Continental Airlines Case Study !

Continental Airlines Case Study !

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  Continental Airlines CaseStudy Submitted By Faisal Hayat (13) Sarmad Jalal (25) BBA 7th Semester Submitted To Sir Saifullah Assistant Professor Institute Of Management Studies University of Peshawar
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  Preface It is partof the course that our professor has awarded us. We have written a report on the case study of continental airlines and the basic goal of this task it to obtain the knowledge in the field of strategic management in this report. We have applied different matrices and strategies and it helped us to increase our knowledge.
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  Executive Summary: The foundersof Continental airlines are Louis Mueller and Walter Varney and became functional in 1934. The current CEO of continental airlines is Gordon Bethune. Continental airlines today are serving 133 domestic and 132 international destinations. It has above 40,000 employees who serve 67 million passengers per year. The main objective of continental airline is to make their operations more efficient, provide ease to their employees and customers and to reduce the cost. Continental airlines wanted to keep their system up to date by introducing new innovative technologies time to time. For this purpose, Continental airlines followed a guiding principle, “The Go Forward plan”. The go forward plan had four basic elements. 1. Fly to win (Market plan) 2. Fund the future (Financial plan) 3. Make Reliability a Reality (Productplan) 4. Working together (Employees). The young top management including Lawrence Kellner and Jeffry smisek joined this airline in 1990’s. With the passage of time continental became world’s fifth largest airline. It operates more than 3000 daily departures throughout the America, Europe and Asia. According to AQR (Airline quality Rating) 2007 Continental airline was best in providing service quality. Continental airline AQR scorehas declined for the last three years even though it’s ranking has improved. Continental’s passenger yields have risen slightly over the past two years to 12.29, and compare favorably to northwest and south west airlines. So continental got a net income of $343 million in 2006 after losses in 2004 and 2005. And the major cause of this loss and bankruptcy was 9/11. In 2006 and 2007 airlines returned to profitability. Continental airlines were in a tough competition with its rivals. The market share of continental airlines was 7.7% which was very less then American airlines and united airlines. Continental airlines had many opportunities to get lead in the market e.g. online booking of tickets was an opportunity to sell tickets faster than the normal process. Moreover market was becoming globalized which was a chance for continental airlines to capture the market. Keeping in view all these aspects EFE matrix showed that Continental airline in effective giving value of 2.60. In comparison with other competitors, CPM matrix showed that Southwest airlines have bestproductquality, management experience and global expansion. While Continental gives 1.82 which is less. Than they use many strategies main focus is on intensive strategies through which they can get more profit .All the issues that continental airlines are as natural environment. Competitors fuels etc. are making problem for this airline some strategies are applied to overcome this
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  Table of Contents: 1-ContinentalAirlines 5 1.1-Vision 5 1.2-Mission 5 1.3-Objective 5 1.4-Strategies 5 2-DevelopedMission and Vision Statement 5 2.1-Mission Statement 5 2.2-Vision Statement 5 3-External Opportunities 5 4-External Threats 5 5-CPM 6 6-EFE 6 7-IFE 7 8-Strengths 7 9-Weaknesses 7 10-SWOT/TOWS 8 11-Space Matrix 10 12-IE Matrix 12 13-BCG Matrix 12 14-QSPM Matrix 13 15-Recommended strategies and long term objectives 14 16-Forecasted Ratios 15 16.1-Liquidity ratios 15 16.2-Leverage ratios 15 16.3-Growth ratios 16 17-Annual Objectives and Strategies 17 18-Procedure for strategy review and evaluation 17
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  1.1-Continental airlines vision: ContinentalAirlines Inc. seeks to lead its industry in superior customer service, innovative technology, employee satisfaction, and environmental advances, at home and abroad. 1.2-Continental airlines mission: Continental airline struggles to gain excellent customer service and satisfaction through technological advances in website bookings and e-ticket purchasing .We have strict security measures to ensure our customer’s safety. 1.3-Continental Airlines Objectives: To Achieve above average profits by minimizing their cost. Provide such products and services which make you able to lead the industry. Keep good relation with customer and employees. 1.4-Continental Airlines Strategies: Continental airline has implemented turnaround strategy to become profitable in the market. 2-Developed Mission and Vision Statement: 2.1-ContinentalAirlines MissionStatement: "We struggle to become best airline in the industry by support of our customers and employees." 2.2-ContinentalAirlines Vision statement: “To get lead in the industry by focusing on customer’s satisfaction, employee satisfaction, new technologies and innovations” 3-External opportunities: 1. Aviation market expansion 2. Online booking through internet 3. Emergence of fuel efficient engines in the market. 4. Emergence of electronic tickets. 5. Major competitor winding up their business. 4-External threats:
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  1. Rise infuel prices. 2. Economy fall after 2001 3. Entry of rivals in the market. 4. Labor wages increase 5. Easy entrance of rival in the market. 5-Competitive profile matrix: We compare Continental Airline, DeltaAirlineandSouthwestAirline Continental Airlines Southwest Airlines Delta Airlines Factors Weight Rating Average Weightage Rating Average Weightage Rating Average Weightage Financial Status 0.07 2 0.14 1 0.07 3 0.21 Product quality 0.1 3 0.3 4 0.4 1 0.1 Globalization 0.4 1 0.4 2 0.8 4 0.16 Labour Union 0.09 4 0.36 1 0.09 3 0.27 Pricing 0.2 1 0.2 3 0.6 4 0.8 Market Share 0.14 3 0.42 4 0.56 2 0.28 1.82 2.52 1.82 It seemsthatSouthwestairlinesisshowinggoodprogressthanContinental andDeltaAirlines.
