Submitted By: Sibeesh Sreenivasan 200700091: Case Study: Continental Airlines

Submitted by: Sibeesh Sreenivasan
200700091
Case study: Continental Airlines

Table of contents
Executive summary.....................................................................................................................................4
Introduction.................................................................................................................................................5
Company Background..................................................................................................................................5
Mission and Vision Statement.....................................................................................................................6
Vision:......................................................................................................................................................6
Mission:...................................................................................................................................................6
Strategies.....................................................................................................................................................7
External Opportunities................................................................................................................................8
External Threats..........................................................................................................................................8
Competitive Profile Matrix (CPM)................................................................................................................9
Financial Position.....................................................................................................................................9
Customer loyalty...................................................................................................................................10
Market share......................................................................................................................................10
Management..........................................................................................................................................10
Advertising............................................................................................................................................10
Price competitiveness............................................................................................................................10
Global expansion...................................................................................................................................10
Product quality......................................................................................................................................11
Financial Ratio Analysis..............................................................................................................................12
Current Income Statement in US $............................................................................................................13
Industry analysis: External Factors Evaluation MATRIX.............................................................................17
Internal Strengths......................................................................................................................................19
Internal Weaknesses..................................................................................................................................19
Internal Factor Evaluation (IFE) Matrix......................................................................................................20
Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix.................................................................22
SWOT MATRIX ANALYSIS.......................................................................................................................23
SO Strategy:.......................................................................................................................................23
ST Strategy:........................................................................................................................................24
WO Strategies:...................................................................................................................................24

WT Strategies....................................................................................................................................24
Strategic Position and Action Evaluation (SPACE) Matrix..........................................................................25
Internal-External (IE) Matrix......................................................................................................................27
Boston Consulting Group (BCG) Matrix.....................................................................................................28
Relative Market Share...............................................................................................................................28
Industry growth rate= (15.5) %..............................................................................................................28
Grand Strategy Matrix...............................................................................................................................30
Evaluation of Strategies from Matrices.....................................................................................................31
Quantitative Strategy Planning Matrix (QSPM).....................................................................................32
Advantages and Disadvantages of Strategies............................................................................................34
Merging with United Airlines:............................................................................................................34
Developing a strong market in Japan and China:...............................................................................35
Strategy recommendation.........................................................................................................................35
Long term objectives.................................................................................................................................35
Objectives and Policies..............................................................................................................................37
Policies.......................................................................................................................................................38
Resource Allocation...................................................................................................................................39
Income Statement after Implementation..................................................................................................40
Recommendations.....................................................................................................................................40
References.................................................................................................................................................41

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 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 and will not be effective for the company.

Introduction
October 1st, 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
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 company’s strong brand image (Schlangenstein &
Jane, 2010).
Company Background
Continental Airlines Company was integrated in the early 80’s 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.

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.
Concern for Philosophy Self Concern Concern

Survival, Concept for for
Organization Customers Products Markets Growth and Technology Public Employe
Services Profitability Image es
Continental Yes Yes Yes No No No No Yes Yes
Airlines

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 Continental’s rudimentary element for success. This ever changing,
four point plans enables the company to formulate and transcend its goals. Since it’s
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 Continental’s 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 boarding’s. 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
company’s success. In doing so, they want to place an emphasis on safety, employee programs
and communication. (Mission statements, 2010)

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)
Continental American Delta

Airlines Airlines Airlines
Critical Weight Rating Weighted Rating Weighted Rating Weighted
Success Score Score Score
Factors
Financial 0.15 2 0.30 3 0.45 4 0.60
Position
Customer 0.10 2 0.20 4 0.40 3 0.30
Loyalty
Market Share 0.05 2 0.10 4 0.20 3 0.20
Management 0.15 4 0.60 2 0.30 3 0.45
Advertising 0.20 4 0.80 3 0.60 4 0.80
Price 0.15 3 0.45 3 0.45 3 0.45
Competitiveness
Global 0.15 4 0.60 3 0.45 4 0.60
expansion
Product quality 0.05 4 0.20 3 0.15 4 0.20

Total 3.25 3.0 3.6
The competitive profile matrix for Continental Airlines categorizes the company’s 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.
Financial Position
The financial position is given a value 0.15 as the financial stability is always altering in terms of
various reasons and Delta Airlines have the highest score among the competitors. Delta Airlines
have a very strong financial strength as they have the highest revenue in the competitive market.

