Executive summary

This written analysis of case related to Continental Airlines, and how it has evolved over the
years. First explain company vision and mission statement, company objectives as well. That
written analysis of case about company strategic position as well as various matrixes that will
help us identify, which strategies need to be adopted by Continental Airlines. On other side we
can easily assess their pros and cons. Moreover, as mentioned already, matrices such as external
evaluation matrix, internal evaluation matrix, competitive profile matrix, SWOT matrix, BCG
matrix, IE matrix, SPACE matrix and the Grand Strategy matrix have all been identified. As a
result analysis will formulate and recommend alternate strategies for Continental Airlines and
assess in order to find out which will and will not be effective for the company.

Introduction
Continental Airlines Company was integrated in the early 80s of the 20 th century and presently
one of the major airlines operated in US along with a business portfolio of transporting
passengers, cargo and mail handling operations. Voted as the fifth best airline by passenger
miles, Continental along with Continental Micronesia operates regional flights and international
flights throughout the different hubs in the world.
October 1st, 2010 was an important date in the history of airline business industry. Two of the
worlds best airlines United Airlines and Continental Airlines to form the new United Continental
Airlines in order to deliver consequential prosperity and profitability, while maintaining a
sustainable long-term significance to their esteemed stakeholders across the globe.
United Continental Holdings, Inc. is the investment company for United Airlines and Continental
Airlines served by more than 80,000 employees worldwide and operated worldwide with the
corporate headquarters in Chicago. While its core operations are from Houston in the United
States of America. Both the companies have been in the industry for decades and committed in
providing the customers and employees best in class service. The new holding company will
continue to manage as two separate companies till they manage to get hold of the single
operating certificate from the Federal Aviation Administration. According to the Continental
airlines website, the airline will be operating under the united name, and aircraft will be having
the Continental logo and colors to retain the companys strong brand image.

Mission and Vision Statement

Vision:
To be recognized as the best airline in the industry by our customers, employees, and
shareholders
By carefully analyzing Continental Airlines vision statement we can clearly construe that they
hope on becoming the best in what they do. Continental Airlines aim to attain the ultimate level
of satisfaction from not just its customers, but also from its employees and shareholders. Its
vision statement places importance on both its internal and external customers, carefully
highlighting their significance to their success. Continental has discovered the fact that many
companies tend to overlook; that is, in order to be triumphant in the airline industry they will
have ensure the satisfaction of its employees, who In turn will deliver quality services to their
customers that will drive them to come back for these services time and again.

Mission:
Even though Continental Airlines forms an evident name in the airline industry, it does not have
a predefined mission statement. It has instated a vision, as mentioned above, and it has various
strategies that it adheres by that make it possible for it to work towards this vision. However,
from a careful study done on its overall business operations and its guiding principles and values,
we can deduce that Continental Airlines mission is to be the sort of airline customers want to fly
on, and the airline people want to work for. This is also clearly depicted in their vision, and hence
is a perfect fit as Continental Airlines Mission statement.

Strategies

The mission statement for Continental Airlines is quite diverse, and is broken into 5 key areas,
each of which clearly define what it plans on doing in the future, and how it plans on going about
it.
The Go Forward Plan is Continentals rudimentary element for success. This ever changing,
four point plans enables the company to formulate and transcend its goals. Since its
development in 1995, this plan has led the company to much greater heights of excellence in
terms of service and finance.
The Fly to Win element highlights the need to attain top quartile industry margins. This means
that they hope to expand their international airline connectivity and go on eradicating non value
added costs.
The Fund the Future element focuses on developing Continentals franchises and set the stage
for future growth. In addition, it focuses on their fleet plan and hub real state and ensuring strong
cash flow and financial flexibility.
The Make Reliability a Reality element puts forth the ideology of creating an industry leader
of a product that Continental is proud to offer. In addition, they aim on becoming at the top in
terms of on time arrivals, baggage handling, complaints and involuntary denied boardings. They
also hope to improve their product every chance they get, and in turn improving their overall
company image.

Finally, their Working Together element states that they want to encourage a culture where
people enjoy coming in for work every day and are recognized for their contributions in the
companys success. In doing so, they want to place an emphasis on safety, employee programs
and communication. (Mission statements, 2010)

Opportunities and Threats

Following are the Major identified external opportunities and threats of Continental Airlines.
Identifying these factors help the company to evaluate the its current position in the competitive
market and convince the management to analyze the current market in order to set the strategies
and goals also these are the key points to evaluate the industry analysis, the external factors
evaluation.

