WRITTEN ANALYSIS OF CASE – CONTINENTAL AIRLINES

Submitted by,
Aravind Balachandran
Introduction

Continental Airlines (CAL) is one of the leading airlines in the world

servicing a large number of destinations, both within the U.S. and
internationally. CAL started off as a small airline company flying a single
engine Lockheed Vargas from El Paso, TX to Pueblo, CO. Due to their
constant strive for performance and customer satisfaction, this company
grew to become the fourth largest carrier in the U.S. and the fifth largest in
the world. Over the years, Continental has grown and successfully
weathered the storms associated with the highly volatile, competitive airline
industry. CAL carries approximately 50 million passengers a year to five
continents (North and South America, Europe, Asia, and Australia), with
over 3000 daily departures. Continental, along with Continental Express,
Continental Micronesia and Continental Connection, now serves more
destinations than any other airline in the world.

Vision Statement

To be recognized as the best airline in the industry by our customers,

employees, and shareholders.

Mission Statement

Our mission is to deliver a complete flying experience to our customers all

over the world through a combination of excellent and innovative service,
on-time take-offs and landings and hassle free check-in and check-out .We
will achieve this with the help of our staff who are our real assets and with
our fleet of modern, environment-friendly aircraft.

Analysis of Mission Statement

A mission statement is usually characterized by the presence of nine

components which act as driving forces for the company. In this section, we
try to analyze whether the mission statement drafted by CAL includes the
nine components and whether the statement makes effective use of them.

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The mission statement of CAL takes into consideration all the components
except for one.

Analysis of Internal Factors

Guiding Principles
Continental Airlines is based on the “Go
Forward Plan” developed in 1995 by-then CEO Gordon Bethune. This
principle continues even today as the guiding factor for the business plan of
CAL and the basis for evaluation of its accomplishments. The Go Forward
Plan is illustrated below.

 Fly to win
o Achieve above-average profits in a changed industry
environment.
o Grow the airline to where it can make money and keep
improving the business/leisure mix.
o Maximize distribution channels while reducing distribution
costs and eliminating non-value-added costs.

 Fund the future

o Manage company assets to maximize stockholder value and
build for the future.
o Reduce costs with technology.
o Generate positive cash flow and improve financial flexibility by
increasing its cash balance.

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  Make Reliability a Reality
o Deliver an industry-leading product the airline is proud to sell.
o Rank among the top of the industry in on-time arrivals, baggage
handling, complaints, and involuntary denied boardings.
o Keep improving the product

 Working Together
o Help well-trained employees build careers they enjoy every
day. Treat each other with dignity and respect.
o Focus on safety, make employee programs easy to use, and
keep improving communication.
o Keep pay and benefits competitive in a changed industry
environment.

Management and Human Resources

Continental Airlines has a relatively young
management team and they all entered service around the same time in mid-
1990s. The organizational structure of CAL appears to be based on
functional lines. A unique feature of CAL’s human resource approach is that
it rewards its employees for on-time arrivals. They have on-time arrival
incentives distributed to the employees at the managerial level and below.

Scope of Operations
Continental Airlines serves more international
destinations than any other U.S. carrier. It serves around 50 international
cities. CAL’s domestic routes are operated mainly through its hub airports at
Newark, Houston, and Cleveland. Along with its subsidiary, Continental
Micronesia, and regional flights operated by Continental Express and
Continental Connection, CAL operates more than 3000 daily departures
throughout the Americas, Europe and Asia.

Fleet
Continental Airlines is one of the few all-
Boeing fleets in the U.S. It uses three Boeing aircraft types – 777, 757/767,
and 737. Due to the standardized fleet structure, CAL stands to gain in the
arenas of training, maintenance and savings on replacement parts. CAL was
also one of the first airlines to add winglets to replace standard wingtips on

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its aircrafts. This reduced fuel consumption by up to 5%. CAL continues to
add new aircrafts to its existing fleet and has ordered 25 Boeing 787
Dreamliners to provide added fuel efficiency on international routes.
Service Quality
Analyzing service quality can be done
through Airline Quality Rating (AQR). The AQR is developed on the basis
of four criteria: on-time arrivals, involuntary denied boardings, mishandled
baggage, and a combination of 12 customer complaint categories. CAL’s
AQR score has been declining for some years now, though its ranking has
been improving.

