Strategic Management Case Study

Presented to: Dr/Amall Asfour Prepared by: Rawda Sayed Mohamed Hassan

Continental Airlines April. 2012

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TABLE OF CONTENTS

1. Abstract....Page 2 2. Introduction Companys History.........................Page 3 Business portfolio & Market Segments..Page 4

3. Vision & Mission Statements......................Page 5 4. Environmental & Industrial Analysis (SWOT ANALYSIS) Internal Analysis................................Page 7 o Financial Analysis..Page 7 o Internal Strengthes &Weaknesses ............Page 11 External Analysis o PEST Analysis...........Page 13 o (Market Analysis) Porters Five Forces.....Page 15 o External Opportunities & Threats..Page 17 5. Evaluation Models Internal Factors Evaluation (IFE)......................Page 19 External Factors Evaluation (EFE)........Page 21 Competitive Profile Matrix (CPM)............Page 23 6. Revaluation of Vision & Mission............Page 24 7. Long Term Objectives.Page 25 8. Defining Alternative Strategies IE MATRIX.......................Page 26 SWOT Analysis Matrix..........Page 27 9. Decision (QSPM)..................Page 30 10. Conclusion...............Page 35 11. References...............Page 36

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1. Abstract:

In these papers I am going to make an analysis on Continental Airlines, in terms of their vision, mission, objectives & strategies in the light of their external & internal environment. This will be done through using various matrices that will help to identify their current situation within their market such as external factors evaluation matrix (EFEM), internal factors evaluation matrix (IFEM), competitive profile matrix (CPM), & SWOT analysis. Finally, after doing these metrics it will be easy to formulate and recommend strategies for Continental Airlines and determining which current strategies need to be adopted to achieve their vision & objectives.

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2. Introduction:
2.1 Companys History:
Continental Airlines is one of the top American airlines established in 1934, by its owners Walter Varney and Louis Mueller under the name of Varney speed lines. It operated between Pueblo, Colorado to El Paso, Texas with stops in Las Vegas, Santa Fe and Albuquerque, New Mexico. Mueller gained control over the carrier and in 1936, sold 40 percent of the company shares to Robert Six. In July 1937, Robert Six changed the name of Varney Speed Lines to Continental Airlines. In October 1st, 2010 two of the worlds best airlines United Airlines and Continental Airlines merged together to form the new United Continental Airlines. Both companies have been in the industry for decades and committed in providing the customers and employees best in class service. United Continental Holdings, Inc. is served by more than 80,000 employees worldwide and operates about 5,800 flights a day. This makes it possible for people to travel to 371 destinations throughout North America, South America, Europe, Asia and Nigeria with non-stop or one-stop service from virtually anywhere in the United States. The airline is currently operating under United name (http://pss.united.com/web/en-US/default.aspx), and aircrafts is having the Continental logo and colors to retain the companys strong brand image. Its rank among its major competitors in the U.S market is the second as ranked in 2011 from the following reference http://airtravel.about.com/od/basedinnorthamerica/tp/top10na.htm: 1- Delta Airlines 2- United Continental Airlines 3- Southwest Airlines 4- American Airlines 5- U.S Airways

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2.2 Business Portfolio & Market Segments of United Continental Inc.:

The company has a diversified portfolio which can be grouped into 2 major business units each include a multiple services: 1- United Continental Airlines: Passenger Transportation & services. 2- United Cargo Carrier: For transporting any critical cargos such as Flowers, pets, seafood. The case is all about the first business unit which is United Continental Airlines that offers a mix of services with an aim to maximize customer satisfaction such as: 1- Trip Insurance :( provided by Allianz). 2- United Club: These clubs exist in several airports worldwide for busy travellers to offer them very unique services such as bar service, light snacks, free Wi-Fi, conference room access and more while waiting for their next trip. 3- Special services for US Military & Federal government personnel (such as providing special prices, free access to continental clubs). 4- United Hotels (offering a reservation services with the least prices in the market & free cancellation fees). 5- Customizing flight reservation through Economy plus for getting seats with more legroom. 6- Foreign currency exchange through EZ-Forex with the possibility of returning unused currency at the same exchange rate at which it was originally purchased. 7- Ground Transportation or car rental service with multiple car types that suit the interest of each customer. 8- United Vacation Deals: It offers a complete plan for travellers seeking an enjoyable vacations with offers for free nights, free meals, and discounts in excellent resorts in addition to reservation for the flight. From the above mentioned services it is now clear that Continental airline is serving 4 different market segments which are: 1- U.S Military & Federal government, 2- Business men, 3- Travelling lovers seeking an affordable vacations, 4- High class people seeking luxury travelling experience.

