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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
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
History
198
5
200
1
200
5
1934
Aircraft
Vision (proposed)
United Continental
Holdings vision is to be
the Worlds number one
choice for airline travel.
Mission (Proposed)
With great people, the worlds 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
1. Customer
reach out to the communities
in which we operate and
2. Products or services
3. customers
Markets
meet the concerns of our
(9).
5.
4. Technology
Concern for survival, profitability,
growth
6. Philosophy
7. Self-concept
8. Concern for public image
External Audit
Revenue % of Cash
Cash as a Percentage of Revenue: 12 months ended
31-Mar-2010
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
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 unable 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 roughly 409 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
Weights
Rating
0.0 to 1.0
1 to 4
Weighted Score
0.04
0.12
0.05
0.1
0.06
0.24
0.04
0.16
0.06
0.12
0.04
0.08
0.05
0.1
0.04
0.12
0.03
0.09
0.2
0.05
0.04
0.12
0.07
0.07
0.04
0.08
0.04
0.08
0.06
0.18
0.03
0.06
0.05
0.1
CPM
UAL
Critical Success factors
Weights
Rating
0.0 to 1.0
1 to 4
DAL
Weighted Score
Rating
AAMRQ
Weighted Score
Rating
1 to 4
Weighted Score
1 to 4
Advertising
0.08
0.32
0.32
0.24
Product Quality
0.10
0.40
0.30
0.30
Price Competitiveness
0.08
0.16
0.24
0.24
Financial Position
0.10
0.40
0.30
0.30
Customer Loyalty
0.14
0.42
0.56
0.42
Global Expansion
0.12
0.48
0.36
0.36
Market Share
0.07
0.21
0.28
0.14
Organization Structure
0.06
0.24
0.18
0.18
Customer Service
0.10
0.30
0.40
0.30
Production Capacity
0.10
0.30
0.30
0.40
Employee Dedication
0.05
0.15
0.20
0.15
Totals
1.00
3.38
3.44
3.03
Internal Audit
Organizational Chart
Jeff Smisek
President and
CEO
Mike
Bonds
Executiv
e Vice
President
, Human
Resource
s and
Labor
Relations
Jim
Compto
n Vice
President
and
Chief
Revenue
Officer
Jeff
Foland
Executi
ve Vice
Presiden
t and
Mileage
Plus
Holdings
LLC
Nene
Foxhall
Executive
Vice
President
Communic
ations and
Governme
nt Affairs
Keith
Halbert
Executive
Vice
President
and Chief
Informati
on Officer
Brett
Hart
Senior
Vice
Presiden
t,
General
Counsel
and
Secretar
y
Pete
McDona
ld
Executiv
e Vice
President
and
Chief
Operatio
ns
Officers
Zane
Rowe
Executi
ve Vice
Preside
nt and
Chief
Financia
l Officer
SWOT
Strengths
Weaknesses
Income Statement
Balance Sheet
Net Worth
United Continental Worth Analysis for
2010 (in millions)
Shareholder's equity - Goodwill Intangibles
(7,713)
Net Income * 5
1,265
(Stock Price/EPS) * NI
4,940
7,813
United
Continental
Holdings
Delta
0.95
0.92
0.64
0.61
0.96
21.93
0.98
47.15
7.22
14.69
1.34
2.21
1.73
0.80
49.8
1.56
0.73
48.65
4.2
1.08
1.09
6.98
1.91
1.87
0.87
1.37
0.15
19.52
0.66
17.75
IFE
Key Internal Factors
Internal Strengths
Weights
Rating
0.0 to 1.0 1, 2, 3 or 4
3 or 4
Weighted Score
0.05
0.2
0.04
0.12
0.03
0.09
0.04
0.12
0.06
0.24
0.07
0.28
0.07
0.28
0.05
0.15
0.05
0.15
0.06
0.18
Internal 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
Totals
1 or 2
0.06
0.12
0.03
0.06
0.06
0.12
0.03
0.06
0.08
0.08
0.02
0.04
0.03
0.06
0.06
0.06
0.05
0.05
0.06
0.06
2.52
Strategic Formulation
SWOT Matrix
SO
ST
1. Utilize unrestricted cash and
equivalents of roughly $8.7 billion to
replace aging fleet with more fuel
efficient airplanes. (S2,S3,T1,T5)
2. Utilize unrestricted cash and
equivalents to lease or purchase new
aircrafts equipped with state of the art
air purification and filtration systems.
