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, and the result is likely to be higher fares and fewer choices for travelers.
Continental Airlines became the latest US carrier to announce cutbacks, saying on Thursday it would 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.
The Houston-based airline said recent fare hikes had not covered the cost of fuel, which has nearly doubled in the past year.
Continental estimates it will spend US$2.3 billion more on fuel this year than last — a difference of US$50,000 per employee. Fuel has surpassed labor as Continental’s biggest expense.
In a memo to employees, Continental chief executive Lawrence Kellner and president Jeffrey Smisek said 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 to be handled through voluntary buyouts to limit layoffs.
They didn’t rule out more job losses.
Kellner and Smisek said they would not take salaries or incentive pay the rest of the year.
In a regulatory filing, the company said that Kellner, who was paid a salary of US$712,500 last year, would get US$296,875 this year and Smisek’s salary would be reduced to US$240,000 from US$363,300.
Kellner’s total compensation last year was valued at nearly US$6 million, according to an Associated Press analysis, although about one-third was in stock and option grants that are now worth far less than they were when granted in February last year because of the slump in the company’s stock.
Many analysts consider Continental to be the healthiest of the six big network carriers, a group that excludes low-fare Southwest Airlines Co.
But that did not make Continental immune from cuts — the airline still lost US$80 million in the first quarter after earning 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,” he said.
Continental is the latest airline to make sharp cutbacks.
On Wednesday, UAL Corp’s United Airlines, the No. 2 US carrier, announced it would cut up to 1,100 more jobs, ground 70 airplanes and drop its coach-only service, named Ted.
Two weeks ago, AMR Corp’s American Airlines, the nation’s largest airline, said it would cut capacity by between 11 percent and 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 Inc said in March it would cut US capacity about 10 percent in the second half of this year. Northwest Airlines Corp, which Delta is buying, has announced smaller reductions and a Northwest spokeswoman said further moves were being reviewed.