Continental Airlines, Inc.

views updated

Continental Airlines, Inc.

founded: 1934 (as varney speed lines)

Contact Information:

headquarters: 2929 allen pky., ste. 2010
houston, tx 77019 phone: (713)834-2950 fax: (713)834-2087 url: http://www.flycontinental.com

OVERVIEW

Continental Airlines is the fifth largest airline in the United States, flying to more than 120 domestic and about 70 international destinations. The company has recovered from years of financial struggles. In fact, the company's last year to turn a profit since CEO Gordon Bethune stepped in and rescued the company was 1986. With a new strategy in place he changed the way the airline operated, getting rid of many unprofitable businesses.

COMPANY FINANCES

In 1997 Continental posted net income of $385 million on revenues of $6.66 billion, as compared to 1995's net income of $319 million on revenues of $6.36 billion and 1995's net income of $224 million on revenues of $5.82 billion.

Trading on the New York Stock Exchange, Continental reports that there were "approximately 3,133 and 17,956 holders of record of its Class A common stock and Class B common stock, respectively." The company does not intend to pay out any cash dividends, but "may consider repurchase of its common stock under certain market conditions."

Continental reports that revenues increased in 1997 as compared to 1996 in the following areas:

Passenger revenue increased 13.4 percent, $789 million
Cargo revenue increased 13.6 percent, $21 million

Mail and other revenue increased 12.8 percent, $43 million
Wages, salaries, and related costs increased 16.3 percent, $236 million
Employee incentives increased 29.9 percent, $29 million
Aircraft fuel expense increased 14.3 percent, $111 million
Commissions expense increased 11.2 percent, $57 million
Aircraft rentals increased 8.3 percent, $42 million
Maintenance, materials, and repairs increased 16.5 percent, $76 million
Other rentals and landing fees increased 12.9 percent, $45 million. The company also reported that its financial and operating performance improved significantly in 1996 compared to 1997. This includes the strategic plan to strengthen operations and improve customer satisfaction and employee relations.

ANALYSTS' OPINIONS

While analysts have been impressed with Continental's comeback, most know it will take time for the company to cast off its old reputation for slow, poor service. With tremendous profits in comparison to previous years, most experts have remained hopeful. In February 1998 Continental's annual report stated that a five-year collective bargaining agreement with the company's pilots was met. Previous records have indicated that the company's average salary for its pilots, including pension, benefits, and payroll taxes, totaled $113,000 per pilot in the 12-month period ending September 30, 1996. This average wage falls short by 38 percent in comparison to other wages paid by major carriers such as Delta Air Lines, American Airlines, USAir, United Airlines, and Northwest Airlines. Continental intends to be wage competitive by the year 2000.

HISTORY

After Texas Air, a holding company for Texas International, bought Continental Airlines in 1982, the company faced financial losses exceeding $500 million between 1978 and 1983. Owned by Frank Lorenzo's Jet Capital Corporation, the company was forced to file bankruptcy, but came out of its heavy debt in 1986. It was the lowest-fare airline with the cheapest labor costs in the industry.

Texas Air moved on to buy other airlines in 1986, including Eastern Air Lines, People Express Airlines, and Frontier Airlines. Escalating financial difficulties forced bankruptcy court to replace Texas Air from Eastern's management in 1990 with Martin Shugrue as the trustee. It was then that Texas Air became Continental Airlines Holdings.

Due to high fuel prices and low flying traffic, Continental was also plunged into bankruptcy in 1990. It recovered in 1993 and appointed Gordon Bethune as CEO the following year with a new strategy in place, the company sought out a code-sharing agreement (an agreement between airlines to purchase regular flights on each others' planes) with CSA Czech Airlines, allowing Continental to enter new flight markets like Newark, Cincinnati, Norfolk, and Cleveland.

STRATEGY

With new CEO Gordon Bethune in the company's driver's seat, Continental launched a new growth strategy. First, the company aimed to increase its services in its three United States hubs: Cleveland, Houston, and Newark. Second, it set its sights on expansion efforts in markets other than the United States, particularly where it has historically been strong. Lastly, Continental Airlines sold its businesses that were causing monetary losses, like Continental Lite.

Bethune has also restructured many operations to make flights more convenient for customers. Continental has made great efforts to improve baggage handling, clean planes more thoroughly, including scheduling additional paint jobs, and add more food on several flights. An employee bonus incentive program has been established to help the company better serve its customers and, in turn, increase its traffic.

INFLUENCES

The company's long history of financial struggles has prompted drastic changes. Trying to benefit from the cost advantages it had over other airlines, Continental's former CEO Frank Lorenzo did away with labor contracts and drove the company into bankruptcy. Customer service was deemed less important than turning a profit, ultimately causing the company to suffer.

Under the leadership of CEO Gordon Bethune, Continental strives for better business practices. Quality is an important factor, as the airline continues to work toward improving customer satisfaction. Additional earlier flights have better accommodated business travelers, along with additional domestic and international flights which strengthen alliances. Money-losing businesses were dropped, with increased attention to creating more traffic in its existing hubs.

A survey done in June 1996 showed Continental to be first among other airlines in customer service for flights longer than 500 miles. The previous year it had ranked last among nine major carriers. Former analysts stated the company's new image will take time to develop. 1996's net income of $319 million was a 42.2 percent increase from 1995. In 1997 the company reported a net income of $385 million with $1 billion in cash and cash equivalents.

