Implementing a turn-around - the Bethune experience March 2000

Analysing the causes of an airline’s decline and drawing up a turn–around plan is a challenging enough task for managers and consultants. Actually implementing a turn–around plan is another thing altogether.

It’s very difficult to define the qualities needed in a chief executive whose job it will be to effect a turn around strategy at an airline in dire straits. Indeed, Gordon Bethune’s potential wasn’t entirely obvious to the board of Continental Airlines back in 1994 when they needed to appoint their tenth chief executive in ten years in an attempt to rescue a carrier that was again teetering on the edge of bankruptcy. The board prevaricated and procrastinated before appointing Bethune, then COO of Continental, as CEO of the ailing airline. Bethune’s background was as vice–president customer service at Boeing and before that senior positions at Braniff, Western and Piedmont (airlines which did not survive deregulation).

The appointment turned out to be inspired Continental recovered; its customer perception leapt; union conflict disappeared; and financial numbers turned from deep red to solidly black. It is now one of financially strongest of the US Majors, with a reputation for quality service. Bethune wrote about his experiences in a book originally published in 1998 entitled "From Worst to First".

The book offers some important insights into what it takes to lead a turn–around. Its faults are those of most management tomes — repetitiveness, for instance. Effective managers get used to reiterating ideas and hammering home their messages, but this gets tedious in a 294–page publication. And non–US readers just have to live with the American football metaphors.

Curiously little is mentioned about external factors. Continental benefited from the general industry upturn in the second half of the 90s, but the airline’s turn–around is explained solely in terms of internal reforms. Also, there are very few references to Continental flying internationally.

The turn–around plan — the Go Forward Plan — had four different elements each of which were given an inspirational title :

• Fly to win — product improvement and network redesign;
• Fund the Future — cost control and cash flow management;
• Make Reliability a Reality — punctuality and reliability; and
• Working together — incentivising the staff.

The limits to cost-cutting

All of these four programmes had to work together at the same time. What Bethune de–emphasised was cost reduction, which was the only consistent strategy that had been applied at Continental since Frank Lorenzo’s controversial incumbency (Bethune used to open the cupboards in his office to reassure employees that Lorenzo wasn’t still lurking around).

In a company as dysfunctional as Continental was then the priority was to restore form of confidence in the workforce and the passengers. Despite a severe shortage of funds the entire fleet was repainted (In the 80s Continental expanded through acquisition and merger, with the result that many of the planes still sported the livery of a defunct carrier — People Express, Eastern, Frontier, etc.).

At the same time Bethune embarked on a round of apologising — a very un–airline thing — to the key people the airline had alienated. Particular attention was paid to restoring the faith of the travel agents, which is slightly ironic has their commissions have since come under concerted attack from all the majors including Continental.

Of course, none of this confidence restoring would have been any use unless the airline stopped bleeding cash. Bethune hired a very efficient (and expensive) CFO who set about tracking cashflows by personally signing every cheque over a few thousand dollars. Creditors, who already had been through the unpleasant experience of two Chapter 11 bankruptcies, were told of the grim realities at the airline.

Loans and lease agreements were renegotiated, aircraft orders were cancelled and workers were told that their promised wage increases were to be postponed.

As with most airlines in crisis, Bethune’s new managers found that the internal information systems were hugely deficient, providing erroneous or out–of–date information on route and network profitability. Implementing efficient, accurate systems became a priority.

In fact, measuring is one of Bethune’s obsessions. The quality of Continental’s product was measured with reference of the DoT’s monthly statistics on punctuality, misplaced baggage, denied boardings, etc.. For example, to begin with in each month that Continental made the top five airlines, all employees received a $65 bonus. It doesn’t sound much but it was enough to begin to restore some form of team spirit at Continental (the important point was that bonuses were linked to an external, objective measurement rather than a management–invented target). Then as the airline’s fortunes gradually improved, the targets and the bonus trigger points — soon Continental had to be in the top three for punctuality.

The importance of predictability

For Bethune, one of the most important qualities that an airline can have is predictability. For the passengers, Continental became more valuable as it became more predictable, when its planes landed on time, when baggage arrived at the same airport as its owner. For suppliers and creditors, Continental became more valuable when they could be sure that they would be paid on time.

Predictability works internally as well. Employees who know precisely what is required perform better, according to Bethune: the checklist approach of the cockpit or the maintenance shop can be replicated throughout the organisation.

The harsh reality is that in any turn–around there are casualties. The new information systems in place allowed the management to be confident in closing down routes; it simply made no sense to cities where break–even was unattainable or just a remote possibility. Continental was also able to rationalise services with its code–share partner America West.

Personnel had to be cut back but Bethune refused to follow the apparently easy route of buy–outs and early retirements. The people who tend to take those options are the ones who can afford to leave and find other jobs, in other words they tend to be the most valuable employees.

Continental’s system was to ask higher level managers to rate every supervisory employee on a scale of one to four, one being very good and four being very poor. The fours were assessed over a year and those who were still fours at the end of the review got canned. According to Bethune, the final cut did not cause dissent or disconcertion, if anything it brought relief.

It appears that Continental employees had a really miserable time under Bethune’s predecessors. Bethune himself says that they were regularly mislead and sometimes lied to. By contrast, sharing information is a tenet of his regime — through newsletters, email, bulletin boards, etc. if an employee doesn’t know what the airline’s goals are and what his responsibility is, then it’s his fault.

Of course, what really motivates employees is the prospect of real wage increases, and after years of disappointments and sacrifices the workforce was finally rewarded for its efforts as the company’s profits re–appeared.

Key lessons

Given that most managers just don’t have the drive or charisma or indefinable leadership quality or whatever of a Gordon Bethune what are the lessons of his approach? We highlight two.

First, most turn–around plans concentrate on two elements — finance/costs and markets/fleet. Continental added two more and gave them equal weight in the turnaround — service quality/ reliability and staff morale/incentivisation. The key to Continental’s success was that all four elements were made to work contemporaneously.

Second, simplicity can be brilliance: from the beginning Bethune persuaded his staff to concentrate on one key aim of the strategy — reliability and punctuality, which could be measured objectively using the DoT monthly statistics. What gets measured gets managed.