Continental Airlines: The Competitive Arena

Banu Ozkaya Ben Harris James Babb

Outline

 Most Direct Competitors  Competitor Financial Situations  Competitor Strategies  Charts reflection industry  Industry Trend  Future of the Airline Companies

Who are the Competition?

(Top 5)

 American Airlines  Delta Airlines  United Airlines  Airtran Airways  Southwest Airlines

American Airlines (2005)

        Largest US Airline Based in Forth Worth, Texas Not in Chapter 11 Bankruptcy Serves 150 destinations worldwide International carrier operating 699 aircraft Purchased TWA in April 2001 American Airlines’ CASM is 3% higher than Continental Biggest Concern: Competing on price with reorganized airlines

American Airlines Financial Data (2005)

     ASM: RASM: CASM: Net Income: Load Factor:  BE Load Factor 176.13 Billion Miles 9.43¢ 10.50¢ $(861,000,000.00) 78.6% 85.5%

American Airlines Strategy

 Lower operating costs in order to compete with restructured airlines and low-cost carriers   Improve Hub-and-Spoke system to more efficiently serve larger markets Utilize it’s American Eagle brand as a low-cost alternative carrier to compete with low fare airlines.

Source: American Airlines 2005 10-K

American Airlines SWOT

Strengths Weakness

• • • • Strong brand name Efforts to improve performance One of the largest airlines in the US Strong alliances in the industry • • • Continued losses Substantial indebtedness High dependence on travel agents for ticket sale

Opportunities

• • • Growth in transcontinental market Reduction in costs through collaborative efforts Recovery in passenger traffic

Threats

• • • Intense competition from low fare players Increasing fuel prices Regulations governing the airline industry Source: http://web105.epnet.com

Delta Airlines (2005)

      Based in Atlanta, Georgia Currently in Chapter 11 Bankruptcy International carrier operating 649 aircraft Serves 149 Cities Worldwide Delta Airlines’ CASM is 14% higher than Continental Biggest Concern: Competition from low-cost carriers and recently reorganized airlines Source: Delta Airlines 2005 10-K

Delta Airlines Financial Data (2005)

     ASM: RASM: CASM: Net Income: Load Factor:  BE Load Factor 156.79 Billion Miles 10.33¢ 11.60¢ $(3,836,000,000) 76.5% 86.9% Source: Delta Airlines 2005 10-K

Delta Airlines Strategy

    Strengthen their Domestic Hub and Spoke Network Increase International Presence in Europe and Asia Merge SONG (Delta’s low fare airline) into Delta and convert their planes to the class system Delta is seeking the higher end customers and adding better entertainment choices and more first-class seats.

Source: Delta Airlines 2005 10-k

Delta Airlines SWOT

Strengths

• • • Global reach through network and alliances Strong market position Hub airports

Weaknesses

• • • Significant overlap with low cost airlines Delta’s low cost carrier Song Lack of competitive strengths V’s AMR

Opportunities

• • • Cut in pilot pay would drastically decrease costs Engage in further alliances Orbitz Inc.

Threats

• • • Low cost competition Delta’s Regional Jet advantage likely to slip General industry risks Source: http://web105.epnet.com

United Airlines (2005)

      Based in Chicago, Illinois Currently in Chapter 11 Bankruptcy International carrier operating 460 aircraft Serves 120 destinations worldwide United Airlines’ CASM is 4% higher than Continental Biggest Concern: Competition from low-cost carriers, Higher fuel costs, Terrorist attacks.

United Airlines Financial Data (2005)

     ASM: RASM: CASM: Net Income: Load Factor:  BE Load Factor 140.3 Billion Miles 9.20¢ 10.59¢ $(182,290,000) 81.4% 82.8% Source: United Airlines 2005 10-K

United Airlines Strategy

 Appeal to high-end customers through the introduction of enhanced first-class service.

 Appeal to low-fare flyers through TED, United’s low cost carrier  Utilize the popular United Mileage-Plus frequent flyer program to attract and retain high value customers

United Airlines SWOT

Strengths

• • • Global Network Improved operational performance United’s membership of Star Alliance

Weakness

• • • Chapter 11 bankruptcy Continuous operating losses Increased taxi time in 2004

Opportunities Threats

• • United’s expansion in Central America, the Caribbean and Mexico Growing traffic in Asia • • • September 11 law suits Oil price rise Uncertainty in demand Source: http://web105.epnet.com

Airtran Airways (2005)

     Based in Orlando, Florida. Main Hub in Atlanta, GA International carrier operating 105 aircraft Serves 47 US destinations as well as flights to Freeport, Bahamas Airtran Airways CASM is 9% lower than Continental Airtran is one of only a handful US carriers that has managed to remain profitable

Airtran Airways Financial Data (2005)

 ASM:  RASM:  CASM:  Net Income:  Load Factor:  BE Load Factor 15.36 billion miles 9.09¢ 9.35¢ $1,722,000 73.5% 73.4% Source Airtran Airways 2005 10-K

