Continental Airlines, Business Plan Example

Introduction

Continental Airlines has established itself as a well-respected known brand within the airline industry. Between 1934 and May 2010, Continental Airlines represented one of the major U.S. commercial airlines in the airline industry. The company had established brand partnership agreements with a wide range of airline carries, like Chautauqua, ExpressJet, and Silver Airways. This made the company an integral part of the aviation industry as a whole. Originally founded in 1934 under the name Varney Speed Lines, after owner Walter T. Varney, the airline started off small with just four passenger planes, as the company expanded its airliners it developed a reputation for itself in the airline industry. Varney operated as a new business opening up new alternative streams of revenue. He worked alone primarily until 1937, when Robert Foreman Six invested $90,000 in the purchase of 40 percent interest of the company. Six’s background as a pilot and flight instructor, provided new knowledgeable support for the innovations in aviation the men were trying to achieve. Six ran Valley Flying Service in Stockton, California, a company responsible for running air tours of the California. Six followed up this job with a career working for Boeing Air Transport flight school in San Francisco, where he trained airline pilots. These jobs were actually not what provided Six with the capital necessary to invest in Varney Speed Lines, it was his father in law who loaned him the money in order to invest in the promising start-up. Varney actually used the $90,000 investment provided by Six to pay off debts acquired during the depression. Despite this sound investment by Six, the company still only had a small amount of capital left to invest in new equipment after paying off its debts. Six negotiated with Lockheed Corporation to sell Varney Speed Lines places on credit and the company was able to acquire three L-12 planes. Shortly after, Six the mind behind changing the name from Varney Speed Lines to Continental Airlines. This is what earned Six his position as the President of Continental airlines. Following his appointment as presidency of Continental Airlines, Six implemented initiatives to lead his company through a path towards fast growth and improvement. He made efforts to increase the size of Continentals fleet. While Six wanted to purchase a few DC-3s, at the time it was the most expensive plane oin the market as well as the most efficient. Instead Six purchased some L-14 Lodestars through his arrangement with Lockheed. Following this decision he hired the company’s first set of stewardesses. The company also amassed a flight route that extended from El Paso, Texas and Denver Colorado to Wichita, Kansas and Oklahoma. When the Japanese Attacked Pearl Harbor, Six felt compelled to enlist in the army. During his time in the army, he provided aviation intelligence services, but also was able to arrange a deal between Continental and the U.S. Army, which resulted in substantial government contracts that earned the company over $900,000 and reduced the debt of all their plane purchases on credit to a simple $60,000. This marked the start of Continental’s rise into being a profitable functioning operation, with a fleet of planes, a flight route and minimal debt.

How Continental Airlines is considered a Leader

AS a leader Continental leads in many aspects of its industry. This can often be overshadowed by how cluttered the aviation market can be at times. Continental Airlines Inc., in 2001 represented the fifth largest U.S. airline, based primarily on 2001 revenue passenger miles (RPMs). Continental carries passengers, as well as cargo, and they also carry mail across the globe. The company has dispatch points in over 200 worldwide airports. The majority of Continentals airports are based out of the United States, with some flying out of Latin America. Part of the reason events have resulted in Continental Airlines evolving into the brand it is today largely has to do with resentment labor unions have public felt towards the company after corporate raider Frank Lorenzo took over management of the company in the 1980s as well as the multiple executives that were handed the reins of the company throughout in the 1980s, Continental became known for consistently changing their management throughout the 1990’s. Following their decline in the 90’s due to mis-management, after nearly a decade of reporting financial losses and a reduction in sales, Continental started to turn a profit in in 1995 when the regional unit Continental Express was turned into a subsidiary and publicly offered in 2002 as the (IPO) Express Jet Airlines, Inc. The company followed up this initiative with implementing real time business intelligence to enhance prod

In Anderson-Lehman, Watson, Wixom, & Hoffer, (2004), the authors talk about how Continental Airlines utilized real-time business intelligence to enhance performance. The authors note that, “real-time business intelligence (BI) entails taking Continental Airlines to new heights through an intelligence driven real-time or ‘active’ data warehouse, the company has dramatically changed all aspects of its business, resulting in industry-leading customer service and generating considerable financial lift” (Anderson-Lehman, Watson, Wixom, & Hoffer, (2004). Larry Kellner, Continental’s president and COO, details the influence the real-time BI has in assisting Continental noting that real-time BI is important to achieving business strategy and attaining benefits. These benefits entail:

• Kellner notes that gate agents, flight attendants, and other staff members who are in charge of dealing directly with customers at all times are aware of the identity of high value customers.  This enables them to apply honed customer service. Kellner attribute this to why Continental is one of the most admired providers of customer service in the U.S.
• The Operations staff work at monitors organizing the scene functions of the company. They ensure that operations occur on time and that time in respect to activities like personnel, catering, and gate traffic flow. These factors make Continental a leader in being an on time airline.
• Pricing specialists are in charge of ensuring customers get affordable flights while the company track in real-time the impact of price changes on reservations and to put in place the needed adjustments to optimize revenues.
• Continental has been able to save more than $500 million in reducing costs as revenue generates over the past decade. Business intelligence initiatives, implemented by Continental has produced ROI of more than 1,000 percent.

