Lucky Or Smart, Gordon Bethune Has Continental Climbing
Gordon M. Bethune, chief executive of Continental Airlines Inc., knows how it feels to be down. He recalls a day in January, 1995, when Continental was so strapped for cash that it asked Boeing Co. to wire-transfer nearly $30 million in aircraft deposits that Boeing had agreed to return. The mail would take too long.
These days, though, Bethune is relishing a lofty vantage point. Continental has posted record profits for the last four quarters, built a $650 million cash cushion, and climbed from worst to nearly first in rankings for on-time performance and baggage handling. Not bad for a company that twice filed for bankruptcy. True, many airlines are flying high, thanks to a healthy economy and higher fares. But Continental's first-quarter margins were among the industry's best. For the year, PaineWebber Inc. analyst Samuel C. Buttrick expects Continental's earnings to double, to $390 million, on about $6.3 billion in revenue, up roughly 9%. The stock, in the mid-teens when Bethune took over a year and a half ago, is now trading at about 55 (chart, page 76).
"BY DEFAULT." For Bethune, 54, a veteran of such defunct carriers as Braniff, Western Air Lines, and Piedmont Airlines, Continental's present altitude is sweet vindication. When Robert R. Ferguson III was forced out as CEO in late October, 1994, Chairman David Bonderman wanted to name Bethune interim chief and keep looking around. Bethune was known as a good operator but was considered weaker on strategy and finance, and he had been with Continental less than a year. But Bethune would not do the job without the title, and Continental was too troubled to endure a search. "By default, I got that job," says Bethune, with his usual bluntness.
Certainly, he made the most of being in the right place at the right time. In fact, critics say that's the secret of his success. Current and former managers say Bethune wasn't a leader in creating the restructuring plan that slashed 20% of capacity, renegotiated burdensome aircraft leases, and killed a disastrous low-fare operation, Continental Lite. Some former executives say he cautioned against the capacity cuts, which were pushed by Bonderman and ally Jonathan Ornstein, who formerly headed affiliate Continental Express. "To this day, I still don't think [Bethune] knows why Continental is successful," says shareholder Jay H. Lustig, president of Equibond Inc. Bethune says his concern was to make sure Continental didn't lose revenue faster than it cut costs.
What Bethune has brought to Continental is a single-minded focus on improving operations. "We had a crappy product, and we were trying to discount ourselves into profitability," he says. "Nobody wants to eat a crummy pizza, no matter if it's 99 cents." From last place the year earlier, Continental has risen to third among the 10 biggest carriers in on-time performance for the 12 months ended in March. Formerly No.10 in baggage handling, it's now No.2. Customer complaints have fallen more than 60%. Says Bonderman, whose investor group controls 52% of voting power at Continental: "What Gordon has brought is a group of guys who are super good at running the airline."
Whoever plotted the turnaround--and Bethune insists he and Chief Operating Officer Gregory D. Brenneman, whom he recruited from consultants Bain & Co., did much of it at Bethune's dining-room table--no one denies that Bethune has executed it deftly and skillfully conveyed its goals to employees. "The world is full of people with great ideas who can't get s--- accomplished," says Bethune. "That's the only reason I ever got the next job offer: The world's looking for people to get things done." Bill Borrelli, a vice-president of Continental's pilots' union, says he has heard lots of CEOs make promises. "To his credit, Bethune's the first guy who's produced results," he says. "Whether he's good or lucky, I don't know."
Known for his broad grin and frequent profanity, Bethune has brought a new flavor to employee relations. While Ferguson often seemed aloof to the rank and file and was known to publicly humiliate managers, Bethune, a licensed pilot and mechanic, enjoys rubbing shoulders with workers. A 20-year Navy veteran, he sprinkles his speech with airline analogies and folksy aphorisms. His salty language, he concedes, sometimes prompts complaints. A former manager recalls his drawing fire for a lewd analogy comparing Continental to a beautiful woman with a pimple on her behind. "It's difficult to have everybody like everything you do," Bethune says. "I don't know anybody that's perfect and doesn't have a zit somewhere."
BONUSES. To inspire workers, Bethune last year instituted a monthly bonus for placing in the top five in on-time rankings. Now he's shooting for third place or better. Every worker below senior management pockets an extra $65 any month the airline hits the target, $100 if it's No.1. An incentive plan for the 20 top executives, which can equal up to 125% of salary, pays off quarterly--but only if the whole group meets its budget targets.
When he took over, Bethune dumped 50 of Continental's top 61 officers and replaced them with about 20 of his own recruits. That, his cocky style, and his bashing of prior managers' "brain-damaged" thinking, have won him enemies. Says a former executive: "He's a preener. He has to be the big peacock."
Certainly, Bethune has reasons to brag. He has come a long way since quitting school to join the Navy at 17. The second of three boys, he was raised in Austin, Tex., by his divorced mother, Pearl, an encyclopedia saleswoman. He rarely saw his father, who ran a crop-dusting business in Hernando, Miss. But that's where he learned to fly, piloting the Piper Cubs used to dust cotton.
While in the Navy, Bethune mastered aircraft maintenance. He also married twice. He and second wife Tommy Jean ("T.J.") have been married 24 years. While they raised three sons--including one each from their prior marriages--Bethune took night classes to finish high school, then attended five colleges on his way to a degree in general studies from Abilene Christian University in 1982. When he left the Navy in 1978, he planned to study law but changed course when a buddy at Braniff offered him a maintenance job. After Braniff folded, he pursued maintenance and operations jobs at Western and Piedmont before joining Boeing in 1988.
There, he was a rarity--an outsider hired as a vice-president, first of customer service and later of the Commercial Airplane Group's Renton Div., which makes 737s and 757s. Managers say he helped focus Boeing on customers, improving response time for shipping parts and creating a 30-day program to acquaint executives with flying and maintaining planes. Even now, Bethune, who is licensed to fly the 757 and 767, occasionally takes delivery of new Boeing aircraft and flies them to Houston.
By the time Ferguson--who knew him from Braniff--called to offer him a job, Bethune was tired of Boeing's bureaucracy. Even though he'd join Continental as second in command, "the copilot gets to fly the airplane sometime," says Bethune. But, he laughs, "I didn't know both engines were failing."
Within months of joining, in July, 1994, he says, he was offered the No.2 job at United Airlines Inc. Continental held on to him with a $1.5 million bonus, an $800-a-month car allowance (he drives a silver Porsche), a board seat, and control of marketing. The bonus angered pilots then in contract talks but Bethune says: "That was a bargain, because [Continental was] dying. You didn't see a big long line of guys wanting to take this job, did you?" Last year, Bethune earned $1.1 million in salary and bonuses.
Many believe Bethune's true test lies ahead, in an inevitable industry downturn. Continental's balance sheet is still highly leveraged. It must spend billions in coming years to modernize its fleet. And labor costs are likely to rise as pilots, who earn at least 20% less than counterparts at bigger rivals, push for raises in 1997 talks. The threat from low-fare rivals will undoubtedly grow, too. Will these challenges be Bethune's undoing? "One of the biggest mistakes you can make is to underestimate Gordon Bethune," says Thomas E. Schick, a Boeing executive vice-president who worked with him at Piedmont. If Bethune pilots Continental safely through the heavy weather, even critics will find it hard to credit his success to luck or timing.
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