Continental jettisons jobs, flights to cope with fuel costs

If you know someone who works for Continental Airlines — and if you live around here, we're pretty sure you do — they might need some consoling soon. The Houston-based carrier announced this morning that it will cut 3,000 jobs and slash domestic capacity by 11 percent, a response to the rising fuel prices that are wreaking havoc throughout the airline industry:

"While there have been several successful fare increases, those increases haven't been sufficient to cover the rising cost of fuel," [Continental CEO Larry] Kellner and [President Jeff] Smisek told workers. "As fares increase, fewer customers will fly. 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."

The job cuts represent 7 percent of Continental's 45,000-member workforce; most of the cuts will come as the airline begins taking planes out of service after the summer travel season, though some management and clerical positions could be affected sooner. (Kellner and Smisek, incidentally, will decline their salary and bonuses for the rest of the year — and at least in Kellner's case, that'll free up a few extra bucks.) The decrease in capacity means Continental will take 31 of its 375 planes out of service by the end of next year, including the inefficient Boeing 737-300 and 737-500 jets. Details of the flights to be cut will come next week.

Current fuel prices mean Continental will pay $2.3 billion more to keep its planes in the air than it did in 2007, a figure that works out to $50,000 per employee and helped push the airline to an $80 million first quarter loss. As the execs said, the rising cost of fuel means an increase in ticket prices, which means fewer people can travel, which means a lot of flights are suddenly losing money — it's the same set of circumstances that led United to announce its own set of cuts (1,600 management employees, 100 planes and its budget label, Ted) yesterday. Just a few weeks ago, Continental cut off merger talks with United, saying it worried that the merger might drag Continental down; at that time, Continental was still expected to pursue an alliance with American and British Airways, but it's not clear whether that's still the case.

It's also not clear exactly what impact the Continental cuts will have on Houston — but considering that the airline is one of our biggest employers, we imagine the city is going to feel them.