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3. Vision and Mission Statements:

Vision:
The vision wasnt clearly stated in the case and accordingly I tried to pick from the case & some words of the organization chairman the below mentioned visions: We seek to offer our customers the best travel experience worldwide through our empowered employees and stakeholders support. I have placed these 2 statements after reading below words of Continental Airlines CEOs* which mainly focusing on how the company is striving to offer a superior customer service through empowering their employees & encouraging them to be creative & helpful for maximizing customer satisfaction in the airline industry. In addition I preferred not to mention the words airline service because they are not just offering flight transportation but they are working on offering all other related services such as CAR RENTAL, VACATION ARRANGEMENT & HOTEL RESERVATION.

( *According to a letter on a Customer Care comment card signed by Larry Kellner, the Chairman and CEO of Continental Airlines, The members of the Continental Airlines team have made a strong commitment to becoming the airline industry's leader in quality customer service... our employees are always expected to deliver the highest level of service possible. They have been authorized to act in your best interest and to solve problems on the spot.) (*Gordon Bethune did some brilliant things to get everyone on board with his vision when he took over at Continental Airlines.It was a symbol that screamed out: You run this airline, not a rulebook that prevents you from being creative).

From Above mentioned statements we can dedicate that:Their Competitive advantage is mainly focusing on providing superior customer service through empowering their employees and creating an organizational culture that encourage creativity in solving problems rather than a rigid culture.
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Mission:
Mission statement is also not stated in the case or its website and accordingly I tried to deduce its mission statement after careful study done on its overall business operations and its guiding principles and values. My suggested mission statement is as follows: At United Continental Airlines Inc., we strive to provide an excellent customer service and travelling experience to maintain our leadership in the airline industry worldwide. As an airline company we are not just providing flight transportation but a full package for travellers seeking comfort, caring, and reliable services during their trip. We achieve this through: 1- Our people, our greatest strength and most enduring competitive advantage. Accordingly we work on creating a favorable organizational culture for our employees and assisting them with on-going extensive training programs. 2- Strict security measures to ensure our customers safety. 3- Our international flights cater to our customers cultures, with language, food choices, and movies. 4- We are committed to make our environment as better as possible, through using new technologies that help reducing fuel waste. 5- Maintaining an ongoing research to improve our services globally, and eliminating non-value-added costs for achieving higher profits.

Mission Components Degree

Customers Services Market Technology Employees Profitability Employees Philosophy Self-

Concept
Yes Yes Yes Yes Yes Yes Yes

Yes

Yes

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4. Environmental & Industrial Analysis:

In this part I am going to analyze first the internal environment which includes the financial situation of Continental airlines side to side with other internal factors to highlight its vital strengthes and weaknesses. Second analysis is the external environment which includes 2 major analyses a) PEST b) Market analysis using Porters Five Forces Model These 2 studies will help in defining major external threats & opportunities facing Continental Airlines. All these above analyses are called the SWOT ANALYSIS.

4.1 Internal Analysis:

First: Financial analysis:
In this part I am going to analyze the companys financial position from 2 perspectives: 1- Comparison of the firm across the time throughout the years from 2004 to 2006 in order to spot its trend and to evaluate its financial performance. 2- Comparison of the firm with the industry in year 2006 in order to evaluate its financial position relative to the market. These 2 evaluations will illustrate the companys strengthes & weaknesses form the financial side. The following table includes the major five ratios: Liquidity ratios, Activity ratios, Leverage ratios, Profitability ratios and the Growth ratios.

