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Why Was Continental So Bad?
Gordon Bethune left his job at Boeing to become the president and COO of Continental Airlines. The airline was in terrible shape, being the worst among its competitors in several key areas: on-time percentages, mishandled baggage reports, and customer satisfaction.
Continental Airlines had filed for bankruptcy twice in the last 10 years. During that time, it had gone through 10 different leaders. It also paid its employees far less than other airlines did. Employees were unhappy with their jobs and frequently fought among themselves because of a union-busting strategy from previous management. They also relied on what they called “the duck” strategy: do as little work as possible, stay out of trouble and cover your ass by doing just enough to get by.
Bethune turned the airline around. He took deliberate steps to improve performance, create incentive pay and control costs. Customers began coming back as well as making a profit in 1995. The company’s stock rose too.
In November, Bethune convinced the board to make him CEO. Since then, it has been profitable for 16 straight quarters.
When Bethune joined Continental as the president and chief operating officer, he opened up the 20th floor of their building to employees because it was important for them to have a more open relationship with upper management.
He first started cutting costs and managing the marketing. He was initially not made CEO, but he convinced them to make him CEO after six months. He proposed a plan with Greg Brenneman, who is now president and COO of Continental Airlines. This plan emphasized that they needed someone at the top in charge of a complete change effort – not a committee or temporary acting manager. They finally agreed to this idea. Now he could implement his four-part “Go Forward” plan, covering marketing, finance, product and people:
1. Marketing Plan: “Fly to Win”
The plan emphasized success and achievement. It involved dropping routes that weren’t profitable, as well as apologizing to travel agents for the past treatment they received from Continental Airlines.
2. Financial Plan: “Fund the Future”
Bethune’s company was losing money. To know how much the airline was making or losing each day, he updated its financial system. He took steps to avert bankruptcy by renegotiating leases, postponing some payments and improving pricing structures.
3. Product Plan: “Make Reliability a Reality”
This plan was designed to improve Continental’s service, so people would want to fly the airline. It included providing basic amenities: on time flights, baggage delivery and friendly employees. The Department of Transportation tracked how often airlines arrived within fifteen minutes of their scheduled arrival time, so Bethune used that as a measure for reliability.
4. People Plan: “Working Together”
Dr. Bethune was a surgeon who created an incentive program to improve cooperation among the hospital staff and encourage more trust between them, based on treating people better and overcoming infighting.
The First Step
Bethune’s first priority was to gain the trust of his employees. They had lost all faith in their management, so he instituted an open-door policy and started inviting them to casual dress Fridays. He also gave tours of the offices and held open houses with food and drinks.
The author sat in the middle of the table, instead of at the head. It created a more collegial atmosphere and made it clear that things were different now. He emphasized being on time for meetings and flights because punctuality is important to both employees and airlines.
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Bethune wanted to emphasize that his employees should use their best judgment in unusual situations. He didn’t want them to rely on rigid rules, so he led a group of employees out to the parking lot where they burned the old employee manuals.
Bethune also standardized the paint scheme on all planes, since Continental was flying planes from five different airlines. He offered employees a $65 bonus if they were in the top five for on-time performance.
To spread the word about their plan, top-level managers made sure to tell employees at almost every company site. They opened up the books and showed them why they had to cut wages that were promised in bankruptcy proceedings and probably lay off some people.
The goal was to get the employees to work together and trust management for a successful turnaround. The CEO, Bethune, believed that the job of a leader is not to control but facilitate people in carrying out their responsibilities. He gave his team an overall direction and let them do their jobs.
Nuts and Bolts of Change
Bethune initially regarded Continental as a patient in an emergency room. First, he checked the product and money flow to see if they were healthy. In this case, the product wasn’t doing well and needed some help.
The “Fly to Win” program focused on fixing the product by determining what market it was competing in, and making sure that its prices were not too cheap. The company also determined what customers wanted most from their flights.
The first thing Bethune did when he took over Continental Airlines was to cut 18% of the company’s routes. He also shifted back to a hub system, which meant flying from larger cities to smaller ones instead of the other way around. This strategy made more money for the company and allowed it to fly fewer planes.
Bethune got different departments to work together. This made for better planning and scheduling, as well as safer flights. He also cut the company’s fleet of A300 planes since smaller ones served routes better, added first-class seats and in-flight food service and started a frequent flyer program called OnePass. The key was providing value to customers by offering what they wanted most at a competitive price.
Continental Airlines was in a bad financial situation. They were bleeding money and soon would be unable to pay their bills or make payroll. In order to fix this problem, the CEO of Continental had to negotiate with creditors for more time on payments, keep customers from leaving by keeping them informed about the negotiations, get new interest rates from lessors so they could bring back planes that they leased out for other airlines’ use and ask Boeing for $29 million back for the A300s that were used by other airlines.
Bethune’s team already had a better handle on finances. They explained the situation to customers and employees, who were open to postponing their cash snapback because of the bankruptcy court agreement. Bethune focused on customer satisfaction and decided that delays impacted that part of business greatly. So, he created a program with $2.5 million in prizes for every month his airline was in the top five airlines for punctuality. When they achieved being number one consistently, he raised the award prize to $100 per employee for first place finisher.
He put in place other ways to reduce lost baggage problems and told employees that safety came first. Additionally, he gave employees more authority to solve minor problems on their own. Management provided a 1-800 number for employees to call if they had any technical issues with operations. As some of the problems were solved, word spread among the staff about how different things were now under Bethune’s leadership.
Finally, Bethune wanted to make his employees feel happy and comfortable. He saw that the on-time bonuses would give everyone a sense of belonging and help them work together as a team. The bonuses were like an extra reward for those who worked hard to ensure that the flights left on time.
Bethune encouraged people to be innovative and independent at work. He allowed flight attendants to make decisions for themselves, even when it meant allowing a passenger to keep her dog on her lap during the flight.
Continental Airlines used a combination of strategies to turn around their business and become profitable. They emphasized teamwork, communication, predictability, measurement and other things that are important for successful businesses.