Continental Was Saved Continental Airlines

¶ … Continental was saved

Continental Airlines is a tale of two histories. Prior to the now famous corporate restructuring of the company's asset and revenue model, the company was mired in accrued long-term debt, increasing interest expense, high operating costs, and little to no working capital. Such a confluence of financial variables will greatly negatively impact a company to the point of starving profit. Starvation of profit is what leads to bankruptcy, which was almost the case for Continental during the mid-1990s.

Continental did not have an established strategic plan to guide the organization forward. Continental also lacked a strategic vision of the type of airline to be for the consumer. Leadership at Continental was lacking and redundant with failure having changed leadership ten times over ten years (Brenneman, 109). Indeed, the history of Continental did reflect an organization mired in a culture of mismanagement, inefficiency, and a non-commitment to customer service. The one shining star for Continental was the company's safety record. Safety is extremely important and is likely the only reason the company was attracting any customers for its flight services.

Define the Problem

The problem with Continental inherently lay with its lack of leadership. Competent leadership would have identified the lack of a comprehensive strategy for the organization as well as a lack of departmental goals to drive the organization to move forward toward progress at each of its core service components. The operating cost for Continental coupled with its increasing debt load was also a major problem. Restructuring the balance sheet to free up cash to create short-term liquidity as well as reduce operating cost by reducing low revenue generating assets which are often non-core business assets defines the parameters of the solution to where the major issues resided within Continental.

Additionally, the corporate culture at Continental was not up to par with the notion of improving operations and revenue. The lack of customer service and the inferior product, which includes the airline experience from start to finish, were major faults of Continental to which the DOT had ranked the airline at or near the bottom in all key customer satisfaction areas (Brenneman, 108). The problem with a lack of customer service has driven revenue down yet facilitated a high operating cost. The culture at Continental was indeed mired in inefficiency.

Key Issues

The key issue with Continental is with the leadership. Consultants are often brought in by the executive leadership to provide a recommended course of action for the company. In this case however a consultant sought out the Continental chief executive specifically to restructure the organization as a service for the organization's new owner. A company generally must be in relatively bad shape and ostensibly possesses a rather lucid solution for a consultant to propose a bold remedy. Continental was in such disarray that product quality was notably inferior to its competitors yet had a high operating cost and high debt and maintenance of debt structure.

Additionally, Continental had an expansive marketing campaign to which the campaigns promoted the product as superior to its competitors. The more informed customer and the customer with choices were aware of the deceptive marketing strategy, ostensibly used to dupe naive customers or new travelers into the notion that Continental was in fact at least a competent airline despite its rather obvious failings and low DOT ratings.

Explanation on how to avoid such crises

The notion of avoiding a snowball effect is tangential to the notion of stopping a speeding locomotive. The only chance one has of stopping either is in the beginning. In the Continental example, the central solution was ostensibly to shake up the organization completely. This included a management and labor restructuring as well as a brand image, asset, product quality, service and customer management overhaul. In reality for Continental however there was no real beginning as there was not a strategic plan or vision to convey where the organization was attempting to go.

An organization must always be in line with its mission and vision statement. To meander away from these ideals will reduce the level of efficiency and effectiveness of the organization. Indeed, the sacrifice is intended to increase revenue over expenses acquired however what does tend to happen when a business acquires an asset that is outside of its core business is that there is a decrease in marginal profit per unit when compared to core business assets. Additionally, operating and long-term expenses tend to be higher for the non-core business rather the core business.

Therefore, avoiding the crisis is a function of remediating the entire organization to reflect the flowchart necessary to realize the goals underlying the mission and vision statement.

Crisis Management

Discerning a crisis and then managing the process through to profitability is extremely difficult task to which the right individual is necessary. A vision must be identified and then a strategic leadership plan is to be implemented by a leader that understands the vision and that takes no for an answer. A leader that is able to identify solutions to problems that no one else is able to see, or to which other executives managing departments internally are attempting to cover up and hide from reporters. Often times, the managerial accounting report will be accurate to reflect operating costs and operating revenues however the financial accounting report will deviate considerably from a unit by unit projection of valuation.