Continental Airlines

On February 29, 1996, the Wall Street Journal reported that Continental gave its shareholders the fifth best return of any public company during 1995 and ranked it number one among eight other airlines with a return that was 213.9% above the peer average. Continental's stock was trading near its 52-week high point. Continental was growing, serving more and more cities all over the world. On July 17, 1996 the company split its stock 2 for 1. A number of times Continental was named one of the "100 best companies to work for". Everything was going just fine until September 11, 2001. Along with World Trade Center buildings the airline business collapsed. When in 2000 Continental generated $342 million of net income then in 2001 it was $95 million loss and in 2002 company experienced net loss of $451. It seemed that the second quarter of the present year went well for the company; finally one can see positive numbers on the financial reports of the company ($100 million dollars of net income for the 2nd quarter). However, another great challenge for Continental, just as for any other airline, happened to be the sufficient increase in the prices for fuel. Apart from high fuel costs that sufficiently affect the profitability of the company Continental also experiences high labor costs for flight attendants, excessive taxation, increased security costs and significant pension liabilities. Continental management views present U.S. domestic network carrier financial environment as poor and could deteriorate further. Another threat Continental Airlines being the 5th largest carrier in the U.S. and 6th in the world is the growth of low-cost domestic carriers. Although, one the Continental's strength and ways out of this situation is having a great number of international routes. As a matter of fact, Continental has more international destinations than any other U.S. airline.

Since September 11, 2001 when the company started experiencing substantial losses one of the most crucial goals and objectives for Continental became any possible cost cutter. Of course, the easiest way to cut the operation costs is to decrease the labor costs. Continental changed wages, work rules and benefits for all employees except the flight attendants and certain employees of wholly-owned subsidiary Continental Micronesia, Inc. ("CMI") who are subject to collective bargaining agreements. Company began implementing changes in early April 2005, which, when fully implemented, are expected to result in approximately $418 million of annual pay and benefits cost savings on a run-rate basis.

Despite all the difficulties the company continues to grow. It is very important that Continental management understands that even substantial cuts in labor costs will not bring the company back to the long-term profitability. That is why Continental Airlines expand even more. By 2007 they plan to open a first non-stop from the United States route to Shanghai. The company also expects the delivery of 34 Boeing aircrafts by the end of 2006 and another 44 aircrafts from 2008 till 2011. The numbers clearly show that Continental Airlines expect on growing and apparently improving the financial figures. Most people probably think that it is unethical to cut workers’ wages and expand the company at the same time. However, if Continental chose to reduce its business how many workers would lose their jobs in this case?The expanding strategy is the good plan to come back to the profitability, only if the concept of "economies of scale" works in this situation. By expanding Continental consequently will have to increase their labor force and along with cutting wages and benefits for employees it could be a tough task.