External Opportunities:

Continental airlines should consider researching the international markets, as they face

intense competition from the local market.

The installation of winglets in an attempt to lessen costs.
The EU-US Open Skies provides Continental with an opportunity to broaden its base in

terms of connectivity.
Merger with the United Airlines in October 2010
Growing demand for travel at 3.2% growth in 2011
Being more technologically advanced and using the internet to reduce their costs.
42% increase in the Hispanic population in US over the last decade

External Threats:

Rise in fuel costs and domestic competition.

Elevation in security costs due to the risks of hijacking and terrorism.
The fact that its rivals have recovered from bankruptcy and recovered back much

stronger due to their ability to reduce their costs.

The introduction of new aircrafts by the rivals and the fact that this would directly

contradict Continentals young and more fuel efficient aircrafts.

Entry of international airlines into the domestic services
Ongoing pricing competition of budgeted airlines in the market

Airline industry as a whole is vulnerable to economic cycles and big swings in bottom-line
performance

Competitive Profile Matrix (CPM)

Continenta

America

Delta

l Airlines

Airline
Weighted

s
Rating

Weighted

Critical Success

Weight

Rating

Weighted

Airlines
Rating

Factors
Financial

0.15

Score
0.30

Score
0.45

Score
0.60

Position
Customer

0.10

0.20

0.40

0.30

Loyalty
Market Share
Management
Advertising
Price

0.05
0.15
0.20
0.15

2
4
4
3

0.10
0.60
0.80
0.45

4
2
3
3

0.20
0.30
0.60
0.45

3
3
4
3

0.20
0.45
0.80
0.45

0.15

0.60

0.45

0.60

0.05

0.20

0.15

0.20

Competitivenes
s
Global
expansion
Product quality
Total

3.25

3.0

3.6

Interpretation:

The competitive profile matrix for Continental Airlines categorizes the companys crest
competitors such as American Airlines and Delta Airlines. Companies are then evaluated on the
basis of significant success factors of the airline industry and the success factors are weighed
from (0.0, not important to 1.0 very important) and the ratings pass on to the strengths and
weaknesses by 4 being the major strength, to 1 for major weaknesses.

Industry analysis: External Factors Evaluation MATRIX

OPPORTUNITIES

WEIGHT RATING

WEIGHTED SCORE

Continental airlines should consider

0.07

0.21

local market.
The installation of winglets in an attempt

0.10

0.40

to lessen costs.
The EU-US Open Skies provides

0.09

0.36

0.10

0.40

0.04

0.08

0.08

0.24

42% increase in the Hispanic population in 0.03

0.06

0.09

0.18

Elevation in security costs due to the risks

0.08

0.24

of hijacking and terrorism.

The fact that its rivals have recovered

0.06

0.06

0.07

0.14

researching the international markets, as

they face intense competition from the

Continental with an opportunity to

broaden its base in terms of connectivity.
Merger with the United Airlines in
October 2010
Growing demand for travel at 3.2%
growth in 2011
Being more technologically advanced and
using the internet to reduce their costs.
US over the last decade
THREATS
Rise in fuel costs and domestic
competition.

from bankruptcy and recovered back much

stronger due to their ability to reduce their
costs.
The introduction of new aircrafts by the
rivals and the fact that this would directly
contradict Continentals young and more
fuel efficient aircrafts.

Entry of international airlines into the

0.08

0.16

0.08

0.24

0.03

0.06

domestic services
Ongoing pricing competition of budgeted
airlines in the market
Airline industry as a whole is vulnerable
to economic cycles and big swings in
bottom-line performance
TOTAL

2.83

Interpretation:
The matrix above recapitulates and estimates the external factors that give a considerate view of
how effective the companys strategies are used in the capitalization of their opportunities and
disclose the point of threats that are active. The weights are set between 0.0 and 1.0 depending
on its level of importance depending on how well the Continental Airlines responds to the above
factors considering its current objectives and strategies. The total weighted score of this matrix
reveals that Continental Airlines have a strong score of 2.83 which is higher than norms.

Internal Strength And Weakness

The strengths and weaknesses are the major key points of companys internal position analysis
and they are identified and utilized in order to make the internal investigation, which is the
internal evaluation matrix.