Airtran Strategy

 Low Cost  Targets “value oriented” business and leisure travelers  Low-Cost, Self-service ticketing to lower operating expenses Source: Airtran Holdings 2005 10-K

Airtran SWOT

Strengths    Strong domestic presence Operates America’s youngest all-Boeing fleet Report profits when the competitors can not Weaknesses   High costs No international flight Opportunities Threats    Increased usage of regional jets Improving tourism market in US Engage in further alliances    Increasing competition Rising fuel costs Rising geopolitical tensions

Southwest Airlines (2005)

      Based in Dallas, Texas Domestic carrier operating 445 aircraft Serves 61 US destinations Southwest Airlines CASM is the lowest in the competitive group.

Southwest Airlines RASM was the by-far the highest in the competitive group. Southwest had the highest Net Profit of all US Domestic carriers for 2005.

Source: Southwest Airlines 2005 10-K filing

Southwest Airlines Financial Data (2005)

         ASM: RASM: CASM: 85.17 billion miles 12.09¢ 8.09¢ Net Income: $548,000,000 Load Factor: BE Load Factor 70.7% 55.5%* Highest Revenue per Available Seat Mile from Competitive Group Lowest Cost per Available Seat Mile from Competitive Group Highest Profit from Competitive Group 2005 BE factor unavailable. 55.5% from 2001.

Source: Southwest Airlines 2005 10-K filing

Southwest Strategy

      Short-Haul Point-to-Point (Rather than traditional Hub-to-Hub) Low Fare Low Operating Cost Services smaller, secondary airports Single aircraft type allows for lower maintenance costs Source: Southwest Airlines 2005 10-K filing

Southwest Airlines SWOT

Strengths

• • • Market leadership Low cost business model Strong financial performance

Weaknesses

• • • New services Code sharing with ATA Airlines Positive outlook for the US airline industry

Opportunities

• • • Poor short-term liquidity situation No established alliances Declining passenger revenue yields Source: http://web105.epnet.com

Threats

• • • Increasing fuel costs Uncertainty in demand Increasing competition

Continental Airlines SWOT

Strengths Weaknesses

•Strong industry position •Strategic alliances •Strong operating performance •Advantageous location of hubs •Relatively low growth and profitability •Highly leveraged

Opportunities

•Cost-saving agreement with employees •New international destinations •Membership of Sky team alliance •Fleet expansion

Threats

•Oil price rise •Uncertainty in demand •Poor outlook for US airline industry •Weak US tourism industry Source: http://web105.epnet.com

Comparison of Financial Situations of the Companies

American Airlines Delta Airlines United Airlines Airtran Southwest Airlines Continental ASM (billion) 176.13 RASM ( CASM ( ¢ ¢ ) ) 9.43¢ 10.50¢ Net Income (million $) $(861) Load Factor (%) 78.6% BE Load Factor (%) 85.5% 156.79

10.33¢ 11.60¢ 140.3

9.20¢ 10.59¢ 15.36

9.09¢ 9.35¢ 85.17

12.09¢ 8.09¢ $(3,836) $(182.29) $1.722

$548 89.65

10.46¢ 10.22¢ $(68) 76.5% 81.4% 73.5% 70.7% 79.5% 86.9% 82.8% 73.4% 55.5%

*

200,000,000 180,000,000 160,000,000 140,000,000 120,000,000 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 0

American Delta

Continental

Southw est Airtran

2003 Available Seat Miles 2004 Year 2005

Airtran American Continental Delta Southw est

2 0 6 4 14 12 10 8

Southwest Delta Continental Airtran American 2003 Revenue per Available Seat Mile 2004 2005

4.00

2.00

0.00

14.00

12.00

10.00

8.00

Delta Am erican Continental Southw est Airtran 6.00

2003 Cost per Available Seat Mile 2004 2005

$1,000,000,000 $0 -$1,000,000,000 Southwest Airtran Continental Delta American -$2,000,000,000 -$3,000,000,000 -$4,000,000,000 -$5,000,000,000 -$6,000,000,000

Net Profit

85% 80% 75% Continental Delta Am erican Airtran 70% Southw est 65% 60% 2003 Passenger Load Factor 2004 2005

Industry Trend

 Brand loyalty is decreasing  Trend  low-fare service

Future of the Airline Companies

?

References

Continental Airlines. (2004). Company Profile. Retrieved from http://www.datamonitor.com

American Airlines. (2004). Company Profile. Retrieved from http://www.datamonitor.com

United Airlines. (2004). Company Profile. Retrieved from http://www.datamonitor.com

Delta Airlines. (2004). Company Profile. Retrieved from http://www.datamonitor.com

Airtran Airways. (2004). Company Profile. Retrieved from http://www.datamonitor.com

Southwest Airlines

. (2004). Company Profile. Retrieved from http://www.datamonitor.com