CASE ANALYSIS

Declaration of No Plagiarism

By this letter we declare that we have written this project report completely by ourselves, and
that we have used no other sources or resources than the ones mentioned.

The sources, including book and online ones, used for this project have been stated in the
references given at the end of the report

Moreover we have not handed in an essay, paper or thesis with similar contents elsewhere. All
sources and other resources used are stated in the references.

In case of plagiarism our teacher has the right to exclude us from any further participation in the
particular assignment,

Names Signatures

Abu Bakar Imran

Ali Turab Malik

Fahad Amjad

M.Faisal Haroon

M.HassaAn Manzoor

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Acknowledgement

 First of all, our heartiest gratitude to ALLAH almighty who gave us the ability and
enlightenment to do this project in a given time and produce it to the best of ability

Then we are especially thankful to our instructor, Ms Farah Zarak, whose encouragement,
guidance and support from the initial to the final level enabled us to complete our project in an
efficient and an effective way.

Our special thanks also go to our colleagues in developing the project.

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Executive Summary

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Design methodology

Table of contents

TOPICS PAGE #
DESIGN METHODOLODY
OVERVIEW AND HISTORY
PROPOSED VISION AND MISSION
STATEMENT
EXTERNAL ANALYSIS
 ECONOMIC FORCES

 SOCIAL, CULTURAL,
DEMOGRAPHICS AND
ENVIROMENTAL FORCES

 COMPETITIVE FORCES

 POLITICAL,
GOVERNMENTAL AND
LEGAL FORCES

 TECHONOLOGICAL FORCES

 PORTER’S FIVE FORCES

MODEL

 EFE MATRIM

 CPM

INTERNAL ANALYSIS

Overview and history

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Continental Airlines is a major American airline based in Chicago, Continental Airlines, Inc. is a
United States air carrier engaged in the business of transporting passengers, cargo and mail. The
Company has two segments mainline and regional. The mainline segment consists of flights to
cities using larger jets, while the regional segment consists of flights with a capacity of 79 or
fewer seats. As of December 31, 2009, the regional segment was operated by ExpressJet
Airlines, Inc., Chautauqua Airlines, Inc., Champlain Enterprises, Inc. and Colgan Air, Inc., under
capacity purchase agreements (CPAs). The Company operated more than 2,000 daily departures
as of December 31, 2009. As of December 31, 2009, Continental flew to 118 domestic and 124
international destinations, and offered additional connecting service through alliances with
domestic and foreign carriers. In 70 years , Continental Airlines grew from a small airline flying
a single engine Lockheed Vargas carrying four passengers to the Fourth largest airline in the
united states and Fifth largest in the world . Continental Airlines, founded by Walter Varney and
Louis Mueller. Began flying from EI Paso, Colorado in 1934. The headquarters moved from EI
Paso to Denver in 1937 and then Houston in 1982 following merger with Texas International.
Continental’s rise to a major airline was not without problems. In 1983, the airline filed its first
chapter 11 bankruptcy. By 1987, it was the third largest U.S. airline with the consolidation of
frontier, people express, and New York air. A second chapter 11 was filed by continental in
December 1990, in April 1993; it emerged from bankruptcy, and in July of the next year
celebrated its 60th anniversary of service

Immediately after the September 11 terrorist attacks, continental reduced flights and furloughed
12000 employees. Between 2005 and 2006, three major competitors- delta northwest, united,
and US airways- were under chapter11 bankruptcy protection. Increasing fuel costs and intense
domestic competition contributed to financial losses throughout the industry. Continental had net
income losses for 2001, 2002, 2004, and 2005, but in 2006 it returned to profitability with a net
income of $346 million.

Proposed Mission and Vision Statement

Vision statement

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“To be the leading airline in the industry that guarantees the best flight possible for each and
every passenger.”