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Key Ratios

Year 2004

Year 2005

Year 2006

Industrial ratios(2006)

Liquidity Ratios
Current Ratio Quick Ratio 0.9:1 0.8:1 1:1 0.9:1 1:1 1:1 0.86:1

Debt Management Ratios

Debt Ratio 98.5% 97.8 % 96.9% 49.9%

Asset Management Ratios

Total Assets Turnover Fixed Assets Turnover 0.9 1.6 1.1 1.8 1.2 2.1 0.87

Profitability Ratios
Return on Assets Return on Equity (3.89)% (263)% (0.64)% (30)% 3.03% 98.8% 3.08%

Net Profit Margin

(4.1)%

(0.606)%

2.6%

1.9 %

Growth Ratios
Net Income Growth % Total Revenue Growth % (83.37)% 13.2% 604.4% 17.1% 9.9 %

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From the above table we could conclude the following: 1- Liquidity Performance: Continental airline has a moderate liquidity performance as its current ratio is ranging between 0.9 &1 which means that the current assets are exactly equal to its liabilities. However its position relative to the market especially in the year 2006 is good as it is above the industrial performance. This means that it has a better liquidity position when others are suffering from low liquidity. In addition if we examined its performance throughout the 3 years we will examine that it has been developed. But still it need to work on enhancing this position to be above 1 since the ideal current ratio is 2:1 because the higher the ratio the more safety & ability to pay & meet its shortterm liabilities and obligations.

As for the ideal quick ratio it is 1.5:1, which means that Continental has quick ratio below the ideal but still it is capable of paying its short term debts since it has assets that can be easily turned into cash as clearly mentioned in year 2006 it is 1:1.

2- Debt Management Performance: Here it is clear that Continental airlines is relying greatly and may be is depending totally only on debts for financing its investments which represents 96% in year 2006 from its total assets. In other words we can say that every dollar of asset is financed with 96.0 cents of debt. This is an unfavorable situation and represents a weakness point because it is much higher than the industrial percentage which is only 49.9%.

3- Asset Management: These ratios measure the efficiency of continental airlines in utilizing their assets to generate profit. As clear from the previous table Continental airlines is achieving progress in this capability through successive years from 2004-2006 and its performance is even higher than the market.

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4- Profitability: These ratios will reflect to what extent Continental airlines is doing well in generating profits. It will indicate if the company is investing its assets & stockholders money wisely or not. Continental airlines used to suffer from a great loss in both years 2004 & 2005 but succeeded in recovering this loss & pushing up its Net Income highly to a great extent in year 2006 which seems to be very close to the industry average in the return on assets. While in case of the profit margin Continental airlines exceeded the industry average. This reflects its strengthes in having a high earning power in year 2006 through developing its assets & equity management.

5- Growth Performance: Continental airlines showed an outstanding performance in growth & development. It is very obvious that this company has a strength point in its ability to grow after being in a sever loss to the extent that it was achieving higher growth rate than the industry average. This company has a great opportunity to be a market leader for its high possibility for growth.

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Second: Internal Strengthes & Weaknesses: Strengthes:

1. It is the second global US airline. 2. Has an old existence in the market since 1934 with a strong reputation & image. 3. It is strong in customizing its services according to the destination its travelling to for example when the destination is India they serve an Indian meals without beef and display movies & songs with Indian language. 4. The company succeeded to develop & enhance its financial position in terms of Net-Income & revenues after being hit by severe losses for two years repetitively. 5. Increase in gross profits and reductions in overall costs. 6. Incentive programs to keep its staff motivated to aim towards on-time arrivals. 7. It serves more international destinations than any other U.S. carriers. It serves 26 European cities, 9 South American cities, Tel Aviv, Delhi, Hong Kong, Beijing, and Tokyo in addition to Mexico, Canada, Central America, & the Caribbean. All of a total 190 airports are served by Continental Airlines. 8. Using the latest technology & advanced aircrafts in order to protect the environment & reduce fuel consumption. For example it was the first to add winglets to replace the standard wingtips on its aircraft to reduce its fuel consumption by up to 5%. 9. Continental fleets are one of the youngest globally and continue to add new aircrafts which leads to increased efficiencies, less fuel burn, less carbon dioxide emissions, and major cost reductions. 10. It cares for providing diversified services that adds comfort & relief to ones trip such as an option for reserving seats with a wide side & leg space, hotel reservation, and car rental.
11. Received an array of awards for overall reputation and environmental responsibility like the

one given by Fortune magazine that named Continental airlines one of its 10 Green Giants in 2007 and another award as Americas Most Admired companies and Best Airline
in North America. These rewards reflect that this company has a very strong image.

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12. Top managers are young (open-minded) & exist in the company since 1995 which reflects to what extent they will be loyal to the company. 13. To strengthen its relation with the environment Continental has a separate department called security & environmental affairs. 14. Using biofuel instead of jet fuel. The biofuel blend included components derived from algae and Jatropha plants, both sustainable, second-generation sources that do not impact food crops or water resources or contribute to deforestation (Environmental protection).