Internal Strengths:

The fact that the airline provides customized services in accordance to the destination its

travelling to.
The company rose to profitability after being hit by severe losses for four years straight.
Its young management team that has been supporting it since the mid 90s.
Its various incentive programs to keep its staff motivated to aim towards on-time arrivals.
The fact that it serves more international markets than any other U.S. aircraft
Houston hub serves booming energy market; Newark hub serves huge New York market

and is a major access point to Europe

Its fleet comprises of mainly Boeings and is one of the youngest globally. This leads to

increased efficiencies and major cost reductions.

Received an array of awards for service quality and overall reputation
Increment in gross profits and reductions in overall costs

Internal Weaknesses:

The fact that its Go forward plan does not attend the environmental issues directly.
The airline has faced a decrement in its overall AQR scores.
Service quality has also faced a decline.
It has been recorded that continental has poor on-time performance, despite its efforts.
It also had the worst record in over booking and bumping passengers in comparison to

other airlines.
Lack of internal training for the employees

Little equity in planes, limiting ability to raise cash through sale/lease-back deals

Minimal presence in major foreign destinations such as London, Paris, Tokyo

Internal Factor Evaluation (IFE) Matrix

STRENGTHS

WEIGHT

RATING

TOTAL WEIGHTED
SCORE

The fact that the airline provides

customized services in
accordance to the destination its
travelling to.
The company rose to
profitability after being hit by
severe losses for four years
straight.
Its young management team
that has been supporting it since
the mid 90s.

0.10

0.40

0.08

0.24

0.05

0.10

Its various incentive programs

to keep its staff motivated to aim
towards on-time arrivals.

0.07

0.21

The fact that it serves more

international markets than any
other U.S. aircraft.
Houston hub serves booming
energy market; Newark hub
serves huge New York market
and is a major access point to
Europe
Its fleet comprises of mainly
Boeings and is one of the
youngest globally. This leads to
increased efficiencies and major
cost reductions.
Received an array of awards for
service quality and overall
reputation.
Increment in gross profits and
reductions in overall costs.

0.08

0.32

0.07

0.21

0.07

0.21

0.09

0.27

0.05

0.10

0.07

0.21

0.03

0.06

WEAKNESSES
The fact that its Go forward
plan does not attend the
environmental issues directly.
The airline has faced a
decrement in its overall AQR

scores.
Service quality has also faced a
decline.

0.05

0.15

0.03

0.06

0.04

0.08

Lack of internal training for the

employees

0.03

0.06

Little equity in planes, limiting

ability to raise cash through
sale/lease-back deals

0.06

0.18

Minimal presence in major

foreign destinations such as
London, Paris, Tokyo

0.03

0.06

Total

It has been recorded that

continental has poor on-time
performance, despite its efforts.
It also had the worst record in
over booking and bumping
passengers in comparison to
other airlines.

2.92

Interpretation:
After evaluating and analyzing the weights of strengths and weakness of the company, the total
weighted score is 2.92 which slightly higher above the average score 2.50 and it clearly indicates
that Continental Airlines has a well-built internal strengths and minimal weaknesses. However
there needs to be significant improvements in their internal operational structure in order to
achieve competency.

Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix

A scan of internal and external environment is important part of the strategic planning process.
The companys internal strengths and weakness are related to external opportunities and threats.
The analysis provides information that is helpful in matching the firms resources and
capabilities to the competitive environment which operates.
Strength
1. The fact that the airline provides
customized services in accordance to
the destination its travelling to.
2. The company rose to profitability after
being hit by severe losses for four years
straight.
3. Its young management team that has
been supporting it since the mid 90s.
4. Its various incentive programs to keep
its staff motivated to aim towards ontime arrivals.
5. The fact that it serves more
international markets than any other
U.S. aircraft
6. Houston hub serves booming energy
market; Newark hub serves huge New
York market and is a major access point
to Europe
7. Its fleet comprises of mainly Boeings
and is one of the youngest globally.

Weakness
1. The fact that its Go forward plan
does not attend the environmental
issues directly.
2. The airline has faced a decrement in its
overall AQR scores.
3. Service quality has also faced a decline.
4. It has been recorded that continental
has poor on-time performance, despite
its efforts.
5. It also had the worst record in over
booking and bumping passengers in
comparison to other airlines.
6. Lack of internal training for the
employees
7. Little equity in planes, limiting ability
to raise cash through sale/lease-back
deals
8. Minimal presence in major foreign
destinations such as London, Paris,
Tokyo

This leads to increased efficiencies and

major cost reductions.
8. Received an array of awards for service
quality and overall reputation
9. Increment in gross profits and
reductions in overall costs

Opportunities
1. Continental airlines should consider

Threats
1. Rise in fuel costs and domestic

researching the international markets,

as they face intense competition from

competition.
2. Elevation in security costs due to the
risks of hijacking and terrorism.
3. The fact that its rivals have recovered

the local market.

