ISDISC - MBA Fall 2017

Gordon Bethune and the remarkable comeback of

Continental Airlines
Gordon Bethune left his post as an executive in operations at Boeing in February 1994 to
become the president and chief operating officer of Continental Airlines. The airline was in
terrible shape, worst among the U.S.’s 10 biggest airlines as assessed by several indicators.
It was last in on-time percentages, highest in reports of mishandled baggage and the leader,
by three times over the industry average, in the number of complaints. Continental had filed
for bankruptcy twice in 10 years, during which time it soaked through 10 leaders.
Employees received salaries far below the industry average. Those who remained were
unhappy at work. Bethune turned the airline around. He took deliberate steps to improve
performance, create incentive pay, control costs and build earnings. Customers, particularly
higher fare business passengers, began coming back. The company began to make a profit in
1995 and its stock rose.

Bethune’s first step was to show employees that he really was different. Nine management
changes in 10 years had left the staff with no trust in their leadership. His first priority was
to give them reasons to trust him. He opened the doors of the twentieth-floor executive
suite to employees as part of overcoming the “us-versus-them” mentality that had
developed under previous managers. To help break down the walls between managers and
employees, he initiated casual-dress Fridays. At managers’ meetings, he sat in the middle of
the table, instead of at the head, to create a more collegial atmosphere. He told the
managers to do something different to let their employees know things had changed. He
emphasized the need for being on time, for the people as well as for the airline. Then, he
burned the rulebook. Bethune wanted to demonstrate his emphasis on employees using
their best judgment to do the right things for the customers and for the company in unusual
situations. He did not want them to rely on rigid rules. To make this policy clear, he led a
group of employees out to the parking lot where they burned the old employee manuals.

Bethune then developed a four-part “Go Forward” plan, covering marketing, finance,
product and people, and convinced the board of directors about this plan:

• Marketing plan: “Fly to Win” — This plan emphasized winning and achievement. It
included a decision to stop doing things that didn’t make money, which meant dropping
unprofitable routes. It also involved apologizing to travel agents for past bad treatment and
reestablishing fair commissions so they would actively book Continental again.

• Financial plan: “Fund the Future” — Bethune updated the financial system so he could
know how much the airline was making or losing each day. He took steps to avert
bankruptcy, including renegotiating leases, postponing some payments, refinancing some
bigger debts for better interest rates and improving the airline’s pricing structure.

• Product plan: “Make Reliability a Reality” — This plan was devoted to improving service,
so people would want to fly Continental. It included providing the basics: on-time arrivals,
prompt baggage service and employees who were willing to help. Bethune used Department
of Transportation on-time percentages to measure reliability.

Class Exercise - Mini Case Page 1

ISDISC - MBA Fall 2017

• People plan: “Working Together” — Bethune based this plan on treating people better and
overcoming infighting among individuals and departments. The reward-based program
measured cooperation and encouraged trust and confidence.

To spread the word through the company, Bethune and other top-level managers made a
point of telling employees about their four-part plan at meetings at almost every company
site. The goal was to get the employees to understand, trust and work together as a team
with management to help save the airline — and it worked.

Bethune’s goal was to describe the big picture and get everyone going in the same direction.
At the same time, he encouraged employees to take initiative and responsibility and to feel
the freedom to do their jobs properly. This reflected Bethune’s philosophy that the job of a
chief executive is to assemble the right team, give them an overall direction and “let people
do their jobs.” After that, he believes, you should get out of the way, but be ready to help
people if they have a problem.

Q1: Use the 7-S Model to analyze the actions taken by Gordon Bethune and their
effects on various sub-systems within Continental Airlines, and their ultimate impact
on the overall performance of the company.

Class Exercise - Mini Case Page 2