Weaknesses:
1. It depends completely on debts for financing its investments. This is may be to recover the loss it used to suffer from the years before 2006. 2. Its Go forward plan does not attend the environmental issues directly. 3. The airline has faced a decrement in its overall AQR Airline Quality Rating scores in terms of customer complaints, on-time performance & overbooking and has been recorded by the U.S Transportation department that Continental has poor on-time performance, despite its efforts. 4. It was slow to adopt online bookings and currently has only 24% of its revenues from its website while others like Southwest get 70% of their revenues from website bookings. 5. Minimal presence in major foreign destinations such as Middle East & Africa.

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4.2 External Analysis:

First I am going to explore the 4 main external forces in the external environment that has an effect on the airline industry. Second point will be Porters Five Forces. And accordingly I will move to highlight the main opportunities & threats facing Continental Airlines.

First: PEST Analysis:

1- Political, Governmental & Legal Environment: Airline industry is dependent to a great extent on the political, governmental and legal forces that operate within a country. This is very important and critical since an airline conducts operations not only within its own country, but also internationally. Accordingly the conditions and forces that operate in a foreign country would affect the operations of an airline. For example: The government of a country gives clearance to the company to operate its services to the airports as selected by the government and some countries keep the conditions that airlines can only serve particular airports at the time mentioned due to security and legal reasons. Also, the aviation turbine fuel (ATF) is another factor which has to be considered since the prices of ATF are regulated by governments.

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2- Economic Forces: Considering the scale of operations and business conducted between different countries, the operations of Continental is dependent on the exchange rates of currencies of different countries. And is affected by the fluctuations in the value of currency and the general economic health of the country to which it conducts its services/operations. Also the airline industry is highly affected by fluctuations in fuel price which is a major risk especially in the presence of some bad political relationships such as confrontation with Iran that could cause prices to rise. For example based on the industrial records of oil prices, every 1 dollar increase in fuel prices lead to $1.6 billion extra costs on the airline. In 2012 prices of oil will increase from $110 per barrel to $134.7 per barrel which means an increase by $24.7 this means that Continental airlines will incur extra costs of about $39.5 billion (almost $40 billion). 3- Social Forces Since Continental Airlines is visiting multiple countries around the world each with a different norms, customs & values It should put in consideration culture differences in everything it provides even in the contents of the meal provided such as not providing Beef for Indians. In the domestic environment of U.S. work culture also has some effect on the airline industry. Most employees use flights as a means of transportation for jobs. There are people who fly to their office destinations in the morning and fly back to their home towns by evening. This has created opportunity for many U.S. airlines to start short distance flights which cater to this segment of consumers. 4- Technology Forces:
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Technology is one field that keeps changing with every passing day. The advancements made in the field have had its impact on the aviation industry as well. The airlines have to incur costs to update and upgrade their fleet regularly due to the changes in technology. Consumers expect more from the airlines for the money they pay. The move from standard paper tickets to e-tickets itself was a big break-through for the airlines industry. CAL has adapted well to the changing technological climate and has been able to sustain by the momentum.

Second: Porters Five Forces Model:

1. Competitive Rivalry:

Airline industry has a very high intensity of competition among airline firms especially in the US market because the number of competitors is very high and customers can switch brands easily searching for lower prices as there are a lot of companies who has a low cost leadership such as South-West Airlines. 2. Threat of New Entrants: At first glance, you might think that the airline industry is pretty tough to break into but this is not true. This depends on whether there are substantial costs to access bank loans and credit. If borrowing is cheap as the case of U.S, then the likelihood of more airliners entering the industry is higher. The more new airlines that enter the market, the more saturated it becomes for everyone. Brand name recognition and frequent fliers point also play a role in the airline industry. An airline with a strong brand name and incentives can often lure a customer even if its prices are higher. 3. Power of Suppliers: The airline supply business is mainly dominated by Boeing (Airplane Manufacturer) and Airbus. For this reason, there isn't a lot of aggressive competition among suppliers. And so the bargaining power of suppliers is high. Also, the likelihood of a supplier integrating vertically isn't very likely. In other words, you probably won't see suppliers starting to offer flight service.
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4. Power of Buyers: The bargaining power of buyers in the airline industry is high because today customers can shop around for the best price using the internet and some customers are just searching for the least price without caring for any other complementary services. In addition the airline industry is considered as somehow a standard service and so switching from one company to another will be very easy from the customer point of view & this place a sever forces over the airline companies. 5. Availability of Substitutes: For domestic airlines, the threat might be a little higher than international carriers. When determining this Continental airline should consider time, money, personal preference and convenience in the air travel industry as a comparison to the land & sea transportation.