Analysis of External Factors

PESTEL Analysis

Political, Governmental and Legal Forces

Airline industry is dependent to a great extent
on the political, governmental and legal forces that operate within a country.
This is very important and critical since an airline conducts operations not
only within its own country, but also internationally. The conditions and
forces that operate in a foreign country would affect the operations of an
airline. The government of a country gives clearance to the company to
operate its services to the airports selected by the government. Also, the
aviation turbine fuel (ATF) is another factor which has to be considered
since the prices of ATF are regulated by governments. Also, some countries
keep the conditions that airlines can only service particular airports only at
the time mentioned by the government due to security and legal reasons. So
CAL would have had to consider a lot before starting operations since they
operate to five continents and are the fifth largest airline company in the
world.

Economic Forces
As mentioned above, CAL operates in five
continents. This means that the airline would be servicing many countries
within these continents. Considering the scale of operations and business
conducted between different countries, the operations of CAL is dependent
on the exchange rates of currencies of different countries. CAL is affected
by the fluctuations in the value of currency and the general economic health
of the country to which it conducts its services/operations.

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Social, environmental and demographic forces
The September 11, 2001 (9/11) terrorist
attack on the U.S. has changed the aviation industry forever. That single
event showed the growing discontent of some groups in the world and how
airlines can be used as scapegoats to achieve their means. Terrorism grew
due to the inequality shown towards some groups and the groups resorted to
portraying their anger through acts of terror. Clearly, the aviation industry
was most affected industry post-9/11. Many airlines in the U.S. filed for
bankruptcy following the attacks. Also, the aviation industry has come under
the wrath of environmentalists who claim that airlines are one of the biggest
reasons for increasing global warming.
The U.S. work culture also has some effect on
the aviation industry there. Most employees use flights as a means of
transportation for jobs. There are people who fly to their office destinations
in the morning and fly back to their home towns by evening. This has
created opportunity for many U.S. airlines to start short distance flights
which cater to this segment of consumers and CAL is no different.

Technology
Technology is one field that keeps changing
with every passing day. The advancements made in the field have had its
impact on the aviation industry as well. The airlines have to incur costs to
update and upgrade their fleet regularly due to the changes in technology.
Consumers expect more from the airlines for the money they pay. The move
from standard paper tickets to e-tickets itself was a big break-through for the
airlines industry. CAL has adapted well to the changing technological
climate and has been able to sustain the momentum.

Competitive Profile Matrix (CPM)

Competitive Profile Matrix is a strategic management tool used to compare

one firm with the other major players in the industry. This tool allows a firm
to identify its major competitors and its strengths and weaknesses. The main
component of CPM is Critical Success Factors which are different factors
inside and outside an organization which shape the position of a firm. These
factors are extracted after deep analysis of the external and internal
environment of the firm.

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As per the Competitive Profile Matrix, Continental Airlines is the strongest
in the industry. Following Continental is American Airlines and United
Airlines. The main point to note here is that the difference between the
scores of CAL and American is not much. This means that American is a
very strong competitor and that American would be in a position to overtake
CAL soon. CAL has to devise more effective strategies to counter this
problem and ensure that they retain their position.

External Factor Evaluation Matrix (EFE)

External Factor Evaluation Matrix is a strategic management tool used to

assess the current business conditions, and to visualize and prioritize the
opportunities and threats the business faces.

CAL clocks a total weighted score of 3.20. In the industry, the accepted
average total weighted score is 2.5, below which a company is considered to
be weak. CAL’s position shows that it is comparatively stronger in this

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regard. However, this should not deter the company from tapping in to more
opportunities and turning the threats in to opportunities.

