Continental Airlines: The
Company
Amy Minto
Jocelyn Littleton
Kurt Niemi
Chris Chou
The Company


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
Brief Company Background
Strengths
Areas of Opportunity
Challenges
Financials
Company Description

Business: Transporting Passengers, Cargo
and Mail since 1934 (Source #1)

Market: Flies Domestic and International
Routes (Source #1)


132 US destinations
126 International destinations on 6 continents

History: Filed for bankruptcy twice and
emerged (Source #5)

Employer: Repeatedly voted one of
America’s most Admired US Airlines by
Fortune Magazine (Source # 1 and #2)
Strengths

Multiple Alliances
Sky Team Alliance
 Commuter Alliances
 Train to Plane Alliance
 International Alliances

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
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Capacity - Express Jet
Marketing
Young Aircraft Fleet (Source #6)
The Go Forward Plan (Source #9)
Strengths (continued)

Employees



Employee Benefits (Source #1)
Few Unionized Employees
(Source # 4)
Efficiencies - Fly farther with fewer employees (Source #
4)

Customer Service



#1 for on time % of flights (Source #6)
#1 in lowest cancellations (Source # 6)
Frequent Flyer Program

Technology - Advanced IVR and Voice Recognition
software

Location - New York & Houston Hubs (int’l growth
& route expansion)
Areas of Opportunity





Marketing Agreements lowered
yields per ticket
92% Debit to Total Equity (Source #4)
Assets used as Collateral (Source #4)
Image (Source #4)
Route Network (Source #4)
Challenges

Federal Regulations

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Aviation and Transportation Security Act
Environmental Regulations
Record high fuel costs
CCC+ credit rating
Possibility of additional terrorist
attacks
Increased presence of low cost
carriers and price competition
Source #1, 2
Continental Airlines, Inc.
Profitability Analysis 2001 - 2005
Key Takeaways
~Operating margin in '05 is -.35%. Revenues are growing an average 10% year over year
'03 - '05, but so are expenses, mainly due to astronomical fuel prices.
~23 times more debt than equity in 2005. Continental is very highly leveraged.
$000, Fav(Unfav)
A
Operating Revenue
Passenger
3 Cargo, Mail, Other
B
C
D
E
F
G
H
I
J
2005
YOY
Chg
2004
YOY
Chg
2003
YOY
Chg
2002
YOY
Chg
2001
1
2
4
5
6
7
8
9
11
12
13
14
Operating Expenses
Wages & salaries
Aircraft fuel
ExpressJet capacity purchase
Aircraft rentals
Distribution costs & Landing fees
Maintenance, materials, and repairs
Passenger Servicing
Other (Includes Depr. & Amort)
15
10,235
973
11,208
13%
2,649
2,443
1,572
928
1,296
455
332
1,572
11,247
6%
-54%
-11%
11%
2,819
1,587
1,351
891
1,206
414
306
1,563
10,137
8%
10%
-20%
-15%
4%
3,056
1,319
153
896
1,157
509
297
1,426
8,813
-3%
7%
-29%
-1%
188 160%
7,862
540
8,402
-7%
2,959
1,023
902
1,225
476
296
1,833
8,714
2%
-6%
17%
1%
(312) -317%
8,457
512
8,969
3021
1229
0
903
1390
568
347
1,367
8,825
Operating Income / (Loss)
17
Operating Margin
-0.35%
-2.40%
2.09%
-3.71%
1.61%
18
Return on Equity
-36%
-86%
4%
-47%
-8%
19
Return on Assets
-0.43%
-2.59%
0.18%
-2.86%
-0.60%
20
Debt to Equity
2238%
3334%
765%
768%
398%
84%
(238) -227%
8,179
822
9,001
16
Source: Continental Airlines, Inc. Form 10-K
(39)
13%
9,042
857
9,899
144
Continental Airlines, Inc.
RASM Trend 2001 - 2005
Key Takeaways

Passenger revenue increased 13.2%, primarily due to higher traffic and capacity in all
geographic regions, higher fares on international flights and more regional flying.

Consolidated passenger load factor for 2005 of 78.9%, up 2.6 points over 2004.

