Case Study: Continental Airline's Tech Strategy Takes Off - ' Worst to First '
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Worst to First
Continental may be faring better than its competitors, but it certainly hasn't been immune to the pressures of the day. "The airline business is a roller-coaster ride," says Continental Vice President and CIO Ron Anderson-Lehman. "It goes up and down, feast or famine." Not surprisingly, Anderson-Lehman says the most recent famine began after Sept. 11, when air travel nearly ground to a halt. Continental trimmed flights by 20 percent and furloughed 12,000 workers, almost one-fifth of its entire workforce (they were eventually rehired). Then came the outbreak of SARS in the spring of 2003, which decimated every airline's Asia-Pacific business, and "masked the effect that low-cost carriers were having on the industry," says Anderson-Lehman.

To boost revenues and keep the public flying, virtually all carriers (except Continental) cut airfares dramatically. The average domestic fare in 2005 was 16 percent less than in 2000. It was a short-term solution that backfired. Though ticket sales did increase—airlines saw record-breaking carrier loads in 2005—so, too, did oil prices.

"The average price of jet fuel rose 137 percent," between 2000 and 2006, says John Heimlich, chief economist of the Air Transport Association. Fuel that cost 82 cents per gallon in 2000 now goes for $1.95; and fuel now accounts for as much as 30 percent of an airline's operating costs (up from 15 percent just two years ago.) As a result, nearly all U.S.-based international carriers have reduced flights, abandoned routes and canceled orders for new planes. Some have even resorted to removing pillows from flights and stripping paint off their planes to reduce weight and conserve fuel.

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Continental has yet to resort to such drastic measures—it still serves meals on every flight, and its planes still sport the company logo. In fact, Continental actually expanded its routes last year, by 34 percent, and now serves 288 destinations from its hubs in Newark, N.J., Houston, Cleveland and Guam—more than any other airline in the world. Its commitment to customer service has helped earn the carrier numerous awards, most recently from Fortune magazine, which for the third consecutive year named Continental the No. 1 most admired global airline. So how is Continental managing to expand and succeed at the same time its competitors are struggling to keep the lights on?

Finding the answer means looking to the past, when Continental wasn't so highly regarded. In the early 1990s, it ranked at the very bottom of the list of airlines assessed by the U.S Department of Transportation, and routinely received low marks for customer service. And Continental's IT operations were a mess: Systems were so siloed that it was impossible to track a customer whose itinerary included more than one stop. Some customers took advantage of the disjointed systems by calling different departments with the same complaint—the company had 45 different CRM systems—and requesting compensation from each one. Such fraudulent claims cost the airline roughly $5 million each year. Worst of all, the carrier had no way to determine who its most important customers were. "We associated a name with a seat on the plane, but that was about the extent of the information we kept," says Anderson-Lehman.

Company executives knew that the fickle, low-cost consumer would never be their bread and butter—they tend to jump from carrier to carrier to find the cheapest fare, and Continental wasn't about to cut prices. Instead, the company decided to concentrate on attracting a loyal group of frequent fliers who would be willing to pay more for superior customer service. Under the leadership of then CEO Gordon Bethune (he retired in 2004), Continental slowly reinvented itself under a strategy dubbed "Worst to First." Bethune upgraded the company's fleet of aircraft and reorganized its management structure. (For example, annual bonuses for upper management are now determined by their underlings' assessment of their performance—a practice that corporate executives claim greatly eases labor relations.) Bethune launched new service routes, and the ad campaign that has become the company's mantra: "Work Hard, Fly Right."

Story Guide:

Continental Airline's Tech Strategy Takes Off

Worst to First

First to Favorite

Luring New Customers

Final Destination

Sidebar:

Continental's Wireless Plan on the Wing

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