2. The installation of winglets in an

from bankruptcy and recovered back

attempt to lessen costs.

3. The EU-US Open Skies provides
Continental with an opportunity to

much stronger due to their ability to

reduce their costs.
4. The introduction of new aircrafts by the

broaden its base in terms of

rivals and the fact that this would

connectivity.
4. Merger with the United Airlines in

directly contradict Continentals young

October 2010
5. Growing demand for travel at 3.2%

and more fuel efficient aircrafts.

5. Entry of international airlines into the

growth in 2011
6. Being more technologically advanced

domestic services
6. Ongoing pricing competition of

and using the internet to reduce their

costs.
7. 42% increase in the Hispanic

budgeted airlines in the market

7. Airline industry as a whole is
vulnerable to economic cycles and big

population in US over the last decade

swings in bottom-line performance

SWOT Matrix
Stren

Strengths

1. The fact that the airline

provides customized
services in accordance
to the destination its
travelling to.
2. The company rose to
profitability after being
hit by severe losses for

Weaknesses

1. The fact that its Go

forward plan does not
attend the environmental
issues directly.
2. The airline has faced a
decrement in its overall
AQR scores.
3. Service quality has also

3.

4.

5.

6.

7.

8.

9.

Opportunities
1. Continental airlines should
consider researching the
international markets, as
they face intense
competition from the local
market.
2. The installation of winglets

1)

four years straight.

Its young management
team that has been
supporting it since the
mid 90s.
Its various incentive
programs to keep its
staff motivated to aim
towards on-time
arrivals.
The fact that it serves
more international
markets than any other
U.S. aircraft
Houston hub serves
booming energy
market; Newark hub
serves huge New York
market and is a major
access point to Europe
Its fleet comprises of
mainly Boeings and is
one of the youngest
globally. This leads to
increased efficiencies
and major cost
reductions.
Received an array of
awards for service
quality and overall
reputation
Increment in gross
profits and reductions
in overall costs
SO Strategy
Its fleet comprises of
mainly Boeings and is
one of the youngest
globally. This leads to
increased efficiencies
and major cost
reductions/ the

4.

5.

6.
7.

8.

faced a decline.
It has been recorded that
continental has poor ontime performance, despite
its efforts.
It also had the worst
record in over booking and
bumping passengers in
comparison to other
airlines.
Lack of internal training
for the employees
Little equity in planes,
limiting ability to raise
cash through sale/leaseback deals
Minimal presence in major
foreign destinations such
as London, Paris, Tokyo

ST Strategy
1) Its fleet comprises of
mainly Boeings and is
one of the youngest
globally. This leads to
increased efficiencies
and major cost
reductions/ The

3.

4.
5.
6.

7.

in an attempt to lessen
costs.
The EU-US Open Skies
provides Continental with
an opportunity to broaden
its base in terms of
connectivity.
Merger with the United
Airlines in October 2010
Growing demand for travel
at 3.2% growth in 2011
Being more technologically
advanced and using the
internet to reduce their
costs.
42% increase in the
Hispanic population in US
over the last decade

Threats
1. Rise in fuel costs and
domestic competition.
2. Elevation in security costs
due to the risks of hijacking
and terrorism.
3. The fact that its rivals have
recovered from bankruptcy
and recovered back much
stronger due to their ability
to reduce their costs.
4. The introduction of new
aircrafts by the rivals and
the fact that this would
directly contradict
Continentals young and
more fuel efficient
aircrafts.
5. Entry of international

installation of winglets
in an attempt to lessen
costs. (S7:02): Product
Development.
2) The fact that the airline
provides customized
services in accordance
to the destination its
travelling to/ Being
more technologically
advanced and using the
internet to reduce their
costs. (S1:O6): Market
Penetration.
3) Backward Integration:
S3:S4:O3

WO Strategy

1) It has been
recorded that
continental has
poor on-time
performance,
despite its efforts/
It also had the
worst record in
over booking and
bumping
passengers in
comparison to
other airlines/ Lack
of internal training

introduction of new
aircrafts by the rivals
and the fact that this
would directly
contradict Continentals
young and more fuel
efficient aircrafts.
(S7:T4): Product
Development.
2) Received an array of
awards for service
quality and overall
reputation/ Airline
industry as a whole is
vulnerable to
economic cycles and
big swings in bottomline performance.
(S8:T7): Market
Penetration.

