Case Study

Executive Summary
This report entails an analysis into continental airlines, and how it has evolved over the years. In the following report, a brief introduction will be given for the company and the report will then go on to take into account various matrices that will help us to identify which strategies need to be adopted by continental Airlines, their pros and cons will also be assessed. The vision and mission for the company has also been identified, in addition, the objectives and strategies have also been put forward. 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. Lastly, the report will formulate and recommend alternate strategies for Continental Airlines and assess in order to find out which will not be effective for the company.

Introduction
Continental Airlines, Inc., a Delaware corporation incorporated in 1980, is a major United States air carrier engaged in the business of transporting passengers, cargo and mail. The terms "Continental," "we," "us," "our" and similar terms refer to Continental Airlines, Inc. and, unless the context indicates otherwise, its consolidated subsidiaries. It is the world's fifth largest airline as measured by the number of scheduled miles flown by revenue passengers in 2007. Including its wholly-owned subsidiary, Continental Micronesia, Inc. ("CMI"), and regional flights operated on its behalf under capacity purchase agreements with other carriers, we operate more than 3000 daily departures. As of December 31, 2007, we flew to 148 domestic and 134 international destinations and offered additional connecting service through alliances with domestic and foreign carriers. We directly served 26 European cities, 9 South American cities, Tel Aviv, Delhi, Mumbai, Hong Kong, Beijing and Tokyo as of December 31, 2007. In addition, we provide service to more destinations in Mexico and Central America than any other U.S. airline, serving 41 cities. Through its Guam hub, CMI provides extensive service in the western Pacific, including service to more Japanese cities than any other U.S. carrier. The head quarter is located in Houston USA. It has 368 Boeing jets, employees 44494.

40 0. This has resulted in increased efficiencies and cost savings Weight 0.Stage 1 ³Input Stage´ consists of the following: Internal Factor Evaluation (IFE) Matrix External Factor Evaluation (EFE) Matrix Competitive Profile Matrix (CPM) Internal Factor Evaluation (IFE) Matrix Strengths The airline customizes its in-flight services according to the destination it travels The company returned to profitability in 2006 after 4 years of losses Relatively young top management team Various incentive programs for employees It has a wide coverage and serves more international markets than any other U.07 3 0. carriers Houston hub serves booming energy market. Newark hub serves huge New York Market and is a major access point to Europe Its fleet consists of only Boeing aircrafts and is one of the youngest in the world.10 0.24 0.21 0.07 3 0.10 Rating 4 Total Weighted Score 0.08 3 0.S.21 .05 2 0.07 3 0.08 4 0.32 0.21 0.

06 0.27 0.06 0.05 3 2 0.10 Weaknesses The ³Go Forward´ plan does not deal with environmental issue Decrement in its overall Airlines Quality Rating Scores Decrease in Service Quality Poor on-time performance record Worst record of overbooking and bumping among airlines Lack of internal training for employees Low market share No Online Presence 0.21 Opportunities Exploration of international market because of intense competition in local market Installation of winglets to reduce cost Weight Rating 0.92 which slightly higher above the average score 2. External Factor Evaluation (EFE) Matrix Total Weighted Score 0.08 0.15 0.10 4 0.18 0.06 1 2.03 0. However there needs to be significant improvements in their internal operational structure in order to achieve competency.07 0.50 and it clearly indicates that continental airlines has a well built internal strengths and minimal weakness.03 3 2 3 2 2 2 3 2 0.09 0.05 0.06 0.04 0.92 After evaluating and analyzing the weights of strengths and weakness of the company.21 0.Winner of numerous awards for quality service Increment In Gross Profit and reduction in overall costs 0.03 0.40 .06 0.07 3 0.03 0. the total weighted score is 2.

