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Continental Airlines and Business First

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					Chapter 4

Case Study

Continental Airlines Flies High with Decision Support

In 1992, things looked bleak for the major airlines. The weather was very bad and they
lost $4.8 billion. In 1999, the weather was bad again AND labor costs were higher AND
jet-fuel prices were higher. However, that year, the airlines had earnings of $4.8 billion.
The problems were greater in 1999, but the business decisions were better—largely
because of decision support systems.
     Continental Airlines is a case in point. In 1993 Continental Airlines didn’t even have
e-mail. In 1994, a new team of executives took control after bankruptcy reorganization,
and hired IT specialists to develop decision support software.
For years Continental executives had made decisions based on the information that
employees dutifully compiled, by hand, from paper tickets—information that was weeks
old. While they were copying numbers from one bit of paper to another, market
conditions (fares, demand for tickets, competition) were changing all around them.
     Then information technology came to the rescue. Continental’s new decision support
systems provide up-to-the-minute information on each flight. Continental can now
analyze that information together with other variables such as the daily cost of jet fuel.
Continental has discovered lots of new information, such as the fact that 18 percent of its
flights were operating at a loss. Continental was under the impression that its hub in
Greensboro, North Carolina, had made a profit in 1993, but with more detailed
information and decision support analysis, they found out that the hub was actually losing
money—to the tune of $60 million per year.
     Continental has about 2,200 flights a day with 30,000 possible routings. Its decision
support system can analyze whether a seat on a particular flight should be sold for $100
or should be held back in case a last-minute business traveler wants the seat, and will pay
$1,000 for it. Sometimes it may actually make more sense to sell to the low-paying
customer if there’s a high likelihood of even higher-paying passengers showing up at a
stop-over location. The part of the system that figures this out by itself raised
Continental’s revenue by about $50 million.
     Another decision support system calculates the cost of cancelled or delayed flights.
Yet another shows the amount of revenue “aboard” each flight, even before it takes off,
and makes suggestions such as holding a flight for high-paying customers whose
connection is late.
No detail is too small for decision support. The system can flag planes full of cheap-ticket
vacationing passengers and assign snack sacks, while planes that show a significant
proportion of business travelers get hot meals.
A test of Continental’s efficiency came in the first quarter of 2001, when almost all major
airlines posted large losses. The exceptions were Continental and Southwest Airlines,
both of which actually made a profit. Later in 2001 airlines were hit hard by the events of
September 11th, Continental had the IT infrastructure in place to make things easier for
customers, staff members, and rerouted flight crews.
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