Continental Airlines: The Competitive Arena Banu Ozkaya Ben Harris James Babb.

Continental Airlines: The Continental Airlines: The Competitive ArenaCompetitive Arena

Banu OzkayaBanu OzkayaBen HarrisBen Harris

James BabbJames Babb

OutlineOutline

Most Direct CompetitorsMost Direct Competitors Competitor Financial SituationsCompetitor Financial Situations Competitor StrategiesCompetitor Strategies Charts reflection industryCharts reflection industry Industry TrendIndustry Trend Future of the Airline CompaniesFuture of the Airline Companies

Who are the Competition?Who are the Competition?(Top 5)(Top 5)

American AirlinesAmerican Airlines Delta AirlinesDelta Airlines United AirlinesUnited Airlines Airtran AirwaysAirtran Airways Southwest AirlinesSouthwest Airlines

American Airlines (2005) American Airlines (2005)

Largest US AirlineLargest US Airline Based in Forth Worth, TexasBased in Forth Worth, Texas Not in Chapter 11 BankruptcyNot in Chapter 11 Bankruptcy Serves 150 destinations worldwideServes 150 destinations worldwide International carrier operating 699 International carrier operating 699

aircraftaircraft Purchased TWA in April 2001Purchased TWA in April 2001 American Airlines’ CASM is 3% American Airlines’ CASM is 3%

higher than Continentalhigher than Continental Biggest Concern: Competing on Biggest Concern: Competing on

price with reorganized airlinesprice with reorganized airlines

American Airlines American Airlines Financial Data (2005)Financial Data (2005) ASM: ASM: 176.13 Billion Miles176.13 Billion Miles RASM:RASM: 9.43¢9.43¢ CASM:CASM: 10.50¢10.50¢ Net Income:Net Income: $(861,000,000.00)$(861,000,000.00) Load Factor:Load Factor: 78.6%78.6% BE Load FactorBE Load Factor 85.5%85.5%

American AirlinesAmerican AirlinesStrategyStrategy Lower operating costs in order to Lower operating costs in order to

compete with restructured airlines compete with restructured airlines and low-cost carriersand low-cost carriers

Improve Hub-and-Spoke system to Improve Hub-and-Spoke system to more efficiently serve larger marketsmore efficiently serve larger markets

Utilize it’s American Eagle brand as Utilize it’s American Eagle brand as a low-cost alternative carrier to a low-cost alternative carrier to compete with low fare airlines.compete with low fare airlines.

Source: American Airlines 2005 10-KSource: American Airlines 2005 10-K

American AirlinesAmerican AirlinesSWOTSWOT

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 Threats

• Growth in transcontinental market

• Reduction in costs through collaborative efforts

• Recovery in passenger traffic

• Intense competition from low fare players

• Increasing fuel prices• Regulations governing the

airline industry

Source: http://web105.epnet.com

Delta Airlines (2005) Delta Airlines (2005)

Based in Atlanta, GeorgiaBased in Atlanta, Georgia Currently in Chapter 11 BankruptcyCurrently in Chapter 11 Bankruptcy International carrier operating 649 International carrier operating 649

aircraftaircraft Serves 149 Cities WorldwideServes 149 Cities Worldwide Delta Airlines’ CASM is 14% higher Delta Airlines’ CASM is 14% higher

than Continentalthan Continental Biggest Concern: Competition from Biggest Concern: Competition from

low-cost carriers and recently low-cost carriers and recently reorganized airlinesreorganized airlines

Source: Delta Airlines 2005 10-K

Delta Airlines Delta Airlines Financial Data (2005)Financial Data (2005) ASM: ASM: 156.79 Billion Miles156.79 Billion Miles RASM:RASM: 10.33¢10.33¢ CASM:CASM: 11.60¢11.60¢ Net Income:Net Income: $(3,836,000,000)$(3,836,000,000) Load Factor:Load Factor: 76.5%76.5% BE Load FactorBE Load Factor 86.9%86.9%

Source: Delta Airlines 2005 10-K

Delta AirlinesDelta AirlinesStrategyStrategy Strengthen their Domestic Hub and Spoke Strengthen their Domestic Hub and Spoke

NetworkNetwork Increase International Presence in Europe Increase International Presence in Europe

and Asiaand Asia Merge SONG (Delta’s low fare airline) into Merge SONG (Delta’s low fare airline) into

Delta and convert their planes to the class-Delta and convert their planes to the class-systemsystem

Delta is seeking the higher end customers Delta is seeking the higher end customers and adding better entertainment choices and adding better entertainment choices and more first-class seats.and more first-class seats.

