Management Mistakes and Successes, Tenth Edition

Chapter 4. Continental Airlines: Salvaging from the Ashes

Massive marketing and management blunders almost destroyed Continental Airlines, but in only a few years, with a remarkable turnaround by new management, Continental became a star of the airline industry. The changemaker, CEO Gordon Bethune, wrote a best-selling book on how he turned around the moribund company, titled From Worst to First. In this chapter we will look at the scenario leading to Continental's difficulties, and then examine the ingredients of the great comeback.

THE FRANK LORENZO ERA

Frank Lorenzo was a consummate manipulator, parlaying borrowed funds and little of his own money to build an airline empire. By the end of 1986, he controlled the largest airline network in the non-Communist world: only Aeroflot, the Soviet airline, was larger. Lorenzo's network was a leveraged amalgam of Continental, People Express, Frontier, and Eastern, with $8.6 billion in sales—all this from a small investment in Texas International Airlines in 1971. In the process of building his network, Lorenzo defeated unions and shrewdly used the bankruptcy courts to further his ends. When he eventually departed, his empire was swimming in red ink, had a terrible reputation, and was burdened with colossal debt and aging planes.

The Start

After getting an MBA from Harvard, Lorenzo's first job was as a financial analyst at Trans World Airlines. In 1966, he and Robert Carney, a buddy from Harvard, formed an airline consulting firm, and in 1969, ...