United Continental Holdings 2011

7/24/2019 United Continental Holdings 2011

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2010, United Continental

HoldingsStrategic Management Case StudyCarter Vaillancourt, Megan Land, Emily Michaud

UMFK


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Overview

Company Overview

A brief history of UnitedContinental Holdings

Existing Mission and VisionStatements

New Mission and Vision StatementsExternal Adit

!ndstry Analysis

Opportnities and "hreats

E#E Matrix

C$M Matrix

!nternal Assessment

Organi%ational &hart

Strengths and 'ea(nesses

#inan&ial Condition

!#E Matrix

Strategy #ormation

S'O" Matrix

Spa&e Matrix

)rand Strategy Matrix Matrix Analysis

*S$M Matrix

+ year,goals

!mplementation Strategies

E$S-E.!"

$ro/e&ted #inan&ials

$ro/e&ted 0atios

United Update


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History


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United Airlines History

Originating in Boise, Idaho, the carrier fewthe rst Contract Air Mail fight in the U.S. onAril !, 1"2!

In 1"##, United $egan oerating the Boeing 2%&the rst all'(etal airliner. It was a$le to f) atranscontinental fight in 20 ho*rs, which at the

ti(e was +er) ast.United (erged with Caital Airlines in 1"!1and regained its osition as the UnitedStates- largest airline. In 1"!, the co(an)reorgani/ed, creating UA Cororation, withUnited Airlines as a wholl) owned s*$sidiar)

1"2!

1"##

1"!1'1"!

In 1"2, United $eca(e the rst carrier tooerate the Boeing &!&, taing its rst deli+er)o &!&'200s on A*g*st 1"

1"2

In 1", United e3anded dra(aticall) $)*rchasing 4an A(-s entire 4acic 5i+ision,gi+ing it a h*$ at 6o)o-s 7arita International

Airort, and in 1""1 *rchased ro*tes to ondonHeathrow Airort ro( ailing 4an A(, (aing it

1"


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United Airlines History

1""

In 1"", United $eca(e the rst airline tointrod*ce the Boeing &&& in co((ercialser+ice

5*ring the Sete($er 11, 2001 terrorist attacs,two o the o*r airlanes hi8aced and crashed $) al'9aeda terrorists were United Airlines aircrat whichcreated an airline ind*str) downt*rn

2001

200

In 200, United anno*nced it had raisedUS:# $illion in nancing to e3it $anr*tc)and led its 4lan o


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Continental Airlines History

Continental Airlines- histor) dates $ac to 1"#%, whenthe carrier was oerated *nder the na(e o =arne)Seed ines $) its owners >alter =arne) and o*isM*eller. 6he) were oerated o*t o ?l 4aso, 6e3as.

1"#%

In @*l) 1"#&, orld >ar II $) ro+iding air

transortation to the (ilitar)

1"%0'

1"0

In 1"#, Continental led $anr*tc) with losses o:21,000,000.

1"#

B) the end o 1"% Continental was a$le to t*rn a rot.In 1"! Continental too o+er Drontier Airlines and

$egan f)ing its ro*tes.

1"%

'1"


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United Continental Holdings

Early in #ebrary 12234 United Airlinesand Continental began advan&ed stages ofmerger negotiations

!n 6ne 12234 CEOs of both United Airlinesand Continental Airlines signed an allian&epa&t presaging their evental merger

On O&tober 74 12724 UA8 Corporation&ompleted its a&9isition of ContinentalAirlines and &hanged its name to UnitedContinental Holdings4 !n&


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Ser+ing 1,2"0 destinations in !#co*ntries


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Ma/or Hbs 8o&ated in San #ran&is&o4Chi&ago4 Cleveland4 :enver4 Hoston48os Angeles4 Newar(4 'ashington:lles4 and )am


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E Co($ining these two co(anies is the $est wa) to

osition o*rsel+esFto thri+e in the changing andco(etiti+e airline ind*str). Continental is strong whereUnited is weaG United is strong where Continental is wea.4*tting these two carriers together is a (atch (ade inhea+en @eJ S(ise


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Air&raft


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Existing Mission and Vision

Statement


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New Mission and Vision


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Vision ;proposed networ( &arriers;?4 @< and the indstry,leadingloyalty program;1


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External Adit


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:omesti& Mar(et Share in Airline !ndstry


