2010, United Continental Holdings Strategic Management Case Study

Carter Vaillancourt, Megan Land, Emily Michaud UMFK

OverviewCompany Overview• A brief history of United Continental

Holdings• Existing Mission and Vision StatementsNew Mission and Vision StatementsExternal Audit• Industry Analysis• Opportunities and Threats• EFE Matrix• CPM MatrixInternal Assessment• Organizational chart• Strengths and Weaknesses• Financial Condition• IFE Matrix

Strategy Formation• SWOT Matrix• Space Matrix• Grand Strategy Matrix• Matrix Analysis• QSPM Matrix• 3 year-goalsImplementation Strategies• EPS/EBIT• Projected Financials• Projected Ratios United Update

History

United Airlines HistoryOriginating in Boise, Idaho, the carrier flew the first Contract Air Mail flight in the U.S. on April 6, 1926

In 1933, United began operating the Boeing 247 the first all-metal airliner. It was able to fly a transcontinental flight in 20 hours, which at the time was very fast.

United merged with Capital Airlines in 1961 and regained its position as the United States' largest airline. In 1968, the company reorganized, creating UAL Corporation, with United Airlines as a wholly owned subsidiary

1926

1933

1961-1968

In 1982, United became the first carrier to operate the Boeing 767, taking its first delivery of 767-200s on August 191982

In 1985, United expanded dramatically by purchasing Pan Am's entire Pacific Division, giving it a hub at Tokyo's Narita International Airport, and in 1991 purchased routes to London Heathrow Airport from ailing Pan Am, making it one of two US carriers permitted exclusive access to Heathrow

1985

United Airlines History

1995 In 1995, United became the first airline to introduce the Boeing 777 in commercial service

During the September 11, 2001 terrorist attacks, two of the four airplanes hijacked and crashed by al-Qaeda terrorists were United Airlines aircraft which created an airline industry downturn

2001

2005In 2005, United announced it had raised US$3 billion in financing to exit bankruptcy and filed its Plan of Reorganization, as announced, on September 7, 2005

Continental Airlines History

Continental Airlines' history dates back to 1934, when the carrier was operated under the name of Varney Speed Lines by its owners Walter Varney and Louis Mueller. They were operated out of El Paso, Texas.

1934

In July 1937, Robert Six changed the name of Varney Speed Lines to Continental Airlines and the carrier moved its headquarters to Denver, Colorado

1937

During the 1940' and 50's, Continental Airlines was able to expand its fleet of aircraft and profits through its participation in World War II by providing air transportation to the military

1940-1950

In 1983, Continental filed bankruptcy with losses of ($218,000,000.) 1983

By the end of 1984 Continental was able to turn a profit. In 1986 Continental took over Frontier Airlines and began flying its routes.

1984-1986

United Continental Holdings

• Early in February 2008, United Airlines and Continental began advanced stages of merger negotiations

• In June 2008, CEOs of both United Airlines and Continental Airlines signed an alliance pact presaging their eventual merger

• On October 1, 2010, UAL Corporation completed its acquisition of Continental Airlines and changed its name to United Continental Holdings, Inc

Serving 1,290 destinations in 63 countries

Major Hubs Located in San Francisco, Chicago, Cleveland, Denver, Houston, Los Angeles, Newark, Washington Dulles, and Guam

“ Combining these two companies is the best way to position ourselves…to thrive in the changing and competitive airline industry. Continental is strong where United is weak; United is strong where Continental is weak. Putting these two carriers together is a match made in heaven” – Jeff Smisek

Aircraft

Existing Mission and Vision Statement

New Mission and Vision

Vision (proposed)

United Continental Holdings vision is to be the World’s number one choice for airline travel.

Mission (Proposed)

With great people, the world’s most comprehensive global route network(3), the best current aircraft order book among U.S. network carriers(4, 7) and the industry-leading loyalty program(2), United is well positioned to deliver meaningful profitability and sustainable long-term value for our customers, the communities we serve, our shareholders and our co-workers around the world(6). As we strive to meet the needs of travelers (1), we continue to grow as a company and increase our financial standings in the industry (5). Through our continued growth and valued employees, United Continental Holdings will continue to reach out to the communities in which we operate and meet the concerns of our customers (9).

