ISSUES IN ACCOUNTING EDUCATION
Vol. 26, No. 1
2011
pp. 181–200

American Accounting Association
DOI: 10.2308/iace.2011.26.1.181

A Case Study on Cost Estimation and
Profitability Analysis at Continental Airlines
Francisco J. Román
ABSTRACT: This case exposes students to the application of regression analyses to be used as a tool pursuant to understanding cost behavior and forecasting future costs using publicly available data from Continental Airlines. Specifically, the case focuses on the harsh financial situation faced by Continental as a result of the recent financial crisis and the challenges it faces to remain profitable. It then highlights the importance of reducing and controlling costs as a viable strategy to restore
Management anticipated that this decision would reduce several of the firm’s operating costs.
Apart from this, Continental could achieve further reductions in costs by implementing several cost-cutting initiatives and through operational efficiencies. For example, management pro-

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To illustrate, jet fuel is tied to the price of oil and, over the past year, oil prices surged from about $70 to $135 per barrel.
Consequently, the price of jet fuel increased markedly, from an average of $1.77 per gallon to $4.20 by the mid-summer of 2008.
Specifically, on June 13, 2008, Continental Airlines announced that it planned to reduce its flight capacity by 11 percent.
By shrinking capacity, Continental expected to reduce the number of domestic and international flights from its three major hubs in Houston, Cleveland, and Newark Maynard 2008 .

Issues in Accounting Education
American Accounting Association

Volume 26, No. 1, 2011

A Case Study on Cost Estimation and Profitability Analysis at Continental Airlines

183

jected that it could achieve reductions in Passenger Services expenses by consolidating several tasks during passenger check-in and by reducing food and beverage waste served during flights.
Additionally, the