Evan Smith: I imagine it must be weird for you to be stepping aside, on December 30, after a decade as CEO.
Gordon Bethune: I’ve been trying to frame it. There are going to be days when I’ll wake up in the morning and I’ll really want to go to work—I’ll miss the hell out of this place—but I won’t be able to because I don’t work here anymore. Then there will be some mornings when I’ll get up and say, “Man, am I glad I don’t do this shit.” The transition will be tough, but at the same time, in many industries nobody lasts ten years. In this industry no one ever does. So I have to take some comfort in the fact that I did a good job. I must have. I’m still here, right?
ES: That’s awfully cheerful-sounding for someone whose board of directors essentially showed him the door.
GB: Well, I was part of the decision process. When it happened, it was by agreement. I was more than happy to leave provided some issues were cleared up at the company before I left. The board could always fire me, but they were not going to. So I had to say, “Sure, I’ll go. But this is what I want before I leave so that we don’t have anybody backpedaling on what we’ve worked so long to accomplish.”
ES: In fact, the sense out there in the world is that you were not happy to go.
GB: I don’t think you’re ever happy to give up a relationship that you love as much as I love this company. But it’s going to happen sooner or later. How many guys do you see stick around way after they should have left, right? So there’s a time to go. My time is probably now. It’s just as good a time as any.
ES: But you didn’t decide that. Someone forced your hand.
GB: Well, I did too decide it, because if I didn’t want to go, I wouldn’t be going. I would have told them to go blow it out their goat-smelling tail.
ES: You mentioned all you’ve accomplished. Tell me about it.
GB: When I took over in ’94, we were like an airplane with an engine out, and the hydraulics weren’t working, and we didn’t know how much fuel we had. Today we’re at 30,000 feet, flying straight and level, going where we want, and both of our engines are running on adequate fuel.
ES: How did you get it back on track?
GB: We showed our employees that there was nothing wrong with us. When I came in, we got new airplanes at a cost of capital that was at a fifty-year low, so we had the tools. And what happened the next year? We had the same people flying to the same cities, and we were number one in on-time service, and we made a lot of money. There was nothing wrong with the people then, was there? Never was. Nothing wrong with the cities we served. Nothing wrong with anything. Once we pulled together in a common way, we were unbeatable.
ES: Not every airline is smart enough to focus on something as simple as self-confidence. They focus on more complicated things—and usually the wrong ones.
GB: Isn’t that sad? [Psychologist Abraham] Maslow talked about our hierarchy of needs, how it goes from oxygen to self-actualization. Most people want to f— around with the self-actualization: “Is my life meaningful?” Forget that. We need water and air down here! So a lot of airlines skip the part about “get the guy’s underwear to him” and worry about the goddamn movie. And they want to do market share as a metric of success. It’s not about market share. If you have a successful company, you will get your market share. But to get a successful company, what do you have to have? The same metrics of success that your customer does.
ES: So how’s your market share?
GB: It is what it is, though it’s growing. What I really worry about is a sustainable profit margin. Not revenue and not costs—margin. If you get focused on costs, you get into the whole spiral that Continental did before. We had the cheapest airline after Frank [Lorenzo] bankrupted the place. And we tore up our labor contracts and repudiated our leases and debt obligations, and then we almost went broke again in ’94. It isn’t about cheap. You can make a pizza so cheap nobody will eat it. You can make an airline so cheap nobody will fly it. It’s about the product and what people want and having our employees want to work here. A fundamental belief of this company is “Clean, safe, and reliable.” We’re never going to cut money so that we’re not clean, safe, and reliable for our customers. And we’re never going to cut money so that we don’t treat our employees with dignity and respect.
ES: Give me an example of respecting your employees.
GB: Every day for the last ten years we’ve done news updates. We post them on one thousand bulletin boards around the world, they pop up in your e-mail box, and they get transcribed and read into voice mail. There’s an 800 number you can call to get them. The updates say what our stock did that day, what our on-time percentage was, and what’s going on in the industry.
ES: That must have been a useful policy after 9/11.
GB: We had a hundred-and-fifty-something airplanes in the sky that day when the FAA ordered us to land at the nearest airfields. We didn’t know who was on our planes. We were all afraid, like everyone else. We had people scattered all over the world. Of course, we had a lot of young employees who didn’t know what was happening, and guess what they did when they got to their hotel rooms? Beep, beep, beep—on the phone to that 800 number they always call. For a while we’d do updates five or six times a day. Our employees knew where to go to get the information, and they were okay, to the extent that anybody could have been okay.
