The Continental Turnaround: Part 2

A Continental 767-400 (Photo: Mark Winterbourne | P H O T O G R A P H Y from Leeds. West Yorkshire, United Kingdomderivative work: Altair78 [CC BY (https://creativecommons.org/licenses/by/2.0)])

[ Airlines ]January 19, 2020 6:32 pm ET

By Hemal Gosai

In the next part of this series, the principles covered here focus on the customer and meeting their needs. Businesses don’t run without their customers. There needs to be money coming in. With the exception of a few special companies in the world, most businesses have competition to deal with. There is a fight for every dollar the customer has. There needs to be a reason a person is willing to choose one place over another to spend money

Think “Money In,” Not “Money Out”

Cost reduction was another key part of the turnaround. Most companies that are in trouble or sometimes are just possessed by irrational demons forget to ask from basic questions like “Do we have a product people will want to buy? Are we taking care of our best customers? Are distributors willing to sell our product?”

All of these bring in money which can be hard to think about when a company is bleeding cash. Greg mentions a very good example of this at Continental. In an attempt to cut down on fuel costs pilots earned bonuses if the fuel burn rate on their respective aircraft fell below a certain amount. This ended up causing pilots to use air conditioning less and fly slower which ended up aggravating a lot of passengers and cost more money in the long run.

This was the result of a hyper-focus on reducing costs and one of the victims of this was the airline’s product. The airline tried a low-cost approach that removed first class seats on some airplanes but this ended up alienating some of its best customers.

The 15 years of the low-cost approach created a product that no one wanted to buy. This later caused a huge revenue problem which in turn made borrowing money more expensive.

The way this was fixed was first by apologizing to customers. The second step is to actually fix the product. Gordon and Greg along with many top executives took the time to personally respond to angry letters sent in from customers to foster some goodwill.

Finally, they also slashed their advertising budget saying it was insulting to customers to advertise a product they know is bad. This was another step in repentance.

Ask the Customer in Seat 9C the Right Question

The next important thing is to figure out what the customer wants. It’s pretty easy to come up with ideas to improve the customer experience but often they aren’t well thought out and costs end up increasing faster than revenues. The hard part is to find a way to improve customer experience to drive up revenue faster than costs.

The plan was to ask their best customers what they would be willing to pay for, not exactly what they want. This strategy was used to whittle down ideas into a few actionable things the airline could use to improve.

So that’s what Greg and Gordon did, they asked their best customers what they’re willing to pay for and got things like comfortable and attractive airplanes and terminals, on-time flights, reliable baggage handling, and good food. All things Continental was failing at initially.

They got to work and customers ended up loving the new look, planes were repainted, seats replaced, and more.

However, one thing happened that was just as important. It was a breath of fresh air to employees who for years were spun around by senior management who didn’t know what the vision of the company was. Employees were beginning to come onboard with the turnaround too.

The next step was to align customer wants with employees. Continental told employees that every month the airline was in the top five out of ten airlines in terms of on-time performance as determined by the Department of Transportation they would get a bonus. Within the months the airline was regularly topping the rankings.

These two key factors, as simple as they seem, were integral parts of the turnaround. Everything revolves around keeping the customer happy because that’s the person who keeps the cash flowing.

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Hemal Gosai

Hemal took his first flight at four years old and has been an avgeek since then. When he isn't working as an analyst he's frequently found outside watching planes fly overhead or flying in them. His favorite plane is the 747-8i which Lufthansa thankfully flies to EWR allowing for some great spotting. He firmly believes that the best way to fly between JFK and BOS is via DFW and is always willing to go for that extra elite qualifying mile. Hemal's opinions are his own and do not reflect those of his employer.

Author

Hemal Gosai

Hemal took his first flight at four years old and has been an avgeek since then. When he isn't working as an analyst he's frequently found outside watching planes fly overhead or flying in them. His favorite plane is the 747-8i which Lufthansa thankfully flies to EWR allowing for some great spotting. He firmly believes that the best way to fly between JFK and BOS is via DFW and is always willing to go for that extra elite qualifying mile.

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