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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
• 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
United Airlines History
1926
Originating in Boise, Idaho, the carrier flew the first Contract
Air Mail flight in the U.S. on April 6, 1926
In 1933, United began operating the Boeing 247 the first all-metal
1933 airliner. It was able to fly a transcontinental flight in 20 hours,
which at the time was very fast.
19611968
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
1982
1985
In 1982, United became the first carrier to operate the Boeing 767,
taking its first delivery of 767-200s on August 19
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
United Airlines History
1995
In 1995, United became the first airline to introduce the Boeing
777 in commercial service
During the September 11, 2001 terrorist attacks, two of the four
2001 airplanes hijacked and crashed by al-Qaeda terrorists were United
Airlines aircraft which created an airline industry downturn
In 2005, United announced it had raised US$3 billion in financing
2005 to exit bankruptcy and filed its Plan of Reorganization, as
announced, on September 7, 2005
Continental Airlines History
1934
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.
In July 1937, Robert Six changed the name of Varney Speed Lines to
1937 Continental Airlines and the carrier moved its headquarters to Denver,
Colorado
19401950
1983
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
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
• Early in February 2008, United Airlines
and Continental 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
Serving 1,290 destinations in 63 countries
Major Hubs Located in San Francisco, Chicago,
Cleveland, Denver, Houston, Los Angeles,
Newark, Washington Dulles, and Guam
“ 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
Aircraft
Existing Mission and Vision Statement
New Mission and Vision
Vision (proposed)
United Continental Holdings vision is to be
the World’s number one choice for
airline travel.
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).
1.
Customer
Products or services
3.
Markets
4.
Technology
Concern for survival, profitability, growth
6.
Philosophy
7.
Self-concept
8.
Concern for public image
9.
Concern for employees
2.
5.
External Audit
Domestic Market Share in Airline Industry
Revenue % of Cash
Cash as a Percentage of Revenue: 12 months ended
31-Mar-2010
Source: United Airlines
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.
Key External Factors
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 buyers decision to
choose new merged company while United standing at 12th in customer disatisfacation 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.
Weights
Rating
0.0 to 1.0
1 to 4
Weighted Score
0.04
3
0.12
0.05
2
0.1
0.06
4
0.24
0.04
4
0.16
0.06
2
0.12
0.04
2
0.08
0.05
2
0.1
0.04
3
0.12
0.03
3
0.09
0.05
4
0.2
0
0.04
3
0.12
0.07
1
0.07
0.04
2
0.08
0.04
2
0.08
0.06
3
0.18
0.03
2
0.06
0.05
2
0.1
0.07
3
0.21
0.06
3
0.18
0.08
3
0.24
2.65
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
4
0.32
4
0.32
3
0.24
Product Quality
0.10
4
0.40
3
0.30
3
0.30
Price Competitiveness
0.08
2
0.16
3
0.24
3
0.24
Financial Position
0.10
4
0.40
3
0.30
3
0.30
Customer Loyalty
0.14
3
0.42
4
0.56
3
0.42
Global Expansion
0.12
4
0.48
3
0.36
3
0.36
Market Share
0.07
3
0.21
4
0.28
2
0.14
Organization Structure
0.06
4
0.24
3
0.18
3
0.18
Customer Service
0.10
3
0.30
4
0.40
3
0.30
Production Capacity
0.10
3
0.30
3
0.30
4
0.40
Employee Dedication
0.05
3
0.15
4
0.20
3
0.15
Totals
1.00
3.38
3.44
3.03
Internal Audit
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
Executive
Vice
President
Communicati
ons 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
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.