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0evene of Cash

Cash as a Percentage of Revenue: 12 months ended31-Mar-2010

Sor&eF United Airlines
http://centreforaviation.com/profiles/airlines/united-airlines-uahttp://centreforaviation.com/profiles/airlines/united-airlines-ua


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S'O"Oort*nities

'ith over 722 open s(ies agreements in eGe&t4 more a&&ess to

international airports is allowed Maintenan&e operation &enter at S#O o&&pies 712 a&res ofland4 1>D mil s9are feet of oor spa&e4 and nine air&raft hangar

bays4 lease p for renewal in 127+ and able to renew throgh121+

)rowing se of websites4 alternative distribtion systems4 andnew global distribtion systems ;):S< entrants leads to a

predi&ted 3@ for online air ti&(et sales in 1277

)lobal penetration4 in areas s&h as the pa&i& whi&h a&&onts

for only 7@ of total revene>

"he aviation indstry is growing by a pro/e&ted amont of 77>2

billion whi&h will ltimately enable more people to y>

United Continental will be aGe&ted by the growth in the torism

indstry expe&ted to grow +>1 in 1277>

"he merging of the two &orporations4 United and Continental is

expe&ted to deliver I7>2 billion to I7>1 billion in net annalsynergies on a rn,rate basis by 127+4 and between I322

million and ID22 million in in&remental annal revenes>

United Continental Holdings !n&> establishes a /oint ventre with

Air Canada will li(ely reslt in a sbstantial lessening of&ompetition on 7D trans,border &ity pair rotes>

After merging and earning the extra per&entage in revene s by7>2 billion4 United Continental will show strong li9idity give the

new &ompany a exibility to pay down its debt>

United Continental made plans to in&rease '!#! &apabilities in122 domesti& .oeing @+@ and @@ air&raft e9ipped with

:!0EC"V;0

6hreats Unstable fel pri&es and availability &an &ase large

expenses4 a&&onting for +7 of total operating &ostsin 1272

'ith @1 of employees nder labor organi%ations4nion disptes4 employee stri(es4 and other labor

disptes are li(ely to o&&r> 722 of United employees and + of Continental

employees are &overed by &olle&tive bargainingagreements ;C.A

!llnesses &old aGe&t travel and de&rease the amontof passengers ying4 UA8 reported that H7N7 &ostthem roghly I2 Million in related revene>

"he airline indstry is vlnerable to terrorist atta&(sand other related se&rity threats> "he new threatshave reslted in new se&rity measres whi&h willin&rease the se&rity related &osts adding to thealready high nmber of operating &osts at I1141+>

Cstomer prior dissatisfa&tion with either United orContinental may ini&t byers de&ision to &hoose newmerged &ompany while United standing at 71thin&stomer dissatisfa&tion and Continental standing at3thin 1272>

A0M Corp is trailing United Continental Holdings &o>by /st 72D million standing in third pla&e for toprevene for airlines 1272>

"he &ompany fa&es stiG &ompetition from national andinternational airline &ompanies whi&h &an aGe&t

&ompetitive pressres and ltimately loweringI+billion mar(et &ap>

Jey External #a&tors 'eights 0ating 'eighted S&ore


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2>2 to 7>2 7 to ?Opportnities 'ith over 722 open s(ies agreements in eGe&t4 more a&&ess to international

airports is allowed 2>2? + 2>71 Maintenan&e operation &enter at S#O o&&pies 712 a&res of land4 1>D mils9are feet of oor spa&e4 and nine air&raft hangar bays4 lease p for renewalin 127+ and able to renew throgh 121+ 2>2 1 2>7)rowing se of websites4 alternative distribtion systems4 and new globaldistribtion systems ;):S< entrants leads to a predi&ted 3@ for online airti&(et sales in 1277 2>2B ? 2>1?)lobal penetration4 in areas s&h as the pa&i& whi&h a&&onts for only 7@of total revene 2>2? ? 2>7B "he aviation indstry is growing by a pro/e&ted amont of 77>2 billion whi&hwill ltimately nable more people to y> 2>2B 1 2>71United Continental will be aGe&ted by the growth in the torism indstryexpe&ted to grow +>1 in 1277 2>2? 1 2>23"he merging of the two &orporations4 United and Continental is expe&ted todeliver I7>2 billion to I7>1 billion in net annal synergies on a rn,rate basisby 127+4 and between I322 million and ID22 million in in&remental annalrevenes 2>2 1 2>7 United Continental Holdings !n&> establishes a /oint ventre with Air Canadawill li(ely reslt in a sbstantial lessening of &ompetition on 7D trans,border

