From Worst to First: Behind the Scenes of Continental's Remarkable Comeback - Softcover

Bethune, Gordon

Softcover

ISBN 10: 0471356522 ISBN 13: 9780471356523

Publisher: Wiley, 1999

Synopsis

The numerous anecdotes alone are worth the price of the book . . . most readers will find themselves asking why everyone doesn't run a business as preached by the chief executive of Continental Airlines.-The Washington Post Book World

. . . in an age where managing seems increasingly complicated, some of Bethune's prescriptions are refreshingly straightforward.-Business Week

From Worst to First outlines Gordon Bethune's triumphs . . . about the turnaround he's led at Continental, a perennial basket case that's become an industry darling.-The Atlanta Journal-Constitution

From Worst to First is [Gordon Bethune's] story of Continental Airlines' turnaround under his command . . . The blueprint has worked . . . Fortune magazine named Continental the company that has 'raised its overall marks more than any other in the 1990s.'-The Seattle Post-Intelligencer

All of Gordon Bethune's proceeds from this book will be donated to the We Care Trust, a nonprofit organization that assists Continental Airlines' employees and their families in times of need.

About this title

About the Author

Gordon Bethune is Chairman and CEO of Continental Airlines. Prior to joining Continental, he was vice president and general manager of customer service at Boeing. Bethune was also a senior operations executive at Braniff Airways, Western, and Piedmont Airlines.

Scott Huler is a professional journalist. He has been published in the New York Times, Washington Post, Los Angeles Times, and other leading North American newspapers and magazines.

Excerpt. © Reprinted by permission. All rights reserved.

From Worst to First

Behind the Scenes of Continental's Remarkable ComebackBy Gordon Bethune

John Wiley & Sons

Copyright © 1999 Gordon Bethune
All right reserved.
ISBN: 9780471356523

CHAPTER ONE

Is This Any Way
to Run an Airline?

    Continental Airlines, in early 1994, was going nowhere, and itwas going nowhere fast.

    If you wanted to get anywhere else fast, like New York orDenver or Cleveland--or, in fact, if you wanted to get anywhereat all and get there on time--you were better off flying almost anyother airline.

    But nowhere? We were going nowhere like we had an appointment.And nowhere is where we could get you, though we probablywould have lost your luggage on the way.

    You think I'm exaggerating. I've got to tell you that I'm not.

    In February of 1994, I left my comfortable job as a big shot inoperations at the Boeing Company in Seattle. I moved to Houstonand took over as president and chief operating officer of Continental.The job looked great--president of the fifth-largestairline in the country. I knew Continental had operating problems,but then, I'm an operations guy, and solving problems is thechallenge any executive looks for.

    Within a few months, however, when United Airlines temptedme to leave Continental and take a similar position there, I lookedat that offer as a parachute and was prepared to take it. I wouldhave given anything to get out of Continental, which was, I hadno doubt, about to crash and burn. I felt as though I had beenhanded the controls of an airplane that people admitted was havinga little trouble. But nobody had told me both engines hadfailed. I could pull the yoke, push the rudders, and goose the throttleall I wanted--but, surprise! It turned out I didn't have all thecontrols, and the controls I had weren't connected to anything.Continental was headed for another financial and operational disaster.And all I could do was watch.

Portrait of a Crisis

Consider these statistics:

* In the years leading up to 1994, Continental was simply the worst among the nation's 10 biggest airlines, which are measured monthly according to several quality indicators by the U.S. Department of Transportation. For example, DOT measures those 10 largest airlines in on-time percentage (the percentage of flights that land within 15 minutes of their scheduled arrival). Continental was dead last.

* It measures the number of mishandled-baggage reports filed per 1,000 passengers. Continental was worst.

* It measures the number of complaints it receives per 100,000 passengers on each airline. Continental was last. And not just last--in 1994, Continental got almost three times as many complaints as the industry average and more than 30 percent more complaints than the ninth-best airline, the runner-up in lousy service. We had a real lock on last place in that category.

* It measures involuntarily denied boarding--passengers with tickets who show up at the gate but because of overbooking or other problems are not allowed to board the plane. That was our big success story: We were only among the worst there, not the worst.

We weren't just the worst big airline. We lapped the field.

    If your planes are showing up whenever they feel like it, if passengersare losing baggage, and if your service is annoying your customersso badly that they feel the need to tell the U.S. governmentabout it, it's going to show up in your financial situation, too.

    And let me tell you, it did.