Income Statement
Balance Sheet
Balance Sheet (2)
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
# of Shares Out * Stock Price
7,813
Four Method Average
1,576
Financial Ratios 2010
Ratio (2010)
Liquidity Ratios
Current
Quick
Leverage Ratios
Debt to total assets
Debt to equity
Long-term debt to equity
Times-interest-earned ratio
Activity Ratios
Fixed Assets Turnover
Total Assets Turnover
Inventory Turnover
Profitability Ratios
Gross Profit Margin %
EBT Margin %
Net Profit Margin %
Return on total assets %
Return on Stockholder's
equity
Price-earnings ratio
Growth Ratios
Sales Growth (3-years)
Net Income Growth (3-years
Average)
Earnings per share Growth
(3-year Average)
Dividends per share Growth
% (3-years)
United Continental
Holdings
Delta
0.95
0.92
0.64
0.61
0.96
21.93
7.22
1.34
0.98
47.15
14.69
2.21
1.73
0.80
49.8
1.56
0.73
48.65
4.2
1.08
1.09
0.87
6.98
1.91
1.87
1.37
0.15
19.52
0.66
17.75
4.87%
18.35%
-14.37%
-28.35%
-27.12%
-49.45%
-
-
IFE
Key Internal Factors
Internal Strengths
Weights
Rating
0.0 to 1.0 1, 2, 3 or 4
3 or 4
Weighted Score
Passenger revenue increased 43% in 2010
0.05
4
0.2
Unrestricted cash and cash equivalents hit a
record $8.7 billion
0.04
3
0.12
Aircraft rent expense decreased by 6% in 2010
0.03
3
0.09
They employ roughly 85,000 employees, the
highest among their competitors.
0.04
3
0.12
They lead among the industry in revenue by
roughly $.48 Billion.
0.06
4
0.24
The U.S. and Canada market account for 61.7%
of total revenue
0.07
4
0.28
Net income grew 38% from a loss in 2009 to
a profit in 2010.
0.07
4
0.28
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
0.05
3
0.15
Because of United Continental Holdings flight
completion factors of 98.5% and 99%, it has a
very strong brand utilization and
trustworthiness.
0.05
3
0.15
United is the largest of 2 U.S carrier to the
People’s Republic of China and maintains a
large operation throughout Asia.
0.06
3
0.18
Internal Weaknesses
Operating expenses increased $2.2 billion in
2010
1 or 2
0.06
2
0.12
Interest expense increased by 23% in 2010
0.03
2
0.06
Removal of Boeing 737 fleet and some Boeing
747 aircraft caused impairment charges of
$165 million in 2010
0.06
2
0.12
In relation with salaries and related costs
increasing, Pension liability increased by
$1,380,000 in 2010
0.03
2
0.06
They are behind Delta Airlines (DAL) in
market cap by over $3Billion
0.08
1
0.08
From the income statement it appears that
they have no money spent on research and
development for the past 3 years.
0.02
2
0.04
At 16.0 cents, UAL has the highest cost per
available seat mile in their industry compared
to AirTran Holdings at 11.0 cents.
0.03
2
0.06
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.
0.06
1
0.06
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
0.05
1
0.05
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
0.06
1
Totals
1
0.06
2.52
Strategic Formulation
SWOT Matrix
WO
SO
1. 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)
2. Increase premium seating and flatbed seats
to enhance travel experience and increase
customer satisfaction on long flights. (S5, O5,
O8)
Strengths
Weaknesses
1. Increase R&D spending to take
advantage of aviation and tourism
growth through the production of new
global distribution systems. (W6, O3,
O5, O6)
2. Utilize extra percentage in revenue,
obtained through merging, to pay
down liabilities. (W8, O2)
3. Renew Maintenance lease at SFO to
ultimately decrease the dependence
on outsourced aircraft maintenance.
(W9, O2)
Opportunities
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)
Threats
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
internationally. (W6, T9, T10).