Customer loyalty
The weight of 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 0.05 is given and lowers considering other critical success factors.
Management
Management is one of the success factors of the companies and given a value of 0.15, however
they differ in their management styles of different organizations. American Airlines rating is
lower among competitors since their incompetency to survive the crisis situation and heavy
customer complaints regarding the scandals during the economic downturn.
Advertising
The value for the critical success factor ‘Advertising’ is the highest of all other aspects as it
carries a significant role in the strategy planning. The score is 0.20 and the ratings almost
identical except American Airlines. The competition in advertising is really strong and
companies have invested huge amount of money in various advertising campaigns.
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. The weight 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.
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. Continental and Delta
Airlines are expanding their portfolio of airline operations from domestic to international airline
carriers with a middling rate. The value of 0.15 is given as it is another vital success factor and
ratings are same for continental and Delta airlines.
Product quality
Product quality is not considered as one of the unique success factors of budgeted airlines
considering the international luxury airlines. Passengers who prefer these airlines are mostly
sensitive to the price and other more features. So the score given is 0.05 and the Continental and
Delta airlines have the similar ratings as they offer similar quality of products to their customers.

Financial Ratio Analysis
Financial Ratio Analysis makes possible the company to spot trend in the competitive business
and to evaluate its performance and situation with the standard performance of similar activities
in the same industry. Following table analyze the major five ratios including the Liquidity ratios,
Activity ratios, Leverage ratios, Profitability ratios and the Growth ratios
Key Ratios Year 2008 Year 2009 Year 2009

Liquidity Ratios
Current Ratio 0.97:1 1:1 0.79:1
Quick Ratio 0.94:1 0.86:1 0.5:1
Leverage Ratios
Debt to Equity 56:44 11:89 59:41
Ratio
Debt to Total Asset 46% 51% 60%
Ratio
Activity Ratios
Fixed Assets 2.08 1.06 1.5
Turnover
Total Assets 1.19 0.98 0.7
Turnover
Profitability Ratios
Return on Capital (5.56)% (4.95)% 4.0%
Employed
Return on Assets (0.8)% 4.7% 1.3%
Growth Ratios
EBITDA Growth 54.1% 42.8% 17.2%
Sales Growth (7)% (17)% (23)%
A liquidity ratio helps measure a company’s growth on the basis of its capability in achieving
short-term obligations. Liquidity ratios for both continental airlines and Delta airlines seem to
run along the unsatisfactory lines. Since, the ideal current ratio would be that of 2:1, both airlines
show that liabilities have taken over the assets in most years. However, Continental airlines has
progressed from 2008 to 2009 by 0.03 % , it still faces problems in relation to meeting its short