&ity pair rotes> 2>2? + 2>71After merging and earning the extra per&entage in revene s by 7>2 billion4United Continental will show strong li9idity give the new &ompany aexibility to pay down its debt> 2>2+ + 2>2DUnited Continental made plans to in&rease '!#! &apabilities in 122 domesti&.oeing @+@ and @@ air&raft e9ipped with :!0EC"V;02 ? 2>1"hreats 2Unstable fel pri&es and availability &an &ase large expenses4 a&&onting for+7 of total operating &osts in 1272 2>2? + 2>71'ith @1 of employees nder labor organi%ations4 nion disptes4 employee

stri(es4 and other labor disptes are li(ely to o&&r> 2>2@ 7 2>2@ 722 of United employees and + of Continental employees are &overedby &olle&tive bargaining agreements ;C.A2? 1 2>23New open s(ies agreements de&rease vale of rotes4 &ased United I1Dmillion impairment &harge in 1272 for indenite,lived .ra%il rote 2>2? 1 2>23 'ith an aging eet4 UA8 will have to soon start repla&ing or xing theirplanes> 'ith roghly ?2D planes this will be&ome very &ostly> 2>2B + 2>73!llnesses &old aGe&t travel and de&rease the amont of passengers ying4UA8 reported that H7N7 &ost them roghly I2 Million in related revene> 2>2+ 1 2>2B"he airline indstry is vlnerable to terrorist atta&(s and other relatedse&rity threats> "he new threats have reslted in new se&rity measres

whi&h will in&rease the se&rity related &osts adding to the already highnmber of operating &osts at I1141+> 2>2 1 2>7Cstomer prior dissatisfa&tion with either United or Continental may ini&t


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C$M

UAL DAL AAMRQ

Critical Success factors Weights Rating Weighted Score Rating Weighted Score Rating Weighted Score

0.0 to 1.0 1 to 4 1 to 4 1 to 4

Advertising 0.08 0.32 0.32 3 0.2

Product !ua"it# 0.10 0.0 3 0.30 3 0.30

Price Com$etitiveness 0.08 2 0.1% 3 0.2 3 0.2

&inancia" Position 0.10 0.0 3 0.30 3 0.30

Customer 'o#a"t# 0.1 3 0.2 0.(% 3 0.2

)"o*a" +,$ansion 0.12 0.8 3 0.3% 3 0.3%

Maret hare 0.0/ 3 0.21 0.28 2 0.1

rganiation tructure 0.0% 0.2 3 0.18 3 0.18

Customer ervice 0.10 3 0.30 0.0 3 0.30

Production Ca$acit# 0.10 3 0.30 3 0.30 0.0

+m$"o#ee edication 0.0( 3 0.1( 0.20 3 0.1(

Totals 1.00 3.38 3.44 3.03


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Internal A*dit


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Organi%ational Chart

6eG Smise($resident and

CEO

MieBonds

Exe&tive Vi&e

$resident4 Hman0esor&e

s and8abor

0elations

@i(Co(ton Vi&e

$residentand

Chief0eveneOK&er

@eJDoland?3ec*ti+e Vi&e$residen

t andMileage

$lsHoldings

88C

7eneDo3hall

Exe&tiveVi&e

$residentCommni&ations and)overnment AGairs

KeithHal$ert

Exe&tiveVi&e

$residentand Chief!nformation OK&er

Brett

HartSeniorVi&e

$resident4

)eneralConsel

andSe&retar

y

4eteMc5ona

ldExe&tive Vi&e

$residentand

ChiefOperatio

ns

OK&ers

Lane


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S'O"Strengths

$assenger revene in&reased ?+ in 1272

Unrestri&ted &ash and &ash e9ivalents hit a re&ordI3>@ billion

Air&raft rent expense de&reased by B in 1272

"hey employ roghly 34222 employees4 the highestamong their &ompetitors>

UA8 oGers premim seating with spa&iosa&&ommodations for those who see( a more

&omfortable trip>"he U>S> and Canada mar(et a&&ont for B7>@ oftotal revene>

Net in&ome grew +3 from a loss in 122D to a protin 1272>

United Continental has strong strategi&&ollaborations> "he &ompany has a nmber ofbilateral and mltilateral allian&es with other airliness&h as the largest allian&e whi&h is the Star Allian&ewho serves approximately 741D2 destinations in 73D&ontries>

