Strategic Management

1. Continental Airlines Case Study
Submitted By
Faisal Hayat (13)
Sarmad Jalal (25)
BBA 7th
Semester
Submitted To
Sir Saifullah
Assistant Professor
Institute Of Management Studies
University of Peshawar

2. Preface
It is part of 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.

3. Executive Summary:
The founders of 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

4. Table of Contents:
1-Continental Airlines 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

5. 1.1-Continental airlines vision:
Continental Airlines 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:

6. 1. Rise in fuel 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.

7. 6-External FactorEvaluation:
External Factors Weight 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

8. 9-Internal factor evaluation:
Internal factors 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

9. Opportunities(O)
O1Aviation market
expansion
O2 online booking 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.

10. 11-Space Matrix:
There are two 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

11. 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.

12. 12-IE Matrix:
Internal Factor Evalution 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:

13. They should rely on 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:

14. 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

15. introduce their service all 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

16. Profitabilityratios 2006 2005 2004
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

17. Earningsper share 39.4 23.4 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.