Continental Airlines Inc - 2007

Submitted by: Pauline Mae L. Naranjo Submitted to: Prof. Rose Lacerona CASE #6 / MW / 10:30a.m. – 12:00 n.n

cargo and mail handling operations. on July 15. N. and leads the company for more than 40 years. and offers flights to four continents. 1959: Continental operates its first jet flight on a Boeing 707. The first flight. 1936: Robert F. incorporated. Continental along with Continental Micronesia operates regional flights and international flights throughout the different hubs in the world. MN -.A timeline of significant events in the histories of United Airlines and Continental Airlines: April 6.M. It would file for bankruptcy again in the 1990s. 1934: Varney and partner Louis Mueller found Varney Speed Lines. Colo. 1931 -. with company that would become United Airlines.United Air Lines Inc. Six buys a stake in Varney. making the nation's largest airline a major international carrier for the first time. goes from Pueblo. 1985 -.United buys the Pacific routes of Pan American World Airways. to El Paso. Voted as the fifth best airline by passenger miles. 1982: Continental combines with Texas International. . He changes the name to Continental Airlines in 1937. with stops in Las Vegas and Santa Fe and Albuquerque. Idaho. 1986: Continental emerges from bankruptcy protection. 1978: Congress deregulates the airline industry. 1926 -. March 28. Texas.. led by Frank Lorenzo. the earliest predecesor to Continental.Entrepreneur Walter Varney launches a contract air mail service in Boise.COMPANY BACKGROUND Continental Airlines Company was integrated in the early 80‟s of the 20th century and presently one of the major airlines operated in US along with a business portfolio of transporting passengers. TIME CONTEXT MINNEAPOLIS.

The airline industry is too vulnerable to price discounting Expanded government regulation could increase operation cost. Jan. 2002 -.Two United airplanes are among the four hijacked and crashed by terrorists. Northwest and Delta announce an alliance. 11. Feb. 1. a record for any airline. 20. results of operations and liquidity. People Express and New York Air. April 27. 2003 -. 2001 -. The airline industry may experience further consolidation that may affect Continental Airline‟s business strategy. Sept. July 12. July 27.UAL shareholders approve an employee stock ownership plan. Additional security requirements may increase Continental Airline‟s operation cost.United files for Chapter 11 bankruptcy protection. leaving the SkyTeam alliance that includes Delta. Dec. The airline industry is greatly taxed. 2009 -. April 2010 -. CASE FACTS The airline industry is highly competitive. creating the world's largest majority employee-owned corporation. one of three major teams of global airlines. 1.3 billion acquisition of US Airways Group when the Justice Department threatens to block it. 2001 -.United calls off its planned $4. Sept.1 billion loss for 2001. 2001 -. talks between United and Continental resume. 21. 2008 -.United announces $2. .United and US Airways break off merger talks. 2006 -.Continental and others begin furloughing thousands of employees during the travel downturn that followed the terror attacks.Continental.Continental says it will not pursue a merger with United. 1994 -. Additional terrorist attacks or international hostilities may further adversely affect Continental Airline‟s financial condition.United emerges from bankruptcy protection after slashing annual labor costs by more than $3 billion.1987: Continental swallows Frontier. 9. Oct.Continental joins United in the Star Alliance. Feb. 27. 2002 -.