Source: Delta Airlines 2005 10-kSource: Delta Airlines 2005 10-k

Delta AirlinesDelta AirlinesSWOTSWOT

Strengths Weaknesses

• Global reach through network and alliances

• Strong market position• Hub airports

• Significant overlap with low-cost airlines

• Delta’s low cost carrier Song• Lack of competitive strengths

V’s AMR


• Cut in pilot pay would drastically decrease costs

• Engage in further alliances• Orbitz Inc.

• Low cost competition• Delta’s Regional Jet advantage

likely to slip• General industry risks


United Airlines (2005) United Airlines (2005)

Based in Chicago, IllinoisBased in Chicago, Illinois Currently in Chapter 11 BankruptcyCurrently in Chapter 11 Bankruptcy International carrier operating 460 International carrier operating 460

aircraftaircraft Serves 120 destinations worldwideServes 120 destinations worldwide United Airlines’ CASM is 4% higher United Airlines’ CASM is 4% higher

than Continentalthan Continental Biggest Concern: Competition from Biggest Concern: Competition from

low-cost carriers, Higher fuel costs, low-cost carriers, Higher fuel costs, Terrorist attacks.Terrorist attacks.

United Airlines United Airlines Financial Data (2005)Financial Data (2005) ASM: ASM: 140.3 Billion Miles140.3 Billion Miles RASM:RASM: 9.20¢9.20¢ CASM:CASM: 10.59¢10.59¢ Net Income:Net Income: $(182,290,000)$(182,290,000) Load Factor:Load Factor: 81.4%81.4% BE Load FactorBE Load Factor 82.8%82.8%

Source: United Airlines 2005 10-KSource: United Airlines 2005 10-K

United AirlinesUnited AirlinesStrategyStrategy Appeal to high-end customers Appeal to high-end customers

through the introduction of through the introduction of enhanced first-class service.enhanced first-class service.

Appeal to low-fare flyers through Appeal to low-fare flyers through TED, United’s low cost carrier TED, United’s low cost carrier

Utilize the popular United Utilize the popular United Mileage-Plus frequent flyer Mileage-Plus frequent flyer program to attract and retain program to attract and retain high value customershigh value customers

United AirlinesUnited AirlinesSWOTSWOT

Strengths Weakness

• Global Network• Improved operational

performance• United’s membership of Star

Alliance

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


• United’s expansion in Central America, the Caribbean and Mexico

• Growing traffic in Asia

• September 11 law suits• Oil price rise• Uncertainty in demand


Airtran Airways (2005)Airtran Airways (2005)

Based in Orlando, Florida. Main Hub Based in Orlando, Florida. Main Hub in Atlanta, GAin Atlanta, GA

International carrier operating 105 International carrier operating 105 aircraftaircraft

Serves 47 US destinations as well as Serves 47 US destinations as well as flights to Freeport, Bahamasflights to Freeport, Bahamas

Airtran Airways CASM is 9% lower Airtran Airways CASM is 9% lower than Continentalthan Continental

Airtran is one of only a handful US Airtran is one of only a handful US carriers that has managed to remain carriers that has managed to remain profitableprofitable

Airtran Airways Airtran Airways Financial Data (2005)Financial Data (2005)

ASM: ASM: 15.36 billion miles15.36 billion miles RASM:RASM: 9.09¢9.09¢ CASM:CASM: 9.35¢9.35¢ Net Income:Net Income: $1,722,000$1,722,000 Load Factor:Load Factor: 73.5%73.5% BE Load FactorBE Load Factor 73.4%73.4%

Source Airtran Airways 2005 10-KSource Airtran Airways 2005 10-K

Airtran StrategyAirtran Strategy

Low CostLow Cost Targets “value oriented” Targets “value oriented”

business and leisure travelersbusiness and leisure travelers Low-Cost, Self-service ticketing Low-Cost, Self-service ticketing

to lower operating expensesto lower operating expenses

Source: Airtran Holdings 2005 10-KSource: Airtran Holdings 2005 10-K

Airtran Airtran SWOTSWOTStrengths Weaknesses

Strong domestic presence Operates America’s

youngest all-Boeing fleet Report profits when the

competitors can not

High costs No international flight


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)Southwest Airlines (2005)

Based in Dallas, TexasBased in Dallas, Texas Domestic carrier operating 445 aircraftDomestic carrier operating 445 aircraft Serves 61 US destinationsServes 61 US destinations Southwest Airlines CASM is the lowest in Southwest Airlines CASM is the lowest in

the competitive group.the competitive group. Southwest Airlines RASM was the by-far Southwest Airlines RASM was the by-far

the highest in the competitive group. the highest in the competitive group. Southwest had the highest Net Profit of all Southwest had the highest Net Profit of all

US Domestic carriers for 2005.US Domestic carriers for 2005.