The authors note that this new rise in leadership by the company is the result of their “Go Forward Plan,” which has substantially improved Continental’s ability to earn returns on their investments and continues to be Continental’s main strategy for retaining a leading role within the industry and becoming but generating.

Compare and contrast two similar companies. How are they similar in product, mission, services, or structure? How are they different? What social or cultural innovations have they developed or participated?

Jet Blue Airlines

JetBlue, is a low cost airline that has represented one of the top competitors for Continental Airlines in the past decade. Jet Blue has established a competitive reputation in the airline industry due to its substantially low costs through the company’s ability to outsource to third party providers. The majority of Jet Blue’s resources are shared resources that work by the company utilizing tools, equipment, and even aircraft of other airliners for the purpose of cutting costs. Competing with major carriers on long distance transcontinental flights from John F. Kennedy (JFK) airport” (Nadja, 2003). New York politicians, discouraged with the cost of high intrastate fares, offer JetBlue to their constituents as the prices are significantly lower.  It is estimated that low cost carriers like Southwest Airlines, JetBlue and others have labor costs 30%-40% lower than commercial carriers like Continental.   To clarify this subject the author notes that carriers like “United Airlines, American Airlines, Northwest Airlines, and Continental Airlines all have costs at least 40% higher than Southwest” (Nadja, 2003).  Nadja further points out that despite commercial carriers known for being significantly cheap to operate like Delta Air Lines or Alaska Airlines being able to manage flights out of their main hubs and still turn profits, they still have unit costs 30% higher than Southwest Airlines. In comparison, companies as large as Continental may eventually be pushed out of the market, due to this trend of low cost airline entry into the industry.

Average Cost per Passenger per Mile

By cutting costs through the leasing of services, and having a reduced sized staff, low cost airlines are able to reduce the over cost of operations, but still deliver substantial value to the consumer. Essentially these types of carriers require less maintenance, which leads to an even smaller demand on resources.  Fewer maintenance requirements also allows smaller airlines to retain their workers. One of the key differences that occur in cases of low cost airlines like Jet Blue is that the airline has a different use of commodities. Authors note that, “standard traditional commercial carriers often have a number of tools at their disposal, which it can use to limit entry into its market space and reduce competitiveness of recent entrants” (Nadia, 2003). Examples include predatory pricing, or loyalty programs where the airline gives away free miles as bonus for frequent travel.  This does put Continental at a slight advantage over carriers like JetBlue as it reduces JetBlue’s ability to offer value to the customer beyond the basic deal on a flight, but it also can be complicated for Continental as well to keep track of all of the bonuses, and manoeuvre flight changes through its large database of flights and tickets. While these programs can be very convenient for customers, they can result in inefficiency in the system itself. Another major advantage an airline like Continental has over Jet Blue is that it can take advantage of its affiliates. For example, in cases where JetBlue gets overbooked, it has to cancel flights or replace them without the use of an affiliate airline to take on the burden. This lowers the quality of service.  This is not to suggest Continental keeps up with all aspects of the business or is a leader in every field, as Rodriguez, & Quaintance (2014) note “Continental airlines tried to directly compete with Southwest and lasted 16 months before completely pulling out of the point-to-point market” (Rodriguez & Quaintance, 2014). Disadvantages of low cost airlines like Jet Blue is that major commercial carriers like Continental establish deals with other carriers like Continental cannot be seen in the deals commercial airlines established with other carriers.  If a flight is unavailable or canceled after being booked, their affiliate carrier will take on the flight.  This is something that low cost carriers like Southwest and JetBlue just don’t offer (Rosato, 2004, pp: 1).  The author is clear to point out that while these major airlines have a lot of perks, like frequent flyer miles, they also come with a lot of rules and regulations. Low cost airliners like Jet Blue rarely provide their customers with frequent flier miles, but they offer deals the most significant deal being the low cost of flights they provide. Rosato states, “Some do offer great value:  You can earn a free round-trip ticket on Frontier Airlines after flying just 15,000 miles (it’s 25,000 for most airlines)” (Rosato, 2004).