83 which is higher than norms.10 0.03 2 3 2 0.06 0.The ³EU-US open skies´ provides an opportunity to increase its connectivity Merger with United Airlines Growing demand for travel Adoption of Latest technology and internet to reduce cost Increasing population in US 0.08 0.07 2 0.06 1 0.0´ depending on its level of importance depending on how well the Continental Airlines responds to the above factors considering its current objectives and strategies. .40 0.09 4 0.08 0.09 0.14 0.24 0.06 1 2.08 0. The weights are set between ³0.03 4 2 3 2 0.36 0.24 0.16 0.0 and 1. The total weighted score of this matrix reveals that Continental Airlines have a strong score of 2.24 0.04 0.08 0.06 Threats Rise in fuel cost and domestic competition Increase in security cost due to the threat of hijacking and terrorist The Rivals has recovered from bankruptcy and become more stronger Purchasing of new aircraft by Rivals would challenge for It Entry of international airlines into the domestic service Price competition in the market Airline industry is vulnerable to economic cycles 0.18 0.83 The matrix above recapitulates and estimates the external factors that give a considerate view of how effective the company¶s strategies are used in the capitalization of their opportunities and disclose the point of threats that are active.08 2 3 0.

20 0.80 0.05 Continental Airlines Rating Score 2 2 2 4 4 3 4 4 0.0 3.60 0.30 0.0.20 0.20 3.60 0.30 0.25 3.05 0.05 is given and lowers considering other critical success factors. .45 0.15 0.30 0.15 0.Competitive Profile Matrix (CPM) Critical Success Factors Financial Position Customer Loyalty Market Share Management Advertisement Price Competitiveness Global expansion Product quality Weight 0.45 0.45 0.15 United Airlines Rating Score 4 3 3 3 4 3 4 4 0.10 is given to the customer loyalty and the American Airlines have scored highest as they have very strong customer loyalty rewarding programs and they were the first airlines to introduce the customer loyalty programs and thereby leading to a new revelation in the travel industry Market share Delta airlines and American airlines have similar and larger market shares than continental airlines and the value of 0.80 0.20 American Airlines Rating Score 3 4 4 2 3 3 3 3 0.0 very important) and the ratings pass on to the strengths and weaknesses by 4 being the major strength.60 0.10 0. Delta Airlines have a very strong financial strength as they have the highest revenue in the competitive market.40 0.15 0.15 0.10 0.15 as the financial stability is always altering in terms of various reasons and Delta Airlines have the highest score among the competitors.60 0.20 0.45 0.45 0.60 0. not important to 1. to 1 for major weaknesses.6 The competitive profile matrix for continental Airline categorizes the company¶s crest competitors such as American Airlines and Delta Airlines.45 0.20 0. Companies are then evaluated on the basis of significant Success factors of the airline industry and the success factors are weighed from (0. Financial position The financial position is given a value 0. Customer loyalty The weight of 0.

Continental and Delta Airlines are expanding their portfolio of airlines operations from domestic to international airline carriers with a middling rate.05 and the Continental and Delta airlines have the similar rating as they offer similar quality of products to their customers. So the score given is 0. Global expansion Expanding a wide network of air transport operation through connecting diverse hubs globally is the future vision of most airlines and capturing the domestic as a whole and then virtually presenting at a snail¶s pace in all the continent¶s air transport operations. The weight of 0. The competition in adverting campaigns. . American Airlines rating is lower among competitors since their incompetency to survive the crises situation and heavy customer complaints regarding scandals during the economic downturn. The value of 0.15 is given and the ratings are equivalent for all the airlines as they have more or less pricing structure offered to the customers. Passengers who prefer these airlines are mostly sensitive to the price and other more features.15 is given as it is another vital success factor and ratings are same for continental and Delta airlines.15.20 and ratings almost identical expect American Airlines.Management Management is one of the success factors of the companies and given a value of 0. The score is 0. Product quality Product quality is not considered as one of the unique success factors of budgeted airlines considering the international luxury airlines. Advertising The value for the critical success factor µadvertising¶ is the highest of all other aspects as it carries a significant role in the strategy planning. however they differ in their management styles of different organizations. Price competitiveness The pricing strategies are different among companies and the efficient strategy of offering the right seat to the right customer at the right time is vital to the company¶s strength of price competitiveness and again it is one of the major critical success factors.