1. Customer2. Products or services

3. Markets4. Technology

5. Concern for survival, profitability, growth6. Philosophy

7. Self-concept8. Concern for public image9. Concern for employees

External Audit

Domestic Market Share in Airline Industry

Revenue % of CashCash as a Percentage of Revenue: 12 months ended 31-Mar-2010

Source: United Airlines

SWOT Opportunities

• With over 100 open skies agreements in effect, more access to international airports is allowed

• Maintenance operation center at SFO occupies 120 acres of land, 2.9 mil square feet of floor space, and nine aircraft hangar bays, lease up for renewal in 2013 and able to renew through 2023

• Growing use of websites, alternative distribution systems, and new global distribution systems (GDS) entrants leads to a predicted 87% for online air ticket sales in 2011

• Global penetration, in areas such as the pacific which accounts for only 17% of total revenue.

• The aviation industry is growing by a projected amount of 11.0 billion which will ultimately enable more people to fly.

• United Continental will be affected by the growth in the tourism industry expected to grow 3.2% in 2011.

• The merging of the two corporations, United and Continental is expected to deliver $1.0 billion to $1.2 billion in net annual synergies on a run-rate basis by 2013, and between $800 million and $900 million in incremental annual revenues.

• United Continental Holdings Inc. establishes a joint venture with Air Canada will likely result in a substantial lessening of competition on 19 trans-border city pair routes.

• After merging and earning the extra percentage in revenue s by 1.0 billion, United Continental will show strong liquidity give the new company a flexibility to pay down its debt.

• United Continental made plans to increase WIFI capabilities in 200 domestic Boeing 737 and 757 aircraft equipped with DIRECTV(R), providing onboard connectivity and more than 95 channels of live television programming to customers in late 2010.

Threats • Unstable fuel prices and availability can cause large expenses,

accounting for 31% of total operating costs in 2010• With 72% of employees under labor organizations, union disputes,

employee strikes, and other labor disputes are likely to occur.• 100% of United employees and 53% of Continental employees are

covered by collective bargaining agreements (CBA), significant increases in pay and benefits from new CBAs could financially harm the company

• New open skies agreements decrease value of routes, caused United $29 million impairment charge in 2010 for indefinite-lived Brazil route

• With an aging fleet, UAL will have to soon start replacing or fixing their planes. With a large amount of planes this will become very costly.

• Illnesses could affect travel and decrease the amount of passengers flying, UAL reported that H1N1 cost them roughly $50 Million in related revenue.

• The airline industry is vulnerable to terrorist attacks and other related security threats. The new threats have resulted in new security measures which will increase the security related costs adding to the already high number of operating costs at $22,253.

• Customer prior dissatisfaction with either United or Continental may inflict buyers decision to choose new merged company while United standing at 12th in customer dissatisfaction and Continental standing at 8th in 2010.

• ARM Corp is trailing United Continental Holdings co. by just 1059 million standing in third place for top revenue for airlines 2010.

• The company faces stiff competition from national and international airline companies which can affect competitive pressures and ultimately lowering $3billion market cap.

Key External Factors Weights Rating Weighted Score

0.0 to 1.0 1 to 4

Opportunities

With over 100 open skies agreements in effect, more access to international airports is allowed 0.04 3 0.12

Maintenance operation center at SFO occupies 120 acres of land, 2.9 mil square feet of floor space, and nine aircraft hangar bays, lease up for renewal in 2013 and able to renew through 2023 0.05 2 0.1

Growing use of websites, alternative distribution systems, and new global distribution systems (GDS) entrants leads to a predicted 87% for online air ticket sales in 2011 0.06 4 0.24

Global penetration, in areas such as the pacific which accounts for only 17% of total revenue 0.04 4 0.16

The aviation industry is growing by a projected amount of 11.0 billion which will ultimately unable more people to fly. 0.06 2 0.12

United Continental will be affected by the growth in the tourism industry expected to grow 3.2% in 2011 0.04 2 0.08

The merging of the two corporations, United and Continental is expected to deliver $1.0 billion to $1.2 billion in net annual synergies on a run-rate basis by 2013, and between $800 million and $900 million in incremental annual revenues 0.05 2 0.1

United Continental Holdings Inc. establishes a joint venture with Air Canada will likely result in a substantial lessening of competition on 19 trans-border city pair routes. 0.04 3 0.12

After merging and earning the extra percentage in revenue s by 1.0 billion, United Continental will show strong liquidity give the new company a flexibility to pay down its debt. 0.03 3 0.09

United Continental made plans to increase WIFI capabilities in 200 domestic Boeing 737 and 757 aircraft equipped with DIRECTV(R), providing onboard connectivity and more than 95 channels of live television programming to customers in late 2010 0.05 4 0.2

Threats 0

Unstable fuel prices and availability can cause large expenses, accounting for 31% of total operating costs in 2010 0.04 3 0.12

