Continental airlines case study

Continental Airlines was founded in 1934 with a single- engine Lockheed aircraft on dusty runways in the American Southwest. Over the years, Continental has grown and suc- cessfully weathered the storms associated with the highly volatile, competitive airline industry. With headquarters in Houston, Texas, Continental is currently the United States’ fifth largest airline and the seventh largest in the world. It carries approximately 50 million passengers a year to five continents (North and South America, Europe, Asia, and Australia), with over 2,300 daily departures, to more than 227 destinations. Continental, along with Continental Express and Continental Connection, now serves more des- tinations than any other airline in the world.

In 1994, Continental was in trouble. There were ten major U.S. airlines, and Continental ranked tenth in on-time performance, mishandled baggage, customer com- plaints, and denied boardings because of overbooking. Not surprisingly, with this kind of service, Continental was in financial trouble. It had filed for Chapter 11 bankruptcy protection twice in the previous ten years and was heading for a third, and likely final, bankruptcy. It had also gone through ten CEOs in ten years. People joked that Continental was a “Perfect 10.”

Continental’s position in the industry changed dramat- ically over the period 1994–2004. In 1994, Gordon Bethune became Continental’s CEO, and by 1998 he took the com- pany from its “worst to first” position in the airline industry. A key to this turnaround was the Go Forward Plan, which continues to be Continental’s blueprint for success and is increasingly supported by real-time business intelligence (BI) and data warehousing. Currently, the use of real-time technologies has been critical for Continental in moving

from “first to favorite” among its customers, especially among its best customers. Continental’s president and COO, Larry Kellner, describes the impact of real-time BI in the fol- lowing way: “Real-time BI is critical to the accomplishment of our business strategy and has created significant business benefits.” In fact, Continental has realized more than $500 million in cost savings and revenue generation between 1998 and 2004 from its business intelligence initiatives, producing an ROI of more than 1,000 percent.

The Role of Data Warehousing and Business Intelligence

Real-time business intelligence is taking Continental Airlines to new heights. Powered by a real-time data warehouse and strong management leadership around data, the company has dramatically changed all aspects of its business.

Information Wasn’t Available The movement from “worst to first” was only partially supported by information technology. Historically, Continental had outsourced its operational systems (e.g., reservations, payroll, billing) to EDS, and employees had very limited access to data from these systems. Data was locked away in systems that could support operations, but not decision making. Each department had its own approach to data management and reporting. There was no support for ad hoc queries. Employees had to make deci- sions based on intuition rather than on information.

The airline lacked the corporate data infrastructure for employees to quickly access the information they needed to gain key insights about the business. Data was not considered an asset, and was not governed for the good of the enterprise. However, senior management’s vision was to merge data into a single source, with access by employees in all departments.

Enter Data Warehousing Senior management decided to invest in an enterprise data warehouse that all employees could use for quick access to key information about the business and its customers.

This case is adapted from Anderson-Lehman, Ron, Hugh J. Watson, Barbara H. Wixom, and Jeffrey A. Hoffer. 2004. “Continental Airlines Flies High with Real-Time Business Intelligence.” MIS Quarterly Executive 3 (December): 163–176. Revised case study copyright © 2007 by Jeffrey A. Hoffer.

On October 1, 2010, Continental Airlines and United Airlines merged into United Continental Holdings, Inc. This case deals with activi- ties within Continental Airlines before this merger.

CASE STUDY II-2

Real-Time Business Intelligence at Continental Airlines

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Case Study II-2 • Real-Time Business Intelligence at Continental Airlines 285

The CIO at the time, Janet Wejman, recognized that the warehouse was a strategic project and brought the devel- opment and the subsequent maintenance and support in-house. She believed that the warehouse was core to Continental’s business strategy and should not be out- sourced. Work on the warehouse began, and after six months of development, the warehouse was rolled out in June 1998.

The initial focus of the warehouse was to provide accurate, integrated data for revenue management. Before the warehouse, only leg-based (a direct flight from one airport to another) data was available. Continental could not track a customer’s itinerary from origin to destination when it involved more than one stop because itinerary data were held in multiple data- bases. This limited Continental’s ability to understand a market and customer behavior, and optimize its entire network. The warehouse integrated multiple data sources—flight schedule data, customer data, inventory data, and more—to support pricing and revenue man- agement decision making based on origin-to-destination information.

The data warehouse provided a variety of early, big “wins” for the business. The initial applications for pricing and revenue management were followed by the integration of customer information, finance, flight information, and security. They created significant financial lift in all areas of the Go Forward Plan. Exhibit 1 provides two examples of how integrated enterprise data was initially used at Continental.