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Third: External Opportunities & Threats: Opportunities:

1. International market offers excellent growth opportunities for the future in the airline industry because it is more profitable due to the growing demand for travel & long distances put less wear-and-tear on the aircraft. 2. Air transportation is the most favorable than other substitutes (land & sea transportation). 3. The recently signed EU-US Open Skies treaty presents an opportunity as it is one of the limited airlines that are allowed to fly between the United States and European airports. 4. U.S. work culture emphasis the opportunity to focus on that segment that needs a short distance flight to be able to fly to their office destinations in the morning and fly back to their home towns by evening. 5. The Merge with United airlines one of the top names in the US airlines in 2010. 6. More advanced techniques are developed to enhance the fuel consumption more efficiently. 7. Customers prefer online booking because it is much more convenient. This is an opportunity for Continental to save time and cost of the airline ticket counter.

Threats:
1. Rise in fuel prices by $24 per barrel in year 2012 will cause Continental to incur more extra costs of $40 billion. 2. Rise in security costs & regulations due to the risk of terrorism. More restrictions on the contents of carry-on baggage lead to reduction in bookings & more cost incurred. 3. Customers today are having a high bargaining power due to their ability to easily shop for the best price through the internet.
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4. Domestic Market is becoming less attractive due to the high competition intensity. 5. Easy entrances of new competitors as well as those who were under bankruptcy are starting to return back much stronger than before. 6. Many airline carriers have a cost leadership such as South West Airlines are offering lower prices.

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5. Evaluation Models: 5.1 Internal Factors Evaluation Model (IFE):

Key Strengthes 1- Second Global Company with an old existence since 1934 and a good brand reputation. 2- Recovering its profitability after being under severe losses for 2 years continually (Good financial position). Weight 0.08 Rate 4 Weighted Score 0.32

0.07

0.28

3- Incentive programs are related to 0.06 the staff performance in achieving and helping the company to reach top records in the on-time arrivals. 4- It serves more international 0.08 markets than any other U.S. aircraft. It serves 190 international destinations. 5- Its fleet is one of the youngest 0.05 globally. This leads to increased efficiencies and major cost reductions. 6-Received an array of awards for service quality and overall reputation. 7- Using biofuel instead of jet fuel. The biofuel blend included components derived from algae and Jatropha plants, both sustainable, second-generation sources that do not impact food crops or water resources or contribute to deforestation (Environmental protection). 0.06

0.18

0.32

0.20

0.18

0.06

0.24

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8- Ability to customize their service according to the arrival destination. 9-They have diversified services beside the basic transportation such as travel insurance, currency exchange, Continental clubs. Key Weaknesses 1- Its Go forward plan does not attend the environmental issues directly. 2- Depending on debts for financing its investments by 96% 3- It has been recorded that continental has poor service quality in terms of on-time performance and overbooking & bumping. 4- Minimal presence in major foreign destinations such as Thailand, Dubai and all other countries in Middle-East & Africa (except Nigeria).

0.09

0.36

0.05

0.20

0.1

0.30

0.05 0.1

2 2

0.10 0.20

0.08

0.16

5-Weak or slow adoption to the online 0.07 bookings Total 1

0.07 3.11

From the above IFE Model we can conclude that Continental Airlines has an outstanding position internally as its total weighted score is 3.11 which is above the average score (2.50) and this indicates that it has some key internal strengthes that could allow it to compete successfully in the global market. However there are some significant improvements needed in its internal operations to overcome its weaknesses such as improvements in its on time arrival records & more adoptions are required to cope with the fast technology especially the online booking.