weakness.The company returned to profitability in 2006 after 4 years of losses. Threats (SWOT) Matrix Strengths flight services according to the destination it travels.(1).No Online Presence. Weaknesses does not deal with environmental issue. (5). (8). Threats (SWOT) Matrix Strategic Position and Action Evaluation (SPACE) Matrix Boston Consultancy Group (BCG) Matrix Internal-External (IE) Matrix Grand Strategy Matrix Strengths.Low market share.The ³Go Forward´ plan . Newark hub serves huge New York Market and is a major access point to Europe. (7). (6). (3). (4).Poor on-time performance record.Stage II ³Matching Stage´ consists of the following: Strengths. (5).Worst record of overbooking and bumping among airlines. (2). (6). opportunities.S.Various incentive programs for employees. (2).It has a wide coverage and serves more international markets than any other U. opportunities. (3). carriers. weakness.Decrease in Service Quality. (4). (1)-The airline customizes its in.Decrement in its overall Airlines Quality Rating Scores.Lack of internal training for employees.Relatively young top management team.Houston hub serves booming energy market.

Increasing population in US.Rise in fuel cost and domestic competition.Adoption of Latest technology and internet to reduce cost.Increment In Gross Profit and reduction in overall costs. (7).The Rivals has recovered from bankruptcy and become stronger. (8).Installation of winglets to reduce cost.The ³EU-US open skies´ provides an opportunity to increase its connectivity. (3). (6). (5). (2). Opportunities (1).(7). WO Strategy Product Development Market Development Market Penetration WT Strategy Retrenchment Horizontal Integration .Its fleet consists of only Boeing aircrafts and is one of the youngest in the world.Merger with United Airlines. (3). (2). This has resulted in increased efficiencies and cost savings.Increase in security cost due to the threat of hijacking and terrorist.Exploration of international market because of intense competition in local market. (4).Winner of numerous awards for quality service. SO Strategy Product Development Market Penetration Backward Integration ST Strategy Product Development Market Penetration Threats (1). (9).Growing demand for travel.

(4).0439949 0.9491 0.0082 0.09612 1.96931 31.37 2004 0.16095 0.Purchasing of new aircraft by Rivals would challenge for It.039 Leverage Ratio Debt to Total Assets Debt to Equity Ratio Activity Ratios Fixed Assets Turnover Total Assets Turnover Profitability Ratios Return on Capital Return on Assets Growth Ratios Sales Net income SPACE Matrix Financial Strength (FS) Return on Investment Leverage Liquidity 4 3 3 .813 1.Pricing completion in the market.9853 66.8416 1. (6).224 83.0645 -0. (5).Airline industry is vulnerable to economic cycles.006 13.9884 0.588 1.5879 2.98913 0.03033 17.8009 0.8665 0.5678 0.Entry of international airlines into the domestic service. Strategic Position and Action Evaluation (SPACE) Matrix Financial Ratio Analysis Liquidity Ratios Current Ratio Quick Ratio 2006 1.9418 -2.30 -0.63 -0.41 2005 1.9785 45.1306 604. (7).

83-3.63 .63) = 0.20 Average value for ES = ( 29/9 ) = -3.83 Average value for CA = ( -14/-7 ) = -2 Point on X axis = (-2+3) = 1 Average value for IS = ( 18/6 ) = 3 Point on Y axis = (3.Working Capital Cash Flow Inventory Turnover 5 4 4 Total 23 -1 -1 -1 -2 -3 -3 -3 Competitive Advantage (CA) Market share Product quality Product life cycle Customer Loyalty Competition's capacity utilization Technological know-how Control over suppliers & distributors Total -14 -4 -4 -3 -2 -4 -3 -3 -4 -2 Environmental Stability (ES) Technological changes Rate of Inflation Demand variability Price range of competing products Barriers to entry into market Competitive pressure Ease of exit from market Price elasticity of demand Risk involved in business Total -29 5 2 2 3 2 4 Industry Strength(IS) Growth potential Financial stability Technological know how Resource utilization Ease of entry into market Productivity. capacity utilization Total 18 Calculations: Average value for FS = ( 23/6 ) = 3.