Consolidated revenue per available seat mile ("RASM") for 2005 increased 5.9% over
2004 due to higher load factor and yield.

The improved RASM reflects recent fuel-driven fare increases and Management’s
efforts to manage the revenue associated with the emerging trend of customers
booking closer to flight dates.
Key Operational Data
Passenger Load Factor %
2005
78.9%
2004
76.9%
2003
74.8%
2002
73.3%
2.60%
2.81%
2.05%
2.09%
% Increase YoY
Operating Income
10,235
13.19%
% Increase YoY
Available Seat Miles (ASM)
101,620
% Increase YoY
Passenger Revenue per
Available Seat Mile (RASM)
% Increase YoY
Source: Continental Airlines, Inc. Form 10-K
6.88%
2,005
9,042
10.55%
95,082
9.53%
2,004
8,179
4.03%
86,810
0.54%
2,003
7,862
2001
71.8%
8,457
-7.04%
86,341
-3.98%
2,002
0.101
0.095
0.094
0.091
5.9%
0.9%
3.5%
-3.2%
89,922
2,001
0.094
Continental Airlines, Inc.
RASM Trend 2001 - 2005
Revenue per Available Seat Mile Historical Trend
0.102
0.100
0.098
0.096
RASM (Cents) 0.094
0.092
0.090
0.088
0.086
2,005
2,004
2,003
2,002
2,001
Continental Airlines, Inc.
Operating Expense Analysis 2001 - 2005
Key Takeaways
~Cost per available seat mile has been trending upward since 2001. This is mainly due to high fuel
costs, airport fees and distribution fees.
~Available Seat Miles increasing due to capacity purchase agreement with ExpressJet.
$000, Fav(Unfav)
A
B
C
2005
YOY
Chg
Total Operating Expenses
11,247
Exclude Depreciation
3 Exclude Fuel Cost
4 Normalized Operating Expense
(389)
(2,443)
8,415
1
2
5
Available Seat Miles
Cost per Available Seat Mile
7 % Change
6
Source: Continental Airlines, Inc. Form 10-K
101,620
2005
0.111
-3.8%
D
E
2004
YOY
Chg
-11%
10,137
-3%
(415)
(1,587)
8,135
95,082
2004
0.107
-5.0%
F
G
2003
YOY
Chg
-15%
8,813
-15%
(447)
(1,319)
7,047
86,810
2003
0.102
-0.6%
H
I
J
2002
YOY
Chg
2001
-1%
8,714
3%
(444)
(1,023)
7,247
86,341
2002
0.101
-2.8%
1%
8,825
-2%
(467)
(1,229)
7,129
89,922
2001
0.098
Continental Airlines, Inc.
Cost per Available Seat Mile Analysis 2001 - 2005
Key Takeaways
~Cost per available seat mile has been trending upward since 2001. This is mainly due to high fuel
costs, airport fees and distribution fees.
~Available Seat Miles increasing due to capacity purchase agreement with ExpressJet.
Cost per Available Seat Mile Historical Trend
0.115
0.110
0.105
CASM (Cents)
0.100
0.095
0.090
2005
2004
2003
2002
2001
Sources
1.
2.
3.
4.
5.
6.
7.
8.
9.
SEC Filings From Continental.com dated 3/13/2006
http://www.continental.com/vendors/default.asp?SID=4824CDE9F6844EE
692093CF5F605616E&s=/default.asp&i=irSEC
SEC Filings from Continental.com dated 3/8/2006
http://www.continental.com/company/investor/docs/continental_8k_2006_0
308.pdf
Continental Alliances from Continental.com
http://www.continental.com/company/alliance/skyteam.asp
SWOT Analysis on Continental
http://www.3seasons.org/Airlines/airlines.htm#AIRContinental%20Airlines
Continental History from Continental.com
http://www.continental.com/company/history/Default.asp
Investor Presentations from Continental.com
http://www.continental.com/company/investor/docs/jpmorgan_2006_02_21
.pdf
http://www.usatoday.com/money/biztravel/2004-09-13-usairwayscover_x.htm
The Go Forward Plan http://www.lctmag.com/books.cfm?action=book_6
http://www.ou.edu/class/mis5003/Continental.pdf