The Mechanic Who Fixed Continental Believe it or not, CEO Gordon Bethune, a former Navy mechanic, has made Continental the best airline in the U.S.
By Brian O'Reilly

(FORTUNE Magazine) – Quick. Name the earthy, exuberant, hard-drinking CEO who turned a Texas airline into one of the best in the country, famous for good service and happy employees. Herb who? Yeah, yeah. Herb Kelleher made Southwest Airlines great, all right. But there's another guy working the same kind of magic on an airline twice as big, right in Kelleher's backyard: Gordon Bethune. A high school dropout who went on to become one of the U.S. Navy's best airplane mechanics, Bethune took control of down-and-out Continental Airlines five years ago and very quickly turned it into a well-run, profitable, congenial company. Robert Levering, co-author of a series of studies called The 100 Best Places to Work For in America, says Bethune, 58, has orchestrated one of the most effective repairs of an ailing corporate culture ever. "I've been doing this for 20 years," says Levering, "and I've never seen a turnaround of the workplace culture as dramatic as this one."

Through a mix of clever incentives and never-ending visits to employees, Bethune managed to change the attitude and behavior of workers, right down to the baggage handlers and gate agents. At an employee meeting in Salt Lake City last month, hundreds of reservations agents gave him a standing ovation and posed to have pictures taken with him. Halfway through a recent flight from Salt Lake to Newark, N.J., he strode into the galley and demanded, "Okay, who's got a good joke?" The flight attendants, who had been chatting with him since he got on the plane, instantly rose to the occasion. "There's this nun and her mother superior who go fishing..." Soon Bethune was roaring with genuine delight. Last year employees bought him a black-and-chrome Harley-Davidson, which he keeps in his garage. "Look at that," he says admiringly. "A real hoodlum motorcycle. Makes you want to get a tattoo and go beat people up."

Continental's financial fortunes have climbed as fast as employee morale. In 1994 the airline lost $619 million on revenues of $5.7 billion. Not bad, considering that it had lost an average of $960 million per year during the previous four years. Its stock sold for about $5 per share in 1994. In 1995, Continental earned $215 million. Then $319 million, $383 million, and last year $385 million. Shares hit a high of 65 1/8 in the middle of last year, until rising oil prices and stiffer competition on transatlantic flights squeezed margins. For the first nine months of 1999, net income has risen 4.4%, to $331 million, and Continental's revenues for the year will probably exceed $8 billion.

In some industries, like meatpacking and berry picking, the morale of the work force doesn't play a major role in a customer's enjoyment of the product. The airline business is different. At Continental, the fifth-largest U.S. airline, 50,000 employees must work together to board 140,000 passengers onto 502 airplanes making 2,172 flights every day--and look happy doing it. The airline industry is where Murphy's law ("Anything that can go wrong will go wrong") must have originated. If one model of a Boeing 737 shows up at the gate and the catering truck expected another, the pasta plates may be too big to fit in the galley ovens. You, valued customer, will fume on the tarmac while the plates are replaced. Airline executives can strategize 24 hours a day and still not cope with Mr. Murphy's mischief. He can be outwitted only by a motivated and reasonably happy work force paying attention to a mind-numbing array of details. In February 1994, when Gordon Bethune became Continental's COO, "motivated" and "happy" didn't describe anybody.

Back then, the Houston company was an amalgam of five airlines put together by the infamous Frank Lorenzo. After deregulation in 1978, Lorenzo correctly perceived that small regional airlines would have a hard time surviving. So he combined his own Texas International Airlines with Continental, Frontier, New York Air, and People Express, and called it Continental. (Lorenzo later bought Eastern, where he infuriated workers with his union-busting tactics; Eastern went bankrupt.) Unfortunately for Lorenzo, his employees, and his passengers, he made a large strategic error. He concluded that airplane seats were a commodity, and that the airline with the cheapest fares and lowest costs would prevail. In the early '80s, fares between Texas and New York City fell as low as $49, not much more than the cost of a taxi from Newark Airport to Manhattan. Guess what? Continental couldn't make a profit.

Prudence suggested raising fares to meet costs, but Lorenzo and his minions got caught in a fatal spiral: They kept looking for ways to economize. That made the airline worse and worse, until only desperate, bargain-hunting travelers would endure its shortcomings. Says Bethune: "They got it in their heads that this was a $6 billion airline losing $300 million a year, and if they could just find a way to cut $350 million, they'd be profitable." Bethune compares the resulting situation to that of an economy-crazed pizza parlor: "How much cheese do you take off the pizza until you have no customers left?" Continental had gone bankrupt in 1983 and 1990 and was sinking for the third time when Bethune arrived.