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  6-External FactorEvaluation: External FactorsWeight Rating WeightedScore Market Expansion 0.09 2 0.18 Online bookings 0.2 4 0.8 Fuel efficientengines 0.17 3 0.51 Entry of rivalsin market 0.3 1 0.3 Fuel price increased 0.05 3 0.15 Labour wagesincrease 0.10 2 0.20 Fall ineconomy 0.09 1 0.09 1 3.03 So we can say that continental airlines are prepared above average to face External Opportunities and threats. 7-Strengths: 1. Fifth largest airline serving domestic as well as international airline. 2. Very rare customer complaints. 3. On time performance 4. Well trained staff 5. Denied boarding rate reduced. 8-Weaknesses: 1. Increase in mishandling of luggage 2. No online reservation system 3. Less market share
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  9-Internal factor evaluation: Internalfactors Weight Rating WeightedScore 5Th Ranking 0.10 3 0.3 Decrease incomplaints 0.25 4 1 On time performance 0.07 4 0.28 Trainedstaff 0.14 3 0.42 Deniedboarding reduced 0.05 4 0.2 Increase inmishandling of luggage 0.20 1 0.20 No online reservation system 0.08 1 0.08 Lessmarketshare 0.11 2 0.22 =1 =2.7 Score2.7 shows that Continental Airlines have strong internal position. 10-SWOT/TOWS matrix Internal Factors External Factors Strengths(S) S1 Fifth Largest Airplane S2 Rare complain S3 On time Performance S4 Well Trained Staff S5 Boarding Rate Decreased Weaknesses(W) W1 Mishandling Of Luggage W2 less market share W3 No Online Reservation
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  Opportunities(O) O1Aviation market expansion O2 onlinebooking through internet O3 emergence of electronic tickets SO Strategies S5,O1 Boarding rate decreased to expansion in aviation market WO Strategies W2,O2 less market share due to expansion of aviation market Threats(T) T1 entry of rivals in market T2 labor wages increase T3 Major competitor winding up their business ST Strategies S1,T1 Entry of rivals in the market may change or effect their ranking WT Strategies W1,T1 labor wages are increasing but still there is mishandling of luggage . Recommendation: SO strategy: Decrease boarding rate to due to the expansion of the aviation market. WO strategy: They should provide such unique Services to increase Market Share because the Market is expanding. ST strategy: They should do something that their ranking should remain the same if not improved like advertisement providing safe journey etc. because rivals are increasing. WT strategy: they should hire labors that can help in handling of luggage properly.
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  11-Space Matrix: There aretwo axes of spacematrix that’s represent two dimensions first is financial strengths and competitive advantage these are internal dimension and second is industrial strengths and environmental stability as external dimension.  Financial Strengths: 1) Net Income after Third Quarter $241 Million 2.0 2) Revenues $3.8 Billion 2.0 Total 4.0  Industry Strengths: 1) Above average profit is achieving 4.0 2) More rely on domestic routes 3.0 Total 7.0  Environmental Stability 1) Cost in reduced by technology -3.0 2) Fuel Accuracy -2.0 Total -5.0  Competitive advantage 1) Decline in service quality -2.0 2) Market Share 7.7% -1.0 Total -3.0 ES Average is -5.0 ÷2 = -2.5 IS Average is 7.0 ÷2 =3.5 CA Average is -3.0 ÷ 2= -1.5 FS Average is 4.0 ÷ 2=2 Directional Vector Coordinates: x-axis:-1.5 + (+3.5) = +2
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  FS +6 +1 +5 +4 +3 +2 -6 -5 -4 -3 -2 -1-6 -5 -4-3 -2 -1 +1 +2 +3 +4 +5 +6 ES CA IS Conservative Aggressive Defensive Competitive y-axis: -2.5 + (+2) = -0.5 Recommendation: The above line shows that it’s in com putative quadrant so they should use the intensive strategies that include market penetration, market development and productdevelopment Strategies.
