Chapter 6 Mba 540

In: Business and Management

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Analyzing Managerial Decisions: United Airlines United Airlines (UA) offers a service to consumer by transporting them by air from one location to another. This service comes with a fee in the form of a ticket purchased at a specific price. UA must sell enough tickets to cover its operating cost which include items like fuel, ticket agents, website cost, airport fees, baggage handlers and so on. Anything over the operating cost would be considered a profit. The overall goal for operating UA is to maximize its profits. The Wall Street Journal reported that one specific route, Washington DC to San Francisco, for UA was operating at a loss for the company (Brickley, 2015). The managers at UA are faced with a decision to either cut the route or maintain the route.
UA is one of ten major airlines operating in the United States. They currently operate 231 domestic and 143 international routes (Destinations). In 2015 they generated revenue of $37,864 million and had operating cost of $31,697 million, down 3% and 11% from the year prior. At the same time UA was able to increase their profits by 118% to $5,167 million (News, 2016). As of Feb 2016, UA currently holds 14.6% of the US market for flights (RITA, 2016). Overall, UA had a very healthy year, profits were up and operating cost were down resulting in a substantial profit. Breaking down the route from Washington DC to San Francisco. It represents .06% of UA’s market share. According to a search on Google flights the route only has two carriers with a combined nine daily flights, UA operates seven and Virgin Airlines two flights daily (Google Flights, n.d.). UA holds a firm grasp of 78% of the route to San Francisco.
In the US we have four different types of market structure. These are competitive, monopoly, monopolistic competition and oligopoly. The airline industry falls into the oligopoly…...

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