Analysis
This vision statement for continental airlines is highlighting the company’s long term plan in a
specific manner. This simply gives an idea to all stakeholders that the company hopes on
becoming the leading company for what they do and serve. The vision statement also specifically
focuses on its customers by guaranteeing for providing the best and most comfortable journey
experience.

Mission statement

Continental airline’s mission is to serve its customers all over the world with the best flying
experience through a combination of excellent and innovative services by having on-time take-
offs and landings and hassle free check-in and check-out .We will achieve this firstly with the
help of our employees who is our real asset and for which they get incentives to encourage them
to perform better, Then secondly by more technological innovations in our air crafts. We are not
only concerned for our employees but also for the whole world for which we use environment-
friendly aircraft. Our company is also aiming to achieve profitable growth while providing fair
returns to our shareholders

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External Analysis

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The industrial organization approach to competitive advantage advocates that the external factors
are more important than internal factors in a firm achieving a competitive advantage. In this
section the factors that are acting as an opportunity and factors that are acting as a threat for
Continental Airlines will be discussed.

ECONOMIC FORCES

THREATS

 The major upcoming threat for continental airlines is the upcoming increase in the oil
prices, as oil is the main ingredient to run their business so for them the expenses would
rise. If the expenses would increase then obviously to save themselves from the loss they
have to increase the price for the tickets. so the increase in the oil price would directly
affect the consumer preference as at the present service level no consumer would like to
pay so much. May be continental airline has to see a consumer shift from one brand to
another

 61 domestic airports are served by Express jets but due to increase in its rates,
Continental reduced use of some ExpressJet aircraft offering regional services

SOCIAL, CULTURAL, DEMOGRAPHICS AND ENVIROMENTAL FORCES

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OPPORTUNITIES

 The “EU –US – Open Skies” provides continental with an opportunity to broaden its base
in terms of connectivity.

THREATS

 The rapid growth of terrorism majorly after the 9/11 attacks in the USA made the airlines
one of the worst affected sectors, as due to this many airlines are filing for bankruptcy.

 Airlines are also a constant target of environmental groups in their fight for global
warming.

Competitive Forces

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OPPORTUNITIES

 Merger of Continental and United airlines

 Low cost carriers

THREATS

 Rivals have recovered from bankruptcy and recovered back much stronger due to their
ability to reduce their costs

 Merger of united airline and delta airline create a financial advantage and more efficient
competitor for continental

POLITICAL, GOVERNMENTAL AND LEGAL FORCES

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OPPORTUNITIES

 Airline industry is dependent on the government for infrastructure (airports) and for
Aviation Turbine Fuel (ATF), the prices of which are regulated by governments and
Continental Airlines is no exception.

THREATS

 Security issues have increased after 9/11 that is effecting the domestic usage

 Terrorist plot discovered in August 2006 cause reduction in bookings and increased cost
to the airlines as a result of having more checked bags

TECHONOLOGICAL FORCES

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The rapid technological changes have resulted in the fleets becoming outdated quickly and
companies have to incur massive costs in order to upgrade their fleets periodically. The internet
has reduced costs of ticket sales but also empowered the customer who can shop around for the
best price.

OPPORTUNITIES

 More technological innovation to by using internet to reduce cost.

 Increase the usage of Regional jets as they are more cost efficient component to airline in
overall route system in a way that their breakeven load factor is below that of larger jets
(break even of regional jet at 50% versus a larger jet which needs 65% or more).

 By more usage of E –tickets (electronic tickets) continental can reduce the cost of
printing the tickets on its own.

 Increasing the usage of E-tickets creates more customer convenience as they can easily
get the tickets in their hands while sitting at their home

 The installation of winglets in an attempt to reduce cost, as its usage reduces the fuel
consumptions by 5 %

 Add new aircrafts that have more fuel efficiency, as recently they have added 25 Boeing
787 dream liners.

THREATS

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 Internet bookings created a more powerful customer who can easily shop around for the
best price

 Technology is a factor that can be immediately adopted by the competitors.

