How has Gordon Bethune turned around Continental Airlines in only four years? By focusing on his employees-and thinking like one.
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SITTING IN THE COCKPIT of his metallic-gray 1998 Porsche 911 cabriolet, Gordon Bethune was gearing up for a lunch meeting with a group of newly hired pilots at a hotel near George Bush Intercontinental Airport in Houston. The 56-year-old chairman and CEO of Continental Airlines was talking away about the state of labor relations at his company as he neared the ramp that leads from Interstate 45 to the Hardy Toll Road when suddenly the conversation stopped. “Look at this shit,” he said, waving at the road. “These people are going thirty-five in a sixty-five. What’s wrong with them?” As soon as the traffic cleared, he floored it. “Look,” he yelled a couple of seconds later, pointing at the speedometer, “One hundred and twenty and we’re only in fourth gear. Sometimes, after a long day, I come down here and get it up to one hundred and forty or one hundred and fifty. It’s f—ing therapeutic.”
On this February day, Bethune—who normally looks like a cross between John Madden and Tommy Lee Jones—resembled Robert Duvall in Apocalypse Now, ranting about how he loves the smell of napalm in the morning. And, indeed, although Continental today is not the war zone it has been for most of the past fifteen years, remnants of past struggles linger like unexploded land mines. Those mines seem to be concentrated around the company’s pilots, and Bethune knows that in his dealings with them, complacency is out of the question. When he arrived at the hotel conference room, he set his sights on a pilot trainee across from him. After he sat down on the inside of a U-shaped set of tables, decked out in cowboy boots and a blue oxford shirt but no tie, Bethune took bites of chicken and rice and asked the trainee what he did before he was hired by Continental. “Flew for a Belgian airline, sir,” the trainee said, fidgeting nervously.
“Did you learn French?” asked Bethune.
“That’s good,” said Bethune, who sensed correctly that he had the attention of everyone in the room. “I always thought the best way to learn a language was by osmosis.” After a brief pause, he continued in a serious tone: “In bed, that is. With a woman. That’s why the first three words I learned in French were ‘faster, faster, faster.’” Except for the one female pilot in the room, who seemed to be holding back a grimace, everyone erupted in the throaty har-har-har of a group of good ol’ boys.
The moment was vintage Bethune—the corporate chief as regular guy, yukking it up in the trenches—and it tells you everything you need to know about the way he runs Continental, which has gone from laughingstock of the airline industry to one of its undisputed leaders during his four years at the helm. As Bethune explains in a new book he coauthored, From Worst to First: Behind the Scenes of Continental’s Remarkable Comeback (John Wiley and Sons), his strategy centers on his employees; he speaks their language, boiling down business complexities into folksy (if occasionally off-color) anecdotes and phrases. “Gordon is extremely smart and driven, which is not unusual for guys at his level,” says David deWilde, the San Francisco headhunter who recruited Bethune on Continental’s behalf. “Where he’s unique is in his understanding of people. He’s comfortable in the boardroom and on the shop floor.” Bethune’s tenure hasn’t been seamless—his testimony before a Texas House committee last session during a hearing on jet fuel prices was so disjointed that onlookers whispered he was “Gordon Buffoon”—but he has mostly avoided major missteps. And his stewardship of Continental’s recently announced alliance with rival Northwest Airlines was masterful.
Given Continental’s history of contentious labor relations, a get-along approach was just what the company needed. Back in 1983, two years after his hostile takeover of Continental, the infamous Frank Lorenzo found he was unable to win wage concessions from the airline’s employees to help finance its debt—so he declared bankruptcy, fired everyone, and then offered some workers their jobs back at roughly half-pay. Four years later, Lorenzo merged three smaller airlines he owned—New York Air, PeoplExpress, and Frontier—into Continental, creating the nation’s fifth-largest airline, albeit one with a severely disgruntled work force. That bad feeling translated into bad service: As recorded by the U.S. Department of Transportation, customer complaints against Continental from January to April 1987 were more than twice the number filed against all other airlines combined. Continental’s work culture was changed forever, and the gulf between labor and management widened. “Our employees were like abused children, and management was the abusive parent,” says Bethune. “For years they had been beaten, slapped, made to kneel bare-legged on uncooked rice, or whatever.”
Bethune’s history suggested he could be the one to bridge the gulf. He was born in Austin on August 29, 1941; his father was a crop duster and his mother sold Americana encyclopedias. After dropping out of high school at age seventeen, he joined the Navy and remained there for twenty years, serving mostly as an enlisted man and working on or supervising aircraft maintenance teams the entire time. Bethune, who earned the nickname Oilcan in the Navy, has many fond memories of that period in his life, but none fonder than the day he quietly ordered his crew of mechanics not to touch a plane needed by his commanding officer because “he was such an asshole.” Feigning confusion, Bethune let the plane sit for two hours in perfectly good working order before signing off.
In 1979, a year after he returned to civilian life, Bethune was hired by Braniff as its supervisor of subcontracted mechanics. Three years later, he joined Western Airlines as vice president of engineering and maintenance. In 1984 he left for Piedmont Airlines, where he worked his way up to head of operations; while there, at age 43, he earned a bachelor’s degree in general studies from Abilene Christian University. When Piedmont was bought out by USAir in 1987, Bethune went to work at Boeing, where he eventually came to run the Renton Division, which was in charge of manufacturing and engineering the 737 and 757 aircraft. Within the corridors of Boeing, Renton was considered a stepping-stone to CEO, and Bethune seemed well positioned for it. The company even sent him to an executive-training program at Harvard University to instill an appropriately corporate Ivy League mindset. But he grew restless at Boeing, and on Valentine’s Day, 1994, he was hired by Continental as its president and chief operating officer.
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 1ï¿½4, 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.”