If Continental Airline experience problems with certain of their third party regional operators. SUMMARY OF THE CASE October 1st. their operations could be materially adversely affected. High leverage may affect the ability to satisfy significant financing needs or meet obligations. An economic downturn could result in less demand for air travel. Possible significant failure or disruption of the computer systems on which Continental Airline rely could adversely affect their business. Credit rating downgrades could have a material adverse effect on Continental Airline‟s liquidity. Unstable and volatile fuel prices or disruptions in fuel supplies could have a material adverse effect on Continental Airlines. Labor disruptions could adversely affect Continental Airline‟s operations.- - - - - Increase in operating costs will restrict Continental Airline‟s ability to conduct their business and decrease their traffic. Continental Airline‟s labor costs may not be competitive. Continental Airline results of operations fluctuate due to seasonality and other factors associated with the airline industry. New fuel efficient fleet could help reduce the fuel operational cost to airliners. ICT technology such as online booking. Public health threats affecting travel behavior could have a material adverse effect on the industry. Interruptions or disruptions in service at one of Continental Airline‟s hub airports could have a material adverse effect on their operations. Insurance costs could increase materially or key coverage could become unavailable. Failure to meet financial covenants would adversely affect Continental Airline‟s liquidity. ticketless boarding pass and online baggage handling system assists to lower the operational costs and pass the savings to the customers Continental Airline‟s net operating loss carry forwards may be limited. Delays in scheduled aircraft deliveries may adversely affect international growth. 2010 was an important date in the history of airline business industry as two of the world‟s best airlines United Airlines and Continental Airlines to form the new United .

and aircraft will be having the Continental logo and colours to retain the company‟s strong brand image. and environmental advances. employee satisfaction. seeks to lead its industry in superior customer service. Inc. innovative technology. with language. employees.000 employees worldwide and operated worldwide with the corporate headquarters in Chicago. 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‟. Our international flights cater to our customer‟s cultures. through environmental advances we are dedicated to reducing fuel waste by cost effective innovation of smaller jet fleets. and movies. while its core operations are from Houston in the United States of America.. we strive to obtain excellent customer service and satisfaction through technological advances in on-line bookings and e-ticket purchases. Both the companies have been in the industry for decades and committed in providing the customers and employees best in class service. According to the Continental airlines website.Continental Airlines in order to deliver consequential prosperity and profitability while maintaining a sustainable long-term significance to their esteemed stakeholders across the globe. .  Mission At Continental Airlines Inc. food choices. We have strict security measures to ensure our customer‟s safety. United Continental Holdings. at home and abroad. „the airline will be operating under the United name. is the investment company for United Airlines and Continental Airlines served by more than 80. We have committed to making the lives of our customers. employees and shareholders”.  Proposed Mission Statement “To be recognized as the best airline in the industry by the customers. vendors and as efficient as possible. Proposed Vision and Mission Statement  Proposed Vision “Is to be the world's favorite airlines”. VISION AND MISSION OF CONTINENTAL AIRLINES  Vision Continental Airlines Inc.

J. 1 Most Admired Global Airline. Zagat Airline Survey(2008) Best Value for the Money (International). Power and Associates (2007) Airline of the Year.HONORS / AWARDS / RECOGNITION Awards                2005 World's Leading Airline Business Class 2005 North America's Leading Airline Business Class No. Carrier Trans-Atlantic and Trans-Pacific Business Class. Airline. PetFinder. 1 Most Admired U.S. OAG (2004–2005) Business Leadership Recycling Award. OAG Airline of the Year Awards (2003–2007. 2010) No. Business Traveler Magazine (2006–2009) Best Large Domestic Airline (Premium Seating). Zagat Airline Survey (2009) Highest-Ranked Network Airline.S.S. Fortune Magazine (2004–2009) No. Fortune Magazine (2006– (2009) Best Executive/Business Class. OAG Airline of the Year Awards (2003–2009) Best U. American Forest & Paper Association (2010) Also nominated for:      2007 Caribbean's Leading Business Class 2007 Caribbean's Leading First Class 2007 North America's Airline 2007 North America's Airline Business Class 2007 North America's Airline Website Airline Airline Leading Leading Leading     2006 World's Leading Airline Business Class 2006 North America's Leading Airline 2006 North America's Leading Airline Business Class 2005 North America's Leading Airline . 1 Greenest U. Greenopia (2009) No. Condé Nast Traveler (1999–2006) Best Airline for North American Travel. 2009) Best Airline Based in North America. 1 Pet-Friendly Airline. Airline.

