Project for Strategic marketing class I took at SUNY Buffalo State.

1. Continental Airlines:
Salvaging from the
Ashes

3. After
getting an
MBA from
Harvard,
Lorenzo’s
first job
was as a
financial
analyst at
Trans
World
Airlines.

4. In 1966, Lorenzo and a friend from Harvard, Robert Carney
formed an airline consulting firm.
The two put together $35,000 to form Jet Capital.
Through a public stock they were able to raise an additional
$1.15 million.

5. In 1971 Jet Capital was
called in to fix ailing
Texas International and
wound up buying it for
$1.5 million.
Lorenzo became CEO.
He restructured the
debt as well as the
airline’s routes, found
funds to upgrade the
almost obsolete planes,
and brought Texas
International to
profitability.

6. In 1978, acquisition-
minded Lorenzo made
$40 million on the
National stock he had
acquired.
In 1980 he created non-
union New York Air and
formed Texas Air as a
holding company.
In 1982 Texas Air bought
Continental Airlines for
$154 Million.
1978 1980 1982

7. In 1983 Lorenzo took Continental into
Bankruptcy court. This permitted the
corporation to continue operating but spared
its obligation to meet heavy interest
payments and certain other contracts while it
reorganized as a more viable enterprise.
The process nullified the previous union
contracts, and this prompted many union
workers.

8. In 1986, Lorenzo struck deals for a weak Eastern
Airlines and a failing People Express/Frontier
Airlines.

9. That same year, Continental emerged
out of bankruptcy.
Now Continental, with its nonunion workforce making it a
low cost operator, was Lorenzo’s shining Jewel.

10. In 1986, Lorenzo instituted a program of extreme downsizing and in
1989 8,500 machinists along with 3,800 pilots went on strike.
At first Eastern appeared to be successfully weathering the strike,
while Continental benefited with increased business. But soon
revenue dropped drastically with Eastern planes flying less than half
full amid rising fuel costs.
Then, on January 16th, 1990, an Eastern jet sheared the top off a
private plan in Atlanta, Georgia. Even though the accident was
attributed to air controller error, Eastern’s name received the
publicity.
Bankruptcy was declared once again and with that, Lorenzo was
gone.

11. In 1993, under the direction of Robert Ferguson, the
courts approved a reorganization plan for
Continental to emerge from bankruptcy.
Continental was the first airline to have survived two
bankruptcies.
Despite its long history of travail and a terrible profit
picture, Continental was still the nation’s fifth largest
airline behind American, United, Delta, and
Northwest, and it served 193 airports.

12. A devastated reputation proved to be a
major impediment. For years,
Continental had difficulties wooing the
better paying business travelers. Being
on expense accounts, they wanted
quality service rather than cut-rate
prices.
A reputation for good service is not
easily achieved, especially when the
opposite reputation is well entrenched
in people’s minds.

14. Domestic airlines lost a
staggering $8 billion
from the years 1990-
1992 due to Fare wards
and excess planes. Even
when planes were filled,
discount prices often did
not cover overhead.

15. Airlines such as Continental with heavy debt
and limited liquidity had two major concerns:
1. How fast could the country emerge from
this recesion?
2. The risk of fuel prices escalating in the
years to come.
But not all hope was lost…

17. In February 1994 Gordon
Bethune took over as the
president and chief officer of
Continental.
In 1995, He greatly improved
on-time performance along
with lost baggage claims and
customer complaints.

18. Customers began returning,
especially the higher-fare
business travelers climbing from
32.2 % in 1994 to 42.8% in 1996.
1994 1995 1996

19. In addition to improving the quality of service for the
customers, workers were happier than ever.
Bethune had transformed the workforce into a happy
one, as measured by the following statistics:
Wages up an average of 25 percent
Sick leave down more than 29 percent
Personnel turnover down 45 percent
Workers compensations claims down 51 percent
On-the-job injuries down 54 percent

20. As the airline Industry moved into the
new millennium, external
circumstances negatively impacted
the entire industry.
The 9/11 disaster of 2001 had a
profound impact on the airline
corporations.

21. Gordon Bethune retired in 2004,
but his legacy with Continental
remained.
In 2006 awards continued to be
showered on the airline.
A few years later, Continental and
United Airlines merged to
become one of the world’s largest
carriers. They are still thriving
today.