Context
By 1994 Continental Airlines had been through bankruptcy twice and was close to a third. According to government statistics, the company ranked at the bottom among major airlines for on-time performance, baggage handling and passenger complaints. In 1994 Gordon Bethune took charge of the company.
Symptom
Planes were late, passengers left for competitors, and employees did not trust management. The company had been losing money for years.
Cause
The company was saving on what the passenger pays for: reliability. Delays cost money (compensation, rebooking, lost customers), while employees were motivated to save money rather than get passengers there on time.
The fork
Keep cutting costs, as in past crises, or start with the product the customer is willing to pay for.
Decision
Bethune presented the Go Forward plan in four parts: market ("Fly to Win"), finance ("Fund the Future"), product ("Make Reliability a Reality") and people ("Working Together"). On-time performance became the main metric for every employee.
Execution
The company closed unprofitable routes and dealt with its cash position. Every employee received a $65 bonus for each month the company ranked in the top five for on-time performance according to the US Department of Transportation. According to Bethune, the amount was part of the savings from fewer delays, and it was sent as a separate check so that everyone could see the link to the result.
Outcome
In 1995 Continental made a profit of $224 million on revenue of $5.83 billion, its first annual profit since 1986. In the following years the company climbed in the rankings for on-time performance and passenger satisfaction. Bethune described the turnaround in the book *From Worst to First*.
What it means for you
Getting out of a crisis starts with cash and with what the customer pays for. Cutting costs without restoring the product prolongs the crisis.
- What do customers pay you for, and what part of it works worst right now?
- Do you have one metric that every employee understands and that is tied to the company's money?
- How many weeks will your cash last if nothing changes?
We would start with a weekly cash flow forecast and find the two or three decisions that bring cash back fastest without harming the customer.
Key dates
| Year | Event |
|---|---|
| 1983, 1990 | The company's two bankruptcies |
| 1994 | Gordon Bethune takes charge; the Go Forward plan |
| 1995 | $65 on-time bonus; profit of $224 million, the first since 1986 |
| 1998 | The book *From Worst to First* |
Sources
- Continental Airlines. Annual report (Form 10-K) for 1996: Source
- INSEAD Publishing. Case *Continental Airlines: The Go Forward Plan*: Source
- Gordon Bethune, Scott Huler. *From Worst to First: Behind the Scenes of Continental's Remarkable Comeback*. Wiley, 1998.
- Wikipedia. *Gordon Bethune*: Source
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