WT Strategy

1) It also had the worst record in

over booking and bumping
passengers in comparison to
other airlines/ Airline industry
as a whole is vulnerable to
economic cycles and big
swings in bottom-line
performance/
Rise in fuel costs and
domestic competition.

airlines into the domestic

services
6. Ongoing pricing
competition of budgeted
airlines in the market
7. Airline industry as a whole
is vulnerable to economic
cycles and big swings in
bottom-line performance

for the employees/

(W5:T7:T1):
Continental airlines Retrenchment.
should consider
2) Minimal presence in major
researching the
foreign destinations such as
international
London, Paris, Tokyo/ The
markets, as they
fact that its rivals have
face intense
recovered from bankruptcy
competition from
and recovered back much
the local market /
stronger due to their ability to
Growing demand
reduce their costs.(W8:T3):
for travel at 3.2%
Horizontal Integration.
growth in 2011

SWOT MATRIX ANALYSIS

SO Strategy:
The fact that that Continentals product portfolio consists mainly of Boeings and are the
youngest worldwide coupled with the fact that Continental airlines has introduced the installation
of winglets to cut costs will lead to an overall efficient product development. (s7:02)
The customized service element that Continental provides, in accordance with the destination its
travelling to mixed with the fact that technological advancements now make it easier to provide
these customized services would make it easier for Continental to penetrate into the market.
Continentals efforts to motivate its employees by providing them with efficient incentive
programs, plus the fact that it Open Skies policy that was developed to raise connectivity with
Continentals allies helps Continental achieve backward integration.

ST Strategy:
The introduction of new aircrafts by Continentals competitors would lead Continental airlines to
focus primarily on developing new products, as its Boeings may become obsolete.
As mentioned, the airline industry as a whole is very vulnerable in nature and tends to fluctuate
in terms of its operations. However, since Continental Airlines has been awarded with various
service quality awards, it would enable them to penetrate the markets much easily.
WO Strategies:
It has been stated as one of the flaws of Continentals Airlines that it has poor on-time
performance, also has problems with booking passengers in comparison with other airlines. Its
training provided to its staff has also been recorded as being weak, hence, if Continental Airlines
were to target a new market altogether and focus primarily on providing its services to this new
market they might actually be able to better their standards and service quality. This is where the
strategies of Market development, Product Development and Market Penetration come into play.
WT Strategies:
Continental Airlines is faced with a retrenchment possibility when we take into accounts the
various weaknesses and threats. These are highlighted in the SWOT matrix above.
It may also have the potential of integrating horizontally as its competitors have recovered from
the financial slump, so in order to meet the rise in competition it may need to take into account
the possibility of adhering by this strategy.

Strategic Position and Action Evaluation (SPACE) Matrix

The strategic Position and Action Evaluation (SPACE) Matrix is one of the significant techniques
to recognize the type of strategy company has to choose. The matrix consists of four different
areas with a specific strategy in each. The axis of the SPACE matrix represent two internal
dimensions (functional strength and competitive advantage) and two external (environmental
stability and industry strength) which are important in order to identify companys overall
strategic position.
FS
5

CONSERVA
TIVE

AGGRESSIV

3
2
1
CA

IS
-5 -4 -3
-2 -1

-1

1
5

-2
-3
DEFENSIVE

-4
-5

COMPETITV
E

ES

Calculated values
Average value for FS=3.83, CA=-2, IS=3, ES=-3.63
Point on X-AXIS = (-2+3) = 1
Point on Y-AXIS (3.83-3.63) = 0.20

Financial Strength (FS)

Environmental
Sustainability (ES)

Return on Investment

Technological Changes

-4

Leverage

Inflation rate

-4

Liquidity

Demand fluctuation

-3

Working Capital

-2

Cash Flow

Price bracket of competing

products
Entry barriers into the market

Inventory Turnover

Pressure from competition

-3

Total

23

Easy exit from the market

-3

Price elasticity of demand

-4

Competitive Advantage (CA)

-4

Market Share

-1

Risk involved in Business

-2

Product Quality

-1

Total

-29

Product Life Cycle

-1

Industry Strength (IS)

Customer Loyalty

-2

Growth possibility

Competitions capacity utilization

Technological skills

-3
-3

Financial constancy
Technological knowledge

2
2

Control over distributors and suppliers

-3

Resource consumption

Total

-14

Ease of entry into the market

Productivity, capacity,
utilization
Total

4
18

Interpretation:
Continental Airline falls on the second quadrant of SPACE matrix, which is aggressive. In
overall the matrix shows that the company has competitive advantage if they adapt aggressive
strategies such as any integration and intensive or diversification.

