Continental Airlines

Continental Airlines Inc. 2007 (synopsis)

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2 | C o n t i n e n t a l A i r l i n e s

Table of Contents1.0 Case Facts:.............................................................................................................................................4

2.0 External Environment Analysis:.............................................................................................................5

2.1 Pest Analysis:.....................................................................................................................................5

2.1.1 Economical factors:.....................................................................................................................5

2.1.2 Social, Cultural, Demographic and Environmental factors:.........................................................5

2.1.3 Political, Governmental, and Legal Factors.................................................................................6

2.1.4 Technological Factors.................................................................................................................6

2.1.5 Competitive Forces.....................................................................................................................6

2.2 Industrial Analysis:.............................................................................................................................7

2.2.1 Porter 5 Forces............................................................................................................................7

2.2.2 Threats:.....................................................................................................................................10

2.2.3 Opportunities:...........................................................................................................................11

2.2.4 Key Success Factor:...................................................................................................................12

2.2.4 EFE tool:....................................................................................................................................12

3.0 Internal Environment Analysis:............................................................................................................13

3.1 Strengths:........................................................................................................................................15

3.2 Weaknesses:....................................................................................................................................15

3.3 IFE Tool:...........................................................................................................................................15

4.0 Evaluation of Vision and Mission Statements:.....................................................................................16

5.0 Recommendations:..............................................................................................................................18


Continental Airlines Inc. 2007 (synopsis)

Continental Airlines Inc. was founded by Walter Varney and Louis Mueller, flying from El Paso, Texas to Pueblo, Colorado in 1934.Vision: Continental Airlines Inc. seeks to lead its industry in superior customer service, innovative technology, employee satisfaction, and environmental advances, at home and abroad.Mission: At Continental Airlines Inc., we strive to obtain excellent customer service and satisfaction through technological advances in on-line bookings and e-ticket purchases. We have strict security measures to ensure our customer’s safety. Our international flights cater to our customer’s cultures, with language, food choices, and movies. We have committed to making the lives of our customers, employees, vendors and as efficient as possible, through environmental advances we are dedicated to reducing fuel waste by cost effective innovation of smaller jet fleets. The use of high quality products and services will create a decline in cost to us, therefore we will be able to pass the savings on to our customers and increase benefits to our employees with on-going extensive training. We have committed to enthusiastically utilize technology without losing sight of our original goal to negotiate cost-effective deliverables. We will maintain ongoing research to improving our products and services globally, and eliminating non-value-added costs. Our commitment remains innovated by updating and improving “The Go Forward Plan”, with specific global and environmental issues added.

1.0 Case Facts:

- The airline industry is highly competitive. - Additional terrorist attacks or international hostilities may further adversely affect

Continental Airline’s financial condition, results of operations and liquidity. - Additional security requirements may increase Continental Airline’s operation cost.- The airline industry is too vulnerable to price discounting- Expanded government regulation could increase operation cost. - The airline industry is greatly taxed. - The airline industry may experience further consolidation that may affect Continental

Airline’s business strategy.- Increase in operating costs will restrict Continental Airline’s ability to conduct their

business and decrease their traffic.- Insurance costs could increase materially or key coverage could become unavailable.- Public health threats affecting travel behavior could have a material adverse effect on the

industry.- An economic downturn could result in less demand for air travel. - Continental Airline results of operations fluctuate due to seasonality and other factors

associated with the airline industry.- Unstable and volatile fuel prices or disruptions in fuel supplies could have a material

adverse effect on Continental Airlines. - Continental Airline’s labor costs may not be competitive.


- Labor disruptions could adversely affect Continental Airline’s operations. - Delays in scheduled aircraft deliveries may adversely affect international growth. - High leverage may affect the ability to satisfy significant financing needs or meet

obligations. - Credit rating downgrades could have a material adverse effect on Continental Airline’s

liquidity. - New fuel efficient fleet could help reduce the fuel operational cost to airliners.

- Failure to meet financial covenants would adversely affect Continental Airline’s liquidity.

- Interruptions or disruptions in service at one of Continental Airline’s hub airports could have a material adverse effect on their operations.

- Chapter 11 bankruptcy allows airliners to achieve substantial cost reductions through, among other things, reduction or discharge of debt, lease and pension obligations and wage and benefit reductions.