(S2, T5, T6, T8, T10)
Strengths
Weaknesses
Opportunitie
Threats
s
WO
WT
1. Require employees to
participate in stock ownership to
decrease or prevent pension
liability increases and to increase
employee work satisfaction. (W4,
T2, T3)
2. Increase R&D to research
methods that would increase the
gap between competitive airlines
both nationally and
Financial Strength
1 Cash Flow
2 Price Earnings Ratio
3 Earnings per Share
4 Working Capital
5 Liquidity
6 Net Income
7 Return on Assets
Ratings
6.0
5.0
4.0
4.0
5.0
4.0
2.0
4.29
Rating
Industry Strength
s
1 Profit Potential
4.0
2 Financial Stability
4.0
3 Resource Utilization
2.0
4 Productivity, capacity utilization
3.0
5 Market Entry
3.0
6 Growth Potential
5.0
7 Extent Leveraged
3.0
Space Matrix
Environmental Stability
1 Rate of Inflation
2 Barriers to Enter the Market
3 Competitive Pressure
4 Price Elasticity
5 Demand Variability
Price Range of Competing
6 Products
7 Ease of Exit from Market
28.3
-5.0
-3.0
-6.0
-5.0
-5.0
Evironmental
Competitive
advantage Stability Total
1 Market Share
2 Product Quality
3 Costomer Loyalty
4 Capacity Utilization
5 Technologically Advanced
6 Global Expansion
7 Product Life Cycle
-4.86
23.4
-3.0
-3.0
-4.0
-3.0
-2.0
-2.0
-4.0
-4.0
-6.0
3.43
Competitive Advantage
-3.00
F
5 S
6
Conser
vative
Aggre
ssive
4
3
2
1
C
S
Defen
sive
1
2
3
4
5
6
Comp
etitive
I
S
GSM
Quadrant II
1.
2.
3.
4.
5.
6.
Quadrant I
Market development
Market penetration
Product development
Horizontal integration
Divestiture
Liquidation
1.
2.
3.
4.
5.
6.
7.
Market development
Market penetration
Product development
Forward integration
Backward integration
Horizontal integration
Related diversification
Quadrant III
Quadrant IV
1. Retrenchment
2. Related diversification
3. Unrelated
diversification
4. Divestiture
5. Liquidation
1. Related diversification
2. Unrelated diversification
3. Joint ventures
Strong
Competitive
Position
Matrix Analysis
Alternative Strategies
SPACE
GRAND
Forward Integration
Backward Integration
Horizontal Integration
Market Penetration
Market Development
Product Development
Related Diversification
Unrelated Diversification
Retrenchment
Divestiture
Liquidation
IE
BCG
COUNT
Possible Strategies
Market
Development
Backward
Integration
Horizontal Integration
Increase R&D to research
methods that would increase the
gap between competitive airlines
both nationally and
internationally. (W6, T9, T10).
Retrenchment
Require employees to participate in stock
ownership to decrease or prevent pension
liability increases and to increase
employee work satisfaction. (W4, T2, T3)
Utilize extra percentage in revenue,
obtained through merging, to pay down
liabilities. (W8, O2)
Product Development
QSPM
Increase marketing in
foreign countries and
increase global
penetration in China,
Asia, and the Pacific
Weight
AS
1 to 4
AS
1 to 4
Key factors
External
Opportunities
TAS
1.Withover100openskiesagreementsineffect,moreaccesstointernationalairportsisallowed
0.04
2.MaintenanceoperationcenteratSFOoccupies120acresofland,2.9milsquarefeetoffloorspace,andnineaircrafthangarbays,
leaseupforrenewalin2013andabletorenewthrough2023
0.05-
3.Growinguseofwebsites,alternativedistributionsystems,andnewglobaldistributionsystems(GDS)entrantsleadstoapredicted
87%foronlineairticketsalesin2011
0.06
0.24
0.06
4.Globalpenetration,inareassuchasthepacificwhichaccountsforonly17%oftotalrevenue.