Boston Consulting Group (BCG) Matrix

The BCG matrix reveals the companys market share position in the industry
to the market share detained by the largest competitor in the same industry.
The matrix displays the companies on a graph of the market growth vs.
market share relative to competitors. The BCG Matrix is divided into four
types of circumstances, the Stars, Cash Cows, Dogs and Question Marks.

Relative Market Share

Continental sales in 2009=12,586mn
Delta Airlines sales in 2009=28,063mn
The relative market share is 0.45
Industry growth rate= (15.5) %
Major Airlines
Revenue 2009 in
millions
Continental Airlines
12,586.0
American Airlines
19,917.0
Delta Airlines
28,063.0
Southwest Airlines
10,350.0
Total

Revenue 2008 in
millions
15,241.0
23,766.0
22,697.0
11,023.0

Average Growth
Rate %
(17)%
(16)%
(23)%
(6)%
(62)/4=(15.5)%

Interpretation:
The following BCG Matrix shows the proportion between relative market
share and industry growth rate of Continental Airlines. With a relative market
share of 0.45 and a industry growth rate of (15.5) % the position lies in the
fourth cell Dogs which represents the strategies of liquidity, divesture and
retrenchment. The company has very Low relative market share & compete
in slow or no market growth with Weak internal & external position.

Relative Market Share

h

Medium

QUESTION MARKS

CASH COWS

DOGS

Hig

Low
1.0

High
+20

STARS

0.50

0.0

Internal-External (IE) Matrix

The Internal-External (IE) Matrix is a strategic management contrivance that
is used to analyze the strategic position of a business. The IE matrix is
Medium
supported by the total weighted scores of the IFE matrix on the x-axis and
0

the EFE matrix on the y-axis. The matrix spots an organization into nine cells

Indust
and the matrix can be divided into three major sections that have dissimilar
ry
allusion. The IE matrix is almost similar to BCG matrix and it has two key
Growt
dimensions including the scores in the x axis and EFE total weighted scores
h Rate
on the y axis. Total IFE weighted score of 2.92 falls in X axis and the Total EFE
weighted score of 2.83 fall in the Y axis and both the whereas both the

Low -20

values are slightly above average. According to the IE matrix below,

Continental Airlines falls in the fifth cell and so as they should follow the
strategy of hold and maintain. This strategy mainly focuses on both market
penetration and product development.

THE IFE TOTAL WEIGHTED

SCORES
Strong

T
H
2.0
E
E
F
E
T
O
T
A
L
W
E
I
G
H
T
E
D
S
C
O
R
E

Average

Weak

to 2.99

1.0

II

III

IV

VI

VII

VIII

IX

3.0 to 4.0
1.0 to 1.99

Grand Strategy Matrix

The GS matrix is one of the popular tools to identify and formulate
alternative strategies and companies can be positioned in one of the four
quadrants which represent different strategies. The following grand strategy
matrix of Continental airlines evaluates competitive position and market
growth in the current similar market industry.
Rapid Market Growth

II

Strong
Competitive
Position

Weak
Competitive
Position

III

IV

Slow Market Growth

Interpretation:
According to the Grand Strategy Matrix, the position of Continental Airlines
lies in the fourth quadrant which reveals that the company has above the
average competitive position among the competitive market and but very
slow market growth as the industry growth rate is really below the average.
The

strategies

recommended

diversification and joint ventures.

are

related

diversification,

unrelated

Quantitative Strategy Planning Matrix (QSPM)

(HI)
Merging with
United Airlines

ALTERNATIVE STRATEGIES

STRENGTH WEIGHT
AS
S
The fact that the airline provides
customized services in accordance to the
destination its travelling to.
The company rose to profitability after
being hit by severe losses for four years
straight.
Its young management team that has
been supporting it since the mid 90s.

