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2010, United Continental Holdings . Strategic Management Case Study Carter Vaillancourt, Megan Land, Emily Michaud UMFK. Overview. Company Overview A brief history of United Continental Holdings Existing Mission and Vision Statements New Mission and Vision Statements External Audit

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slide1

2010, United Continental Holdings

Strategic Management Case Study

Carter Vaillancourt, Megan Land, Emily Michaud

UMFK

slide2

Overview

Company Overview

  • A brief history of United Continental Holdings
  • Existing Mission and Vision Statements

New Mission and Vision Statements

External Audit

  • Industry Analysis
  • Opportunities and Threats
  • EFE Matrix
  • CPM Matrix

Internal Assessment

  • Organizational chart
  • Strengths and Weaknesses
  • Financial Condition
  • IFE Matrix

Strategy Formation

  • SWOT Matrix
  • Space Matrix
  • Grand Strategy Matrix
  • Matrix Analysis
  • QSPM Matrix
  • 3 year-goals

Implementation Strategies

  • EPS/EBIT
  • Projected Financials
  • Projected Ratios

United Update

united airlines history
United Airlines History

Originating in Boise, Idaho, the carrier flew the first Contract Air Mail flight in the U.S. on April 6, 1926

1926

In 1933, United began operating the Boeing 247 the first all-metal airliner. It was able to fly a transcontinental flight in 20 hours, which at the time was very fast.

1933

United merged with Capital Airlines in 1961 and regained its position as the United States' largest airline. In 1968, the company reorganized, creating UAL Corporation, with United Airlines as a wholly owned subsidiary

1961-1968

In 1982, United became the first carrier to operate the Boeing 767, taking its first delivery of 767-200s on August 19

1982

In 1985, United expanded dramatically by purchasing Pan Am's entire Pacific Division, giving it a hub at Tokyo's Narita International Airport, and in 1991 purchased routes to London Heathrow Airport from ailing Pan Am, making it one of two US carriers permitted exclusive access to Heathrow

1985

united airlines history1
United Airlines History

In 1995, United became the first airline to introduce the Boeing 777 in commercial service

1995

During the September 11, 2001 terrorist attacks, two of the four airplanes hijacked and crashed by al-Qaeda terrorists were United Airlines aircraft which created an airline industry downturn

2001

In 2005, United announced it had raised US$3 billion in financing to exit bankruptcy and filed its Plan of Reorganization, as announced, on September 7, 2005

2005

continental airlines history
Continental Airlines History

Continental Airlines' history dates back to 1934, when the carrier was operated under the name of Varney Speed Lines by its owners Walter Varney and Louis Mueller. They were operated out of El Paso, Texas.

1934

In July 1937, Robert Six changed the name of Varney Speed Lines to Continental Airlines and the carrier moved its headquarters to Denver, Colorado

1937

During the 1940' and 50's, Continental Airlines was able to expand its fleet of aircraft and profits through its participation in World War II by providing air transportation to the military

1940-1950

1983

In 1983, Continental filed bankruptcy with losses of ($218,000,000.)

1984

-1986

By the end of 1984 Continental was able to turn a profit. In 1986 Continental took over Frontier Airlines and began flying its routes.

united continental holdings
United Continental Holdings
  • Early in February 2008, United Airlines andContinental began advanced stages of merger negotiations
  • In June 2008, CEOs of both United Airlines and Continental Airlines signed an alliance pact presaging their eventual merger
  • On October 1, 2010, UAL Corporation completed its acquisition of Continental Airlines and changed its name to United Continental Holdings, Inc
slide9

Major Hubs Located in San Francisco, Chicago, Cleveland, Denver, Houston, Los Angeles, Newark, Washington Dulles, and Guam

slide10

“ Combining these two companies is the best way to position ourselves…to thrive in the changing and competitive airline industry. Continental is strong where United is weak; United is strong where Continental is weak. Putting these two carriers together is a match made in heaven” – Jeff Smisek

vision proposed
Vision (proposed)

United Continental Holdings vision is to be the World’s number one choice for airline travel.

mission proposed
Mission (Proposed)

With great people, the world’s most comprehensive global route network(3), the best current aircraft order book among U.S. network carriers(4, 7) and the industry-leading loyalty program(2), United is well positioned to deliver meaningful profitability and sustainable long-term value for our customers, the communities we serve, our shareholders and our co-workers around the world(6). As we strive to meet the needs of travelers (1), we continue to grow as a company and increase our financial standings in the industry (5). Through our continued growth and valued employees, United Continental Holdings will continue to reach out to the communities in which we operate and meet the concerns of our customers (9).

