Change Management in Continental Airlines

Continental Airlines with revenues close to $6 billion was reporting a net loss every year from 1985 till 1994. It ranked last among the 10 major US commercial airlines in operating efficiency and customer satisfaction. It was struggling for survival. Gordon Bethune, who was a pilot himself and worked in senior positions in Western Airlines, Piedmont Airlines, and Boeing, joined as the president and the COO of Continental Airlines in February 1994 to turn it around. In fact, he was seeking such a challenging task and raring to employ his expertise to resolve the problems and get an organisation on track.
Diagnosis: Reasons for seeking change Continental Airlines filed Chapter 11 bankruptcy protection petition in 1983 and again in 2000, from which cleared itself in 2003. Its operating costs were high and its financial position was desperate. It was saddled with a heavy debt burden and hamstrung for cash. ( Thompson and Strickland, 2003) The on-time arrival performance record of its flights was the worst among 10 US Commercial Airlines in 1993 and 1994 as well, according to the statistics collected by Department of Transport.
It had the highest number of mishandled baggage reports and the highest number of customer complaints which were three times the industry average. It had also the dubious distinction in ‘boarding denied’ cases because of data problems. Before Bethune’s joining, about 10 CEO changed in 10 years and many reorganisations were attempted without much success. The employees were disappointed with the outcomes and their morale sank underground; they were just doing their best just to survive. They wanted to ward off the wage and salary cuts which were imposed during bankruptcy proceedings.

Employee turnover was high. The way the employees used sick leaves was an indication of desperation. Besides there were bickerings among the employee groups slinging mud against one another. Passengers were unhappy. If something went wrong, employees used to prove that they only complied with the rules. The CEO also was not contributing enough in improving the operations and reducing its costs. The authority of the Bethune as COO too was not enough to embark on any major change program.
After about 6 months of his work with Continental, he decided to leave the company but did not quit, though he had received a better remuneration in another company ( Bethune, 2008). The board promised him to give enough authority. Accordingly, he was given full authority to launch the change program. The most critical barrier to change, according to Sumantra Ghosal, Piramal and Bartlett (2000), lies at the level of the top managers-in their lack of belief and passion for change…no obstacle is as debilitating as the mindset of senior managers. Change should have the commitment of top brass.
In this case, Bethune managed to get enough authority and the commitment of top management which was a precondition to change. Briefly, the reasons for launching a change programme by Bethune include: (1) continuous losses due to high operating costs, (2) poor customer service, (3) low employee morale, (4) prospect of further losses, (5) infighting among employees, and (6) bad reputation as a sick company, and also for poor customer service. The state of affairs in an organisation can be analysed and diagnosed with the help of Weisbord’s Six- Box model ( Falletta, 2005).
Weisbord has identified six broad categories of areas (or elements) of an organisation for diagnosis and intervention. They are: (1) purpose, (2) structures, (3) relationships, (4) leadership, (5) rewards, and (6) helpful mechanisms. (1) The people in Continental were unsure about where they were headed for, and so they needed to know what goals they should work for and in which ways. (2) Employees went by the rules; the change managers did not have enough authority. Managers’ programmes were not communicated well enough. Reward systems were not linked to the critical areas of performance.
(3) Relationships between managers and employees and also between an employee and an employee were that of lack of trust and mutual cooperation. (4) Leaders did not sustain the impact of their change program. Enough energy was not generated. Leaders who were tough, equipped with a clear vision, and guided by the real data were conspicuous by their absence. (5) Reward systems were not linked to the performance on strategic activities. (6) Helpful mechanisms in finance functions, distribution, and products were lacking and so any earlier change programme did not deliver goods.