Oligopoly of United Airlines - Case Study Example

Oligopoly of United Airlines Introduction United Airlines is one of largest companies in the airline industry. The airline industry is an oligopoly. Despite its experience the firm has been going through some harsh times. In order to reduce costs the company has been implementing a series of initiatives that are hurting the customer service the company offers. Recently the firm encountered a problem with a young musician which escalated because the company did not satisfy the customer’s needs. The bad press the company received hurt the public image of the company which devalued the price of the company’s common stocks. Issues The company has a workforce of 50,000 employees worldwide (Deighton & Kornfeld). Despite the firm’s resources the company has not been able to effectively use its workforce to provide excellent customer service to its clients. The lack of customer service has grown and the firm has been losing clients due to its lack of care for the needs of the customers of the company. Dave Carroll made a reasonable request when his guitar was damaged due to the mishandling of his property by the employees of the company. A second issue that must be considered by the company is how to implement collateral damage in order to stop the Dave Carrols incident to continue to escalate any further. The company cannot afford for this issue to continue to be in the mainstream media for months or even years. The consequences of the song being a hit that lingers into the popular culture for a long period of time would be devastating for United Airlines. Alternative solutions The firm currently faces a major dilemma due to the Dave Carroll situation. A way to face the problem and find a resolution to eliminate the spillover effect the video can have in the long term is by reaching a confidential settlement with Dave Carroll to compensate him for punitive damages. The basis of the agreement would involve Dave taking the video off YouTube and other sites and for him to make a public announcement that the issue was settled with United Airlines and he was satisfied with their final resolution. The company would pay Dave Carrols a lump sum payment of $250,000 to $500,000. A second alternative solution to deal with the problem is to apply avoidance. Avoidance involves ignoring the problem by pretending a problem does not exist (Schermerhorn & Hunt & Osborn). The company would let time fix the issue as people forget about it and move on the next piece of news. This alternative solution can be applied at a very low cost to the company. The risk associated with the solution is that YouTube serves as a video database. If the firm is unlucky the popularity of the song may linger for a long period of time. A third alternative solution is to disregard the short term problem associated with the Carroll incident and to implement a solution that will prevent the company from facing similar issues in the future. The firm has to begin to gain the trust of its customers by drastically increasing the level of customer service. For starters the policy of eliminating all free snacks to customers must be reversed. People get anxious during flights and offering a light snack free of charge is a way for the customer to know that the company cares. The firm would implement new rules and guidelines protocols to deal with damage goods incidents. The policy of reporting the damage within 24 hours will be changed to 30 days to allow sufficient time for the travelers to finish their vacation and get back home to file out the complaint. A fourth alternative solution is for the company to create a new insurance service to protect their luggage valuables. The insurance could be purchase to insure items at different value ranges such as $1-500, $501-1000, and $1001-$10,000. The cost of the insurance would be paid for when the customers purchase their tickets or at the airlines prior to the flight. If the customer purchased the insurance with the tickets they would received a 10% in the purchase of the insurance. This solution would provide a way to satisfy the needs of travelers such as Dave Carroll that travel with expensive merchandise that requires special protection. Optimum Solution The alternative of avoidance was not selected because this alternative does not insure that the issue will not continue to linger for a longer period of time. There was as estimate in the media that claimed that the broken guitar song had cost the shareholders of the company over $100 million in loss of equity value. The solution of making new changes to the policies and guidelines of the company in regards to customer service was also rejected. The reason it was rejected was because the solution was too vague and did not directly address the Dave Carroll issue. The optimum solution to solve the problem was a combination of solutions. The combination of solution selected was to pay off Dave Carrols in order to get his cooperation removing the online videos of the song and related material and to create a new insurance plan to protect property. The solution helps the firm in the short and long term. Implementation Plan The optimum solution selected was to pay off Dave Carroll and to create a new insurance plan to protect your luggage. Dave Carroll would meet with the lawyers of the firm to sign the paper work related to confidentiality agreement and the terms of the compensation package. This step should be complete within one week. The next step is to start a media campaign in which Dave tells the media that that matter between himself and United Airlines is resolved and he is satisfied with the resolution. This media tour should take three weeks to complete. The firm should have a proposal for the new insurance service within 30 days. The proposal would be send to finance and accounting in order to determine the prices of the different insurance services. This step should take two week. The project would be send to the board of directors for final approval. The total elapse time for implementation of the project is 60 days. Work Cited Page Deighton, J., Kornfeld, L. 2010. “United Breaks Guitar.” Harvard Business School. Schermerhorn, J., Hunt, J., Osborn, R. 2003. Organizational Behavior (8th ed.). New York: John Wiley & Sons. Read More