Transcript Continental Airlines Context

Continental Airlines
Context
Team B4
Joseph Kattar, Bethany Byrd, Jocelyn
Stewart.
Industry Overview
• Air travel remains a large and growing
industry.
• 1.5 billion passengers in 2005
• In the past decade, air travel has grown
by 7% per year
• IATA forecasts to grow by an average
6.6% a year to the end of the decade
and over 5% a year from 2000 to 2010
•
.(resource 1)
Industry Overview
• 4%-6% growth is expected in Europe and
North America
• 9% growth a year in ASIA/PACIFIC a year and
is forecast to continue to grow rapidly
• Profitability slowed during the Gulf War
(1991)
• net losses of $20.4bn in the years from 1990
to 1994
•
.(resource 1)
Industry Overview
• Many airliners realized they had to cut
costs in order to survive.
• Reduce capacity growth and to
increase load factors
• The outlook for the air travel industry is
one of strong growth. Forecasts
suggest that the number of passengers
will double by 2010
•
.(resource 1)
North America Airline Industry
Overview
• The commercial aviation industry in the United States has
grown dramatically since the end of World War II
• In 1945 the major airlines flew 3.3 billion revenue passenger
miles (RPMS).
• In the mid 1970s, when deregulation was beginning to develop,
the major carriers flew 130 billion RPMS
• By 1988, after a decade of deregulation, the number of
domestic RPMS had reached 330 billion
•
.(resource 1)
North America Airline Industry
Overview
• Today the domestic industry in the US is mainly a low cost, low
fare environment
• The majority have entered into cross-border alliances to
improve profitability through synergy benefits.
• The United States is the largest single market in the world,
accounting for 33 per cent of scheduled RPMs
• Deregulation of the industry
• In 1989 events began which severely damaged the economic
foundations of the industry (Gulf War)
•
(resource 1)
.
Airline Domestic Market Share
February 2005 - January 2006
.(resource 5)
Airlines
Share
American
15.8%
Delta
13.1%
United
11.8%
Southwest
10.7%
Northwest
7.4%
Continental
7.1%
USAirways
5.1%
America
West
4.0%
JetBlue
3.6%
Alaska
2.5%
Other
18.9%
Boeing · Current Market Outlook
· 2005 · Demand for Air Travel
.(resource 4)
Load Factor
• Industry Load Factor 80%
•
(resource #7)
• BE Industry Load Factor 85%
•
(resource #8)
Government Regulations
• Aviation Security Act
• CRAF
Aviation Security Act
• TSA
-USVISIT
• Improved Flight
deck security
• Improved airport
perimeter access
security
• Increased airline
crew security
training
•
(Reference #2)
• Enhanced security
screening of
passengers,
baggage cargo,
mail, employees,
and vendors
• Enhanced training
of security
screening personnel
• Increased federal air
marshals
Aviation Security Act
• Passenger Security Fee
• TSA Aviation Security Infrastructure
Fee
• Airport Passenger Facility Fee
Civil Reserve Air Fleet (CRAF)
• In time of war, air carriers provide air
lift services to the Air Mobility
Command at their own expense
•
(reference #2)
Fuel Prices
• Commercial Aircraft engines require more
sophisticated form of fuel than ground
vehicles
• 19.5 billion gallons per year
• Next to labor, jet fuel is the 2nd largest
operating expense totaling 10%-25% of
annual operating costs
• Fuel prices doubled from $0.78/gal in 2000 to
$1.81/gal in 2006
• Every penny increase in price of gallon
results in an additional $195 million in annual
fuel costs
•
(resource #10)
Fuel Hedging
• Airlines lock a fixed price or maximum
price cap for fuel in the future by
buying a contract at a specific price
Ex: Southwest Airlines
2005 $26/barrel
2006 $32/barrel
Current market rate $70/barrel
•
(resource #10)
Fuel Hedging
• Carriers in financial trouble do not have the
cash or credit to pay for fuel hedge contracts
• Virtually no fuel hedges for Delta,
Continental, and Northwest in 2006
• American and United have hedged less than
10% of 2006 fuel
•
(resource #10)
• Continental has short term petroleum
contracts
•
(resource #2)
High Labor Cost
•
38% of total operating cost. (resource 13)
•
368,000 in January 2002 to 270,000 in
January 2006, a decline of 27 percent
(resource 14)
High Labor Cost
Table 9: Network & Low Cost Carrier Full-time
Equivalent Employees, January 2002-2006*
(Ranked by January 2006 FTE Employees)
Numbers in thousands (000’s)
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
American
United
Delta
Continental
Southwest
Northwest
US Airways
America West
Alaska
JetBlue
AirTran
Frontier
ATA
Spirit
Total
2002
98.0
80.7
65.8
35.7
31.6
43.7
34.6
11.0
9.8
2.2
4.1
2.3
6.9
2.0
368.4
2003
94.8
74.9
63.0
35.7
33.4
42.4
27.8
11.6
10.2
3.9
4.7
2.7
6.9
2.4
348.7
2004
79.2
58.6
58.4
34.3
32.5
38.2
26.5
11.3
9.9
5.2
5.5
3.5
6.9
2.4
305.1
2005
76.7
56.9
55.6
31.9
31.0
38.4
24.1
11.4
9.2
6.8
5.9
4.1
5.8
2.5
292.7
2006
74.7
53.4
48.6
33.1
31.4
31.0
19.9
11.4
9.0
8.8
6.7
4.2
3.2
2.1
269.8
Percentage
Change
2002-2006
-23.8
-33.8
-26.1
-7.3
-0.7
-29.0
-42.6
4.3
-8.0
291.6
62.5
82.7
-53.4
3.3
-26.8
* Full-time Equivalent Employee (FTE) calculations count two part-time employees as one full-time
Note: Detail may not add to total due to rounding
Note: Percentage changes based on numbers prior to rounding.