SWOT Analysis

Strengths

 The airline has customized food menu and in-flight entertainment

systems according to the destination it travels to.
 The company has a relatively young top management team who
joined the company around the same time. This gives the team an
added advantage of like-mindedness and similar attitude.
 The company also encourages its managers and employees to arrive
on time for work by providing incentives.
 The airline uses a single aircraft fleet (Boeing) which helps the firm to
maintain its training, maintenance and replacement costs at a reduced
level.
 The airline serves a range of domestic as well as international
destinations. CAL is also the airline which serves the maximum
number of international destinations compared to any other U.S.
carrier.
 The Go Forward Plan acts as a solid guiding force for the company to
realize its objectives.
 The airline has been able to control its costs while generating more
revenue.
 The Flight Management Dashboard is an innovative set of interactive
graphical displays. The displays help the operations staff quickly
identify issues in the CAL flight network and then manage flights in
ways to improve customer satisfaction and airline profitability.
 The company returned to profitability in 2006 after 4 years of making
losses.

Weaknesses

 The Go Forward Plan does not take in to account the environmental

issues which are tagged along with flying the aircrafts.
 The service quality of the airline needs to be improved as soon as
possible.

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  CAL’s AQR has been declining in the past years though the
company’s ranking has been improving.
 Though the company provides on-time arrival incentives, it has a
record of poor on-time performance.
 CAL has the worst record of overbooking and passenger bumping.

Opportunities

 The international market can be tapped by CAL since there is huge

potential there and the rivalry is also intense. If CAL can come up
with some advantageous operating measure, it would suit the business
scenario of the airline and help capture more market share.
 The “EU-US Open Skies” presents an opportunity for CAL to fly
between the U.S. and London’s Heathrow Airport. Any U.S. or EU
airline would be allowed to fly to any point in the U.S. or EU.
 Use internet to CAL’s advantage as providing information and
coordinating operations would not be that expensive now.
 Devise measures to ensure low pollution by CAL flights. This would
win the hearts of environmentalists and provide CAL with the image
of an eco-friendly airline.
 Induct more Boeing 787 Dreamliners as they prove to be more
efficient for long haul flights and can increase fuel efficiency.
 Reduce the number of short haul flights within the U.S. by networking
with other airlines. Short haul flights consume more fuel due to take-
off and landing within a short period of time.

Threats

 Intense domestic rivalry is the main threat facing CAL. Low-cost

regional jets and domestic flights have eaten in to the market share of
CAL.
 Increasing fuel cost is another threat that CAL has to face. With the
induction of B-787 Dreamliners, this can be reduced to a lower level.
 Rival airlines have emerged stronger post-bankruptcy. CAL needs to
ensure that the operations are handled effectively so as to be more
efficient.
 Rival airlines are purchasing new aircrafts which challenges CAL’s
position as the airline with the youngest fleet.

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  Increasing security costs are also a major threat to CAL. Due to terror
strikes, the airlines have to ensure the safety of its passengers, airports
and themselves. This has contributed to investing more in security
measures.
Strategic Position and Action Evaluation Matrix (SPACE)

SPACE is a four quadrant framework that indicates whether aggressive,

conservative, defensive, or competitive strategies are most appropriate for a
firm. The axes of the SPACE Matrix represent two internal dimensions
(financial strength [FS] and competitive advantage [CA]) and two external
dimensions (environmental stability [ES] and industry strength [IS]). These
four factors are the most important determinants of an organization’s overall
strategic position.

Calculated Values

Average of Financial Strength (FS) = 4

Average of Environmental Stability (ES) = -3.33
Average of Competitive Advantage (CA) = -2
Average of Industry Strength (IS) = 3

Point on X-axis: CA + IS = (-2 + 3) = 1

Point on Y-axis: FS + ES = (4 + -3.33) = 0.67

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Recommendations for Continental Airlines (CAL)

The recommendations that can be given to CAL can be two-pronged. One

could be the specific strategies which CAL would like to carry out for
effective operations and the other could be recommendations for the long-
term objectives that the company strives to achieve.