With 72% of employees under labor organizations, union disputes, employee strikes, and other labor disputes are likely to occur. 0.07 1 0.07

100% of United employees and 53% of Continental employees are covered by collective bargaining agreements (CBA), significant increases in pay and benefits from new CBAs could financially harm the company 0.04 2 0.08

New open skies agreements decrease value of routes, caused United $29 million impairment charge in 2010 for indefinite-lived Brazil route 0.04 2 0.08

With an aging fleet, UAL will have to soon start replacing or fixing their planes. With roughly 409 planes this will become very costly. 0.06 3 0.18

Illnesses could affect travel and decrease the amount of passengers flying, UAL reported that H1N1 cost them roughly $50 Million in related revenue. 0.03 2 0.06

The airline industry is vulnerable to terrorist attacks and other related security threats. The new threats have resulted in new security measures which will increase the security related costs adding to the already high number of operating costs at $22,253. 0.05 2 0.1

Customer prior dissatisfaction with either United or Continental may inflict buyers decision to choose new merged company while United standing at 12th in customer disatisfacation and Continental standing at 8th in 2010. 0.07 3 0.21

ARM Corp is trailing United Continental Holdings co. by just 1059 million standing in third place for top revenue for airlines 2010. 0.06 3 0.18

The company faces stiff competition from national and international airline companies which can affect competitive pressures and ultimately lowering $3billion market cap. 0.08 3 0.24

Totals 1 2.65

CPMUAL DAL AAMRQ

Critical Success factors Weights Rating Weighted Score Rating Weighted Score Rating Weighted Score

  0.0 to 1.0 1 to 4   1 to 4   1 to 4  

Advertising 0.08 4 0.32 4 0.32 3 0.24

Product Quality 0.10 4 0.40 3 0.30 3 0.30

Price Competitiveness 0.08 2 0.16 3 0.24 3 0.24

Financial Position 0.10 4 0.40 3 0.30 3 0.30

Customer Loyalty 0.14 3 0.42 4 0.56 3 0.42

Global Expansion 0.12 4 0.48 3 0.36 3 0.36

Market Share 0.07 3 0.21 4 0.28 2 0.14

Organization Structure 0.06 4 0.24 3 0.18 3 0.18

Customer Service 0.10 3 0.30 4 0.40 3 0.30

Production Capacity 0.10 3 0.30 3 0.30 4 0.40

Employee Dedication 0.05 3 0.15 4 0.20 3 0.15

Totals 1.00   3.38   3.44  3.03

Internal Audit

Organizational Chart Jeff Smisek

President and CEO

Mike Bonds

Executive Vice

President, Human

Resources and Labor Relations

Jim Compton

Vice President and Chief Revenue Officer

Jeff Foland Executive

Vice President

and Mileage

Plus Holdings

LLC

Nene Foxhall Executive

Vice President

Communications and

Government Affairs

Keith Halbert

Executive Vice

President and Chief

Information Officer

Brett Hart Senior Vice President,

General Counsel

and Secretary

Pete McDonald Executive

Vice President and Chief

Operations Officers

Zane Rowe

Executive Vice

President and Chief Financial Officer

SWOTStrengths

• Passenger revenue increased 43% in 2010• Unrestricted cash and cash equivalents hit a record $8.7

billion• Aircraft rent expense decreased by 6% in 2010• They employ roughly 85,000 employees, the highest among

their competitors.• UAL offers premium seating with spacious accommodations

for those who seek a more comfortable trip.• The U.S. and Canada market account for 61.7% of total

revenue.• Net income grew 38% from a loss in 2009 to a profit in 2010.• United Continental has strong strategic collaborations. The

company has a number of bilateral and multilateral alliances with other airlines such as the largest alliance which is the Star Alliance who serves approximately 1,290 destinations in 189 countries.

• Because of United Continental Holdings flight completion factors of 98.5% and 99%, it has a very strong brand utilization and trustworthiness.

• United is the largest of 2 U.S carrier to the People’s Republic of China and maintains a large operation throughout Asia.

Weaknesses• Operating expenses increased $2.2 billion in 2010• Interest expense increased by 23% in 2010• Removal of Boeing 737 fleet and some Boeing 747 aircraft

caused impairment charges of $165 million in 2010• In relation with salaries and related costs increasing, Pension

liability increased by $1,380,000 in 2010• They are behind Delta Airlines (DAL) in market cap by over

$3Billion.• From the income statement it appears that they have no

money spent on research and development for the past 3 years.

• At 16.0 cents, UAL has the highest cost per available seat mile in their industry compared to AirTran Holdings at 11.0 cents.