Customer

Products or services

Markets

Technology

Concern for survival, profitability, growth

Philosophy

Self-concept

Concern for public image

Concern for employees

revenue of cash
Revenue % of Cash
  • Cash as a Percentage of Revenue: 12 months ended 31-Mar-2010

Source: United Airlines

slide19
SWOT

Opportunities

  • With over 100 open skies agreements in effect, more access to international airports is allowed
  • Maintenance operation center at SFO occupies 120 acres of land, 2.9 mil square feet of floor space, and nine aircraft hangar bays, lease up for renewal in 2013 and able to renew through 2023
  • Growing use of websites, alternative distribution systems, and new global distribution systems (GDS) entrants leads to a predicted 87% for online air ticket sales in 2011
  • Global penetration, in areas such as the pacific which accounts for only 17% of total revenue.
  • The aviation industry is growing by a projected amount of 11.0 billion which will ultimately enable more people to fly.
  • United Continental will be affected by the growth in the tourism industry expected to grow 3.2% in 2011.
  • The merging of the two corporations, United and Continental is expected to deliver $1.0 billion to $1.2 billion in net annual synergies on a run-rate basis by 2013, and between $800 million and $900 million in incremental annual revenues.
  • United Continental Holdings Inc. establishes a joint venture with Air Canada will likely result in a substantial lessening of competition on 19 trans-border city pair routes.
  • After merging and earning the extra percentage in revenue s by 1.0 billion, United Continental will show strong liquidity give the new company a flexibility to pay down its debt.
  • United Continental made plans to increase WIFI capabilities in 200 domestic Boeing 737 and 757 aircraft equipped with DIRECTV(R), providing onboard connectivity and more than 95 channels of live television programming to customers in late 2010.

Threats

  • Unstable fuel prices and availability can cause large expenses, accounting for 31% of total operating costs in 2010
  • With 72% of employees under labor organizations, union disputes, employee strikes, and other labor disputes are likely to occur.
  • 100% of United employees and 53% of Continental employees are covered by collective bargaining agreements (CBA), significant increases in pay and benefits from new CBAs could financially harm the company
  • New open skies agreements decrease value of routes, caused United $29 million impairment charge in 2010 for indefinite-lived Brazil route
  • With an aging fleet, UAL will have to soon start replacing or fixing their planes. With a large amount of planes this will become very costly.
  • Illnesses could affect travel and decrease the amount of passengers flying, UAL reported that H1N1 cost them roughly $50 Million in related revenue.
  • The airline industry is vulnerable to terrorist attacks and other related security threats. The new threats have resulted in new security measures which will increase the security related costs adding to the already high number of operating costs at $22,253.
  • Customer prior dissatisfaction with either United or Continental may inflict buyers decision to choose new merged company while United standing at 12th in customer dissatisfaction and Continental standing at 8th in 2010.
  • ARM Corp is trailing United Continental Holdings co. by just 1059 million standing in third place for top revenue for airlines 2010.
  • The company faces stiff competition from national and international airline companies which can affect competitive pressures and ultimately lowering $3billion market cap.
organizational chart
Organizational Chart

Jeff Smisek

President and CEO

Mike Bonds Executive Vice President, Human Resources and Labor Relations

Jim Compton Vice President and Chief Revenue Officer

Jeff Foland Executive Vice President and Mileage Plus Holdings LLC

Nene Foxhall ExecutiveVice President Communications and Government Affairs

Keith Halbert

Executive

Vice President and Chief Information Officer

Brett Hart Senior Vice President, General Counsel and Secretary

Pete McDonald Executive Vice President and Chief Operations Officers

Zane Rowe Executive Vice President and Chief Financial Officer

slide24
SWOT

Strengths

  • Passenger revenue increased 43% in 2010
  • Unrestricted cash and cash equivalents hit a record $8.7 billion
  • Aircraft rent expense decreased by 6% in 2010
  • They employ roughly 85,000 employees, the highest among their competitors.
  • UAL offers premium seating with spacious accommodations for those who seek a more comfortable trip.
  • The U.S. and Canada market account for 61.7% of total revenue.
  • Net income grew 38% from a loss in 2009 to a profit in 2010.
  • United Continental has strong strategic collaborations. The company has a number of bilateral and multilateral alliances with other airlines such as the largest alliance which is the Star Alliance who serves approximately 1,290 destinations in 189 countries.
  • Because of United Continental Holdings flight completion factors of 98.5% and 99%, it has a very strong brand utilization and trustworthiness.
  • United is the largest of 2 U.S carrier to the People’s Republic of China and maintains a large operation throughout Asia.