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5.2 External Factors Evaluation Model (EFE):

Key Opportunities 1- International markets are highly attractive for companies seeking growth & profit maximization as a result of growing demand for travel. 2- Air Transportation is the most favored by travellers internationally & domestically in the U.S than other substitute means of transportation such as train or vessel. 3- The EU-US Open Skies provides Continental with an opportunity to broaden its base in terms of connectivity. 4- Merge with the United Airlines in October 2010 5- U.S. work culture emphasis the opportunity to focus on that segment that needs a short distance flight 6- Advanced technologies are being adopted to reduce fuel consumption such as the winglets. Weight 0.07 Rate 3 Weighted Score 0.21

0.08

0.24

0.1

0.3

0.1

0.4

0.06

0.18

0.09

0.36

7- Customers prefer the online booking for 0.05 saving time. Key Threats 1- Rise in fuel costs by $ 24 in 2012 will cause extra costs by $40 billion. 2- Increase in security costs due to the terrorist event of 11th Sep in US. 3- Intensive competition due to some competitors have been recovered from bankruptcy and recovered back much 0.08

0.1

0.24

0.08

0.24

0.06

0.06

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stronger due to their ability to reduce their costs. 4- New rivals can easily enter the market due to the low cost of getting loans and starting a new business. 5- High bargaining power of customers as a result of their power to shop for the best price online. 6- Many rivals exist in the domestic market has a cost leadership that allow them offer the same service at much lower prices. 7-Southwest airlines succeeded to achieve 70% of its revenues from its website booking in 2006 while Continental was just 24 %. TOTAL 0.04 2 0.08

0.06

0.12

0.07

0.14

0.06

0.12

2.79

From the above EFE Model we can conclude that Continental Airlines has above moderate position in adopting itself to the external environment as its total weighted score is only 2.79 and this indicates that it has a lot of opportunities not yet utilized such as more expansion to more international countries also there are some key threats that Continental need to avoid or adapt itself to come over them such as the intensive competition & the emergence of new companies with a competitive advantage in using technology & reducing costs.

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5.3 Competitive Profile Matrix (CPM)

Continental Airlines Critical Success Factors Weight Rate Weighted Score 0.30 0.20 0.10 0.60 0.80 0.45 0.60 0.20 Rate Weighted Score 0.60 0.30 0.15 0.45 0.80 0.45 0.60 0.20 3.55 Rate Weighted Score 0.45 0.40 0.20 0.30 0.60 0.45 0.45 0.15 3.0 Delta Airlines American Airlines

Financial Position Customer Loyalty Market Share Management Advertising Price Competitiveness Global expansion Product quality Total

0.15 0.10 0.05 0.15 0.20 0.15 0.15 0.05

2 2 2 4 4 3 4 4

4 3 3 3 4 3 4 4

3 4 4 2 3 3 3 3

3.25

This Matrix showed that Continental airline has lower value than Delta but still it is in a competitive position within its market. And the difference between Continental & Delta is not huge which means that it has a prospect for gaining the market leadership.

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6. Reevaluating Vision & Mission Statements:

After the above analysis I would recommend the vision statement to be: By the year 2018 United Continental airlines will be the worlds largest carrier. Offering the best and the most reliable travelling experience with its commitment for having a green environment As for the Mission I think it doesnt need any changes so it will remain as follows: At United Continental Airlines Inc., we strive to provide an excellent customer service and travelling experience to maintain our leadership in the airline industry worldwide. As an airline company we are not just providing flight transportation but a full package for travellers seeking comfort, caring, and reliable services during their trip. We achieve this through: 1- Our people, our greatest strength and most enduring competitive advantage. Accordingly we work on creating a favorable organizational culture for our employees and assisting them with on-going extensive training programs. 2- Strict security measures to ensure our customers safety. 3- Our international flights cater to our customers cultures, with language, food choices, and movies. 4- We are committed to make our environment as better as possible, through using new technologies that help reducing fuel waste. 5- Maintaining an ongoing research to improve our services globally, and eliminating non-value-added costs for achieving higher profits.

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7. Long-term Objectives:
1- Double its sales revenue in the next year 2012 as compared to 2011($ 37 billion) in order to be able to face the 20% increase in fuel prices which will add $40 billion on Continentals operating costs. 2- Increase fuel efficiency by 32% from fleet investments during the next 7 years, including 19 new aircrafts of type 737-900s along with five or six 787s to make a total investment of (24-25 new aircrafts) this year that will help to achieve 12% efficiency. Later 20% efficiency could be achieved through an investment in (132 new aircrafts) (50 Boeing 787s, 57 Boeing 737s and 25 Airbus A350s) that will be added through 2013-2019. 3- Accessing new international destinations in Europe, Africa & Middle East with minimum 34 ports to be served by a non-stop or one-stop service in each destination in the coming 6 years. 4- Increase the share of online booking to 50% out of its total revenue within the coming 2 -4 years by consulting an IT company to improve the service & facilitate the process to encourage customers to book online. 5- Increase our global market share by 20% within 2-3 years. 6- Comprehensive 6 month training for employees especially in booking, customer support & handling complaints to achieve the targeted AQR of the company (ranked top third). 7- Increase the investment in environment protection y 30 % to maintain our reputation and leadership as a green giant company.