• UAL has assets of $20.1 Billion, liabilities of $22.9 Billion and equity of -$2.76 Billion. This may make it hard for them to get loans when their assets are currently less than their liabilities.

• United Continental puts heavy dependence on third party providers, many of the operations such as customer care, aircraft maintenance, aircraft fueling are outsourced, which adds to the overall expense amount of $22,253 million.

• The overall age of aircrafts totals about 14.3 years old, which gives higher expense to the operating costs because they are less fuel efficient and require more maintenance.

Income Statement

Balance Sheet

Balance Sheet (2)

Net Worth

United Continental Worth Analysis for 2010 (in millions)Shareholder's equity - Goodwill - Intangibles

(7,713)

Net Income * 5 1,265

(Stock Price/EPS) * NI 4,940

# of Shares Out * Stock Price 7,813

Four Method Average 1,576

Financial Ratios 2010Ratio (2010)

United Continental Holdings Delta

Liquidity Ratios Current 0.95 0.64 Quick 0.92 0.61Leverage Ratios Debt to total assets 0.96 0.98 Debt to equity 21.93 47.15 Long-term debt to equity 7.22 14.69 Times-interest-earned ratio 1.34 2.21Activity Ratios Fixed Assets Turnover 1.73 1.56 Total Assets Turnover 0.80 0.73 Inventory Turnover 49.8 48.65Profitability Ratios Gross Profit Margin % 4.2 6.98 EBT Margin % 1.08 1.91 Net Profit Margin % 1.09 1.87 Return on total assets % 0.87 1.37 Return on Stockholder's equity 0.15 0.66 Price-earnings ratio 19.52 17.75Growth Ratios Sales Growth (3-years) 4.87% 18.35% Net Income Growth (3-years Average) -14.37% -28.35% Earnings per share Growth (3-year Average) -27.12% -49.45% Dividends per share Growth % (3-years) - -

IFEKey Internal Factors Weights Rating Weighted Score

  0.0 to 1.0 1, 2, 3 or 4  Internal Strengths   3 or 4  

   Passenger revenue increased 43% in 2010 0.05 4 0.2

    Unrestricted cash and cash equivalents hit a record $8.7 billion 0.04 3 0.12

Aircraft rent expense decreased by 6% in 2010 0.03 3 0.09

   They employ roughly 85,000 employees, the highest among their competitors. 0.04 3 0.12

    They lead among the industry in revenue by roughly $.48 Billion. 0.06 4 0.24

The U.S. and Canada market account for 61.7% of total revenue 0.07 4 0.28

    Net income grew 38% from a loss in 2009 to a profit in 2010. 0.07 4 0.28

United Continental has strong strategic collaborations. The company has a number of bilateral and multilateral alliances with other airlines such as the largest alliance which is the Star Alliance who serves approximately 1,290 destinations in 189 countries 0.05 3 0.15

Because of United Continental Holdings flight completion factors of 98.5% and 99%, it has a very strong brand utilization and trustworthiness. 0.05 3 0.15

United is the largest of 2 U.S carrier to the People’s Republic of China and maintains a large operation throughout Asia. 0.06 3 0.18

Internal Weaknesses   1 or 2  

Operating expenses increased $2.2 billion in 2010 0.06 2 0.12

Interest expense increased by 23% in 2010 0.03 2 0.06

Removal of Boeing 737 fleet and some Boeing 747 aircraft caused impairment charges of $165 million in 2010 0.06 2 0.12

  In relation with salaries and related costs increasing, Pension liability increased by $1,380,000 in 2010 0.03 2 0.06

They are behind Delta Airlines (DAL) in market cap by over $3Billion 0.08 1 0.08

  From the income statement it appears that they have no money spent on research and development for the past 3 years. 0.02 2 0.04

   At 16.0 cents, UAL has the highest cost per available seat mile in their industry compared to AirTran Holdings at 11.0 cents. 0.03 2 0.06

UAL has assets of $20.1 Billion, liabilities of $22.9 Billion and equity of -$2.76 Billion. This may make it hard for them to get loans when their assets are currently less than their liabilities. 0.06 1 0.06

United Continental puts heavy dependence on third party providers, many of the operations such as customer care, aircraft maintenance, aircraft fueling are outsourced, which adds to the overall expense amount of $22,253 million 0.05 1 0.05

The overall age of aircrafts totals about 14.3 years old, which gives higher expense to the operating costs because they are less fuel efficient and require more maintenance 0.06 1 0.06

Totals 1   2.52

Strategic Formulation

1. Increase marketing in foreign countries to take advantage of the over 100 open skies

agreements and increase global penetration in china, Asia, and the pacific. (S8, S10, O1,