- If Continental Airline experience problems with certain of their third party regional operators, their operations could be materially adversely affected.

- Possible significant failure or disruption of the computer systems on which Continental Airline rely could adversely affect their business.

- ICT technology such as online booking, 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.

2.0 External Environment Analysis:

2.1 Pest Analysis:

2.1.1 Economical factors:

No Factors Case Issue FindingCompetitive force

New Low Cost Airliners present new competitions to Continental Airlines

Threat

Terrorist Attacks

Additional terrorist attacks or international hostilities may further adversely affect Continental Airline’s financial condition

Threat

Economic slow down

An economic downturn could result in less demand for air travel.

Threat

Competitive forces

Low cost carrier Opportunity

Loss of profit Highly competitive and less attractive domestic market

Threat

2.1.2 Social, Cultural, Demographic and Environmental factors:

No Factors Case Issue FindingDiscouragement to air fly

Terrorist attacks have increased risk and Public health threats are affecting travel behavior.

Threat


Terrorist Attacks

September 11 affected the sales of airliners Threat

Economic slow down

Global environmental issues are influencing the way airliners conduct their business and operation.

Threat

More demanding

Nowadays, customers are more demanding in terms of quality service expectations and the advance of ICT has also given customers more buying power and selections

Opportunity

2.1.3 Political, Governmental, and Legal Factors

No Factors Case Issue FindingLabor cost. Continental Airline’s labor costs may not be

competitive.Opportunity

Chapter 11 – bankrupt protection

Chapter 11 bankruptcy allows airliners to achieve substantial cost reductions through, among other things, reduction or discharge of debt, lease and pension obligations and wage and benefit reductions

Opportunity

New EU US open skies treaty

EU-US Open Skies policy would present opportunities to airliners to expand their service horizon.

Opportunity

2.1.4 Technological Factors

No Factors Case Issue FindingICT Usage ICT technology such as online booking,

ticketless boarding pass and online baggage handling system assists to lower the operational costs and pass the savings to the customers

Opportunity

Ecommerce E-ticketing saves time and improves traditional method.

Opportunity

better fuel efficiency

New fuel efficient fleet could help reduce the fuel operational cost to airliners.

Opportunity

The introduction of new technology

For existing fleet, winglets can be installed to reduce drag thus resulting to higher.

Opportunity

2.1.5 Competitive Forces

No Factors Case Issue FindingProduct service positioning.

Only well managed airlines are able to sustain Opportunity

Entry and exit of firms in the industry.

Small jets provide opportunity for larger airlines to serve broad geo area within low op cost

Opportunity

Threats of substitute

Small jets operators are able to sell at lower cost. (JetBlue)

Threat


2.2 Industrial Analysis:

2.2.1 Porter 5 Forces.

Name of Industry AirlineConfiguration of Industrykey economic measures of industry

Market size No Datamarket growth rate No DataNo of rivals 10No of buyers N/ANo of suppliers N/A

Market Share American 15.

40%

United 12.10%

Southwest 11.90%

Delta 11.20%

Continental 7.70%

Northwest 7%US Airways 4.7

0%JetBlue 4.0

0%America West 3.8

0%Alaska 2.6

0%


Others 19.60%

American15%

United12%

Southwest12%

Delta11%

Continental8%

Northwest7%

US Airways

5%

JetBlue4%

America West4%

Alaska3%

Others20%

Rivalry Among competing firmslowering price Continental Airline’s labor costs may not be

competitive.Threat

enhancing quality Nowadays, customers are more demanding in terms of quality service expectations and the advance of ICT has also given customers more buying power and selections

Opportunity

adding features E-ticketing saves time and improves traditional method.

Opportunity

Others Only well managed airlines are able to sustain Opportunity

Rivalry Analysis – Competitive Rivalry

Is the number of players in the industry increasing?

Yes, with the increase of demand in small jets, domestic carriers are increasing

Opportunity

Are the competitors Yes, the competitors becoming more equal in size and Threat


becoming more equal in size and capability?

capability

Is the demand increasing?

No, demand is not increasing currently due to global environment and economic down turn.

Threat

Is there any trend to encourage price war?

