1997 Service Optimas Award ProfileBRContinental Airlines

July 1, 1997
In 1994, a number of Continental Airlines' mechanics ripped the logos off their uniforms so if they ran errands after work, they wouldn't be identified as the airline's employees. Pilots and flight attendants would slink to the back of crew buses on their way to hotels. Top executives fended off complaints and ribbings at holiday parties, family reunions, you name it. "This airline was probably, candidly, one of the least-respected airlines in corporate America," says Ned Walker, vice president of corporate communications. "You could not get any worse than Continental in 1994."

The airline had little to be respected for. It had just endured its second Chapter 11 bankruptcy. It had gone through 10 presidents in 10 years. It had basement-level job satisfaction; the bottom-rung ranking among major carriers in on-time performance, complaints and baggage handling; and employees ranked HR's service in the bottom 50th percentile.

The situation was like being trapped in an endless holding pattern in rocky weather with only bad coffee and stale peanuts-Hell. But a new senior management team brought on board in late 1994 with a new people agenda changed all that, dramatically. In just a few years, the Houston-based airline has been steadily earning top rankings, prompting CEO Gordon Bethune's rally cry, "From worst to first." In 1995 and '96, the airline had its most profitable years ever and continues to thrive. Success can be traced in large part to HR, and its resolve to treat employees as the company's most valued customers. Serve employees well, and in turn, they'll serve others well.

Key to a turnaround: Earn employees' involvement. Bethune signed on as president at Continental in 1994. By the end of the year, he had become Chairman and CEO and had let go nearly every vice president in the company. The new management team, including HR, put together a plan, called Go Forward, that HR would have a major role in implementing.

The Go Forward plan was the new flight itinerary for the airline. Rather than Continental's former one-dimensional business plan focusing on the financial aspect of the airline through cost cutting and ownership of the market, the Go Forward plan is multidimensional. Its four parts include Fly to Win, making the routes Continental flies most profitable; Fund the Future, which focuses on eliminating unnecessary expenditures; Make Reliability a Reality, boosting the carrier's image, and Working Together, the people piece, which Ken Carrig, vice president of HR, drafted and now is in charge of.

The Working Together program recognizes that for employees to care about a company's goals, they must understand the company's goals and their roles in achieving those goals. Working Together requires employee involvement and input. However, after several rounds of pay cuts and a reduction in force that would eventually cut the payroll from 40,000 to 33,000, employees remained a bit wary.

This year Continental became the first airline to rank no. 1 for two consecutive years in customer satisfaction for long-distance flights in J.D. Power and Associates study with Frequent Flyer.

At the end of 1995, as a good-faith gesture, the former head of HR (then Carrig's boss) and a group of employees hauled the 800-page corporate policy and procedure book to the parking lot, and in front of employees, managers and executives, torched it.

Some examples of the corporate wisdom lost in the flames:

  • A policy that forced employees to pay a dollar a paycheck for direct deposit, despite the fact direct deposit is less-expensive for the company to administer than a hard-copy paycheck
  • Extraordinarily complex guidelines on who employees could send flowers to, how much they could spend and on what occasions they could send flowers
  • A rule that department heads couldn't dedicate any part of their budget to a water cooler-employees had to take up collections. "We found people had administrators working part-time on making sure they had all the money to have the water taken care of," laughs Carrig.

We'll never know any other priceless pieces of HR insight that were reduced to ashes. Employees had no access to the book, and Carrig admits he went out of his way to never open it.

The torching signaled a new attitude toward employee involvement. It also left Continental temporarily without any policy or procedure guidelines, so HR pulled together a task force of 25 employees from all divisions and levels of the company to create new ones. Over several months, the task force created a streamlined, 80-page book that was much more user-friendly and was mailed to every employee's home. Employees, sensing they were trusted by management, began to trust back.