O4)2. Increase premium seating and flatbed seats

to enhance travel experience and increase customer satisfaction on long flights. (S5, O5,

O8)

1. Increase R&D spending to take advantage of aviation and tourism

growth through the production of new global distribution systems. (W6, O3,

O5, O6)

2. Utilize extra percentage in revenue, obtained through merging, to pay

down liabilities. (W8, O2)

3. Renew Maintenance lease at SFO to ultimately decrease the dependence on outsourced aircraft maintenance.

(W9, O2)

1. Utilize unrestricted cash and equivalents of roughly $8.7 billion to replace aging fleet with

more fuel efficient airplanes. (S2,S3,T1,T5)

2. Utilize unrestricted cash and equivalents to lease or purchase new aircrafts equipped with

state of the art air purification and filtration systems. (S2, T5, T6, T8, T10)

1. Require employees to participate in stock ownership to decrease or prevent

pension liability increases and to increase employee work satisfaction. (W4, T2, T3)

2. Increase R&D to research methods that would increase the gap between

competitive airlines both nationally and internationally. (W6, T9, T10).

Strengths

Weaknesses

Opportunities

Threats

SWOT MatrixSO WO

ST WT

Financial Strength Ratings1 Cash Flow 6.02 Price Earnings Ratio 5.03 Earnings per Share 4.04 Working Capital 4.05 Liquidity 5.06 Net Income 4.07 Return on Assets 2.0

Financial Strength Total 4.29

Industry StrengthRating

s1 Profit Potential 4.02 Financial Stability 4.03 Resource Utilization 2.04 Productivity, capacity utilization 3.05 Market Entry 3.06 Growth Potential 5.07 Extent Leveraged 3.0

Industry Strength Total 3.43

Environmental Stability 28.31 Rate of Inflation -5.02 Barriers to Enter the Market -3.03 Competitive Pressure -6.04 Price Elasticity -5.05 Demand Variability -5.0

6 Price Range of Competing Products -4.0

7 Ease of Exit from Market -6.0Evironmental Stability Total -4.86

Competitive advantage 23.41 Market Share -3.02 Product Quality -3.03 Costomer Loyalty -4.04 Capacity Utilization -3.05 Technologically Advanced -2.06 Global Expansion -2.07 Product Life Cycle -4.0

Competitive Advantage -3.00

Space Matrix

FS

CS

ES

IS

-1-2-3-4-5-6 654321

Conservative

Aggressive

Competitive

Defensive

1

2

3

4

5

6

-6

-5

-4

-3

-2

-1

Strong Competitive

Position

Slow Market Growth

Quadrant II1. Market development2. Market penetration3. Product development4. Horizontal integration5. Divestiture6. Liquidation

Quadrant III1. Retrenchment2. Related diversification3. Unrelated diversification4. Divestiture5. Liquidation

Quadrant IV1. Related diversification2. Unrelated diversification3. Joint ventures

Quadrant I1. Market development2. Market penetration3. Product development4. Forward integration5. Backward integration6. Horizontal integration7. Related diversification

GSM

Alternative Strategies IE SPACE GRAND BCG COUNT

Forward Integration x x 2

Backward Integration x x 2

Horizontal Integration x x 2

Market Penetration x x 2

Market Development x x 2

Product Development x x 2

Related Diversification x 1

Unrelated Diversification

Retrenchment

Divestiture

Liquidation

Matrix Analysis

Possible Strategies

Increase marketing in foreign countries to take advantage of the over 100 open skies agreements and increase global penetration in china, Asia, and the pacific. (S8, S10, O1, O4)

Backward Integration

Renew Maintenance lease at SFO to ultimately decrease the dependence on outsourced aircraft maintenance. (W9, O2)

Horizontal Integration

Increase R&D to research methods that would increase the gap between competitive airlines both nationally and internationally. (W6, T9, T10).