Yes, there are trend to encourage price war. New No-frills and small jets concepts.

Threat

Is the switching cost of the buyers lower?

No, switching cost of the buyers is high Opportunity

Is the service perishable?

Yes, the product/service is perishable Threat

Is the customer demand growing slowly?

Yes, demand is growing slowly, slower than before. Threat

Are the rival firms diverse in strategy, origin and culture?

Yes, the rival firms diverse in strategy, origin and culture

Threat

Are the mergers and acquisitions common in the industry

Yes Threat

Potential entry of new competitors

The need to gain economic of scale quickly

There is always threat of new competitors in the market

Threat

The need to gain technology and specialized know how

Technology is now available at much cheaper price then before, especially after decrease in labor cost after globalization.

Opportunity

The lack of experience

No Data

Strong customer loyalty

Concept of customer loyalty is fading away in airlines. Opportunity

Strong brand preferences

Threat of newcomers is relatively low as new entrants fail in contrast to successful jet

Opportunity

Large capital requirements

Domestic carriers may not require large initial capital. Opportunity

Government regulation policies

The airline industry is greatly taxed. Threat

Tariffs No Data

Lack of access to raw materials

No Opportunity

Possession of patents No Threat

Undesirable locations No Opportunity

Development of substitute products


Reducing the price Great difference between substitute Opportunity

Adding up some function in the products

E-Commerce, Winglets and ICT has improved the traditional way.

Opportunity

Entering new niche market

Small Jets Opportunity

Using newer technologyExpanding production capacity

No Data

Bargaining Power of suppliers

Number of suppliers in the industry

No Data

The switching cost of materials

No Data

The quality that suppliers could deliver

No Data

could suppliers deliver new services

No Data

Could suppliers provide just in time supplies

No Data

Others Fuel prices effects the operational cost of airliners. Airliners are practicing hedging strategies to control fuel costs.

Opportunity

Bargaining Power of Consumers

Are the customers are concentrated, large or buy in volume

consumers are large in volume Opportunity

Is any extended warranties or special services offered?

ICT technology and internet has given consumers more bargaining power

Opportunity

Are the products standard or undifferentiated?

No, products are various in character Opportunity

2.2.2 Threats:- New Low Cost Airliners present new competitions to Continental Airlines


- Additional terrorist attacks or international hostilities may further adversely affect Continental Airline’s financial condition

- An economic downturn could result in less demand for air travel. - Highly competitive and less attractive domestic market

- Terrorist attacks have increased risk and Public health threats are affecting travel behavior.

- September 11 affected the sales of airliners- Global environmental issues are influencing the way airliners conduct their business and

operation.- Small jets operators are able to sell at lower cost. (JetBlue)

- Continental Airline’s labor costs may not be competitive.- The competitors becoming more equal in size and capability- Demand is not increasing currently due to global environment and economic down turn- There are trend to encourage price war. New No-frills and small jets concepts- The product/service is perishable- Demand is growing slowly, slower than before.- The rival firms diverse in strategy, origin and culture

- There is always threat of new competitors in the market- The airline industry is greatly taxed.

2.2.3 Opportunities:- Low cost carrier- Nowadays, customers are more demanding in terms of quality service expectations and

the advance of ICT has also given customers more buying power and selections- Continental Airline’s labor costs may not be competitive.

- Chapter 11 bankruptcy allows airliners to achieve substantial cost reductions through, among other things, reduction or discharge of debt, lease and pension obligations and wage and benefit reductions

- EU-US Open Skies policy would present opportunities to airliners to expand their service horizon.

- ICT technology such as online booking, ticketless boarding pass and online baggage handling system assists to lower the operational costs and pass the savings to the customers

- E-ticketing saves time and improves traditional method.- New fuel efficient fleet could help reduce the fuel operational cost to airliners.

