Gordan Bethune at Continental Airlines

Case: Gordon Bethune at Continental Airlines

1. Why was Continental unable to capitalize on deregulation?

The Commercial Aviation industry of USA was de-regularised in 1978 following which the airlines were allowed to choose the routes to operate in and decide ticket prices as per market dynamics. Until 1978 Continental had grown consistently over the past 40 years with considerable market share in the Business Traveller segment and was well poised to take maximum advantage of the de-regularisation of the industry. However, soon after, Continental went into a prolonged period of leadership void and became a target of hostile Acquisition by Texas Air’s owner Frank Lorenzo.

Texas Owner was a low cost carrier (LCC) while Continental catered to a more niche segment of the market as a full services carrier (FSC). There was neither operational synergy nor cultural alignment between the organizations and it led to a failed amalgamation of the two companies with no coherent strategic direction. The merged organization didn’t have a clear view of the industry dynamics and hence lacked a distinct strategy to take on the new age competition. They ventured into being both a LCC and a FSC, both of which require divergent resources and skillsets, indicated lack of clarity at the leadership level.

The failed consolidation efforts post-merger also demoralised the employees of Continental as they were opposed to the deal right from its inception and had in fact tried to ward off the take-over in the first place through a failed attempt at management buy-out. The resultant organization structure lacked collaboration and mutual trust, all of which started impacting key business parameters like – on-time performance, customer satisfaction, etc. The hostile take-over by Frank Lorenzo and his continued growth appetite led to addition of few more airlines without any effort going into consolidation of the diverse entities brought under a single organizational umbrella by brute force. All the mindless mergers & acquisitions, driven primarily by Frank Lorenzo, led to Continental not being able to leverage their strong market & financial position in the newly de-regularised industry.

1. What change management initiatives contributed to the turnaround of Continental?

Gordon Bethune understood the root cause of the issues plaguing Continental’s business performance, when he took over as the CEO. He and the then COO took up critical steps to address those issues systematically.

• Gained trust of the employees by explaining rationales behind various business decisions, through interaction with employees frequently via various engagement forums.
• Gordan opened up direct lines of communication with the employees and customers. He brought back the focus on key business metrics like – on-time performance, customer complaints, reliability, etc. and announced monetary incentives for all employees for achieving the KPI targets. This forced the employees to collaborate and work towards the organizational goals.
• Bethune & Brenneman systematically dismantled Lorenzo’s cultural imprint on Continental. Bethune led a company-wide bonfire to burn up the rule book, a relic of the Lorenzo era of leadership. They used videos of a reputed comedian to pint out to the employees the inadequacies in their business culture. This approach ensured that the message was loud and clear from the leadership but without demoralising them further and it was also presented in a more palatable manner which eliminated any potential pushback from the employees.
• He didn’t go for massive layoffs and salary cuts do win confidence of the employees. Whatever layoffs that were undertaken were backed by business logic and was well communicated to all the employees. Over the years, Continental had become very top-heavy as an organization which made them bureaucratic and Gordon Bethune rationed a number of the senior management positions. Even, when he had to enforce a salary cut for the employees, towards the end of his tenure, he led the way along with the rest of the top leadership team by taking a steeper pay cut as compared to the rest of the company.
• Finally, Bethune created a single organizational culture by standardizing the branding across their planes and staff uniforms so as to create a distinct organizational identity that would bring the employees closer and get them to be more engaged with the company.

1. What enabled Bethune to lead the turnaround cum change management effort?

• One of the most important reasons why Gordan Bethune was able to drive the transformation across Continental was the fact that he had a reliable COO in Brenneman, who had pretty much the same vision as that of Bethune. The two of them combined effectively to drive the changes required to get Continental onto the path towards profitability. It helped that both of them agreed on what were the key problems that needed their attention and then jointly developed the action plan for driving the changes across the organization.
• Gordon Bethune’s background as a former military personnel having experience as an airplane mechanic, his stint at Boeing and the fact that he was also a licensed pilot proved to be the necessary components of his persona which enabled him to command respect from the Continental employees.  He came across as someone who understood the nitty-gritties of the airlines industry and his decisions were seen to be logical and based on industry rationale.  

1. Assess Bethune’s leadership style and impact during the period turnaround was affected.

Gordon Bethune determined that Continental needed a cultural transformation for it to be profitable again and culture of the organization resided in its employees. Probably because of this reason and the fact that Continental was in a service industry, he adopted a largely Affiliative leadership style to begin with. He believed that happy employees translated into happy customers and efficient operations. He opened up various forums for communicating directly with the employees and heard their concerns while also explaining his decisions and the company’s position and strategy. He also demonstrated a Pacesetting approach by setting stiff business targets for the employees to achieve while he himself backed it up with his own effort to win over customers and listen to their grievances and needs. At times he also took up a Coercive approach when he found some pushback to his decision of getting the same Continental branding on all of their planes so that the customer saw a homogenous brand and not a motley of multiple brands put together. In order for Continental to continue on their profitable path post his departure as CEO, Gordan Bethune ensured that he worked on developing an internal pool of future leaders. A dearth of leadership capabilities post Bob Six’s retirement also contributed to Continental’s downfall until Bethune took over the reins of the company. Bethune adopted a Coaching style of leadership so as to mentor the next generation of Continental’s leaders who could help sustain Continental’s growth and profitability.