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
Financial Strength Total
Space Matrix
Ratings
6.0
5.0
4.0
4.0
5.0
4.0
2.0
4.29
Industry Strength
1 Profit Potential
2 Financial Stability
3 Resource Utilization
4 Productivity, capacity utilization
5 Market Entry
6 Growth Potential
7 Extent Leveraged
Industry Strength Total
Rating
s
4.0
4.0
2.0
3.0
3.0
5.0
3.0
3.43
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
Evironmental Stability Total
Competitive advantage
1 Market Share
2 Product Quality
3 Costomer Loyalty
4 Capacity Utilization
5 Technologically Advanced
6 Global Expansion
7 Product Life Cycle
Competitive Advantage
28.3
-5.0
-3.0
-6.0
-5.0
-5.0
-4.0
-6.0
-4.86
23.4
-3.0
-3.0
-4.0
-3.0
-2.0
-2.0
-4.0
-3.00
F
5S
6
Conser
vative
Aggre
ssive
4
3
2
1
C
S
-6
-5
-4
Defen
sive
-3
-2
-1
1
1
2
3
4
5
6
E
2
3
4
5
Comp
etitive
6
I
S
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
Quadrant IV
1. Retrenchment
2. Related diversification
3. Unrelated diversification
4. Divestiture
5. Liquidation
1. Related diversification
2. Unrelated diversification
3. Joint ventures
Slow Market Growth
Strong
Competitive
Position
Matrix Analysis
Alternative Strategies
SPACE
GRAND
Forward Integration
x
x
2
Backward Integration
x
x
2
Horizontal Integration
x
x
2
Market Penetration
x
x
2
Market Development
x
x
2
Product Development
x
x
2
x
1
Related Diversification
Unrelated Diversification
Retrenchment
Divestiture
Liquidation
IE
BCG
COUNT
Possible Strategies
Market Development
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)
Backward Integration
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
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)
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).
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 spending to take advantage of
aviation and tourism growth through the
production of new global distribution systems.
(W6, O3, O5, O6)
QSPM
Increase marketing in foreign
countries and increase global
penetration in China, Asia,
and the Pacific
Quantitative Strategic Planning Matrix-QSPM
Key factors
External
Weight
AS
Lease or purchase new
aircraft equipped with state
of the art air purification and
filtration systems
TAS
AS
1 to 4
TAS
1 to 4
Opportunities
1. With over 100 open skies agreements in effect, more access to international airports is allowed
2. 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
3. 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
0.04
0.06
4
0.24
1
0.06
4. Global penetration, in areas such as the pacific which accounts for only 17% of total revenue.
0.04
4
0.16
1
0.04
5. The aviation industry is growing by a projected amount of 11.0 billion which will ultimately unable more people to fly.
0.06
4
0.24
3
0.18
6. United Continental will be affected by the growth in the tourism industry expected to grow 3.2% in 2011.
0.04
4
0.16
3
0.12
7. 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.
8. United Continental Holdings Inc. establishes a joint venture with Air Canada will likely result in a substantial lessening of
competition on 19 transborder city pair routes.
9. 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.
0.05-
-
0.050.04
0.16
4
-
-
-
0.04
-
0.16
4
0.03-
1
1
-
0.04
-
10. 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
0.05
1. Unstable fuel prices and availability can cause large expenses, accounting for 31% of total operating costs in 2010
0.04-
-
-
-
2. With 72% of employees under labor organizations, union disputes, employee strikes, and other labor disputes are likely to occur.
3. 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
4. New open skies agreements decrease value of routes, caused United $29 million impairment charge in 2010 for indefinite-lived
Brazil route
5. With an aging fleet, UAL will have to soon start replacing or fixing their planes. With roughly 409 planes this will become very
costly.
6. Illnesses could affect travel and decrease the amount of passengers flying, UAL reported that H1N1 cost them roughly $50
Million in related revenue.
0.07-
-
-
-
0.04-
-
-
-
7. 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.
8. Customer prior dissatisfaction with either United or Continental may inflict buyers decision to choose new merged company
while United standing at 12th in customer disatisfacation and Continental standing at 8th in 2010.
9. ARM Corp is trailing United Continental Holdings co. by just 1059 million standing in third place for top revenue for airlines
2010.
10. The company faces stiff competition from national and international airline companies which can affect competitive pressures
and ultimately lowering $3billion market cap.