Recommended Strategies C ti t l i l t i t l t lj t l it ll it i t it i l t t l ti t t t i it ti t l i t ti ti i it l ti it i iti l t i t t i t Boston Consultancy Group (BCG) Matri Relati e Market Share C ti lt t l i li R l ti M l l i i t i i i % .

Industry Growth Rate is Major Airlines Continental Airlines American Airlines Delta Airlines Southwest Airlines Revenue 2006 13128000 19917000 28063000 10350000 Revenue 2005 11208000 23766000 22697000 11023000 Average Growth Rate % 14.905 the position lies in the forth cell µDogs¶ Recommended Strategies are: Liquidity.0 High +20 Medium 0.905 Total The following BSG matrix shows the proportion between relative market share and industry growth rate of continental airlines.7 and a industry growth rate of 14. and retrenchment The company has very low relative market share and compete in slow or no market growth with weak internal and external position.62/4=14. Relative Market Share High 1. Divestiture.50 Low 0.62 16 23 6 59. With a relative market share of 7.0 Stars Question Mark Medium 0 Industry Growth Rate % Dogs Cash Cow Low -20 .

0 I 3.0 3. According to the IE matrix below.0 to 2.83 fall in the Y axis and both the whereas both the values are slightly above average.0 4. The strategy mainly focuses on both market penetration and product development. .0 Weak 1. The IE matrix is almost similar to BCG matrix and it has two key dimensions including the scores in the x axis and EFE total weighted scores of 2.0 to 4.0 V VI VII 1. The IE matrix is supported by the total weighted scores of the IFE matrix on the X-axis and the EFE matrix on the y-axis. Continental Airlines falls in the fifth cell and so as they should follow the strategy of ³hold and maintain´.99 2.0 II III IV 2. The matrix spots an organization into nine cells and the matrix can be divided into three major sections that have dissimilar allusion.0 VIII IX Internal-External (IE) Matrix The internal-External matrix is a strategic management means that is used to analyze the strategic position of a business.0 to 1.Internal-External (IE) Matrix IFE Total Weighted Score Strong 3.0 Average 2.99 1.

. Rapid Market Growth II Weak Competitive Position I Strong Competitive Position III IV Slow Market Growth According to the Grand Strategy Matrix. The strategies recommended are related diversification. 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.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. unrelated diversification and joint ventures. The following grand strategy matrix of continental airlines evaluates competitive position and market growth in the current similar market industry.

Stage III ³Decision Stage´ consists of the following: Quantitative Strategy Profile Matrix (QSPM) Strategies Forward Integration Backward Integration Horizontal Integration Market penetration Market Development Product Development Related Diversification Unrelated Diversification Retrenchment Divestiture Liquidation SWOT Matrix SPACE Matrix BCG Matrix IE Matrix Grand Strategy Matrix Total • • • • • • • • • • • • • • • • 1 2 • • • • 3 2 3 2 2 2 2 1 1 • Joint Venture • 1 .

10 2 0.24 2 0.80 3 0. the strategies more used are in all the matrices are Horizontal Integration and market development.10 1 0. Quantitative strategic planning matrix QSPM Matrix Alternative Strategies Strengths The airline customizes its inflight services according to the destination it travels The company returned to profitability in 2006 after 4 years of losses Relatively young top management team Various incentive programs for employees It has a wide coverage and serves more international markets than any other U.By analyzing and evaluating all the matrices.16 3 0.30 0.S. Newark hub serves huge New York Market and is a major access point to Europe (HI) Merging with United Airlines AS TAS (MD) Developing a Strong Market in Japan and China AS TAS Weight 0.24 0.07 3 0.20 3 0.07 - - - - 0. carriers Houston hub serves booming energy market.21 1 0.08 2 0.07 .16 0. The alternative strategies developed according to the two strategies accordingly and used in the QSPM.05 0.05 2 0.