Source: Bureau of Transportation Statistics
(Resource 14)
Technology Advancements
• Worldspan
– “Provide worldwide electronic
distribution of travel information,
Internet products and connectivity,
and e-commerce capabilities for
travel agencies, travel service
providers, and corporations.”
(resource 16)
Technology Advancements
Worldspan
•
•
•
•
•
•
•
Standard Schedule Message (SSM)
Frequent Flyer Verification
Departure Control
Revenue Management
Revenue Accounting Data
Electronic Ticketing
Interactive Seat Selection
Technology Advancements
•
Fuel management
– Pricing and reporting
•
Upgrading the operations control
center
– More efficient flights
•
WiFi/ XM Radio
Open Skies Agreement
•
Expanded demand for international aviation
service
•
Create new business for international air
carriers
•
Reducing government interference
•
More than 70 bilateral Open Skies
agreements
(resource 15)
Open Skies Agreement Rules
•
Free Market Competition
–
•
No restrictions on international route rights; number of
designated airlines; capacity; frequencies; and types of
aircraft.
Pricing Determined by Market Forces
–
•
A fare can be disallowed only if both governments concur
Fair and Equal Opportunity to Compete
–
•
All carriers -- designated and non-designated -- of both
countries may establish sales offices in the other country
Cooperative Marketing Arrangements
–
(resource 15)
Designated airlines may enter into code-sharing or
leasing arrangements with airlines of either country
Open Skies Agreement Rules
•
Provisions for Dispute Settlement and Consultation
–
•
Model text includes procedures for resolving differences that
arise under the agreement.
Liberal Charter Arrangements
–
•
Carriers may choose to operate under the charter regulations of
either country.
Safety and Security
–
•
Each government agrees to observe high standards of aviation
safety and security.
Optional 7th Freedom All-Cargo Rights
–
(resource 15)
Provide authority for an airline of one country to operate allcargo services between the other country and a third country,
via flights that are not linked to its homeland.
References
•
1)
British Airways web site, (2000, Jan) The Airline Industry, retrieved
April 8, 2006 http://adg.stanford.edu/aa241/Intro/airlineindustry.html
•
2)
Continental Airlines 10K 2005 (2005, January) retrieved April 8, 2006
http://www.continental.com/company/investor/docs/continental_10k_2005.p
df
•
3)
Donoghue, J.A. (2006, January) Air Transport World Economics
Channel Forecast: Good Times Or, As Good as it Gets retrieved April 8,
2006http://www.atwonline.com/channels/dataAirlineEconomics/article.html?
articleID=1496Data/Airline
•
4)
Boeing Outlook 2005 World Demand for Commercial Airplanes
retrieved April 8, 2006 http://www.boeing.com/commercial/cmo/index.shtml
•
5)
Bureau of Transportation Statistics Airline Domestic Share February
2005- January 2006 table received April 8, 2006 http://transtats.bts.gov
References
•
6)
Bouvard, Pierre and Diane Williams (2003, July) The Arbitron Airport
Advertising Study, received April 8, 2006
http://www.arbitron.com/arbitron_airport_study.pdf
•
7)
Le, Thuy-Doan (2006, March) Post-Gazette, High oil prices push
travel fuel prices across the board, retrieved April 12, 2006
http://www.post-gazette.com/pg/06083/675480-37.stm
•
8)
May, James C (2005, September) testimony given at the Aviation
Hearing on Review of the Impact of Hurricane Katrina on the Aviation
Industry, retrieved April 2006
http://commerce.senate.gov/hearings/testimony.cfm?id=1609&wit_id=3413
•
9)
John L. Mica (2006, February) Subcommittee on Aviation Hearing on
Commercial Jet Fuel Supply: Impact and Cost on the U.S. Airline
Industry, retrieved April 12, 2006
http:www.house.gov/transportation/aviation/02-15-06/02-15-06memo.html
References
10)
Washington (2005, November) Los Angeles Times, New Limits on Airline
Ownership Proposed; Easing curbs on foreign investment in carriers could
inject fresh capital, the U.S. says. retrieved April 9, 2006 From LexisNexis
11) Koenig, David (2005, November) Associated Press Financial Wire, retrieved April 9,
2006 Airlines Continue to Upgrade Web Sites retrieved April 9, 2006 from
LexisNexis
12)
Koenig, David (2005, October) Washington Post, Airlines That Hedged
Against Fuel Cost Reap Benefits retrieved April 9, 2006 www.washingtonpost.com
13)
Airlines, retrieved April 18,2006 from www.vault.com/articles/Airlines25831285.html
QUESTIONS
???