- For existing fleet, winglets can be installed to reduce drag thus resulting to higher.- Only well managed airlines are able to sustain- Small jets provide opportunity for larger airlines to serve broad geo area within low

operation cost- With the increase of demand in small jets, domestic carriers are increasing


- switching cost of the buyers is high- Technology is now available at much cheaper price then before, especially after decrease

in labor cost after globalization- Concept of customer loyalty is fading away in airlines. - Threat of newcomers is relatively low as new entrants fail in contrast to successful jet- Domestic carriers may not require large initial capital- Great difference between substitutes- E-Commerce, Winglets and ICT have improved the traditional way.- Fuel prices effects the operational cost of airliners. Airliners are practicing hedging

strategies to control fuel costs.- Consumers are large in volume- ICT technology and internet has given consumers more bargaining power- products are various in character

2.2.4 Key Success Factor:- More profitable and excellent growth (international market).- Good quality and service provide good opportunity. - Airlines has become more cost efficient.- Low cost carrier has the cost advantage.- Merger and acquisitions act to become more efficient and financially strong.- Sales profit ranking of competitor over time.- Opportunities for well managed criteria to gain and expend market share. - Low cost areas are able to sell at low price.

2.2.4 EFE tool:

Key External Factors

Weight(0.0 - 1.0)

Rating(1 - 4)

Weighted Score

Weight x Rating

Opportunities:Terrorist attacks have increased risk 0.05 2 0.1September 11 affected the sales of airliners 0.006 1 0.006Global environmental issues 0.04 3 0.12Small jets operators are able to sell at lower cost 0.21 2 0.42Continental Airline’s labor costs may not be competitive. 0.25 3 0.75

competitors becoming more equal in size and capability 0.003 1 0.003

There are trend to encourage price war 0.05 1 0.05

The product/service is perishable 0.001 2 0.002


Demand is growing slowly, slower than before. 0.002 3 0.006

The rival firms diverse in strategy, origin and culture 0.009 1 0.009There is always threat of new competitors in the market 0.05 3 0.15

The airline industry is greatly taxed. 0.06 1 0.06Demand is not increasing 0.04 1 0.04Threats Low cost carrier 0.001 1 0.001demanding in terms of quality 0.002 2 0.004labor costs may not be competitive. 0.0008 1 0.0008Chapter 11 bankruptcy 0.004 1 0.004EU-US Open Skies policy 0.005 1 0.005ICT technology 0.001 1 0.001E-ticketing saves time 0.02 2 0.04New fuel efficient fleet 0.01 4 0.04winglets can be installed to reduce drag 0.01 4 0.04Only well managed airlines are able to sustain 0.02 3 0.06Small jets provide opportunity 0.02 1 0.02increase of demand in small jets 0.03 2 0.06switching cost of the buyers is high 0.005 2 0.01Technology is now available at much cheaper price 0.01 2 0.02Concept of customer loyalty 0.004 2 0.008 Threat of newcomers is relatively low 0.006 3 0.018may not require large initial capital 0.04 1 0.04Great difference between substitutes 0.03 1 0.03E-Commerce, Winglets and ICT have improved 0.03 1 0.03Fuel prices effects the operational cost of airliners. 0.03 1 0.03Consumers are large in volume 0.01 2 0.02ICT technology and more bargaining power 0.06 3 0.18Products are various in character 0.09 3 0.27Total 1.00 44 2.6478

EFE yield 2.6, which is greater than 2.5 so continental airlines, is average in airline industry.

3.0 Internal Environment Analysis:No. Key Variables Case Issues Strength Weakness

Management1 Planning All dept are controlled by

high top managementWeakness


2 Organizing Functional mgt method, although the chart is not displayed. Functional method tool that enable to monitor and organize performance