To let employees know executives were willing to push up their sleeves for the change process, as well as to enforce the idea that all employees must work together, the first Go Forward Day was held in 1995. On Memorial Day, one of the carrier's biggest business days, the corporate offices closed, and 600 of 1,000 corporate office employees worked at the airports. The field services and flight operations teams supplied these upper-level people with a half-day of training beforehand, so when they were put to work, they were really put to work-serving drinks, lifting bags and helping passengers. The practice was so wildly popular with employees and customers, the company now does it every holiday. Carrig himself worked the ramp the Wednesday before Thanksgiving 1996, which is literally the busiest travel day in a year.

To further emphasize Continental's team spirit, Carrig says executives carefully plan their vacation schedules, deliberately opting for breaks during nonpeak months. "Because it's during holidays that our employees have to work the hardest," he says. "If they have an issue and want to talk to the VP of HR, it's kind of tough to say, 'Well, he's in Cancun.' So we work pretty hard to schedule our time away from work during the nonpeak times. That's just a commitment we make as being leaders in the organization."

Key to a turnaround: Make change meaningful to employees. Of course, we're-all-in-it together gestures resonate only so much. Continental's top execs knew that to really get field-level employees behind the goal of becoming No. 1, employees would need to see the difference in their bank books. To that end, in 1995 the airline paid employees a flat $65 for each month Continental ranked in the top five of the Department of Transportation's (DOT) on-time performance ratings. "In the first full month the program was in, we finished fourth," says Walker. "In the second month we were in first place. That's how quickly it turned." In 1995, employees helped Continental into top-five rankings nine times-and received an extra $585 each in reward money.

In 1996 Continental raised the bar. The company paid employees $100 for each month it ranked top in on-time performance, $65 for each month it ranked second or third, and paid nothing for fourth or fifth place.

Patrick Wright, associate professor of HR studies at the School of Industrial and Labor Relations at Ithaca, New York-based Cornell University, used Continental as a case-study company in his research on how HR departments leverage people as competitive advantages. He says the incentive bonus Continental uses is one that could-and should-be adopted by any company. "It's surprising the principle isn't used more often," he says. "How long have we known that if we want a certain type of behavior, we tie pay to that behavior? Yet Continental is the first airline in the history of the industry to actually do that-to identify key performance indicators of what will make a successful airline, and then tie rewards to achieve those key performance indicators. It's something any firm can do, and something few firms do well. It made a tremendous difference in the turnaround."

To give the employees a solid reminder of their performance coup, Continental executives send out all bonus money in a separate check rather than rolling it in with the biweekly paycheck-a decision made over the finance department's protestation that separate paychecks could cost as much as $40,000 a year. "We said it's worth it because we want employees to see what they have the ability to accomplish," says Walker. The company doesn't take taxes out of the bonus check, but out of the regular paycheck, so the achievement isn't sullied. Even employees who have direct deposit get a hard copy of the bonus check. "We want employees to open it up and look at it, because they did it," says Walker. "And it's because of what they did that we're doing so well."

Continental introduced similar performance incentives throughout the company. The sales force, for instance, receives payments linked to gains in revenue from business travelers. Reservations agents receive bonuses based on responsiveness and the number of completed calls. As a result, the proportion of customer-reservation calls answered within 20 seconds jumped from 20 percent to more than 90 percent, the best rate in the industry.

The evolution in 1995 from a flailing carrier to an on-time, service-oriented airline brought with it an increase in profits and enabled the company to pass on these profits to employees. Continental returned employees' pay to the level it was before cuts by previous management, and updated its pay-increase schedule to better match the rest of the industry.

Perhaps the biggest sign of bright paydays to come: In 1995 the company's profit-sharing plan paid out for the first time in 10 years. In 1996, employees actually doubled their profit-sharing numbers. "If you want the external customer to be treated better, you have to have the internal customer enjoy coming to work and think they're being treated better," says Carrig. "Whenever an employee reads about our profitable earnings, now, because of our profit sharing, they get excited about it."