0.04
0.16
0.04
5.Theaviationindustryisgrowingbyaprojectedamountof11.0billionwhichwillultimatelyunablemorepeopletofly.
0.06
0.24
0.18
6.UnitedContinentalwillbeaffectedbythegrowthinthetourismindustryexpectedtogrow3.2%in2011.
0.04
0.16
0.12
7.Themergingofthetwocorporations,UnitedandContinentalisexpectedtodeliver$1.0billionto$1.2billioninnetannual
synergiesonarun-ratebasisby2013,andbetween$800millionand$900millioninincrementalannualrevenues.
0.05-
8.UnitedContinentalHoldingsInc.establishesajointventurewithAirCanadawilllikelyresultinasubstantiallesseningof
competitionon19transbordercitypairroutes.
0.04
9.Aftermergingandearningtheextrapercentageinrevenuesby1.0billion,UnitedContinentalwillshowstrongliquiditygivethe
newcompanyaflexibilitytopaydownitsdebt.
0.03-
10.UnitedContinentalmadeplanstoincreaseWIFIcapabilitiesin200domesticBoeing737and757aircraftequippedwith
DIRECTV(R),providingonboardconnectivityandmorethan95channelsoflivetelevisionprogrammingtocustomersinlate2010.
0.05
0.2
0.16
0.04
0.04
0.1
1.Unstablefuelpricesandavailabilitycancauselargeexpenses,accountingfor31%oftotaloperatingcostsin2010
0.04-
2.With72%ofemployeesunderlabororganizations,uniondisputes,employeestrikes,andotherlabordisputesarelikelytooccur.
0.07-
Threats
0.16
TAS
Internal
QSPM Continued
1 to 4
1 to 4
1.Passengerrevenueincreased43%in2010
0.05 -
2.Unrestrictedcashandcashequivalentshitarecord$8.7billion
0.04
0.08
0.16
3.Aircraftrentexpensedecreasedby6%in2010
0.03
0.03
0.12
4.Theyemployroughly85,000employees,thehighestamongtheircompetitors.
0.04 -
5.UALofferspremiumseatingwithspaciousaccommodationsforthosewhoseekamore
comfortabletrip.
0.06
6.U.S.andCanadamarketaccountfor61.7%oftotalrevenue.
0.07 -
7.Netincomegrew38%fromalossin2009toaprofitin2010.
8.UnitedContinentalhasstrongstrategiccollaborations.Thecompanyhasanumberof
bilateralandmultilateralallianceswithotherairlinessuchasthelargestalliancewhichistheStar
Alliancewhoservesapproximately1,290destinationsin189countries.
0.07 -
Strengths
0.12
0.18
0.05
0.2
0.05
9.BecauseofUnitedContinentalHoldingsflightcompletionfactorsof98.5%and99%,ithasa
verystrongbrandutilizationandtrustworthiness.
0.05
0.2
0.1
10.Unitedisthelargestof2U.ScarriertothePeoplesRepublicofChinaandmaintainsalarge
operationthroughoutAsia.
0.06
0.24
0.18
1.Operatingexpensesincreased$2.2billionin2010
0.06 -
2.Interestexpenseincreasedby23%in2010
0.03 -
3.RemovalofBoeing737fleetandsomeBoeing747aircraftcausedimpairmentchargesof
$165millionin2010
0.06 -
4.Inrelationwithsalariesandrelatedcostsincreasing,Pensionliabilityincreasedby
$1,380,000in2010
0.03 -
Weaknesses
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
Strategy Implementation
EPS/EBIT Analysis
Assumptions
Capital Needed
EBIT Range
Interest Rate
Tax Rate
Stock Price (Sep. 30, 2010-year
end)
Current Shares Outstanding
CS Shares needed
Common Stock
Financing
Recession
Normal
Boom
EBIT
500,000,000
900,000,000
Interest
EBT
(100,000,000)
(100,000,000)
750,000,000
($100mil.) $900mil.