term payments and debts since the current assets depend upon its cash position. (Revenue from
the airline business). Therefore, seasonality can play a big role here in determining the accounts
payable and hence lead to inefficient operations.
Quick ratio which disregards inventories since it is the hardest to en-cash in time of debt
payment. Short term creditors prefer high current ratio since it reduces the risk of lending while
shareholders might prefer a lower current ratio since that shows that current assets within the
business are consumed for the growth and revenue of the business. The ideal quick ratio is 1.5:1,
which the financial figures of both Airlines don’t correspond to. It can be seen that continental
airlines is not only facing a negative lad but at the same has decreased further from 2008 to fiscal
year 2009. On the other hand, its competitor Delta Airline, manages a quick ratio of just 0.5:1
showing that Delta would have problems in paying short term debts since it has fewer assets that
can be easily turned into cash.
Leverage ratios
The leverage ratio helps determine the extent to which the company has been financed by debt,
therefore the greater the ratio the more negative in terms of current assets and return on
investment. Financial leverage ratio provide a long-term solvency of a company unlike the
liquidity ratio.
Debt equity ratio is total debt divided by total equity, this figure as the formula suggests helps
investors and creditors analyze the capital structure and the solvency of the company. A high
ratio in the aviation industry is foreseen due to its equity-intensive formation. However,
Continental airlines has been able to keep this figure at a satisfactory level for its shareholders,
investors as there would be a high profit back on investment. A growth in its ratio from 2008 to
2009 indicates a growth and bounce back in the aviation, streaking out of the financial crisis.
While on the other hand, its competitor delta airline faces challenges with regards to the total
debt finances over its equity due to its higher ratio.
Debts to asset percentage indicates the financial strength/weakness of a company. With an
increase in percentage, continental airlines stand at 51:49, debt to assets, which wouldn’t be
considered as a weak financial position due to recent ongoing crisis and reduced airline fee.
Competitor delta, accounts to 60% of debt as compared to assets.

Activity Ratios
Activity ratio determines how well a company is using its current resources. It measures a
company’s efficiency in areas of operations and maximizing the use of resources in such areas.
Fixed asset turnover notifies the revenue generated from fixed assets or resources. Singapore
airlines has faced a drastic decline in regards to this and shows the ineffective use of assets in
2009 compared to 2008. While, on the other hand delta airlines stands at a strong position with a
1.5 representing an efficient use of their current assets and resources. Total asset turnover
suggests the turnover ratio whilst including the inventory as well. Both airlines show declines in
this row suggesting an effective and excessive use of inventory.
Profitability ratios
Profitability ratios offer different measures of success of a company in the field of generating
profits.
The return on capital percentage is the bottom line par level for shareholders who measure
profits earned for each dollar invested in the firm. Return on equity is the net income divided by
shareholder equity. There has been seen a reasonable growth in 2008 but a fluctuating decline
towards 2009 for both airlines. With Singapore airlines standing a 4.7 % and delta at 4.0%, it is a
reasonable equation for shareholder and investor interests.
Return on assets is the measure of how effective is the company’s assets being used to generate
profits. Different from the total asset turnover, this demonstrates figures representing profit
margins on assets. A great increase was noted for continental airlines in 2009 climbing nearly
4% while delta airlines decreases down 1.3% which Is comparatively a lower figure with regards
to asset management.
Growth ratios
This determines the company’s ability to maintain economic position and possibly grow in the
market industry and economy. This is compared to the prior performance of the company.
EBITDA growth indicator represents the amount of sales a company makes before it deducts
money for expenses. With regards to continental airlines, there has been seen a plummet in

EBITDA growth possibly because of the loss of revenue due to the financial crisis and
competition from international market and low-cost airlines. However, it has maintained itself at
a stable position, not the case with delta airlines which faces trouble standing at 17%, showing its
weak financial outline hindering investors and shareholder interests.
Sales growth ratio determines the growth or decline in the company’s sales rate over the past
years. Sales growth compared to the last fiscal year has plummeted as well, with a 10% decrease
in continental airlines. Delta airline is facing a minus 23% less sales growth, meaning lesser
revenue which is a big thing to consider in its future strategies.

