Continental Airlines today revised its capacity forecast for this year and next, joining two of the largest U.S. airlines in steep seat withdrawals, employee reductions and fleet retirements—all to cope with the unrelenting fuel environment.
Continental in September plans to initiate its latest round of capacity reductions, expecting fourth-quarter mainline domestic departures to be down 16 percent from the same period last year, with domestic seat miles reduced by 11.4 percent from that time. Continental said it would give more detail next week on specific flights and destinations. The carrier next year plans to further slash available seat miles, targeting reductions of up to 5.4 percent from full-year 2008.
Continental said it is removing the least-efficient aircraft from its network, retiring the Boeing 737-300 and 737-500 fleets. In addition to six of those aircraft already removed this year, Continental plans to take out an additional 37 by the end of the year and another 30 next year. Taking delivery of 16 new—and more fuel-efficient—versions of those aircraft, Continental said it would end 2008 with a total fleet of 354 aircraft.
"The airline industry is in a crisis," CEO Larry Kellner and president Jeff Smisek told employees in a memo today. "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—both of whom declined salaries for the rest of the year—spelled out the industry logic: higher fuel means higher fares, higher fares mean fewer passengers, and fewer passengers means fewer seats. That, in turn, means 3,000 fewer employees "including management positions" at Continental this year. Continental said it would embark on "voluntary and involuntary separations, with the majority expected to be through voluntary programs." Continental said it soon would release further details.
Continental's announcement of capacity cuts follows similarly dramatic reductions announced by American Airlines
(BTNonline, May 21) and United Airlines
(BTNonline, June 4).