Key to a turnaround: Communicate, communicate, communicate! Employees don't just read about the company's profitable earnings. Now, thanks to a complete 180-degree turn in communication, employees read, hear, watch, debate and question just about everything that goes on in their company. In fact, improved communication was one of the key points of the Working Together people section of the Go Forward plan, and the goal has forged a tight partnership between HR and the communications department. "Prior to '94, we shared as little as possible with our employees," says Carrig. "Post-'94 we share as much with our employees as we [can without] us going to jail."

It's no hyperbole. Every single workday, employees can peruse the one-page daily company newsletter for updates on the previous day's performance in baggage handling, on-time performance and complaints, for news on company doings and a listing of how the company's stock performed the day before. The newsletter is burst-faxed to 350 locations and e-mailed to 2,000 locations-from Tokyo and Dusseldorf, to Madrid and Montreal and everything in between. The letter also is read onto voicemail so airport hoppers can dial in to listen.

To ignite more interest in the company's monthly newsletter, The Continental Times, the communications department USA Today-ized it, adding more color, graphs and charts so it would visually grab the company's relatively young workforce. The company also added The Continental Quarterly to profile the softer side of the employee workforce-anniversaries, picnics, employee profiles as well as company news. "It's a good way to help communicate the change in the culture of the company and show that people are having fun in the workplace, because back in the '80s they weren't," says Walker.

Another tool to keep employees updated are the hundreds of bright blue and yellow bulletin boards located in the break room of every office in every city in the world in which Continental has operations. The boards all post the Go Forward business plan as well as company news. "I went down to Huatulco, Mexico, got off the airplane, and I'd say our office at the airport was maybe 120 square feet," says Walker. "And the only thing it had on the wall was the Go Forward plan bulletin board for approximately four employees there."

Face-to-face interaction also has become a major force in Continental communications. At least twice a year in the carrier's major hubs-Newark, New Jersey; Cleveland; and Houston-and reservations centers-Salt Lake City; Denver; Tampa, Florida; and Houston-Bethune and company President Greg Brenneman host employee meetings. These events generally attract approximately 5,000 employees, who show up to hear recaps on company accomplishments and reminders of challenges to come. The talk is followed by an hour-long question-and-answer session, the brass-tacks part of the meeting. "We encourage tough questions," says Walker. "We don't want softball questions; we want to hear what's on people's minds… We're firm believers that if we can give everybody the facts, the [employees] will understand why we make decisions the way we do."

In 1996 Continental was the only airline ranking in the top three of all four U.S. DOT customer satisfaction metrics: on-time performance, baggage delivery, fewest customer complaints and fewest denied boardings.

In a recent meeting, questions included, "What are you doing to keep unions out?" "What plan do you have for day care for children of Continental employees?" "What additional steps do we need to take to win the J.D. Power Award in 1997?" and "During the winter months, why don't we fly into more big ski areas?" The top 30 to 50 questions and answers are then reprinted in a follow-up Continental Q & A newsletter, with nearly 40,000 copies distributed to the workplace.

Once a month, Bethune and Brenneman also host an open-house session at headquarters during which any employee can come in and visit them. In addition, Bethune has a policy that if an employee calls, he calls him back. If an employee writes, he writes her back. The change in the top executives has made employees more trusting now.

"They know if we've got good news to tell, we're gonna tell them. If we've got bad news to tell, we're gonna tell them," says Walker.

But communication isn't just top-down. Toll-free numbers for employee suggestions and comments are also de rigueur at Continental. Employees have a special number-as do customers-to register complaints and suggestions. Since its inception, employees have offered more than 16,000 suggestions for changes. The company will even tap an extra line for a special issue. For instance, at the end of 1996, Continental was getting ready to review its employee travel privileges, so it opened a special number and asked employees to call with their thoughts.

Walker says this inclusion helps executives justify their decisions-they can never be accused of ivory tower commandments. "If an employee comes out a year from now and says, 'Golly, why do we do it this way?' part of our response can be, 'Because that's what the majority of employees want.'"