    For one thing, Continental had gone into Chapter 11 bankruptcyprotection twice in the preceding decade. It had emergedreorganized twice, but somehow in all that time in bankruptcycourt it never found the secret to making a profit. Our stock hadundergone a steady decline throughout the company's times oftroubles, finally settling at around $3.25 a share, where it seemedunalterably stuck. In fact, in early 1995, during our darkest days offinancial crisis, we issued a press release describing our tenth consecutiveyear of losses. We did our best to bury the news that wewere in so much trouble that we weren't just trying to reorganizeour debts--we were simply going to have to stop paying some ofthem (temporarily, we hoped). We weren't in bankruptcy, but wewouldn't have had to change planes to get there.

    We watched the stock anxiously the next day--not a budge. Atfirst we thought we had done a good job of hiding or softening thenews, but then we figured it out. Our stockholders were just bettingwe'd survive. Our stock simply couldn't go any lower. It was atrock bottom.

    Just like company morale.

    In an organization that had suffered through 10 leaders in 10years (and as many different management schemes and new buzzwords),remaining employees had learned one survival strategy:Duck. No matter what management told employees they weresupposed to do, it was a pretty fair guess that it was a lie. And evenif direction was sincerely offered, chances were that long beforeanybody came around to check on whether employees were followingit, some crisis would have caused yet another managementchange. So employees just did what they could and kept theirheads down.

    Not that they did it happily. One of the strategies previousmanagement had used to keep the airline together was union busting,so our employees were paid far below industry average. Theirrepayment for their endurance and ability to hold on was regularlayoffs, wage reductions, and broken promises on wage snapbacksand profit sharing. Our on-the-job injury numbers were astronomical;so were turnover and sick time. Employee groups fought eachother for scarce resources and wages. When problems occurred,which of course they did almost constantly, covering your ass wasa lot more important than solving the problem.

    Continental's airport employees actually removed the Continentalinsignia from their uniforms to avoid having to answeruncomfortable questions from airport coworkers or from customerswhen off duty. When friends asked where they worked, they'dmumble, "Um, out at the airport."

    To put it bluntly, the Good Ship Lollipop we weren't.

    That's what I joined in 1994: a company with a lousy product,angry employees, low wages, a history of ineffective management,and, I soon learned, an incipient bankruptcy, our third, whichwould probably kill us.

    After I moved to Houston to go to work at Continental corporateheadquarters, I didn't sleep real well. But to be honest, sleepingwasn't going to solve this airline's problems.

    In fact, it looked like nothing might. I joined Continental inFebruary 1994. In June, when the United offer came, Continentaloffered me a pile of money to stay instead of jumping. And for reasonsI'll never quite understand, I stayed on. Some of it had to dowith the fact that I had lured several colleagues whom I deeplytrusted and respected to join me at Continental. I couldn't seeabandoning them. Some of it had to do with the challenge of tryingto save a company in such desperate straits. And some of it hadto do with the Continental employees, a disgruntled, angry, mistrustfulbut straightforward lot. For every employee who wouldrespond to me in an understandably surly, angry fashion--"You'rejust like all the rest, we've had 10 presidents and we'll have 10 moreand I'm sick of promises"--there were a dozen who cut right to thechase: "Help us, Gordon," they said. "Do something." They sureneeded me more than a successful company like United ever could.

    I decided to stick it out and do something.

    It turned out to be the best professional move of my life.

    In November, further turmoil landed me the job of chief executiveofficer, which meant that my hand was finally on the control.To put it in pilot's terms, I was finally sitting in the left-handseat. I was flying the airplane.

    I've been flying Continental for almost four years now, andthings are looking a little different.

From Worst to First

Starting early in 1995, a renewed focus on the flight schedule andincentive pay drastically changed our on-time performance, andsince then we've been in the top five almost every month, oftencoming in first. Even when our planes aren't the industry leadersin on-time percentage, our lost-baggage claims are usually amongthe two or three best. Our consumer complaints are continuallybelow the industry average and usually among the lowest in theindustry, and we're the best in the industry at taking care of ourcustomers when the plane is oversold. For 1996, measured as awhole, we were third best or better in all four things the DOTmeasures, which I liken to hitting a grand slam.

    People noticed. Customers began returning, especially thehigher-fare business passengers we most wanted on our planes.From a low of 32.2 percent in 1994, businesspeople climbed to42.8 percent of our customer mix in 1996. And it's not just businesspeople.Now that our product is good, we've found a customerbase again, which has made us profitable: In 1994, we lost $204million; in 1995, we made $202 million; in 1996, we made $556million. We've had eleven straight quarters of record profits.

    Not income: profits. A company that hadn't made a profit in 10years has now had 11 straight profitable quarters, each of themsurpassing the record of the preceding quarter.

    Naturally, our stock has gone through the roof, splitting two-for-oneand, even so, now regularly trading at more than $50.

