Throughout the history of the airline industry, there have been turbulent times, then there have been times of immense industry-wide…
The Continental Turnaround: Part 1
In the early 1990s, Continental Airlines wasn’t in a good place. A leveraged buyout firm had just acquired the company after it had declared its second bankruptcy in nine years.
Greg Brenneman, at the time a specialist at corporate turnarounds at Bain, was tasked with fixing Continental. There is an excellent article written by him in the Harvard Business Review that goes into extensive detail about the monumental effort that it took to bring Continental out of a nosedive.
He said in his years working on corporate turnarounds he had never seen a company as dysfunctional as Continental. It lacked strategy and managers were afraid to do anything meaningful. Brenneman credits the turnaround of Continental to five operating principles which in reality, just like everything in the world of business, is pretty obvious. However, it’s execution where ideas win or fail in business.
Here’s how that turnaround went. In this article, we’ll cover the first two.
File Your Flight Plan and Track Your Progress
Brenneman and Gordon Bethune, then top dog at Continental, started with this. They wanted to give Continental a strategy that everyone could understand and peg it to a few key measures that are routinely tracked. The airline had gone through so many strategies in its crisis years that no one had any idea what was going on. There were so many pivots just to keep a client or to have enough cash to make payroll.
With 18 percent of flights being cash negative and Continental in a bind for cash the answer was obvious. The fastest way to make money was to stop doing things that lose it.
They cut cash draining flights and 7,000 employees.
Afterward, a plan was put forward, the Go Forward Plan. It was relatively simple, stop flying planes to markets where they don’t fit, get people to their destination on time with their bags, and serve food when people were hungry. However, to make this work Continental employees needed to want to come to work.
They lit a fire under employees to try to get everyone to head in the same direction, in the meantime they chose around 15 key performance measures to track and compare against competitors. All of the metrics were ones that could be independently verified by the Department of Transportation.
Things like on-time performance, load factors, RASM, and more were religiously monitored in addition to a new effort to keep better tabs on cash flows at Continental after a cash scare that would’ve drained the coffers in three months.
The cash was the most important part in reality because that was what would’ve made the turnaround possible. It’s the fuel that made the company go and running out in the middle of a turnaround was like running out of fuel before you even took off.
There has never been a team that has managed a company into a crisis lead it out of a crisis. In a rare case or two somewhere maybe it holds true as an exception but generally this is fact. The people who lead companies into crises are usually overthinking and come up with grand ridiculous ideas and/or have trouble accepting responsibility for their poor decisions with a firm refusal to believe that they don’t have the golden touch.
As part of the turnaround, Greg and Gordon really cleaned out the company with no one getting in the way. 50 of the 61 officers at Continental were replaced with 20 individuals in a move that not only cut bureaucracy and costs but also brought in the right culture. They brought in people with three key qualities, first they had to be smart. There is no substitute for that. Second, they needed to be driver individuals, and third they had to be real team players. They were brought on with promises that they would rule their domains, they were people in number two positions elsewhere that had the drive to be number one.
The key to cleaning house was by doing it with dignity and leaving no one out of it. The duo went out of their way to let people go by honoring their contracts and letting them resign with dignity.
No one was safe from the chopping block, from the highest supervisors to baggage handlers. People who didn’t fit had to go. There is no point in swapping out the CEO of a company in a crisis. Greg makes a good analogy with a sled-dog team. If you change out the lead dog only, the four dogs in the back still look and smell the same so nothing really has been accomplished.
These are the first two steps taken to help turn Continental around, these served as a way to prime the airline and its employees for what was coming next.
This article was updated on Thursday, Jan. 16, 2019 at 1:00 a.m. ET to correct a grammatical error.
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