Bethune's path to Continental was not what you'd call straight and narrow. The son of a crop duster who moved away to Mississippi, Bethune grew up in San Antonio and Austin, Texas. He was a high school troublemaker who flunked courses and didn't fit in. He tried enlisting in the Army at 16 but got sent home. At 17, he told his mother he planned to move to California and join the Navy when he turned 18. Fearful that Bethune would fall in with a bad crowd, his mother signed papers that enabled him to join the Navy right away. To Bethune's surprise, the Navy's aptitude tests determined that he would be good at fixing sophisticated electronic and mechanical gear on jet planes. "They sent me right back to school," says Bethune. "Just the thing I wasn't looking for: a structured environment." Bethune spent 90 days doing KP for threatening to throw a shipmate overboard. But he was so successful as a mechanic and avionics specialist that he kept getting promoted, eventually becoming one of the youngest chief petty officers in the peacetime Navy.

He began to manifest the managerial style that would work well later at Continental. When he was in charge of aircraft maintenance for a squadron aboard a carrier, he spent an extraordinary amount of time with the enlisted men below him. "Gordon always knew where the important work was getting done," says one of his former commanding officers, Capt. Andrew Jampoler. "He spent his life on the flight deck, talking to the men who turned the wrenches." In the early 1970s, Bethune was in charge of maintaining a fleet of submarine-chasing planes at Moffett Field in Sunnyvale, Calif. To Jampoler's astonishment, Bethune's crews maintained the planes so well that not a single engine had to be replaced in the two years he was there. "He was superb at motivating people," recalls Jampoler, now retired. "When it came to getting spare parts for the engines, there was nobody like him. He had a web of relationships throughout the wing that enabled him to get whatever he needed."

Eventually Bethune quit the Navy and moved into the commercial airline and aircraft-manufacturing industries. In 1979 he became a maintenance manager at Braniff and was promoted to vice president for maintenance. When Braniff failed in 1982, he went to Western Airlines, and later to Piedmont. After Piedmont was bought by U.S. Airways, Bethune joined Boeing in Seattle, in charge of spare parts. By the early 1990s, he was running one of Boeing's most important factories, the Renton plant, which built the 737 and 757. But when he got a call inviting him to become president and COO at Continental, he jumped. Why did he leave a good job at Boeing to join the worst large airline in the country? "I was stupid," he jokes. "When they told me I could be co-pilot, they didn't tell me that the engines had died and the tail was falling off."

What he discovered was a disjointed operation that had caused Continental to rank dead last in almost every Department of Transportation performance measure, such as on-time performance, lost bags, and cancelled flights. As COO, Bethune was in charge of operations but not of marketing. Continental's marketers made one of the most elementary mistakes in the airline business: They ran a lot of flights up and down the East Coast, but never scheduled planes to land at an airport with mechanics and spare parts standing by. So if a plane had a mechanical problem, it had to fly to the right airport for repairs or sit for hours until a mechanic could fly in. In either case, passengers were stranded.

Stranded in ugly, uncomfortable airplanes. After multiple bankruptcies, Continental was worried about survival, not aesthetics. Carpets were filthy, tray tables and seats broken. Duct tape held so many overhead luggage bins shut that Bethune banned tape from the company's supply centers. Planes that Continental had inherited from all those other airlines had different cabin arrangements and color schemes. If mechanics needed to replace seats on a plane with a blue interior, they sometimes scavenged brown seats from another plane. A senior executive being wooed by Bethune recalls his first flight to Houston: "I was in first class and looked around, and I'd never seen anything like it. There were four different colors of seats."

Morale among employees, from senior executives to baggage handlers, was dreadful. Ten CEOs had come and gone between 1984 and 1994, so no one paid much attention to the boss. A DC-10 pilot remembers feeling contemptuous of any new CEO: "They all came here with one hand on the ripcord of their golden parachutes. They'd leave with millions, while they kept cutting our paycheck."

In October 1994, Bethune's predecessor, Robert Ferguson, resigned. Bethune took over and quickly calculated that all those late and cancelled flights were costing Continental a fortune, $6 million a month to be precise, mostly to put stranded passengers on a rival airline or send them to a hotel. Bethune declared that if Continental ranked among the top three airlines for on-time performance in any month, he would split half that $6 million (which came to $65 per person) with all nonexecutive employees. The very next month Continental came in fourth. The next two months it was first. "I thought it was a fluke," says Tom Smith, a DC-10 pilot. Hardly. Bethune paid up six times in 1995. For Continental employees, who had been promised numerous bonuses by previous managers but always ended up empty-handed, this was big stuff. To ensure that the bonuses made a vivid impression, Bethune issued the checks separately and traveled around the country to distribute thousands of them personally.