.e&ase of United Continental Holdings ight&ompletion fa&tors of D3> and DD4 it has a verystrong brand tili%ation and trstworthiness>

United is the largest of 1 U>S &arrier to the $eople=s0epbli& of China and maintains a large operationthroghot Asia>

>eanesses Operating expenses in&reased I1>1 billion in 1272 !nterest expense in&reased by 1+ in 1272

0emoval of .oeing @+@ eet and some .oeing @?@ air&raft&ased impairment &harges of I7B million in 1272

!n relation with salaries and related &osts in&reasing4$ension liability in&reased by I74+324222 in 1272

"hey are behind :elta Airlines ;:A8< in mar(et &ap by overI+.illion>

#rom the in&ome statement it appears that they have no

money spent on resear&h and development for the past +years>

At 7B>2 &ents4 UA8 has the highest &ost per available seatmile in their indstry &ompared to Air"ran Holdings at 77>2&ents>

UA8 has assets of I12>7 .illion4 liabilities of I11>D .illionand e9ity of ,I1>@B .illion> "his may ma(e it hard forthem to get loans when their assets are &rrently lessthan their liabilities>

United Continental pts heavy dependen&e on third party

providers4 many of the operations s&h as &stomer &are4air&raft maintenan&e4 air&raft feling are otsor&ed4whi&h adds to the overall expense amont of I1141+million>

"he overall age of air&rafts totals abot 7?>+ years old4whi&h gives higher expense to the operating &ostsbe&ase they are less fel eK&ient and re9ire moremaintenan&e>


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!n&ome Statement


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.alan&e Sheet


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.alan&e Sheet ;1 ;'34 O1 0enew Maintenan&e lease atS#O to ltimately de&rease the

dependen&e on otsor&edair&raft maintenan&e> ;'D4 O1 Utili%e nrestri&ted &ash ande9ivalents of roghly I3>@ billion to

repla&e aging eet with more feleK&ient airplanes> ;S14S+4"74" Utili%e nrestri&ted &ash ande9ivalents to lease or pr&hase newair&rafts e9ipped with state of the artair pri&ation and ltration systems>

;S14 "4 "B4 "34 "72 0e9ire employees toparti&ipate in sto&( ownership to

de&rease or prevent pensionliability in&reases and to in&reaseemployee wor( satisfa&tion> ;'?4

"14 "+ !n&rease 0: to resear&hmethods that wold in&rease the

gap between &ompetitive airlinesboth nationally and

Strengths

>eanesses

Oort*nities 6hreats

S>O6 Matri3SO >O

S6 >6


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&inancia" trength Ratings

1 Cash &"o5 %.0

2 Price +arnings Ratio (.03 +arnings $er hare .0

6oring Ca$ita" .0

( 'i7uidit# (.0

% et 9ncome .0

/ Return on Assets 2.0

Financial Strength Total 4.!#

9ndustr# trengthRating

s

1 Profit Potentia" .0

2 &inancia" ta*i"it# .03 Resource ti"iation 2.0

Productivit#; ca$acit# uti"iation 3.0

( Maret +ntr# 3.0

% )ro5th Potentia" (.0

/ +,tent 'everaged 3.0

Industry Strength Total 3.43

+nvironmenta" ta*i"it# 28.3

1 Rate of 9nf"ation -(.0

2


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StrongCompetitive

$osition

Quadrant II7> Mar(et development1> Mar(et penetration+> $rod&t development?> Hori%ontal integration> :ivestitreB> 8i9idation

Quadrant III7> 0etren&hment1> 0elated diversi&ation+> Unrelated

diversi&ation?> :ivestitre> 8i9idation

Quadrant IV7> 0elated diversi&ation1> Unrelated diversi&ation+> 6oint ventres

Quadrant I7> Mar(et development1> Mar(et penetration+> $rod&t development?> #orward integration> .a&(ward integrationB> Hori%ontal integration@> 0elated diversi&ation

)SM


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Alternative Strategies IE SPACE GRAND BCG COUNT

Forward Integration x x 2

Ba!ward Integration x x 2

"ori#ontal Integration x x 2

$ar!et Penetration x x 2

$ar!et Develo%&ent x x 2

Prod't Develo%&ent x x 2

Related Diversi(iation x )

Unrelated Diversi(iation

Retren*&ent

Divestit're

+i,'idation

Matrix Analysis


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$ossible Strategies

!n&rease mar(eting in foreign &ontriesto ta(e advantage of the over 722 opens(ies agreements and in&rease globalpenetration in &hina4 Asia4 and thepa&i&> ;S34 S724 O74 O? ;'D4 O1 ;'B4 "D4 "72

;'?4 "14 "+ ;'34 O1 ;S4 O4 O3@ billion to repla&e aging eetwith more fel eK&ient airplanes>

;S14S+4"74"@ billion torepla&e aging eet with more feleK&ient airplanes> ;S14S+4"74" ;'B4 O+4O4 OB2B 2>1? 7 2>2B

. %lo"al penetration, in areas such as the pacific which accounts for onl# 1*+ of total revenue. 2>2? 2>7B 7 2>2?