Specific Strategies

 Continental Airlines should introduce winglets on all its aircrafts. This

would help CAL to reduce fuel consumption and help them in
reducing their operational costs.
 CAL should introduce more flights to the European and Asian
markets. Since CAL has the largest number of international
destinations, it should try to retain that position by effectively and
competitively accessing more destinations. Many U.S. airlines do not
operate to destinations in West Asia. Most of their operations are on a

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 code-sharing basis with British Airways or Air France. Destinations
such as Istanbul, Tehran and other west Asian cities would guarantee
more revenue for CAL.
 Since CAL relies on regional jet service, they should start introducing
new routes on their domestic market. These routes need not be short-
haul flights, but long enough flights so as to achieve good fuel
efficiency.
 They could also start expanding their network by involving other
major airlines in the U.S. such as Delta Airlines. Both of them could
work on a code-sharing policy which would ensure reduced operating
costs and maximum exposure to flight routes.

Strategies for long-term objectives

 Continental has to start investigating more on their on-time arrivals.

Flights which have on-time arrivals enjoy more benefits. More
customers would start using their services.
 Continental should try to obtain above-average profits, which is one
of the main points in their “Go Forward Plan.”
 Under the “Make Reliability a Reality”, the airline should ensure
higher ranking with regard to on-time arrivals, baggage handling,
complaints, and involuntary denied boardings.
 CAL, in the long run, could also introduce a low-cost airline which
would benefit it in the same way Air Deccan has benefited Kingfisher
Airlines in India. This low-cost service need not be only domestic.
Tourists would benefit a lot from using a low-cost carrier to travel to
eastern European or Caribbean countries. There are many examples
which can be given with regard to low-cost airlines. As mentioned
earlier, all the passengers who use air transportation for going to and
getting back from work could use these services and CAL would
stand to reap the benefits of it.
 As is the plan of CAL, introducing B-787 Dreamliners would end up
being beneficial because once CAL has covered the cost of the
aircraft, they would end up saving a lot of money on fuel cost.
 Though CAL already has frequent flyer programs and benefits for
loyal customers, they should extend the service to beyond the
boundary of the airports. Customers who are regular should be
provided with complimentary ‘pick-up and drop’ facility.

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  Last, but not the least, “Customer is King”! Whatever CAL does
should be done with keeping in mind the expectations and
requirements of customers. Ultimately, it is the customer who brings
the revenue and a good reputation among the customers means
continuing revenue generation.

Conclusion

Continental Airlines has, over the years, proven its ability to service their
customers. Also, an airline operating to a large number of international
destinations could only mean acceptability among customers. The area
where CAL has to be more attentive is customer service and quality. CAL
does not voluntarily reduce the level of customer service, but they do need to
put in some extra attention in to that area. As of now, CAL enjoys the pole
position of being the U.S. airline which services maximum number of
international destinations. For CAL to continue doing that, it should take in
to account different factors which could probably help them achieve better
returns and appreciation.

Following the analyses done in this report, CAL should adapt to an

aggressive mode of planning and execution. CAL is only ahead of its closest
competitor by an inch, and this should not let it become complacent. CAL
should be proactive in finding out ways to outperform its competitors and
should pay attention to its internal resources and factors so that the entire
operation can be made effective and beneficial for the firm.

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References:
 www.continental.com
 www.wikiswot.com
 Strategic Management: Concepts and Cases (12th edition): Fred David
 Continental Airlines Inc. – 2007: Charles M. Byles (Virginia
Commonwealth University)
 Continental Airline Flies High- Ron Anderson-Lehman (University of
Minnesota, 2004)
 Bureau of Transportation Statistics, U.S. Department of
Transportation (www.transtats.bts.gov/)
 Class Presentations:
o SPACE Matrix – Mohammed Hasil
o EFE Matrix – Ansu Sara Elias
o SWOT Matrix – Anish Alex Mathew
o Competitive Profile Matrix – Aravind Balachandran

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