When Gordon Bethune joined Continental Airlines in 1994, the air carrier was emerging from its second bankruptcy.
Bethune, hired away from Boeing to lead the turnaround, in 1995 rolled out a four-point “Go Forward” plan in an attempt to return the airline to respectability.
Five years later, he has transformed Continental from the worst of the large carriers to first in its class. At the same time, he has set the standard for corporate turnarounds. By focusing on its hub-based transportation system, Continental has redrawn its method for doing business.
And, since 1995, when the airline closed out the year with its largest annual profit in its 61-year history, Continental has consistently ranked at or near the top of its industry in on-time performance, baggage handling and reliability.
Last year, Continental raked in more than $8 billion in revenue. Projections for 2000 have the company near $10 billion by year’s end. Not bad numbers for the Houston-based carrier that has defied the critics who left it for dead.
Here’s how Bethune did it.
Fly to win
Bethune says he realized that to turn the airline around, he needed a marketing plan focused on “the right areas.”
At the time, Continental ran flights to and from some not-so-popular locations. That quickly changed.
“We set out to fly to places people wanted to go,” Bethune says. “It seemed like a good idea to stop losing money on unprofitable flights.”
The strategy focused on shoring up the company’s strongest locations — the Houston headquarters and its two other major hubs, Cleveland and Newark.
“We asked our customers what they wanted,” Bethune says. “And we decided to measure our success the way customers do.”
Fund the future
In 1994, Continental’s liquidity was poor. It was a $6 billion company that didn’t know how to manage cash flow.
“We had a 50-1 debt equity and a fleet of used airplanes,” Bethune says. “We needed to honor our commitments and sat down with our creditors.”
The goal was to lower the debt equity while at the same time upgrade the fleet. Bethune turned to his former employer.
“We had a $60 million deposit with Boeing,” he recalls. “I called them up and asked for it back.”
After much wrangling, Boeing agreed to wire transfer Continental $27 million of the deposit.
“That made all the difference,” he says. “We never dipped into negative cash flow again.”
Today, the company has the youngest fleet in America, a 5-1 debt equity and, says Bethune, “a cash position better than $1 billion.”
Make reliability a reality
When Bethune assumed the reins, Continental’s reliability was a joke.
“We had a flight schedule that didn’t work,” he says. “And, we were losing $6 million a month by being late.”
So management met with the employees — whom Bethune says were most in tune with the way the business actually worked — and asked what they believed were realistic time schedules for flights. There were also incentives for reaching those goals.
“By getting flights to depart and arrive on time, we determined we could save that $6 million,” Bethune says. “That equated to $65 per person companywide.”
Bethune then set out to reach No. 1 in on-time reliability in the industry.
When it reached the goal in March 1995, Bethune gave that money back to the employees.
“Since 1995, we have consistently performed better than our competitors,” he says. “The employees changed their behavior to work together. Now we’ve upped that reward system to $100 per person.”
A company is only as good as the employees who work in it, Bethune says. And, the more the employees know about the company, the better the chance that they’ll buy into the corporate philosophy.
“Over the past six years, we’ve included employees in the process with daily news updates,” he says. “We tell them what the stock price is and what’s going on in the industry. Every day, our employees know what we, as a company, are doing.”
Continental also employs a profit-sharing program, which Bethune says demonstrates that everyone is part of the company’s success or failure. Fifteen percent of the company’s pretax profits are distributed to employees.
Bethune says it’s a system that can apply to companies of all sizes, not just multibillion dollar conglomerates.
“It’s a matter of clearly setting goals for employees to succeed,” he says. “If you tell people how to win and how to keep score, get out of the way.” How to reach: Continental Airlines, www.continental.com
Dustin Klein ([email protected]) is editor of SBN.