Airlines are cutting jobs, mothballing planes and reducing flights as they battle record fuel costs that have pushed the industry to its...
DALLAS — Airlines are cutting jobs, mothballing planes and reducing flights as they battle record fuel costs that have pushed the industry to its worst crisis since 2001. The result is likely to be higher fares and fewer choices for travelers.
Continental Airlines became the latest carrier to announce cuts, saying Thursday it will shed 3,000 jobs — more than 6 percent of its work force — and reduce capacity by 11 percent this fall.
The company said its two top executives will forgo pay the rest of this year.
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The airline said recent fare increases have not covered the cost of fuel, which has nearly doubled in the past year.
Continental estimates it will spend $2.3 billion more on fuel this year than last — a difference of $50,000 per employee. Fuel has surpassed labor as Continental’s biggest expense.
In a memo to employees, Chief Executive Lawrence Kellner and President Jeffrey Smisek said that at current fuel prices, Continental is losing money on “a large number of our flights.”
As fares rise, fewer people will fly, and “we will need fewer employees to operate the airline,” they said.
The executives said they expect most of the 3,000 job cuts will be through voluntary buyouts to limit layoffs. They didn’t rule out more job losses.
Kellner and Smisek said they will not take salaries or incentive pay the rest of the year.
Many analysts consider Continental to be the healthiest of the six big network carriers, a group that excludes low-fare Southwest Airlines.
But that did not make Continental immune from cuts. The airline still lost $80 million in the first quarter after a profit last year.
“If they did not do it, they would be irresponsible,” said Ray Neidl, an analyst with Calyon Securities.
“At current fuel prices, the old economics do not work. Ticket prices have to rise dramatically, and the only way that can be achieved is by sharply reducing capacity,” he said. “The whole industry has to show this discipline, or some big airline will have to go out of business.”
Continental is the latest airline to make sharp cuts.
On Wednesday, United Airlines announced it would cut up to 1,100 more jobs, ground 70 airplanes and drop its coach-only service, named Ted.
Two weeks ago, American Airlines, the nation’s largest airline, said it would cut capacity 11 to 12 percent after the peak summer-travel season and probably eliminate thousands of jobs, though it hasn’t given an exact figure.
Delta Air Lines said in March it would cut U.S. capacity about 10 percent in the second half of 2008. Northwest Airlines, which Delta is buying, has announced smaller reductions, and a Northwest spokeswoman said further moves were being reviewed.
Philip Baggaley, an analyst with Standard & Poor’s, said capacity cuts would help, but “we still forecast heavy losses for most airlines this year.”
Fewer flights will inevitably lead to higher prices, most in the industry believe.
The biggest U.S. airlines have already raised fares about a dozen times since December, with some of the sharpest increases reserved for nonstop flights that let travelers avoid changing planes at crowded hub airports.
Airlines typically cut fares in the fall to spur ticket sales when school is back in session and family vacations are over. That’s likely to remain true this fall, even with Continental, American and United offering far fewer flights, experts say.
“They’ll always discount for the fall even if they have less seats,” said Rick Seaney, chief executive of price-watching Web site FareCompare.com. “But you’re going to see more targeted restrictions, like minimum stay-overs, to prevent business travelers from getting cheap fares.”