0.2
4
2
0.1
0.04
1
0.04
3
0.12
0.06
1
0.06
4
0.24
0.03
1
0.03
4
0.12
0.05-
-
-
-
0.07
2
0.14
4
0.28
0.06
3
0.18
1
0.06
0.08
1
3
0.24
4
0.32
QSPM Continued…
Internal
Strengths
1. Passenger revenue increased 43% in 2010
2. Unrestricted cash and cash equivalents hit a record $8.7 billion
3. Aircraft rent expense decreased by 6% in 2010
4. They employ roughly 85,000 employees, the highest among their competitors.
5. UAL offers premium seating with spacious accommodations for those who seek a more
comfortable trip.
6. U.S. and Canada market account for 61.7% of total revenue.
7. Net income grew 38% from a loss in 2009 to a profit in 2010.
8. 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.
9. Because of United Continental Holdings flight completion factors of 98.5% and 99%, it has a
very strong brand utilization and trustworthiness.
10. United is the largest of 2 U.S carrier to the People’s Republic of China and maintains a large
operation throughout Asia.
Weaknesses
1. Operating expenses increased $2.2 billion in 2010
2. Interest expense increased by 23% in 2010
3. Removal of Boeing 737 fleet and some Boeing 747 aircraft caused impairment charges of
$165 million in 2010
4. In relation with salaries and related costs increasing, Pension liability increased by
$1,380,000 in 2010
5. They are behind Delta Airlines (DAL) in market cap by over $3Billion.
6. From the income statement it appears that they have no money spent on research and
development for the past 3 years.
7. At 16.0 cents, UAL has the highest cost per available seat mile in their industry compared to
AirTran Holdings at 11.0 cents.
8. 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.
9. 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.
10. 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.
1 to 4
0.05 0.04
0.03
1 to 4
2
1
0.04 -
0.08
0.03
-
4
4
0.12
0.16
0.12
-
0.06
0.07 0.07 -
2
0.05
4
0.2
1
0.05
0.05
4
0.2
2
0.1
0.06
4
0.24
3
0.18
-
3
-
0.18
-
0.06 0.03 -
-
-
-
0.06 -
-
-
-
0.03 0.08
4
0.32
3
0.24
0.02
3
0.06
4
0.08
0.03 -
0.06
-
1
0.05 0.06
1
-
-
0.06
1
-
-
3
0.06
3.32
0.18
4
0.24
3.01
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
Common Stock Financing
Recession
EBIT
Interest
(100,000,000)
EBT
Taxes
(100,000,000)
EAT
(100,000,000)
# of Shares 359,408,711
EPS
Capital Needed
EBIT Range
Interest Rate
Tax Rate
Stock Price (Sep. 30, 2010-year end)
Current Shares Outstanding
750,000,000
($100mil.) - $900mil.
5%
25%
23.82
327,922,565
CS Shares needed
31,486,146
Normal
Boom
Debt Financing
Recession
Normal
Boom
EBIT
(100,000,000)
500,000,000
900,000,000
Interest
37,500,000
37,500,000
37,500,000
-
500,000,000
-
900,000,000
-
-
500,000,000
125,000,000
900,000,000
225,000,000
EBT
(137,500,000)
462,500,000
862,500,000
375,000,000
675,000,000
Taxes
-
115,625,000
215,625,000
359,408,711
1.04
359,408,711
1.88
EAT
(137,500,000)
346,875,000
646,875,000
-0.28
# of Shares 327,922,565
327,922,565
EPS
-0.42
327,922,565
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
EBIT
(100,000,000)
Interest
3,750,000
EBT
Taxes
(103,750,000)
EAT
(103,750,000)
3,750,000
-0.29
CS shares needed
10% Stock - 90% Debt Financing
Recession
Normal
Boom
500,000,000
-
# of Shares 356,260,096
EPS
28,337,531
900,000,000
3,750,000
496,250,000
124,062,500
896,250,000
224,062,500
372,187,500
672,187,500
356,260,096
1.04
356,260,096
1.89
EBIT
(100,000,000)
Interest
33,750,000
EBT
Taxes
(133,750,000)
3,148,615