-. he aviation industr# is growing "# a pro/ected amount of 11.0 "illion which will ultimatel# una"le more people to fl#. 2>2B 2>1? + 2>73

. nited ontinental will "e affected "# the growth in the tourism industr# e3pected to grow $.2+ in 2011. 2>2? ? 2>7B + 2>71

*. he merging of the two corporations, nited and ontinental is e3pected to deliver 41.0 "illion to 41.2 "illion in net annuals#nergies on a run5rate "asis "# 201$, and "etween 4)00 million and 400 million in incremental annual revenues. 2>2- , , ,

). nited ontinental 6oldings 7nc. esta"lishes a /oint venture with 8ir anada will likel# result in a su"stantial lessening ofcompetition on 1 trans"order cit# pair routes. 2>2? 2>7B 7 2>2?

. 8fter merging and earning the e3tra percentage in revenue s "# 1.0 "illion, nited ontinental will show strong li!uidit# give thenew compan# a fle3i"ilit# to pa# down its de"t. 2>2+, , , ,

10. nited ontinental made plans to increase W7F7 capa"ilities in 200 domestic 9oeing *$* and *-* aircraft e!uipped with'7:;


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*S$M ContinedP!nternal 7 to ? 7 to ?

Strengths

1. @assenger revenue increased $+ in 2010 2>2, , , ,

2. nrestricted cash and cash e!uivalents hit a record 4).* "illion 2>2? 1 2>23 ? 2>7B

$. 8ircraft rent e3pense decreased "# + in 2010 2>2+ 7 2>2+ ? 2>71

. he# emplo# roughl# )-,000 emplo#ees, the highest among their competitors. 2>2?, , , ,

-. 8? offers premium seating with spacious accommodations for those who seek a more

comforta"le trip. 2>2B 1 2>71 + 2>73

. .S. and anada market account for 1.*+ of total revenue. 2>2@, , , ,

*. >et income grew $)+ from a loss in 200 to a profit in 2010. 2>2@, , , ,). nited ontinental has strong strategic colla"orations. he compan# has a num"er of

"ilateral and multilateral alliances with other airlines such as the largest alliance which is the Star8lliance who serves appro3imatel# 1,20 destinations in 1) countries. 2>2 ? 2>1 7 2>2

. 9ecause of nited ontinental 6oldings flight completion factors of ).-+ and +, it has aver# strong "rand utili=ation and trustworthiness. 2>2 ? 2>1 1 2>7

10. nited is the largest of 2 .S carrier to the @eopleAs :epu"lic of hina and maintains a largeoperation throughout 8sia. 2>2B ? 2>1? + 2>73

Weaknesses

1. Operating e3penses increased 42.2 "illion in 2010 2>2B, , , ,

2. 7nterest e3pense increased "# 2$+ in 2010 2>2+, , , ,

$. :emoval of 9oeing *$* fleet and some 9oeing ** aircraft caused impairment charges of41- million in 2010 2>2B, , , ,

. 7n relation with salaries and related costs increasing, @ension lia"ilit# increased "#41,$)0,000 in 2010 2>2+, , , ,


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+ Qear )oals

Qear 7,Expand frther into China

Qear 1,Expand throghot Asia toregions s&h as Soth Asia and!ndia

Qear +,Expand into 0ssia


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Strategy !mplementation


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E$S-E.!" Analysis

Capital Needed@242224222

E.!" 0ange;I722mil>< ,ID22mil>

!nterest 0ate

"ax 0ate 1

Sto&( $ri&e ;Sep> +24 1272,yearend< 1+>31

Crrent Shares Otstanding +1@4D114B

CS Shares needed+74?3B47?B

Assmptions

Co((on StocDinancing

0e&ession Normal .oom

E.!";72242224222

Documents

United Continental Holdings 2011