Weakness

3 Motivating No data4 Staffing Incentive program, based

only on achievement. Based on KPI

Strength

5 Controlling No data

Marketing1 Customer Analysis No Data2 Selling

Products/ServicesNo Data

3 Product & Service Planning

No data

4 Pricing Not Competitive Weakness5 Distribution No Data6 Marketing Research Not Adequate Weakness7 Opportunity

AnalysisNot Adequate Weakness

Finance1 Liquidity Ratio 1.04(2006), 1.01(2005),

0.87(2004) . ability to meet short term obligations increased

Strength

2 Leverage Ratio Debt to total asset: 0.97(2006), 0.98(2005), 0.99(2004)

3 Activity Ratio Total asset turn over: 1.16(2006), 1.06(2005), 0.94(2004)

4 Profitability Ratio Return on Total Assets: 0.99(2006), -0.30(2005), -2.64(2004) profitability ratio increased

Strength

5 Growth Ratio Net Income: 604.41(2006), 83.37(2005) increased tremendously

Strength

6 Others

Production/Operation


1 Process No data2 Capacity Increased Strength

3 Inventory Increased Weakness

4 Workforce No data5 Quality Increased Strength

R & D1 Internal R&D No data2 External R&D No data

MIS1 Information

SystemsEfficient Strength

2 CIO/CTO No data3 Security No data4 User-friendly No data5 E-commerce Effective and efficient Strength

Value Chain1 Value Chain No data

3.1 Strengths:- Incentive program.- Ability to meet short term obligations increased.- Profitability ratio increased.- Growth rate increased tremendously.- Capacity increased.- Quality increased.- MIS efficient.- E-commerce effective and efficient.

3.2 Weaknesses:- All dept are controlled by high top management- Functional mgt method, although the chart is not displayed.- Not Competitive- Marketing research not Adequate- Opportunity analysis not Adequate- Increased inventory


3.3 IFE Tool:

Key External Factors

Weight(0.0 - 1.0)

Rating(1 - 4)

Weighted Score

Weight x Rating

Strengths:Incentive program. 0.05 2 0.1Ability to meet short term obligations increased. 0.06 1 0.06Profitability ratio increased. 0.03 3 0.09Growth rate increased tremendously. 0.25 4 1Capacity increased. 0.2 3 0.6

Quality increased. 0.03 3 0.09

MIS efficient. 0.08 2 0.16

E-commerce effective and efficient. 0.01 2 0.02WeaknessesAll dept are controlled by high top management 0.04 4 0.16Functional mgt method, although the chart is not displayed. 0.002 2 0.004Not Competitive 0.08 1 0.08Marketing research not Adequate 0.04 2 0.08Opportunity analysis not Adequate 0.06 2 0.12Increased inventory 0.07 3 0.21Total 1.00 14 2.774

As IFE tool yield 2.77, which is greater than 2.5, so the company is strong.

4.0 Evaluation of Vision and Mission Statements:Continental Airlines Vision Statement

Vision: Continental Airlines Inc. seeks to lead its industry in superior customer service, innovative technology, employee satisfaction, and environmental advances, at home and abroad.

Characteristics of an effectively worded vision statement

Graphic Directional Focused Flexible Feasible DesirableEasy to communicate

No Yes Yes Yes Yes Yes NoShortcomings in Vision statement

Vague/ Not forward Too Bland/ Not Too reliant


incomplete looking broad uninspiring distinctive on superlatives

No No Yes No Yes No

Continental Airlines Mission StarementMission: At Continental Airlines Inc., we strive to obtain excellent customer service and satisfaction through technological advances in on-line bookings and e-ticket purchases. We have strict security measures to ensure our customer’s safety. Our international flights cater to our customer’s cultures, with language, food choices, and movies. We have committed to making the lives of our customers, employees, vendors and as efficient as possible, through environmental advances we are dedicated to reducing fuel waste by cost effective innovation of smaller jet fleets. The use of high quality products and services will create a decline in cost to us, therefore we will be able to pass the savings on to our customers and increase benefits to our employees with on-going extensive training. We have committed to enthusiastically utilize technology without losing sight of our original goal to negotiate cost-effective deliverables. We will maintain ongoing research to improving our products and services globally, and eliminating non-value-added costs. Our commitment remains innovated by updating and improving “The Go Forward Plan”, with specific global and environmental issues added.

EvaluationCustomer IncludedProducts or services IncludedMarkets Not IncludedTechnology Includedconcern for survival, growth and profitablity

Not Included

Philosophy ClearSelf-concept ClearConcern for public image Included


5.0 Recommendations: Continental airlines cannot compete in terms of price, with the low cost airlines like

AirTran, JetBlue and southwest, so we recommend that continental should step into these small jets, low cost, less coverage areas niche market. Continental is sound in its financial figures so it should acquire one of the above mentioned low cost no-frills airlines to gain its share in this domestic market.

Recent mergers and acquisitions in the industry are threats for continental in the short term, but it can face the threat by seeking the opportunities to expand its market and to improve quality besides cutting the cost.


Continental Airlines

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