    A successful workforce is almost always a happy workforce, andContinental is no exception. However you measure the happinessof a workforce, ours scores high:

* Wages have gone up an average of 25 percent.

* Sick leave has gone down more than 29 percent.

* Turnover is down 45 percent.

* Workers' compensation is down 51 percent.

* On-the-job injuries are down more than half, by 54 percent.

    Our employees are better paid and happier, so they show up forwork, stay healthy, and pay close attention to what they're doing.

    And they're not pulling the Continental insignia off their uniformsanymore. In fact, sales of our logo merchandise to employeeshave gone up 400 percent.

    And more than just passengers and employees have noticed.

    As our stock climbed throughout 1995, Business Week magazinechose us as their stock of the year for 1995. Reporters from theWall Street Journal, the New York Times, USA Today, Fortune,Forbes, and other publications came to Continental to write aboutwhat we were doing right. We regularly get requests to talk abouthow to improve quality and morale from organizations like NASAand companies like Honda.

    Best of all, in May 1996, customers surveyed by Frequent FlyerMagazine and the J.D. Power and Associates company awardedContinental the J.D. Power Award for customer satisfaction as thebest airline for flights of 500 miles or more. In 1997 they chose usagain, and we came within a hair of being named the best airline forshort flights, too. No airline had ever before won the J.D. PowerAward twice in a row, and we had not only done it but had almostwon both J.D. Power Awards for airlines. In 1996, the J.D. Powerfolks said they had never before seen an airline go from worst to firstin one year. In 1997, they said they had never before seen an airlinewin two years in a row. We were, frankly, making airline history.

    And in January 1997, Air Transport World, our industry's leadingmonthly, put the final stamp on our turnaround: They calledus the 1996 Airline of the Year, out of the more than 300 airlinesworldwide.

    We were a terrible company that did a lousy job of providingservice, paid its workforce badly, barely managed to hold onto disgruntled,unhappy employees long enough for them to dropwrenches on their feet and file workers' compensation claims, andlost so much money that we were perilously close to our third (andno-doubt final) bankruptcy.

    Now we're the best in our business at providing our service. Ouremployees are better paid and happy. We're consistently profitable,and we have a billion dollars of cash on hand. We're the darlings ofWall Street, and we've made a lot of stockholders happy and rich.And we were recently the object of a bidding war between two ofthe largest airlines in the nation--Delta and Northwest. We usedour position to avoid being gobbled up by some other corporation.Instead, we were acquired by Northwest in a way that allowed us tokeep working as we have learned to work, to keep being the successfulairline we have become.

You, Too, Can Save Your Company, with EmployeesYou Probably Have Around the Shop Right Now!

So how did this all happen?

    On paper, it doesn't make sense. Other than the big shots, wehave all the same people. We're flying pretty much the same airplanes.We're serving pretty much the same cities.

    Only now we're more profitable than we've ever been before,and we're only getting better.

    Is it me, Gordon Bethune? Am I magic? Am I Vince Lombardi,Ronald Reagan, and the Pied Piper all rolled into one?

    I don't think so. But I do think I followed a few extremely simplerules, based on the most obvious understanding of human behavior.

    In this book I'm going to tell you what happened between Februaryof 1994 and today--how a company changed from a placewhere everything went wrong, a place investors, employees, andmost of all customers agreed they wanted nothing to do with, intoan airline investors love, customers choose, and employees areproud to work for. And in fact, I'll reveal how it did more than justchange--how it changed to the best airline flying.

    Someplace between an airline going nowhere fast and our secondstraight J.D. Power award, something went right. I'll tell youwhat I think it was--what my team and I did, what so many othernew managers did, and most of all what the employees of ContinentalAirlines did once we proved to them we wouldn't sabotagethem anymore.

    I'm willing to bet you'll be able to see that almost none of whatwe did here is specific to the airline industry. We're in the businessof taking people where they want to go, on time, with their luggage,in a safe, reliable, and predictable way. We needed to giveour employees a reason to want to do that. Once we were able tocommunicate to them that we might actually be willing to just getout of their way and let them do that, our employees were sohappy they couldn't believe it. And they showed us how good theywere almost instantly.

    It took them a while to believe in us--and you can't blame them.But once we got the managers out of their way, once we startedhelping rather than hindering them, once we started explainingwhat we wanted them to do and then actually rewarding them fordoing that, we found out what I had expected in the first place.

    That we have a great airline here, and 40,000 great people.

    In this country, one measure of excellence is when somebodywants to buy you, right? Naturally, over the last few years Continentalhas had a lot of interest from potential purchasers. And inan era of consolidation, we knew we were going to end up connectedwith somebody. We didn't want to be the last ones at thedance without a partner. But we didn't want to give up what wehad fought for so hard.