Source: Southwest Airlines 2005 10-K filingSource: Southwest Airlines 2005 10-K filing

Southwest Airlines Southwest Airlines Financial Data (2005)Financial Data (2005) ASM: ASM: 85.17 billion miles85.17 billion miles RASM:RASM: 12.09¢12.09¢ CASM:CASM: 8.09¢8.09¢ Net Income:Net Income: $548,000,000$548,000,000 Load Factor:Load Factor: 70.7%70.7% BE Load FactorBE Load Factor 55.5%*55.5%* Highest Revenue per Available Seat Mile from Highest Revenue per Available Seat Mile from

Competitive GroupCompetitive Group Lowest Cost per Available Seat Mile from Lowest Cost per Available Seat Mile from

Competitive GroupCompetitive Group Highest Profit from Competitive GroupHighest Profit from Competitive Group

2005 BE factor unavailable. 55.5% from 2001.2005 BE factor unavailable. 55.5% from 2001.Source: Southwest Airlines 2005 10-K filingSource: Southwest Airlines 2005 10-K filing

Southwest StrategySouthwest Strategy

Short-HaulShort-Haul Point-to-Point (Rather than Point-to-Point (Rather than

traditional Hub-to-Hub)traditional Hub-to-Hub) Low FareLow Fare Low Operating CostLow Operating Cost Services smaller, secondary airportsServices smaller, secondary airports Single aircraft type allows for lower Single aircraft type allows for lower

maintenance costsmaintenance costs

Source: Southwest Airlines 2005 10-K filingSource: Southwest Airlines 2005 10-K filing

Southwest AirlinesSouthwest AirlinesSWOTSWOT


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

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

airline industry


• Poor short-term liquidity situation

• No established alliances• Declining passenger revenue

yields

• Increasing fuel costs• Uncertainty in demand• Increasing competition


Continental AirlinesContinental AirlinesSWOTSWOT


•Strong industry position•Strategic alliances•Strong operating performance•Advantageous location of hubs

•Relatively low growth and profitability•Highly leveraged


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

•Oil price rise•Uncertainty in demand•Poor outlook for US airline industry•Weak US tourism industry


American Airlines

DeltaAirlines

United Airlines

Airtran SouthwestAirlines

Continental

ASM (billion) 176.13 156.79 140.3 15.36 85.17 89.65

RASM (¢) 9.43¢ 10.33¢ 9.20¢ 9.09¢ 12.09¢ 10.46¢

CASM (¢) 10.50¢ 11.60¢ 10.59¢ 9.35¢ 8.09¢ 10.22¢

Net Income (million$)

$(861) $(3,836) $(182.29) $1.722 $548 $(68)

Load Factor (%)

78.6% 76.5% 81.4% 73.5% 70.7% 79.5%

BE Load Factor (%)

85.5% 86.9% 82.8% 73.4% 55.5% **

Comparison of Financial Comparison of Financial Situations of the CompaniesSituations of the Companies

Available Seat Miles

Airtran

American

Continental

Delta

Southw est

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

180,000,000

200,000,000

2003 2004 2005

Year

Mil

es

Airtran

American

Continental

Delta

Southw est

Revenue per Available Seat Mile

Airtran

American

Continental

Delta

Southwest

0

2

4

6

8

10

12

14

2003 2004 2005

Cost per Available Seat Mile

Airtran

American

Continental

Delta

Southwest

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

2003 2004 2005

Net Profit

Airtran

American

Continental

Delta

Southwest

-$6,000,000,000

-$5,000,000,000

-$4,000,000,000

-$3,000,000,000

-$2,000,000,000

-$1,000,000,000

$0

$1,000,000,000

Passenger Load Factor

Airtran

American

Continental

Delta

Southwest

60%

65%

70%

75%

80%

85%

2003 2004 2005

Industry TrendIndustry Trend

Brand loyalty is decreasingBrand loyalty is decreasing

Trend Trend low-fare service low-fare service

Future of the Airline Future of the Airline CompaniesCompanies

??

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

Continental Airlines: The Competitive Arena Banu Ozkaya Ben Harris James Babb.

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