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8. Defining Alternative Strategies:

Using different Matrices we could determine the most relevant new strategies for Continental airlines to achieve its long-term objectives.

First: IE MATRIX:

According to the EFE score (2.79) & IFE score (3.11) of Continental airlines its position on IE Matrix will be in quadrant 4 which implies the use of Grow & Build strategies. Grow & Build Strategy includes: 1- Market Development 2- Product Development 3- Horizontal Integration 4- Vertical Integration. I will use the SWOT Matrix to highlight the most relevant strategies that Continental can follow or adapt to for achieving its objectives

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Second: SWOT MATRIX:

Strengthes
S1: Second Global Company with an old existence since 1934 and a good brand reputation. S2: Good Financial Position S8: Ability to customize their service according to the arrival destination. S9: Diversified services W4: Minimal presence in major foreign destinations such as Thailand, Dubai and all other countries in the Middle-East & Africa (except Nigeria). W3: Continental has poor service quality in terms of on-time performance & overbooking.

Weaknesses

Opportunities
O3: The EU-US Open Skies. O4: Merge with the United Airlines in October 2010

O3 S1 S8 S9 Market Penetration In the European markets with an extensive promotion campaign. O4 S9: Differentiation Strategy

O4W4 Market Development

to address new regions such as Southwest Asia served by united airlines which includes: Bahrain, Kuwait, Qatar, UAE (Dubai)

Threats
T1: Rise in fuel costs. T3: Competitors got recovered from bankruptcy much stronger.

T1S2 Product Development:

Through purchasing new aircrafts of type 737-900s, 787s, and 50 Boeing 787s to increase fuel efficiency by 32%.

T3W3 Horizontal Integration

This would decrease the intensity of competition & allow Continental to benefit from their experience.

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Finally from the above SWOT Analysis Matrix we can conclude that we have 5 basic alternative strategies for Continental Airlines: 1- Market Penetration (Intensive Strategy): in the European market with an extensive promotional campaign such as ticket discounts, offering free complimentary services (such as picking the traveler from the airport to hotel for free) when make a booking during a certain period, free club membership for a limited time, customizing meals, movies & songs according to the passengers on fight. 2- Market Development (Intensive Strategy): Through using the opportunity of merging with the giant airline United Airlines that already has hubs at the Middle-East & Africa which will allow Continental to have route to these new destinations such as Dubai, Qatar & Kuwait.

3- Product Development (Intensive Strategy): In order to achieve the objective of increasing efficiency in fuel consumption by 32% through purchasing new aircrafts that proved being more fuel efficient according to the latest technologies. This strategy could be achieved through 2 stages:
a) Purchasing 19 new aircrafts of type 737-900s along with five or six 787s to make a total investment of (24-25 new aircrafts) this year that will help to achieve 12% efficiency. b) Later 20% efficiency could be achieved through an investment in (132 new aircrafts) (50 Boeing 787s, 57 Boeing 737s and 25 Airbus A350s) that will be added through 2013-2019. 4- Horizontal Integration: Integration with those competitors who succeeded in overcoming their crisis & returning much stronger than before this would help to minimize their threat on Continental airlines. 5- Differentiation Strategy: Through utilizing its strength in providing a customized services along with the complementary services such as Continental Clubs Continental
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airlines could create a differentiated service or competitive advantage especially under the opportunity of the merge with United Airlines that implies more countries & different cultures will be accessed by Continental.