Think of a football team. Before the play, there’s a huddle. And who do they let in the huddle? Everybody on the team, not just the big shots in the backfield. Because everybody needs to know, and that’s how we operate the company. So when Fortune surveys our employees and asks, “Does your employer tell you what’s going on?” they say, “Yes.” “Does he treat you with dignity and respect?” “Yes, because he takes the time to tell us.”
ES: What happens when you have to tell them bad news?
GB: The secret of employee relations is, Don’t lie. After 9/11, we did the math on the back of an envelope. We had been a $10 billion company spending $9.5 billion, and all of a sudden changes in the market made us an $8 billion company, but we were still spending $9.5 billion. So we said, “How much money do we have in the bank? How long can we keep this up? How quickly can we off-load some of this debt?” Most of the things you spend money on, like airplane payments, aren’t variable costs. They don’t go away. So we had to lay off 12,000 people. And our attitude was, “Since we know it, let’s go tell them.” You’ve got to be straight with them. They’re not children. They’re your partners. You don’t lie to your doctor, you don’t lie to your attorney, and you don’t lie to your employees. It’s self-defeating.
ES: How is it that you have such a good feel for what motivates the guys on the line?
GB: I was a maintenance officer in the Navy. That was my job, and the airplanes were like the airplanes at Continental. If you piss off all the mechanics, the airplanes don’t run on time. That’s the way it works, right? When I was a mechanic and you treated me like shit—well, it’s just like when you take your girlfriend for granted. She’s going to show you that you shouldn’t have done that. One way or another, you’re going to get paid back. You know how much faster I could fix an airplane when I wanted to than when I didn’t want to? At the same time, I got away with murder in the Navy: long hair, buckles on my shoes. You know why? Because Bethune always made the schedule.
ES: It sounds like you have the “managing down” part pretty well in hand. Back to the board for a sec—what about “managing up”?
GB: There is no bench seat in a cockpit, just one guy flying the airplane. So if you’re the board, you hire a really good pilot and make sure he’s not smoking dope or getting intoxicated the night before, and when he’s doing a good job, you leave him alone. To the board’s credit, I’ve been generally left alone.
I’ve always said that managing up ought to be predicated on what’s good for the shareholders. And in my ten-year history with this company, I’ve never had one disagreement with my board on a business issue. Most of the time, the things I wanted to do were good for shareholders and good for employees. Quite frankly, the success story’s pretty hard to replicate.
ES: When didn’t they leave you alone?
GB: A couple of times, not every board member had the best interests of the shareholders in mind. Their judgment was colored by some of their investments in companies outside our arena, and it’s hard not to understand the conflict. If you have investments here and investments there and what I’m doing here is hurting you over there and you’d like me to modify my behavior—I refuse to recognize that. There’s only one way out of that kind of conflict, and that’s what’s best for our employees and our shareholders.
ES: Is this a good time or a bad time to run an airline?
GB: Well, you wouldn’t choose to run an airline today.
GB: Because you’re only as good as your dumbest competitor. And there’s this huge contest to see who’s going to win that award. Right now, there’s a big fight between Atlanta and Minneapolis, but it looks like Minneapolis might win.
ES: Just to be clear: Atlanta is Delta and Minneapolis is Northwest?
GB: I didn’t want to say it.
ES: Why else wouldn’t you run an airline?
GB: Because of the government. Did you know that after 9/11, we didn’t fly an airplane in this country for three or four days? Nothing happened. M. D. Anderson? No one came. Honolulu might as well have not existed. Amazon.com? You double-clicked; it never showed up. Who gets the aspirin on the shelves of the Walgreens in Anchorage if we don’t show up? The whole world stopped. And the government’s response was to let us self-destruct. Why put taxes that were appropriate ten years ago on an industry in intensive care? They like to talk about government bailouts after 9/11 because they sent $5 billion back to all of us after they stopped our business for four days. But this year alone, we’ll send those turkeys $14 billion in federal non-income taxes and fees. The reason they sent the $5 billion was because they didn’t want to let go of the $14 billion bloodsucking. Our government needs to wake up. This is a fragile part of the infrastructure of our country that is absolutely vital to its existence. When it doesn’t work, the economy slows.
ES: Does your beef with the government extend to the state?
