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.

Stage 1 Input 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.S. 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. This has resulted in increased efficiencies and cost savings

Weight 0.10

Rating 4

Total Weighted Score 0.40

0.08

0.24

0.05

0.10

0.07

0.21

0.08

0.32

0.07

0.21

0.07

0.21

Winner of numerous awards for quality service Increment In Gross Profit and reduction in overall costs

0.09 0.05

3 2

0.27 0.10

Weaknesses
The Go 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

0.07 0.03 0.05 0.03 0.04 0.03 0.06 0.03

3 2 3 2 2 2 3 2

0.21 0.06 0.15 0.06 0.08 0.06 0.18 0.06

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 weakness. However there needs to be significant improvements in their internal operational structure in order to achieve competency.

External Factor Evaluation (EFE) Matrix

Total Weighted Score 0.21

Opportunities
Exploration of international market because of intense competition in local market Installation of winglets to reduce cost

Weight

Rating

0.07

0.10

0.40

The EU-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

0.09

0.36

0.10 0.04 0.08 0.03

4 2 3 2

0.40 0.08 0.24 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

0.09 0.08

2 3

0.18 0.24

0.06

0.06

0.07

0.14

0.08 0.08 0.03

2 3 2

0.16 0.24 0.06

2.83

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

Competitive Profile Matrix (CPM)

Critical Success Factors
Financial Position Customer Loyalty Market Share Management Advertisement Price Competitiveness Global expansion Product quality

Weight
0.15 0.10 0.05 0.15 0.20 0.15 0.15 0.05

Continental Airlines Rating Score

2 2 2 4 4 3 4 4 0.30 0.20 0.10 0.60 0.80 0.45 0.60 0.20

American Airlines Rating Score

3 4 4 2 3 3 3 3 0.45 0.40 0.20 0.30 0.60 0.45 0.45 0.15

United Airlines Rating Score

4 3 3 3 4 3 4 4 0.60 0.30 0.20 0.45 0.80 0.45 0.60 0.20

3.25

3.0

3.6

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

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 crises situation and heavy customer complaints regarding 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 ratings almost identical expect American Airlines. The competition in adverting 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 companys 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 snails pace in all the continents air transport operations. Continental and Delta Airlines are expanding their portfolio of airlines 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 rating as they offer similar quality of products to their customers.

Stage II Matching Stage consists of the following: Strengths, weakness, opportunities, Threats (SWOT) Matrix Strategic Position and Action Evaluation (SPACE) Matrix Boston Consultancy Group (BCG) Matrix Internal-External (IE) Matrix Grand Strategy Matrix

Strengths, weakness, opportunities, Threats (SWOT) Matrix

Strengths
flight services according to the destination it travels. (2)- The company returned to profitability in 2006 after 4 years of losses. (3)- Relatively young top management team. (4)- Various incentive programs for employees. (5)- It has a wide coverage and serves more international markets than any other U.S. carriers. (6)- Houston hub serves booming energy market; Newark hub serves huge New York Market and is a major access point to Europe.

Weaknesses
does not deal with environmental issue. (2)- Decrement in its overall Airlines Quality Rating Scores. (3)- Decrease in Service Quality. (4)- Poor on-time performance record. (5)- Worst record of overbooking and bumping among airlines. (6)- Lack of internal training for employees. (7)- Low market share. (8)- No Online Presence.

(1)-The airline customizes its in- (1)- The Go Forward plan

(7)- Its fleet consists of only Boeing aircrafts and is one of the youngest in the world. This has resulted in increased efficiencies and cost savings. (8)- Winner of numerous awards for quality service. (9)- Increment In Gross Profit and reduction in overall costs.

Opportunities
(1)- Exploration of international market because of intense competition in local market. (2)- Installation of winglets to reduce cost. (3)- The EU-US open skies provides an opportunity to increase its connectivity. (4)- Merger with United Airlines. (5)- Growing demand for travel. (6)- Adoption of Latest technology and internet to reduce cost. (7)- Increasing population in US.

SO Strategy
Product Development Market Penetration Backward Integration

ST Strategy
Product Development Market Penetration

Threats
(1)- Rise in fuel cost and domestic competition. (2)- Increase in security cost due to the threat of hijacking and terrorist. (3)- The Rivals has recovered from bankruptcy and become stronger.