Additionally the airline‟s purpose is to be able calculating the profitability of specific destinations. Continental‟s AQR score has declined for the last three years even though its ranking improved. getting a complete look at a traveller‟s itinerary – would provide customer bookings.I. logistics and consumers marketing that are unique to their industry. Continental‟s on time performance shows that it has not meet the 80 percent of better standard for arrivals for the last four years. Slow to adopt online booking low market share Low market share Does not make its organizational chart known to others. baggage operations. The ability to view travel patterns by the origin and destination of each customer – in essence. No young officer in a top management lines. The company lacks a corporate data infrastructure which would allow a broad range of employees‟ quick access to key insight about its customers. Continental‟s ability to present information regarding travel patterns throughout many sectors of its organisations in various locations have become critical to increasing growth through customer satisfaction. of for departures for the last two years Low employee morale FUNCTIONAL LEVEL  . The airline‟s initial objective is to enable the accurate forecasting of passenger booking levels. CENTRAL PROBLEM Continental Airlines is the fifth largest airline in the United States. In such a hyper-competitive environment. Also. and many other internal departments with essential information to further improve results. how will the airline improve everything in order to have an edge with their competitors such as in terms of service quality in a low costing. The airline and its competitors continually face a mix of challenges in the areas of efficiency. route scheduling. MAJOR ISSUE CORPORATE LEVEL   BUSINESS LEVEL      No vice president specifically oversees international operations given its important at Continental. domestic competition stands out as the main challenge for Continental Airlines. All top management people are 50‟s and above. Continental has undergone an aggressive expansion which has included the addition of new domestic and international routes. The question is which seats on what routes are generating significant profit for the airline. To win in today‟s highly competitive skies.

 It has been recorded that continental has poor on-time performance.  Service quality has also faced a decline. This leads to increased efficiencies and major cost reductions.  The airline has faced a decrement in its overall AQR scores. limiting ability to raise cash through sale/lease-back deals .  The company rose to profitability after being hit by severe losses for four years straight.II. despite its efforts.  Lack of internal training for the employees  Little equity in planes. aircraft  Houston hub serves booming energy market. OBJECTIVES        To increase operating revenue by 20 % by 2012 using Horizontal Integration strategy To develop new technology to reduce the fuel consumption To invent new ways of Online reservation and flight tracking system To prioritize advertising activities for merging and developing campaign programs about the new routes To create a consolidated customer data base of both merged airlines To forecast the future risks involved in the horizontal integration process and develop risk management To implement staff training and development program for new recruitments and offer refreshment training every quarter III. AREAS OF CONSIDERATION Strengths  The fact that the airline provides customized services in accordance to the destination it‟s travelling to.  Received an array of awards for service quality and overall reputation  Increment in gross profits and reductions in overall costs Weaknesses  The fact that its “Go forward” plan does not attend the environmental issues directly.  Its various incentive programs to keep its staff motivated to aim towards on-time arrivals.S.  It‟s young management team that has been supporting it since the mid 90‟s. Newark hub serves huge New York market and is a major access point to Europe  Its fleet comprises of mainly Boeing‟s and is one of the youngest globally.  The fact that it serves more international markets than any other U.  It also had the worst record in over booking and bumping passengers in comparison to other airlines.

This may in turn reduce the overall .2% growth in 2011  Being more technologically advanced and using the internet to reduce their costs. Tokyo Opportunities  Continental airlines should consider researching the international markets. which generally occur when a business becomes too large for the owners to handle. the individuals and management as a whole.  Entry of international airlines into the domestic services  Ongoing pricing competition of budgeted airlines in the market IV. ALTERNATIVE COURSES OF ACTION Alternative #1: Merging with United Airlines: ADVANATGE: An advantage of this merger would be the fact that mergers do not require immediate cash. Minimal presence in major foreign destinations such as London. such as those of the organization.  The installation of winglets in an attempt to lessen costs. thus giving rise to higher unit costs.  Merger with the United Airlines in October 2010  Growing demand for travel at 3. Paris.  The “EU-US Open Skies” provides Continental with an opportunity to broaden its base in terms of connectivity. the clash of culture. thus increasing their overall net worth.  The fact that its rivals have recovered from bankruptcy and recovered back much stronger due to their ability to reduce their costs.  42% increase in the Hispanic population in US over the last decade Threats  Rise in fuel costs and domestic competition. as they face intense competition from the local market. Also. a merger may also allow Continental airlines to avoid many of the costly and time constraining elements associated with asset purchases. Also. In addition. a merger may allow the shareholders of smaller enterprises to own a certain share of a much larger entity.  Elevation in security costs due to the risks of hijacking and terrorism.  The introduction of new aircrafts by the rivals and the fact that this would directly contradict Continentals young and more fuel efficient aircrafts. DISADVANTAGE: Disadvantages of the possible Merge would‟ve been those of diseconomies of scale. can occur.