RetrenchmentRequire employees to participate in stock ownership to decrease or prevent pension liability increases and to increase employee work satisfaction. (W4, T2, T3)

Utilize extra percentage in revenue, obtained through merging, to pay down liabilities. (W8, O2)

Product DevelopmentIncrease premium seating and flatbed seats to enhance travel experience and increase customer satisfaction on long flights. (S5, O5, O8)

Utilize unrestricted cash and equivalents of roughly $8.7 billion to replace aging fleet with more fuel efficient airplanes. (S2,S3,T1,T5)

Utilize unrestricted cash and equivalents of roughly $8.7 billion to replace aging fleet with more fuel efficient airplanes. (S2,S3,T1,T5)

Increase R&D spending to take advantage of aviation and tourism growth through the production of new global distribution systems. (W6, O3, O5, O6)

Market Development

QSPMQuantitative Strategic Planning Matrix-QSPM

Increase marketing in foreign countries and increase global penetration in China, Asia, and the Pacific

Lease or purchase new aircraft equipped with state of the art air purification and filtration systems

         Key factors   Weight AS TAS AS TASExternal 1 to 4 1 to 4 Opportunities

1.   With over 100 open skies agreements in effect, more access to international airports is allowed 0.04 4 0.16 1 0.04

2.   Maintenance operation center at SFO occupies 120 acres of land, 2.9 mil square feet of floor space, and nine aircraft hangar bays, lease up for renewal in 2013 and able to renew through 2023 0.05- - - -

3. Growing use of websites, alternative distribution systems, and new global distribution systems (GDS) entrants leads to a predicted 87% for online air ticket sales in 2011 0.06 4 0.24 1 0.06

4.   Global penetration, in areas such as the pacific which accounts for only 17% of total revenue. 0.04 4 0.16 1 0.04

5.   The aviation industry is growing by a projected amount of 11.0 billion which will ultimately unable more people to fly. 0.06 4 0.24 3 0.18

6.   United Continental will be affected by the growth in the tourism industry expected to grow 3.2% in 2011. 0.04 4 0.16 3 0.12

7.   The merging of the two corporations, United and Continental is expected to deliver $1.0 billion to $1.2 billion in net annual synergies on a run-rate basis by 2013, and between $800 million and $900 million in incremental annual revenues. 0.05- - - -

8.   United Continental Holdings Inc. establishes a joint venture with Air Canada will likely result in a substantial lessening of competition on 19 transborder city pair routes. 0.04 4 0.16 1 0.04

9.   After merging and earning the extra percentage in revenue s by 1.0 billion, United Continental will show strong liquidity give the new company a flexibility to pay down its debt. 0.03- - - -

10. United Continental made plans to increase WIFI capabilities in 200 domestic Boeing 737 and 757 aircraft equipped with DIRECTV(R), providing onboard connectivity and more than 95 channels of live television programming to customers in late 2010. 0.05 4 0.2 2 0.1Threats

1.   Unstable fuel prices and availability can cause large expenses, accounting for 31% of total operating costs in 2010 0.04- - - -

2.   With 72% of employees under labor organizations, union disputes, employee strikes, and other labor disputes are likely to occur.   0.07- - - -

3.   100% of United employees and 53% of Continental employees are covered by collective bargaining agreements (CBA), significant increases in pay and benefits from new CBAs could financially harm the company  0.04- - - -4.   New open skies agreements decrease value of routes, caused United $29 million impairment charge in 2010 for indefinite-lived Brazil route  0.04 1 0.04 3 0.125.   With an aging fleet, UAL will have to soon start replacing or fixing their planes. With roughly 409 planes this will become very costly.   0.06 1 0.06 4 0.246.   Illnesses could affect travel and decrease the amount of passengers flying, UAL reported that H1N1 cost them roughly $50 Million in related revenue. 0.03 1 0.03 4 0.12

7.   The airline industry is vulnerable to terrorist attacks and other related security threats. The new threats have resulted in new security measures which will increase the security related costs adding to the already high number of operating costs at $22,253.     0.05- - - -

8.   Customer prior dissatisfaction with either United or Continental may inflict buyers decision to choose new merged company while United standing at 12th in customer disatisfacation and Continental standing at 8th in 2010.   0.07 2 0.14 4 0.289. ARM Corp is trailing United Continental Holdings co. by just 1059 million standing in third place for top revenue for airlines 2010. 0.06 3 0.18 1 0.06

10. The company faces stiff competition from national and international airline companies which can affect competitive pressures and ultimately lowering $3billion market cap. 0.08 3 0.24 4 0.32 1

QSPM Continued…Internal 1 to 4 1 to 4

Strengths 1.   Passenger revenue increased 43% in 2010  0.05- - - -2.   Unrestricted cash and cash equivalents hit a record $8.7 billion   0.04 2 0.08 4 0.163.   Aircraft rent expense decreased by 6% in 2010    0.03 1 0.03 4 0.12

4.   They employ roughly 85,000 employees, the highest among their competitors.   0.04- - - -5.   UAL offers premium seating with spacious accommodations for those who seek a more comfortable trip.   0.06 2 0.12 3 0.186.   U.S. and Canada market account for 61.7% of total revenue.    0.07- - - -7.   Net income grew 38% from a loss in 2009 to a profit in 2010.     0.07- - - -