GB: I think the state is blessed and smart. They’re blessed in that they have three airlines: American, Southwest, and Continental. No other state has anywhere close to that. They’re smart, because it’s a good place to work. The tax structure allows us to come. They don’t do foolish things to run us off. Now, there’s always some dumb-shit legislator who wants to tax something that would just run us off, but most of the legislators and the governor understand. We’ve got a lot of economic power coming into this state, and we should keep it as a good place to do business.
ES: A lot of industries want government to do something. You want government not to do something.
GB: When I was testifying before Congress earlier this year, I said the only request I would have of government is to take the word “airline” out of its lexicon. Never use the word again, never put it in legislation—forget about it. Because every time you bring us up, you push us deeper under the water. And the best thing that government could do to us is get the hell out of our business.
ES: Let’s talk about your competitors. Anyone or anything you admire?
GB: Well, I’ve always admired [former Southwest Airlines CEO] Herb Kelleher, because he’s got the discipline. He knows his market, and he’s identified what he wants out of it. He’s not trying to be us. He’s going to be him, and he’s very good at it. And he admires people who actually know what they’re doing and know how to do it well.
ES: Who else?
GB: [Federal Express CEO] Fred Smith—one of the most brilliant, professional, disciplined guys in aviation today. [Former American Airlines CEO] Bob Crandall. Bob and I, I bet you, see eye to eye on 99 out of 100 things. We don’t see eye to eye on how to achieve them, but we see what needs to be done. Look what he did for American. He moved the company from New York to Dallas in ’79 and built one of the biggest franchises there ever was. It’s the number one airline in the world today. Bob Crandall did that, right? And he did it his way, but you’ve got to give him credit for doing it.
ES: Smith is still the CEO of Fed Ex, but Crandall and Kelleher both peeled off in the past decade and—what do you know?—their successors didn’t last very long. Does that have to do with the cultures of their companies?
GB: That’s a good question. Let me tell you a story about [Crandall’s successor] Don Carty. Bob Crandall has a dog that he keeps in his backyard on a chain, and every day he comes out and kicks the shit out of the dog. The dog hates his guts, but he can’t get him because of the chain. And Don goes out there with Bob sometimes, but he never kicks the dog, because it’s Bob’s dog. One day Bob says, “You know what? I’m going to retire. And Don, I’m going to give you the dog.” So Don reaches out to the dog: “Hi, puppy. How are you?” What do you think the f—ing dog does? Bites the shit out of Don. You changed the owner, but you didn’t change the dog. It’s very predictable. If you kick the shit out of a group of people and then you give the people to someone else, they don’t change because the boss does.
ES: Do you ever look at a competitor and think, “You know something? We should do what they’re doing.”
GB: No, actually, we’ve said we don’t want to do that for sure.
ES: Give me an example.
GB: One airline decided to give out on-time bonuses. You know who they gave them to? The management. The stupid shits! You’re telling me that as a pilot I don’t get an on-time bonus, but this f—ing guy does? Watch out.
Another story. An airline executive was once quoted as saying, “I wouldn’t give my employees extra money just to do their jobs.” Look at his compensation! He had incentive compensation for every f—ing thing he did. Did he think the mechanics were less human and wouldn’t work a little harder for extra money? Well, then, why not pay them extra to do a better job?
I was making this point recently to a group of intellectual dudes who are considered my peers, and I said, “Do you ever wonder why fishermen put bait on the hook? Well, let me tell you why. Because the fish doesn’t give a f— about you. The fish has his own agenda, which does not include getting in your boat and feeding your ass or getting you some money. It’s not on his list of things to do. You, on the other hand, need the fish. So it’s incumbent on you to motivate the fish, and it’s incumbent on you to know what that fish likes. And they don’t all like the same thing, which is your f—ing problem too. If you are smart enough to know something about the f—ing fish and where he resides and you put the right bait on, he might get off his ass and help you.” Now, is that pretty f—ing simple?
ES: Last question: What are you going to do after you step down? Run another airline, maybe?
GB: I’ve always had people call and say, “Could you help us?” Looking out the window, I know that a lot of money’s going to get lost in this business the next few years. The people who have that money don’t want to lose it. Then there’s a whole other group of people who will look from the outside and think that there are a lot of opportunities to make money in this changing environment. Both of those camps will call, people who know something about how we get this done, and I’m going to have to think what I want to do.
ES: So staying in the airline industry, if a job came along, is not a given?
GB: I’m going to pick up the phone and say, “Hello,” and then say, “Explain to me why I would want to get in your boat and help you feed your family. Why in the shit would I want to do that?”