The behavioral changes induced by a $65 reward are best illustrated by a story Bethune and other top execs like to retell. A catering truck pulls up to a plane but is ten meals short. In the old days the flight attendant would have told the truck driver to go get the extra meals while the plane sat at the gate for 40 minutes. The newly gung ho flight attendant, however, crisply tells the catering guy not to screw up again and shuts the cabin door. The plane pushes back on schedule. And the missing meals? "She finds a bunch of investment bankers and offers them free liquor in lieu of the meal," explains Bethune.

The cultural revolution instigated by Bethune didn't depend solely on bonuses. One of his first moves was to craft a comprehensive but simple strategy. Luckily for Bethune, a wunderkind named Greg Brenneman, then a 33-year-old vice president from the management consulting firm Bain & Co., had been advising the airline for more than a year. Bethune made him president and COO. In late 1994 the two men holed up at Bethune's Houston house for a week, where, fortified by large quantities of red wine, they developed the "Go Forward Plan."

The plan came with four major parts. "Fly to Win" meant shutting down unprofitable routes; developing hubs in Houston, Newark, and Cleveland; and winning back business travelers. "Fund the Future" involved selling off nonstrategic assets and restructuring debt. (There was considerable room for improving Continental's financial management systems. When CFO Lawrence Kellner was hired from a California bank in 1995, he asked his new secretary where his computer was. "We don't use them," came the reply.) A third part, "Make Reliability a Reality," called for better on-time performance and less lost luggage. "Working Together" was the effort to rid Continental of friction and mistrust between management and workers.

For all his gruff heartiness, there must lurk inside Gordon Bethune the soul of an evangelical preacher. At every employee meeting he recites his plan with the passion of Moses announcing the Ten Commandments. In the training center for new flight attendants, faux stone tablets mounted on the walls proclaim the four principles. The annual report is organized around them, as are press releases and employee bulletins.

Of the four principles, Working Together is arguably the most important and impressive. The time that Bethune spends communicating with and exhorting employees is astounding. He attends every graduation for new flight attendants, where he gives a spirited talk about how close the airline came to failing. Each month, he holds an open house in his office where any employee can show up to schmooze or complain. He records a three-minute update of company events every Friday, which employees can hear by dialing an 800 number. Several times a year, Bethune and Brenneman travel to the large hubs and reservations centers to address employees. Bethune judges employees' Halloween costumes, hands out candy canes on Christmas Day, and even arrived one midnight for a reservation clerk's birthday party at the Houston airport.

As a result, says a baggage manager in Newark, "anybody who's worked here longer than two months can recognize Gordon." As Bethune strides through airports, employees wave and call his name. His language and sense of humor are as salty and vulgar as a sailor's. At an auditorium full of reservations clerks in Salt Lake, he declares, "Screw you," to American and Delta if they choose to compete with Continental in Newark. "Put it in a pink orifice" is another response. "Tough shit" is a third. Employees seem unfazed, and his style comes across as open and straightforward. Besides, he can be hilariously entertaining, savoring a story over dinner about lust-crazed Foreign Legionnaires and a camel.

In case his schmoozing and communicating don't get his agenda across, Bethune demands that every executive, mid-level manager, and ramp supervisor spread the word too. And if those folks get tired of proselytizing the gospel according to Gordon? They'll pay. All employees are sent an annual questionnaire asking them to rank their boss on how well he or she communicates the "Go Forward Plan," treats workers with respect, sets clear goals, and so on. If a boss fares poorly, Bethune withholds part of his annual bonus.

So what does better morale at Continental mean for you as a passenger? Among other things, your bags will go to the same airport you do, says John Belt, head of luggage handling. "If you have a work force issue, you'll see it in baggage first," he explains. "The tag that falls right next to a bag doesn't get reattached." For the past four years Continental has had the second fewest lost bags in the business. On crowded flights, gate attendants get on the plane to help speed boarding--something they never used to do. Ticket agents upgrade frequent fliers to first class without being asked. Even the pilots behave better. "We get paid by the hour, from the time the doors close until they open," explains one pilot. "If we're not happy, we can fly slowly, taxi slowly, pull back late from the gate."

Employees have far better equipment to work with, which both improves morale and helps un-kink operations. Beginning in 1995, Continental sold all its Airbus A300 planes. They had so many mechanical problems they were nicknamed "Airbus 360s": They'd taxi as far as the runway, then have to turn back for repairs. Bethune built a new spare-parts warehouse at Houston's Intercontinental Airport, replacing one located five miles away. Darrell Miller, a maintenance manager, says the time needed to get a part has dropped from 90 minutes to ten minutes. Luggage tags, which used to be made of paper and plastic, frequently fell off. Now the tags are made of a special woven fiber-and-plastic mat that sticks much better. And, yes, Larry Kellner, the CFO, got his computer.

