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MAN 3025-001
Strategic Management
Core Competencies
S.W.O.T. Analysis
Strengths
Continental employs a flexible fleet plan that provides the ability to adjust the fleet to
meet market demands. As of June 30, 2009, the company operates a fleet of 351 mainline jets.
Strong fleet enabled the company to serve 120 destinations across the US and 121 destinations
internationally (Airfleet, 2010). It also offers the flexibility to add and serve more destinations.
Diverse set of fleet operations allow the company to improve its returns by effective utilization
of its asset base. Therefore, strong fleet operations of Continental help the company to attain a
Continental has a robust route system. The company operates its domestic route system
primarily through its hubs in the New York metropolitan area at Newark Liberty International
Airport (New York Liberty); in Houston, Texas at George Bush Intercontinental Airport
(Houston Bush); and in Cleveland, Ohio at Hopkins International Airport (Cleveland Hopkins)
(Beaulieu, 2010). Each of the company’s domestic hubs is located in a large business and
population center, contributing to a large amount of ‘origin and destination’ traffic. The hub
system allows the company to transport passengers between a large number of destinations with
substantially more frequent service than if each route were served directly. The hub system also
allows the company to add service to a new destination from a large number of cities using only
one or a limited number of aircraft. Therefore, the advantageous location of its major hubs has
helped Continental to capture a large part of the US domestic and international traffic.
Continental leverages its strong technological capabilities to retain old customers and to
attract new ones. The company uses the internet to provide travel-related services for its
customers and to reduce its overall distribution costs. The company’s website is its lowest cost
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distribution channel and recorded approximately $3.9 billion in ticket sales in 2008, an increase
of 11% over 2007. The site offers customers the ability to purchase and change tickets on-line, to
check-in-online and to have direct access to information such as schedules, reservations, flight
status, frequent flyer account information, and continental travel specials. In 2008, the company
along with Transportation Security Administration (TSA) launched paperless boarding pass
program that allows passengers to receive boarding passes electronically on their cell phones or
PDAs. This technology increases the ability to detect fraudulent boarding passes while
improving customer service and reduce paper use. Therefore, e-services help the company to
attract more customers which in turn enables Continental to generate more revenues (Snyder,
2010).
Weaknesses
Continental witnesses high debt obligations in 2009. The company has a high proportion
of debt compared to its capital. The company has significant amount of fixed obligations,
including debt, aircraft leases and financings, leases of airport property, and pension funding
obligations. As of December 31, 2008, Continental had $5,872 million of total debt, including
$5,353 million of long term debt. In 2008, The company’s debt increased by 17.7% over 2008
(King, 2010). Company’s current credit ratings limit its financing options. Therefore, high debt
obligations make it more difficult for Continental to pay principal and interest with respect to its
debt obligations. It requires the company to dedicate a substantial portion of its cash flow from
operations for interest, principal and lease payments. It also reduces the company’s ability to use
cash flow to fund working capital and other general corporate requirements. In addition, high
financial obligations also limit Continental’s flexibility in planning, and in reacting to changes in
Continental has witnessed sluggish profits and margins in 2008. The operating profit of
the company decreased from $687 million in 2007 to an operating loss of $314 million in 2008.
Similarly, the net profit of the company decreased from $439 million in 2007 to a net loss of
$586 million in 2008. The company witnessed a net loss in 2008 which was primarily the result
of higher fuel prices. The net margin of the company also declined from 3.1% in 2007 to -3.8%
in 2008. Therefore, sluggish profits and margins indicate that the company has not been able to
manage its cost structure efficiently, which can adversely affect the long term financial position
Continental depends heavily on the US market for its revenues. The company derives
about 54.6% of its revenues from the US, reflecting a heavy dependence on the market (Lawson,
Opportunities
The US regional airline industry has witnessed fluctuating growth rates in 2008 and in the
first half of 2009. The industry was affected by the global economic downturn. The industry is
expected to recover in 2010, posting strong growth thereafter. According to Federal Aviation
Administration (FAA), passenger traffic will pick up in 2010, with domestic boardings growing
2.3% a year to reach 690.2 million by 2025. International boardings on the big carriers and
smaller regionals will grow 4.3% a year from 2010 through 2025 (IATA, 2010). Continental is
engaged in the business of transporting passengers, cargo and mail. As of December 2008, the
company served 120 destinations across the US. Therefore, Continental is well positioned to
Threats
The airline industry has been severely affected by the economic crisis. The credit crunch
and the volatility in the oil price, then the financial crisis, all had direct consequences for the
airline industry. The airline industry is highly cyclical, and the level of demand for air travel is
correlated to the strength of the US and global economies. Healthy economic growth is therefore
a precondition for the positive growth rate of the business. An economic downturn poses
challenges for Continental. The financial turmoil and credit tightening has affected the global
transportation and logistics industry. Therefore, further global economic recession will delay
The airline industry has undergone substantial consolidation and is heading for more
because of the global recession and drop in air travel. Recent examples include the merger
between Delta and Northwest Airlines in October 2008; America West Airlines and US Airways
in September 2005; and American Airlines’ acquisition of the majority of Trans World Airlines’
assets in 2001 (King, 2010). Several of the major airlines are in discussions related to
consolidation in the industry. Other developments include domestic and international code-share
alliances between major carriers. At least eight airlines that operated from the US ceased
operations during 2008. Any additional consolidation or significant alliance activity within the
airline industry could limit the number of potential partners with whom the company could enter
into code-share relationships. This in turn may adversely affect Continental’s operations.
The airline industry is highly competitive. The principal competitive factors in the airline
industry are fares, customer service, routes served, flight schedules, types of aircraft, safety
record and reputation, code-sharing relationships, capacity, in-flight entertainment systems and
frequent flyer programs. Airline profits are sensitive to even slight changes in average fare levels
Continental Airlines 8
and passenger demand. Continental competes with many airline companies, including AMR, Air
France, Alaska Air Group, British Airways, Cathay Pacific Airways, Delta Air Lines, JetBlue
Airways, Mesa Air Group, Northwest Airlines, SkyWest, Southwest Airlines, UAL, and US
Airways Group.
Competition in most of the company’s domestic markets from other carriers continues to
result in increased capacity and lower yields in those markets. In addition, several of
Continental’s domestic competitors have increased their international capacity, including service
to some destinations that the company currently serves, resulting in lower yields and/or load
factors in affected markets. In addition, the ‘open skies’ agreement between the US and the
European Union, which became effective in March 2008, is resulting in increased competition
from European and US airlines in these international markets (U.S. Department of State, 2009).
It may also give rise to additional integration opportunities between or among US and European
carriers.
Continental Airlines 9
Leadership
Strategic Alliance
References
http://www.airfleets.net/flottecie/Continental%20Airlines.htm.
King, M. (2010). Continental Airlines: Newly Released Company Financials and Credit
inside.com/continental-airlines-newly-released-company-
r1395160.htm.
power- in-partnership-with-drs-power-control-tech-for-alternative-energy-
solutions.html.
Snyder, B. (2010). The Go-To Place for Management. Continental Airlines Revenue and
http://industry.bnet.com/travel/.
http://www.iata.org/ps/publications/airline-industry-forecast.htm
U.S. Department of State. 2009. Open Skies Agreement. Retrieved January 4th, 2010,
from http://www.state.gov/e/eeb/tra/ata/.
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