TAS

(MD)
Developing a
strong market in
China and Japan

AS

TAS

0.10
2

0.20

0.30

0.08
3

0.24

0.16

0.10

0.05

0.16

0.24

0.21

0.07

0.21

0.14

0.18

0.27

0.05

Its various incentive programs to keep its

staff motivated to aim towards on-time
arrivals.
The fact that it serves more international
markets than any other U.S. aircraft.

0.07

Houston hub serves booming energy

market; Newark hub serves huge New
York market and is a major access point
to Europe
Its fleet comprises of mainly Boeings
and is one of the youngest globally. This
leads to increased efficiencies and major
cost reductions.
Received an array of awards for service
quality and overall reputation.

0.07

Increment in gross profits and reductions

in overall costs.

0.05

0.08

0.07

0.09

WEAKNESSES
The fact that its Go forward plan does
not attend the environmental issues
directly.

0.07

The airline has faced a decrement in its

overall AQR scores.

0.03

WEIGH
T

0.03

0.06

AS

TAS

AS

TAS

0.15

0.10

0.06

0.03

0.08

0.04

0.12

0.06

0.09

0.03

0.18

0.27

0.40

0.20

Service quality has also faced a decline.

0.05
It has been recorded that continental has
poor on-time performance, despite its
efforts.
It also had the worst record in over
booking and bumping passengers in
comparison to other airlines.

0.03

Lack of internal training for the

employees

0.03

Little equity in planes, limiting ability to

raise cash through sale/lease-back deals

0.06

Minimal presence in major foreign

destinations such as London, Paris, Tokyo

0.03

Total

0.04

OPPORTUNITIES
Continental airlines should consider
researching the international markets, as
they face intense competition from the
local market.
The installation of winglets in an attempt
to lessen costs.

0.07

The EU-US Open Skies provides

Continental with an opportunity to
broaden its base in terms of connectivity.
Merger with the United Airlines in
October 2010

0.09

0.10

0.10

Growing demand for travel at 3.2%

growth in 2011

0.04

Being more technologically advanced and

using the internet to reduce their costs.

0.08

42% increase in the Hispanic population

in US over the last decade

0.03

THREATS

WEIGH
T
0.09

Rise in fuel costs and domestic

competition.
Elevation in security costs due to the risks
of hijacking and terrorism.

0.08

The fact that its rivals have recovered

from bankruptcy and recovered back
much stronger due to their ability to
reduce their costs.
The introduction of new aircrafts by the
rivals and the fact that this would directly
contradict Continentals young and more
fuel efficient aircrafts.
Entry of international airlines into the
domestic services

0.06

Ongoing pricing competition of budgeted

airlines in the market

0.08

Airline industry as a whole is vulnerable

to economic cycles and big swings in
bottom-line performance
TOTAL

0.03

0.16

0.12

0.16

0.08

0.09

0.03

AS

TAS

AS

TAS

0.12

0.18

0.14

0.21

0.24

0.08

0.16

0.08

0.07

0.08

1
3.39

2.8

Advantages and Disadvantages of Strategies

Merging with United Airlines:
An advantage of this merger would be the fact that mergers do not require immediate cash. Also,
a merger may allow the shareholders of smaller enterprises to own a certain share of a much
larger entity, thus increasing their overall net worth. In addition, a merger may also allow
Continental airlines to avoid many of the costly and time constraining elements associated with
asset purchases. Disadvantages of the possible Merge wouldve been those of diseconomies of
scale, which generally occur when a business becomes too large for the owners to handle, thus
giving rise to higher unit costs. Also, the clash of culture, such as those of the organization, the
individuals and management as a whole, can occur. This may in turn reduce the overall
effectiveness of the organization. Lastly, a contradiction of objectives may occur which may lead
the business to face severe consequences.

Developing a strong market in Japan and China:

The obvious advantages of this, for Continental Airlines, would be that since Japan and China
have faced an increment in their rate of tourism, developing a strong market base in these regions
would enable Continental Airlines to increase their market share, gain further global recognition,
increase their productivity and profitability and thus face an overall rise in their efficiency.
However, certain problem may also arise in targeting these markets. Researching and developing
strategies that fit these regions may take time and money, and thus, the problem of opportunity
cost may arise. Also, a lot of resources may be wasted if policies do not match the expected
outcomes; this may be completely disadvantageous for the business and may also lead it to
bankruptcy.

Strategy recommendation
From the careful analysis of the strengths and weaknesses of both these strategies, it can be seen
that merging with United Airlines was a better option for Continental Airlines. This was mainly
because through this merger, Continental Airlines faced higher economies of scale, economies of
scope and an increment in their overall market power. Lastly, they may also have also incurred a
reduction in their long term costs as costs were distributed and tasks were also spread across their
much greater operations base.