Key to a turnaround: Make sure HR turns around too. As the company as a whole embarked on its drastic revamping, so did the HR department. To begin with, based on the 1994 survey in which 3,000 employees ranked HR in the bottom of the 50th percentile for service, the HR executives completely restructured the HR group, placing people in new assignments in new areas. By May 1995, 70 percent of HR professionals at Continental were in new positions within HR.

One of the major changes was the decentralization of HR. Approximately 90 percent of the HR function was centralized before the shift; after the shift approximately 60 percent of HR professionals-55 to 60 people-moved to field locations, like the company's Newark or Cleveland hubs.

The HR executives didn't just reassign HR people where they needed more bodies, but placed people where certain skills were needed. For instance, the corporate director of development and training was well-known for his skills in creating competencies and collaboration. However, in a corporate position, this skill wasn't put to much practical use. After transferring to a position as the HR director for all of Continental's field services group, he was able to put his knowledge to work.

The dispersal of HR meant more employees had live access to HR professionals. To give employees even more control, human resources teamed with the Houston branch of consulting company Hewitt Associates to create a benefits center. The HR professionals were relieved when Hewitt signed on. "There weren't a whole lot of consulting companies that wanted to talk to us," says Carrig. "We'd lost $200 million in 1994; we had a reputation of taking everything from employees."

Hewitt did sign on, and today, employees need only ring up a toll-free number, input the category of their question-from 401(k)s to prescription information-and they're transferred immediately to the right source.

HR executives also retooled their training curriculum for front-line managers. They identified their core competencies as "maximizing performance," "leading change" and "focusing on the customer." If an employee were going to attend a training workshop at Continental, it would be in one of those areas. In 1994, the company had offered 48 training courses, with an anemic attendance of 200 people. In 1996, after executives trimmed the courses down to seven, all under the core competencies, 5,000 people attended.

Carrig admits that during all these changes, HR costs increased over prior years. For example, HR professionals knew the function couldn't remain manual-it had to have a human resources information system. The cost was approximately $5.5 million, and the company is still carrying through the updating. In the long run, however, the system will be more user-friendly for employees and will allow front-line managers to shed their administrative work in exchange for more time coaching employees and helping customers.

Even with such additions, Continental's HR expense vs. total expense is in the 95th percentile-largely helped by HR's 1-to-300 HR-employee ratio, in an industry in which a ratio of 1-to-100 is the average.

HR must be doing something right: In a recent employee survey, in 20 different human resources areas, HR received standard or above reviews in 18 areas. "The HR function has done a good job of impacting the firm, and it's clear the line executives at Continental understand and appreciate the role HR has played in the turnaround," says Cornell's Wright.

To keep the company on its new, successful path, part of the bonus for all directors and their superiors is based on an employee survey. Employees rate their bosses on such topics as how well the employees know the Go Forward plan as a result of their boss's efforts and whether their supervisor treats them with dignity and respect. A third-party consulting group evaluates the simple 10-question survey, and executives' bonuses rise or fall accordingly.

Continental is now sitting pretty in the airline industry. After ranking in last place among the big 10 airlines in 1993 and 1994, it now earns consistently high ratings. In 1997, for the second consecutive year, Continental was ranked as the No. 1 major airline in customer satisfaction for flights of 500 miles or more in a study by J.D. Power and Associates.

The achievement in quality translates into equally impressive monetary figures. In 1995 the company made a profit of $224 million, and in 1996 it more than doubled that. The two years represent the most profitable years in the airline's 63-year history.

Just as important is the new attitude of Continental's employees. After a decade-long dip, morale is back up. Employees no longer cringe when their airline is mentioned. And they certainly aren't ripping the logos off their shirts anymore: In 1996, sales of logo items at the company store were up 400 percent.

Workforce, July 1997, Vol. 76, No. 7, pp. 72-78.