Continental Airlines
Continental Airlines
Memo
To: Lawrence Kellner
From:
Date:
Re:
The purpose of this memorandum is to address the profitability issues at Continental Airlines and to estimate the costs for 2009 to forecast the future outlook of the company. To address these issues, I used regression analysis to observe what effect the 11% reduction in flying capacity would have on the firm’s future operating costs. I also used the results from the regression analysis to verify the costs that, if reduced, would further comply with the implementation of cost-cutting initiatives and operational efficiencies that the company is striving for. Lastly, I consolidated the data to forecast Continental’s financial outlook for 2009, then provided insight into how Continental can restore profitability in the future.
Cost Analysis and Impact of Flight Capacity Change
The short-term solution of decreasing flight capacity by 11% affects many factors in the operation of Continental Airlines. At first, it seems that a reduced number of flights and available seat miles would only benefit an airline that is failing to fill its flights and is losing out on profits because of it. On the other hand though, one must look deeper into the effects to find which costs are directly related to a reduction in flight capacity and which costs will largely be unaffected by the proposed solution. After examining the ten operating costs that Continental incurs throughout quarterly operation, I concluded that some of these costs are fixed or would not have a reaction to changes in flight capacity. In contrast, there are a few costs that are directly related to flight capacity and would see a large reduction with the cut in capacity. Table 1 below shows the ten costs that are incurred, details about each cost, and how they vary with a change in flight capacity.
As a result of cost analysis, it is easy to see that the four costs positively affected by a reduction in flight capacity are:
Memo
To: Lawrence Kellner
From:
Date:
Re:
The purpose of this memorandum is to address the profitability issues at Continental Airlines and to estimate the costs for 2009 to forecast the future outlook of the company. To address these issues, I used regression analysis to observe what effect the 11% reduction in flying capacity would have on the firm’s future operating costs. I also used the results from the regression analysis to verify the costs that, if reduced, would further comply with the implementation of cost-cutting initiatives and operational efficiencies that the company is striving for. Lastly, I consolidated the data to forecast Continental’s financial outlook for 2009, then provided insight into how Continental can restore profitability in the future.
Cost Analysis and Impact of Flight Capacity Change
The short-term solution of decreasing flight capacity by 11% affects many factors in the operation of Continental Airlines. At first, it seems that a reduced number of flights and available seat miles would only benefit an airline that is failing to fill its flights and is losing out on profits because of it. On the other hand though, one must look deeper into the effects to find which costs are directly related to a reduction in flight capacity and which costs will largely be unaffected by the proposed solution. After examining the ten operating costs that Continental incurs throughout quarterly operation, I concluded that some of these costs are fixed or would not have a reaction to changes in flight capacity. In contrast, there are a few costs that are directly related to flight capacity and would see a large reduction with the cut in capacity. Table 1 below shows the ten costs that are incurred, details about each cost, and how they vary with a change in flight capacity.
As a result of cost analysis, it is easy to see that the four costs positively affected by a reduction in flight capacity are: