Play Hard, Fly Right

By Cathy Booth Thomas

The Boeing 767 jumbo jet is fresh off the shop floor, a sleek $138 million model made to order for Continental Airlines. But its pilot on this test drive is a little rusty and nervously wipes a hand on his khakis as he glides in to land on runway 14L at the Moses Lake test facility southeast of Seattle. With the plane just 200 ft. off the ground, a crosswind hits, and the co-pilot warns, in that dead-calm tone they all seem to learn, "You're on the left side of the runway." The pilot slides the plane back to the right and touches down with only a minor bounce. "Lot more fun than the office," says the pilot, Gordon Bethune, with a grin. "But I'm not quitting my day job."

Bethune's day job gives him a far bumpier ride. The CEO of Houston-based Continental Airlines has piloted the nation's fifth largest passenger carrier through eight years of turbulent weather, bringing it back from the brink of a third bankruptcy in 1994. Nothing has been more challenging than the past nine months, with security hassles and terrorist fears driving away air travelers and costing the industry more than $9 billion. Continental was one of only two major airlines earning a profit before Sept. 11 (the other was Southwest Airlines), and Continental in March became the first traditional hub-and-spoke carrier to report a return to pretax profit. Alas, the bottom line turned red again in April, and Bethune predicts more rough weather ahead if the majors don't "wise up"--that is, stop adding seats and start raising fares. "It's a challenging business, which some of us thrive on," says Bethune. "I mean it's crazy as s___. I like it because it's never, never, never static."

Bethune delights in speaking his mind almost as much as he likes climbing into a cockpit. He says competitors trying to cut costs last September were "stupid" to take off magazines and meals in coach, a direct dig at Dallas-based American Airlines. He ridicules "an Atlanta-based carrier"--a reference to Delta Air Lines--for cutting back its sales teams that cater to major clients, to save money after 9/11. "We high-fived each other when we heard it," says Bethune, who promptly sent his pilots into corporate cafeterias to reassure business travelers about security measures.

Bethune's trip to Seattle to pick up the Boeing 767 is a poignant sign of the times: it is one of the last jumbo-jet deliveries Continental will take until the second half of 2003, with the remainder put on hold until demand picks up. Bethune does a few touch-and-go landings at Moses Lake to test the new jet, No. 271 in the nation's youngest fleet (average age: 5.2 years), but he gives up the pilot's seat after an air-traffic controller, not knowing who's at the controls, suggests the 767 fly a tighter pattern to accommodate a military C-17 transport and a P-3 surveillance plane passing nearby. "Continental 9990, do you need to fly all your patterns that wide?" drawls the controller. "Uh, no," responds Bethune, laughing. After the next go-round, he retreats to the cabin.

A high school dropout who became a Navy airplane mechanic in the late '50s, Bethune has managed everything from engineering and maintenance at Braniff to operations at Piedmont and 737 and 757 production at Boeing. Even now, as chairman and CEO of Continental, he tastes the food served on the planes (yes, even in coach) and dines on fast food at the airports (look for him at the Mexican joints). He monitors everything from airport decor (blue terrazzo wins out over carpet) to the number of public-address announcements. Pasta warmers and $330 wine-bottle openers don't rate even a question from Bethune, but he can wax enthusiastic over bigger luggage bins and more elbow room in the cabin. "Come back and look at this," he says eagerly, pointing out that 9 of every 10 seats on the new 767 are on an aisle or a window. "We found out customers would rather have an empty center seat" than have more leg room, he says, "so our seats are not as far apart" as those of some competitors.

For Continental and its rivals, of course, the biggest challenge is using these come-ons to win back business travelers, who traditionally flew on short notice and paid full fares, often in the $2,000 range. A Business Travel Council survey of 184 groups that, combined, spend $2.9 billion a year on travel revealed in April that business travel is down 20% this year. Even worse, B.T.C. chairman Kevin Mitchell notes that 60% of the companies plan to cut further. Frustrated by ticket prices that skyrocketed 74% between 1996 and 2000, businesspeople are eliminating nonessential trips, hunting for last-minute cheap fares online, videoconferencing, or taking trains, private planes and even buses. "Some of these reductions are meant to be permanent," warns Mitchell.

Bethune knows he has to chart his course carefully or risk going hat in hand to Washington for a taxpayer-backed bailout. He's already unpopular for leading the charge on Congress to grant a $15 billion aid package for the industry the first week after the attacks. "I ain't running for election here, pal," he says. "If we had waited another week to publicly acknowledge where we were, we'd still be arguing about it, and a bunch of us would be bankrupt."

He predicts that United Airlines, the second largest U.S. carrier, could still go the way of U.S. Airways, which announced last month that it plans to seek government loan guarantees. Just two weeks ago, Bethune announced that to boost revenues, Continental and U.S. Airways are discussing a code-sharing alliance that would allow passengers to book flights on one airline but travel on the other for part of the route. "Fact is, we're all losing money. At Continental, we're just losing less than everybody else," he says. "If we don't survive, no one is going to survive."

It's telling that when Bethune talks about "the industry"--including his assertion that all airlines are losing money--he really means full-service hub airlines: American, United, Delta, Northwest Airlines, Continental and U.S. Airways. He omits Southwest--long the industry's best-run and most profitable carrier, whose market capitalization is larger than the Big Six's combined--and other moneymaking budget carriers like Frontier Airlines and start-ups like JetBlue Airways.

"Having low-cost start-ups keeps us honest," he admits. "They tend to flourish when we get too arrogant and we refuse as an industry to lower prices and we treat people like we're doing them a favor to take them somewhere. A couple of big airlines are in trouble for taking that attitude." But Bethune argues that it's unfair to compare the financial performance of Southwest--which flies point to point--with a full-service carrier like Continental, which maintains hubs all over the country to shuttle people among cities without enough passenger traffic for direct flights. "The hub-and-spoke system serves people in places like Sarasota, Florida, who want to go to Sacramento, California," Bethune says.

Though he was paid $4.2 million last year, Bethune, 60, often portrays himself as the champion of the little guy--the fellow in seat 18C back in coach class. In his 1998 book about the Continental turnaround, From Worst to First--a reference to Continental's rank in passenger-satisfaction surveys--Bethune describes being reared by a divorced mom in 1940s San Antonio, Texas. He got his education not from books so much as from his dad, who flew a crop duster in Mississippi. At age 15, young Gordon was put in charge of handling the 55-gal. drums of pesticides and herbicides and getting the "landing field"--really just a meadow--ready so his dad could put down his J-3 Cub after sunset at the end of a long day of spraying. A small smudge pot and the headlights from a 1950 Plymouth provided the only landing lights.

Bethune's mantra today is simple: "We get you there safely, on time, with your underwear." To ensure that workers keep those goals in mind, he pays bonuses for every month they beat competitors in the government's on-time ratings. Although Continental's record fell below 80% in 2001 because of security delays after 9/11, other airlines also saw their records slip. Bethune paid bonuses 11 out of 12 months. So far, he has doled out $44 million, and after January he increased the bonus checks from $65 to $100. (Here, too, Bethune ignores Southwest and America West, which have beaten Continental's on-time performance this year. He says the smaller airlines' "cocktail napkin" record keeping--unlike the computer-generated reports of the majors--make their claims suspect. A Southwest spokesman laughs: "Look at the DOT figures. The cocktail napkins beat the computer week after week.")

Southwest Airlines' Herb Kelleher used to be the most colorful guy in the sky, but he's retired. Enter Bethune, who loves flying fast, driving fast and living life to the fullest. For the trip home to Houston aboard Continental's new plane, Bethune took the yoke while employees cracked open Champagne and partied in the aisles. No one seemed particularly concerned when he did a flyby and wiggled the wings at anyone who might be enjoying the late-spring skiing on Mount Rainier. But they all confessed to a real fear of riding in his Porsche on the streets of Houston, where he often exceeds speeds of ... well, we promised not to tell. Bethune also likes to cruise around on his Harley-Davidson low-rider but grouses that at his age, he's "only got a two-hour butt." When he gets a chance to take a few days off, he goes angling for bonefish or salmon or travels to vintage-watch shows (Patek Philippe timepieces are among his favorites).

Even amid the tensions and grumbling inherent in a shrinking business, Bethune is widely liked and admired by Continental's 48,000 employees. Nearly 90% of the workers surveyed at the end of last year by FORTUNE magazine said it was "fun" to work at Continental--one reason the company made the magazine's list of 100 Best Places to Work during four of the past five years. Bethune has given away, by raffle, more than 100 Eddie Bauer Edition Ford Explorers to workers with six months of perfect attendance. And he has doubled company life insurance for employees. "We don't have sky Nazis on our airplanes," says Bethune. "It's nice when they walk up and say, 'Hi, can you put that bag away?'--not 'You s___, you've got to sit down.'"

Although Bethune has worked hard to manage employee expectations, airline analyst Sam Buttrick of UBS Warburg thinks he could face tough demands in already delayed contract negotiations with the machinists and with the pilots next October. Continental has been profitable in large part, says Buttrick, because of its lower labor costs--not just lower wages but also less generous pension benefits and looser work rules.

Bethune specializes in squeezing out small cost cuts even while forging ahead with building projects like the $1.4 billion renovation of its hub at Newark airport, which has helped make Continental the New York City area's largest passenger carrier. Bethune also invests heavily in technology, putting mechanics' manuals online and pushing e-tickets, which account for 72% of domestic sales.

Continental's stock, like that of most airline carriers, took a huge hit after 9/11. Since those lows, Continental's shares have somewhat recovered--and are now up 16%, faring much better than United's but not as well as Southwest's, which are up 31%. Over the past three years, Continental's stock has outperformed United's and U.S. Airways' but has lagged behind Southwest's and American's. Industry analysts, like Holly Hegeman, editor of PlaneBusiness.com consider Bethune more shareholder friendly than most airline ceos. But he tarnished his reputation somewhat in late 2000 when he paid $450 million--far above market value--to buy out Northwest's stake in Continental and give himself greater power to run the airline.

Bethune in April spun off ExpressJet, the then wholly owned subsidiary that operates Continental Express, the nation's No. 2 feeder airline. The IPO delivered an estimated $300 million to Continental--which still retains a majority stake. But unlike JetBlue, whose stock soared 67% the first day it traded, ExpressJet has stalled below its opening price of $16, irking Bethune no end. "I don't think JetBlue has a better chance of being profitable than 100 other predecessors with new airplanes, new employees, low fares, all touchy-feely," he says. "All of 'em are losers. Most of these guys are all smoking ragweed."

Bethune also has harsh words for some of his competitors among the major carriers. "Some guys in our business are always looking for the autopilot. There isn't one," says Bethune as the plane touches down in Houston. "Success doesn't have an autopilot. You need to work every day." Though it's late on a Friday afternoon, everyone heads back to the office, led by Bethune, alone in his Porsche, speeding off like a crazy man.