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November 1, 2005

Anticipate Volatility

Volatility is like the weather. It’s always there and it’s always changing. Say your flight takes off for San Francisco where the weather forecast says clear and sunny. Instead, it turns to heavy fog. You deal with it. If the pilot can’t land in San Francisco, he’ll land somewhere else.

In a competitive marketplace, volatility like that affects everybody. When it’s raining, it’s raining on all of you.

My take on anticipating volatility is pretty straightforward. No one has enough time to figure out all the stuff that’s going to happen. What you need to do, for a start, is to be “physically fit.” In a business sense, that means to be mentally alert, educated and know your business. Volatility is best managed by being really good at what you do.

Over the years at Continental, there were all kinds of trauma, including a hostile takeover attempt by Delta. But in my life, and certainly in the airline industry, 9/11 was an event that turned the place upside down. The country wasn’t prepared for 9/11. How could you think the unthinkable?

Fortunately, we had prepared ourselves as a company. When I became CEO in late 1994, we were on the brink of bankruptcy. Had 9/11 happened then, we probably would have failed.

In 1995 we set up the Daily News Update for our 40,000-plus employees. It covered how our stock did, what our on-time performance was, who did what in our industry and in our company. It was posted at 700 or 800 bulletin boards around the world and transcribed into a voice mail with an 800 number access. We also automated it into email so it would pop up
on your computer screen.

Then every week, for 10 years, I recorded a briefing from the CEO—what I’m going to do next week, what the company is faced with. And it went to everybody by voicemail—also transcribed to email and to bulletin boards.

When 9/11 happened, when the FAA grounded air transportation in the country, we had 150-plus airplanes in the sky, all of which were directed to land at the nearest available airport. We had people everywhere.

We had the same anxieties as the rest of the public. Our flight crews wanted to know what was going to happen. And because of the Daily News and my weekly briefing, they knew exactly where to call. We logged in thousands of calls on the 800 number. We updated that recording five times that day and five times the next day with messages like, “We’re working with the FAA. We’ve got a plan. It won’t be until tomorrow, but we know where you are.” It was reassurance that the world isn’t coming down, we’re still alive, the government’s working with us to get you home.

It’s called a culture of being ready. The first time you suffer an engine failure, you’ve already practiced that a million times.

That ties right into dependability and reliability. Whether you’re dealing with your bank or your airline, you want consistent, dependable reliability. When you treat customers in a consistent, reliable way, you gain market. When you treat your business partners in a consistent, reliable way, you gain credit-worthiness. When you treat your employees in a consistent, reliable way, you gain trust.

All of that has tremendous value.

Another word about employees: If you’re consistently open and honest with your employees, then when you have to say, “Hey, the sky is falling and we all have to give up 10% or 15% of our money to stay alive,” they know it’s true. Even though Continental just went through a huge concession issue, you didn’t read about strikes. When employees are kept abreast of what’s happening in the company and in the industry every day, they can look at the storm clouds and know it’s probably going to rain. And if it’s raining in Atlanta and it’s raining in Dallas, they’ll know we might get rained on, too. Adults don’t need to be coddled, they need to be dealt with openly and honestly, and feel like part of the equation.

It creates a team approach—that’s what Continental always fostered—a team, not a family. We have our assignments, I do what I do, you do what you do, and together we all win or all lose.

That includes taking on price competition. Low-cost competition has been with us forever. It’s in every business and every industry. Low-cost airlines have only one thing to differentiate them—the price. If you match the price, they have no advantage. If your problem in matching the price is to adjust your costs so you can sustain that price, that’s your problem.

After 9/11, unlike our competitors, who in an effort to cut costs, quit making sales calls, we redoubled them. We sent our captains with our sales people to call on corporate accounts. I personally went and visited large corporate accounts and let them know what we were doing to make our airplanes safe. We let them know what the airports and the FAA were doing to make the system safe. We made sure they didn’t have to worry about us.

If you look at the second quarter of this year, only two legacy airlines made a profit—American and Continental. The airline industry today isn’t very pretty. But there are winners. Is Continental profitable today? No. But it is a whole lot closer to being profitable than all the rest. Who do you think is going to survive? It’s the guy who can hold on the longest in the marketplace.

What makes Continental more resilient and better able to respond to volatile events is our culture, our product integrity, our route network and all the things we did to strengthen ourselves. If you have a product with the highest integrity and you’ve done all the things you know to do to take on the competition, then whatever hits you is going to hit everybody and you’ll probably beat them.

Gordon Bethune is the former chairman of the board and CEO of Continental Airlines Inc. and the author of Worst to First; Behind the Scenes of Continental’s Remarkable Comeback.