PORTERS FIVE FORCES MODEL

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Competitive rivalry

The market position of the airline industry is getting critical for continental airlines as the
competitors are becoming more equal in size and capability. If we see the product and service
department than over here also competitors are getting better than continental airlines as day by
day the quality of service is decreasing as there are lack of on time take-offs and landings. Then
with the increase of demand in small jets, domestic carriers are increasing that is also creating
more competition for continental airlines. Mergers and acquisitions are getting common in the
industry that is again creating a great competition. If we take the view of overall airline industry
then the demand is not increasing due to global environment and economic down turn. So the
competitive rivalry is higher in case of continental airlines

Threat of new entrance

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Firstly new entrance is not an easy game in the airline industry as it needs a huge capital and that
is a great risk when airlines like continental, delta united and etc are in the market. Here we see
that the threat of new entrants exists but still it is really low for continental airlines

Threat of substitutes

Substitutes that exist against airlines have a great difference between each other. Then the
introduction E-Commerce and Winglets has improved the airlines and also some how reduced
the cost of airlines. But after the 9/11 attacks domestically consumers are going for substitutes.
As continental serves internationally so threat of substitutes is slightly high but not to high

Power of suppliers

For the suppliers point of view the, the fuel supplier’s are arising as threats for not only
continental but also for other airlines as well as fuel prices affects the operational cost of
airliners. But to overcome this threat continental has introduced the Winglets that consume less
fuel which helps in minimize the fuel cost. So power of suppliers is also very less.

Power of consumers

As continental airlines are dealing internationally so consumers are large in volume. Then ICT
technology and internet has given consumers more bargaining power. So powers of consumers is
really high in the airline industry.

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EFE MATRIX
External key factors Weights Ratings W.score
Opportunities
1 More technological innovation to by using internet to reduce cost. 0.125 4 0.50
2 Increase the usage of Regional jets as they are more cost efficient 0.05 2 0.10
component to airline in overall route system in a way that their
breakeven load factor is below that of larger jets (break even of
regional jet at 50% versus a larger jet which needs 65% or more).
3 By more usage of E –tickets (electronic tickets) continental can 0.025 1 0.025
reduce the cost of printing the tickets on its own.
4 Increasing the usage of E-tickets creates more customer 0.025 1 0.025
convenience as they can easily get the tickets in their hands while
sitting at their home.
5 The “EU –US – Open Skies” provides continental with an 0.075 3 0.225
opportunity to broaden its base in terms of connectivity.
6 Merger of Continental and United airlines 0.125 4 0.50
7 The installation of winglets in an attempt to reduce cost, as its 0.075 3 0.225
usage reduces the fuel consumptions by 5 %
8 Add new aircrafts that have more fuel efficiency, as recently they 0.05 2 0.10
have added 25 Boeing 787 dream liners.
Threats
1 Security issues have increased after 9/11 that is effecting the 0.10 3 0.30
domestic usage
2 Increasing price of fuel 0.15 4 0.6
3 Rivals have recovered from bankruptcy and recovered back much 0.025 2 0.05
stronger due to their ability to reduce their costs
4 Merger of united airline and delta airline create a financial 0.025 2 0.05
advantage and more efficient competitor for continental
5 61 domestic airports are served by Express jets but due to 0.025 2 0.05
increase in its rates, Continental reduced use of some ExpressJet
aircraft offering regional services

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6 Terrorist plot discovered in August 2006 cause reduction in 0.10 3 0.30

bookings and increased cost to the airlines as a result of having
more checked bags
7 Internet bookings created a more powerful customer who can 0.025 1 0.025
easily shop around for the best price
Total Weighted Score 1.00 3.075

ANALYSIS OF EFE MATRIX

The total weighted score for the EFE matrix of continental airlines is 3.075 that is above average.
the total weighted score shows that the business is going pretty good as they are taking advantage
the external opportunities and avoiding the threats facing the company, but there is still the room
of improvement as the highest weighted score is 4.0

CPM

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CPM identifies a firm’s major competitors and its particular strengths and weaknesses in relation
to a sample firm’s strategic position.