WO Strategy
Product Development Market Development Market Penetration

WT Strategy
Retrenchment Horizontal Integration

(4)- Purchasing of new aircraft by Rivals would challenge for It. (5)- Entry of international airlines into the domestic service. (6)- Pricing completion in the market. (7)- Airline industry is vulnerable to economic cycles.

Strategic Position and Action Evaluation (SPACE) Matrix Financial Ratio Analysis
Liquidity Ratios
Current Ratio Quick Ratio

2006
1.0439949 0.98913 0.96931 31.5879 2.09612 1.16095 0.9884 0.03033 17.1306 604.41

2005
1.0082 0.9491 0.9785 45.588 1.8416 1.0645 -0.30 -0.006 13.224 83.37

2004
0.8665 0.8009 0.9853 66.813 1.5678 0.9418 -2.63 -0.039

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

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 ) = 3.83

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 = (3.83-3.63) = 0.20

Average value for ES = ( 29/9 ) = -3.63

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 %

14.62 16 23 6 59.62/4=14.905

Total

The following BSG matrix shows the proportion between relative market share and industry growth rate of continental airlines. With a relative market share of 7.7 and a industry growth rate of 14.905 the position lies in the forth cell Dogs Recommended Strategies are: Liquidity, Divestiture, and retrenchment The company has very low relative market share and compete in slow or no market growth with weak internal and external position.

Relative Market Share

High 1.0 High +20 Medium 0.50 Low 0.0

Stars

Question Mark

Medium 0

Industry Growth Rate %

Dogs Cash Cow

Low -20

Internal-External (IE) Matrix

IFE Total Weighted Score
Strong 3.0 to 4.0
4.0 3.0

Average 2.0 to 2.99

2.0

Weak 1.0 to 1.99

1.0

I
3.0

II

III

IV
2.0

VI

VII
1.0

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. 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 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. The strategy mainly focuses on both market penetration and product development.

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
Weak Competitive Position

I
Strong Competitive 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.

Stage III Decision 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

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 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.S. carriers Houston hub serves booming energy market; 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

0.10

0.20

0.30

0.80

0.24

0.16

0.05

0.10

0.05

0.07

0.08

0.16

0.24

0.07

0.21

0.07

Its fleet consists of only Boeing aircrafts and is one of the youngest in the world. 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

0.07

0.21

0.14

0.09

0.18

0.27

0.05

Weaknesses
The Go 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

0.07

0.03

0.03

0.06

0.05

3 2

0.15

0.10

0.03

0.06

0.03

0.04

0.08

0.04

0.03

0.06 0.03

2 3

0.12 0.09

1 1

0.06 0.03

Opportunities
Exploration of international market because of intense competition in local market Installation of winglets to reduce cost The EU-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

0.07

0.10

0.09

0.18

0.27

0.10 0.04 0.08 0.03

4 4 2 3

0.40 0.16 0.16 0.09

2 3 1 1

0.20 0.12 0.08 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

0.09

0.08

0.06

0.12

0.18

0.07

0.14

0.21

0.08

0.24

0.08

0.08 0.03

2 -

0.16 -

1 -

0.08 -

3.39

2.8

Merging with united Airlines:

An nt t i llow t ntit , t ol l of t ll tt t nt i not to own erger i t in i i t of Al o, l

increasing t eir overall net wort

n addition, a

ay also allow Continental rchases,

Airlines to avoid

any of t e costly and ti e constraining elements associated wit asset

isadvantages of the ossi le Merge wouldve een those of diseconomies of scale, which generall y occur when a usiness ecomes too large for the owners to handle, thus giving rise to higherunit costs. Also, the clash of culture, such as those of the organi ation, the individuals and management as a whole, can occur. his may in turn reduce the overall effectiveness of the organi ation. astly, a

contradiction of objectives may occur which may lead the business to face severe consequences.

Developing a strong market in Japan and China:

he obvious advantages of this, for Continental Airlines, would be that since apan and China have faces an increment in their rate of tourism, developing a strong m arket 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 . owever, certain

problem may also arise in targeting these markets. Researching and developing strategies that fit these regions may be wasted if polices do not match the expected outcomes; this may be completely disadvantageous for the business and may also lead it to bankruptcy.

Strategy recommendation
rom the careful analysis of the strengths and weaknesses of both these strategies, it can be seen that merging with nited Airlines was a better option for Continental Airlines. his was mainly because

through this merger, Continental Airlines faced higher economies of scale, economies ofscope and an increment in their overall market power. astly, 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.