Another reason why Continental can be viewed as a leader within its industry can be attributed to its impact on safety. As Rosato (2004) notes, “Federal policies mandate rigorous training routines for all pilots twice a year.  Likewise, flight attendants are also put through safety exams and annual retraining” (Rosato, 2004).  Safety regulations within the airline industry as a whole have become increasingly more strict following the 9/11 terrorist attacks, which in its own way has embedded itself in every aspect of airline corporate culture. This makes a majority of airlines virtually the same in respect to safety and performance. The author further notes that, statistically it would be unlikely for an airline to crash, pointing out that “an airline passenger stands a 1-in-8-million chance of dying in a crash, according to an MIT study.  You’d have to fly every day for about 22,000 years for the odds to turn against your arriving safely at your destination” (Rosato, 2004). There is almost no difference in regards to safety in respect to low cost airlines and major carriers, “in fact, an analysis of Federal Aviation Administration accident and incident data for the past four years reveal a slight difference between low-cost and traditional airlines and commercial airliners (Rosato, 2004).  The following table breaks down accidents rates across air carriers to provide a better understanding of this data. This puts major carriers in a very dangerous position of being pushed out of the market if they don’t reduce their costs, and procedures.

In a breakdown analysis of all of the major US commercial airlines, it can be seen that in the US and Canada, South West Airlines appears to be the safest based on the fact that it has had no passenger fatalities in past 29 years. Continental on the other hand did have an accident with a number of fatalities. Airliners like American airlines have had 13 events in over 25 million flights, while United Airlines over a number of 11 events across more than 22 million flights reported has had fatalities.  US airways had 9 events occur during a reported 18 million flights. This actually classifies Continental between 1989 and 2008, specifically, Continental Airlines, as well as South West Airlines, Air Canada, North West Airlines, US Airways, Hawaiian Airways, American Eagle A to B.  This could be attributed to outsourcing flights, which is something smaller airlines trying to enter the market can’t do. For example, Continental Airlines, reportedly outsources 60 percent of their flights to regional providers like Colgan Air (Rentz, 2010).

What happened to the Company and Why?

As of 2012 Continental Airlines under, its previous name, has ceased operations. This is due to the fact that on May 2010, Continental Airlines publicly announced plans to merge with the UAL Corporation, otherwise known as United Airlines. This transaction was executed through a stock swap. Shares of Continental Airlines were acquired by UAL Corporation, for the acquisition of the company and it was completed on October 2010. Once the transaction had been completed the holding company of both airlines was re-branded United Continental Holdings. Over the course of the merger process, the two airlines functioned separately which resolved with the full integration of both companies on March 3 2012. The reason why this merger occurred can be attributed to the substantial holdings Continental had in their ownership interests of certain brand partnerships, like their minority holding in ExpressJet Airlines and other carriers. This made the airline too valuable of an item as a holding commodity, making UAL offer a price well over what Continental was willing to turn down, despite the recent uptick in the company’s profitability.

Conclusion

In sum, while Continental Airlines has been a major competitor within the airline market, recent changes will dictate whether the company’s legacy continues to be based on the quality sale of air travel, as it has merged with United Airlines to form a much larger, but potentially much different entity. The main story of Continental is that through innovation, and intelligent business strategy the company was able to position itself in such a way within the commercial airline industry that it evolved into a highly valued investment for United Airlines. This is a significant aspect of the airline business and pays homage to many of the managerial changes that the company made following the 9/11 terrorist attacks and enduring the economic recession, as the airline industry at the time was revered.

References

Anderson-Lehman, R., Watson, H. J., Wixom, B. H., & Hoffer, J. A. (2004). Continental airlines flies high with real-time business intelligence. MIS Quarterly Executive, 3(4), 163-176.

Rentz, C. (2010). Regional airlines cut cost of flying, at what price?. Investigative Reporting Workshop, Retrieved from http://investigativereportingworkshop.org/investigations/flying-cheap/story/regional-airlines-cut-cost-flying-what-price/

PlaneCrashInfo.com (2011). Types accidents by u.s. carriers. Reprinted from, “Airline Accident Rates” by, 2011, Retrieved  from http://www.planecrashinfo.com/rates.htm. Copyright [1997-2012] by PlaneCrashInfo.com

Rodriguez, C., & Quaintance, B. (2014). Case Analysis Southwest Airlines. Southwest Airlines Reporting.

Rosato , D. (2004). The plane truth about flying cheap low-cost airlines are dramatically improving the way we get from here to there. so what’s the catch?. CNNMoney, Retrieved from http://money.cnn.com/magazines/moneymag/moneymag_archive/2004/05/01/367265/index.htm