Current Income Statement in US $
Dec 09 Dec 08 Dec 07
Revenue 12,586.0 15,241.0 14,232.0
Cost of Goods Sold 5,779.0 8,713.0 9,992.0
Gross Profit 6,807.0 6,528.0 4,240.0
Gross Profit Margin 54.1% 42.8% 29.8%
SG&A Expense 6,314.0 4,786.0 682.0
Depreciation & Amortization 494.0 438.0 413.0
Operating Income (146.0) (314.0) 687.0
Operating Margin -1.2% -2.1% 4.8%
Non operating Income 95.0 (103.0) 102.0
Non operating Expenses (388.0) (267.0) --
Income Before Taxes (439.0) (684.0) 566.0
Income Taxes (157.0) (99.0) 107.0
Net Income After Taxes (282.0) (585.0) 459.0
Continuing Operations (282.0) (585.0) 459.0
Discontinued Operations -- -- --
Total Operations (282.0) (585.0) 459.0
Total Net Income (282.0) (585.0) 459.0
Net Profit Margin -2.2% -3.8% 3.2%

Industry analysis: External Factors Evaluation MATRIX
OPPORTUNITIES WEIGHT RATING WEIGHTED SCORE
Continental airlines should consider 0.07 3 0.21
researching the international markets, as they
face intense competition from the local
market.
The installation of winglets in an attempt to 0.10 4 0.40
lessen costs.
The “EU-US Open Skies” provides Continental 0.09 4 0.36

with an opportunity to broaden its base in
terms of connectivity.
Merger with the United Airlines in October 0.10 4 0.40
2010
Growing demand for travel at 3.2% growth in 0.04 2 0.08

2011
Being more technologically advanced and 0.08 3 0.24

using the internet to reduce their costs.
42% increase in the Hispanic population in US 0.03 2 0.06

over the last decade
THREATS
Rise in fuel costs and domestic competition. 0.09 2 0.18
Elevation in security costs due to the risks of 0.08 3 0.24

hijacking and terrorism.
The fact that it’s rivals have recovered from 0.06 1 0.06
bankruptcy and recovered back much
stronger due to their ability to reduce their
costs.
The introduction of new aircrafts by the rivals 0.07 2 0.14
and the fact that this would directly
contradict Continentals young and more fuel
efficient aircrafts.
Entry of international airlines into the 0.08 2 0.16
domestic services

Ongoing pricing competition of budgeted 0.08 3 0.24
airlines in the market
Airline industry as a whole is vulnerable to 0.03 2 0.06

economic cycles and big swings in bottom-line
performance
TOTAL 1 2.83
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. 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.

The strengths and weaknesses are the major key points of company’s 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 it’s
travelling to.
 The company rose to profitability after being hit by severe losses for four years straight.
 It’s young management team that has been supporting it since the mid 90’s.
 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 Boeing’s 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 0.10 4 0.40
customized services in accordance
to the destination its travelling to.
The company rose to profitability 0.08 3 0.24

after being hit by severe losses for
four years straight.
It’s young management team that 0.05 2 0.10

has been supporting it since the
mid 90’s.
It’s various incentive programs to 0.07 3 0.21

keep its staff motivated to aim
towards on-time arrivals.
The fact that it serves more 0.08 4 0.32

international markets than any
other U.S. aircraft.
Houston hub serves booming 0.07 3 0.21

energy market; Newark hub serves
huge New York market and is a
major access point to Europe
It’s fleet comprises of mainly 0.07 3 0.21
Boeing’s and is one of the youngest
globally. This leads to increased
efficiencies and major cost
reductions.
Received an array of awards for 0.09 3 0.27
service quality and overall
reputation.
Increment in gross profits and 0.05 2 0.10
reductions in overall costs.
WEAKNESSES

The fact that its “Go forward” plan
does not attend the environmental 0.07 3 0.21
issues directly.
The airline has faced a decrement
in its overall AQR scores. 0.03 2 0.06
Service quality has also faced a

decline. 0.05 3 0.15
It has been recorded that 0.03 2 0.06

continental has poor on-time
performance, despite its efforts.
It also had the worst record in over

booking and bumping passengers 0.04 2 0.08
in comparison to other airlines.
Lack of internal training for the 0.03 2 0.06

employees
Little equity in planes, limiting 0.06 3 0.18

ability to raise cash through
sale/lease-back deals
Minimal presence in major foreign 0.03 2 0.06