The combination of new equipment, job redesign, and good morale has paid off especially well on the taxiways at Newark Airport. Newark is compact and crowded, with hundreds of planes jockeying for a limited number of gates, especially at the international terminal. Until a year ago Continental was forever towing empty planes away from a gate, parking them nearly two miles away, then towing them back again. It wasn't as simple as it sounds. Ramp attendants had to back the Jetway away from the plane. Tug-tractor operators had to attach a heavy push bar to the nose wheel and nudge the plane backwards. And two specially trained mechanics had to fire up the engines and drive the plane to a parking spot. If any of the three crews were busy elsewhere, nothing moved. Often, nothing moved. Continental was paying $60,000 a month in fines to the agency that owns the international terminal because its planes stayed longer than the one hour allocated to disembark passengers, tidy up, and leave.

The solution: Continental spent $3.2 million to buy six supertugs--low-slung trucks with huge wheels and a mammoth hydraulic scoop that can pick up and cradle the entire front landing gear of a DC-10, and haul the plane down the taxiway at 25 mph. Continental trained the supertug drivers to operate as two-person "aircraft move teams," able to perform the work that used to be done by ramp attendants and mechanics. Not least, the tugs were equipped with radios so that the move team could communicate with the control tower. Continental's fines have dropped by 90%.

"This is the best thing to happen to me in 13 years," says Fred Kull, gazing out the window of his supertug. "The work is more challenging and satisfying. I'm happy, my wife is happy, my kids are happy." And how does his jolly demeanor benefit passengers? "When I'm ready to take a plane from a gate, I listen to the control tower. If I hear that a Continental plane is landing and heading to my area, I'll wait for it to pass. Otherwise, it might have to sit on the taxiway for 15 minutes while I pull my plane through." And if Kull were disgruntled? "I could push back as soon as I'm ready," he says, with a hint of mischief. "I wouldn't. But I could."

For a guy as irreverent and wild as Bethune is (he drives his Porsche 170 mph on a Houston toll road), he is surprisingly passionate about maintaining identical levels of service everywhere. At one of Continental's frequent-flier lounges last month, he noticed that the coffee cups were white, not the usual blue. When the attendants explained that a new coffeemaker required larger cups, Bethune told them to adjust the coffeemaker and go back to blue cups. That is not micromanaging, he says. "I don't want another coffee cup at the President's Club. I want consistency in everything. I have all these people who want something better. That's great, but sometimes it's just different, not better." The coffee-cup incident has already attained the status of a biblical parable on consistency, says vice president for corporate communications Ned Walker.

Bethune faces several challenges. One is to keep employees like Fred Kull saying, "I wouldn't." By some measures, Continental's performance has slipped: It has ranked about average for on-time performance last year and much of this year. Bethune blames weather and points out that its big hub at Newark has the worst air-traffic-control problems in the country. Frequent fliers don't seem too concerned yet. Michael Taylor, who helped manage a recent J.D. Power survey of airline passengers, says Continental placed first in six of ten service categories, and first overall for long-haul flights.

Another, more difficult challenge for Bethune will be to keep Continental's newly hired workers happy. Many of the old-timers are still buoyed by knowing how much better things are than they used to be. Bethune makes a strong effort to engage the novices. To demonstrate the importance of flight attendants, for instance, either he or another corporate officer sits in on the final job interview for every flight attendant.

Can Continental's success outlast Bethune? He insists that it can. "This isn't Bethunism at work here. It's a process that others can manage too." Delta now brings in workers by the score to meet with its CEO and top brass. TWA, for years one of the worst airlines, pays employees $100 for monthly on-time performance and almost beat Continental for best airline in the J.D. Power survey.

A key test for the survivability of Bethune's approach may come in a few years. Ironically, Continental is owned by Northwest Airlines, which won notoriety last winter for leaving a plane with 198 passengers on a Detroit taxiway for eight hours in a snowstorm. Indeed, Northwest's service in Detroit is so bad that General Motors and DaimlerChrysler have begun switching their business to Pro Air, a startup airline. Northwest, which bought Continental a year ago from a private investor, owns only 14% of its common shares but controls 51% of its voting stock. Northwest agreed to let the two companies run separately for five or six years. If they ever combine, which culture will prevail? Frequent fliers everywhere should pray that Northwest converts to Bethunism, not the other way around.