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  12-IE Matrix: Internal FactorEvalution Value is : 2.7 External FactorEvaluation Value is 3.3 So the Internal External matrix is as under the value assigned was calculated above : Recommendations: Continental airlinesare inharvestzone meanstheyshoulduse retrenchment,divestitureandliquidation strategy. 13-BCG Matrix: The BostonConsulting Group Matrix. It is a private consulting firm based in Boston. Quadrant: It falls in question mark quadrant because they have less market share and the market is growing too fast. Recommendations:
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  They should relyon intensive strategies and divesture strategy because they need to maintain their ranking well 14-QSPM MATRIX: Market Market Development Penetration KeyFactors Weight AS TAS AS TAS  External Opportunities Aviation market expansion 0.15 1 0.15 2 0.30 Online bookingthroughinternet 0.15 1 0.15 1 0.15 Emergence of fuel efficientenginesinthe market. 0.09 2 0.18 2 0.18 Emergence of electronictickets. 0.05 3 0.15 3 0.15 Major competitorwindinguptheir business. 0.17 1 0.17 2 0.17  External Threats:
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  Rise infuel prices.0.04 2 0.08 2 0.08 Economyfall after2001 0.10 2 0.2 2 0.20 Entry of rivalsinthe market. 0.15 1 0.15 1 0.15 Labor wagesincrease 0.05 2 0.1 2 0.1 Easy entrance of rival in the market. Total 0.05 1 2 0.1 2 0.1  Internal Strengths FifthlargestAirline 0.08 2 0.16 3 0.24 Veryrare customercomplaints. 0.17 1 0.17 1 0.17 On time performance 0.12 2 0.24 1 0.12 Well trainedstaff 0.13 1 0.13 2 0.26  Internal Weaknesses Increase inmishandlingof luggage 0.20 1 0.20 2 0.4 No online reservationsystem 0.16 1 0.16 2 0.32 Lessmarketshare 0.14 2 0.28 1 0.14 Total 1 2.77 3.23 Conclusion:SoMarketPenetrationValue ismore thanmarketdevelopment. 15-Recommended strategies and long term objectives: I will recommend intensive strategies that is market penetration, market development and productdevelopment for continental airlines because through market penetration they can get back customers means by advertising and hiring employees for the promotion will help them to increase their revenue .by product development means they should make changes in their productthat can meet modern days demand. They should try to develop there market as will. And there long term objective should be to make the service or to take their service to such improvement that can give them top ranking in market (airlines market) they should give high rise or increase the wages of their employees. They should sell their tickets in reasonable rate that people make way towards them becauseprice attract the customers .they should try to cover all the areas means they should
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  introduce their serviceall over the world not specifically in India and America . They should develop a website properone that will create ease for the customers to get information about the flights. 16-Forecasted Ratios:  16.1-Liquidity ratio:  Current ratio = Current Assets /Current Liabilities 11308000/10961000=1.03 Dec 31, 2006 10529000/10303000=1.02 Dec 31, 2005 10511000/10356000=1.01 Dec 31, 2004  Quick ratio= Current assets-Current liabilities / Current Liabilities 11308000-10961000 = 0.03 Dec 31, 2006 10961000 10529000-10303000 =0.02 Dec 31, 2005 10303000 10511000-10356000=0.01 Dec 31, 2004 10356000  16.2-Leverage Ratios: Debt to total asset ratio= Total Debt/Total Asset 4859000/11308000=0.42 Dec 31, 2006 5057000/10529000=0.48 Dec 31, 2005 5167000/10511000=0.49 Dec 31, 2004  16.3-Profitability Ratios
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  Profitabilityratios 2006 20052004 Gross profitmargin 40.9% 39.9% 40.1% Operatingprofitmargin 0.24 1.12 0.21 Netprofitmargin 0.12 0.56 0.67 Returnon total assets 0.92 0.96 0.99 Returnof stock holderequity 0.32 0.23 0.38  16.4Growth Ratios: Growth ratios 2006 2005 2004 Sales 0.25 0.42 0.57 Netincome 31.17 23.48 10.17
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  Earningsper share 39.423.4 19.4 17-Annual Objectives and strategies: There annual objective should be to balance the work between their staffs they should use the strategy that if someone is working extra he should be paid extra they should give reward to its workers. They should develop and advantage between their employees means develop competitive advantage to give extra services and bonus to their hardworking and dedicated employees. They should encourage their employees that’s they are going well as give them and increase in salaries and promotions. By doing such they will grow and their revenue will be increased in future years. 18-Procedure for strategy review and evaluation:  Strategy should be consistent the goals and policies should be consistent.  Before implementing strategy they should study the environment that what sort of trend is happening or in.  Problems may arise in making strategy so they should have a proper solution to it within their resources  They should create competitive advantage  They should plan something different then their competitors and then look around whether it will work.