Long term objectives

The Long term objectives of the company is to Increase operating revenue by 20 % by 2012
using Horizontal Integration strategy (Merging) in this scenario and the company expects a
significant growth in the future operation by extending its wide network of global and domestic
links. Strong marketing activities will be done in order to support the long term objective and the
goal of the company; the financial statements are expected to be beginning by the end of 2010
and the objective is believed to be achieved in two years which is 2012. The following chart will
give a glimpse about the annual objectives of the companys different departments.

Objectives and Policies

Long term
company
objectives
Increase operating
revenue by 20 % by
2012 using Horizontal
Integration
strategy( Meging )

R&D
annual
objective
Develope
new
technology to
reduce the
fuel
consumption
Invent new
ways of
Online
reservation
and flight
tracking
system

Marketing
annual
objectives
Prioritise
advertising
activites for
merging and
developing
campagne
programs
about the
new routes

Finance
annual
objectives
MIS annual
objectives
Create a
consolidated
customer
data base of
both merged
airlines

Forcast the
future risks
involved
inthe
horizontal
integration
process and
develop risk
management

Personnel
annual
objectives
Implement
staff training
and
development
program for
new
recruitments
and offer
refreshment
training
every quarter

Policies
Research and Development:

Develope new technology to reduce the fuel consumption

The R&D Team should develop a model of technology practice by the end of this year in
which the company should be able to implement in the future.

Invent new ways of Online reservation and flight tracking system

The demand for online reservation and mobile flight tracking system is increasing and by
the period of 5 months, company should be able to deliver these communicative systems
in the responsive market.

Marketing:

Prioritize advertising activities for merging and developing campaign programs for
the new routes
Marketing team has to develop new marketing plan within 3 months about the new routes
and by the year end a new way of online marketing system should be added onto the
company website.

Management Information Systems:

Create a consolidated customer data base of both merged airlines

Develop a combined data base of existing customers and upload into the server system by
end of October

Finance:

Forecast the future risks involved in the horizontal integration process and develop
risk management

Finance Management team should assess the various risks associated with the merging
and should develop a risk management program within 3 weeks of time starting by the
beginning of March
Personnel:

Implement staff training and development program for new recruitments and offer
refreshment training every quarter
Human resources team should develop a new training and welcoming program for all the
new recruited staff before the recruitment process starts.
Develop and offer new refreshment training for all the employees in quarterly basis.

Resource Allocation
The following table will shed some lights on the resources which will be allocated before
the implication of the recommended strategy. The financial resources will be required for
airport charges, government taxes, legislation fees, marketing activities and operational
expenses. The HR resources such as new recruitment and training programs will be
required as well. Physical and technological resources are the basic operational resources
required for the strategy to be implemented successfully.
Financial
mortgage
Capital
Retained Profits & earnings
Investments
Human
Recruitment and training of employees

Physical
Aircrafts
Maintenance & Service centres
Corporate offices & Buildings
Employee housings
Equipments & other assets
Technological
R&D development equipments
Outsourcing of technology

Income Statement after Implementation

Dec 09(mn)
Dec 11(mn)

Revenue
Cost of Goods Sold
Gross Profit
Gross Profit Margin
SG&A Expense
Depreciation & Amortization
Operating Income
Operating Margin
Non operating Income
Non operating Expenses
Income Before Taxes
Income Taxes
Net Income After Taxes
Continuing Operations
Discontinued Operations
Total Operations
Total Net Income
Net Profit Margin

12,586.0
5,779.0
6,807.0
54.1%
6,314.0
494.0
(146.0)
-1.2%
95.0
(388.0)
(439.0)
(157.0)
(282.0)
(282.0)
-(282.0)
(282.0)
-2.2%

13,959.0
7,745.0
6,214.0
44.5%
7232.0
390.0
(628.0)
132.0
37.0
(214.0)
(97.0)
23.0
23.0
23.0
23.0
1.8

Recommendations:
The overall strategic analysis of Continental airlines reveals that current
recommendation for the horizontal integration strategy which in merging in
this case would boost the sales over the years and the company can have a
significant control over the entire air transport operations in the domestic
airline market of United States as well as in the international airline operation
as well. The expected growth of company will definitely become a threat for
many of the domestic air carriers in the United States and it will increase the
overall market share of the company in the coming years.