destinations such as London, Paris,
Tokyo
Total 1 2.92
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 company’s 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.
Stren
Strengths Weaknesses
1. The fact that the airline provides 1. The fact that its “Go forward” plan does
customized services in accordance not attend the environmental issues
to the destination it’s travelling to. directly.
2. The company rose to profitability 2. The airline has faced a decrement in its
after being hit by severe losses for overall AQR scores.
four years straight. 3. Service quality has also faced a decline.
3. It’s young management team that 4. It has been recorded that continental has
has been supporting it since the poor on-time performance, despite its
mid 90’s. efforts.
4. Its various incentive programs to 5. It also had the worst record in over
keep its staff motivated to aim booking and bumping passengers in
towards on-time arrivals. comparison to other airlines.
5. The fact that it serves more 6. Lack of internal training for the
international markets than any employees
other U.S. aircraft 7. Little equity in planes, limiting ability
6. Houston hub serves booming to raise cash through sale/lease-back
energy market; Newark hub serves deals
huge New York market and is a 8. Minimal presence in major foreign
major access point to Europe destinations such as London, Paris,
7. Its fleet comprises of mainly Tokyo
Boeing’s and is one of the
youngest globally. 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 SO Strategy ST Strategy
1. Continental airlines should consider 1) Its fleet comprises of mainly 1) Its fleet comprises of mainly
researching the international markets, as Boeing’s and is one of the Boeing’s and is one of the
they face intense competition from the youngest globally. This leads to youngest globally. This leads to
local market. increased efficiencies and major increased efficiencies and major
2. The installation of winglets in an attempt cost reductions/ the installation of cost reductions/ The introduction
to lessen costs. winglets in an attempt to lessen of new aircrafts by the rivals and
3. The “EU-US Open Skies” provides costs. (S7:02): Product the fact that this would directly
Continental with an opportunity to Development. contradict Continentals young and
broaden its base in terms of connectivity. 2) The fact that the airline provides more fuel efficient aircrafts.
4. Merger with the United Airlines in customized services in accordance (S7:T4): Product Development.
October 2010 to the destination it’s travelling to/ 2) Received an array of awards for
5. Growing demand for travel at 3.2% Being more technologically service quality and overall
growth in 2011 advanced and using the internet to reputation/ Airline industry as a
6. Being more technologically advanced reduce their costs. (S1:O6): whole is vulnerable to economic
and using the internet to reduce their Market Penetration. cycles and big swings in bottom-
costs. 3) Backward Integration: S3:S4:O3 line performance. (S8:T7):
7. 42% increase in the Hispanic population Market Penetration.
in US over the last decade

Threats WO Strategy WT Strategy
1. Rise in fuel costs and domestic
competition. 1) It has been recorded that 1) It also had the worst record in over booking
2. Elevation in security costs due to the continental has poor on-time and bumping passengers in comparison to
risks of hijacking and terrorism. performance, despite its other airlines/ Airline industry as a whole is
3. The fact that its rivals have recovered efforts/ It also had the worst vulnerable to economic cycles and big
from bankruptcy and recovered back record in over booking and swings in bottom-line performance/
much stronger due to their ability to bumping passengers in Rise in fuel costs and domestic competition.
reduce their costs. comparison to other airlines/ (W5:T7:T1): Retrenchment.
4. The introduction of new aircrafts by the Lack of internal training for 2) Minimal presence in major foreign
rivals and the fact that this would directly the employees/ Continental destinations such as London, Paris, Tokyo/
contradict Continentals young and more airlines should consider The fact that its rivals have recovered from
fuel efficient aircrafts. researching the international bankruptcy and recovered back much
5. Entry of international airlines into the markets, as they face intense stronger due to their ability to reduce their
domestic services competition from the local costs.(W8:T3): Horizontal Integration.
6. Ongoing pricing competition of budgeted market / Growing demand
airlines in the market for travel at 3.2% growth in
7. Airline industry as a whole is vulnerable 2011
to economic cycles and big swings in (W4:W5:W6:05:O1):
bottom-line performance Market development.
Product development.
Market Penetration.
SWOT MATRIX ANALYSIS