Continental Airlines US Airlines Delta Airlines

critical success weight ratin Score rating score rating score
factors g

1 Financial position 0.2 3 0.6 3 0.6 3 0.6

2 Customer loyalty 0.2 4 0.8 4 0.8 3 0.6
3 Market share 0.15 2 0.3 4 0.6 3 0.45
4 Management 0.10 3 0.3 2 0.2 3 0.3
5 Advertising 0.05 2 0.1 3 0.15 4 0.2
6 Price competitiveness 0.05 3 0.15 3 0.15 3 0.15
7 Global expansion 0.05 3 0.15 3 0.15 4 0.2
8 Service quality 0.2 3 0.6 3 0.6 4 0.8
1.00 3 3.25 3.3

ANALYSIS OF CPM
Here we have included eight critical factors and the most important are the financial position,
customer loyalty and service quality as they have the highest weight of 2. According to the final
score we can see that continental airlines is lacking behind from its competitors. So that get
better from the competitors continental has to increase its market share , work on its service
quality and mainly it has to cover the advertising factor.

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This assessment is to measure the major and minor strengths and weaknesses of Continental
Airlines.

Management
Continental airline has a supporting young management team since mid 90’s. For their
encouragement continental is offering various incentive programs to aim to have on time

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arrivals. But some how even with the incentive system day by day the service level of
continental is decreasing, and management is getting lazy in improving itself. The management
of continental airline is the major strength and major weakness for continental.

Marketing

 Selling products/services

On this division continental is really working. Though we can see the decline in the management
of continental but still somehow continental is managing to improve it-self by providing the
customize flight offerings such as food and in-flight entertainment according to the different
destination it travels. And continental also is adopting different technologies to make its product
its major strengths.

 Product and service planning

A very little essence of planning for services can be located in the case as due to the improper
planning today continental’ competitors are coming equal to continental. Proper training is isn’t
given to its management only in the name of incentive they are trying to run its management

 Marketing research

Continental airlines are dealing nationally and internationally. Continental has expanded a wide
network of air transport operation through connecting diverse hubs globally. Continental Airlines
is expanding their portfolio of airline operations from domestic to international airline carriers
with a middling rate.
Finance accounting

Liquidity Ratio
    2005   2006
Current Ratio 1.044 1.0082
         
Quick Ratio 0.9891 0.9491
         

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LEVERAGE RATIOS
         
Debt to TA 0.9693 0.9785
         
Debt to Equity 31.5879 45.588
         
Times interest Earned 1.963 -4.853
         
ACTIVITY RATIOS
         
Inventory turnover 60.498 55.761
         
Asset Turnover 1.161 1.065
         
A/R Turnover 17.574 16.314
         
Avg Collection Period 20.769 22.373
         
PROFITABILITY RATIOS
         
Gross profit Margin 34.75 13.68
         
Operating profit margin 0.0573 0.0294
         
Net Profit Margin 2.613 -0.607
         
ROA 0.0303 -0.006
         
ROE   0.988   -0.301
 
Ratio Analysis

 Liquidity Ratios

The current ratio of the company is showing a decreasing trend within the 2005 and 2006. The
company has more current assets as compared to its current liabilities so that it is favorable. If we
compare the results of quick ratio within the two years it shows that company is facing inventory
blockage which lead their ratios to below 1. The main reason is inventory as company’s current

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assets are more than its liabilities, the stock in hand is more and inventory turnover is slow. In
2006 the stock is increasing that’s why the quick ratio is increasing from 0.9491 to 0.9891.

 Leverage Ratio

In total debt to asset ratio, the company’s profile is showing that its assets and liabilities are
decreasing in 2006 as their current assets are more than their current liabilities and to cover it
they have sufficient assets. The total debt to total equity shows that the company’s position is
decreasing from 2005-2006. Their liabilities are increasing in the 2 year and the equity is playing
45% in 2005 where as in 2006 it decreased to 31% in 2006. Now talking about the time interest
earned of a company, the profit from operation is increase in 2006 and Interest expenses decrease
that’s why Time Interest Earned ratio decreases from -4.853 times to 1.96345 times.

