Management Accounting for Cost Control: United Airlines Case Study

This case study examines the cost management strategies employed by United Airlines to address significant challenges, focusing on the leadership of CEO Oscar Munoz. The analysis delves into the company's labor issues, stemming from mergers and poor management, and how the management team, led by Munoz, implemented strategies to revamp labor deals and improve employee engagement. The study highlights the importance of viewing labor investments as long-term investments rather than mere costs. Furthermore, it explores the airline's cost-cutting measures, operational efficiencies, and adjustments to fare structures to maximize revenue. The analysis also covers the reduction in capital expenditure and its impact on profitability. The conclusion emphasizes the importance of strong leadership and effective team collaboration in overcoming challenges and achieving successful outcomes, along with the identification of potential weaknesses such as fierce competition.

Management Accounting
for cost & control

1
By student name
Professor
University
Date: 30 August 2017.
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Contents
Introduction..…………………………………………………………………...3
Analysis.........…………………………………………………………….....….4
Refrences.....……………………………………………………………….......5
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INTRODUCTION
In this article that has been selected, the main area of focus is how the main management team
of the United Airlines was able to solve one of the biggest management issues that it faced in the recent
times. It gives a brief review of the problem that the company faced and the strategies that the
company and its CEO Oscar Munoz to reach a winning solution that will be helpful in solving the major
issues that the company faced. A lot of it was because of the extremely impressive leadership qualities
of Oscar that led a team of hundreds of laborers to get the desired result. It shows that if the leadership
is in the right hands than no problem is big enough that it cannot be solved (Schlege, et al., 2017).
ANALYSIS
The given company faced a lot of issues with its labor force, having the numbers in hundreds
and the management was very poor. That led to a lot of complications. Even after having the best assets
in the business, the company was not able to tap its full potential because of the ongoing network
issues. The downfall that the company faced because of the mergers that it entered into 2010, led to an
aftermath in its labor policies. This led to a loophole in the labor element that was present in the
company. To solve the same the management understood that the airline company is a people business
and in case they fail to engage in their own employees, they won’t be able to excel. So they started
looking for options by which they can solve these issues. They started with revamping of the labor deals,
some were very expensive for the company, some were easy to crack, and some had a lot of
complications involved (Baal, et al., 2016). The CEO held an approach that all the investment that the
company is making in these labor deals can be treated either as a cost or they can consider the same as
a future investment that will help the company to excel in the times to come. The CEO believed in that
cracking or ratifying the labor deals was not the sole solution to the problem, what was needed was that
the ground level workers must be approached. He himself approached them to understand their
demands, their needs and what the company can do in the long run to retain these employees when the
competition in the airline sector was so fierce. With the solving of the labor issues, the other issues that
the company faced were related to the high fuel costs and the labor incentives that the airline had to
provide. To solve the same, the airline induced in certain cost cutting methods that will help in reducing
the overall cost and also opted for higher operational efficiencies. The overall fare structure of the
customers were also changed and a lot of specifications were involved so that no unreasonable fare is
charged neither free services were provided to the customers. All the different cost centers in the
company were managed to reduce the cost as much as possible. Along with focus on the international
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sector, the company tried to maximize revenue from the domestic flights as well. It also opted for
development of better network transaction between the various flights that were operated so that
eventually the company will be able to tap in both the domestic and international market. As stated in
the article because of the efforts undertaken by the management the overall capital expenditure was
reduced by $1.6billion for 2016 and 2017. This has led to increase in the overall profit for the company
and had also provided a base that will help the future development (Dichev, 2017).
CONCLUSION
The CEO and the management team have been able to get a winning solution for one of the
major cost management issue that the company was facing. The potential opportunity that the company
was able to tap in was the availability of cheap labor by entering into agreements. The major potential
weakness or threats that can be identified from the system is the presence of fierce competition that is
always ready to tap in the optimum resources and the weakness may be in the co operation of the
management team. However the biggest point to be taken back is that if the leader is fierce enough to
take the responsibility on his own shoulders, the company was always progress. A good team only works
when they have a good leader to support them and guide them (Maynard, 2016).
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Refrences
Baal, P., Meltzer, D. & Brouwer, W., 2016. Future Costs, Fixed Healthcare Budgets, and the Decision
Rules of Cost-Effectiveness Analysis. HEALTH ECONOMICS, 25(2), pp. 237-248.
Dichev, I., 2017. On the conceptual foundations of financial reporting. Accounting and Business
Research, 47(6), pp. 617-632.
Maynard, J., 2016. Financial Accounting, Reporting, and Analysis. U.K: Oxford University Press.
Schlege, D., Frank, F. & Britzelmaie, B., 2017. Investment decisions and capital budgeting practices in
German manufacturing companies. International Journal of Business and Globalisation, 16(1).
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