    Finally, at the beginning of 1998 we received competing bidsfrom two different airlines: Delta and Northwest. Delta was goingto take us over, in a traditional merger. Northwest was willing toenter into a complex and unprecedented code-sharing alliancewith us, by which they'd own us but the two airlines would stillfunction as independent but complementary companies, givingnew benefits to the stockholders--and customers--of both airlinesbut allowing the corporate spirit we'd spent four years developingto continue to flourish. And, incidentally, ensuring that nota single Continental employee would lose a job as a result.

    Northwest offered a structure that would deliver significantreturns to our shareholders while preserving the things that madeus so successful. Delta offered a divisive merger that would havetreated our employees unfairly and destroyed shareholder value.

    Delta didn't budge, and Northwest worked with us. No surprises:The board chose Northwest.

    When Northwest's deal came through at the last minute, theWall Street Journal reported that the chief executive officer ofDelta replied, "Labor? You mean this thing fell apart over labor?"

    You bet it did. Continental isn't just me, it isn't just our boardmembers and shareholders, and it isn't just our top-level managerswith their incentive plans and golden parachutes. It's 40,000 people.It's all of us, working as a team. It's an entire culture, an entireway of being in business together. We fought for that, and we won.

    It can be exactly the same for you, whether you're making pizza,fixing watches, or flying airplanes. I'm going to tell you how tofind your own great business and great people, no matter how deepthey may seem to be buried. The people probably already work foryou. And I have to tell you, nothing I can say in this book will beanything you haven't heard before. It has to do with being honestand straightforward. It has to do with hiring the best people in thebusiness to fix big problems. It has to do with understanding yourbusiness and what's important to your customers and your employeesas well as your stockholders.

    It has to do with not just identifying strategies but actuallydoing something to solve problems.

    It has to do with getting good information about your performanceand sharing that information with everyone in the company.

    It has to do with constant communication.

    But most of all, it has to do with common sense, decency, andrespect. Those are the most important things Continental hasnow that it didn't have in 1994, and I've got to tell you that theminute we lose those, we're heading right back to the bottom ofthe heap. We can go from first to worst as fast as we went fromworst to first, so I promise you I'll be practicing everything Ipreach here. If I don't, my employees will tell me about it--andthrough their service, they'll sure as hell tell you.

    What I'm going to do in this book is explain to you what happenedat Continental--the simple, sensible changes we made atthe top, how our managers let the employees turn Continentalinto the best airline flying, how we coped with crisis, and how wemoved forward together.

    In Part One, I'll tell you how we changed Continental. Chapter2 will explain how I got control of the airline. Getting theattention of a disgruntled and dispirited group of employees wasan equally challenging project, and I'll explain that.

    In Chapters 3 through 6, I'll outline our Go Forward Plan, thefour-part program that encompasses all aspects of our operations atContinental. It was the blueprint for our turnaround, and to this dayit's the plan by which we do every single thing at Continental. Noshort-lived management mumbo jumbo, the Go Forward Plan was acomplete restating of how we would do business at Continental.And we still follow it today, nearly four years later. I'll also tell youhow, through all the changes, we've managed to keep things freshand keep improving, to keep from resting on our laurels.

    In Part Two, starting with Chapter 8, I'll tell you what welearned as we took this monumentally broken company and fixedit. We'll go over some of the management lessons I've taken awayfrom my experiences here and some of the lessons I learned beforeI got here that helped Continental become such a success story.

    Chapter 14, which ends the book, provides a chapter-by-chaptersummary of all the programs and projects we undertookthat caused our success. So if you're in a terrible rush and just wanta quick rundown of what we did, Chapter 14 can get you there ina hurry. But don't stop there. If you just read Chapter 14 and yourfriends read the whole book, when their businesses are experiencingremarkable successes and yours is just showing gentle improvement,you'll have no one but yourself to blame.

    I expect you'll find everything I tell you fairly simple and sometimeseven obvious. But maybe you'll run across a few thingsyou've forgotten to put into practice or a few ideas you hadn't hadexplained to you quite right before. But I guarantee you wehaven't done anything that you can't do tomorrow (or today) ifyou're just willing to go ahead and do it. Your employees will loveyou for it. So will your investors. And so will your customers.

    The checklist is complete.

    We're cleared for takeoff.

Continues...

Excerpted from From Worst to Firstby Gordon Bethune Copyright © 1999 by Gordon Bethune. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Edition details

• Publisher: Wiley
• Publication date: 1999
• ISBN 10: 0471356522
• ISBN 13: 9780471356523
• Binding: Paperback
• Language: English
• Edition number: 1
• Number of pages: 304