Taking Things a Step Farther, with “First to Favorite” Once Continental achieved its goals of ranking first in the airline industry in many performance metrics and of return- ing the company to profitability, Gordon Bethune and his management team raised the bar with a new vision. Instead of merely performing best, they wanted Continental to be their customers’ favorite airline. The First to Favorite strat- egy builds on Continental’s operational success and focuses on treating customers extremely well, especially the high- value customers.

The Go Forward Plan identified the actionable ways in which the company could move from first to favorite. Increasingly, information technology was critical for support- ing the plan’s initiatives. At first, having access to historical, integrated information was sufficient to support the Go Forward Plan and to generate considerable value for the com- pany. However, as Continental moved ahead with the First to Favorite strategy, it became increasingly important for the warehouse to provide real-time, actionable information to support tactical decision-making and business processes.

Real-Time BI Applications

Continental moves real-time data (ranging from to-the- minute to hourly) about customers, reservations, check-ins, operations, and flights from its main operational systems to the enterprise data warehouse. The following applications, ranging from revenue management to flight operations to fraud detection, illustrate the variety of key applications that rely on real-time data.

Demand-driven Dispatch

Prior to the warehouse, flight schedules and plane assignments were seldom changed, regardless of changes in markets and passenger levels. Continental flew flights without fully understanding each flight’s profitability. After the data warehouse, Continental created Demand-driven Dispatch, an application that identifies opportunities for maximizing aircraft usage. The application identifies opportunities to make short-term adjustments that do not disrupt operations. For example, it may be possible to swap one routing of an aircraft without disrupting the crews or the maintenance operations. The swap may assign a larger plane to a flight with unusually high demand. This application is very useful when large events, such as the Super Bowl or Mardi Gras, occur. Continental uses this application to “cherry pick” schedule changes that increase revenue. Demand-driven Dispatch has led to an estimated $5 million dollars a year in incremental revenue.

Good Will Letters

An eight-month good will test showed that even small gestures are very important to building loyalty. The warehouse first determined Continental’s high-value customers by marrying profitability data and algorithms with customer records. The marketing department pulled this data from the warehouse and divided a sample of these high-value Continental customers into three groups. When individuals were delayed more than 90 minutes, one group received a form letter apologizing, a second group received the letter and a trial membership to the President’s Club (or some other form of compensation), and a third group received no letter. Customers who received regular written communication spent 8 percent more in the next 12 months. Another unexpected benefit was that nearly 30 percent of those receiving the President’s Club trial membership joined the club. This translated into $6 million. The concept was expanded across the company to include the top 10 percent of Continental’s customers.

EXHIBIT 1 Some of the Initial Data Warehouse Applications

286 Part II • Applying Information Technology

Revenue Management and Revenue Accounting The purpose of revenue management is to maximize rev- enue given a set of resources. An airline seat is a perishable good, and an unfilled seat has no value once a plane takes off. The revenue accounting area seeks to quickly and accurately record the revenues that Continental generates.

Fare Design Continental understands how important it is to offer com- petitive prices for flights to desired places at convenient times. Continental uses real-time data to optimize airfares (using mathematical programming models). Once a change is made in price, revenue management immedi- ately begins tracking the impact of that price on bookings. And, knowing immediately how a fare is selling allows the group to adjust how many seats should be sold at a given price. Last minute, customized discounts can be offered to the most profitable customers, to bring in new revenue, as well as increase customer satisfaction. Continental has earned an estimated $10 million annually through fare design activities. Prior to the availability of real-time data, Continental’s pricing was a less effective balance of filling seats and optimizing fares.

Ticket Facsimile Prior to the warehouse, paper tickets were scanned and archived on microfiche. To access a ticket for research pur- poses, required finding the ticket number, accessing micro- fiche, locating the particular ticket, and printing it. In 2001, the warehouse team built a report in Hyperion Intelligence (the software was called Brio at the time) to “look like” a facsimile of the ticket, and other airlines and agencies agreed to use this as the standard ticket copy for inter- airline transactions. The report is used to interactively search for one or more tickets in a variety of ways and query the real-time booking, customer, and flight informa- tion in the warehouse. The ability to find and print tickets from the warehouse reduced headcount by eight and saves hundreds of thousands of dollars for Continental.

Airline Reservations The ability of customers to make reservations and airlines to accurately process those reservations is critical. While a data warehouse is not typically thought of as supporting airline reservations, Continental’s warehouse sometimes serves as an emergency backup system because it includes real-time reservation data.

