Will Ground 67 Older 737s; 3000 Positions To Be Eliminated

In a release to the airline's more than 45,000 employees Thursday, Continental Airlines CEO Larry Kellner and president Jeff Smisek announced the carrier plans to eliminated 3,000 jobs in the coming months, and will ground 67 aircraft from its mainline fleet.

"We've always said that you deserve open, honest and direct communication," the letter states. "The airline industry is in a crisis. Its business model doesn't work with the current price of fuel and the existing level of capacity in the marketplace. We need to make changes in response."

Kellner and Smisek said despite several recent fare increases, those hikes still have not been sufficient to cover rising fuel costs... especially as normal attrition becomes a factor. "As fares increase, fewer customers will fly," the letter states. "As fewer customers fly, we will need to reduce our capacity to match the reduced demand. As we reduce our capacity, we will need fewer employees to operate the airline."

Airline managers will meet with employees over the next week, and Continental hopes most of the layoffs will be accomplished through voluntary separation agreements. The 3,000 jobs cut will include a number of management positions, Kellner said; as a show of solidarity, both Kellner and Smisek have declined their salaries throughout the rest of 2008, as well as any annual incentive payments.

"Although these changes will be painful, we must adapt to the reality of today's market to successfully navigate these difficult times," the letter states. "We regret the loss of jobs caused by this crisis, and we will do our best to minimize furloughs and involuntary terminations."

Continental will begin reducing capacity in September, at the end of the peak summer travel season. The carrier aims for an 11 percent reduction in domestic mainline capacity in the fourth quarter; Continental says it will provide details on specific flights and destinations to be culled "by the end of next week."

Following a plan similar to that unveiled by United Airlines earlier this week, capacity cuts at the Houston-based airline will be accomplished through the accelerated retirement of its Boeing 737-300 and 737-500 fleets. Continental will retire an additional 67 Boeing 737-300 and 737-500 aircraft, with 37 of these additional retirements occurring in 2008 and 30 in 2009.

The airline added it will continue to take delivery of 34 new 737-800s and 737-900ERs from Boeing, a measure Continental expects will improve its overall fuel efficiency "measurably" over the less-efficient models those planes will replace.

By the end of the second quarter of 2008, Continental will operate 375 mainline aircraft. Taking into account both the accelerated retirements and scheduled deliveries, Continental's fleet count will shrink to 356 aircraft in September 2008 and 344 aircraft at the end of 2009.

FMI: www.continental.com