5%
25%
23.82
327,922,565
31,486,146
Debt Financing
Recession
EAT
# of
Shares
EPS
(100,000,000)
Boom
EBIT
(100,000,000) 500,000,000
900,000,000
Interest
37,500,000
37,500,000
EBT
(137,500,000) 462,500,000
37,500,000
500,000,000
900,000,000
125,000,000
225,000,000
375,000,000
675,000,000
Taxes
Taxes
Normal
359,408,711
359,408,711
359,408,711
-0.28
1.04
1.88
EAT
# of
Shares
EPS
862,500,000
115,625,000
215,625,000
(137,500,000) 346,875,000
646,875,000
327,922,565
327,922,565
327,922,565
-0.42
1.06
1.97
EPS/EBIT Cont.
Assumptions
Assumptions
Stock needed
675,000,000
Stock needed
75,000,000
Debt needed
75,000,000
Debt needed
675,000,000
Interest
3,750,000
Interest
33,750,000
CS shares needed
90% Stock - 10% Debt
Financing
Recession
Normal
28,337,531
Boom
CS shares needed
10% Stock - 90% Debt
Financing
Recession
3,148,615
Normal
Boom
EBIT
(100,000,000)
500,000,000
900,000,000
EBIT
(100,000,000)
500,000,000
900,000,000
Interest
3,750,000
3,750,000
3,750,000
Interest
33,750,000
33,750,000
33,750,000
EBT
(103,750,000)
496,250,000
896,250,000
EBT
(133,750,000)
466,250,000
866,250,000
124,062,500
224,062,500
Taxes
116,562,500
216,562,500
372,187,500
672,187,500
EAT
# of
Shares
EPS
349,687,500
649,687,500
Taxes
EAT
# of
Shares
EPS
(103,750,000)
356,260,096
356,260,096
356,260,096
-0.29
1.04
1.89
(133,750,000)
Projected Financial
Assumptions
Capital needed
750,000,000
Debt needed
750,000,000
Interest (estimate)
Stock Price (Dec. 31, 2010 - year
end)
Shares Outstanding
Additional Interest
5%
23.82
327,922,565
37,500,000
2009
2010
2011
Operating expenses
1,856
188
Nonrecurring
374 669
Others
Estimated
increase
(161)
903
35% increase
Percentage of total
revenue
976 1,898
56 57
(105)
1,033 1,955
567
783
820 Increase from additional interest for expansion
2009
2010
2011
Assets
Current Assets
Cash and Cash Equivalents
3,170
-
Short-term Investments
8,106
6,111
3,258
5%
6,416
increase
10%
2,424 increase
4%
485 increase
Net Receivables
806
2,204
Inventory
472
466
657
658
5,105
12,045 13,241
Long-Term Investments
88
103
9,840
16,945 19,825
Goodwill
Intangible Assets
Accumulated Amortization
Other Assets
2,455
1,196
658 Same
118
4,523
4,523
4,917
5,261
1,065
15%
increase
17%
increase
Same
7%
increase
1,065
Same
2,996
6,273
971
2,506
2,663
3,709
6,473
12,645
14,681
7,572
4,179
12,470
7,680
Remaining 70% of
12,995 750 mil. Debt
8,678 13% increase
3,271
5,076
5,076 Same
Minority Interest
Negative Goodwill
Long-Term Debt
Other Liabilities
Total Liabilities
21,495
37,871
41,430
Stockholder's Equity
Common Stock
Retained Earnings
Treasury Stock
33
(5,956)
(5,703)
(28)
(31)
Same
Increased from net
(4,827) income
(31) Same
Projected Ratios
2011
2010
2011
Current Ratio
0.95
0.9
Quick Ratio
0.92
0.86
0.96
0.94
21.93
16.48
0.8
0.69
0.15
0.34
Debt to Equity
Total Asset Turnover
Return on Stockholders' Equity
Update
Stock Price
Measured Revenue