SO Strategy:
The fact that that Continental’s product portfolio consists mainly of Boeing’s 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 it’s
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.
(S1:06)

Continental’s 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. (S3:S4:03).
ST Strategy:
The introduction of new aircrafts by Continental’s competitors would lead Continental airlines to
focus primarily on developing new products, as its Boeing’s may become obsolete. (S7:T4).
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 Airline’s has been awarded with various
service quality awards, it would enable them to penetrate the markets much easily. (S8:T7).
WO Strategies:
It has been stated as one of the flaws of Continental’s Airlines that it has poor on-time
performance, also has problems with booking passengers in comparison with other airlines. It’s
training provided to its staff has also been recorded as being weak, hence, if Continental Airlines
were to target a new market all together 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.
(W4:W5:W6:05:O1).
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
company’s overall strategic position.
FS
5
CONSERVATIVE AGGRESSIVE
4
1
CA IS
-5 -4 -3 -2 -1 1 2 3 4 5
-1
-2
-3
DEFENSIVE -4 COMPETITVE
-5
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 4 Technological Changes -4
Leverage 3 Inflation rate -4
Liquidity 3 Demand fluctuation -3
Working Capital 5 Price bracket of competing -2

products
Cash Flow 4 Entry barriers into the market -4
Inventory Turnover 4 Pressure from competition -3
Total 23 Easy exit from the market -3
Competitive Advantage (CA) Price elasticity of demand -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 5
Competition’s capacity utilization -3 Financial constancy 2
Technological skills -3 Technological knowledge 2
Control over distributors and suppliers -3 Resource consumption 3
Total -14 Ease of entry into the market 2
Productivity, capacity, 4
utilization
Total 18
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.

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 supported by the total weighted scores of the
IFE matrix on the x-axis and the EFE matrix on the y-axis. The matrix spots an organization into
nine cells and the matrix can be divided into three major sections that have dissimilar allusion.
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 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 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 Average Weak
T 3.0 to 4.0 2.0 to 2.99 1.0 to 1.99

H
E 3.0 2.0 1.0
4.0
E
F
E
I II III
T
O
T 3.0
A
L
W IV V VI
E
I
G 2.0
H
T
E
D VII VIII IX
S
C 1.0
O
R

Boston Consulting Group (BCG) Matrix
The BCG matrix reveals the company’s 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 Revenue 2008 in Average Growth Rate
millions millions %
Continental Airlines 12,586.0 15,241.0 (17)%
American Airlines 19,917.0 23,766.0 (16)%
Delta Airlines 28,063.0 22,697.0 (23)%
Southwest Airlines 10,350.0 11,023.0 (6)%
Total (62)/4=(15.5)%
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
High Medium Low

High +20
STARS QUESTION MARKS
CASH COWS DOGS
1.0 0.50 0.0
Medium 0
Industry
Growth
Rate%
Low -20
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 I
Weak Strong
Competitive Competitive
Position Position
III IV
Slow Market Growth
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 are related diversification, unrelated diversification and
joint ventures.

Evaluation of Strategies from Matrices
STRATEGIES SWOT SPACE BCG Matrix IE Matrix Grand TOTAL

Matrix Matrix Strategy
Matrix
Forward 1
Integration
Backward 2
Integration
Horizontal 3
Integration
Market 2
Penetration
Market
Development 3
Product
Development 2
Related
Diversification 2
Unrelated
Diversification 2
Retrenchment
2
Divestiture
1
Liquidation
1
1
Joint Ventures
By analyzing and evaluating all the matrices, the strategies more used are in all the matrices are
Horizontal Integration and market development. The alternative strategies developed according
to the two strategies accordingly and used in the QSPM.

