Business
Plane Spoken
How has Gordon Bethune turned around Continental Airlines in only four years? By focusing on his employees-and thinking like one.
(Page 2 of 2)
At first it seemed like a bad decision; shortly after settling into Continental’s Houston digs, Bethune called it “the worst career move I’ve made in my life.” For one thing, the company’s CEO, Bob Ferguson, was standoffish. “He didn’t want to work with anybody,” says Greg Brenneman, a turnaround consultant hired in 1993 to reorganize the airline’s maintenance operations. In October 1994, when it became clear that Continental’s board had also soured on Ferguson, Bethune and Brenneman concocted a plan to save the company. “Gordon and I literally sat down at his dining room table over multiple bottles of wine for three nights in a row and wrote down everything we thought was brain-dead about Continental,” Brenneman recalls.
When Ferguson resigned the following month, Bethune saw his opening: He presented his plan to the board and promised to make $45 million in 1995. They were impressed enough to make him a member of something called Office of the Chairman, but they would not give him Ferguson’s job—and that didn’t sit well with Bethune, who had just turned down a $6 million deal to serve as president and chief operating officer of United Airlines. “So I told them, ‘You guys don’t want me to run it? Fine. You run it,’” Bethune says. “I told [majority shareholder David] Bonderman, ‘Hey, David, you’d better get up off your ass and come down and run this company.’ And he says, ‘You know, Gordon, I don’t want to do that.’” Two hours later, Bethune was chairman and CEO.
Once in control, he acted immediately. First he named his cohort Brenneman as president and chief operating officer. Then he dismantled Continental Lite, the company’s ill-fated attempt at spinning off a discount airline. Then he fired 50 of Continental’s 61 officers because, as Brenneman puts it, “either we tried the pre—frontal lobotomy and it didn’t take or, quite frankly, they just weren’t smart enough to cut it.” Bethune reorganized those 61 positions into 20, and on his orders the new team similarly purged middle management.
Still, Continental found itself in serious financial trouble just before Thanksgiving, 1994, with outstanding bills that would have left its accounts overdrawn by $4 million just two months later. “We weren’t in bankruptcy,” says Brenneman, “but you could see it from where we were standing.” Bethune called Ron Woodard, the president of Boeing, which held $60 million of Continental’s money as nonrefundable deposits on future airplane deliveries, and explained the gravity of the situation. Could Continental have the money back? Woodard initially said no, but at Bethune’s urging he agreed to send half. “Don’t send it,” Bethune said. “We need it wire-transferred—now.” Continental was able to pay its bills. “If we had had to file,” Bethune says today, “we would have had to liquidate. I would have resigned, and Continental would have been history.”
Instead, Bethune got his chance to salvage a failing operation. That same month, he unveiled the “Go Forward” plan, the cornerstone of which was an attempt to improve on-time performance by creating incentives for employees to work harder, longer, and faster: Management promised a $65 check to each employee every time Continental finished in the top half of the Department of Transportation’s annual on-time rankings. (Two months later, Continental finished first in the rankings for the first time ever; to date, the company has paid out more than $60 million in on-time bonuses.) He also began holding an open house for employees in the executive suite on the last working day of the month. He created an employee suggestion hot line and promised that a management committee would respond within 48 hours.
Almost instantly, these changes began to bear fruit. By year’s end, Continental had earned a pretax profit of $202 million, far in excess of what Bethune had predicted. Employees received their first-ever profit-sharing checks. In 1996 the airline won Frequent Flyer magazine’s J. D. Power award for customer satisfaction on flights of more than five hundred miles (the following year, it won the award again). Air Transport World magazine named Continental the airline of the year for 1996. Profits for 1996 were a corporate record $556 million; the next year they were $640 million. Best of all, in May 1996, Fortune named Continental the best investment of the five hundred biggest U.S. corporations, citing a 356 percent return. If you had invested $10,000 in Continental in 1995, when its stock price was just 3 1�4, it would be worth around $180,000 today.
In light of such success, it’s no wonder that Continental found itself the subject of a bidding war. All throughout 1997, Delta Airlines and Northwest Airlines each courted David Bonderman in an effort to buy his controlling interest in Continental, which amounted to 14 percent equity and 51 percent of shareholder votes. On Tuesday, January 20, 1998, Bethune got word that a deal with Delta was imminent. Rumors to that effect spread within the ranks too, and that Friday, officers of the pilots union asked Continental senior vice president Mike Campbell what was up. He refused to answer. At ten in the morning on Super Bowl Sunday, January 25, the pilots union president, Len Nikolai, was informed that the board would be meeting that day to finalize either a merger with Delta or an alliance with Northwest. According to Nikolai, the Delta merger would have disbanded the pilots union. He faxed a letter to the board meeting warning that a Delta merger would “create the danger of serious labor unrest.”
The next day, Continental announced that Bonderman had sold his stake to Northwest for $511 million as part of a proposed ten-year alliance between the airlines, which would effectively join forces. As Bethune tells it, his number one concern in the negotiations was protecting Continental’s employees. “Well, they’re our guys,” he says. “They’re the guys that got us here. Do I owe them? You bet your ass I owe them. They did what I asked them to do. Who recruited them and told them that if they did this, everything would be okay? I did. So you oughta make sure they’re okay. That’s why I said we would never be part of a deal that would screw them.”
Two weeks after the alliance was announced, Bethune’s employee-appreciation shtick was on display in New Jersey, as he hopped off a Brinks armored truck on the tarmac at Newark International Airport. Continental employees greeted him with a warm round of applause, and why not? It was profit-sharing day at the airline, which had made money for the third year in a row. Flanked by Brinks guards carrying bulging money bags stuffed with paper, Bethune entered the terminal area, where there were more applauding employees and banners done up to look like checks made out for $105 million—the total profit sharing for 1997. He then walked onto a stage decorated with more money bags and began to give out real checks equal to 7 percent of each employee’s annual pay.
Two hours later, he caught a plane to Cleveland, where he was greeted by Continental employees wearing T-shirts bearing the likeness of a $100 bill, except the picture of Benjamin Franklin was replaced by the face of Bethune; “In God We Trust” was replaced by “In Gordon We Trust.” More applause. More checks.
Finally, at the end of a long day, Bethune flew home to Houston, where he took note of the passengers in a frantically busy terminal at Intercontinental Airport. “You see that?” he said. “That is money.” As if on cue, three off-duty flight attendants strolled by, flashing big smiles and half-singing in unison, “Hi, Gordon.” “My God!” said Bethune. “In my next life, I think I’m gonna be a flight attendant.”
Pages: 1 2
My Library