Researching and developing strategies that fit these regions may take time and money. it can be seen that merging with United Airlines was a better option for Continental Airlines. gain further global recognition. the problem of opportunity cost may arise. DISADVANTAGE: However. this may be completely disadvantageous for the business and may also lead it to bankruptcy. ADVANTAGE: The obvious advantages of this. developing a strong market base in these regions would enable Continental Airlines to increase their market share. STRATEGY FORMULATION / RECOMMENDATION I therefore conclude that the best solution to the problem is alternative course of action # 1. 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. a contradiction of objectives may occur which may lead the business to face severe consequences. V. Lastly. ADVANTAGE: Continental is sound in its financial figures so it should acquire one of the low cost no-frills airlines to gain its share in this domestic market. less coverage areas niche market. This was mainly because through this merger. Alternative #2: Developing a strong market in Japan and China. with the low cost airlines like AirTran. Alternative #3: Continental should step into these small jets. low cost. increase their productivity and profitability and thus face an overall rise in their efficiency. and thus. Lastly. From the careful analysis of the strengths and weaknesses of both these strategies. 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 . a lot of resources may be wasted if policies do not match the expected outcomes. JetBlue and southwest. Continental Airlines faced higher economies of scale. DISADVANTAGE: Continental airlines cannot compete in terms of price. for Continental Airlines.effectiveness of the organization. certain problem may also arise in targeting these markets. Also. would be that since Japan and China have faced an increment in their rate of tourism. economies of scope and an increment in their overall market power.

Here are the plans: 1. PLAN OF ACTION The Continental Airlines will have different plans under every branch to be specific in implementing the plan of action. For Management Information Systems • Create a consolidated customer data base of both merged airlines. For Research and Development • Develop 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. 3. . VI. Develop a combined data base of existing customers and upload into the server system by end of October 4. 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. For marketing • 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. 2. Develop and offer new refreshment training for all the employees in quarterly basis. For Finance • Forecast the future risks involved in the horizontal integration process and develop risk management the domestic airline market of United States as well as in the international airline operation as well. For 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.

less coverage areas niche market. What if some of their risk taking strategies fails especially they need to invest more in new developments and innovations? 5. but it can face the threat by seeking the opportunities to expand its market and to improve quality besides cutting the cost. 5. Continental airlines cannot compete in terms of price. What if the rivals became more aggressive in terms of innovations? How could Continental Airlines discourse and be still on track? 3. Recent mergers and acquisitions in the industry are threats for continental in the short term. company should be able to deliver these communicative systems in the responsive market. 2. What if the target customers still not satisfied with their services? What will they do? VIII. Invent new ways of online reservation and flight tracking system. 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 a month. The demand for online reservation and mobile flight tracking system is increasing and by the period of 5 months. 6. What if the market became more unstable in terms of fuel costs that will affect a lot the Continental Airlines? How they will address it? 2. What if the organizational structures of the airlines affect its operations? 4. Continental is sound in its financial figures so it should acquire one of the low cost nofrills airlines to gain its share in this domestic market. POTENTIAL PROBLEMS 1. with the low cost airlines like AirTran. 4. . low cost. Prioritize advertising activities for merging and developing campaign programs for the new routes. 3. CONTINGENCY PLANS 1. JetBlue and southwest.VII. so we recommend that continental should step into these small jets.

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