Boom
500,000,000
33,750,000
900,000,000
33,750,000
-
466,250,000
116,562,500
866,250,000
216,562,500
EAT
(133,750,000)
# of Shares
331,071,179.61
349,687,500
331,071,179.61
649,687,500
331,071,179.61
1.06
1.96
EPS
-0.40
Projected Financial
Assumptions
Capital needed
750,000,000
Debt needed
750,000,000
Interest (estimate)
Stock Price (Dec. 31, 2010 - year end)
5%
23.82
Shares Outstanding
327,922,565
Additional Interest
37,500,000
Projected Financials 2011
Income Statement
Projected Income Statement (in millions)
Total Revenues
Cost of Revenue
Gross Profit
2009
2010
16,335 23,229
6,526 9,609
9,809 13,620
Operating expenses
Research and Development
Selling General and Administrative
8,679 10,896
Nonrecurring
374
669
917
1,079
-
Operating Income or Loss
Income from Continuing Operations
Total Other Income/Expense Net
(161)
976
56
57
Earnings Before Interest and Taxes
Interest Expense
(105)
567
1,033
783
Income Before Tax
(672)
250
Others
Total Operating Expenses
Income Tax Expense
Income before equity in earnings
Equity in earnings
Net Income
Earnings (loss) per share, basic
-
(17)
2011
30,198 Increase by 30%
12,492 Percentage of total revenue
17,706
1,856 Estimated increase
188 Increase by 188 mil (1/4 of 750 mil)
11,458 Increase by 562 mil (3/4 of 750 mil)
903
35% increase
1,403 Percentage of total revenue
1,898
57 Same as previous year
1,955
820 Increase from additional interest for expansion
1,135
-
262 25% tax rate
(655)
250
873
4
3
(651)
253
(4.32)
1.22
3 Same as previous year
876
2.67
Balance Sheet 2011 Projected
Projected Balance Sheet (in millions)
Assets
Current Assets
2009
2010
2011
3,170
8,106
3,258
Short-term Investments
-
6,111
6,416
Net Receivables
806
2,204
5% increase
10%
2,424 increase
Inventory
472
466
485 4% increase
657
5,105
658
12,045
88
103
9,840
16,945
-
4,523
4,523
Same
2,455
-
4,917
-
5,261
-
7% increase
1,196
18,684
1,065
39,598
Cash and Cash Equivalents
Other Current Assets
Total Current Assets
Long-Term Investments
Property Plant and Equipment
Goodwill
Intangible Assets
Accumulated Amortization
Other Assets
Deferred Long-term Asset Changes
Total Assets
658 Same
13,241
15%
118 increase
17%
19,825 increase
1,065
44,033
Same
Balance Sheet Cont.
Liabilities
Current Liabilities
Accounts Payable
Short/Current Long-term Debt
Other Current Liabilities
Total Current Liabilities
Long-Term Debt
2,996
6,273
7,528
971
2,663
2,506
3,709
4,265
6,473
12,645
14,681
7,572
12,470
12,995
20% Increase
2,888 Add 30% of 750 mil. Debt
15% Increase
Remaining 70% of 750 mil.
Debt
Other Liabilities
4,179
7,680
8,678 13% increase
Deferred LT Liability Changes
3,271
5,076
5,076 Same
Minority Interest
-
-
-
Negative Goodwill
-
-
-
21,495
37,871
41,430
3
3
3
(5,956)
(5,703)
(4,827)
(28)
(31)
(31)
Same
7,071
Same
Same
Total Liabilities
Stockholder's Equity
Common Stock
Retained Earnings
Treasury Stock
Capital Surplus
3,136
Other Stockholder's Equity
35
387
387
(2,811)
1,727
2,603
18,648
39,598
44,033
Total Stockholder's Equity
Total Liabilities and Stockholder's Equity
7,071
Same
Increased from net income
Projected Ratios 2011
2010
2011
Current Ratio
0.95
0.9
Quick Ratio
0.92
0.86
Debt to Total Assets
0.96
0.94
Debt to Equity
21.93
16.48
Total Asset Turnover
0.8
0.69
Return on Stockholders' Equity
0.15
0.34
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 flatbed 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.
Stock Price
Measured Revenue