Weaknesses

  • Operating expenses increased $2.2 billion in 2010
  • Interest expense increased by 23% in 2010
  • Removal of Boeing 737 fleet and some Boeing 747 aircraft caused impairment charges of $165 million in 2010
  • In relation with salaries and related costs increasing, Pension liability increased by $1,380,000 in 2010
  • They are behind Delta Airlines (DAL) in market cap by over $3Billion.
  • From the income statement it appears that they have no money spent on research and development for the past 3 years.
  • At 16.0 cents, UAL has the highest cost per available seat mile in their industry compared to AirTran Holdings at 11.0 cents.
  • UAL has assets of $20.1 Billion, liabilities of $22.9 Billion and equity of -$2.76 Billion. This may make it hard for them to get loans when their assets are currently less than their liabilities.
  • United Continental puts heavy dependence on third party providers, many of the operations such as customer care, aircraft maintenance, aircraft fueling are outsourced, which adds to the overall expense amount of $22,253 million.
  • The overall age of aircrafts totals about 14.3 years old, which gives higher expense to the operating costs because they are less fuel efficient and require more maintenance.
slide32

SWOT Matrix

WO

SO

Strengths

Weaknesses

Opportunities

ST

WT

Threats

slide33

FS

6

Aggressive

Conservative

5

4

3

2

1

CS

IS

-6

-5

-4

-3

-2

-1

1

2

3

4

5

6

-1

-2

-3

-4

-5

Competitive

Defensive

-6

ES

Space Matrix

FP

Conservative

Aggressive

+6

+5

+4

+3

+2

+1

IP

-6

-5

-4

-3

-2

-1

+1

+2

+3

+4

+5

+6

-1

-2

-3

-4

Defensive

-5

Competitive

-6

SP

slide34

GSM

Quadrant II

1. Market development

2. Market penetration

3. Product development

4. Horizontal integration

5. Divestiture

6. Liquidation

Quadrant I

1. Market development

2. Market penetration

3. Product development

4. Forward integration

5. Backward integration

6. Horizontal integration

7. Related diversification

Quadrant III

1. Retrenchment

2. Related diversification

3. Unrelated diversification

4. Divestiture

5. Liquidation

Quadrant IV

1. Related diversification

2. Unrelated diversification

3. Joint ventures

possible strategies
Possible Strategies

Market Development

Retrenchment

Require employees to participate in stock ownership to decrease or prevent pension liability increases and to increase employee work satisfaction. (W4, T2, T3)

Increase marketing in foreign countries to take advantage of the over 100 open skies agreements and increase global penetration in china, Asia, and the pacific. (S8, S10, O1, O4)

Utilize extra percentage in revenue, obtained through merging, to pay down liabilities. (W8, O2)

Backward Integration

Product Development

Renew Maintenance lease at SFO to ultimately decrease the dependence on outsourced aircraft maintenance. (W9, O2)

Increase premium seating and flatbed seats to enhance travel experience and increase customer satisfaction on long flights. (S5, O5, O8)

Utilize unrestricted cash and equivalents of roughly $8.7 billion to replace aging fleet with more fuel efficient airplanes. (S2,S3,T1,T5)

Horizontal Integration

Utilize unrestricted cash and equivalents of roughly $8.7 billion to replace aging fleet with more fuel efficient airplanes. (S2,S3,T1,T5)

Increase R&D to research methods that would increase the gap between competitive airlines both nationally and internationally. (W6, T9, T10).

Increase R&D spending to take advantage of aviation and tourism growth through the production of new global distribution systems. (W6, O3, O5, O6)

3 year goals
3 Year Goals
  • Year 1-Expand further into China
  • Year 2-Expand throughout Asia to regions such as South Asia and India
  • Year 3-Expand into Russia
eps ebit analysis
EPS/EBIT Analysis

Assumptions

eps ebit cont
EPS/EBIT Cont.

Assumptions

Assumptions

slide44

Projected Financials 2011

Income Statement

united continental holdings update
United Continental Holdings Update

In 2012, United and United Express carried more passenger

traffic than any other airline in the world and operated nearly two million flights carrying 140 million customers

United is investing in upgrading its onboard products and now offers more flat-bed seats in its premium cabins and more extra-legroom economy-class seating than any airline in North America

In 2013, United became the first U.S.-based international carrier to offer satellite-based Wi-Fi on long-haul overseas routes

The airline also features DIRECTV® on

nearly 200 aircraft, offering customers more live television access than any other airline in the

world

The company expanded its industry-leading global route network in 2012, launching nine new international and 18 new domestic routes.

Business Traveler magazine awarded United Best Airline for North American Travel for 2012, and readers of Global Traveler magazine have voted United’s Mileage Plus program the best frequent flyer program for nine consecutive years.