Recovering Lost Reservations In 2002, an error in Continental’s reservation system resulted in a loss of 60,000 reservations. Within a matter of hours, the warehouse team developed an application

whereby agents could obtain a customer’s itinerary and con- firm whether the passenger was booked on flights based on warehouse data.

Another similar situation happened recently when the reservation system had problems communicating with other airlines. In certain circumstances, the system was not sending reservation information to other airlines, and, consequently, other airlines weren’t reserving seats for Continental’s passengers. As a result, Continental cus- tomers would arrive for a flight and not have a seat. The data warehouse team was able to run a query to get the information on passengers who were affected and who had not yet flown. This information was fed back into the reservation system so that seats could be assigned, thus avoiding a serious customer relations problem.

Customer Relationship Management The purpose of customer relationship management (CRM) is to increase revenues, profits, and customer service by knowing customers exceptionally well and giving them great service. Continental’s marketing department uses the warehouse for customer segmentation and target market- ing, loyalty/retention management, customer acquisition, channel optimization, and campaign management. In addi- tional to these traditional CRM applications, marketing has created other innovative CRM applications that leverage the warehouse’s real-time capabilities.

Customer Value Analysis A customer value model using frequency, recency, and monetary value gives Continental an understanding of its most profitable customers. Every month, the cus- tomer value analysis is performed using data in the warehouse, and the value is fed back to Continental’s customer database. Although the value is not adjusted real-time (because some source systems needed for the value analysis can provide the data only once per month), the value is provided to Continental’s customer- facing systems so that employees know who the best customers are.

This understanding helps Continental react effectively in tough situations. For example, post-9/11, Continental used the results of its customer value model to understand who and where their best customers were stranded around the world. Continental applied this information to its flight rescheduling priorities. And, while the schedules were being revised, the company worked with its lodging and rental car partners to make arrangements for its stranded customers. The highest value customer was in Zurich, and he used Continental’s offices to conduct business until he was able to get home.

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Marketing Insight Marketing Insight was developed to provide sales personnel, marketing managers, and flight personnel (e.g., ticket agents, flight attendants) with customer profiles. They can see how much someone has traveled with Continental and what the person’s value is to the airline. Flight attendants receive the information by reading their “final report,” which lists the passengers on their flights, expanded to include value infor- mation. Gate agents are able to pull customer information up on their screens and drill into flight history to see which high- value customers have had flight disruptions. A commonly told story is about a flight attendant who heard about a high- value customer’s recent flight disruption and apologized on behalf of Continental. The passenger was floored that she would know about the incident and then care enough to apologize. President and COO, Larry Kellner, loves the Marketing Insight application because if someone calls him on the phone, he can input their frequent flier number to identify the customer. He knows immediately if he is speak- ing with a customer who flies every week or once a year and responds accordingly.

A Personal Touch At Continental, like at most companies, a relatively small percentage of customers are responsible for a dispropor- tionate amount of the company’s profits. Using data from the warehouse, each quarter Continental’s top 3,000 cus- tomers are sent handwritten notes from senior management. A note may say, “I see that you live in Houston. Hope that you have tried the Presidents Club, it has wireless Internet access,” or “You checked in on Continental.com. I hope that you liked the service.” Sometimes these customers are sent a personalized report card (based on up-to-the minute ware- house data) that shows the on-time performance of the flights that they were on. The response to this personal touch has been outstanding. Many fliers select carriers on the basis of price, but many of the most profitable customers do it on the basis of the relationships that are created and the attention and service that go along with the relationships.

Elite Access Elite Access is one of the perks that Continental extends to its high-volume, high-profit customers. Qualifying travelers receive priority check-in, priority security screening, priority boarding, priority baggage handling, seat upgrades when available, and additional mileage credit when they happen to be assigned to a middle seat. Prior to the warehouse, marketing assumed that nearly all of the people who qualified for Elite Access were One Pass (Continental’s frequent-flyer program) mem- bers. This proved to be incorrect. Through an analysis of

warehouse data, Continental discovered that 60 percent of the high-value customers were not One Pass mem- bers, and as a result, were not receiving Elite Access service. These customers were going to the airport, standing in (long) lines, not benefiting from high-prior- ity service, and not receiving any seat upgrades. In other words, they were receiving baseline service. With the real-time warehouse in place, these customers are identi- fied as soon as they check in. They receive Elite Access treatment because Continental’s systems can identify them at all of the customer touch points. They do not have to be One Pass members to be recognized.