Quantitative Strategy Planning Matrix (QSPM)
(HI) (MD)
ALTERNATIVE STRATEGIES Merging with United Developing a
Airlines” strong market in
China and Japan
STRENGTHS WEIGHT AS TAS AS TAS

The fact that the airline provides customized 0.10
services in accordance to the destination its
travelling to. 2 0.20 3 0.30
The company rose to profitability after being 0.08
hit by severe losses for four years straight.
3 0.24 2 0.16
It’s young management team that has been 0.05
supporting it since the mid 90’s.
2 0.10 1 0.05
It’s various incentive programs to keep its 0.07
staff motivated to aim towards on-time
arrivals. - - - -
The fact that it serves more international 0.08
markets than any other U.S. aircraft.
2 0.16 3 0.24
Houston hub serves booming energy market; 0.07
Newark hub serves huge New York market
and is a major access point to Europe 3 0.21 1 0.07
It’s fleet comprises of mainly Boeing’s and is 0.07
one of the youngest globally. This leads to
increased efficiencies and major cost 3 0.21 2 0.14
reductions.
Received an array of awards for service 0.09
quality and overall reputation.
2 0.18 3 0.27
Increment in gross profits and reductions in 0.05
overall costs.
- - - -
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
1 0.03 2 0.06
WEIGHT AS TAS AS TAS

Service quality has also faced a decline.
0.05
3 0.15 2 0.10
It has been recorded that continental has 0.03
poor on-time performance, despite its efforts.
2 0.06 1 0.03
It also had the worst record in over booking
and bumping passengers in comparison to 0.04
other airlines. 2 0.08 1 0.04
Lack of internal training for the employees 0.03
- - - -
Little equity in planes, limiting ability to raise 0.06
cash through sale/lease-back deals
2 0.12 1 0.06
Minimal presence in major foreign 0.03
destinations such as London, Paris, Tokyo
3 0.09 1 0.03
Total 1
OPPORTUNITIES
Continental airlines should consider 0.07

researching the international markets, as they
face intense competition from the local - - - -
market.
The installation of winglets in an attempt to 0.10
lessen costs.
- - - -
The “EU-US Open Skies” provides Continental 0.09
with an opportunity to broaden its base in
terms of connectivity. 2 0.18 3 0.27
Merger with the United Airlines in October 0.10 4
2010
0.40 2 0.20
Growing demand for travel at 3.2% growth in 0.04
2011
4 0.16 3 0.12
Being more technologically advanced and 0.08
using the internet to reduce their costs.
2 0.16 1 0.08
42% increase in the Hispanic population in US 0.03
over the last decade
3 0.09 1 0.03
WEIGHT AS TAS AS TAS

THREATS
Rise in fuel costs and domestic competition. 0.09
- - - -
Elevation in security costs due to the risks of 0.08
hijacking and terrorism.
- - - -
The fact that it’s rivals have recovered from 0.06
bankruptcy and recovered back much
stronger due to their ability to reduce their 2 0.12 3 0.18
costs.
The introduction of new aircrafts by the rivals 0.07
and the fact that this would directly
contradict Continentals young and more fuel 2 0.14 3 0.21
efficient aircrafts.
Entry of international airlines into the 0.08
domestic services
3 0.24 1 0.08
Ongoing pricing competition of budgeted 0.08
airlines in the market
2 0.16 1 0.08
Airline industry as a whole is vulnerable to 0.03
economic cycles and big swings in bottom-
line performance - - - -
TOTAL 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 would’ve 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 company’s different departments.

