continenal airline
...ts of the other party, reciprocity of frequent flyer programs and airport lounge access and other joint marketing activities. As of December 31, 2003, Continental Airlines had placed its code on 205 destinations served by Northwest and Northwest placed its code on 176 destinations served by the Company. Together with Northwest, the Company also has joint contracts with major corporations and travel agents designed to create access to a broader product line encompassing the route systems of both carriers. In August 2002, the Company entered into a marketing alliance with Northwest and Delta Air Lines. The marketing alliance was implemented in April 2003, when the United States Department of Transportation completed its review of the alliance. As with its alliance with Northwest, this alliance involves codesharing, reciprocal frequent flyer benefits and reciprocal airport lounge privileges. As of December 31, 2003, Continental Airlines placed its code on 47 destinations served by Delta, and Delta placed its code on 56 destinations served by the Company. Additionally, under the agreement with Delta and Northwest, the Company (together with Northwest) will have the ability to join the SkyTeam alliance, a global alliance comprised of Delta, Air France, Alitalia, Aeromexico, Korean and CSA Czech. Continental Airlines also has domestic codesharing agreements with Gulfstream International Airlines, SkyWest Airlines, Hawaiian Airlines, Alaska Airlines, Horizon Airlines, Champlain Enterprises, Inc. (CommutAir), Hyannis Air Service, Inc. (Cape Air) and American Eagle Airlines. It also has the first train-to-plane alliance in the United States with Amtrak. In addition to its domestic alliances, Continental Airlines seeks to develop international alliance relationships that complement its own route system and permit expanded service through its hubs to major international destinations. It has a marketing agreement with KLM that extends until 2010 that includes codesharing and reciprocal frequent flyer program participation and airport lounge access. As of December 31, 2003, the Company placed its code on selected flights to more than 68 European, Middle Eastern and African destinations operated by KLM and KLM Cityhopper beyond its Amsterdam hub, and KLM placed its code on more than 70 United States and Mexican destinations operated by Continental Airlines beyond the Company's hubs at Liberty International and Bush Intercontinental. The Company also has international codesharing agreements with Air Europa, Emirates (the flag carrier of the United Arab Emirates), TAP Air Portugal, EVA Airways Corporation (an airline based in Taiwan), British European (Flybe), Virgin Atlantic Airways and Copa Airlines of Panama. The Company owns 49% of the common equity of Copa. Continental Airlines will implement codesharing arrangements with AeroMexico and Maersk Air of Denmark in the first quarter of 2004. The Company also has a codeshare agreement with French rail operator SNCF. Effective April 1, 2003, Continental Airlines made adjustments to its codeshare agreement with Virgin Atlantic Airways eliminating its commitment to purchase block space. Continental Airlines, United, American, Delta and Northwest are investors in a travel Website, Orbitz, which offers customers access to a variety of travel options. Orbitz completed an initial public offering of its shares in December 2003. The Company sold approximately 28% of its holdings in the offering. Following the offering, Continental Airlines owns approximately 9% of Orbitz. It intends to dispose of its remaining holdings in Orbitz, subject to market conditions. As of December 31, 2003, 42 United States and foreign carriers, including the Company, had marketing agreements with this Web-based travel service. In addition, Continental Airlines has marketing agreements with other Internet travel service companies such as Hotwire, Travelocity and Expedia. The Company sold its interest in Hotwire in 2003. Its marketing agreements with Orbitz and Hotwire remain in effect following the 2003 dispositions. 5 Forces Industrial Competition A firm's competitive strategy consists of its efforts to achieve market success; its offensive moves to secure a competitive advantage, and its defensive moves to protect its competitive position. In an increasingly global economy, airline business faces new challenges that require new solutions, such as: a.Pressure to reduce cost and improve aircraft performance due to increasing airline competition; b. Growing demand to deliver value on capital employed; c. Competition from new entrants, including some from outside your market; d. The globalization of the aircraft heavy maintenance, component repair, and overhaul services; e. Regulatory authorities, concern over the management of external suppliers by airlines that outsource their aircraft maintenance; and f. Customer demand for higher service levels, like more flexibility in scheduling work and payment, and acceptance of risk. The operational issues of airlines have used the two major tools, IT and logistics to improve the flow of information to assist the management and delivery of services to customers. The growing importance of IT is demonstrated by the competition between international airlines and the greater use of IT to gain competitive advantage. Airline businesses operate in global environment and factors which obtain in other countries may impact on the local business environment. For example, in December 1997 the unexpected financial crisis in South Korea lead Air New Zealand to cease its four-times-a -week service to Seoul and from February 1998, Qantas also withdrew service. Suppliers Power Supplier's becomes potentially strong competitive force when the item they provide makes up a sizable faction of the costs of an industry's product, is crucial to the industry's production process, and significantly affects the quality of the industry's products. Jet Fuel price and Pilot is a good example of this supplier. a. Jet Fuel Price Take the performance of Singapore Airline year 2001 as an example, a change in price of one US cent per American gallon affects the company's annual fuel costs by S$21 million. The airline's earnings are affected by changes in the price of jet fuel. In order to cope with the jet fuel price fluctuation, airline either manages this risk by using swap and option contracts up to 24 months forward. While Cathay Pacific launched new Airbus A340 services to reduce the fuel cost per seat over Boeing 747. b. Human Resource The provision of services, which meet certain quality standards, is one of the reasons why labor costs are so high in the airline industry. It is a labor-intensive activity, which requires staff contact with travelers to ensure their needs are met at each stage of travel. Employe...