 Activity Ratios

Starting with inventory turnover in the activity ratios the company’s cost of goods decreasing
and inventory in 2006 increasing that’s why Inventory turnover ratio are increasing from 55.761
times to 60.4977 times. In company’s total asset turnover the position of a Company’s net sales
increasing and Total Assets in 2006 increasing that’s Total Assets turnover are increasing from
1.0645 times to 1.16095 times. According to company’s accounts receivables turnover ratio the
company depicting that Net Sales increasing and average gross receivable decreasing that’s why
Account Receivable turnover is increasing from 16.314 times to 17.5743 times. As the collection
period of the company is decreasing because Company Net Sales increasing and gross receivable
in 2006 decreasing that’s why Account
Receivable turnover in days are decreasing from 22.373 days to 20.769 days.

 Profitability Ratios
Starting the profitability ratios the first ratio is gross profit margin which is showing the
company’s revenues minus the cost of sales with the percent of it. As gross profit is increasing
in 2006 to 2005 and due to this the gross profit margin is increasing in the coming year
assuming the same conditions apply to the company. Secondly the operating profit margin
shows that the company’s profit after the internal expenses of the company. This ratio is
increasing as the net sales increased in 2006 which results in increasing the operating profit

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margin. The net profit margin is also increasing as mentioned in the last 2 ratios that
company’s sales are increasing therefore the net profit margin is also increasing. As we look in
to the last year’s ratio showing the negative trend and in which it might b some more taxes or
dividends paid to the customers or stockholders. But in 2006 it moves up to the positive 2.612.
Same goes for the ROA and ROE of the company as in the 2005, 2006 the values are in the
negative side and in 2006, due to increase in sales the company’s ratios moved better and the
performance of the company improved. As it was mentioned in the earlier ratios that
company’s total assets are sufficient to support its liabilities, this is also one of the major
reason why the company’s profit margins are increasing in the upcoming years.

Management information system

 Strategic planning software

Value chain analysis

 Benchmarking

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INTERNAL FACTOR EVELUATION

Internal key factors Weights Ratings W.score
Strengths
1 Current ratio of continental is 1.0082 0.10 3 0.30

2 Continental airline customizes its in-flight offerings such as food 0.10 4 0.40
and in-flight entertainment according to the different destination
it travels
3 The company rose to profitability in 2006 after being hit by 0.05 4 0.20
severe losses for 4 years straight
4 A supportive young management team since the mid 90’s 0.05 3 0.15
5 Offers various incentive programs to encourage its staff and also 0.025 3 0.075
to keep its staff motivated to aim towards on-time arrivals.
6 Continental airline serves more international markets than any 0.025 4 0.10
other U.S. aircraft
7 Houston hub serves booming energy market; Newark hub serves 0.025 3 0.075
huge New York market and is a major access point to Europe
8 Its fleet consists of only Boeing aircrafts and is one of the 0.025 3 0.075
youngest in the world. This has resulted in increased efficiencies
and cost savings.
9 Increment in gross profits in 2006 and reductions in overall costs 0.05 3 0.15
Weaknesses

1 Its ³Go Forward´ plan does not specifically address environmental 0.10 1 0.10
or global issues directly
2 Continental’s AQR score has declined for the last three years 0.05 1 0.05
even though its ranking has improved
3 Its service quality has also decreased 0.05 1 0.05

4 Despite its incentive program it has a poor on-time performance 0.05 1 0.05
record
5 It had the worst record of over-booking and bumping among 0.10 1 0.10
airlines
6 Lack of internal training for the employees 0.075 2 0.15

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7 Little equity in planes, limiting ability to raise cash through 0.025 2 0.05

sale/lease-back deals
8 Minimal presence in major foreign destinations such as London, 0.05 2 0.10
Paris, Tokyo
9 Service quality has also faced a decline 0.05 2 0.10
1.00 2.28

Analysis of IFE

According to the total weighted score of IFE, continental airline is quite weak internally due to
which it has to see the decline. The main reason of total weighted score being less than 2.5 is the
management of continental.

SWOT Matrix
Strengths Weaknesses
1. Current ratio of 1. Its ³Go Forward´ plan
continental is 1.0082 does not specifically
address environmental
2. Continental airline or global issues

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customizes its in-flight directly

offerings such as food
and in-flight 2. Continental’s
entertainment AQR score has
according to the declined for the last
different destination it three years even
travels though its ranking has
improved
3. The company rose to
profitability in 2006
after being hit by 3. Its service quality has
severe losses for 4 also decreased
years straight
4. Despite its incentive
program it has a poor
4. A supportive young on-time performance
management team since record
the mid 90’s

5. Offers various 5. It had the worst record

incentive programs to of over-booking and
encourage its staff and bumping among
also to keep its staff airlines
motivated to aim
towards on-time 6. Lack of internal training
arrivals. for the employees

6. Continental airline 7. Little equity in

serves more planes, limiting ability
international markets to raise cash through
than any other U.S. sale/lease-back deals
aircraft
8. Minimal presence in
7. Houston hub serves major foreign
booming energy destinations such as
market; Newark hub London, Paris, Tokyo
serves huge New York
market and is a major
access point to Europe 9. Service quality has
also faced a decline

8. Its fleet consists of

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

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This has resulted in

increased efficiencies
and cost savings.

9. Increment in gross
profits in 2006 and
reductions in overall
costs
opportunities SO Strategies WO Strategies
1. More technological
innovation to by using
internet to reduce cost

2. Increase the usage of

Regional jets as they
are more cost efficient
component to airline in
overall route system in
a way that their
breakeven load factor
is below that of larger
jets (break even of
regional jet at 50%
versus a larger jet
which needs 65% or
more).

3. By more usage of E –
tickets (electronic
tickets) continental can
reduce the cost of
printing the tickets on
its own.

4. Increasing the usage of

E-tickets creates more
customer convenience
as they can easily get
the tickets in their
hands while sitting at
their home

5. The “EU –US – Open

Skies” provides

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continental with an
opportunity to broaden
its base in terms of
connectivity

6. Merger of Continental
and United airlines

7. The installation of
winglets in an attempt
to reduce cost, as its
usage reduces the fuel
consumptions by 5 %

8. Add new aircrafts that

have more fuel
efficiency, as recently
they have added 25
Boeing 787 dream
liners.

Threats ST Strategies WT Strategies

1. Security issues have
increased after 9/11
that is effecting the
domestic usage

2. Increasing price of fuel

3. Rivals have recovered

from bankruptcy and
recovered back much
stronger due to their
ability to reduce their
costs

4. Merger of united
airline and delta airline
create a financial

5. 61 domestic airports

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are served by Express

jets but due to increase
in its rates, Continental
reduced use of some
ExpressJet aircraft
offering regional
services

6. Terrorist plot
discovered in August
2006 cause reduction
in bookings and
increased cost to the
airlines as a result of
having more checked
bags

7. Internet bookings
created a more
powerful customer
who can easily shop
around for the best
price

Space matrix

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Portfolio Matrices
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BCG matrix

I/|E matrix

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EFE= 3.075

IFE= 2.28
The continental airlines lies in the second cell of I/E matrix which is described as grow and build
part. Over here intensive (market penetration, market development and product development)
strategies or integration (forward and horizontal integration) strategies can be applied.

Grand strategy matrix

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QSPM
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Recommendations
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APPENDIX
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REFFERENCES
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Strategic Management “concepts and cases” by Fred R. David

http://www.continental.com/web/en-US/default.aspx

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