Continental Airlines – Case Study
Continental Airways is the fifth largest airlines in the World, along with it subsidiaries operating more than 3100 departures in a day throughout the United States, Europe and Asia. These flights connect more than 144 domestic and 144 international destinations. The Airline was reporting operating losses even from the year 1985 and it had to seek protection against bankruptcy under Chapter 11 twice; once in 1983 and again in 1990. However in the mid 1990 s Continental could manage a remarkable turnaround in its financial performance, consistency in its operations and quality of the service it provided. There were several factors that influenced the turnaround and chief among them is the drastic improvement in its employee relations. The other strategic areas and recommendations that can further improve the working of the airline are discussed below:
2.0 Revenue Management
One of the important areas that can improve the profitability of any airline is the Passenger Revenue Management. In the present day context the airlines are selling their seats in a number of ways to maximize their revenues. They invariably sell seats
§ Through Airline Reservation Services
§ Through travel agents
§ Through consolidators
§ Through their own websites (Judy Pastor)
Since the seats are controlled through Computerized Reservation Systems (CRS), an effective revenue management by the airline is possible. In order to better the revenues improvement in the following activities need to be attempted:
Schedule Generation – by using proper forecasting
Fleet Assignment – to have an effective utilization of availability air crafts
Crew Scheduling – this is an important area to improve passenger service
Airport Services Scheduling – to reduce the cost of airport services being paid by the airline.
The following are some of the recommendations that need consideration in this area:
(1) To collect all the minute details of all routes/areas that can guide an effective seat management
(2) To decide on the number of ‘discount’ seats that can be sold on discount
(3) To save seats for last-minute high yielding passengers
(4) To determine how much to overbook a full flight
(5) To choose whether to sell to one connecting passenger or two locals.
Another important recommendation is that the airline should try to sell most of its tickets directly through its own website so that there will be a considerable saving in the commissions payable to travel agents.
These recommendations are made since Continental suffered some lacking in the revenue management in late 1994 and a careful application of operations research methods can help the airline in Long-term and Medium term planning, scheduling, pricing, revenue management and scheduling the fleet operations.
3.0 Cost Reduction
Controlling the cost of operations is another major area which can be concentrated by continental for a significant improvement in the profitability. Some of the recommendations that can be considered for cost reduction are:
§ Outsourcing non-essential services like baggage handling
§ Reducing commission payable to travel agencies
§ Having single low class seating in domestic flights
§ Pruning of turnaround times of flights to concentrate on routes with shorter turnaround
§ Avoiding serving free food and drinks in the domestic and short-haul flights
§ Encouraging more flights to point to point destinations instead of depending on other
airlines and connecting flights.
§ Revision in the pay for the staff with lower basic pays for staff with more commission
based on performance.
§ Reducing marketing costs to the maximum extent possible.(NCI)
In short the airline should practice a via media between low cost airline and a first class airline.
More outsourcing can be attempted in ticketing and heavy maintenance. The best strategic policies in the area of cost cutting would be a ‘higher seat density’ and ‘higher daily aircraft utilization’.
‘Fleet commonality’ is another area where Continental can see more chances of cost reduction. By using the same series of Boeing or other air crafts, might enable the airline to reduce the training costs on the pilots and maintenance crew.
The recommendations in the area of cost cutting is of paramount importance in the airline industry which is highly competitive and only the airline which is able to make an effective reduction in the costs will be able to maximize the revenue and sustain the growth.
4.0 Customer Service:
Effective communication and excellent customer service are at the root of the success of any airline. Creation of value for customers gives the airlines distinct competitive advantage. Stated more directly, Continental should use its resources and capabilities to establish a sustainable competitive advantage over its rivals. The following are some of the recommendations in improving the customer service by Continental.
Continental should ensure:
(1) That no e-ticketed self-service customer should wait more than two minutes in check in at an airport even during peak times. (Hitt, Ireland and Hoskisson)
(2) That installation of more Kiosks that provide efficient customer services at all airport locations of the airline will go a long way in the provision of efficient customer services.
(3) That new employee positions such as ‘Lobby Assist Agents’ or ‘Service Excellence Coordinators’ may be created to provide extended service to the customers.
(4) That direct telephone lines connecting the customers having complex ticket reservations to dedicated reservation agents may be provided which will enhance the quality of customer service
(5) That definite improvements need to be worked out in the areas of quoting lower and competitive fare, timely responses to complaints, higher pay-outs for lost and mis-handled baggage and holding non-refundable reservations without penalty. These are some of the areas where the airline can show effective improvements in its performance directly to the customers.
(6) Other areas where continental can concentrate to improve customer service are:
o To accommodate the passengers who are disabled and who have special needs
o To show fairness and consistency in ‘bumping’ practices and refunds in cases of cancellations
o To handle passengers efficiently and with comfort on occasions of delays and cancellations.
The above recommendations in the area of customer service will go to improve the market standing of Continental airline and improve its competitive strength.
5.0 Industrial Relations and Human Resource Practices:
The next major area where continental can introduce strategic changes for its improved performance is the ‘Industrial Relations and Human Resource Practices’. Already the airline has employed an ‘involvement – based’ employment system which is different from the ‘command – based system with which the airline had achieves significant improvements in the industrial relations. Andrew Von Nordenflycht observes that the turnaround of Continental Airlines, “stemmed partly from transformation of the employment system from “command-based” to “involvement-based.”
In fact the performance of Continental in this area was one of the reasons for the turnaround of the company in the 1990s. Some other recommendations in this area include:
(1) Increase the two way communication wherein the employees are able to voice their concerns over the changes the airline would like to bring about in various areas for improving its financial and operating performance.
(2) There should be drastic changes brought about in the employee compensation whereby there is more performance based compensation is proposed. It is important that the unions are sufficiently explained about the changes in the compensation system that Continental would like to bring in.
(3) There needs to be a complete change in the management philosophy in such a way that there is a complete transformation in the management outlook towards considering the employees as individuals and valuable team members.
(4) The managers should consciously apply consistency in dealing with the labour issues. This implies that the managers should apply the policies to all functions equally. Secondly the policies should be enforced at all levels without exception.
The recommendations in the area of industrial relations are made on the basis of the fact Continental had to resort to ‘downsizing’ on few occasions in the past to streamline its functioning. These recommendations should improve the confidence of the employees on the management of the airline in general.
6.0 Formation of a Low cost Airline as a Subsidiary:
One another strategic recommendation that might improve the working of the Continental is to form a subsidiary company which is a low cost one in the same lines as ‘Easyjet’ or ‘Ryanair’
With the experience and expertise in the airline industry Continental would be able to do a better and efficient low cost air travel service to its customers. By combining the low cost service with its regular services continental would be able to bring more economies in the operation of the low cost airline. Though there are several major airline has taken up this proposal and later on dropped the idea of operating low cost airline, with the increased number of air travelers it may not be a bad idea for Continental to try out its hand in this area.
The above recommendations are made generally taking into account the history of the Continental Airlines and the areas which contributed to the failure of the company in its history. These strategic recommendations can further be broken down into operational objectives to be followed by each department as these recommendations are broad in nature,
Andrew Von Nordenflycht ‘From Command to Involvement: The Transformation of Authority at Continental Airlines’
Hitt A. Michael, Ireland R. Duane, and Hoskisson E. Robert ‘Strategic Management: Competitiveness and Globalization’ Edition VI Thomson – South-Western
Judy Pastor “Operations Research at Continental Airlines’
NCI ‘Ryanair Case Study’ http://nci.wikispaces.com/case-study-ryanair