Objectives and Policies
Long term company

objectives
Increase operating revenue by
20 % by 2012 using Horizontal
Integration strategy( Meging )
Finance annual
Marketing objectives Personnel
R&D annual annual annual
objective objectives Forcast the future
objectives
MIS annual risks involved
Develope new Prioritise objectives inthe horizontal Implement staff
technology to
advertising integration training and
reduce the fuel activites for Create a
process and development
consumption merging and consolidated
develop risk program for new
Invent new ways developing customer data recruitments and
management
of Online campagne base of both offer refreshment
reservation and programs about merged airlines training every
flight tracking the new routes quarter
system

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 Physical
mortgage Aircrafts
Capital Maintenance & Service centres
Retained Profits & earnings Corporate offices & Buildings
investments Employee housings
Equipments & other assets
Human Technological
Recruitment and training of employees R&D development equipments
Outsourcing of technology

Income Statement after Implementation
Dec 09(mn) Dec 11(mn)
Revenue 12,586.0 13,959.0

Cost of Goods Sold 5,779.0 7,745.0
Gross Profit 6,807.0 6,214.0
Gross Profit Margin 54.1% 44.5%
SG&A Expense 6,314.0 7232.0
Depreciation & Amortization 494.0 390.0
Operating Income (146.0) (628.0)
Operating Margin -1.2%
Non operating Income 95.0 132.0
Non operating Expenses (388.0) 37.0
Income Before Taxes (439.0) (214.0)
Income Taxes (157.0) (97.0)
Net Income After Taxes (282.0) 23.0
Continuing Operations (282.0) 23.0
Discontinued Operations -- -
Total Operations (282.0) 23.0
Total Net Income (282.0) 23.0
Net Profit Margin -2.2% 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.

References
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continental-airlines/
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3T88FM7-2/2/6e519224d555049d0a6e88f50e865ecb
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continental-air-merger-to-create-biggest-carrier.html

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Case study: Continental Airlines

Case study: Continental Airlines

Case study: Continental Airlines

Case study: Continental Airlines

Case study: Continental Airlines

Concern for Philosophy Self Concern Concern

Continental Yes Yes Yes No No No No Yes Yes

Case study: Continental Airlines

Case study: Continental Airlines

Case study: Continental Airlines

Continental American Delta

Product quality 0.05 4 0.20 3 0.15 4 0.20

Case study: Continental Airlines

Case study: Continental Airlines

Case study: Continental Airlines

Key Ratios Year 2008 Year 2009 Year 2009

Case study: Continental Airlines

Case study: Continental Airlines

Case study: Continental Airlines

Case study: Continental Airlines

Case study: Continental Airlines

The “EU-US Open Skies” provides Continental 0.09 4 0.36

Growing demand for travel at 3.2% growth in 0.04 2 0.08

Being more technologically advanced and 0.08 3 0.24

42% increase in the Hispanic population in US 0.03 2 0.06

Elevation in security costs due to the risks of 0.08 3 0.24

Case study: Continental Airlines

Airline industry as a whole is vulnerable to 0.03 2 0.06

Case study: Continental Airlines

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

Case study: Continental Airlines

STRENGTHS WEIGHT RATING TOTAL WEIGHTED

The company rose to profitability 0.08 3 0.24

It’s young management team that 0.05 2 0.10

It’s various incentive programs to 0.07 3 0.21

The fact that it serves more 0.08 4 0.32

Houston hub serves booming 0.07 3 0.21

Case study: Continental Airlines

Service quality has also faced a

It has been recorded that 0.03 2 0.06

It also had the worst record in over

Lack of internal training for the 0.03 2 0.06

Little equity in planes, limiting 0.06 3 0.18

Minimal presence in major foreign 0.03 2 0.06

Case study: Continental Airlines

Case study: Continental Airlines

SWOT MATRIX ANALYSIS

Case study: Continental Airlines

Case study: Continental Airlines

Average value for FS=3.83, CA=-2, IS=3, ES=-3.63

Point on X-AXIS = (-2+3) = 1

Return on Investment 4 Technological Changes -4

Leverage 3 Inflation rate -4

Liquidity 3 Demand fluctuation -3

Working Capital 5 Price bracket of competing -2

Cash Flow 4 Entry barriers into the market -4

Inventory Turnover 4 Pressure from competition -3

Total 23 Easy exit from the market -3

Competitive Advantage (CA) Price elasticity of demand -4

Market Share -1 Risk involved in Business -2

Product Quality -1 Total -29