Continental Airlines Inc. BCAL

Morningstar Rating

Stock Research and Analysis

by Basili Alukos, CPA

Although it has previously outperformed its legacy carrier peers, we think Continental's bloated cost structure will hinder future performance in an industry marred with relentless competition.

Due to its poor characteristics, the airline industry Read more

Bulls Say

Roughly 76% of all passengers that fly out of the New Jersey, Houston, and Cleveland airports fly under Continental's banner, which should entrench the firm from competition at these airports over the near term.

International routes represent roughly 50% of Continental's mainline capacity, which helped the firm report the highest unit revenue metric after adjusting for length of haul among the legacy carriers since 2003.

Continental is a perennial member of Fortune's list of the 100 Best Companies to Work for in America. Furthermore, the airline has managed to avoid disruptive labor disagreements because of relatively good relations with its employees. Read more

Bears Say

While Continental commendably escaped financial difficulties, its legacy rivals used bankruptcy to reduce expenses. As a result, Continental's labor costs adjusted for the length of haul are 26% higher than the industry's average, putting the firm at a significant cost disadvantage.

Continental's defined pension plan imposes a large liability, putting the firm at a significant disadvantage versus its competitors, which do not have the large burden of an underfunded retirement plan.

The legacy carrier's mainline nonfuel cost per available seat mile is significantly higher than that of low-cost competitors, such as JetBlue JBLU, which continue to infiltrate its hubs. Read more

Strategy

Cutting operating expenses and minimizing volatile fuel costs is management's most important near-term goal. Additionally, the firm must accurately assess the proper capacity to meet passenger demand Read more

Management

Lawrence Kellner has been chairman and CEO of Continental Airlines since succeeding Gordon Bethune in December 2004. Kellner began his career with Continental in 1995 as CFO, where he promoted international growth, and became COO prior to earning his Read more

Profile

Offering over 2,800 daily flights, Continental Airlines is the world's fifth-largest airline measured by scheduled miles flown by revenue passengers. The firm operates from Read more

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