8.   United Continental has strong strategic collaborations. The company has a number of bilateral and multilateral alliances with other airlines such as the largest alliance which is the Star Alliance who serves approximately 1,290 destinations in 189 countries.     0.05 4 0.2 1 0.059. Because of United Continental Holdings flight completion factors of 98.5% and 99%, it has a very strong brand utilization and trustworthiness. 0.05 4 0.2 2 0.110. United is the largest of 2 U.S carrier to the People’s Republic of China and maintains a large operation throughout Asia. 0.06 4 0.24 3 0.18Weaknesses 1.   Operating expenses increased $2.2 billion in 2010    0.06- - - -2.   Interest expense increased by 23% in 2010   0.03- - - -3.   Removal of Boeing 737 fleet and some Boeing 747 aircraft caused impairment charges of $165 million in 2010    0.06- - - -4.   In relation with salaries and related costs increasing, Pension liability increased by $1,380,000 in 2010   0.03- - - -5.   They are behind Delta Airlines (DAL) in market cap by over $3Billion.    0.08 4 0.32 3 0.246.   From the income statement it appears that they have no money spent on research and development for the past 3 years.    0.02 3 0.06 4 0.087.   At 16.0 cents, UAL has the highest cost per available seat mile in their industry compared to AirTran Holdings at 11.0 cents.  0.03- - - -8.    UAL has assets of $20.1 Billion, liabilities of $22.9 Billion and equity of -$2.76 Billion. This may make it hard for them to get loans when their assets are currently less than their liabilities.    0.06 1 0.06 3 0.189.   United Continental puts heavy dependence on third party providers, many of the operations such as customer care, aircraft maintenance, aircraft fueling are outsourced, which adds to the overall expense amount of $22,253 million.     0.05- - - -

10. The overall age of aircrafts totals about 14.3 years old, which gives higher expense to the operating costs because they are less fuel efficient and require more maintenance. 0.06 1 0.06 4 0.24 1

3.32 3.01

3 Year Goals

• Year 1-Expand further into China • Year 2-Expand throughout Asia to regions

such as South Asia and India• Year 3-Expand into Russia

Strategy Implementation

EPS/EBIT Analysis

Capital Needed 750,000,000

EBIT Range ($100mil.) - $900mil.Interest Rate 5%Tax Rate 25%Stock Price (Sep. 30, 2010-year end) 23.82Current Shares Outstanding 327,922,565

CS Shares needed 31,486,146

Assumptions

Common Stock Financing Recession Normal Boom

EBIT (100,000,000)

500,000,000

900,000,000

Interest -

-

-

EBT (100,000,000)

500,000,000

900,000,000

Taxes -

125,000,000

225,000,000

EAT (100,000,000)

375,000,000

675,000,000

# of Shares 359,408,711

359,408,711

359,408,711

EPS -0.28 1.04 1.88

Debt Financing Recession Normal Boom

EBIT (100,000,000)

500,000,000

900,000,000

Interest 37,500,000

37,500,000

37,500,000

EBT (137,500,000)

462,500,000

862,500,000

Taxes -

115,625,000

215,625,000

EAT (137,500,000)

346,875,000

646,875,000

# of Shares 327,922,565

327,922,565

327,922,565

EPS -0.42 1.06 1.97

EPS/EBIT Cont.

90% Stock - 10% Debt Financing Recession Normal Boom

EBIT (100,000,000)

500,000,000

900,000,000

Interest 3,750,000

3,750,000

3,750,000

EBT (103,750,000)

496,250,000

896,250,000

Taxes -

124,062,500

224,062,500

EAT (103,750,000)

372,187,500

672,187,500

# of Shares 356,260,096

356,260,096

356,260,096

EPS -0.29 1.04 1.89

Stock needed 675,000,000

Debt needed 75,000,000

Interest 3,750,000

CS shares needed 28,337,531

Assumptions

10% Stock - 90% Debt Financing Recession Normal Boom

EBIT (100,000,000) 500,000,000 900,000,000

Interest 33,750,000

33,750,000

33,750,000

EBT (133,750,000) 466,250,000 866,250,000

Taxes - 116,562,500 216,562,500

EAT (133,750,000) 349,687,500 649,687,500

# of Shares 331,071,179.61 331,071,179.61 331,071,179.61 EPS -0.40 1.06 1.96

Stock needed 75,000,000

Debt needed 675,000,000

Interest 33,750,000

CS shares needed 3,148,615

Assumptions

Projected Financial Assumptions

Capital needed 750,000,000

Debt needed 750,000,000

Interest (estimate) 5%

Stock Price (Dec. 31, 2010 - year end) 23.82

Shares Outstanding 327,922,565

Additional Interest 37,500,000

Projected Financials 2011 Income Statement

Projected Income Statement (in millions) 2009 2010 2011Total Revenues 16,335 23,229 30,198 Increase by 30%

