DALLAS - Continental Airlines said today that it is cutting 3,000 jobs and reducing capacity by 11 percent, citing record fuel costs that have pushed the industry into its worst crisis since 2001. It also said its two top executives will forgo pay for the rest of the year.
The job cuts represent about 6.5 percent of the company's work force of 45,000.
Houston-based Continental said it will begin pulling back on flights in September, when departures on its mainline operations will drop about 16 percent below September 2007 levels. Fourth-quarter capacity will fall 11 percent.
Shares of Continental rose 68 cents, or 4.7 percent, to $15.18 in the opening minutes of trading.
The company also said chairman and chief executive Lawrence Kellner and president Jeff Smisek will not take salaries or incentive pay for the rest of the year.
Last year, Kellner got a salary of $712,500 and total compensation that the company valued at nearly $6 million, down 9.3 percent from the year before, according to an Associated Press analysis of a company filing with the Securities and Exchange Commission.
However, about one-third of Kellner's compensation was in stock and option grants that are now worth far less than they were when granted in February 2007 because of the slump in the company's stock. In a filing yesterday, the company said 2008 salaries would be $296,875 for Kellner and $240,000 for Smisek.
Continental becomes the latest airline to make major cuts as the carriers try to cope with record high fuel prices, which have nearly doubled in the past year and pushed Continental to a loss of $80 million in the first quarter.
Yesterday, UAL Corp.'s United Airlines, the nation's No. 2 carrier, announced that 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 11 percent to 12 percent after the peak summer travel season and probably eliminate thousands of jobs, though it hasn't given a figure.
In a statement, the company said it plans to offer details on flight and destination reductions and eliminations by the end of next week.
Fewer flights will also mean fewer planes. By the end of the second quarter, Continental will operate 375 mainline aircraft and it plans to mothball 67 planes through 2009. It has already pulled six planes this year.
The company said that several fare increases have not been enough to offset the rising cost of fuel. Continental estimates it will spend $2.3 billion more this year than last - a difference of $50,000 per employee. Fuel has surpassed labor as Continental's biggest expense.
The executives said they expect most of the job cuts will be handled through voluntary buyouts to limit layoffs. They said they didn't plan to cut wages or benefits, including 2 percent raises in July, for remaining employees. And they left open the possibility of more job cuts.
Many analysts consider Continental to be the healthiest of the six big network carriers, excluding low-fare Southwest Airlines Co. But that did not make it immune to cuts.
"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 becomes the latest airline to make sharp cutbacks.
Some analysts have called on U.S. carriers to shrink about 20 percent to cut spending on fuel and labor. Industry executives say that would also drive up fares as passengers compete for fewer seats in the air. It could also mean the reduction or elimination of service to some smaller airports.
Continental was in advanced talks to combine with United, which would have created the world's largest airline. But Continental walked away from the deal in April as oil prices soared and the industry's outlook slumped.