CURRENT TRENDS

In keeping with its newfound strategy, Continental has been operating in ways to increase business. Acquisitions, merger talks, and an intensive focus on customer satisfaction have all composed more recent trends for the company. In the late 1990s the company was using its proven strategy for growth opportunities. Intending to increase traffic, Continental announced a bid made in April 1997 for a 20-percent interest in Argentine carrier Aerolineas Argentinas. The company's interest in the airline exemplifies its efforts to expand in profitable markets.

FAST FACTS: About Continental Airlines, Inc.

Ownership: Continental Airlines, Inc. is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: CAIB

Officers: Gordon M. Bethune, Chmn. & CEO, 56, 1997 base salary $755,750; Lawrence W. Kellner, Exec. VP & CFO, 39, 1997 base salary $427,172; Gregory D. Brenneman, 36, base salary $583,410

Employees: 39,300 (17,100 customer service agents, reservation agents, ramp, and other airport personnel; 7,000 flight attendants; 6,300 management and clerical employees; 5,500 pilots; 3,300 mechanics; and 100 dispatchers)

Principal Subsidiary Companies: Continental Airlines, Inc.'s wholly owned subsidiaries are Continental Express, Inc. ("Express") and Continental Micronesia, Inc. ("CMI"), serving 191 airports globally.

Chief Competitors: The airline industry vies with its competitors who may have more resources and lower cost structures. Some primary competitors include: Air France; Alaska Air; and All Nippon Airways.

Another interest Continental has shown has been for a possible merger with Delta Air Lines in late 1996. If the merger were to come full circle, the two companies would form the largest airline in the world. Sources have said Continental initiated the merger talks with Delta. With Delta's stronger presence in Europe, Continental would gain greater access there, while Delta would benefit from Continental's strengths in South and Central America.

Continental has formed a significant alliance with Northwest. The joint venture includes the KLM Royal Dutch Airlines. The alliance includes schedule and airport facility coordination and other activities.

The company has aimed to maintain its high ratings with customers as it has implemented a new frequent flier policy. In an attempt to attract other airlines' customers, Continental has targeted elite passengers with the automatic enrollment of its One Pass frequent-flyer program if customers have existing elite status from another airline. Looking to capitalize on the business travel market, the company has hoped to attract business passengers who often purchase last-minute tickets at much higher rates.

CORPORATE CITIZENSHIP

The company's recent success has brought much attention and praise. Since 1995 Continental Airlines, Inc. has received numerous awards for its performance. In 1995 it was named Business Week's NYSE "Stock of the Year." Fortune also name its stock "Best Investment" of 1995. The following year it earned the J.D. Power/Frequent Flyer award for Best Airline for Customer Satisfaction for Flights 500 Miles or More. Two other awards were given to the company in 1997 as well. In February the company was called "Airline of the Year" by Air Transport World, and in April, Smart Money magazine named Continental's Business First the top business class among U.S. Airlines.

GLOBAL PRESENCE

As of 1998, Continental Airlines, Inc. provides service to 125 cities in the United States. It also services 66 international destinations to Asia, Australia, Europe, and Latin America. The company's hubs are in Cleveland at Hopkins International Airport; Houston at George Bush Intercontinental Airport; and Newark at Newark International. With the company's recent alliance with Northwest, Continental will "connect with Northwest's hubs in Minneapolis, Detroit, and Memphis." With its new code-sharing agreement with CSA Czech Airlines, Continental has increased its service in Newark and Cleveland as well.

Upgrading its reputation, as of March 1998 Continental has commitments to purchase 154 jet aircraft from Boeing Co., estimated to be a $6.7-billion investment. Awaiting board approval, Continental's decision stems from its plans for international expansion.

EMPLOYMENT

Continental believes their employees are its greatest resource, with strengths in reliability and providing customer satisfaction. The company utilizes a varied communication process with its employees, which includes updates on company oriented bulletins, publications, and videotapes.

CHRONOLOGY: Key Dates for Continental Airlines, Inc.

1937:: Robert Forman Six purchases 40 percent interest in Varney Speed Lines and changes the name to Continental Airlines
1945:: Continental acquires numerous aircraft through military surplus
1955:: Service rights between Chicago, Denver, and Los Angeles bring the company into competition with other national carriers for the first time
1964:: Forms Continental Air Services to transport U.S. troops to and from southeast Asia
1980:: Continental attempts to merge with Western Airlines
1981:: Texas Airlines acquires Continental
1983:: Continental files for Chapter 11 bankruptcy
1990:: Texas Airlines changes their name to Continental Airlines Holdings, Inc.
1996:: A survey shows Continental to be first in customer service for flights longer than 500 miles

SOURCES OF INFORMATION

Bibliography

boisseau, charles. "continental's net income soars; pilots to seek big wage increases." houston chronicle, 21 january 1997. available at http://www.chron.com.

"continental airlines." aeroworldnet, 27 january 1997. available at http://www.aeroworldnet.com.

"continental airlines, inc." hoover's online, 23 august 1998. available at http://www.hoovers.com.

continental airlines, inc.'s home page, may 1998. available at http://www.flycontinental.com.

"continental airlines interested in buying stake in aerolineas argentinas." san diego daily transcript, 9 april 1997. available at http://www.sddt.com.

"continental to fly solo with boeing?" msnbc, 1997. available at http://www.msnbc.com.

graczyk, michael. "continental airlines shows improved earnings." san diego daily transcript, 22 april 1996. available at http://sddt.com.

levere, jane l. "continental airlines is wooing elite-level frequent fliers from its competitors." the new york times, 31 january 1996. available at http://search.nytimes.com.

schwartz, karen. "delta, continental holding merger talks." san diego daily transcript, 4 december 1996. available at http://www.sddt.com.