03 0.21 2 0. This has resulted in increased efficiencies and cost savings Winner of numerous awards for quality service Increment In Gross Profit and reduction in overall costs 0.04 0.03 0.06 1 0.03 2 0.10 0.06 0.09 2 0.12 0.27 0.03 2 3 0.06 0.15 2 0.03 1 .09 1 1 0.03 1 0.Its fleet consists of only Boeing aircrafts and is one of the youngest in the world.07 3 0.14 0.05 3 2 0.07 - - - - 0.04 2 0.03 - - - - 0.18 3 0.05 - - - - Weaknesses The ³Go Forward´ plan does not deal with environmental issue Decrement in its overall Airlines Quality Rating Scores Decrease in Service Quality Poor on-time performance record Worst record of over-booking and bumping among airlines Lack of internal training for employees Low market share No Online Presence Total 0.06 0.08 1 0.

09 2 3 1 1 0.16 - 1 - 0.04 0.07 2 0.Opportunities Exploration of international market because of intense competition in local market Installation of winglets to reduce cost The ³EU-US open skies´ provides an opportunity to increase its connectivity Merger with United Airlines Growing demand for travel Adoption of Latest technology and internet to reduce cost Increasing population in US 0.08 0.10 - - - - 0.8 .18 0.39 2.08 0.08 - 1 3.06 2 0.03 2 - 0.09 2 0.27 0.14 3 0.12 0.08 0.16 0.03 Threats Rise in fuel cost and domestic competition Increase in security cost due to the threat of hijacking and terrorist The Rivals has recovered from bankruptcy and become more stronger Purchasing of new aircraft by Rivals would challenge for It Entry of international airlines into the domestic service Pricing completion in the market Airline industry is vulnerable to economic cycles 0.07 - - - - 0.10 0.24 1 0.08 0.08 3 0.12 3 0.08 - - - - 0.18 3 0.21 0.40 0.09 - - - - 0.03 4 4 2 3 0.16 0.20 0.

Airlines to avoid any of t e costly and ti e constraining elements associated wit asset isadvantages of the ossi le Merge would¶ve een those of diseconomies of scale. economies ofscope and an increment in their overall market power. such as those of the organi ation. his may in turn reduce the overall effectiveness of the organi ation. the clash of culture. certain problem may also arise in targeting these markets. they may also have also incurred a reduction in their long term costs as were distributed and tasks were also spread across their much greateroperations base. the individuals and management as a whole. gain further global recognition. . would be that since apan and China have faces an increment in their rate of tourism. Researching and developing strategies that fit these regions may be wasted if polices do not match the expected outcomes. l increasing t eir overall net wort n addition. Strategy recommendation rom the careful analysis of the strengths and weaknesses of both these strategies. increase their productivity and profitability and thus face an overall rise in their efficiency . t ol l of t ll tt t nt i not to own erger i t in i i t of Al o. Also.Merging with united Airlines: An nt t i llow t ntit . for Continental Airlines. this may be completely disadvantageous for the business and may also lead it to bankruptcy. owever. developing a strong m arket base in these regions would enable Continental Airlines to increase their market share. can occur. a ay also allow Continental rchases. Continental Airlines faced higher economies of scale. his was mainly because through this merger. it can be seen that merging with nited Airlines was a better option for Continental Airlines. astly. a contradiction of objectives may occur which may lead the business to face severe consequences. which generall y occur when a usiness ecomes too large for the owners to handle. Developing a strong market in Japan and China: he obvious advantages of this. astly. thus giving rise to higherunit costs.

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