Cost of Revenue 6,526 9,609 12,492 Percentage of total revenueGross Profit 9,809 13,620 17,706

Operating expenses - - 1,856 Estimated increaseResearch and Development - - 188 Increase by 188 mil (1/4 of 750 mil)Selling General and Administrative 8,679 10,896 11,458 Increase by 562 mil (3/4 of 750 mil)

Nonrecurring 374 669 903 35% increase

Others 917 1,079 1,403 Percentage of total revenueTotal Operating Expenses - - -

Operating Income or Loss (161) 976 1,898 Income from Continuing OperationsTotal Other Income/Expense Net 56 57 57 Same as previous year

Earnings Before Interest and Taxes (105) 1,033 1,955 Interest Expense 567 783 820 Increase from additional interest for expansion

Income Before Tax (672) 250 1,135

Income Tax Expense (17) - 262 25% tax rate

Income before equity in earnings (655) 250 873

Equity in earnings 4 3 3 Same as previous year

Net Income (651) 253 876

Earnings (loss) per share, basic (4.32) 1.22 2.67

Balance Sheet 2011 Projected

Projected Balance Sheet (in millions) 2009 2010 2011AssetsCurrent Assets

Cash and Cash Equivalents 3,170 8,106 3,258

Short-term Investments - 6,111 6,416 5% increase

Net Receivables 806 2,204 2,42410% increase

Inventory 472 466 485 4% increase

Other Current Assets 657 658 658 SameTotal Current Assets 5,105 12,045 13,241

Long-Term Investments 88 103 118 15% increase

Property Plant and Equipment 9,840 16,945 19,825 17% increase

Goodwill - 4,523 4,523 Same

Intangible Assets 2,455 4,917 5,261 7% increase Accumulated Amortization - - -

Other Assets 1,196 1,065 1,065 SameDeferred Long-term Asset Changes - - -

Total Assets 18,684 39,598 44,033

Balance Sheet Cont.

Liabilities

Current Liabilities

Accounts Payable 2,996 6,273 7,528 20% Increase

Short/Current Long-term Debt 971 2,663 2,888 Add 30% of 750 mil. Debt

Other Current Liabilities 2,506 3,709 4,265 15% Increase

Total Current Liabilities 6,473 12,645 14,681

Long-Term Debt 7,572 12,470 12,995 Remaining 70% of 750 mil. Debt

Other Liabilities 4,179 7,680 8,678 13% increase

Deferred LT Liability Changes 3,271 5,076 5,076 Same

Minority Interest - - -

Negative Goodwill - - -

Total Liabilities 21,495 37,871 41,430

Stockholder's Equity

Common Stock 3 3 3 Same

Retained Earnings (5,956) (5,703) (4,827) Increased from net income

Treasury Stock (28) (31) (31) Same

Capital Surplus 3,136 7,071 7,071 Same

Other Stockholder's Equity 35 387 387 Same

Total Stockholder's Equity (2,811) 1,727 2,603

Total Liabilities and Stockholder's Equity 18,648 39,598 44,033

Projected Ratios 2011

2010 2011

Current Ratio 0.95 0.9

Quick Ratio 0.92 0.86

Debt to Total Assets 0.96 0.94

Debt to Equity 21.93 16.48

Total Asset Turnover 0.8 0.69

Return on Stockholders' Equity 0.15 0.34

Update

United Continental Holdings UpdateIn 2012, United and United Express carried more passengertraffic than any other airline in the world and operated nearly two million flights carrying 140 million customers

United is investing in upgrading its onboard products and now offers more flat-bed seats in its premium cabins and more extra-legroom economy-class seating than any airline in North America

In 2013, United became the first U.S.-based international carrier to offer satellite-based Wi-Fi on long-haul overseas routes

The airline also features DIRECTV® onnearly 200 aircraft, offering customers more live television access than any other airline in theworld

The company expanded its industry-leading global route network in 2012, launching nine new international and 18 new domestic routes.

Business Traveler magazine awarded United Best Airline for North American Travel for 2012, and readers of Global Traveler magazine have voted United’s Mileage Plus program the best frequent flyer program for nine consecutive years.

Stock Price

Measured Revenue