discontinue the flight from San Francisco to Washington D.C., those who travel by this route would switch to one of the other airlines in the region. If the quality of service provided by the competitor is higher than they had experienced with United Airlines, they could choose to fly with this competitor on other routes, too. As a result, the discontinuation could affect the demand for United Airlines services on different routes and result in the loss of market share. Hence, the analysis of factors such as demand and competition shows that this is not the best decision for the business.
A better option, in this case, would be to maintain this route while either reducing costs or improving revenue. For instance, United Airlines could try to cut down on the costs of food by reducing the weight of each portion. It could also increase the number of first-class seats available on these flights, thus selling more tickets at a high price. If the flights usually have fewer passengers than seats available, the company could change the aircraft on this route to a smaller one, thus saving on the cost of fuel and reducing the number of flight attendants required.
To attract more customers, United Airlines could also try to lower the price of tickets for a limited time or improve the flexibility of booking conditions. This would appeal to customers who fly this route using competitive air carriers, thus increasing United Airlines’ revenue.
References
Columbus, L. (2018). The state of the subscription economy, 2018. Forbes. Web.
Heimlich, J. P. (2017). U.S. airline competition has intensified, leading to more air service and lower prices for consumers. Web.
United Airlines. (2017). United Airlines increases service between San Francisco and 18 destinations. Web.