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9. Decision Stage:
Using the QSPM (Quantitative Strategic Planning Matrix) we could prioritize the above mentioned strategies in order to take an action.
Strategy 1 Strategy 2 TAS Market Development TAS Strategy 3 Product Developme nt TAS Strategy 4 Horizontal Integration TAS

Key Factors

Weight

Market Penetration

Opportunities O1: International markets are highly attractive due to growing demand for travel. O2: Air Transportation is the most favored by travellers O3: The EU-US Open Skies. O4: Merge with the United Airlines in October 2010. 0.1 2 0.20 4 0.4 3 0.3 1 0.1 0.1 -

0.07

0.14

0.28

0.07

0.21

0.08

0.32

0.24

0.08

0.16

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O5: U.S. work culture emphasis to focus on that segment that needs a short distance flight O6: Advanced technologies are being adopted to reduce fuel consumption O7: Customers prefer the online booking for saving time. Threats T1: Rise in fuel costs. T2: Increase in security costs. T3: Some competitors have been recovered from bankruptcy much stronger. T4: New rivals can easily enter the market due to the low cost of getting loans.

0.06

0.12

0.24

0.18

0.06

0.09

0.27

0.18

0.36

0.09

0.05

0.08

0.24

0.16

0.32

0.08

0.08

0.24

0.16

0.32

0.08

0.06

0.04

0.16

0.12

0.04

0.08

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T5: High bargaining power of customers T6: Many rivals exist in the domestic market has a cost leadership. T7: Southwest airlines succeeded to achieve 70% of its revenues from its website booking while Continental was just 24 %. Total Strengthes S1: It is the second global Company with a good brand reputation. S2: Good Financial Position S3: Incentive programs are related to staff performance.

0.06

0.24

0.18

0.12

0.06

0.07

0.28

0.07

0.14

0.21

0.06

0.08

0.32

0.24

0.08

0.16

0.07

0.14

0.21

0.28

0.07

0.06

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S4: It serves more international markets. S5: Its fleet is one of the youngest globally. S6: Received an array of awards for an overall reputation. S7: Using biofuel instead of jet fuel. S8: Ability to customize their services based on destination. S9: Diversified Services

0.08

0.32

0.24

0.08

0.16

0.05

0.15

0.25

0.10

0.05

0.06

0.12

0.24

0.06

0.18

0.06

0.18

0.12

0.24

0.06

0.09

0.05

Weaknesses W1: Its Go forward plan does not attend the environmental issues directly. W2: Depending on debts for financing its investments by 96%

2 0.1

0.2

0.4

0.3

0.1

1 0.05

0.05

0.20

0.10

0.15

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W3: Poor Service Quality W4: Minimal presence in major foreign destinations. W5: Slowly adoption to online booking. STAS

0.1

0.4

0.3

0.1

0.2

0.08

0.08

0.32

0.16

0.24

0.07

4.17

4.55

3.43

2.5

Finally STAS is representing the total attractiveness score which reveals which strategy is the most attractive in the light of all relevant external & internal factors. The higher score represents the most attractive strategy and accordingly it is better for Continental airlines to prioritize its strategies as follows: 1- Market Development. 2- Market Penetration. 3- Product Development. 4- Horizontal integration.

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10.Conclusion:
Form the previous analysis if Continental Airlines followed the mentioned strategies given by the opportunity of getting merged with United Airlines it is going to achieve its vision & longterm objectives which can be summarized as follows: 1- An increase in their overall market power in terms of market development by serving new destinations around the world which means widening its operating scope. 2- Becoming the first & largest Airline company worldwide and increase its market share globally. 3- Maximizing its profit which will enable it to overcome any increase in costs as a result of the increase in fuel prices. 4- Reducing its long term costs. 5- Achieving more efficient fuel consumption on long distances because successive taking off & landing increase fuel consumption.

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11. References:
Strategic Management Concepts & Cases 13th edition Fred David United States - Airlines 0072 - 0756 2009. Datamonitor Industry Profile. Reference Code: 0072-0756 Publication Date: October 2010. www.datamonitor.com http://finance.yahoo.com/q/is?s=UAL&annual http://www.century-of-flight.net/Aviationhistory http://www.bized.co.uk/compfact/ratios/profit4.htm http://www.ehow.com/about_6496307_financial-ratios-analysis-plan-profitability.html http://investing.businessweek.com/research/stocks/financials/ratios.asp?ticker=LUV:US http://www.investopedia.com/features/industryhandbook/airline.asp#ixzz1sIQpZsKS
http://web02.aviationweek.com/aw/mstory.do?id=news/om/2012/03/01/OM_03_01_2012_p18419630.xml&channel=mro&headline=Focus%20On%20Fuel%20Savings http://www.iata.org/pressroom/pr/pages/2011-06-06-01.aspx

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